International Economics

By Robert J. Carbaugh
9th Edition

Chapter 5:
Nontariff Trade Barriers

Copyright ©2004, South-Western College Publishing

Types of non-tariff barriers

Non-tariff Trade Barriers

 import quotas,
 voluntary export restraints,
 subsidies, and
 domestic content requirements.

Carbaugh, Chap. 6 2
Types of non-tariff barriers

Import quotas
 Quotas are a restriction on the quantity of a
good that may be imported in any one period
(usually below free-trade levels)
 Import License
 Global quotas restrict the total quantity of an
import, regardless of origin
 Problems
 Selective quotas restrict the quantity of a good
coming from a particular country
 Problems
 Monopoly and Prices (vs. Tariffs)
Carbaugh, Chap. 6 3
Types of non-tariff barriers

Allocating Quota Licenses

 Historical Market Share
 Pro rata Basis
 Auctioning

Carbaugh, Chap. 6 4
Types of non-tariff barriers

Quotas vs Tariffs
 Protectionism (Volume of Trade)
 Impact on Price

Carbaugh, Chap. 6 5
Types of non-tariff barriers

Tariff-rate Quota
 The tariff-rate quota is a two-tiered tariff
 A specified number of goods (up to the quota limit)
may be imported at one (lower) tariff rate, while
imports in excess of the quota face a higher tariff
rate
 Within-quota Rate and Over-quota Rate
 License on demand allocation
 First Come First Served
 Historical Market Share
 Auctioning
 WTO and Tariff-rate Quota

Carbaugh, Chap. 6 6
Orderly marketing agreements
‫اتفاقيات التسويق المنظمة‬
 Market sharing pact signed by trading
partners
 Intended to protect less efficient domestic
producers
 Usually involve voluntary export restraints,
or export quotas
 negotiated versus unilateral trade curbs
(Trade Wars)
 Recent trade negotiations have restricted
Carbaugh, Chap. 6 7
the use of these agreements
Types of non-tariff barriers

Domestic content requirements

 Domestic manufacturers of these products
purchase resources or perform assembly functions
outside the home country, a practice known as
outsourcing or production sharing.
 Advantages and Disadvantages
 Rules that require a certain percentage of a
product’s total value to be produced domestically
 Often has the effect of forcing lower-priced imports
to include higher-cost domestic components or be
assembled in a higher-cost domestic market

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Types of non-tariff barriers

Subsidies
 Help improve their trade position by providing domestic
firms a cost advantage
 Allows them to market their products at prices lower
than warranted by their actual cost or profit
considerations
 Examples: outright cash disbursements, tax concessions,
insurance arrangements, and loans at below-market interest
rates
 Domestic subsidy
 Payments made to import-competing producers to raise the
price they receive above the market price
 Export subsidy
 Payments and incentives offered to export producers
intended to raise the volume of exports

Carbaugh, Chap. 6 9
Types of non-tariff barriers

Dumping‫اإلغراق‬
 The practice of selling a product at a lower price in
export markets than at home (or exporting at prices
below production cost)
 Sporadic ‫ متقطع‬dumping - to clear unwanted inventories
or cope with excess capacity
 Predatory ‫ متوحش‬dumping - to undermine foreign
competitors
 Antidumping duties (margin of dumping)
 Persistent ‫ مستمر‬dumping - reaping greater profits by
engaging in price discrimination
 International Price Discrimination
 Home demand is less elastic than the foreign demand
 Antidumping Regulations
Carbaugh, Chap. 6 10
Types of non-tariff barriers

Other NTBs
 Government procurement policies
 Social regulations (health, environmental
and safety rules can also restrict trade)
 Sea transport and freight restrictions

Carbaugh, Chap. 6 11