Non-tariffs

Import quota definition and examples

• An import quota is a direct quantative restriction on the amount of a commodity allowed to be imported.

• The multifivre arrangement (MFA) allowing developed countries to impose quotas on imports of textile and apparel products from developing countries.

Import Quota in a small country

• Given an imoprt quota Q the country reduces imports from q1q2 to Q.

• Shift the supply curve out by the amout of quota as domestic supply will increase. (the world market supply decreases)

Welfare analysis of an import quota consumer

-(a+b+c+d)

Welfare analysis of an import quota producer

+a

Quota rent

Economic profit due to the price difference between the higher domestic price and the lower world price.

Who gets the profit related to the quota? Are import lisneces auctioned and do the government decide.

Difference between import quota and tariff.

• Tariff revenue os the revenue of the government, but the quota rents are not necessarily the government revenue.

• An import quota limits import to the specified level with certainity, while the trade effect of an import tariff may be uncertain, depending on elasticity.

• An increase in demand with a quota will lease to increases in domestic price and production, but for a tariff it keeps the domestic price the same and incrases the imports.

What is dumping

Dumping is, in general, a sitution of international discrimination, where exporting price is lower than its ‘normal value’, e.g. the price in domestic market.

One identifies dumping simply by comparing prices in two markets (exporting markey vs domestic market)

Why dumping?

• used as a strategy to acquire monopoly power and rasie the price in the future.

• Profit seeking with persistent dumping

Anti-dumping unfair advantage

• because of the lower price, dumping can cause unfair competition in the importing country and negative impacy on the industry of importing country.

• anti-dumping duties are the measures applied by an importing country to counter dumping.

Spotting dumping

• Export price is relativley easy to observe

• The normal value is sometimes not e.g. no domestic sales, sales in the domestic market of the exporter are made below cost.

• domestic price is disregarded if not in the ordinary course of trade and alternative calculation is used.

Alternative calculation of ‘normal value’

• the price at which the product is sold to the third country

• the ‘constructed value’ of the product which is calculated on teh basis of the cost of production, plus selling, general and administrative expenses and profits.

Anti Dumping graph and welfare

• price is increased to the level of domestic price.

• Consumer: -(a+b+c+d)

• Producer: +a

• Total welfare: -(b+d)

Evidence of anti-dumping duties

Evidence of anti-dumping duties

Example of Import quota effect

Dumping example