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Session 9
Non-tariff Barriers to Imports
The Effect of an Import Quota underCompetitive Condition (Small Importing Country)
World Price
Import with free trade
Quota will increase the supply
Domestic price with quota
Domestic supply increased by quota
Domestic demand decreased by quota
Quota
Sd +Qq
Gainers and Looser
World PriceDomestic price with quota
Decreased Consumer Surplus
Increased Producer Surplus
Extended Effect of an Import Quota
Depends on how a nation allocate quota
Deadweight Loss
Sd +Qq
Ways to Allocate Import Licenses1.Fixed Favoritism
The government simply assigns the licenses to firms (and/or individual) without competition, application or negotiation.
The importers can take an advantage by resellingthe imports at the higher domestic price.
Sd +Qq
2.Auction
The government sell import to licenses on a competitive to the highest bidders.
The importer and the governmenttake the advantage from the import quota.
Sd +Qq
The importer take the advantage from the import quota.
The government take the advantage from the import quota.
3.Resource-using Procedures
The government sell import to licenses to the importer(s) on the basis of demonstrating need or worthiness; or on the basis of negotiation.
The selected importer take the advantage from the import quota.
The importer take the advantage from the import quota.
The government take the advantage from the import quota.
When the License Also Charged
When the Bribe Play Role
With bribe, the importer take the advantage from the import quota.
Bribe ( go to individual)
The Effect of an Import Quota underCompetitive Condition (Large Importing Country)
Initial World Price World Price with quota policy
Quota will increase the supply
Domestic Price with quota policy
Quota
Decreased Consumer Surplus
Increased Producer Surplus
Deadweight Loss
Sd +QqExtended Effect of an
Import Quota
Gainer and Looser
1.Fixed Favoritism
2.Auction
3.Resource-using Procedures
Other Non-tariff Barriers
1. Voluntary Export Restraints (VERs)
2. Product Standards
Genetically Modified Organism
3. Domestic Content Requirements
4. Government Procurement