Midterm 2

• Nontariff trade barriers


  policies other than tariffs that restrict international trade
• Import quota


  limits the total quantity of goods that may enter a country within a given period of time (includes absolute quota and tariff rate quota)
• Absolute quota


  a physical restriction on the quantity of goods that can be imported during a specific time period
• Import licenses


  Licenses given to importers which permit them to import the product only up to a prescribed limit regardless of market demand
• Global quota


  permits a specified number of goods to be imported each year, but does not specify from where the product is shipped or who is allowed to import
• Global quotas are plagued by accusations of favoritism by merchants who are fortunate to be the first to capture a large portion of business.
• Selective quotas


  quotas that have been allocated to specific countries
• Quotas can also lead to a domestic monopoly of production and higher prices.
• Quotas are banned for WTO member countries as they are seen to distort the free effects of trade and are generally more harmful than tariffs.
• Governments usually allocate the limited supply of imports among domestic importers
• One method the U.S. government has done is to allocate import quotas on a pro-rata basis, where U.S importers receive a fraction of their demand equal to the ratio of the import quota to the total quantity demanded collectively by U.S importers.
• Another method is to auction licenses to the highest bidder.
• Tariff-rate quota


  has both tariff and quota characteristics

  a quota that defines the maximum volume of imports and charges the within quota tariff and an over-quota tariff
• License on demand allocation


  licenses are required to import at the within-quota tariff as enforced by US Customs. If the demand for licenses is less than the quota, it's first come, first serve.
• Voluntary export restraint agreement

  moderate the intensity of international competition, allowing less efficient domestic producers to participate in markets that have been lost to foreign producers
• Outsourcing


  Domestic manufacturers of these products purchase resources or perform assembly functions outside the home country
• Domestic/local content requirements


  stipulate the minimum percentage of a product’s total value that must be produced domestically if a firm is to operate in a country
• The effect of content requirements is to pressure both domestic and foreign firms that sell products in the home country to use domestic inputs in the production of those products.
• Subsidies


  Provides domestic firms a cost advantage by allowing them to market their products at prices lower than warranted
• Domestic production subsidy


  granted to producers of import competing goods
• Export subsidy


  goes to producers of goods that are to be sold overseas
• Domestic production subsidy is a subsidy given to domestic producers to encourage them to produce more.
• Protective effect


  more costly domestic output is allowed to be sold in the market as a result of the subsidy
• Export subsidy is a subsidy granted to exporters to encourage them to export more.
• Dumping


  A form of international price discrimination, occurs when fo reign buyers are charged with lower prices than domestic buyers for an identical product
• Sporadic dumping


  occurs when a firm disposes of excess inventories on foreign markets by selling abroad at lower prices than at home
• Predatory dumping


  occurs when a producer temporarily reduces the prices charged abroad to drive foreign competitors out of business
• Persistent dumping


  Producers may consistently sell abroad at lower prices than at home
• Antidumping duty

  Added. to the normal tariff in order to neutralize the effects of price discrimination or below cost sales
• Margin of dumping

  Calculated as the difference between the foreign market value and the U.S price
• Price based definition of dumping


  Occurs when a foreign company sells a product In the U.S market at a price below that for which the same product sells in the home market
• Social regulation


  Attempts to correct a variety of undesirable side effects in the economy relating to health, safety, and the environment
• Smoot-Hawley Act(1930)


  U.S average tariffs were raised to 53 percent on protected imports which tried to divert national demand away from imports and towards domestic goods
• Reciprocal Trade Agreements Act(1934)


  changed U.S policies by transferring authority from the Congress, which generally favored domestic import competing producers to the president (caused trade liberalization)
• Most favored nation(MFN) clause


  countries cannot discriminate between their trading partners participating in a trade agreement
• General Agreement on Tariffs and Trade(GATT)


  An agreement among member nations to decrease trade barriers and place all nations on an equal footing in trading relations (later turned into WTO)
• National treatment principle


  GATT members had to treat imported and domestically produced goods equally once the foreign goods entered the market
• Trade dispute


  Occurs when one member country enacts a trade policy measure or takes some action that one or more fellow members considers to be a violation of WTO agreements
• The WTO’s dispute settlement process

  Consultations, Dispute Panel and Appellate Body, and Retaliatory Tariffs
• Consultations


  A member country may consult with the other country who they feel are violating the WTO policies