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Concept of Protection
Competitiveness and protection of the home economy have an inverse relationship Conflict between an efficient economic development/growth (the goal) and protection policy (as one of the instruments) because protection policy instruments: divert commodity flows from more efficient (foreign) to less efficient (domestic) supply sources divert flows of production factors (capital and labor) from less protected to more protected (and hence more privileged) sectors.
1. 2.
Trade protection represents a social cost and will in the end run always burden the home economy and public regardless of whether the cost is covered by domestic (more efficient sectors) or foreign sources (foreign debt).
Increasing the protection of certain sectors should become a norm only in cases when the sector has potential given cheaper production factors and other sources to become internally and externally competitive after a given period of time.
Consumption effect domestic consumption of the commodity decreased by q3q4; Production (or protective) effect domestic output increases by q1q2; Import effect imports decrease by an amount equal to the sum of the two previous effects, that is for q3q4+q1q2;
Fiscal revenue effect fiscal revenue for the government of the levying country calculated by multiplying the per unit tariff by the imposed quantity, that is t*q2q3, which equals area c;
Redistribution effect since price has increased, there is a redistribution of income from consumers to producers.
Consumer surplus decreases for area AEFH (sum of a+b+c+d) Increase in fiscal revenue (area c) Increase in producer surplus JGH - JBA = ABGH, which equals area a
1.
2.
Net costs of imposing a tariff: production costs: area b represents social costs of inefficient allocation of production factors caused by the imposition of tariffs consumer costs: the imposition of the tariff causes an increase in the relative price of the imported goods, this causes consumers to relinquish a part of their consumption (d) of the good.
Exchange Controls
Controls that restrict the flow of foreign currency through
1. Blocked Foreign currency accounts for exports. 2. Using fixed exchange rates that are favourable for the home country rather than the importer.
2. Limiting profit Remittances for example, to 15% of accumulated capital per year 3. Prohibiting royalty payments to parent companies, thus stopping the latter from taking out capital.
Quantity Limits
Orderly Marketing Agreements [ OMA] - International compacts negotiated between two or more governments, in which the trading partners agree to restrain the growth of trade in specified "sensitive" products, usually through the imposition of export quotas.
* Voluntary Export Restraint [ VER] - Arrangements through which exporters voluntarily restrain certain exports, usually through export quotas, to avert the possible imposition of mandatory import restrictions. In General business, would rather be protected by quotas than by tariffs because Under quotas, if future domestic demand is known, businesses can determine their future production level.
Under tariffs, domestic producers must estimate the elasticity of demand curve for imported products & the future movement in world prices, which is a more difficult challenge.
Country
United States
Item
Marine products
Details of NTM
Increased inspections under the Bio-Terrorism Act, Customs Bond requirement, Mandatory labeling discriminating farm raised and wild with punitive fines and nonrecognition of EIC certification. Non scientific quarantine restrictions, customs surcharges, eco labeling stipulations and food safety/ health standards exist on paper products exports. A TRQ regime restricts imports.
United States
Paper products
United States
Tobacco
Russia
Meat products
Standards for bovine meat are more stringent than the OIE Terrestrial Animal Health Code, EIC Conformity certificates are not recognized and Certification with respect to swine fever and FMD are insisted upon for poultry exports which are not relevant.. The Registration, Evaluation and Authorisation of Chemicals (REACH) legislation increases cost of compliance by 85,000 to 325,000 per chemical.