Chapter 7The Instruments of Trade PolicyCasestudy The dog that did not bark is stirring restlessly in its sleep. Trade protectionism, emblematic of the destructive economic policies followed in the Great Depression of the 1930s, has been remarkably absent since the onset of the global financial crisis in 2008. But with high unemployment in the rich countries and renewed threats of economic weakness across the global economy, experts and policy makers are becoming less sanguine that the beast will remain deep in slumber. Global Trade Alert a monitoring service run by Simon Evenett, a professor at St Gallen university in Switzerland reported on Thursday that protectionist actions including tariff increases, export restrictions and skewed regulatory changes were much higher in 2010 and 2011 than previously thought, with many more in the pipeline.2 Global Trade Alert notes that, despite the G20s pledge in 2008 to maintain free trade, its member countries are collectively responsible for nearly 80 per cent of global protectionist actions this year, up from 60 per cent in 2009. The WTO says about 4 per cent of G20 trade is now affected by measures introduced since 2008. Mr Evenetts estimates are much higher, giving 10 per cent as an absolute minimum .- from Financial Times,2012-6-193IntroductionWhataretheeffectsofvarioustradepolicyinstruments?Whowillbenefitandwhowilllosefromthesetradepolicyinstruments?Whatarethecostsandbenefitsofprotection?Willthebenefitsoutweighthecosts?Whatshouldanationstradepolicybe?Useatarifforanimportquotaofsomethingelsetoprotectagainstcompetition?4Commercial Policy InstrumentsTrade Contraction Trade Expansion Tariff Export taxImport quotaVoluntary Export Restraint (VER)Import subsidyExport subsidyVoluntary Import Expansion (VIE) Price Quantity Price Quantity ClassificationofCommercialPolicyInstruments51 1.BasicTariffAnalysisimport tariff(1).concept: A tax levied when a good is imported. 6(2).ClassificationnSpecifictariffsTaxesthatareleviedasafixedchargeforeachunitofgoodsimportednAdvaloremtariffsTaxesthatareleviedasafractionofthevalueoftheimportedgoodsnAcompoundduty(tariff)Acombinationofanadvaloremandaspecifictariff.7Pw, QwImportdemandcurveExportsupplycurvethemaximumquantityofimportstheHomecountrywouldliketoconsumeateachpriceoftheimportedgood.MD = D(P) S(P)themaximumquantityofexportsForeignwouldliketoprovidetherestoftheworldateachpriceXS = S*(P*) D*(P*)(3).BasicAnalysis8Quantity, QPrice, PPrice, PQuantity, QMDDSAPAP2P1S2D2D2 S22S1D1D1 S11nDerivingHomesImportDemandCurve9P2P*AD*S*P1XSPrice, PPrice, PQuantity, QQuantity, QS*2 D*2S*2D*2nDerivingForeignsExportSupplyCurveD*1S*1S*1 D*110XSPrice, PQuantity, QMDPWQW1nWorldEquilibrium11HomeDemandHomeSupply=ForeignSupplyForeignDemandHomeDemandForeignDemand=ForeignSupplyHomeSupplyWorldDemand=WorldSupply12XSPTMDD*S*DSPW2QT1QW(4).EffectsofaTariffP*T3tPrice, PQuantity, QPrice, PQuantity, QPrice, PQuantity, QHome marketWorld marketForeign marketHome marketWorld marketForeign marketSuppose:Imposingataxof$2onimportedgoodsHome:pricerisesfromPWtoPTForeign:pricefallsfromPWtoP*Tt=PTP*T13(4)Measuringtheamountofprotectionhowmuchprotectionatariffprovides?Tariffsmayhavedifferenteffectsondifferentstagesofproductionofagood.14Onemustconsiderboththeeffectsoftariffsonthefinalpriceofagood,andtheeffectsoftariffsonthecostsofinputsusedinproduction.ERP=（VT- VW）/ VWVW is value added in the sector at world prices VT value added in the presence of trade policies. or ERP= (T -aiti)/(1-ai )T is the nominal rate of tariff for final goodst is the nominal rate of tariff for inputsa is the proportion of inputs to final goodsTheeffectiverateofprotection152.CostsandBenefitsofaTariffAtariffraisesthepriceofagoodintheimportingcountryandlowersitintheexportingcountry.Asaresultofthesepricechanges:ConsumersloseintheimportingcountryandgainintheexportingcountryProducersgainintheimportingcountryandloseintheexportingcountryGovernmentimposingthetariffgainsrevenue16(1).ConsumerSurplusandProducerSurplusabP1P2DPrice, PQuantity, QQ2Q1nConsumer surplus:It measures the amount a consumer gains from a purchase by the difference between the price he actually pays and the price he would have been willing to pay.17nProducersurplusdcP2P1SPrice, PQuantity, QQ2Q1It measures the amount a producer gains from a sale by the difference between the price he actually receives and the price at which he would have been willing to sell.18PTPWP*TbcdeDa= consumer loss (a + b + c + d)= producer gain (a)= government revenue gain (c + e)QTD2S2SS1D1Price, PQuantity, Q(2).MeasuringtheCostsandtheBenefitsnCostsandBenefitsofaTarifffortheImportingCountry19nCostsandBenefitsAnalysisinDetailsPriceEffect:Thepricefordomesticconsumersandproducersarise.ProductionorProtectiveEffect:Qs:S1S2Producersurplus:(a)Productiondistortionloss:(b)ConsumptionEffect:Qd:D1D2Consumersurplus:-(a+b+c+d)Partofconsumersurplusareincomeredistribution;Theotherisconsumptiondistortionloss.20FiscalRevenueEffect:c+dRedistributionEffectConsumersProducersConsumersGovernmentAbundantfactorsscarcefactorsOthers:CompetitionEffect、EmploymentEffectandBalanceofPaymentEffectetc.TheTermsofTradeGain:ThetermsoftradegainarisesbecauseatarifflowersforeignexportpricesNetWelfareEffectbd-eIf,e(b+d)，netbenefit.If,e b+db+d）Rightofquotagiventoexportcountryc=profitofexporterNetlossb+d+cHow to allocate the import quota licenses?3839n后配额时代乱战纺织品后配额时代乱战纺织品（）后配额时代出现的背景：（）后配额时代出现的背景：1995年在年在TO框架下，实施纺织品服装协议，规框架下，实施纺织品服装协议，规定定10年过渡期，要求发达国家分期放开限制，逐年过渡期，要求发达国家分期放开限制，逐步实现一体化。步实现一体化。2005年月全球纺织品贸易正式取消配额，实行年月全球纺织品贸易正式取消配额，实行了了30多年的多年的多种纤维协议多种纤维协议退出历史舞台，纺退出历史舞台，纺织品贸易实现一体化。织品贸易实现一体化。40高效、大规模生产和低成本为中国纺织业高效、大规模生产和低成本为中国纺织业带来了令人生畏的竞争力带来了令人生畏的竞争力 （）纺织品贸易一（）纺织品贸易一体化后中国服装出口体化后中国服装出口状况状况中国服装对原设限中国服装对原设限国家和地区出口进入国家和地区出口进入释放期：释放期：20052005年年1-21-2月，中国服装对原设月，中国服装对原设限国出口限国出口1010亿件，比亿件，比上年同期上年同期102.23%102.23%；出口创汇出口创汇31.3331.33亿美亿美元，比上年同期增长元，比上年同期增长96.33%96.33%，出口平均价，出口平均价格格3.133.13美元件，同美元件，同比下降比下降2.92%2.92%。412005月月1-2出口欧盟部分纺织品出口欧盟部分纺织品增长情况增长情况类别类别数量增长率数量增长率金额增长率金额增长率棉制针织服装棉制针织服装 119.55128.31毛制针织服装毛制针织服装 179.13568.11化纤制针织服化纤制针织服装装70.9082.12棉制梭织服装棉制梭织服装 107.97125.47毛制梭织服装毛制梭织服装 108.13154.1542美国启动特保调查程序的美国启动特保调查程序的部分纺织产品数量增长情况部分纺织产品数量增长情况类别类别数量（百万平方米）数量（百万平方米）增长率增长率2004.1-22005.1-2男式棉制衬衫男式棉制衬衫1.3914.90973.63%女式棉制衬衫女式棉制衬衫1.7227.341486.77%男式棉制裤子男式棉制裤子2.4037.291452.25%女式棉制裤子女式棉制裤子3.6560.801566.07%男式男式MMF衬衫衬衫1.557.68395.16%女式女式MMF衬衫衬衫6.7428.25318.96%男式男式MMF裤子裤子6.4224.13275.88%女式女式MMF裤子裤子2.759.72253.42%43（）美欧贸易（）美欧贸易制裁措施的出台制裁措施的出台欧盟于欧盟于4月月28日，日，对中国进口九对中国进口九类纺织品发起类纺织品发起“特保特保”调查。调查。44美国于美国于5月月13日以日以”市场扰乱威胁市场扰乱威胁“为由，依据为由，依据中国加入世贸中国加入世贸组织工作组报告组织工作组报告书书第第242段，决段，决定对从中国进口定对从中国进口的三种服装产品的三种服装产品实施特别限制措实施特别限制措施。施。45Avoluntaryexportrestraint(VER)isanexportquotaadministeredbytheexportingcountry.Itisalsoknownasavoluntaryrestraintagreement(VRA).VERsareimposedattherequestoftheimporterandareagreedtobytheexportertoforestallothertraderestrictions.(3) Voluntary Export Restraints46AVERisexactlylikeanimportquotawherethelicensesareassignedtoforeigngovernmentsandisthereforeverycostlytotheimportingcountry.AVERisalwaysmorecostlytotheimportingcountrythanatariffthatlimitsimportsbythesameamount.ThetariffequivalentrevenuebecomesrentsearnedbyforeignersundertheVER.Example:About2/3ofthecosttoconsumersofthethreemajorU.S.voluntaryrestraintsintextilesandapparel,steel,andautomobilesisaccountedforbytherentsearnedbyforeigners.AVERproducesalossfortheimportingcountry.47A localcontentrequirement is a regulation that requires that some specified fraction of a final good be produced domestically.This fraction can be specified in physical units or in value terms.Local content laws have been widely used by developing countries trying to shift their manufacturing base from assembly back into intermediate goods.(4)LocalContentRequirements48Local content laws do not produce either government revenue or quota rents. Instead, the difference between the prices of imports and domestic goods gets averaged in the final price and is passed on to consumers.Example: Suppose that auto assembly firms are required to use 50% domestic parts. The cost of imported parts is $6000 and the cost of the same parts domestically is $10,000. Then the average cost of parts is $8000 (0.5 x $6000 + 0.5 x $10,000).Firms are allowed to satisfy their local content requirement by exporting instead of using parts domestically.49ExportcreditsubsidiesAformofasubsidizedloantothebuyerofexports.NationalprocurementPurchasesbythegovernment(orpublicfirms)canbedirectedtowardsdomesticgoods,eveniftheyaremoreexpensivethanimports.Red-tapebarriersSometimesgovernmentsplacesubstantialbarriersbasedonhealth,safetyandcustomsprocedures.(5)OtherTradePolicyInstruments50(6)Effects of Alternative Trade Policies51SummaryThecostsandbenefitsofatarifforothertradepolicyinstrumentsmaybemeasuredusingtheconceptsofconsumerandproducersurplusandgovernmentrevenue,throughthepriceeffects.52SummaryThecostsandbenefitsofatarifforothertradepolicyinstrumentsmaybemeasuredusingtheconceptsofconsumerandproducersurplusandgovernmentrevenue,throughthepriceeffects.Thenetwelfareeffectofatariffcanbeseparatedintotwoparts:Efficiency(consumptionandproduction)lossTermsoftradegain(iszerointhecaseofasmallcountry)Anexportsubsidycausesefficiencylossessimilartoatariffbutcompoundstheselossesbycausingadeteriorationofthetermsoftrade.Underimportquotascausesefficiencylossesatleastsamebutsometimesmore.53Table8AI-1: Free Trade Equilibrium for a Small CountryAppendix I: Tariff Analysis in General EquilibriumSlope = - P*M/P*FManufactures production and consumption, QM, DMFood production and consumption, QF, DFD1Q154QF, DFQM, DMQ2D2Slope = - P*M/P*F (1 + t)Table8AI-2: A Tariff in a Small CountryAppendix I: Tariff Analysis in General Equilibrium55Table8AI-3: Effect of a Tariff on the Terms of TradeAppendix I: Tariff Analysis in General EquilibriumFM1Slope = (P*M/P*F)11Slope = (P*M/P*F)2M223Home exports of manufactures, QM - DMForeign imports of manufactures, D*M - Q*MHome imports of food, DF - QFForeign exports of food, Q*F - D*FO56DAppendix II: Tariffs and Import Quotas in the Presence of MonopolyTable8AII-1: A Monopolist Under Free TradePrice, PQuality, QPWPMMCMRDfQMQf57DAppendix II: Tariffs and Import Quotas in the Presence of MonopolyTable8AII-2: A Monopolist Protected by a TariffPrice, PQuality, QPWPMMCMRDfQMQfDtQtPW + t58Price, PQuality, QPWPqAppendix II: Tariffs and Import Quotas in the Presence of MonopolyTable8AII-3: A Monopolist Protected by an Import QuotaMCMRqDqDQq59Price, PQuality, QPWPqPW + tAppendix II: Tariffs and Import Quotas in the Presence of MonopolyTable8AII-4: Comparing a Tariff and a QuotaMCMRqDqDQtQq60