សកលវិទ្យាល័យជាតិគ្រប់គ្រង

NATIONAL OF UNIVERSITY OF MANAGEMENT

CHAPTER 7:
NONTARIFF TRADE BARRIER AND NEW PROTECTIONISM

សាស្ត្រាចារ្យ ៖ កែវ គុយលី

ជំនាន់/ក្រុម ៖ 30/08 មុខវិជ្ជា ៖
INT
សមាជិក ៖ កន គន្ធស៊ីណារ៉ា យឹម សុផល្លាវី
ស៊ីម ដាណេ រស់ ពេជ្រវិមានរតនា
ស្លេះសាំរី ជុំ ប៉ារ៉ាឌី
នឹម សេដ្ឋានា ឆន សុខឧត្តម
 TABLE OF CONTENTS
0 0 The Political Economy
Introduction of Protectionism
1 4
Import Quotas
0 0 Strategic Trade and
Industrial Policies
2 5
Other nontariff barriers 0 0 History of US
and the new protectionism Commercial Policies
3 6
0 The Uruguay Round, Outstanding
Trade Problems and the Doha
7 Round
 01
Introduction
  The World Trade Organization
(WTO) identifies various non-
tariff barriers to trade,
including:
- Import licensing
- Pre-shipment inspections
- Rules of origin
- Custom delayers
- Other mechanisms that
 Non-tariff barrier are trade barriers prevent or restrict trade.
that restrict the import or export of
goods through means other than tariffs.
 Developed countries use non-tariff barriers
as an economic strategy to control the level
of trade they conduct with other countries.
When making decisions on the non-tariff
barriers to implement in international trade,
countries base the barriers on the availability
of goods and services for import and export,
as well as the existing political alliances
with other trade partners.
 Developed countries may elect to release other countries from being
subjected to additional taxes on imported or exported goods, and
instead create other non-tariff barriers with a different monetary
effect.
02
Import
Quotas
 Import
Quotas:
Definition:
 Import quotas A quota is a direct quantitative
restriction on the amount of a commodity
allowed to be imported or export.
(គឺជាការដាក់កម្រិតលើបរិមាណទំនិញនៃទំនិញដែល
ត្រូវបានអនុញ្ញាតិឲ្យនាំចូលឬនាំចេញ។)

 Import quotas are used to protect domestic

industry and agriculture, and/or for balance of
payments reasons.
(ត្រូវបានគេប្រើសម្រាប់ការពារឧស្សាហកម្ម
ក្នុងស្រុក និងកសិកម្ម/ឬសម្រាប់តុល្យភាពនៃ
ហេតុផលការទូទាត់។)
 Import Quotas vs Equivalent Import Tariff
 Import Quotas : Import quotas A quota is a direct quantitative restriction on
the amount of a commodity allowed to be imported or
exported.
 Import Tariff : An equivalent import tariff is a theoretical tariff rate that
would restrict imports to the same quantity as a specified
quota. It reflects the price increase that would occur if a quota
were replaced by a tariff.
 Import Quotas vs Equivalent Import Tariff

Feature: Import Quota: Equivalent Import Tariff:

- Definition - Limits quantity of import - Tariff rate equivalent to an import
- Mechanism - Direct restriction on import quota
- Revenue volume - Price increase on import via tariffs
Generation - Does not generate revenue - Generates revenue through
- Market unless licensed collected tariffs
Flexibility - Creates hard limits on import - Allows for any quantity but at a
- Impact on - Restricts supply, potentially higher cost
price raising prices - Raises price based on tariff level
- Trade - Can lead to stricter trade tensions - More flexible in trade
Relations - Potential for rent seeking negotiations
- Inefficiencies behavior
 Dx and Sx represent the nation's demand and
supply curves of commodity X. Starting from
the free trade Px = $1, an import quota of
30X (JH) would result in Px = $2 and
consumption of 50X (GH), of which 20X
(GJ) is produced domestically. If the
government auctioned off import licenses to
the highest bidder in a competitive market,
the revenue effect would also be $30
(JHNM), as with a 100 percent import tariff.
With a shift in D to D' and an import quota of
30X (J'H'), consumption would rise from 50X
to 55X (G'H'), of which 25X (G'J') are
produced domestically.
FIGURE 9-1 Partial Equilibrium Effects on Import Quota
 03
Other Nontariff barriers and
the New Protectionism
Voluntary Export Restraints
(VERs)

 They refer to the case where an

importing country induces
another nation to reduce its
exports of a commodity
“voluntarily”, under the threat
of higher all-round trade
restrictions, when these exports
threaten an entire domestic
industry.
 Ex:
1. US restraints on Japanese cars exports in 1981.
2. US restraints on steel exports in 1982 that limited
imports to 20% of the US steel market.
 VERs are less effective than quotas and
exporters tend to fill their quota with higher-
quality and higher priced units of the product
over time.
 As a rule, only major suppliers were involved,
leaving the door open for other nations to
replace part of the exports of the major suppliers
and also from transshipments through third
countries.
Technical, Administrative, and Other
Regulations:
 These include:
- Safety regulations: for automobiles and electronics
- Health regulations: for hygienic production and
packaging of imported food products
- Labeling requirements: showing origin and contents
- While many regulations serve legitimate purposes,
some thinly veiled disguises for restricting imports.
- Other restrictions have resulted from laws requiring
governments to buy from domestic suppliers.
International Cartels:
 An international cartel is an organization of suppliers of a commodity
located in different nations that agrees to restrict output and exports of the
commodity with the aim of maximizing profits.

1. OPEC: a cartel of major oil 2.International Air Transport Association: a

countries which restricts cartel of major airlines that set
production and exports of oil. international fares and policies.
 Cartels are more successful with fewer members producing an essential
commodity with no close substitutes.
 Cartels are less successful if there is a large number of international
suppliers and if there are good substitutes for the commodity.
 This explains the failure of, or inability to set up, international cartels in
minerals other than petroleum and tin, and agricultural products other
than sugar, coffee, cocoa, and rubber.
 Cartel behaves as a monopolist in maximizing profits
 Since the power of a cartel lies in its ability to restrict output, there is an
incentive for any one supplier to remain outside the cartel or to cheat on it
by unrestricted sales at slightly below the cartel price.
 Example: high oil prices in the 1980s stimulated supply by nonmembers
and reduced prices sharply.
DUMPING:
 Definition: is the export of a commodity at below
cost or at least the sale of a commodity at a lower
price abroad than domestically.
 Dumping is classified as either:
- Persistent Dumping (or international price
discrimination): is the continuous tendency of
a domestic monopolist to maximize total
profits by selling the commodity at a higher
price in the domestic market (which is
insulted by transportation costs and trade
barriers) than internationally (where it must
meet the competition of foreign producers).
 - Predatory Dumping: is the temporary sale of a commodity at below
cost or at a lower price abroad in order to drive foreign producers out
of business, after which prices are raised to take advantage of the
newly acquired monopoly power abroad.
- Sporadic Dumping: is the occasional sale of a commodity at below
cost or at below price abroad than domestically in order to unload an
unforeseen and temporary surplus of the commodity without having
to reduce domestic prices.
 Trade restriction to counteract predatory dumping are justified to protect
domestic industries from unfair competition from abroad.
 These restrictions usually take the form of antidumping duties to offset
price differentials, or the threat to impose such duties.
 Domestic producers demand protection against any type of dumping, so
they discourage imports and increase their own production and profits
(rents).
 Examples: Japan was accused of dumping steel and TV sets in the US,
while European nations were accused from dumping cars, steel and
agricultural products.
 When dumping is proved, the violating nation or firm usually choose to
raise prices rather than face dumping duties.
Export Subsidies:
 Definition: they are direct payments (or the
granting of tax relief and subsidized loans)
to the nation’s exporters or potential
exporters and/or low–interest loans to
foreign buyers to stimulate the nation’s
exports.
- Export subsidies can be regarded as a
form of dumping.
- Although export subsidies are illegal
by international agreement, many
nations provide them in disguised
(hidden) and not-so-disguised forms.
Ex:
 All major industrial nations give foreign buyers of the nation’s export
low-interest loans to finance the purchase through agencies such as
the US Export-Import Bank.
 The US “extraterritorial income” or Foreign Sales Corporations
provisions of the US tax code have been used by US corporations to
set up overseas subsidiaries to enjoy partial exemption from US tax
laws on income earned from exporters.
 Countervailing duties are often imposed on imports to offset export
subsidies by foreign governments.
 Fig. 9-2 shows the effect of export
subsidies on the domestic market of a
small nation.
 At the free trade price of PX= $3.50,
production is 35X (A/C/), consumption
is 20X (A/B/), and exports 15X (B/C/).
 With a subsidy of $0.5 (equal to ad
valorem=16.7%) on each unit
exported, PX rises to $4.00 for
domestic producers and consumers.
 At PX= $4, production rises to 40X
(G/J/), consumption falls to 10X (G/H/),
and exports rise to 30X (H/J/).
 Consumers lose $7.5 (a/+b/), producers FIGURE 9-2 Partial Equilibrium Effect of an Export Subsidy

gain $18.75 (a/+b/+c/), and government

subsidy is $15 (b/+c/+d/).
 Note that area d/ is not part of the gain in producer surplus because it
represents the rising domestic cost of producing more units of commodity
X.
 Nation 2 incurs protection cost or deadweight loss of $3.75 (B / H / N / =b /
= $2.5 and C / J / M / =d / = $1.25)
 Since producers gain less than the sum of the loss of consumers and the
cost of the subsidy to taxpayers;
 Q: Why would Nation 2 subsidize exports?
 A: producers may successfully lobby for the subsidy or the government
may want to promote industry X.
 Note that foreign consumers gain because they receive 30X instead of
15X.
 04
The Political
Economy of
Protectionism
Fallacious Arguments for Protection:
 Trade restrict are needed to protect domestic labor against
cheap foreign labor. This arguments is fallacious because:
- Even if domestic wages are higher than wages abroad,
domestic labor costs can still be lower if the productivity of
labor is sufficiently higher domestically than abroad.
- Mutually beneficial trade could still be based on
comparative advantage, with the cheap labor-intensive
commodities, and the expensive-labor nation specializing
in the production of and exporting capital capital-intensive
commodities
  Scientific Tariff – this is the tariff rate that would make the price of
imports equal to domestic prices and (so the argument goes) allow
domestic producers to meet foreign competition.
However, this would eliminate international price differences and trade in
all commodities subject to such “Scientific” Tariff
Questionable Arguments for Protection:
 Protection is needed:
- To reduce domestic unemployment
- To cure a deficit in the Nation’s balance of Payment
 However:
- These are beggar-thy-neighbor arguments for
protection because they came at expense of other
nations
- When protection is used to reduce domestic
unemployment and the nations balance-of-payments
deficit, it causes greater unemployment and worsened
balances abroad. As a result, other nations are likely to
retaliate and all nations lose in the end.
A Qualified Argument for Protection:
 Infant-industry Argument:
- Temporary trade protection is justified to
establish and protect a domestic industry during
its “infancy” until it can meet foreign
competition, achieve economies of scale, and
reflect the nation’s comparative advantage.
- To be valid, the return in the grown-up industry
must be high enough to offset the higher prices
paid by domestic consumers of the commodity
during infancy.
- Requires several qualifications
which, together, take away most of its
significance:
1. More Justified for developing
nations than industrial nations.
2. May be difficult to identify
which industry qualifies for
protection, which, once given,
is difficult to remove.
3. What trade protection can do,
an equivalent production
subsidy to the infant industry
can do better.
 05
Strategic Trade and
Industrial Policies
 According to the strategic trade policy
argument, a nation can create a
comparative advantage in industries deemed
crucial to future growth in the nation.
 Nation may use temporary trade protection,
subsidies, tax benefits and cooperative
government-industry programs.
 Similar to infant-industry argument in
developing nations.
 Concerns:
- Difficult to pick winners and devise
appropriate policies to nurture them.
- Efforts largely neutralized when
leading nations undertake strategic
trade policies at the same time.
- Retaliation in other markets may
eliminate any gains.
 06
The History of U.S
Commercial Policy
The History of United States Commercial Policy:
 The history of United States commercial policy reflects the
evolution of the nation’s economic priorities and global trade
relationships. Here are some key phases :

1. Colonial Period (1607-1776):

- The American colonies
operated under mercantilist
policies dictated by Britain,
which aimed to control
trade and ensure that the
colonies benefited the
British economy.
2. Post-Independence (1781-1815):
- After gaining independence, the
U.S. sought to establish its own
trade policies. The Articles of
Confederation provided limited
powers to regulate commerce,
leading to economic challenges.
- The Constitution (1789) granted
Congress the power to regulate
commerce, facilitating a more
coherent trade policy.
3. 19th Century Expansion:
- The U.S. adopted a policy of protectionism to
nurture its nascent industries, implementing
tariffs such as the Tariff of 1816.
- Expansionism and the opening of new markets
were crucial, exemplified by the Louisiana
Purchase and trade agreements with countries
like China.
4. Late 19th to Early 20th Century:
- The U.S. transitioned to a more
open trade stance with the
introduction of reciprocity
agreements.
- The Smoot-Hawley Tariff Act
of 1930 marked a significant
return to protectionism during
the Great Depression,
exacerbating global trade
issues.
5. Post-World War II Era:
- The U.S. played a leading role in
establishing the General Agreement
on Tariffs and Trade (GATT) in
1947, promoting free trade
principles.
- Policies focused on rebuilding
Europe (Marshall Plan) and
containing communism influenced
commercial relations, leading to a
more interconnected global
economy.
6. Late 20th Century:
- Trade liberalization accelerated with
trade agreements like the North
American Free Trade Agreement
(NAFTA) in 1994 and the World Trade
Organization (WTO) formation in
1995.
- The U.S. balanced free trade with
protectionist measures, evident in the
backlash against globalization in
various sectors.
7. 21st Century:
- The U.S. has grappled with complex
trade relationships, especially with
China, leading to tariffs and trade wars
under recent administrations.
- Contemporary debates focus on
balancing free trade with domestic
interests, labor rights, and environmental
concerns.
- Throughout its history, U.S. commercial
policy has reflected broader economic
goals, geopolitical strategies, and
responses to domestic pressures,
adapting to an ever-changing global
landscape.
 07
The Uruguay Round,
Outstanding Trade
Problems and the Doha
Round
Uruguay Round:
 The eighth and final round of negotiations
under the General Agreement on Tariffs and
Trade (GATT) was the Uruguay Round,
which took place from 1986 to 1993 and
involved 123 countries. The Uruguay Round
was the most significant round of
negotiations, and led to the creation of the
World Trade Organization (WTO) in 1995.
 The delay had some merits. It allowed some
negotiations to progress further than would have
been possible in 1990: for example some aspects
of services and intellectual property, and the
creation of the WTO itself. But the task had been
immense, and negotiation-fatigue was felt in trade
bureaucracies around the world. The difficulty of
reaching agreement on a complete package
containing almost the entire range of current trade
issues led some to conclude that a negotiation on
this scale would never again be possible. Yet, the
Uruguay Round agreements contain timetables
for new negotiations on a number of topics.
 In 1995 the WTO agreements cover goods,
services and intellectual property. They spell
out the principles of liberalization, and the
permitted exceptions. They include
individual countries’ commitments to lower
customs tariffs and other trade barriers, and
to open and keep open services markets.
They set procedures for settling disputes.
They prescribe special treatment for
developing countries. They require
governments to make their trade policies
transparent by notifying the WTO about
laws in force and measures adopted, and
through regular reports by the secretariat on
countries’ trade policies.
Aims of Uruguay Round:
 The Uruguay Round of trade negotiations had the goal of
establishing rules to monitor protectionism and reverse the trend:
- Reduce Tariffs: The Uruguay Round resulted in a global tariff
reduction of almost 40%. Strengthen trade rules Extend
multilateral rules The Uruguay Round extended multilateral
rules to new areas, such as intellectual property and services.
- Establish the World Trade Organization: The Uruguay Round
transformed the General Agreement on Tariffs and Trade
(GATT) into the World Trade Organization (WTO). The WTO
is an international organization that regulates trade between
nations.
 Agriculture: Services: Intellectual

The Uruguay Round aimed The Uruguay Property:

to reduce government Round aimed to The Uruguay Round
subsidies to farmers that apply the “most- aimed to extend
distort trade, such as price favored nation” multilateral rules to
supports and export and “national intellectual property.
subsidies. It also aimed to treatment”
eliminate all non-tariff concepts to the
barriers (NTBs) in services sector.
agricultural trade.
 Major Provision of Uruguay Round:
 Tariffs: Tariffs on industrial products are to be reduced
from an average of 4.7% to 3%, and the share of goods
with zero tariffs is to increase from 20-22% to 40-45%;
tariffs were removed altogether on pharmaceuticals,
construction equipment, medical equipment, paper
products, and steel.
 Quotas: Nations are to replace quotas on agricultural
imports and imports of textiles and apparel (under the
Multifiber Agreement) with less restrictive tariffs over
a 10-year period; tariffs on agricultural products are to
be reduced by 24% in developing nations and by 36%
in industrial nations, and tariffs on textiles are to be cut
by 25%.
 Safeguards: Nations may temporarily raise tariffs or
other restrictions against an import surge that
severely harms a domestic industry, but bars
countries from administering health and safety
standards unless based on scientific evidence and
not simply to restrict trade. For example, a nation
can only keep out beef imports from cattle raised
with growth hormones by showing that the beef so
produced is unsafe for human consumption.
 Intellectual Property: The agreement provides for 20-year
protection of patents, trademarks and copyrights, but it allows a
10-year phase-in period for patent protection in pharmaceuticals
for developing countries.
Outstanding Trade Problems:
 Trade disputes between the United States and the
European Union.
 High subsidies and tariffs on agricultural products.
 World have been divided into 3 major trade blocs:
- European Unions (EU)
- North American Free Trade Area (NAFTA)
- Asian Bloc
 Some developed countries are advocating for the
implementation of labor and environmental standards to
create equal working conditions and prevent “social
dumping”.
Doha Round:
 Launched in November 2001 in Doha, Qatar
 Agenda included:
- Liberalization of production and trade in
agricultural, industrial products and
services
- Tightening on antidumping regulations,
investment and competition policies
 Developing nations reluctant to make
concessions because of the failure in Uruguay
round
 Developing nations try to making “Doha
Round” as “Development Round”.