Trade Policy Flashcards
(21 cards)
define ‘trade policy’
government policy affecting flow of goods and services between countries
when was General Agreement on Tariffs and Trade (GATT) founded
1947
how many countries are members of WTO
164
members of WTO are subject to multilateral disciplines/trade rules. what are they?
1) transparency and fair trade
2) reciprocity
- if you lower tariffs to increase market access to other countries you expect the same in return
3) nondiscriminaton
- ‘most favoured nation’ principle
examples of unilateral/bilateral/regional disciplines
unilateral - new zealand implemented non-reciprocated tariff reforms 2006
bilateral - australia-singapore trade agreement
regional - italy in EU and USA in NAFTA
types of non-tariff barriers to trade
1) sanitary and phytosanitary standards (SPS)
2) technical barriers to trade (TBT)
3) pre-shipment inspection (PSI)
4) price controls
5) quantity controls
two ways of measuring non-tariff barriers
1) frequency index
- meant to insure food safety
2) coverage ratio
- percentage of trade subject to non-tariff measures for importing country and provides measure of importance of non-tariff measures on overall imports
describe tariffs
- tax on imports
- creates wedge between world price and domestic price
- distorts relative price between domestic and foreign goods
modelling assumptions
1) importing country’s size
- ‘large’ country means it’s trade policy decisions affects world price
2) domestic market conditions
- assumes 1st market conditions which means no externalities and perfect competition
- assumes perfect substitutability between imported and domestic competing goods
3) scale of income and linkage effects
- associated with price changes of imported good
- partial (general) equilibrium appropriate where effects are small (large)
assumptions of partial/general equilibrium analysis of a small country
1) full employment
2) first best conditions
3) trade balance
- country’s income = expenditure
what is ‘lerner symmetry’
an ad valorem import tariff has same effect as export tax in general equilibrium under first best conditions
what is ‘terms of trade’
difference between world price before tariff and new price after tariff, multiplied by imports
when is a large importing country better off?
if terms of trade gain > deadweight loss
how to calculate optimal tariff
1 / elasticity of foreign supply
cases where quota welfare effect is equivalent to import tariff
1) allocation of quota licences to home firms/importers without rent seeking activities
2) auctioning of quota licences by government in competitive/efficient market context
- government revenue = tariff revenue of equivalent tariff
- net welfare effect = welfare effect of equivalent tariff
cases where quota welfare is not equivalent to import tariff
1) allocation of quota licences with rent seeking activities to acquire licenses
- inefficient as using resources for political motives not matching consumer demand
2) importing country gives authority for implementing quota to exporting firms/government
- quota rents earned by foreign country
three types of approach to estimate tariff equivalent non tariff barriers
1) direct price comparisons in protected domestic market and world price
2) implicit tariff equivalent revealed by value of bids at auctions for quota licences
3) inferred from econometrically estimate import demand functions
what is a export subsidy
policy to encourage export of goods and discourage domestic sale of goods
why do we want to remove export subsidies
they distort market prices, making them too high, in exporting countries and too low with less production in importing countries
what is a production subsidy
subsidy to every unit produced
- will shift domestic supply curve down
