University of Dhaka

Department of Finance
International Trade and Finance

“Other National Policies Affecting Trade”

Course Teacher: Md. Rabiul Islam

 IMPORT QUOTA
 Import quotas are limitations on the quantity of goods
that can be imported into the country during a
specified period of time.
 An import quota is a type of protectionist trade
restriction that sets a physical limit on the quantity of
a good that can be imported into a country in a given
period of time(for instance 1 year). Quotas, like other trade
restrictions, are used to benefit the producers of a
good in a domestic economy at the expense of all
consumers of the good in that economy.
 Reasons for Import Quotas?
Governments choose import quotas for the
following reasons:
• To protect further increases in import
spending to improve balance of payments;
and
• To gain government officials greater
administrative flexibility and power.
Quota vs Tariff with competition
 Tariffsand Quotas are quantative restrictions
both serve the purpose of controlling the
number of foreign products that can enter the
domestic market.
 Quota vs Tariff with
competition
 There are a few reasons why tariffs are a more attractive option
than import quotas which are as follows:
 Tariffs Generate Revenue for the Government.
 Import Quotas Can Lead to Administrative Corruption.
 Import Quotas Are More Likely to Cause Smuggling.

 However, Import Quotas have the protective effect on the import-

competing industries. Quotas are more protective of the domestic
industry because they limit the extent of import competition to a
fixed maximum quantity. In contrast, tariffs simply raise the
price, but do not limit the degree of competition or trade volume
to any particular level.
 Quota vs Tariff with
competition
 Graphical representation:
p Sd
P US market for bicycles
Sd +Q
Quota

b
d

220 Domestic price with quota

200 c
World Price
D
D

O so s1 D1 Do Q
Quota
 Quota vs tariff with monopoly
power
 Domestic monopoly increases cost of
imports under more than tariff.

 The quota can harm the nation more than a

tariff by giving monopoly power to foreign
exporters.
 Ways to Allocate Import
Licenses
 The quota license to import is a license to buy the product from foreign
suppliers at the world price and resell these units at the domestic price .
 Here are the main ways to allocate import licenses:
 • The government allocates the licenses for free to importers using a rule
or process that involves (almost) no resource costs.

 • The government auctions off the licenses to the highest bidders.

 • The government allocates the licenses to importers through application

and selection procedures that require the use of substantial resources.
 Import Discrimination
 There are import discriminations made by
developed countries by imposing import
barriers like tax/tariffs, quotas etc.
 For instance, EC have done import
discriminations by allowing free trade
between the member countries while
restricting imports from other countries.
 Trade Creation and Trade
Diversion
 Trade Diversion: Trade diversion means
that a free trade away from a more efficient
supplier outside FTA, towards a less
efficient supplier within FTA.
 In some cases, trade diversion reduces a
country’s national welfare.
 Trade Creation and Trade
Diversion
 Trade Creation: Trade creation means that a
Free Trade area which creates trade.
 As a result, supply occurs from a more
efficient producer/supplier of the product.
 In all cases, trade creation raises a country’s
national welfare.
 Export Barriers
*Trade barriers are generally defined as
government laws, regulations, policy, or practices
that either protect domestic products from foreign
competition or artificially stimulate exports of
particular domestic products.
*The most common foreign trade barriers are
government-imposed measures and policies that
restrict, prevent, or impede the international
exchange of goods and services. These are as
follows:
 Export Barriers
 Strategic: International agreements limit trade in, and the transfer of,
certain types of goods and information e.g. goods associated with weapons
of mass destruction, arms and torture.

 Tariffs: A tariff is a tax placed on a specific good or set of goods exported

from or imported to a country, creating an economic barrier to trade.
 Subsidies: To subsidize an industry or company refers to, in this instance,
a governmental providing supplemental financial support to manipulate the
price below market value.

Subsidies are generally used for failing industries that need a boost in
domestic spending. Subsidizing encourages greater demand for a good or
service because of the slashed price.
 Export Subsidies and Countervailing
Duties
Export Subsidies: An export subsidy
refers to a payment of cash or a form of financial
assistance paid to private sector business to
encourage exports.

 Subsidies can be regarded as a form of

protectionism or trade barriers by making
domestic goods and services artificially
competitive against imports.
 Export Subsidies and Countervailing
Duties
 Countervailing Duties: A tariff levied against
imports that are subsidized by the exporting country’s
government designed to offset (countervail) the effect
of subsidy.
 Countervailing duties are duties imposed under
WTO Rules to neutralize the negative effects of
other duties. They are imposed when a foreign
country subsidizes its exports, hurting domestic
producers in the importing country.
 Dumping
 Dumping refers to any kind of predatory pricing.
Dumping is defined as the act of a manufacturer in one
country exporting a product to another country at a
price which is either below the price it charges in its
home market or is below its costs of production.
 Predatory Dumping- It occurs when the firm
discriminates in favour of some foreign buyers
temporarily with the purpose of eliminating some
competitors and of later raising the price of after the
competition is over.
 Persistent Dumping- It goes indefinitely.
 Retaliation against Dumping
 On the demand of the import-competing firms, the
government of importing countries often impose
antidumping tariffs to protect dumping by the foreign
suppliers.
 There is no question that international trade cannot
proceed without any limitations or restrictions. Every
country has its own specific concerns related to their
domestic industries and economic well-being, therefore,
there will always be a need for some degree of
protectionism. International Anti-dumping code signed by
most parties to GATT in 1967.