Slide 1Import QuotaExamples of U.S. import quotas*Import QuotaImport QuotaImport quota: trade and welfare effectsImport QuotaImport QuotaQuotas Versus TariffsTrade effects of tariffs versus quotasTariff-Rate Quota: A Two-Tier TariffExamples of U.S. tariff-rate quotasTariff-Rate Quota: A Two-Tier TariffTariff-Rate Quota: A Two-Tier TariffTariff-Rate Quota: A Two-Tier TariffTariff-Rate Quota: A Two-Tier TariffExport QuotasExport QuotasDomestic Content RequirementsDomestic Content RequirementsSlide 21Welfare effects of a domestic content requirementSubsidiesSubsidiesSubsidiesSubsidiesTrade and welfare effects of subsidiesHow “foreign” is your car?Slide 29DumpingDumpingDumpingDumpingDumpingInternational price discriminationAntidumping RegulationsAntidumping RegulationsAntidumping RegulationsAntidumping RegulationsSlide 40Swimming upstream: the case of Vietnamese catfishSwimming upstream: the case of Vietnamese catfishSwimming upstream: the case of Vietnamese catfishSwimming upstream: the case of Vietnamese catfishIs Antidumping Law Unfair?Is Antidumping Law Unfair?Dumping and excess capacityIs Antidumping Law Unfair?Is Antidumping Law Unfair?Other Nontariff Trade BarriersOther Nontariff Trade BarriersOther Nontariff Trade BarriersU.S. fiscal stimulus and Buy American legislationU.S. fiscal stimulus and Buy American legislationOther Nontariff Trade BarriersOther Nontariff Trade BarriersOther Nontariff Trade BarriersNontariff Trade Barriers© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐1PowerPoint slides prepared by:Andreea ChiritescuEastern Illinois UniversityImport Quota•Import quota•Physical restriction on the quantity of goods that can be imported during a specific time period•Require an import license•Specifies the total volume of imports allowed•On manufactured goods•Outlawed by the World Trade Organization© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐2© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐3Examples of U.S. import quotas*TABLE 5.1Import Quota•Global quota•Permits a specified number of goods to be imported each year•Does not specify from where the product is shipped or who is permitted to import•Plagued by accusations of favoritism•Selective quota•Import quota allocated to specific countries•May lead to a domestic monopoly of production and higher prices© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐4Import Quota•Effects of import quota on economy’s welfare•Price increase•Decrease in consumer surplus•Redistributive effect•Deadweight loss•Protective effect•Consumption effect•Revenue effect •Windfall profit•Quota rent © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐5By restricting available supplies of an imported product, a quota leads to higher import prices. This price umbrella allows domestic producers of the import-competing good to raise prices. The result is a decrease in the consumer surplus. Of this amount, the welfare loss to the importing nation consists of the protective effect, the consumption effect, and that portion of the revenue effect that is captured by the foreign exporter.© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐6Import quota: trade and welfare effectsFIGURE 5.1Import Quota•Allocating quota licenses•Historical share of import market•Oil and dairy products•Discriminates against importers seeking to import goods for the first time•Pro rata basis•U.S. importers receive a fraction of their demand •= Ratio of the import quota to the total quantity demanded collectively by U.S. importers© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐7Import Quota•Allocating quota licenses•Auctioning of import licenses •To the highest bidder in a competitive market•Government - capture the windfall profits•Considered by U.S.© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐8Quotas Versus Tariffs•During periods of growing demand•An import quota restricts the volume of imports •By a greater amount than does an equivalent import tariff•Quota•More restrictive than a tariff•Suppresses competition© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password protected website for classroom use‐9In a growing market, an import tariff is a less restrictive trade barrier than an equivalent import quota. With an import tariff, the adjustment that occurs in response to an increase in domestic demand is an increase in the amount of the product that is imported. With an import quota, an increase in demand induces an increase in product price. The price increase leads to a rise in production and a fall in consumption of the import-competing