Tiêu đề Chapter 9 ( Unit 2).pdf ✅

THE INSTRUMENTS OF TRADE POLICY INTRODUCTION ▪ As we know, under free trade, buyers and sellers from separate economies voluntarily trade with minimum of state interference. The free interplay of market forces of supply and demand decides prices. ▪ Protectionism, on the other hand, is a state policy aimed to protect domestic producers against foreign competition through the use of tariffs, quotas and non-tariff trade policy instruments. Trade liberalization refers to opening up of domestic markets to goods and services from the rest of the world by bringing down trade barriers. Trade policy encompasses all instruments that governments may use to promote or restrict imports and exports. The instruments of trade policy that countries typically use to restrict imports and/ or to encourage exports can be broadly classified into price- related measures such as tariffs and non-price measures or non-tariff measures (NTMs).
TARIFFS ▪ Tariffs, also known as customs duties, are basically taxes or duties imposed on goods and services which are imported or exported. They are the most visible and universally used trade measures that determine market access for goods. Import duties being pervasive than export duties, tariffs are often identified with import duties and in this unit, the term ‘tariff’ would refer to import duties. Tariffs are aimed at altering the relative prices of goods and services imported, so as to contract the domestic demand and thus regulate the volume of their imports. Tariffs leave the world market price of the goods unaffected; while raising their prices in the domestic market. The main goals of tariffs are to raise revenue for the government, and more importantly to protect the domestic import-competing industries. Forms of Import Tariffs 1) Specific Tariff: Fixed amount of money per physical unit or according to the weight or measurement of the commodity imported or exported. Example, a specific tariff of Rs. 1000/ may be charged on each imported bicycle. � The disadvantage of specific tariff as an instrument for protection of domestic producers is that its protective value varies inversely with the price of the import 2) Ad valorem tariff: Duty is levied as a fixed percentage of the value of the traded commodity. Example: A 20% ad valorem tariff on any bicycle generates a Rs. 1000/ payment on each imported bicycle priced at Rs. 5,000/ in the world market; and if the price rises to Rs. 10,000, it generates a payment of Rs. 2,000/ � It gives incentives to deliberately undervalue the good’s price on invoices and bills of lading to reduce the tax burden. Change Bicycle- E5000 - 1000 - 20% - =100.000 - 1000 - 1% Y ~ per unit - - -Value
There are many other variations of the above tariffs, such as: Mixed Tariffs: Mixed tariffs are expressed either on the basis of the value of the imported goods (an ad valorem rate) or on the basis of a unit of measure of the imported goods (a specific duty) depending on which generates the most income (or least income at times) for the nation. For example, duty on cotton: 5 per cent ad valorem or Rs. 3000/per tonne, whichever is higher. Compound Tariff or a Compound Duty is a combination of an ad valorem and a specific tariff. ▪ It is generally calculated by adding up a specific duty to an ad valorem duty. Thus, on an import with quantity q and price p, a compound tariff collects a revenue equal to tsq + tapq, where ts is the specific tariff and ta is the ad valorem tariff. For example: duty on cheese at 5 per cent advalorem plus 100 per kilogram. Technical/Other Tariff: These are calculated on the basis of the specific contents of the imported goods i.e. the duties are payable by its components or related items. For example: Rs. 3000/ on each solar panel plus Rs. 50/ per kg on the battery. Tariff Rate Quotas: Tariff rate quotas (TRQs) combine two policy instruments: quotas and tariffs. Imports entering under the specified quota portion are usually subject to a lower (sometimes zero) tariff rate. Imports above the quantitative threshold of the quota face a much higher tariff. Variable Tariff: A duty typically fixed to bring the price of an imported commodity up to level of the domestic support price for the commodity. Prohibitive tariff: A prohibitive tariff is one that is set so high that no imports can enter. 1001unit P= 509= 10 10% 100X 10 + /x/50x -of value - -> - Quota-Max Limit Rice- ELERG
Most-Favoured Nation Tariffs: MFN tariffs refer to import tariffs which countries promise to impose on imports from other members of the WTO. ▪ This means that, in practice, MFN rates are the highest (most restrictive) that WTO members charge each other. Some countries impose higher tariffs on countries that are not part of the WTO. Bound Tariff: Under this, a WTO member binds itself with a legal commitment not to raise tariff rate above a certain level. ▪ By binding a tariff rate, often during negotiations, the members agree to limit their right to set tariff levels beyond a certain level. The bound rates are specific to individual products and represent the maximum level of import duty that can be levied on a product imported by that member. A member is always free to impose a tariff that is lower than the bound level. Once bound, a tariff rate becomes permanent and a member can only increase its level after negotiating with its trading partners and compensating them for possible losses of trade. Applied Tariffs: An 'applied tariff' is the duty that is actually charged on imports on a Most-Favoured Nation (MFN) basis. ▪ A WTO member can have an applied tariff for a product that differs from the bound tariff for that product as long as the applied level is not higher than the bound level. Fri Outsider - > Triff- iti ↑ D E C - - a Max - 8 % Bond # WTO St Actual- ~ FN ↑ 10% MFN x - Bound - Tariffs" 26y· Applied