ib module 1

8/3/2019 IB Module 1

1/15

MODULE1:

Protectionism

Tariff Barrier

Non-Tariff Barrier

Cartels


2/15

Protectionism

Protectionism is a government's use of tradebarriers to shield domestic companies and theirworkers from foreign competition.

Protectionism is the economic policy of restrainingtrade between states through methods such astariffs on imported goods, restrictive quotas, and a

variety of other government regulations designedto allow (according to proponents) "faircompetition" between imports and goods andservices produced domestically.


3/15

Protectionist policies includes

Tariffs

Import quotas

Administrative barriers

Anti-dumping legislation Supporters

Direct subsidies

Export subsidies

Exchange rate manipulation


4/15

Tariff barrier

A tariff may be either tax on imports or exports(trade tariff), or a list or schedule of prices forsuch things as rail service, bus routes, and

electrical usage (electrical tariff, etc.) In simplest terms, a tariff is a tax. It adds to the

cost of imported goods and is one of several

trade policies that a country can enact.


5/15

Why Are Tariffs?

Protecting Domestic Employment

Protecting Consumers

Infant Industries

National Security

Retaliation


6/15

Tariff Barrier

Specific Tariffs

A fixed fee levied on one unit of an imported good is referred to as aspecific tariff. This tariff can vary according to the type of goodimported. For example, a country could levy a $15 tariff on eachpair of shoes imported, but levy a $300 tariff on each computerimported.

Ad Valorem TariffsThe phrase ad valoremis Latin for "according to value", and thistype of tariff is levied on a good based on a percentage of that

good's value. An example of an ad valorem tariff would be a 15%tariff levied by Japan on U.S. automobiles. The 15% is a priceincrease on the value of the automobile, so a $10,000 vehicle nowcosts $11,500 to Japanese consumers. This price increase protectsdomestic producers from being undercut, but also keeps pricesartificially high for Japanese car shoppers.


7/15

Non-Tariff Barrier

Non-tariff barriers to trade (NTBs) are tradebarriers that restrict imports but are not in theusual form of a tariff. Some common examples

of NTB's are anti-dumping measures andcountervailing duties, which, although they arecalled "non-tariff" barriers, have the effect oftariffs once they are enacted.


8/15

Non-Tariff Barrier

LicensesA license is granted to a business by the government, and allowsthe business to import a certain type of good into the country. Forexample, there could be a restriction on imported cheese, andlicenses would be granted to certain companies allowing them toact as importers. This creates a restriction on competition, andincreases prices faced by consumers.

Import Quotas

An import quota is a restriction placed on the amount of a particulargood that can be imported. This sort of barrier is often associatedwith the issuance of licenses. For example, a country may place aquota on the volume of imported citrus fruit that is allowed.


9/15

NTB Continued..

Voluntary Export Restraints (VER)

This type of trade barrier is "voluntary" in that it is created by the

exporting country rather than the importing one. A voluntary export

restraint is usually levied at the behest of the importing country, and

could be accompanied by a reciprocal VER. For example, Brazil could

place a VER on the exportation of sugar to Canada, based on a request

by Canada. Canada could then place a VER on the exportation of coal

to Brazil. This increases the price of both coal and sugar, but protects

the domestic industries.


10/15

NTB Continued..

Local Content RequirementInstead of placing a quota on the number of goods that can beimported, the government can require that a certain percentage of a

good be made domestically. The restriction can be a percentage ofthe good itself, or a percentage of the value of the good. Forexample, a restriction on the import of computers might say that25% of the pieces used to make the computer are madedomestically, or can say that 15% of the value of the good must

come from domestically produced components.


11/15

NTB Continued..

Standards

Standards take a special place among non-tariff barriers. Countriesusually impose standards on classification, labeling and testing ofproducts in order to be able to sell domestic products, but also to

block sales of products of foreign manufacture. These standardsare sometimes entered under the pretext of protecting the safetyand health of local populations.

Foreign exchange restrictions and foreign exchange controls

Foreign exchange restrictions and foreign exchange controls

occupy a special place among the non-tariff regulatory instrumentsof foreign economic activity. Foreign exchange restrictionsconstitute the regulation of transactions of residents andnonresidents with currency and other currency values. Also animportant part of the mechanism of control of foreign economic

activity is the establishment of the national currency against foreigncurrencies


12/15

Cartels A cartel is a formal (explicit) agreement among competing

firms. It is a formal organization of producers andmanufacturers that agree to fix prices, marketing, andproduction.

Cartels usually occur in an oligopolistic industry, where thereare a small number of sellers and usually involvehomogeneous products.

Cartel members may agree on such matters as price fixing,

total industry output, market shares, allocation of customers,allocation of territories, bid rigging, establishment of commonsales agencies, and the division of profits or combination ofthese.

The aim of such collusion (also called the cartel agreement)is to increase individual members' profits by reducing


13/15

Factors affecting ability to monitorCartel

Number of firms in the industry

Characteristics of the products sold by thefirms

Production costs of each member

Behavior of demand

Frequency of sales and their characteristics


14/15

Example -(OPEC)

Organization of the Petroleum Exporting Countries(OPEC)

It is an intergovernmental organization of 12 oil-producing countries made up of Algeria, Angola,Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar,Saudi Arabia, the United Arab Emirates, andVenezuela.

Its principal goals is, the determination of the bestmeans for safeguarding the organization'sinterests.

It also pursues ways and means of ensuring the

stabilization of prices in international oil marketswith a view to eliminating harmful and


15/15

Example- DeBeers

De Beers is a cartel of companies that trade in roughdiamond exploration.

Major investors in diamond merged interests to controlproduction of diamonds.

De Beers group is an international cartel of group ofproducers who fix prices, control supply and limit

competition. De Beers (market share above 40%), ALROSA (market

share above 20%) others hold below 10%.

ib module 1

Documents