Tariffs, Canadian Content Requirement (CanCon) and its impact on Canada


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The paper examines Tariffs (in the motorcycle) , Canadian Content Requirement (CanCon) and its impact on Canada.

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Tariffs, Canadian Content Requirement (CanCon) and its impact on Canada

  1. 1. Pisat 1Question 1. Based the explanation of tariffs (Pugel pp. 143-157), assume Canada isimporting a large quantity of motorcycles from other countries, and decides to put a20% tariff on all motorcycles imported from other countries. Please clearly explain: 1 Who in Canada will benefit from the tariff?1According to the above example; it is clearly evident that a 20% tariff willswing the pendulum of trade and profits / benefits in favor of the CanadianMotorcycle Producers & their Employees2. Imposition of such a tariff would lead tolesser competition for the 4 major3domestic players from foreign manufacturers.Foreign manufacturers would then recover the 20% tariff from customers as a pricehike. The Canadian Motorcycle producers would then hike their prices to matchforeign competition and enjoy their surplus at a higher price than before.4 Who in Canada will be hurt by the tariff?1In Canada; the Canadian Motorcycle Consumers will be hurt by the 20% importtariff. They will have to pay 120% (the newly hiked price as charged by foreign anddomestic bike manufacturers) for a product that was available earlier to them at parwith the market price. Variety of products to consumers will also reduce. In a fewcases; due to this price hike; consumers may also choose to totally refrain frompurchasing the bikes. Canadian Motorcycle Consumers will be hurt by one or both ofthese issues with the 20% import tariff.4
  2. 2. Pisat 2 Will Canada overall be made better or worse off by the tariff?1Canada would overall be worse off with the tariff. Referring to the one-dollar,one-vote metric2; every dollar lost or gained by anyone is equally important. Tounderstand how it affects the economy we can take the example of a singlemotorcycle that is sold over the 3 scenarios below.o Domestic Motorcycle: If the sale takes place; the consumers lose 20% extra onthe price which the domestic producers gain, the government gains nothing.(Production Effect2)o Imported Motorcycle: If the sale takes place; the consumer still loses 20% extraon the price which the government gains as tax. The foreign producer doesn’tgain more than 100% of the price but at overall lower volumes.o Since the upward price rise will also result in many people refraining frompurchasing the motorcycle; none of the parties (domestic or foreign producers,government, consumers) gain anything. (deadweight loss2)Combining the effect of these 3 scenarios with a more inclination towards refrainingfrom a purchase in the minds of the consumers will ultimately result into a netnational loss for Canada.4
  3. 3. Pisat 3 Will the other countries that export motorcycles be made better or worse off bythe Canadian motorcycle tariff?1According to my textbook learning’s; the exporting countries will be worse offsince there will be lesser demand (in Canada) for their supply of motorcycles. Alsothey will not be able to compete fairly with the domestic motorcycle manufacturersin Canada since their product will lose its comparative advantage over thedomestically produced motorcycles post taxes.4On a broader perspective; the exporting countries may eventually becomeneutral to a certain extent and divert their supply to the other countries ready toinvite Canada’s forgone imports of Foreign Motorcycles in their countries. Why might Canada want to put a tariff on imported motorcycles even if thecountry seems to be made worse off? 1“Canadas motorcycle manufacturers are the cornerstone of the Canadianmotorcycle industry. Thousands of other businesses would not, and could not, existwithout the motorcycles these manufacturers produce.”5According to my research and findings6and after applying the “one-dollar, onevote metric”2on a macro level; I can conclude that it’s not just the domesticmotorcycle manufacturer’s industry and their jobs that are at stake but also thehundreds and thousands of related business that would require such a tariff in placeto survive. Hence in totality; use of this tariff may not make the economy as worse offas it may initially seem.
  4. 4. Pisat 4Question 2. Canada has a rule in place (Canadian Content Requirement “CanCon”)that requires that a certain percentage of programming on Canadian television andradio stations is “made in Canada”. This rule limits the amount of content thatbroadcasters in Canada can use from the USA and other countries.(http://en.wikipedia.org/wiki/Canadian_content)Some non-Canadian media companies have charged that this rule is a form of a “non-tariff barrier” to trade.Please explain what is meant by a “non-tariff barrier” to trade, and whether you feelthat the Canadian Content rule is in fact a non-tariff barrier to trade.Do you think that the Canadian Content rule makes Canadian consumers better orworse off?1Non-Tariff Barriers (NTB) are the non tax / tariff restrictions that an economyimposes on trade. It can be better understood by exporters as any non tax relatedhindrance that a foreign firm could face in an economy while promoting its productsor while conducting trade. Domestic Companies / government better understand it asa technique of safeguarding the interests of the domestic firms.Canadian Content (CanCon) on Canadian TV & Radio in my opinion fits theunderstanding that the Domestic Companies / government would follow for NTB. Assuch it doesn’t make the Canadian consumers worse off.Specifically addressing this topic in detail is a challenge as there are numerousaspects that need consideration. CanCon referred by many as NTB was put in place toencourage & promote domestic Canadian talent.Economically: Laws of economics and the broadcasters themselves may term it asunfair when it comes to skimmed profit margins arising out of poor content andratings. My personal experience as a TV program consumer in Canada supports this
  5. 5. Pisat 5notion since I miss out on a lot of popular shows that USA and other countriesproduce. This makes a few of the consumers and most of the broadcasters worse off.-Hereby strengthening the case for cancelling CanCon.Socio-Culturally: Canada has been host to immigrants since long and hence preservingits home culture and grooming future talent is a big test in itself. Absence ofestablished markets like Hollywood / Bollywood makes it tougher. With reference tothe Wikipedia link mentioned in our question; artists like Bryan Adams; Avril Lavigne,Justin Bieber and many others found success when they took their talent overseas.There must also be many unfortunate cases that did not get such opportunities.Preserving the originality and culture of Canada also is imperative. CanCon may endup making the talent and the country (culture) better off.-Hereby strengthening the case for CanCon.Options: With the migration of entertainment media to the internet; entertainmenton the go / online is the next big thing. Television / Radio may eventually becomeredundant to laptops and tablets. I have seen many instances where people includingme consume online pay-per-view or free streaming content to fulfill theirentertainment needs. Hence consumers may not mind CanCon on televisioninadvertently.-Hereby strengthening the case for CanCon.
  6. 6. Pisat 6My Conclusion in support of CanCon:Both the talent and culture in Canada currently require presence of CanCon. Howeverhaving said that; the criteria established to judge CanCon must be revised time totime to make it more realistic and encouraging for new talent rather than acting as ashowcase for the established Canadian talent. The government must start providingimpetus to the culture and local unpopular talent by creating a market like Hollywoodfor its own talent and having broadcast channels to promote Canadian Content in thelong run.Bibliography / End Notes:1. Questions for Essay.2. My inferences & learning’s from the textbook on International Economics (15thEdition) by Thomas A. Pugel.3. Data Source:http://en.wikipedia.org/wiki/Category:Motorcycle_manufacturers_of_Canada4. Underlying assumption that Canadian Motorcycle Manufacturers are producingsimilar motorcycle products to the imported ones from foreign manufacturers.5. Data Source: http://www.enginecycle.ca/motorcycle-manufacturers-directory.6. Data Source:http://www.investorsfriend.com/Canadian%20GDP%20Canadian%20imports%20and%20exports.htm