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IMPORT QUOTA
Free trade is a situation where the international trade of goods is not subject to
government intervention, and relies on demand to determine the rate of imports and
exports related to a specific product. There are several barriers to trade; one of them is
import quota. In this presentation, I will analyze import quota in the most basic sectors
as follows:
I. Definition and purposes
1. Protect domestic industries and employment
2. Protect against unfair trade practices
3. Protect national security
II. Effect
1. Consumer loss and producer gain
2. Promote administrative corruption
III. Classification
1. Absolute quota
2. Tariff-rate quota
IV. Import Quota vs. Tariff
V. Summary
I. DEFINITION AND PURPOSES
Quantity restrictions imposed by the government of one nation on imports from other
nations during a particular time (usually 1 year period). The goal of import quotas is to
reduce the imports and thus encourage domestic consumers to purchase domestic
products. Below are three purposes explaining the use of import quotas:
1. Protect domestic industries and employment: By reducing the number of foreign
imports, domestic suppliers must produce more to meet domestic demand. By
producing more, the suppliers must hire more domestic workers, increasing
employment. Additionally, setting quotas to reduce foreign competition allows
domestic "infant industries," or young, small industries, to grow and mature to a vying
level.
2. Protect against unfair trade practices: Setting a quota helps protect a domestic
economy from unfair trade practices such as dumping, the pricing of imports below
production cost. By restricting imports, quotas minimize the impact of such activities.
3. Protect national security: Import quotas discourage imports and encourage
domestic production of goods that may be necessary to the security of the country. By
protecting and encouraging the growth of these defense-related industries, a country
will not have to be dependent on foreign imports in the event of a war.
II. EFFECT
1. Consumer loss and producer gain
Like other trade barriers, quotas restrict international trade, and thus, have
consequences for the domestic market. In particular, quotas restrict competition for
domestic commodities, which raises prices and reduces selection. This hurts the
domestic consumer, who experiences a loss in consumer surplus. On the other hand,
this very action benefits the domestic producer, who sees an increase in producer
surplus. Often, the increase in producer surplus is not enough to offset the loss in
consumer surplus, so the economy experiences a loss in total surplus.
2. Promote administrative corruption
Quotas may also foster negative economic activities. Import quotas may promote
administrative corruption, especially in countries where import quotas are given to
selected importers. There are incentives to give the quotas to importers who can
provide the most favors or the largest bribes to officials. Quotas may also encourage
smuggling. As quotas raise the price of domestic goods, it becomes profitable to try
and circumvent the quota by bringing in goods illegally, or in excess of the quota.
III. CLASSIFICATION
1. Absolute quota
An absolute quota is a limit on the quantity of specific goods that may enter a country
during a certain time period. Once the quota has been fulfilled, no other goods may be
imported into the country. An absolute quota may be set globally, in which case goods
may be imported from any country until the goal has been reached. An absolute quota
may also be set selectively for certain countries. As an example, suppose an absolute,
global quota for pens is set at 50 million. The government is setting a limit that, in
total, only 50 million pens can be imported. If there were a selective, absolute quota,
only 50 million pens would be able to be imported, but this total would be divided
among exporting countries. Country A might only be able to export 10 million pens,
Country B might be able to export 25 million pens, and Country C might be able to
export 15 million pens. Collectively, the total imports equal 50 million pens, but the
proportions of pens from each country are set.
2. Tariff-rate quota
A tariff-rate quota is a two-tier quota system that combines characteristics of tariffs and
quotas. Under a tariff-rate quota system, an initial quota of a good is allowed to enter
the country at a lower duty rate. Once the initial quota is surpassed, imports are not
stopped; instead, more of the good may be imported, but at a higher tariff rate . For
example, under a tariff-rate quota system, a country may allow 50 million pens to be
imported at the low tariff rate of $1 each. Any pen that is imported after this first-tier
quota has been reached would be charged a higher tariff, say $3 each.
* 4 items that Vietnamese government apply tariff-rate quota: salt, tobacco, egg,
refined and raw sugar.
IV. IMPORT QUOTA VS TARIFF
Both tariffs and import quotas reduce quantity of imports, raise domestic price of good,
decrease welfare of domestic consumers, increase welfare of domestic producers, and
cause deadweight loss. However, a quota can potentially cause an even larger
deadweight loss, depending on the mechanism used to allocate the import licenses. The
difference between these tariff and import quota is that tariff raises revenue for the
government, whereas import quota generates surplus for firms that get the license to
import. Besides, import quota can enable administrative corruption. When an import
quota is used, it allows a country to be sure of the amount of the good imported from
the foreign countries. When there is a tariff, if the supply curve of the foreign country
is unknown, the quantity of the good imported may not be calculable.
V. SUMMARY
SOURCES:
https://www.boundless.com/economics/international-trade/barriers-to-trade/quotas/
http://www.youtube.com/watch?v=273UvjyuVLg&hd=1
http://en.wikipedia.org/wiki/Import_quota
PREPARATION
I. DEFINITION AND PURPOSES
Quantity restrictions imposed by the government of one nation on imports from other
nations during a particular time (usually 1 year period). The goal of import quotas is to (1)
reduce the imports and thus (1) encourage domestic consumers to purchase domestic
products. Below is three purposes explaining the use of import quotas:
1. Protect domestic industries and employment (2)
By reducing the number of foreign imports, domestic suppliers must produce more to
meet domestic demand. By producing more, the suppliers must hire more domestic
workers, increasing employment. Additionally, setting quotas to reduce foreign
competition allows domestic "infant industries," or young, small industries, to grow and
mature to a vying level.
2. Protect against unfair trade practices (2)
Setting a quota helps protect a domestic economy from unfair trade practices such as
dumping, the pricing of imports below production cost. By restricting imports, quotas
minimize the impact of such activities.
3. Protect national security (2)
Import quotas discourage imports and encourage domestic production of goods that may
be necessary to the security of the country. By protecting and encouraging the growth of
these defense-related industries, a country will not have to be dependent on foreign
imports in the event of a war.
Questions:
1. Gap filing, using “encourage”, “reduce”
Import quotas are used to …..the imports and …. domestic buyers to purchase products
from domestic producers.
Answer: reduce/ encourage
2.
Pictures Purposes
1. a. Protect national security
2. b. Protect against unfair trade
practices
3. c. Protect domestic industries and
employment
Answer: 1-c, 2-a, 3-b
2. EFFECT
1. Consumer loss and producer gain
Like other trade barriers, quotas restrict international trade, and thus, have consequences
for the domestic market. In particular, quotas restrict competition for domestic
commodities, which raises prices and reduces selection. This hurts the domestic
consumer, who experiences a loss in consumer surplus. On the other hand, this very
action benefits the domestic producer, who sees an increase in producer surplus. Often,
the increase in producer surplus is not enough to offset the loss in consumer surplus, so
the economy experiences a loss in total surplus.
Image 2.1: The consequence of import quota on consumer and producer (3)
Question 3:What is the consumer loss,
domestic producer gain , quota quantity in
this picture?
Answer
2. Promote administrative corruption
Quotas may also foster negative economic activities. Import quotas may promote
administrative corruption, especially in countries where import quotas are given to
selected importers. There are incentives to give the quotas to importers who can provide
the most favors or the largest bribes to officials. Quotas may also encourage smuggling.
As quotas raise the price of domestic goods, it becomes profitable to try and circumvent
the quota by bringing in goods illegally, or in excess of the quota.
III. CLASSIFICATION
1. Absolute quota
An absolute quota is a limit on the quantity of specific goods that may enter a country
during a certain time period. Once the quota has been fulfilled, no other goods may be
imported into the country. An absolute quota may be set globally, in which case goods
may be imported from any country until the goal has been reached. An absolute quota
may also be set selectively for certain countries. As an example, suppose an absolute,
global quota for pens is set at 50 million. The government is setting a limit that, in total,
only 50 million pens can be imported. If there were a selective, absolute quota, only 50
million pens would be able to be imported, but this total would be divided among
exporting countries. Country A might only be able to export 10 million pens, Country B
might be able to export 25 million pens, and Country C might be able to export 15 million
pens. Collectively, the total imports equal 50 million pens, but the proportions of pens
from each country are set.
2. Tariff-rate quota
A tariff-rate quota is a two-tier quota system that combines characteristics of tariffs and
quotas. Under a tariff-rate quota system, an initial quota of a good is allowed to enter the
country at a lower duty rate. Once the initial quota is surpassed, imports are not stopped;
instead, more of the good may be imported, but at a higher tariff rate. For example, under
a tariff-rate quota system, a country may allow 50 million pens to be imported at the low
tariff rate of $1 each. Any pen that is imported after this first-tier quota has been reached
would be charged a higher tariff, say $3 each.
* 4 items that Vietnamese government apply tariff-rate quota: salt, tobacco, egg, refined
and raw sugar (4).
Question 4: Name 4 items that Vietnamese government apply tariff-rate quota?
Glues: show the picture of these items in case there is no answer.
Answer: refined and raw sugar, egg, salt, tobacco
IV. IMPORT QUOTA VS TARIFF
Both tariffs and import quotas reduce quantity of imports, raise domestic price of good,
(5) decrease welfare of domestic consumers, increase welfare of domestic producers, and
cause deadweight loss. However, a quota can potentially cause an even larger deadweight
loss, depending on the mechanism used to allocate the import licenses. The difference
between these tariff and import quota is that tariff (5) raises revenue for the government,
whereas import quota generates surplus for firms that get the license to import. Besides,
import quota can (5) enable administrative corruption. When an import quota is used, it
allows a (5) country to be sure of the amount of the good imported from the foreign
countries. When there is a tariff, if the supply curve of the foreign country is unknown,
the quantity of the good imported may not be calculable.
Question 5: Which feature belongs to tariff, import quota or both?
Features Tariff Import
Quota
Decrease welfare of domestic consumers
The government can directly control the imports
Raising tax for the government
Can lead to administrative corruption
Answer:
Features Tariff Import
Quota
Decrease welfare of domestic consumers X X
The government can directly control the imports X
Raising tax for the government X
Can lead to administrative corruption X
V. Summary
Question 6: Gap filling, using “corruption”, “tariff rate quota” ,“absolute quota”,
“imports”, “domestic”
Answer: 1-imports, 2-domestic, 3- corruption, 4- absolute quota, 5- tariff rate quota
VOCABULARY
Vocabulary Synonym English meaning
Vietnamese
meaning
Impose
/im'pəuz/
Force
To lay on or set as something
to be obeyed, fulfilled, paid,
etc.
Ex: The decision was theirs
and was not imposed on them
by others
Áp đặt
Infant industries
/'infənt 'indəstri/
Fledgling
industries
Young and weak industries
Ex: automotive industry in VN
Những ngành
công nghiệp non
trẻ
Offset
/ɔf'set/ Compensate
Diminishes or balances the
effect of a contrary one)
Ex: Officials have boosted
levies to compensate for huge
deficits
Bù đắp
Corruption
/kəˈrʌpʃən/
Bribery
Dishonest or fraudulent
conduct by those in power
Ex: He was convicted of
racketeering and corruption
Tham nhũng, hối
lộ
Circumvent
/¸sə:kəm´vent/
Avoid
Find a way around (an
obstacle)
Ex: However, those inventive
motorcyclists have managed to
circumvent the obstacle.
Né tránh
Absolute quota
/'æbsəlu:t 'kwəutə/
The limit on the quantity of
specific goods that may enter a
country during a certain time
period
Hạn ngạch tuyệt
đối
Tariff-rate quota
/'tærif reit 'kwəutə
Two-tier quota system that
combines characteristics of
tariff and quota
Hạn ngạch thuế
quan
Calculable
/'kælkjuləbl/
Predictable
Able to be measured or
assessed.
Ex: A sacrifice is not always a
calculable commodity
Có thể tính được
Smuggling
/ˈsməɡliɳ/
Contraband
Import or export (goods)
secretly, in violation of the
law, esp. without payment of
legal duty.
Ex: She smuggled the gun into
the jail inside a cake.
Buôn lậu
Vying
/'vaiη/ Competitive
Having a strong desire to
compete or to succeed
Ex: They are vying for control
of the liquor business
Cạnh tranh

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Import Quota Effects

  • 1. 7043_Ngọc Châu tranvongocchau@gmail.com IMPORT QUOTA Free trade is a situation where the international trade of goods is not subject to government intervention, and relies on demand to determine the rate of imports and exports related to a specific product. There are several barriers to trade; one of them is import quota. In this presentation, I will analyze import quota in the most basic sectors as follows: I. Definition and purposes 1. Protect domestic industries and employment 2. Protect against unfair trade practices 3. Protect national security II. Effect 1. Consumer loss and producer gain 2. Promote administrative corruption III. Classification 1. Absolute quota 2. Tariff-rate quota IV. Import Quota vs. Tariff V. Summary I. DEFINITION AND PURPOSES Quantity restrictions imposed by the government of one nation on imports from other nations during a particular time (usually 1 year period). The goal of import quotas is to reduce the imports and thus encourage domestic consumers to purchase domestic products. Below are three purposes explaining the use of import quotas: 1. Protect domestic industries and employment: By reducing the number of foreign imports, domestic suppliers must produce more to meet domestic demand. By producing more, the suppliers must hire more domestic workers, increasing employment. Additionally, setting quotas to reduce foreign competition allows domestic "infant industries," or young, small industries, to grow and mature to a vying level. 2. Protect against unfair trade practices: Setting a quota helps protect a domestic economy from unfair trade practices such as dumping, the pricing of imports below
  • 2. production cost. By restricting imports, quotas minimize the impact of such activities. 3. Protect national security: Import quotas discourage imports and encourage domestic production of goods that may be necessary to the security of the country. By protecting and encouraging the growth of these defense-related industries, a country will not have to be dependent on foreign imports in the event of a war. II. EFFECT 1. Consumer loss and producer gain Like other trade barriers, quotas restrict international trade, and thus, have consequences for the domestic market. In particular, quotas restrict competition for domestic commodities, which raises prices and reduces selection. This hurts the domestic consumer, who experiences a loss in consumer surplus. On the other hand, this very action benefits the domestic producer, who sees an increase in producer surplus. Often, the increase in producer surplus is not enough to offset the loss in consumer surplus, so the economy experiences a loss in total surplus. 2. Promote administrative corruption Quotas may also foster negative economic activities. Import quotas may promote administrative corruption, especially in countries where import quotas are given to selected importers. There are incentives to give the quotas to importers who can provide the most favors or the largest bribes to officials. Quotas may also encourage smuggling. As quotas raise the price of domestic goods, it becomes profitable to try and circumvent the quota by bringing in goods illegally, or in excess of the quota. III. CLASSIFICATION 1. Absolute quota An absolute quota is a limit on the quantity of specific goods that may enter a country during a certain time period. Once the quota has been fulfilled, no other goods may be imported into the country. An absolute quota may be set globally, in which case goods may be imported from any country until the goal has been reached. An absolute quota may also be set selectively for certain countries. As an example, suppose an absolute, global quota for pens is set at 50 million. The government is setting a limit that, in total, only 50 million pens can be imported. If there were a selective, absolute quota, only 50 million pens would be able to be imported, but this total would be divided among exporting countries. Country A might only be able to export 10 million pens, Country B might be able to export 25 million pens, and Country C might be able to export 15 million pens. Collectively, the total imports equal 50 million pens, but the proportions of pens from each country are set. 2. Tariff-rate quota A tariff-rate quota is a two-tier quota system that combines characteristics of tariffs and
  • 3. quotas. Under a tariff-rate quota system, an initial quota of a good is allowed to enter the country at a lower duty rate. Once the initial quota is surpassed, imports are not stopped; instead, more of the good may be imported, but at a higher tariff rate . For example, under a tariff-rate quota system, a country may allow 50 million pens to be imported at the low tariff rate of $1 each. Any pen that is imported after this first-tier quota has been reached would be charged a higher tariff, say $3 each. * 4 items that Vietnamese government apply tariff-rate quota: salt, tobacco, egg, refined and raw sugar. IV. IMPORT QUOTA VS TARIFF Both tariffs and import quotas reduce quantity of imports, raise domestic price of good, decrease welfare of domestic consumers, increase welfare of domestic producers, and cause deadweight loss. However, a quota can potentially cause an even larger deadweight loss, depending on the mechanism used to allocate the import licenses. The difference between these tariff and import quota is that tariff raises revenue for the government, whereas import quota generates surplus for firms that get the license to import. Besides, import quota can enable administrative corruption. When an import quota is used, it allows a country to be sure of the amount of the good imported from the foreign countries. When there is a tariff, if the supply curve of the foreign country is unknown, the quantity of the good imported may not be calculable. V. SUMMARY SOURCES: https://www.boundless.com/economics/international-trade/barriers-to-trade/quotas/ http://www.youtube.com/watch?v=273UvjyuVLg&hd=1 http://en.wikipedia.org/wiki/Import_quota PREPARATION I. DEFINITION AND PURPOSES Quantity restrictions imposed by the government of one nation on imports from other nations during a particular time (usually 1 year period). The goal of import quotas is to (1) reduce the imports and thus (1) encourage domestic consumers to purchase domestic products. Below is three purposes explaining the use of import quotas: 1. Protect domestic industries and employment (2)
  • 4. By reducing the number of foreign imports, domestic suppliers must produce more to meet domestic demand. By producing more, the suppliers must hire more domestic workers, increasing employment. Additionally, setting quotas to reduce foreign competition allows domestic "infant industries," or young, small industries, to grow and mature to a vying level. 2. Protect against unfair trade practices (2) Setting a quota helps protect a domestic economy from unfair trade practices such as dumping, the pricing of imports below production cost. By restricting imports, quotas minimize the impact of such activities. 3. Protect national security (2) Import quotas discourage imports and encourage domestic production of goods that may be necessary to the security of the country. By protecting and encouraging the growth of these defense-related industries, a country will not have to be dependent on foreign imports in the event of a war. Questions: 1. Gap filing, using “encourage”, “reduce” Import quotas are used to …..the imports and …. domestic buyers to purchase products from domestic producers. Answer: reduce/ encourage 2. Pictures Purposes 1. a. Protect national security 2. b. Protect against unfair trade practices 3. c. Protect domestic industries and employment
  • 5. Answer: 1-c, 2-a, 3-b 2. EFFECT 1. Consumer loss and producer gain Like other trade barriers, quotas restrict international trade, and thus, have consequences for the domestic market. In particular, quotas restrict competition for domestic commodities, which raises prices and reduces selection. This hurts the domestic consumer, who experiences a loss in consumer surplus. On the other hand, this very action benefits the domestic producer, who sees an increase in producer surplus. Often, the increase in producer surplus is not enough to offset the loss in consumer surplus, so the economy experiences a loss in total surplus. Image 2.1: The consequence of import quota on consumer and producer (3) Question 3:What is the consumer loss, domestic producer gain , quota quantity in this picture? Answer
  • 6. 2. Promote administrative corruption Quotas may also foster negative economic activities. Import quotas may promote administrative corruption, especially in countries where import quotas are given to selected importers. There are incentives to give the quotas to importers who can provide the most favors or the largest bribes to officials. Quotas may also encourage smuggling. As quotas raise the price of domestic goods, it becomes profitable to try and circumvent the quota by bringing in goods illegally, or in excess of the quota. III. CLASSIFICATION 1. Absolute quota An absolute quota is a limit on the quantity of specific goods that may enter a country during a certain time period. Once the quota has been fulfilled, no other goods may be imported into the country. An absolute quota may be set globally, in which case goods may be imported from any country until the goal has been reached. An absolute quota may also be set selectively for certain countries. As an example, suppose an absolute, global quota for pens is set at 50 million. The government is setting a limit that, in total, only 50 million pens can be imported. If there were a selective, absolute quota, only 50 million pens would be able to be imported, but this total would be divided among exporting countries. Country A might only be able to export 10 million pens, Country B might be able to export 25 million pens, and Country C might be able to export 15 million pens. Collectively, the total imports equal 50 million pens, but the proportions of pens from each country are set. 2. Tariff-rate quota A tariff-rate quota is a two-tier quota system that combines characteristics of tariffs and quotas. Under a tariff-rate quota system, an initial quota of a good is allowed to enter the country at a lower duty rate. Once the initial quota is surpassed, imports are not stopped; instead, more of the good may be imported, but at a higher tariff rate. For example, under a tariff-rate quota system, a country may allow 50 million pens to be imported at the low tariff rate of $1 each. Any pen that is imported after this first-tier quota has been reached would be charged a higher tariff, say $3 each. * 4 items that Vietnamese government apply tariff-rate quota: salt, tobacco, egg, refined and raw sugar (4). Question 4: Name 4 items that Vietnamese government apply tariff-rate quota? Glues: show the picture of these items in case there is no answer.
  • 7. Answer: refined and raw sugar, egg, salt, tobacco IV. IMPORT QUOTA VS TARIFF Both tariffs and import quotas reduce quantity of imports, raise domestic price of good, (5) decrease welfare of domestic consumers, increase welfare of domestic producers, and cause deadweight loss. However, a quota can potentially cause an even larger deadweight loss, depending on the mechanism used to allocate the import licenses. The difference between these tariff and import quota is that tariff (5) raises revenue for the government, whereas import quota generates surplus for firms that get the license to import. Besides, import quota can (5) enable administrative corruption. When an import quota is used, it allows a (5) country to be sure of the amount of the good imported from the foreign countries. When there is a tariff, if the supply curve of the foreign country is unknown, the quantity of the good imported may not be calculable. Question 5: Which feature belongs to tariff, import quota or both? Features Tariff Import Quota Decrease welfare of domestic consumers The government can directly control the imports Raising tax for the government Can lead to administrative corruption Answer: Features Tariff Import Quota Decrease welfare of domestic consumers X X The government can directly control the imports X Raising tax for the government X Can lead to administrative corruption X
  • 8. V. Summary Question 6: Gap filling, using “corruption”, “tariff rate quota” ,“absolute quota”, “imports”, “domestic” Answer: 1-imports, 2-domestic, 3- corruption, 4- absolute quota, 5- tariff rate quota
  • 9. VOCABULARY Vocabulary Synonym English meaning Vietnamese meaning Impose /im'pəuz/ Force To lay on or set as something to be obeyed, fulfilled, paid, etc. Ex: The decision was theirs and was not imposed on them by others Áp đặt Infant industries /'infənt 'indəstri/ Fledgling industries Young and weak industries Ex: automotive industry in VN Những ngành công nghiệp non trẻ Offset /ɔf'set/ Compensate Diminishes or balances the effect of a contrary one) Ex: Officials have boosted levies to compensate for huge deficits Bù đắp Corruption /kəˈrʌpʃən/ Bribery Dishonest or fraudulent conduct by those in power Ex: He was convicted of racketeering and corruption Tham nhũng, hối lộ Circumvent /¸sə:kəm´vent/ Avoid Find a way around (an obstacle) Ex: However, those inventive motorcyclists have managed to circumvent the obstacle. Né tránh
  • 10. Absolute quota /'æbsəlu:t 'kwəutə/ The limit on the quantity of specific goods that may enter a country during a certain time period Hạn ngạch tuyệt đối Tariff-rate quota /'tærif reit 'kwəutə Two-tier quota system that combines characteristics of tariff and quota Hạn ngạch thuế quan Calculable /'kælkjuləbl/ Predictable Able to be measured or assessed. Ex: A sacrifice is not always a calculable commodity Có thể tính được Smuggling /ˈsməɡliɳ/ Contraband Import or export (goods) secretly, in violation of the law, esp. without payment of legal duty. Ex: She smuggled the gun into the jail inside a cake. Buôn lậu Vying /'vaiη/ Competitive Having a strong desire to compete or to succeed Ex: They are vying for control of the liquor business Cạnh tranh