IP 325
European Integration
ZS 2011/2012
26.10.2011
Trade Policy and its Instruments
• Trade Policy – set of intensions, strategies, principles,
instruments, applicable measures, agreements and
institutions through which sovereign governments control
international economic relations of companies and countries.
Two basic directions of Trade Policy:
• Liberalism (free trade)
• Protectionism (restrictions and regulations)
Neither of these two exists in its pure form, in reality it is
always a mixture of the. Autarchy – extreme internal
application of protectionism; Embargo – political decision
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Trade Policy -- cont.1
Trade in goods:
• Industrial goods
• Agricultural goods
Trade in Services (banking and finance, tourism, transport,
educational, health, legal services),
Government and Public Orders,
Intellectual Property,
International Investments,
Competitiveness,
Ecology, Health and Safety (Mutual Recognition Agreements)
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Instruments of Trade Policy
Basic division:
1. protecting internal market
supporting export
2. tariff
non-tariff
3. autonomous
contractual (bi- or multilateral)
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Instruments of Trade Policy - Tariffs
• Tariff: tax collected by a state authority,
related to goods crossing the custom borders.
Historically: income of the sovreign
• Toll – tariff collected for using roads or
crossing rivers or bridges
In middle ages one of the principal sources of income of the
sovereign; nowadays often used in PPP projects (highways,
tunnels, bridges etc.)
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Tariffs - cont. 1
Ungelt or Tyn Courtyard: the complex of buildings around a
courtyard near the Prague Old Town Square. It was founded in
the 12 th century as a place, where merchants from foreign
countries paid customs for the goods they brought to Prague.
The courtyard was there to protect them and their goods.
Everyone who entered the Tyn courtyard was under the
protection of the king, that´s why everyone had to pay to get
there. This payment evolved into customs and the old German
word for customs was “ungelt”, hence the second name of
the courtyard.
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Tariffs - cont. 2
• USA: Tariffs (customs) were by far the largest source of federal
revenue from the 1790s to the eve of World War I, until they
were surpassed by income taxes (1913). Customs duties as set
by tariff rates were up to 1860 usually about 80-95% of all
federal revenue (now only slightly more than 1 %).
• Tariffs are being gradually replaced by non-tariff and
especially contractual instruments of trade policy, as they
represent a powerful bargaining tool.
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Tariffs - cont. 3
Tariffs:
• import tariffs
• export tariffs
• historically also transit tariffs
Tariff calculation:
• specific tariffs – fixed charge for each unit of goods imported
• ad valorem tariffs – percentage of the value of goods
• mixed tariffs (higher amount of the two)
• compound tariffs
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Tariffs - cont. 4
Tariffs:
• fiscal
• protectionist (prohibitive, preferential, differential)
Tariffs:
• prohibitive (infant industry argument)
• differential (shipment requirements, good governance)
• compensational (above the MFN tariff)
• retaliatory (can lead to trade wars)
Harmonized Commodity Description and Coding System (WCO)
97 chapters, 6-digits code (HS code) for each commodity
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Trade Control Measures
• UNCTAD Coding System of Trade Control
Measures, established in late 1980’s after
several revisions, contains:
• 1 chapter for tariffs,
• 1 for para-tariffs and
• 6 chapters for NTMs
• NTMs are divided into Core and non-Core
measures
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Non-tariff Barriers to Trade
• Growing importance of Technical Measures as Barriers to
Trade in the face of elimination of Core-Measures
Non-Core Measures
Core Measures
1994
2004
55.3%
44.7%
83.1%
16.9%
Source: Background paper to the UNCTAD Expert Group Meeting on NTBs, September
2005
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Non-tariff Barriers
Para-tariff barriers to trade:
A charge on an imported good instead of, or in addition to, a
tariff. Measures that increase the cost of imports in a manner
similar to tariff measures, i.e. by a fixed percentage or by a
fixed amount, calculated respectively on the basis of the value
and the quantity.
Four groups of para-tariff barriers are:
customs surcharges;
additional charges;
internal taxes and charges levied on imports;
decreed customs valuation.
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Non-tariff Instruments of Trade Policy
UNCTAD – Non-Tariff Barriers to Trade:
Collection of Non-Tariff Measures started in 1980’
UNCTAD classification does not cover:
•
•
•
•
•
•
Corruption
Export-related Measures
Government Procurement
Intellectual Property Rights
Investment-Related Measures
Service
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Non-tariff Barriers to Trade
• quantitative restrictions: are considered to have a greater
protective effect than do tariff measures, and are more likely
to distort the free flow of trade. When a trading partner uses
tariffs to restrict imports, it is still possible to increase exports
as long as foreign products are price-competitive enough to
overcome the barriers created by the tariff.
• However, when a trading partner uses quantitative
restrictions, it is impossible to export in excess of the quota no
matter how price competitive foreign products may be. Thus,
quantitative restrictions are considered to have a much
greater distortional effect on trade than tariffs.
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Non-tariff barriers to trade
• Non-tariff barriers to trade
– Import licenses
– Import quotas
– Subsidies
– Voluntary Export Restraints
– Local content requirements
– Export licenses
– Embargo
– Currency devaluation
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Import Licence
A document issued by a national government authorizing the
importation of certain goods into its territory.
Import licenses are considered to be non-tariff barriers to
trade when used as a way to discriminate against another
country's goods in order to protect a domestic industry from
foreign competition. Each license specifies the volume of
imports allowed, and the total volume allowed should not
exceed the quota. Licenses can be sold to importing
companies at a competitive price, or a fee. Government may
put certain restrictions on what is imported as well as the
amount of imported goods and services.
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Import Quota
• sets a physical limit on the quantity of a good that can be
imported into a country in a given period of time. Quotas, like
other trade restrictions, are used to benefit the producers of a
good in a domestic economy at the expense of all consumers
of the good in that economy.
• Quotas may lead to corruption (bribes to get a quota
allocation), smuggling (circumventing a quota), and higher
prices for consumers.
• In economics, quotas are thought to be less economically
efficient than tariffs which in turn are less economically
efficient than free trade.
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Subsidy (subvention)
• A subsidy (subvention) is an assistance paid to a business or
economic sector. Most subsidies are granted by the
government to producers or distributors in an industry to
prevent the decline of that industry (e.g., as a result of
continuous unprofitable operations) or an increase in the
prices of its products or simply to encourage it to hire more
labor (a wage subsidy). Examples are subsidies to encourage
the sale of exports; subsidies on some foods to keep down the
cost of living, especially in urban areas; and subsidies to
encourage the expansion of farm production and achieve selfreliance in food production.
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Voluntary Export Restraint
• voluntary export restraint (VER) or voluntary export restriction
is a government imposed limit on the quantity of goods that
can be exported out of a country during a specified period of
time.
• Typically VERs arise when the import-competing industries
seek protection from a surge of imports from particular
exporting countries. VERs are then offered by the exporter to
appease the importing country and to deter the other party
from imposing even more explicit (and less flexible) trade
barriers. 1981 voluntary restraint agreement limited the
Japanese to exporting 1.68 million cars to the U.S. annually.
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Local content requirements
Export licenses
• Local content requirements: large industrial
complexes or machines can be imported only if they
include a certain percentage of locally produced
parts (Czech trams to USA – up to 60 %)
• Export licenses: government limits export of a scarce
commodity or product by putting ceiling in either
value or some other indicator to the total amount of
such product that would be allowed for exportation.
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Embargo
• Embargo is the partial or complete prohibition of commerce and trade
with a particular country, in order to isolate it. Embargoes are considered
strong diplomatic measures imposed in an effort, by the imposing country,
to elicit a given national-interest result from the country on which it is
imposed. Embargoes are similar to economic sanctions and are generally
considered legal barriers to trade (not to be confused with blockades,
which are often considered to be acts of war).
• One of the most comprehensive attempts at an embargo happened during
the Napoleonic Wars. In an attempt to cripple the United Kingdom
economically, the Continental System – which forbade European nations
from trading with the UK – was created. In practice it was not completely
enforceable and was as harmful if not more so to the nations involved
than to the British.
• The US imposed an embargo (still standing) on Cuba in 1962.
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Contractual Instruments of Trade Policy
Contractual instruments are:
• bilateral
• multilateral
They come into force on the basis of contracts
(agreements) with other countries.
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