Quotas, Tariffs, and Dumping
Introduction
In the response of every economies in the world wide and in the aim of the each government to protect their domestic industries, the trade policies are created. The World Trade Organization (WTO) is the main international governing body that monitors the trading policies imposed by various countries to effectively resolve the disputes or problems and in the end, reach the agreement among the trading countries.
Trade Policies
Tariff is a tax that is applied on imports and most of the tariffs are imposed based on the products that should be imported. Examples of tariffs are specific tariffs which is based on the unit of taxable imports and ad valorem tariffs which is based on the value of the imports. Tariffs are imposed because of four reasons: (1) to discourage the consumption, most especially in those products that are not promoting health and wellness like cigarettes and tobaccos and alcohols; (2) to raise revenues; (3) to discourage importation; and (4) to protect the domestic industries. If all of the people in the country will patronize the international products then the domestic industry will demise leaving the country underdeveloped and exploited with all its promising resources and skills.
In the economic welfare, the trade policies are suggested to be the effective rate for the protection. This means that the taxes should be not too high in order to maintain the trading relationships of the country with the others; but not too law to continue the restriction and regulation of the products. The tariff rates vary across the goods and services and even over time. The weighted average tariff rate is the sum of weighted tariff rates that are imposed for each good in the rates based on the percentage value of the import of that good which is relative to the total value of all imports.
There are also Non-Tariff barriers or policies that can be applied in trading which are quotas and dumping. Quotas are the quantitative restrictions on imports. It can be also applied in exportation voluntarily and with the effectiveness of subsidies. While dumping, is considered as regulatory and technical standards. Most of its application is used by the government in terms of purchasing policies. In the comparison of tariff against the non-tariff policies, it is addressed that if a country solely implemented the quotas, the country will experience greater loss in their welfare and domestic industries. This is because quota is less flexible making it less effective.
Responses of the Countries
In various countries, the imposition of tariffs is welcome but it may have the threat to increase the cost of the products in the domestic, most especially on the products that are considered as the necessity of the consumers. The use of strict trade policy might injure the trading competition, especially of the least developed countries. However, if there is promotion on free trade between the nations or lowering the tariffs and even the other barriers to trade such as quotas, there is not enough security for the country to limit the entrance of import products. The effect of quota as compared to tariff is not that strong which cannot also satisfy the aim of the country in safeguarding their domestic industries. Within the context of trade policies, it is assumed that the tariffs and quotas should both incorporate in the idea of imports to avoid the cause or threat in the domestic industries.
The small importing countries are the main “losers” if the tariff imposed in one country is too high. This is the very reason on why most of the economists are against the imposition of the tariff because of the small country will not only realize much loss but also the same injury in their industry as much perceived by the other countries. But despite to the negative effects of tariff impositions, the primary reason for the imposition of tariff is that governments are using these trading policies to raise the revenue, aside from the individual and business taxes they imposed in their nation. The secondary reason is the politics which emphasizing the protective action of the government in protecting the domestic firms and not create much damage in the consumers. Third reason is that a small-country may not hold in the competition which is different from the ability of developed countries. If a large-country has a decrease in imports demanded due to the tariff causes foreign exporters to lower their prices.
References:
Import Tariffs and Quotas under Perfect Competition, (2007) [Online] Available at: http://www.worthpublishers.com/html/staticcontent/nonstandard/include/0716792834/IR_Sample_Import%20Tariffs%20and%20Quotas%20under%20Perfect%20Competition.pdf [Accessed 08 September 2010].
Import Tariffs and Quotas under Perfect Competition, (2008) [Online] Available at: http://www.worthpublishers.com/html/staticcontent/nonstandard/include/0716792834/TradeCH08.pdf [Accessed 08 September 2010].
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