Discuss carefully how import tariffs, import quotas, and VERs affect consumers, producers and government revenue in...

Discuss carefully how import tariffs, import quotas, and VERs affect consumers, producers and government revenue in the importing country? Which import barriers is less distorting and why?

Expert Solution

The tariff reaction can vary from country to country as well as from commodity to commodity. Therefore, its restrictive influence is not inherently determined by the amount of a tariff. Such comparisons typically only apply to products for which tariffs are the key protective device. This is generally true in developed countries for non-agricultural products (other strategies, such as import quotas, are a common means of protecting agricultural commodities) While tariffs on imported raw materials will protect those commodities ' domestic producers, these tariffs will also increase costs for domestic manufacturers who use those raw materials.

The effective protection rate also depends on the share of value added in the price of the product. Effective rates can be very high if a small percentage or very low value added to the imported product is a large percentage of the total price. Therefore, effective protection can be much higher in one country than in another, even though its nominal tariffs are lower, if it chooses to import high-level manufacturing goods with correspondingly low value-added ratios to the product price.

Another barrier is voluntary export restriction (VER), which has been noted as having a less detrimental effect on the country's political relations. Deleting is relatively easy, too. This strategy was introduced in the early 1980s, when Japanese manufacturers "voluntarily" limited their exports of vehicles to the U.S. market under pressure from U.S. rivals. Unlike quotas, the VERs limit the amount of trade and thus tend to increase the prices of imported goods

Tariff quotas are contradictions of two separate tariff rates, in that they administer a higher tariff until imports reach the quota level. The EEC has extended tariff quotas to a collection of forest products. Good examples of this-form of non-tariff distortion-are those relating to newsprint, paper and paperboard, plywood and wood mouldings.

Log export controls provide domestic processing industries with protection by lowering the domestic log prices. These controls however discriminate against log exporters, especially newcomers. The restrictions also encourage log exports from private forests in some countries, causing disparities in the log supply between the public and private sector

Rahul Sunny answered 1 year ago

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