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Instruments of trade policy
Trade policy uses seven main instruments: tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies and antidumping duties.
A tariff is a tax levied on imports or exports. They are divided in two categories:
1. Specific tariffs: are levied as a fixed charge for each unit of a good imported.
2. Ad valorem tariffs: are levied as a proportion of the value of the imported good
In most cases, tariffs are placed on imports to protect domestic producers; tariffs increases government revenues.
A subsidy is a government payment to a domestic producer. They take many forms like, cash grants, low-interest loans, tax breaks and government equity participation in domestic firms. Subsidies help domestic producers in two ways: (1) competing against foreign imports and (2) gaining export markets.
An import quota is a direct restriction on the quantity of some good that maybe imported into a country. The restriction is usually enforced by issuing import licenses to a group of individuals or firms
A voluntary export restraint is a quota on trade imposed by the exporting country, typically at the request of the importing country’s government.
A local content requirement is a requirement that some specific fraction of a good needs to be produced domestically.
Administrative trade policies are bureaucratic rules designed to make it difficult for imports to enter a country.
Antidumping duties. Dumping is a variously defined as selling goods in a foreign market at below their costs of producing; dumping is viewed as a method by which firms unload excess production in foreign markets. Antidumping policies are designed to punish foreign firms that engage in dumping. Their objective is to protect domestic producers from unfair foreign competition.
A tariff is a tax levied on imports or exports. They are divided in two categories:
1. Specific tariffs: are levied as a fixed charge for each unit of a good imported.
2. Ad valorem tariffs: are levied as a proportion of the value of the imported good
In most cases, tariffs are placed on imports to protect domestic producers; tariffs increases government revenues.
A subsidy is a government payment to a domestic producer. They take many forms like, cash grants, low-interest loans, tax breaks and government equity participation in domestic firms. Subsidies help domestic producers in two ways: (1) competing against foreign imports and (2) gaining export markets.
An import quota is a direct restriction on the quantity of some good that maybe imported into a country. The restriction is usually enforced by issuing import licenses to a group of individuals or firms
A voluntary export restraint is a quota on trade imposed by the exporting country, typically at the request of the importing country’s government.
A local content requirement is a requirement that some specific fraction of a good needs to be produced domestically.
Administrative trade policies are bureaucratic rules designed to make it difficult for imports to enter a country.
Antidumping duties. Dumping is a variously defined as selling goods in a foreign market at below their costs of producing; dumping is viewed as a method by which firms unload excess production in foreign markets. Antidumping policies are designed to punish foreign firms that engage in dumping. Their objective is to protect domestic producers from unfair foreign competition.
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