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IMPORT QUOTAFree 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 purposes1. Protect domestic industries and employment2. Protect against unfair trade practices3. Protect national securityII. Effect1. Consumer loss and producer gain2. Promote administrative corruptionIII. Classification1. Absolute quota2. Tariff-rate quotaIV. Import Quota vs. TariffV. Summary

I. DEFINITION AND PURPOSESQuantity 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. EFFECT1. Consumer loss and producer gainLike 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 corruptionQuotas 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. CLASSIFICATION1. Absolute quotaAn 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 quotaA 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 TARIFFBoth 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=1http://en.wikipedia.org/wiki/Import_quota

PREPARATIONI. DEFINITION AND PURPOSESQuantity 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. CLASSIFICATION1. Absolute quotaAn 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 quotaA 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, tobaccoIV. IMPORT QUOTA VS TARIFFBoth 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 consumersThe government can directly control the importsRaising tax for the governmentCan lead to administrative corruption

Answer: Features Tariff Import

QuotaDecrease welfare of domestic consumers X XThe government can directly control the imports XRaising tax for the government XCan lead to administrative corruption X

V. SummaryQuestion 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 meaningVietnamese

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