I. The fundamentals of trade policy
A. Trade restrictions

NOTE: this page covered in 2:30 section; not 3:30.

3. Other nontariff barriers to trade (NTBs)
    Nearly all are worse than tariffs and quotas

    Ex.1: technical and administrative barriers
    France: all VCR imports from Japan must clear customs at an island off the mainland
    EU: forklifts must be unpacked and tested in Scotland, then repacked and shipped to the rest of Europe
    Japan: quality certifications. Until 1980s, Ms were ineligible for these certs. Then, couldn't be done at exporters' factories, only at port of entry => higher costs
    US: origin labels--on each item: Takes 35 documents, 360 copies to execute an average transaction
    WTO: tries to enforce nondiscrimination and transparency to allow reasonable policies but avoid disguised trade barriers

    Ex.2: government procurement practices
    Mainly a problem for products which are specially made for government. Then we may pay more to have it built domestically.
    Ex: LA canceling contract to buy metrorail cars from Sumitomo of Japan
    Japan: restrictions on foreign construction projects.
    WTO:  exemptions from procurement provisions: local governments / national security / construction / small and minority-owned businesses

    Ex.3: domestic content requirements
    Requires that a given proportion of a good be produced with domestic inputs.
    Designed to stop foreign out-sourcing
    Raises costs on both domestic production and imports
    WTO: prohibited (Article III of GATT 1994)
    Used now primarily to classify imports under free trade areas 

    economists think all these are worse than tariffs and quotas because they raise actual production costs
    If you're going to restrict imports, at least keep the true costs as low as possible

B. Trade promotion

    restricting trade reduced national welfare
    what about promoting it?

    Export subsidies (Xsub)
    Note: Always occur along with trade restrictions to prevent re-importing the same product

    Who gains and who loses when the US subsidizes cotton exports?

    The Agriculture Agreement of the WTO allows export subsidies that are not trade distorting
    --but that would be possible only for truly small countries.
    --large countries would by definition affect world prices by exporting more

    Example: export subsidy worksheet

    As a real-world matter, policies rarely target a particular subsidy size--they specify a target price for sellers or a target quantity.

    Results of an export subsidy:
    Result 1. lower national welfare due to (1) overproduction (2) underconsumption and (3) lower ToT

    Result 2: dumping: selling exports for a price below the exporter's domestic price

    Real world: Trade body rules against U.S. on cotton subsidies

II. Efficient policymaking in global markets
A. First-best policy making

    Goal of first-best policy making: choose the policy that most directly targets your goal. Why?
    (1) best assures the outcome you want
    (2) best avoids unintended side effects

    Situation: a small-country importer has a social objective:
    Example: discourage smoking. Options?

In Econ101: it didn't matter who you taxed or subsidized     all taxes and subsidies affected both Qs and Qd, with the impact shared between buyers and sellers depending on the slopes of S and D