Suppose that the domestic government allows a specific number of goods to be imported each year but it does not specify from where the product is shipped or who is permitted to import. Such a trade barrier is known as
Options:
| a. an import tariff b. a tariff-rate quota c. a selective quota d. a global quota |
The Correct Answer Is:
d. a global quota
Correct Answer Explanation: d. a global quota
A global quota, in the context of international trade, refers to a restriction imposed by a government on the total quantity or value of a particular product that can be imported into a country within a specified period of time.
Unlike other types of quotas, a global quota does not specify the countries from which the product can be imported or who is permitted to import it. This means that as long as the total quantity or value limit is not exceeded, the specific origin of the goods or the identity of the importer is not restricted.
A global quota is a trade barrier that allows the domestic government to control the overall level of imports for a particular product without dictating the specific sources of those imports or the entities allowed to import them.
This type of quota is less restrictive in terms of the source of imports compared to other forms of quotas, making it a more flexible policy tool for the government.
Now, let’s discuss why the other options listed are not correct:
a. An import tariff:
An import tariff is a tax imposed by a government on imported goods. It is a common trade barrier used to generate revenue for the government and to protect domestic industries from foreign competition.
When an import tariff is applied, it increases the price of the imported goods, making them more expensive for consumers in the domestic market.
This, in turn, reduces the competitiveness of the imported goods compared to domestically produced alternatives. The primary purpose of an import tariff is to alter the relative prices of imported and domestically produced goods, rather than restricting the quantity or source of imports.
In this scenario, the government is allowing a specific quantity of goods to be imported, but it is not specifying the source or permitted importers. This aligns more closely with a global quota rather than an import tariff.
b. A tariff-rate quota:
A tariff-rate quota is a more nuanced trade policy tool. It combines elements of both a tariff and a quota. Under a tariff-rate quota, a certain quantity of a specific product can be imported at a lower tariff rate, while any quantity beyond that threshold is subject to a higher, often prohibitive, tariff rate.
This is designed to encourage a certain level of imports at a lower tariff, while discouraging excessive imports with the higher tariff rate.
In contrast, the scenario describes a situation where the government sets a limit on the total quantity or value of imports, but does not differentiate between different sources or impose different tariff rates based on quantity. This aligns more with a global quota than a tariff-rate quota.
c. A selective quota:
A selective quota, also known as a country-specific quota or bilateral quota, is a trade restriction that limits the quantity of a specific product that can be imported from a particular country or group of countries.
Unlike a global quota, which imposes an overall limit without specifying the source, a selective quota targets imports from specific countries or regions. The intent is to protect domestic industries from competition from specific foreign markets.
In this scenario, the government is not specifying any particular countries from which the imports must originate. Instead, it is placing a general restriction on the total quantity or value of imports. This aligns more closely with a global quota than a selective quota.
In summary, the scenario best fits the description of a global quota because it involves a restriction on the total quantity or value of imports without specifying the source or permitted importers, which distinguishes it from the other options (a, b, and c) that involve more specific restrictions or tariffs.
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