Assignment 2-Article Presentation

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Read this article.
Carrots Are Fruit, Snail Are Fish and X-Men Are Not Humans

Governments have shown perhaps their greatest trade-policy creativity when deciding in what
categories different imported goods belong. Their decisions are by no means academic. The
stakes are high because an import that falls into one category can be allowed into the country
duty-free, whereas the same import defined as falling into a related category is subject to a high
tariff or banned altogether.

You can bet that if definitions matter so much to trade policy, there will be intense
lobbying over each products official definition. Protectionists will insist that an imported product
be defined as belonging to the category with the high import barrier, but importing firms will
demand that it be put in the duty-free category. When such strong pressures are brought on
government, dont always expect logic in the official definitions.

Some of the resulting rules are bizarre. For example, here are two included in
regulations passed by European Union (EU) in 1994:

Carrots are a fruit. This definition allows Portugal to sell its carrot jam throughout
Western Europe without high duties.
The land snail, famously served in French restaurants, is a fish. Therefore, European
snail farmers can collect fish farm subsidies.

The U.S. government has similarly bent the rules. In the early 1990s Carla Hills, then
the U.S. trade representative, was compelled to call the same car both American and not
American. She told the Japanese government that car exports from U.S. factories owned by
Japanese firms to Japan were Japanese, not American. They did not count when the U.S.
government examined the size of American car exports to Japan. At the same time, she told
European governments that the cars exported to Europe from these same Japanese-owned
factories in the United States were American, so they were not subject to European quotas on
Japanese car imports.

With even greater ingenuity private firms have changed the look and the names of their
products to try to get around each set of official definition. For instance, Subaru once imported
pickup trucks with two flimsy rear seats bolted to the truck bed to avoid the U.S. tariff of 25
percent on regular pickup trucks. To avoid the 25 percent U.S. duty, Ford imports vans from
Turkey as passenger wagons because the vans have both rear side windows and rear seats.

Once past customs Ford removes and trash the rear windows and seats, replace the windows
with metal panels, and sell them as small commercial delivery vans.

In some cases it is a U.S. judge that makes the call. In 2003 a judge studied opposing
legal briefs and more than 60 actions figures, both heroes and villains. Among her conclusions
were that the X-Men were not humans, nor were many of the others. She was not just playing
around. Toys that depict humans are dolls, subject to 12 percent import tariffs, but toys that
depict nonhumans are just toys, subject to a 7 percent tariff.

Such games have been played with great frequency over the definitions of products. As
long as definitions mean money gained or lost, products will be defined in funny ways.

Adapted from Thomas A. Pugel, International Economics, 15th Edition. pg.184.

You are required to answer the questions below:

a. Describe import quotas with an example.
An import quota is a limit on the quantity of a good that can be produced abroad and
sold domestically. It is a type of protectionist trade restriction that sets a physical limit
on the quantity of a good that can be imported into a country in a given period of time. If
a quota is put on a good, less of it is imported. Quotas, like other trade restrictions, are
used to benefit the producers of a good in a domestic economy at the expense of all
consumers of the good in that economy.

b. Why do some governments use quotas instead of just using tariffs to restrict imports by the
same amounts? Is it because quotas bring a bigger national gain than tariffs?

c. Based on the above case study, discuss on your opinion regarding tariffs and its
effectiveness in curbing import into a country.