NONTARIFF BARRIERS TO INTERNATIONAL TRADE IN STEEL Thesis for the Degree of Ph.D. Michigan State University CRAIG ROBERT MACPHEE 1970 ill HIHH WWII!!!HUM/HI Ill/INS!!! " LIBRARY MICHIGAN STATE UNIVERSITY LIBRARIE ”was 3 1293 01591 4165 ML. ‘Ei‘jftil State University This is to certify that the thesis entitled NONTARIFF BARRIERS TO INTERNATIONAL TRADE IN STEEL presented by Craig Robert MaoPhee has been accepted towards fulfillment of the requirements for __Ph___. D. degree in Economics fiMOZEO/m: 7/‘00W9b Major professor Date May 15: 1970 0-169 SCK‘.‘ TM “5. ‘€:.‘l at .."..VU ‘ 1r ' . on, One "u‘ Eli. “ ‘ W‘s-Ha. .. ABSTRACT NONTARIFF BARRIERS To INTERNATIONAL TRADE IN STEEL By Craig Robert MacPhee This dissertation deals with the influence of nontariff restrictions on international trade in steel. In particular. the study estimates the value of steel imports excluded by nontariff barriers in each of the maaor Free-World steel- trading countries. The main steel traders include Belgium. Canada. France, West Germany. Italy. Japan, Luxembourg. Netherlands, the United Kingdom and the United States. The definition of nontariff barriers used here covers any import restriction subject to government control. with the exception of duties. ‘The nontariff devices for import control consist of (1) foreign trade policy measures like quantitative restrictions, antidumping regulations, biased government procurement. import surcharges. and export sub- sidization; (2) administrative practices on the part of cus- toms authorities; (3) internal policies such as domestic subsidization, taxation, and national security restrictions; and (4) restrictive business practices which governments usually police. The results of an intensive investigation of 39 specific nontariff barriers appears in the appendix to this study. As indicated there, the potential restrictiveness of each ‘z“‘ 9- eOOV. c any “‘ 1'5...“ ne‘bgu I he. Inev- a]. ‘0 IV 0 is l w. ‘ ....,7 31 gigs. : Vow-vi, Oat. ‘ .v-v' . the '9 er. ‘ 1.3“ "".t— he 'gs-J 1%! 3‘50 ‘35 ' 5 t \J 3‘ u‘e a: i Craig Robert MacPhee barrier varies markedly with the product and country under consideration. Nevertheless, it can be seen that in one or another of the ten major steel-trading countries steel im- ports are excluded by 34 different nontariff barriers. The only barriers that steel has avoided to any extent are those erected by internal policies. France appears to impose the most restrictions on steel and Canada the least. However, the height of most of these barriers cannot be precisely determined. because only a few of them can be expressed in numerical terms. Focusing on the few barriers which can be quantified, this study describes the equivalence of nontariff barriers and advalorem tariffs. This strong similarity is based on the import-domestic price differential which all restrictions create. Given this equivalency, the differentials caused by quantified nontariff restraints are estimated and expressed in terms of advalorem tariff-like rates. Estimates of the advalorem rates of some nontariff bar- riers and the restrictiveness of all these restraints require knowledge of demand and supply elasticities for both domestic and foreign trade in steel. Consequently, this study pre- sents statistical estimates of the elasticity of the United States import demand for steel, as well as other estimates of foreign import demand elasticities. In addition domestic supply and demand. and export supply and demand elasticities are derived. I: “t " 5.1.1. ' A I ’:':Q 6' ‘On.. U. -‘ ‘F‘c -' .' 4.”:‘5 Craig Robert MacPhee Information on quantified nontariff barriers, elasticities and the current value of steel imports of the ten main steel traders are employed in estimating the value of steel imports excluded. The results indicate that the United States keeps out the largest amount of steel imports in absolute terms as well as the largest amount relative to current imports. How— ever, in relative terms the United States is closely followed by Japan, the United Kingdom, and Canada. Another comparison finds the few nontariff barriers quantified in this study to be more restrictive than tariffs in at least five of the ten major steel-trading countries. NONTARIFF BARRIERS TO INTERNATIONAL TRADE IN STEEL By Craig Robert MacPhee A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Economics 1970 g: Copyright by CRAIG ROBERT MACPHEE 1971 ii Ill ACKNOWLEDGMENTS Heartfelt thanks go to my family, friends and teachers for their help and encouragement. In particular, my wife, Kathleen, and my advisor. Professor Mordechai E. Kreinin, deserve special credit. 111 «A t I“. 'N.‘ O.‘ . 1".‘ ~ ‘~.. LIST OF TABLE OF CONTENTS TABLES O O O O O O O O O O O O 0 LIST OF FIGURES e e e e e e e e e e e 0 CHAPTER ONE: INTRODUCTION . . . . . . . I. II. III. IV. V. VI. VII. VIII. CHAPTER I. II. III. II. The Steel Trade Reversal and Its Causes . . . The Importance of Nontariff Barriers . . . . . The Need for Quantitative Analysis of Nontariff Barriers . . . . Definition of Nontariff Barriers The Countries to be Considered . The Plan for Analysis of Nontariff Barriers Sources of Information on Nontariff Barriers A. Government Publications . . B. Other Organizations . . . . C. Newspapers, Periodicals. and Books D. Private Correspondence . . E. Questionnaires . . . . . . FOOtnOtBS e e e e e e e e e e 0 TWO! NONTARIFF BARRIERS TO STEEL Introduction 0 e e e e e e e e e A. The Number and Distribution Barriers . of Nontariff B. Quantifiable Nontariff Barriers to Steel The Restrictive Effect of Trade Barriers . . A. Tariffs and Quotas . . . . B. Direct Nontariff Barriers . Ce SUbSidies e e e e e e e e e FOOtnOtes e e e e e e e e e e e THREE: ELASTICITIES OF DEMAND AND SUPPLY FOR STEEL AMONG THE MAJOR STEEL-TRADING COUNTRIES . . . . . . . Introduction . . . . United States Import Demand Elasticity A. The Model 0 e e e e e e e e Be The variables 0 e e e e e e iv Page vi 24 29 30 34 35 41 #2 #2 #2 48 In! a... ‘ol III. IV. V. VI. VII. CHAPTER VII. APPENDIX ONE: 0. D. E. Estimated Parameters of the Model . Test for Autocorrelation Causes of Elasticity Changes Domestic Demand and Supply Elasticities Foreign Import Demand Elasticities . . A. B. c. D. E. The Problem . The Assumption of Identical Domestic Elasticities The Method of Calculation . Other Estimates . . . World Demand for Steel Imports Export Supply Elasticities . Method of Calculation . A. B. FOUR: Other Estimates . The Elasticity of Demand for Exports Footnotes THE RESTRICTIVENESS OF NONTARIFF TO STEEL . Introduction . . . Government Procurement Policies Quantitative Restrictions A. B. Subsidies A. B. France . . . United. States a e 0 Domestic Subsidies Export Subsidies Other Nontariff Barriers The Total Amount of Steel Restricts Tariff and Nontariff Restrictions A. B. C. D. Nominal Tariff Rates Unweighted Averages . The Effective Rate of Protection Comparison of Tariff and Nontariff Restrictions FOREIGN TRADE POLICIES . APPENDIX TWO: ADMINISTRATIVE PRACTICES . APPENDIX THREE: 0.91.00.00.00 coo-0000.000. APPENDIX FOUR: RESTRICTIVE BUSINESS PRACTICES LIST OF REFERENCES . . . . BARRIERS INTERNAL POLICIES AND REGULATIONS 9O 9O 90 99 101 103 103 107 111 112 117 117 118 121 128 133 187 21“ 238 273 Table 1. 2. 3. u. 7. 8. 9. 10. 11. 12. 13. LIST OF TABLES Quantified Items Creating Nontariff Barriers to Steel 0 e e e e e e e e e e e e Elasticities of Import Demand for Steel With Respect t0 Price 0 e e e e e e e e e o The Price Elasticity of the Supply of Steel Exports from Each of the Major Steel- Trading Countries 0 e e e e e e e e e e e e The Price Elasticity of thewsupply oreSteeli Exports to Each of the Major Steel- 'Trad1n8 Countries 0 e e e e e e e e e e e e The Price Elasticity of Demand for the Steel Exports of Some Major Steel Traders . . . . Steel Consumption. Imports, and Price Preferences of Governments in the Major Steel-Trading Countries . . . . . . . . . . Steel Imports Excluded by Government Purchasing Policies . . . . . . . . . . . . The Restrictiveness of French Import Quota . The Restrictiveness of "Voluntary" Export Limitations on United States Steel Imports Transformation of Domestic Subsidization Rates 0 e e e e e e e e e e e e e e e e e 0 Value of 1968 Imports of Iron and Steel M111 PrOduOtS e e e e e e e e e e e e e e 0 Estimated Steel Imports Excluded by DomGStic Subsidies e e e e e e e e e e e 0 Export Subsidies and Corresponding Nontariff Barrier Rates 0 e e e o e e e e 0 vi Page 31 72 77 79' 83 92 96 100 102 103 105 106 108 I. .!F I .4-. ‘l i‘: 1| is, A: K, D“ Table I“. 15. 16. 17. 18. 19. 20. 21. 22. 23. Al. A2. A3. A4. A5. A6. A7. A8. LIST OF TABLES (CONTKD.) Estimated Steel Imports Excluded by Export subSIdiea e e e e e e e e e e e e e e e e The Rates of Other Nontariff Barriers . . . Estimated Steel Imports Excluded by Other Nontariff Barriers e e e e e o e e e e 0 Estimated Steel Imports Excluded by All Quantified Nontariff Barriers . . . . . . Number of Quantified and Nonquantified Barriers e e e e e e e e e e e e e e e 0 Steel Excluded by Quantified Nontariff Barriers e e e e e e e e e e e e e e e e Post-Kennedy Round Tariff Rates on Steel . Estimated Steel Imports Excluded by Tariffs Nominal and Effective Tariff Rates on Steel Imports I e e e e e e e e e e e o e e e 0 Comparison of Tariff and Nontariff Barriers Price Preference Given Domestic Goods by Purchasing Governments e e e e e e e e 0 Direct and Indirect Taxes as a Percentage Of TOtal Taxation e e e e e e e e e e e 0 Direct and Indirect Taxes as a Percentage Of GNP e e e e e e e e e e e e e e e e e Profits Tax as a Percentage of Corporate PrOfitS e e e e e e e e e e e e e e e e 0 Export Subsidization Due to Border Tax Rebates e e e e e e e e e e e e e e e e 0 United States Antidumping Cases . . . . . . United States Customs Court Classification PTOtBSt 03888 e e e e e e e e e e e o e 0 United States Customs Court Appeals for Reappraisement of Customs Valuation . . . vii Page 109 111 113 11h 115 116 117. 119 120 129 1&7 155 155 156 167 175 196 203 '3 E Table A9. A10. A11. A12. A13. A14. A15. A16. A17. A18. A19. A20. A21. A22. A23. A2#. LIST or TABLES (CONT .'D.) United States Court of Customs Appeals . . . Days Allowed for Customs Entry after Arrival OfImpOI‘USeeeeeeeeeeeeeeee First-Year Depreciation Allowances . . . . . Investment Incentives . . . . . . . . . . . Nontariff Barrier Created by Coking Coal sub81d138eeeeeeeeeeeeeeee Border Taxes on Imports . . . . . . . . . . Conference Ocean Freight Rates on United States Exports to Major Steel-Trading countries I I I I I I I I I I I I I I I I Conference Ocean Freight Rates on United States Imports from Major Steel-Trading Countries................ Conference Ocean Freight Rates on United States Exports to Major Steel-Trading Countries................ Conference Ocean Freight Rates on United States Imports from Major Steel-Trading Countries................ Conference Ocean Freight Rate Differentials The Share of Steel Products in the Total Steel Trade of the Major Steel-Trading countTIBSOeeeeeeeeeeeeeee Conference Ocean Freight Rate Differentials Weighted by the Share of Each Steel Product in TOtal Steel Enorts e e e e e e e e e 0 United States Freight Rate Differential Calculation............... United States Imports of Iron and Steel MlllProduCtS.............. Steel Price Indexes . . . . . . . . . . . . viii Page 203 206 218 220 225 226 247 248 250 251 252 253 254 255 259 261 ‘IA 8'4". :1 I. I 410 LIST OF TABLES (comm) Table Page A25. Index of United States Gross National Product in Constant Dollars . . . . . . . . . . 263 A26. United States Crude Steel Capacity . . . . . . . 264 A27. United States Crude Steel Capacity Estimates . . 264 A28. Capacity Utilization in the United States Steel InduStry e e e e e e e e e e e e e e e e 265 A29. Collective Bargaining in the United States Steel IHdUStry e e e e e e e e e e e e e e e e 267 A30. Quarterly Periods of Steel Buying Affected by Steel Labor Negotiations . . . . . . . . . . . 268 A31. Man-Days Lost Due to Work Stoppages in the Water Transportation Industry . . . . . . . . . 270 A32. The Share of Imports in the Domestic and International Market 0 e e e e e e e e e e e I 271 A33. The Share of Exports in Domestic and International Markets 0 e e e e e e e e e e e e 272 ix Figure l. Nontariff Barriers to Trade in Manufactures 2. Nontariff Barriers . . . . . . . . . . . . 3. Nontariff Barriers to Trade . . . . . . . 4. Summary of Survey on Nontariff Barriers to Steel . . . . . . . . . . . . . . . . . 5. Nontariff Barriers Generally Imposed on All Imports . . . . . . . . . . . . . . . . 6. Nontariff Barriers Selectively Imposed on Some Imports . . . . . . . . . . . . . . 7. Nontariff Barriers Facing Steel Imports . 8. The Equivalence of Tariffs and Quotas . . 9. The Effect of a Domestic Subsidy . . . . . A1. The Monopoly Effect of an Import License . A2. The Japanese Steel Export Market . . . . . LIST OF FIGURES Page 19 25 27 28 32 36 135 152 CHAPTER ONE INTRODUCTION I. The Steel Trade Reversal and Its Causes. This dissertation deals with the influence of nontariff restrictions on international trade in steel. Immediately following World War II. this trade consisted primarily of large United States exports of steel to Japan, and to European countries in the midst of economic reconstruction. In the late 1950's, however, the flow of trade in this basic industrial commodity reversed itself and the United States became a net importer of iron and steel mill products. Al- though United States steel exports have increased in 1969, the Americans are still net steel importers.1 Many reasons have been cited for this trade reversal.2 They include such comparative advantage considerations as relative factor endowments. the state of technology, and allocative efficiency, or alternatively the variability of demand, and differences in trade restrictions. Import duties have long been at muecenter of attention in discussions of international trade restrictions on steel, as well as other goods. But recently, the importance of many other import control devices has become increasingly apparent. It is the specific purpose of the present study to estimate the 2 restrictiveness of nontariff barriers hindering trade in steel among the major Free-World steel traders. II. The Importance of Nontariff Barriers. Part of the increased importance of nontariff restric- tions is due to their absolute growth. According to Bidwell. this growth received its original impetus from (1) the popu- larization of protectionism as a principle of our international commercial policy. and (2) the increased government regulation of industry and commerce.3 Protectionist foreign trade poli- cies culminating in the Hawley-Smoot Tariff of 1930 led to . higher tariffs which in turn caused the development of complex customs law and procedure. Government restrictions on imports for the protection of the health and security of the popula- tion resulted in the proliferation of other customs regula- tions. some of which "concealed a measure of economic protection.”u Nontariff barriers have also grown in number as they were substituted for tariffs lowered in formal nego- tiations following 1933.5 Apart from their absolute increase in importance, nontariff barriers have also become relatively more signifi- cant vis a vis tariffs. As Kelly predicted, the lowering of import duties has caused existing nontariff measures, which only marginally affected trade when coupled with tariff protection, to become formidable obstacles to foreign 6 commerce 0 a... 0 is “0‘ .45 -. tsv‘n‘e b in». U. ‘v .‘.. j .o ‘- l-e'b ',u, u“ a .. . I Dav-Ar "beede. .I:l‘ e a v I L, - A a) 1‘.“ ‘ 4. ‘e 3 h. . u M q (I) AM. UV.“ :Fts 3 III. The Need for Quantitative Analysis of Nontariff Barriers. Economic literature on the subject of nontariff restraints has not kept pace with their growth. Early studies first centered their attention on quotas, which came into wide use in the 1930's. These were excellently analyzed by Heuser. who first demonstrated the monopoly effect of a quote.7 The French were the first to develop quotas in this century, and their experience was reviewed by Height.8 Bidwell's The Invisible Tariff described other restrictions on imports, such as customs complexities. laws against unfair-competition, countervailing duties and export subsidies, voluntary quotas,‘ health and safety restrictions, and federal and state ”Buy- American” laws.9 State trading or monopolization of certain sectors of the economy has been analyzed in the extreme case by Viner.10 The subtleties of some government procurement practices which discriminated against imports were described by Grunzel.11 Examples of the arbitrary administration of marking requirements mcited in de Haas' The Practice of Foreign Trade.12 The first consideration of nontariff border taxes was by Whittlesey.13 Since the period of these early publications on the sub- ject, economic literature on nontariff barriers has persists ently presented institutional descriptions of the restraints without analyzing their effectiveness. A recent contribution by Massel follows the established pattern.14 Re attributes the failure to estimate their restrictiveness to analytical a 9‘9‘ 3" nil-ov- “71%“! I“ . V ‘01 {.‘i’ag‘ is.."‘ run-An U 5,.‘ In. § .Q'u"r V “V. ~‘~“;C n‘ 55:5. A“ O A.“ '- V. .‘S 4 problems created by unmeasurable institutional factors surrounding the subtle workings of nontariff restrictions. These include the covertness of many administrative practices. and the uncertainty of arbitrary changes in the regulation of imports. A more recent and comprehensive review of nontariff barriers has been written by Kelly.15 To Massel's two ana- lytical problems. he adds the difficulties of expressing the degree of discrimination against foreign goods in numerical terms.16 Small wonder. then, that Johnson found these re- strictions still lying in the ”areas of ignorance” in 1967. According to him, "while a great deal has been said about the importance of nontariff barriers to trade. . . . the effects of these barriers remain tobe‘quantified."l7 Despite the analytical problems cited by Massel and Kelly, and the resulting dearth of quantification found by Johnson, the restrictive effects of some barriers have been 18 estimated. This study also attempts to make such estimates for nontariff restrictions on steel. IV. Definition of Nontariff Barriers. Their appellation suggests that nontariff barriers are broadly defined in a negative sense as any import restriction besides tariffs. Massel does not attempt a more specific definition, because of the unlimited variety of forms these bulwarks against imports may take. He describes a moderate number of types. such as quotas, customs adminstration, anti- dumping laws. patent and trademark laws, health and safety “A,“ "I a.-. Mrs-4 .15... Oi. 'e» ( D In Pisb.‘ a. 'v- '0‘- ;~ . 3"? “A‘.flf :IVw‘i ‘0‘: k at. H d 55 IE -g‘ 5 rules. labelling requirements, domestic preferences in government procurement, subsidies to domestic suppliers, taxes. import permits. export controls, and restrictive business practices.19 Kelly, on the other hand, gives a positive, specific definition of nontariff barriers but confines it to government restrictions on imports excluding restrictive private prac- tices and other barriers erected by language, geography, historyo and culture. Moreover, he would include only those government practices which have the purpose and/or effect of protecting domestic producers from foreign competition. On this basis. Kelly would exclude monetary and fiscal policies, as well as legislation governing public wealtho morals, and national security. However; as Kelly himself points out, the excluded items could be regarded as nontariff barriers if they were abused.20 In order to minimize the risk of over~ looking any restriction cloaked in a guise of respectability, a broad definition of nontariff barriers is used in this study. It covers any restriction subject to government con- trol. Thus, the definition excludes natural barriers, but retains specific monetary and fiscal policy measures applied to steel, and those restrictive business practices regulated by government policy.21 Although Bidwell, Massel. Kelly, and others list many types of barriers, there have been only three recent attempts to list all the types of barriers included in the broad A ‘::’v. c.5'.. ;;*p R v‘... V v p |. .-e I O '5 I7. I... b. h“ 4 U.-‘. ~.'.. ‘ a \‘ ‘ i 6 definition of nontariff restrictions used here. The first attempt was made by the Secretariat of the United Nations Conference on Trade and Development (UNCTAD) in 1963; their list appears in Figure 1. A second list was compiled by the United States Department of Commerce in 1966, and appears in Figure 2. 7A synthesis of these inventories of nontariff barriers, which appears in Figure 3, was used to find which restrictions existed and which applied to steel imports in each‘of the major steel-trading countries.22 V. The Countries To Be Considered. The nontariff barriers of five major steel-trading areas are analyzed below, since they account for about 80 percent of the production and 90 percent of the exports of the Free World.23 The major steel traders include Canada, the European Economic Community, Japan, the United Kingdom, and the United States. However, because EEC members have different nontariff restrictions, (despite their common tariffs) each member country's barriers are analyzed separately. Thus, the present study estimates the value of total imports excluded by the nontariff barriers of the United States and nine foreign countries: Belgium, Canada, France, West Germany, Italy, Japan, Luxembourg, Netherlands, and the United Kingdom. Similar estimates are made for the amount of each major steel trader's exports restricted by the nontariff restraints of the others. Besides their dominance of Free World trade in steel, the ten nations listed above bear other similarities. All the - vv—w.- , ' "I"! ' I A.“ ‘1“ ., r. V. ml. Q. Rn“ Inn. 5 ~ .. PX v6 Ts... Foreign trade policies Licensing requirements Quota restrictions Negotiated export limitations Foreign exchange restrictions State trading Procurement policies favoring domestic products Antidumping and similar regulations Subsidies to exports Administrative practices Classification of goods for customs purposes Documentary, marking, and packaging requirements Incomplete or delayed publication of customs information Internal economic policies affecting imports Internal taxes for revenue purposes Taxes applied to imports to compensate for indirect taxes borne by comparable domestic goods Pricing policies and price control regulations Restrictions on advertising of goods Internal health and safety regulations affecting imports Sanitary regulations Technical specification requirements Regulations applied for national security reasons Source: UNCTAD Secretariat, Measures for Expansion of Markets in Developed Countries for theggxports of Manufactures and S°@E: Ma ufactures of Develo i Countries (United Nations Conference on Trade and DeveIOpment, E. Conf. 46/PC/20; Hey 6, 1963. Figure 1 Nontariff Barriers to Trade in Manufactures Customs law Regulations governing the right to import (e.g., licensing) valuation and appraisement of imported goods Classification of goods for customs purposes Marking, labeling and packaging requirements Documentary requirements (including consular invoices) Measures to counteract disruptive marketing practices, e.g., anit-dumping and countervailing duties Penalties (for example, fees charged for mistakes on documents) Fees assessed at customs to cover cost of processing (handling) goods Administrative exemptions (for example, administrative authority to permit duty-free entry of goods for certain purposes) Treatment of samples and advertising material Prohibited and restricted imports (embargoes and quotas) Administration of customs law provisions (delay in processing goods, inadequate or delayed publication of customs information) Other legislation specifically applicable to imports Taxes (e.g., excise, turnover) Restrictions imposed to protect individual industries (e.g., quotas) Exchange controls: foreign exchange may be allocated only for imports for certain types of merchandise Restrictions applied for national security reasons (other than under » customs law) State trading (or the operation of enterprises granted exclusive or special import privileges) Sanitary regulations (other than under customs law) Food, drug, cosmetic and pharmaceutical regulations Patent, trademark and copyright regulatibns Shipping and insurance regulations Other legislative and administrative trade barriers Government purchasing regulations and practices Domestic price control regulations Restrictions on the internal sale, distribution, and use of products Screen quotas and other restrictions affecting motion picture film and TV program material Specifications, standards, and safety requirements affecting such A products as electrical equipment, machinery, and automobiles Internal taxes that bear more heavily on United States goods than on domestic products (for example, automobile taxes in Europe based on horsepower rating) ‘ Restrictions on advertising of goods Restrictions on display of goods at trade fairs and exhibitions Source: United States Department of Commerce as printed in Senate Finance Committee, Steel gggort Study, op. cit., pp. 48, “9. Figure 2 Nontariff Barriers Foreign trade policies Licensing requirements Quota restrictions Negotiated export limitations Foreign exchange restrictions State trading Domestic biased procurement Antidumping regulations Export subsidies Shipping and insurance regulations Import surcharges Administrative practices Classification of goods for customs Documentary requirements Marking requirements Penalties for procedural errors Prior deposit requirements Import valuation procedure Customs fees Treatment of samples and advertising Internal policies and regulations Domestic subsidies Direct taxes Indirect taxes Price controls Restrictions on advertising Patent, trademark, and copyright laws Credit controls Sanitary regulations Technical specification requirements National security restrictions Private practices Freight rate discrimination Exclusive supply agreements Other steel cartel activity Figure 3 Nontariff Barriers to Trade ‘a (.5 1'. JV 1 “g" Ara “MI! Vu' 10 major steel-trading countries, for instance, are highly industrialized, with the share of manufacturing in total employment ranging from about 20 percent in Italy and Japan 2% The percentage of the to no percent in the United Kingdom. national manufacturing labor force engaged in the iron and steel industry displays some differences among the several countries: 6.2 percent in the United States. 5.0 percent in the United Kingdom, 2.6 percent in Canada, 5.0 percent in France. 2.7 percent in Italy, and b.“ percent in Japan.25 Other differences among industrial structures are found in studying the average absolute size of the 20 largest steel plants in each of several countries. Foreign steel mills are generally smaller than those of the United States, ranging from less than one-tenth the size in Canada and Italy. to almost one-half in France: the United Kingdom plants are about one-third the United”8tates size, while Japan's are one-fifth.26 Nevertheless, structural similarities among the major steel industries are indicated by comparing concentra- tion ratios. For the period between 1958 and 1960, several ratios have been computed.27 'They show that in both Japan and the United States, the two largest firms accounted for about no percent of output. The same market share was claimed by the largest four firms in Britain. the largest three in France. and the largest one in Canada and Italy. In all the major steel-trading countries, concentration is greater in the production of primary forms than in advanced fabrication. 3! c0' other 9”th fie-1. Una-’5‘ ’5 .5 u. v :\A9 6 IeV- 5 fl) (I) 'ha. - 11 Of course, these comparisons between the United States and other countries may differ now, because of declining con- centration in the United States industry,28 and increasing merger activity in Europe and Japan.29 Another qualification of firm concentration ratios stems from the fact that in France, Belgium-Luxembourg, and Germany. steel firms are controlled by interlocking groups composed of large producers and governments.30 The groups may be holding companies. interlocking directorates, or members may be parties to long-term contracts. Six French groups controlled 76 percent of French steel production in 1958; the Belgian Societe Generale controls 36 percent of Belgian capacity and has an interest in 87 percent of Luxembourg and 23 percent of Saar capacity. The Italian state controls 55 percent of crude steel production in Italy. In the Netherlands, Hoogovens produces three—quarters of the crude steel and controls 100 percent of the finished steel production, plus one of the largest steel producers in Germany. Despite the Allied Forces' deconcentration program during post-World War II occupation, eight groups controlled 99 percent of Ruhr, and 85 percent of German, production in 1959, as compared with the six groups which controlled about the same shares in 1930.31 VI. The Plan for Analysis of Nontariff Barriers. The four appendices to this study present a comprehensive examination of every nontariff barrier listed in Figure 3. .Appendix 1 reviews those classified as foreign economic ea.‘fl‘ ac avoovovv II'.:‘AI' lI—v. 'U. ‘3’;\-ul V ‘fii‘n‘bg fow.‘.'. 3M 1 I.... I Faye, ‘y‘ «it..:‘ " Bh‘a 12 policies: Appendix 2: customs procedures: Appendix 3: domestic policies which may affect imports; and Appendix 4: private commercial practices which may be restrictive. The nontariff barriers imposed on steel imports receive detailed considera- tion, but restrictions on all products are noted in order to determine whether steel is more or less restricted than other products. Chapter 2 of this study begins by summarizing the non- tariff barriers examined in the appendices. Where possible, nontariff barriers are then converted to a tariff-like advalorem rate as a percent of the import price. Many impor-. tant restrictions, however, are not amenable to such a trans- formation. Consequently, the study attempted to use rankings of the restrictiveness of each country's nontariff barriers to establish minimum values for nonquantifiable restrictions. However, the ranks (obtained by questionnaire) were incomplete, and in some cases inconsistent with quantified data. As a result, this study confines itself to estimating the restric- tiveness of the quantifiable nontariff restraints. Estimates of domestic, import, and export demand elastic- ities for the United States and the nine foreign countries are derived in Chapter 3. The same chapter also presents alterna- tive estimates of steel supply elasticities for the United States and the rest of the world. These elasticities are then employed to estimate the value of steel imports excluded by each country's nontariff barriers in Chapter h. 'ao' x-J ." J ,J a: ‘1‘ ever, e’:fl-b ' as v V 13;", ‘a..: 1;) I! 13 VII. Sources of Information on Nontariff Barriers. Nontariff restrictions are fast becoming a popular topic in.a variety of publications. Most of the discussions, how- ever, are too general for estimation of their restrictive effect on one industry. Indeed, the specific information necessary for quantification is so scattered that the re- searcher is forced to sift through an unusually large amount of printed matter. Even the small fruits of this labor may spoil soon after because unannounced changes in these restric- tions are easy to make. The lack of international agreements or legislative statutes and the prevalence of administrative‘ policies facilitate frequent and covert adjustments. Information on nontariff barriers was obtained from five different types of sources: A. Government publications. B. Other organizations concerned with steel or international trade. C. Newspapers, periodicals and books. D. Private correspondence. E. Questionnaires. A. Government Publications. Most foreign governments prefer not to provide information on their nontariff restrictions, a practice which creates more uncertainty for importers and denies raw material for empirical research. The few official documents that do exist are also hard to obtain. Nevertheless, this study had access to several useful foreign government sources, such as Belgian tariff schedules which provided data on border tax adjustments, and In a variety of publications from the Canadian Department of Trade and Commerce, Tariff Board, and House of Commons. In contrast to other major steel-trading countries, the United States Government generates a considerable amount of data on domestic and foreign barriers to world trade. The Federal Maritime Commission, for instance, publishes infor- mation on ocean freight rates. The Bureau of Customs is the prime source of United States import regulations, while the Department of Commerce describes foreign import requirements in its Overseas Business Reports and International Commerce. The Congressional Record contains a valuable comparative study of foreign government purchasing practices. Joint Economic Committee hearings on Steel Prices, Unit Costs, Profits and Foreign Competition. Discriminatory Ocean Freight Rates and the Balance of Payments, Trade Restraints in the western Community, The Future of United States Foreign Trade Policy, and The Impact of Military Supply-~all report on non- tariff barriers to many imports, including steel. Similarly the Senate Finance Committee report on Steel Imports and hearings on Senate Resolution 192 give specific details on foreign steel restrictions. A few of the four thousand pages of testimony on Foreign Trade and Tariff Proposals before the House Ways and Means Committee also provide specific details on barriers to steel. B. Other Organizations. Steel importers and producers in most of the ten countries considered in this study have formed a variety of associations ’a u. > I ' ’.0- .00‘ I '0 ( ll pu- 1 l, in. ‘Q. 1 Q . [Y I a! m m I l' H 15 to support their various interests. As a by-product, these industry organizations generate some useful information. The American Iron and Steel Institute, for instance, publishes numerous articles on foreign trade barriers in its Steelways and Steel Facts magazines, and has even prepared a small book on the subject, entitled The Steel Import Problem. Similarly, valuable observations concerning united States barriers appear in the west Coast Metal Importers' Association News- letter, and reports by the American Institute for Imported Steel. The British and Japanese iron and steel federations were important foreign sources.' Many other private organizations primarily concerned with international trade also provided data on nontariff restric- tions, though they could give few specifics on steel. Sources of this type include the Customs Cooperation Council, Inter- national Chamber of Commerce, American Importers' Association, Committee for a National Trade Policy, United States-Japan Trade Council, and the Canadian-American Committee. In addition to private associations, many official inter- national organizations are good sources. The Organization for Economic Cooperation and Development, for example, publishes an annual report on world steel production, prices, and trade called The Iron and Steel Industry in 1967 and Trends in 1968, as well as Government Purchasing in Europe, North America and Japan: Regulations and Procedures, and an extremely useful report on Border Tax Adjustments and Tax Structures in the a"; .‘ V ‘9 ea. .\~ Av mi. ‘Ae ~ab ‘ . 16 OECD Member Countries. The European Economic Community also provides information on nontariff barriers to steel through its Official Journal, European Community, ECSC Bulletin, and Egrgpean Parliament Documents. The International Monetary Fund issues an annual report on exchange restrictions, and the GATT prints studies on Restrictive Business Practices and Antidumping and Countervailing Duties. The European Free Trade Association is another source for barriers, while the United Nations publishes more statistics on steel. C. Newspapers, Periodicals, and Books. The wall Street Journal and The Economist carried several general articles about nontariff barriers and the United States steel import situation. General news periodicals, like Timg: business publications, such as Foreign Commerce Weekly, Industrial Canada, Fortune, and Business Week: and steel- oriented magazines like The Iron Age, The American Metal Market, and The Jgpan Metal Trade Bulletin--all contained material relevant to this study. Besides these journalistic sources, a variety of profes- sional articles and books on both the steel industry and non- tariff barriers have been published. The professional articles appear in both economic and law journals, the latter specializing in the analysis of statutory barriers such as the Buy-American Act. Articles in economic journals, on the other hand, have confined themselves to estimating the aggregate effects of differences in border-tax adjustments and import oi“... :W'rcfi‘ 9': b. I»! Ch Inr9‘4 '5- .‘Ae av‘ I Y I: ‘1- V .I ”A .VVII 1? valuation practices, or the impact of quotas, licenses, exchange restrictions, surcharges, and custom's deposits on the total balance of payments. Steel industry studies have confined themselves to technological considerations and the response of United States producers to increased imports. Books on the steel industry, both domestic and foreign, in- clude important works by Burns, Hexner, and Lister. Balassa's Studies in Trade Liberalization, Bauges's Voluntary Export Restrictions, Massel's Competition and Monopoly: Legal and Economic Issues, Towle's International Trade and Commercial Policy, and Bidwell's The Invisible Tariff provide useful descriptions of various nontariff restrictions, but none attempt to estimate their restrictiveness. D. Private Correspondence. Since nontariff barriers vary from product to product and from country to country, specific information on how each of the ten major steel traders restricted steel was needed for this study's estimates. As already noted, however, most of the secondary sources listed above were too general to be of much use. Yet, they did yield many names of persons inti- mately involved with the steel trade situation. These individ- uals worked for United States producers, both United States and foreign steel importers, staff of the United States Department of Commerce, and United States Embassy personnel. Some were kind enough to respond to the very detailed questions contained in letters addressed to them. Without their f‘.t‘ a," i.‘ aw“ VA“ I fie. 0" 0“. (I. Jr, a. V.‘ O (H (I) {I 18 first-hand knowledge, this or any other study of nontariff barriers would face the impossible task of ferreting out crucial details lost in a morass of unexplored foreign gov- ernment documents. E. Questionnaires. This study's questionnaires to steel traders in the ten countries considered here had two basic purposes. First, they were to provide information on barriers that had not been discovered. Second, the returns were to help attach values to the restrictive effects of barriers which could not be quanti- fied. The first objective was served by lists of general or specific barriers. Respondents were requested to add any others which they though were missing. Export credit terms in the EEC countries were added by one United States company, but many preferential discount rates had already been quanti- fied under the general heading of export subsidies. Japanese quotas were added, but further research uncovered no other evidence of general steel quotas. Canada was also claimed to have stringent foreign exchange regulations, but no other substantiation was found for that contention. The second goal was to be met in two ways. The respond- ents were first asked to rank the barriers they faced. Most of them did this with such consistency, that an average rank could be computed for most barriers in each country, and this appears in Figure #. Some barriers, however, were merely l ‘ . l U .1' '3' 2' 19 Nontariff Barrier Rank Attached to Each no tariff Ba ier b Steel Traders Benelux Canada France Germany Italy Japan U.K. U.S. Import licenses Quotas Exchange restrictions Domestic biased procurement 3 Antidumping regulations Subsidies 2 kn HOUH p tutu.- N N N \1 O\ 0\ Customs penalties 10 Incomplete customs information 11 Customs fees and deposits Customs complexities & delays h Uncertain changes in rules Document a marking rules Patent G trademark laws Internal or border taxes 1 6 1 1 1 Government price control Credit controls 7 National security restrictions Technical specifications 5 \OCDNIU VPM) Steel cartel activity 4 3 3 u 5 2 3 Freight rate discrimination ‘ 8 Exclusive supply agreements 5 5 6 5 5 h Figure h Summary of Survey on Nontariff Barriers to Steel ‘oe-a s IA“ Vet- .w 51.. J. U ”Ate‘ 20 checked. Others, which published sources listed, were ignored. Moreover, some ranks by world steel traders were found to be inconsistently ordered when compared with the relative restric- tiveness of some quantified barriers. For instance, the most important barrier quantified for Canada (indirect taxes) was ranked far below one of the least restrictive barriers quanti- fied for Canada (subsidies). For these reasons, the ranking could not be used to supplement estimates of the import volume excluded by quantified barriers.' The questionnaires also asked for estimates of the effect of certain barriers on costs, prices, and volume. Only a couple of replies were received. One United States importer believed that the new ”voluntary” limitations on exports to the United States would cause costs to rise by 10 to 30 percent and volume to fall by 20 percent. This implies a lower import demand elasticity than this study estimated statistically. However, the firm's volume estimate is very close to this study's calculation that roughly 25 percent of potential 1969 import volume would be excluded. Costs attached to the alleged Canadian restriction mentioned above were 7% percent of unit costs. No indication was given that certain barriers restricted one type of steel more than another, or that there had been any recent changes in the nontariff barriers. One-hundred questionnaires were sent to American importers, but only five replied. Two-hundred questionnaires were mailed to American producers, but only eight replies were received. n . ans-.1. 3‘ a. . e; ‘3 m\ '1. U .. a: .. n .u. . Q. V. . c C. -a .. . T . :e a. any a. ~\ as a; p. \ ¥a ‘. \..\ \ v. a ve~ n a. e. . m. a. . ‘ ,le \oa\ a.” R .3 F a. inhuman“... .5 3:12.... . ea. .1. I. an. I 21 Nevertheless, the eight respondents in the second group represented firms accounting for over one-fourth of domestic steel shipments: all of them are large exporters, as well. Therefore, the few responses of the second group can still give a meaningful indication of how United States steel exporters view foreign nontariff barriers. VIII. Footnotes. 1United States Department of Commerce, Quarterly Summary of Foreign Commerce, January-December, 1957, Un to S a as Government Printing Office: Washington, D. C., 1958, pp. 10, 11: and United States Department of Commerce, Overseas Business Rpport, No. 69-2, March, 1969, United states Govern- ment‘PrInting Office: Washington, D. C., p. 6. 2United Nations, Economic Commission for Europe, Inter- national Comparisons of Labour Productivipy in the Iron and SteeII Ifidustry,fUnited Nations, New York, 1967, p. 13. See also, United Nations, Economic Commission for Europe, Principal Facets Affecting_Labour Productivit Trends in the Iron an 8 es ndustpy, United Nations, New ork, 1969, p. 200. W. Adams, and J. B. Dirlam, "Big Steel Invention and Innovations,” The Quarterly_Journal of Economics, May, 1966, pp. 17h,187. W. Adams and.J. B. DIrIam, “Steel Imports and Vertical Oligopoly Power,” American Economic Review, September, 1964, pp. 62 -655. I. B. Kravis,¢fiAvailability and Other Influences on the Commodity Composition of Trade," Journal of Political Economy, April, 1956, p. 153. 3P. w. Bidwell The.Invisible Tariff: A Stud of the Control of Imports into the UnIted States, CouncIE on Foreign Relations: New York, 1939, p. 4. “Ibid., p. 3. 5See A. L. Malabre, Jr., "U. S. Businessmen Say Nontariff Bars to Goods Pose Growing Problem,” The Wall Street Journal, November 26,1968, p. 16: "Nontariff Tricks,” Time, January 12, 1968, p. 55; R. Lawrence, "Trade Problems Face U. _S. in 1969,” Euro ean Communit , December, l968-January, 1969, No. 119, p. 7: J. R. Boner, "Nontariff Curbs Spread Despite Free Traders? F1 ht to Remove Them,” The Wall Street Journal, March 30 19 99 P0 10 ‘J ‘Q‘ i h». nus \. Nzeh‘ L.“ \fo .7. .e . \-e .\8 Al» I rue use .w. a. 22 6W. B. Kelly, Jr., "Nontariff Barriers,” Studies in Trade Liberalization, The John Hopkins Press: Baltimore, I967, p. 265. 7H. Reuser, Control of International Trade, Routledge: London, 1939. 8F. A. Height, French Import Quotas, King: London, 1935. 9B1dwe11, 02a Cite 10J. Viner, Trade Relations Between Free Market and Controlled EconomIes, feague of Nations:‘G§neva,I9437 11J. Grunzel, Economic Protectionism, Clarendon Press: Oxford, 1916, p. 1887 12J. de Hass, The Practice of Foreign Trade, MoGraw—Hill: New York, 1933, p. 358. 13C. R. Whittlesey, ”Excise Taxes as a Substitute for Tariffs,“ American Economic Review, Vol. XXXVII, December, 1937. 1“M. S. Massel, "Non-Tariff Barriers as an Obstacle to World Trade," Reprint No. 97. The Brookings Institution: Washington, DeCe. l965e 15Ke11y, op. cit. 16Ibid., p. 267. 17H. G. Johnson, Economic Policies Toward Less Develo ed Countries, The Brookingstnstitution: Washington, D.C., I557, pp- 2E3: 2u60 188cc Grubel and Johnson, "Nominal Tariff Rates and U. S. Valuation Practices,” Review of Economics and Statistics, May, 1967: Joint Economic Committee, Discriminatory Ocean Freight Rates and the Balance of Pa ments, 89th Congress, lst Session, Part—3, I965, UnIted States Government Printing Office: Washington, D.C., p. #50: R. Z. Aliber and H. Stein, ”Price of United States Exports and the Mix of Direct and Indirect Taxes,” American Economic Review, September, 1963, PP. 703-710- 19Massel, op. cit. 20Kelly, op. cit., p. 266. 2lRules governing re-exportation of imports are ignored because these mainly influence third-country transactions. I IIJII. - . V” a .i- ‘m Av I 9‘ HIV A‘v e. I. 9|. 1% Asa 23 22The third list is a catalogue of nontariff barriers published by GATT, but as yet it is unobtainable. 23Steel Im orts, o . cit., pp. 254 263. Figures are for 196 an reSpectIver. ’ 2"United Nations Statistical Office, Department of Economic and Social Affairs, Statistical Yearbook, United Nations, New York, 1968. 25.1. s. Bain, international Differences in Industrial Structure, Yale University Press,New Haven-London, 1966, De 0 26Ib1d0; pe 36a 27Computed from relative concentration data in Bain, 02- cit-a PPO 78' 82a 929 979 104. 28Subcommittee on Antitrust and Monopoly, Committee on the Judiciary, United States Senate, 88th Congress, 2nd ‘ Session, Concentration Ratios in Manufacturing Industries, Pt. 1, 1963, UfiIted States Government Printing 0 cc: Washington, D.C., p. 8. 29See ”The World Battle for Steel,” Business Week, June 4, 1966, p. 63: "Business Around the GIoEe: Troutle for Steel,”-£ortune,.May, 1966, p. 64: and ”Mergers: Japanese Fever,” Time, May 4, 1968, p. 68. 30L. Lister,.Europe's Coal_and Steel Communit : An Ex eriment in Economic Union, Twentieth Century Find: New York, I950, pp.‘I3l-168. Bilhié-v Pp- 132. 137. 144. 1u7. 157. oil CHAPTER TWO NONTARIFF BARRIERS TO STEEL I. Introduction. A. The Number and Distribution of Nontariff Barriers. The appendices to this study provide a detailed discus- sion of nontariff barriers to international trade in steel. The potential restrictiveness of each of these barriers was found to vary markedly with the product and country under consideration. Nevertheless, some useful generalizations can be made about the number and type of nontariff restrictions in each of the ten major steel-trading countries. Figure 5 below shows nontariff restrictions generally imposed on all imports to be concentrated in the areas of customs administration and subsidies. Very few countries try to exclude imports across the board through the use of any foreign economic policy except export assistance. Likewise, very few employ internal policies (outside of domestic sub- sidies) or permit restrictive business practices to affect all imports. The countries which apply the least number of general restraints (seven) are West Germany and Canada. France and the United Kingdom set up the highest number (13) of barriers against all goods. Only Japan requires licensing for all imports, while only Luxembourg levies an import surcharge on 24 25 s . . v s °° '2 5° 3 g h g :4 g m e e c a u 2 2 a .2: s s .2 33 E H 5 a " 3 3‘ 5 *6 11 s :3 c: an :3 e: v: .4 :z c: :3 Import licenses X Exchange controls X x x 0 Quotas 0 Export limitations -3 Biased procurement g TranSport rebates X X X X X °'Wage tax rebates X X '3 Marketing assistance X X X X X X X X X X 3 Tied foreign aid X X ‘2 Indirect tax rebates X X X X X 3 Import surcharges X koAntidumping laws Advertising rules ,3 Marking regulations '3 3 Document requirements X X X X X X X X X X .3.3 Classification rules X X X X X X X X X X "'3 Valuation procedures X X X X X X X X X X .3 ' Customs fees & deposits X X X X 3‘: Other customs rules X X X X X X X X X X Penalties X X X X X X X X X X Direct payments x X Depreciation X X X X X X X X X X Investment incentives X X X X X X X X Low cost loans Overpriced purchases Internal tax rebates Direct taxes Indirect taxes X X X Other internal taxes Price controls Credit controls Advertising rules Patent , trademarks . Health 5 safety rules Technical specifications National security rules Cartels Exclusive supply agreements Freight rate discrimination Source: See text. Private Practices Figure 5 Nontariff Barriers Generally Imposed on All Imports 26 all goods. Not one of the major steel-trading countries imposes quotas, ”voluntary” export limitations, biased govern- ment procurement, or antidumping measures on all imports. Similarly, no one attempts generally to deter imports with advertising or marking restrictions. Figure 6 shows that foreign economic policies (with the exception of export subsidies), marking, technical, health, and safety regulations, as well as restrictive business practices are favored for impeding imports on a selective basis. Customs practices, domestic subsidies (with the excep- tion of low-cost loans and over-priced government purchases), and national security restrictions are seldom imposed on ‘selected imports only. Japan has the smallest number (11) of selectively applied nontariff barriers, while France has the most (15). Germany and the United States have 14, while Canada has 11. The rest have 13. France is the only major steel trader to restrict some imports with advertising re- strictions, while the United Kingdom is the only one to give a rebate on internal taxes as a subsidy to selected goods. Figure 7 shows the distribution of each major steel trader's nontariff barriers on steel imports. Steel is sub- ject to 14 of the 20 restrictions which are applied selectively, as well as to all barriers which are imposed across the board, and the three restrictions which are applied both ways. Thus, in one or another of the major steel-trading countries steel imports are restricted by 34 different nontariff barriers. 27 5 a .. g E t: B e 7:2 :‘o‘ a . . a s c '3 g c a 2 a a g a s . c a s 2 ~ :3 . a +3 2 a :3 o a. :3 H "3 .4 z :3 :3 I) «3 port licenses x x x x x x- x x x :3 change controls X X X X gotas XXXXX XXXX o ort limitations X X X X X g ased procurement X X X X X X X X X X g ansnort rebates 0 age tax rebates ‘3 rketing assistance ed foreign aid “Indirect tax rebates §Import surcharges “a ntidumping laws X X X X X X X vertising rules X rking regulations X X X X X X ocument requirements lassification rules aluation procedure ustoms fees & deposits her customs rules enalties Administrative Practices rect payments preciation vestment incentives ow cost loans X X X Overpriced purchases 1 x X X Internal tax rebates rect taxes '0 Indirect taxes X Other internal taxes 1 :3: ice controls X X X X X X a redit controls H vertising rules X c Patents a trademarks gflealth & safety rules X X X X I X X +’Technical specifications X X X X X X X 'SNational security rules O«Cartels x X X X X X X +' é Exclusive supply agreements x x x x x x X £4; Freight rate discrimination x x x x x x x e it Source: See text. Figure 6 Nontariff Birriers Selectively Imposed on Some Imports NNN NNN N NNN "NM NM" N ort licenses change controls otas ort limitations iased.procurement ransport rebates age tax rebates rketing assistance ied foreign aid ndirect tax rebates Import surcharges ntidumping laws 1 n Economic Policies For dvertising rules rking regulations ocument requirements lassification rules aluation procedures ustoms fees & deposits “Other customs rules ctices Administrative Overpriced purchases Internal tax rebates rect taxes ‘3 Indirect taxes o Other internal taxes gPrice controls :9. Credit controls P, vertising rules 3 Patents 0. trademarks ‘*Bealth & safety rules a Technical specifications National security rules . ‘ artels 'fi.§ elusive supply agreements 3,43; reight rate discrimination ‘1 i: curse: See text. Nontariff Barriers Facing Steel Imports 28 s. .gs ”Eat.” H Essg‘aegzss NJ m C F! e o .n -u .u H“E"32‘§*’BR £8 15 It :3 e: re .4 :3 :3 z: X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X x X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Figure 7 29 The only barriers that steel has avoided to any extent are those erected by internal policies. Steel faces no advertising restrictions. direct tax or other internal tax impediments, credit controls, patent regulations, health and safety rules, or national security restrictions. France imposes the most restrictions on steel (21) and Canada the least (10). Germany. Luxembourg, and the Netherlands have 15 steel re- strictions each, while Belgium and Italy have 16. Japan applies 18 barriers, while the United States and the United Kingdom impose 17 each. B. Quantifiable Nontariff Barriers to Steel. Chapter I noted that this study intends to estimate the restrictive effects of the nontariff barriers listed in Figure 7. However, precise estimates are possible only if the height of the barrier can be determined. In other words, the import-domestic price differential created by each non- tariff restriction must be obtainable. As we shall see in the next section of this chapter, the differential may be expressed at an advalorem tariffAIike rate, and used with elasticity estimates to predict restrictiveness. Unfortunately. a glance at Figure 7 confirms the earlier observation in Chapter 1 that many important steel restric- tions cannot be expressed in numerical terms. In particular, most licensing and exchange controls. prejudice in government procurement, antidumping laws, administrative practices, non- economic internal policies. and some restrictive business 30 practices are not amenable to transformation into a tariff- equivalent rate. The nontariff barriers which this study has been able to quantify appear in Table 1 below. As illustrated there. five quantifiable nontariff restraints are found in both France and Italy; four in Belgium, Japan. Luxembourg. the Netherlands, and the United Kingdom; three in the United States and Canada and one in Germany. Of course. for any one country the number of its barriers that has been quantified may bear no relation to its total number of_nontariff restric- tions, nor to their total impact on steel imports. II. The Restrictive Effect of Trade Barriers. The way in which quantified barriers restrict imports is often an important determinant of their height. In this section. the restrictiveness of various types of barriers is analyzed in order to obtain a measure of their advalorem nontariff barrier rates. A. Tariffs and Quotas. Any import restriction causes a decrease in the effective supply of goods to importers or alternatively a decrease in the effective import demand facing foreign exporters. According to the latter interpretation. tariff AC would decrease the demand for imports from DD to DTDT in Figure 8. As a result the volume of imports would decrease from OF to 03 and the domestic price of imports would rise from OB to DC. A quota limiting imports to OE. on the other hand. decreases import demand by changing DD to DDb. In this case. 31. .uxou com “oopsom .:0Huosuoua no no» you w .mooenonsa Hemopom mm Han: as Hmaocaboam op mowama< o .muuoaea Hoop” :uaeqcao co mom on uoaaaa< c .amoh you *5 on Hooum no mowmcoasa cmdoaom nufi voudsaa no: nods: nH< new .Aummv oucemon Mo unusuaeaon you can» heave nonenonsa Huaoueh you mm o .Aech you use» ppozm n .nucos you use» agave: a .ocfiaa uaoaaa .m.a.o no ucooaoa so euosu mo vcsos¢r aneuoz $.03 was. unu.n uow.= moo.~a nom.w . noo.m moo.m new.“ nom.~ uo~.~ mom.m noo.m “8. *3. *8.“ «mo. nooa End *8; mooéw mood. umwmm “on.s moa.~ “8.0 nco.m ouooé 393 $8.3 execs: $8.3 nooo.o8.£ . . aooo.mn mop-pm savanna mused mason 1.3.5 835 -uofiH £33 :1.» Hogan 3 fies—hm 322.8: 9:396 33H c.3353 . a .3.» 8338:283 3a 235 money vooanucH .3335 $55 openam was HucaeuaH mucosham sounds ”noduamnsm ouauosoo seem usouaso nauseouasvem panacea aoaam newsman use noauaacom 9:823 £36 mucoshim uoeadn .Saflflam teem nomuenoasm vquEH unanenoasm bemoan oduuoson 323 toes E35?»- «cacao 3.8 3 32 Price of Imports D S c \\\\\\ DT B ‘\\_ H s \\\\\D DQ Quantity of B Imports Figure 8 The Equivalence of Tariffs and Quotes 33 the quota excludes the same quantity of imports (EF) and causes the same domestic-import price differential (AC) as the tariff. Given a tariff expressed as a percent of c.i.f. import price exclusive of duty (AC/0A). the value of steel it excludes (AGEFHB) can be calculated with elasticities derived in Chapter 3 and formulas developed in Chapter h. Similarly. quotas and other quantitative restrictions on steel imports could be expressed in tariff-equivalent form by measuring the domestic-import price differential they create. The differen- tial solely attributable to quantitative restrictions, however. is impossible to separate from the rest of the domestic-import price differential created by other import barriers or market imperfections, unless OF is known. The value of OP is not simply the pre-quota volume of imports, because import demand may have grown in the absence of the Quota. Therefore, OP is estimated (in Chapter 4) by adjusting pre-quota import volume with income elasticities. Once 01" is determined.) the difference between it and the quota (OF-OE) will give the quantity of imports restricted (EF). The tariff-equivalent price differential (AC) created by excluding E? can be derived using elasticities of import demand and supply Gnu and eM respectively). Expressing the differential as a percent of c.i.f. import price, the fol- lowing expression is found for it: 34 as= as + 13.9 GB OB OB = AB/OB . EF + BC/OB . 3.3g EFO 6? EF or o = 1 eEF + 1 eEF eH 5? 'nM OF (1) a EF Inn + an when'nM and em < oo 5? enflh (2) = ‘gg . l when'nm = 00 OF eM (3) = EF . 1 when e = 00 B. Direct Nontariff Barriers. Other nontariff restraints have the same effect as tariffs or quotas. although the changeable and covert nature of such restrictions often creates enough uncertainty to accentuate their restrictiveness. The costs of obtaining import licenses and exchange permits. price preferences granted in government procurement, countervailing duties, surcharges, statistical or handling fees, custom's deposits. fines, costs of satisfying certain customs and/or internal regulations, excess border taxes. and freight rate differentials-~all have precisely the same effect as a duty of equal amount. In addition, they are already expressed in a tariff-like form as a percent of c.i.f. import price. (See Table 1) Exchange and import licensing systems, state trading. nonpprice government procurement preferences, and national security restrictions have an 35 obviously quota-like effect on imports, though they have not been quantified. C. Subsidies. 1. Introduction. A tariff-like restriction of imports also can be caused by subsidies. if import demand can be looked upon as the difference between domestic demand and supply at prices below domestic equilibrium. In that case. any specific or advalorem subsidy which increases domestic supply also decreases import demand. However. the rate of subsidization need not equal the advalorem rate of the nontariff barrier created by the subsidy because of incidence considerations. 2. Domestic Subsidies. A domestic subsidy will lower import demand only to the extent it is passed on to buyers in the form of a price decrease. This point is illustrated by referring to a partial equilibrium model of a country's domestic and foreign trade market for one good, such as steel. As Figure 9 illustrates domestic supply (Sde) and demand (DdDd) in the absence of international trade would establish price OD. and the difference between Sdsd and DdDd at prices below OD determines the import demand curve DMD”. Dunn and the supply of exports facing the country (SMSM) determine the free trade price of IK=OB in both the foreign trade and domestic sectors of the country considered here. 36 3395 3386a a .8 costs 9% a cadem m H m m mu 6 m apfipsmrd snapsmsm _ a A an m . U . .0 .m h M an a an :2 am an we. mafiam Um moaam nexus: paomaH nexus: capmoaoa QOCQ<3 37 According to orthodox economic theory a lump-sum domestic subsidy would have no effect on domestic supply, but a per- unit domestic subsidy equal to DA=JM would shift Sde to SéDa. Demand and supply elasticities dictate. however, that the domestic equilibrium price in the absence of trade would fall by DC