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Procedure is instigated Essay

In international economics there are two most prevalent arguments in favor of protection. One is infant-industry argument and the other is the dumping argument. Infant-industry argument is the oldest one. Though there is a dispute on the source of this argument, it is generally assumed that such an argument was first proposed by Mr. Alexander Hamilton, Secretary to the US Treasury in 1791. According to the infant-industry argument a firm (or firms of an industry) is (are) unable to compete when it is small and therefore to reap the benefit of the economies of scale of production and to become competitive it is required to be large.

In such a situation it has to be allowed to grow and be protected so as to keep away from immediate foreign competition. When the firm would become developed, free trade is permissible by dismantling the tariff. (Sodersten and Reed, 1994, pp 256-257). The second argument in favor of protection is dumping argument. To identify the cases of dumping, the procedure is instigated by the domestic firms which assert that their interests are being damaged by the action of the foreign countries.

According to the dumping argument low-price imports is an essential factor behind the

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reduction of sales of the domestic firms and thus increase in imports reduces the market share of such firms. In response, Anti-dumping legislation is sanctioned by the Article VI of GATT. This legislation has allowed an economy to take discriminatory action by levying a duty against the goods which are dumped by another economy. (Sodersten and Reed, 1994, pp 313-314). Although both of these arguments promotes trade barrier, the dumping argument directly discourage free trade.

Infant-industry argument only state a nation to give protection to the domestic firms at their infant stages though the country can be engaged in trading with another nation but dumping argument is completely against import. In case of infant-industry argument there should be clear statement what kind of protection the domestic firms are needed at their earlier stages. Answer 2 The tariff, price-based measures of protection restricts the import volume in a country by raising the domestic price. However, many governments have developed a range import restricting policies.

Such policies known as non-tariff barriers are not operative directly by price mechanism. Quota is one of such policies that restrict the import volume to some precise quantity in a period. Generally the amount of quota is less than the amount of total trade volume. The effect of quota is reflected by the increase in the domestic price as it reduces the supply of goods in the domestic market. For such restrictive policies welfare of the exporting nation reduces. We have shown the effect of import quota in the market by graph 1 as follows.

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