Details of China trade agreement signing revealed
Three years of negotiations between the New Zealand and Chinese governments has concluded with the signing of a Fair Trade Agreement on April the 7th. A FTA is when a group of counties remove tariffs and quotas between themselves, while retaining the right to set tariffs/quotas on non-member . This aims at encouraging and increasing trade between the members.
Countries use several different types of protectionism to act as trade barriers to decrease the accessibility of international markets into their own. The two main barriers used are Tariffs and Quotas. A tariff is a tax levied on imported goods. The tariff can be both an ad valorem tax, and a specific tax (McGee). A quota however is a quantitative limit on imports set by the importing country. The effect desired by a quota is that domestic suppliers will replace some of the imports at a higher than world market price. An example of this is the shoe market in New Zealand. The shoe market is relatively strong in NZ however other countries such as China are more efficient at producing them, creating lower costs and therefore lower prices. This is where the NZ government steps in, utilising protectionism to limit the amount of shoes allowed to be imported, and taxing per pair to increase costs.
The balance of payments (BOP) is a system of recording all of a country's monetary transactions with the rest of the world over usually a period of one year. The BOP is made up of two parts: the current account and the capital account. The current account shows export revenue and import expenditure and the capital account shows all money in and outflows resulting from foreign investment and loans. Tariffs have an effect on the BOP, causing the domesti ...