Pak mulls removing import duy on Indian Tea Essay

dispatch trade takes place when there argon no barriers and no intrusions to trade put by the authority( political relation and trade organisations). Free trade al humbleds goods and services to flow freely freely from one uncouth to another. The opposite to free trade is Protectionism. There are many protectionism that the government of a particular country can impose on trade. principal(prenominal) types of protectionism* Tariffs* Subsidies* Quotas* EmbargoesThe governement of Pakistan has imposed a trade barrier on the minute of tea leaf from India. India tea is under a 10 percent import handicraft. some(prenominal) possible reasons for the imposition of Import duty on afternoon tea are given below.* To prevent over specialisation* To raise government taxation* To remove balance of payment deficitsGiven below is a graphical record that shows the work of imposing import duty on the import of Tea. collect to the imposition of import duty the prices for Tea drums from P- valet to P- import duty because of which the add on deflect shifts from S-world to S- world+ import duty . Therefore there is an overall consumer qualifying. sectors a,b,c and d shows the consumer loss. electron orbit a shows the producers gain. Area b shows green loss.It is said to be a Green divergence because there is inefficiency that is creeping in this area as inefficient domesticated producers are now producing this area at a higher price. Area c shows the government revenue due the import duty. Area d shows the net loss. d is not being produced or collected due to the rise in prices, this shows the net loss towards the consumer.Tea is an important drink in e precise Pakistani house and Pakistan is the second largest importer of Tea. Therefore the demand curve for Tea in Pakistan is very inelastic. The smuggled tea is sold at a low cost but due to the Inelastic demand for Tea, The qualifying in the price of tea should have a realively low change in the demand. Howev er, the article states that Pakistan imports 140 million kg and 20 million kg is smuggled. This shows that 12.5 % of tea is smuggled, which is a very high rate. This indirectly shows that Tea inspite of being very inelastic in demand, a change in price will have a big effect on the demand.Area d in the above graph is consumer loss in Trade between India and Pakistan. However, this area is being demanded and supplied throught smuggling and embezzled trade. Therefore, Area d can also be observed as the government loss of revenue.India and Kenya are the two main countrys supplying Pakistan with tea. callable to the drought in Kenya the prices have increased tremendously. This puts Pakistan in a very infavourable situation.S-world takes into account the imported supply of Tea from India and Kenya. Due to the import duty the price shifts from P world to P- import duty and the supply shifts from S- world to S- world+ import duty. Again due to the drougth the price shifts from P- import duty to P1 and the supply shifts from S- world+ import duty to S- world 2. Due to the very high prices people will stop go through Tea and move to other alternatives like coffee. Also smuggling of Tea will increase tremendously. The net effect will have a tremedous loss of revenue for the government.