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CHAPTER 1
INTRODUCTION AND MEANING
Introduction
International Trade
International trade is the exchange of goods and services between countries. This type of
trade gives rise to a world economy, in which prices, or supply and demand, affect and are
affected by global events. Political change in Asia, for example, could result in an increase in
the cost of labor, thereby increasing the manufacturing costs for an American sneaker
company based in Malaysia, which would then result in an increase in the price that you have
to pay to buy the tennis shoes at your local mall. A decrease in the cost of labor, on the other
hand, would result in you having to pay less for your new shoes.
Trading globally gives consumers and countries the opportunity to be exposed to goods and
services not available in their own countries. Almost every kind of product can be found on
the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and
water. Services are also traded: tourism, banking, consulting and transportation. A product
that is sold to the global market is an export, and a product that is bought from the global
market is an import. Imports and exports are accounted for in a country's current account in
the balance of payments.
International trade not only results in increased efficiency but also allows countries to
participate in a global economy, encouraging the opportunity of foreign direct investment
(FDI), which is the amount of money that individuals invest into foreign companies and other
assets. In theory, economies can therefore grow more efficiently and can more easily become
competitive economic participants.
For the receiving government, FDI is a means by which foreign currency and expertise can
enter the country. These raise employment levels, and, theoretically, lead to a growth in the
gross domestic product. For the investor, FDI offers company expansion and growth, which
means higher revenues.
International trade has two contrasting views regarding the level of control placed on trade:
free trade and protectionism. Free trade is the simpler of the two theories: a laissez-faire
approach, with no restrictions on trade. The main idea is that supply and demand factors,
operating on a global scale, will ensure that production happens efficiently. Therefore,
nothing needs to be done to protect or promote trade and growth, because market forces will
do so automatically.
In contrast, protectionism holds that regulation of international trade is important to ensure
that markets function properly. Advocates of this theory believe that market inefficiencies
may hamper the benefits of international trade and they aim to guide the market accordingly.
Protectionism exists in many different forms, but the most common are tariffs, subsidies and
quotas. These strategies attempt to correct any inefficiency in the international market.
As it opens up the opportunity for specialization and therefore more efficient use of
resources, international trade has the potential to maximize a country's capacity to produce
and acquire goods. Opponents of global free trade have argued, however, that international
trade still allows for inefficiencies that leave developing nations compromised. What is
certain is that the global economy is in a state of continual change, and, as it develops, so too
must all of its participants.
International trade increases the number of goods that domestic consumers can choose from,
decreases the cost of those goods through increased competition, and allows domestic
industries to ship their products abroad. While all of these seem beneficial, free trade isn't
widely accepted as completely beneficial to all parties. This article will examine why this is
the case, and look at how countries react to the variety of factors that attempt to influence
trade.
Tariffs, which are taxes on imports of commodities into a country or region, are among the
oldest forms of government intervention in economic activity. They are implemented for two
clear economic purposes. First, they provide revenue for the government. Second, they
improve economic returns to firms and suppliers of resources to domestic industry that face
competition from foreign imports. Tariffs are widely used to protect domestic producers’
incomes from foreign competition. This protection comes at an economic cost to domestic
consumers who pay higher prices for import competing goods, and to the economy as a
whole through the inefficient allocation of resources to the import competing domestic
industry.
Trade barriers are restrictions imposed on movement of goods between countries. Trade
barriers are imposed not only on imports but also on exports. The trade barriers can be
broadly divided into two broad groups:
(a) Tariff Barriers
(b) Non-tariff Barriers.
TARIFF BARRIERS
Tariff is an important instrument of protection. It is a tax duty imposed on imports. The
objective is to make import expensive, discourage import and courage domestic industries.
In practice tariff can be levied in four ways :
1. Specific duty: It is a duty levied as per the quantity. Specific duty is levied in case of bulk
low value merchandise.
2. Ad velorm: it is a duty imposed as per the value. Ad velorm duty is imposed on high
value merchandise.
3. Sliding scale duties: it is a variable duty imposed on imports to make their price less
competitive in the home market.
4. Tariff quota: it is a tariff duty imposed together with quota restriction. Tariff is a
domestic instrument of protection. It gives the choice of consumption but at a higher price.
Tariffs are uniformly imposed by developing countries due to various effects. Following are
various effects of tariff.
1. Protection effect: When tariff is levied the price increases. At increased price the domestic
industry can expand supply this is protection effect.
2. Consumption effect: When price increases due to tariff, there is a decline in demand and
consumption. This is consumption effect.
3. Revenue effect: On imports the government levies tax and mobilizes revenue. This is
revenue effect.
4. Redistribution effect: A part of domestic industry was competitive even at lower price.
This industry now earns super normal profit due to increased price. This is the income
redistributed by the industry from other sectors. This is Redistribution effect
5. Balance of payment effect: tariff improves Balance of payment by contracting imports.
6. Terms of trade effect: Imposition of tariff will force the exporting country to reduce its
price. It improves terms of trade position.
7. Income effect: Expansion of domestic production will increase the level of employment
and income. It is the income effect. Tariff is commonly used for its multiple effects. The
commercial policy of a country should be made up of tariff and quotas. Tariff is a democratic
method which also brings in revenue for the govt. It is a significant recourse for a developing
economy.
On the other hand quota is a positive restriction. It helps the government plan imports with
minor defects. However quota is not a popular instrument because it attracts retaliation.
In simplest terms, a tariff is a tax. It adds to the cost of imported goods and is one of several
trade policies that a country can enact. Tariff means Tax. So Tariff barriers means to impose
taxes on international trade goods and services.
Example of tariff barriers –
Say India imposes some tax on import of Chinese plastic goods which raises its final price in
India. Since now it becomes more expensive than price of plastic made in India, it will be
difficult to sell Made in China plastic goods in India and hence its import will stop. This is
called tariff barrier because government imposes tax or tariff on it.
Tariffs are often created to protect infant industries and developing economies, but are also
used by more advanced economies with developed industries. Here are five of the top reasons
tariffs are used:
1. Protecting Domestic Employment:
The levying of tariffs is often highly politicized. The possibility of increased competition
from imported goods can threaten domestic industries. These domestic companies may
fire workers or shift production abroad to cut costs, which means
higher unemployment and a less happy electorate. The unemployment argument often
shifts to domestic industries complaining about cheap foreign labor, and how poor
working conditions and lack of regulation allow foreign companies to produce goods
more cheaply. In economics, however, countries will continue to produce goods until they
no longer have a comparative advantage (not to be confused with an absolute advantage).
2. ProtectingConsumers:
A government may levy a tariff on products that it feels could endanger its population.
For example, South Korea may place a tariff on imported beef from the United States if it
thinks that the goods could be tainted with disease.
3. Protect infant industries:
The use of tariffs to protect infant industries can be seen by the Import Substitution
Industrialization (ISI) strategy employed by many developing nations. The government of
a developing economy will levy tariffs on imported goods in industries in which it wants
to foster growth. This increases the prices of imported goods and creates a domestic
market for domestically produced goods, while protecting those industries from being
forced out by more competitive pricing. It decreases unemployment and allows
developing countries to shift from agricultural products to finished goods. Criticisms of
this sort of protectionist strategy revolve around the cost of subsidizing the development
of infant industries. If an industry develops without competition, it could wind up
producing lower quality goods, and the subsidies required to keep the state-backed
industry afloat could sap economic growth.
4. NationalSecurity:
Barriers are also employed by developed countries to protect certain industries that are
deemed strategically important, such as those supporting national security. Defense
industries are often viewed as vital to state interests, and often enjoy significant levels of
protection. For example, while both Western Europe and the United States are
industrialized, both are very protective of defense-oriented companies.
5. Retaliation
Countries may also set tariffs as a retaliation technique if they think that a trading partner
has not played by the rules. For example, if France believes that the United States has
allowed its wine producers to call its domestically produced sparkling wines
"Champagne" (a name specific to the Champagne region of France) for too long, it may
levy a tariff on imported meat from the United States. If the U.S. agrees to crack down on
the improper labeling, France is likely to stop its retaliation. Retaliation can also be
employed if a trading partner goes against the government's foreign policy objectives.
NON-TARIFF BARRIERS
The issue of non-tariff barriers crops up because of the gearing defects of tariffs. As is
already seen in the previous modules, "Tariffs" that at the imposition of tariff leads to
bringing about gains to the tariff Imposing country but at the same time it reduces the volume
of trade. At the highest of the high tariff the losses will be more than the gains. Moreover,
Tariff produces indirect effect through raising of the price of the tariff imposed goods.
Therefore tariffs should be within limits which should lead to minimization of losses and
maximization of gains i.e. the "tariff should be optimum tariffs". Hence it paves the way for
non-tariff barriers.
Tariffs are not very effective in under developed countries. Their problems are different from
the problems faced by the developed countries. The problem before the developed countries
is to maintain the already attained high rate of economic growth while the problem before the
undeveloped countries is to accelerate the rate of economic growth. The underdeveloped
countries face the problem of deficit in the balance of payment. To correct the deficit in the
balance of payment the underdeveloped countries need to have indirect controls like non-
tariff barriers i.e. import quota and not the direct controls like tariffs.
CONCEPT :
The measures which are used other than tariffs to restrict imports get collectively referred to
as non-tariff barriers. These are direct measures of import restrictions. The setting up if
GATT and WTO led to progressive reduction in tariffs. However it paved the way for the
adoption of non-tariff barriers methods by the developed countries for the reduction of
imports.
The non-tariff barriers include a cafeteria of Trade barriers viz. Import Quota, Import
licensing, voluntary export restraints, Dumping, International Cartels, Subsidies etc.
The non-tariff barriers can broadly be divided into two categories viz.
i) Those non-tariff barriers which restrict imports directly,
ii) Those which restrict imports by encouraging domestic production.
Example of non-tariff barrier –
Say India does not impose any tariff barrier on Chinese plastic goods, but makes it mandatory
that any imported plastic should be of such and such qualities which say the Chinese plastic
does not meet, and consequently such plastic goods cannot be sold in India. Such barrier by
government of India would come under non-tariff barriers.
Like in case of India banning mobile phones without IMEI code, when suddenly all Chinese
mobile phones from market disappeared.
Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports, but are unlike the
usual form of a tariff. Some common examples of NTB's are anti-dumping measures and
countervailing duties, which, although called non-tariff barriers, have the effect of tariffs
once they are enacted.
Their use has risen sharply after the WTO rules led to a very significant reduction in tariff
use. Some non-tariff trade barriers are expressly permitted in very limited circumstances,
when they are deemed necessary to protect health, safety, sanitation, or depletable natural
resources. In other forms, they are criticized as a means to evade free trade rules such as
those of the World Trade Organization (WTO), the European Union (EU), or North
American Free Trade Agreement (NAFTA) that restrict the use of tariffs.
Some of non-tariff barriers are not directly related to foreign economic regulations but
nevertheless have a significant impact on foreign-economic activity and foreign trade
between countries.
CHAPTER 2
TYPES OF TARIFFS AND NON-TARIFFS BARRIER
Types of Tariffs and Trade Barriers
TARIFF BARRIERS
Tariff is a customs duty or a tax on products that move across borders. The most important of
tariff barriers is the customs duty imposed by the importing country. A tax may also be
imposed by the exporting country on its exports. However, governments rarely impose tariff
on exports, because, countries want to sell as much as possible to other countries.
Tariffs and Modern Trade
The role tariffs play in international trade has declined in modern times. One of the primary
reasons for the decline is the introduction of international organizations designed to improve
free trade, such as the World Trade Organization (WTO). Such organizations make it more
difficult for a country to levy tariffs and taxes on imported goods, and can reduce the
likelihood of retaliatory taxes. Because of this, countries have shifted to non-tariff barriers,
such as quotas and export restraints. Organizations like the WTO attempt to reduce
production and consumption distortions created by tariffs. These distortions are the result of
domestic producers making goods due to inflated prices, and consumers purchasing fewer
goods because prices have increased. The main important tariff barriers are as follows:
1. Specific Duty:
Specific duty is based on the physical characteristics of goods. When a fixed sum of money,
keeping in view the weight or measurement of a commodity, is levied as tariff, it is known as
specific duty.
For instance, a fixed sum of import duty may be levied on the import of every barrel of oil,
irrespective of quality and value. It discourages cheap imports. Specific duties are easy to
administer as they do not involve the problem of determining the value of imported goods.
However, a specific duty cannot be levied on certain articles like works of art. For instance, a
painting cannot be taxed on the basis of its weight and size.
2. Ad valorem Duty:
These duties are imposed “according to value.” When a fixed percent of value of a
commodity is added as a tariff it is known as ad valorem duty. It ignores the consideration of
weight, size or volume of commodity.
The imposition of ad valorem duty is more justified in case of those goods whose values
cannot be determined on the basis of their physical and chemical characteristics, such as
costly works of art, rare manuscripts, etc. In practice, this type of duty is mostly levied on
majority of items.
3. Combined or Compound Duty:
It is a combination of the specific duty and ad valorem duty on a single product. For instance,
there can be a combined duty when 10% of value (ad valorem) and Re 1/- on every meter of
cloth is charged as duty. Thus, in this case, both duties are charged together.
4. Sliding Scale Duty:
The import duties which vary with the prices of commodities are called sliding scale duties.
Historically, these duties are confined to agricultural products, as their prices frequently vary,
mostly due to natural factors. These are also called as seasonal duties.
5. Countervailing Duty:
It is imposed on certain imports where products are subsidised by exporting governments. As
a result of government subsidy, imports become more cheaper than domestic goods. To
nullify the effect of subsidy, this duty is imposed in addition to normal duties.
6. Revenue Tariff:
A tariff which is designed to provide revenue to the home government is called revenue
tariff. Generally, a tariff is imposed with a view of earning revenue by imposing duty on
consumer goods, particularly, on luxury goods whose demand from the rich is inelastic.
7. Anti-dumping Duty:
At times, exporters attempt to capture foreign markets by selling goods at rock-bottom
prices, such practice is called dumping. As a result of dumping, domestic industries find it
difficult to compete with imported goods. To offset anti-dumping effects, duties are levied in
addition to normal duties.
8. Protective Tariff:
In order to protect domestic industries from stiff competition of imported goods, protective
tariff is levied on imports. Normally, a very high duty is imposed, so as to either discourage
imports or to make the imports more expensive as that of domestic products.
TYPES OF NON-TARIFF BARRIERS
A non tariff barrier is any barrier other than a tariff, that raises an obstacle to free flow of
goods in overseas markets. Non-tariff barriers, do not affect the price of the imported goods,
but only the quantity of imports. Non tariff barriers are other forms of restrictions on the scale
of international trade. Examples of non tariff barriers are import quotas, specific licenses etc.
These barriers are used to protect small sized industries and developing economies but world
trade organization is stressing on countries to minimize these barriers to increase in trade
among the countries.
A first category of NTMs are those imposed on imports. This category includes import
quotas, import prohibitions, import licensing, and customs procedures and administration
fees. A second category of NTMs are those imposed on exports. These include export taxes,
export subsidies, export quotas, export prohibitions, and voluntary export restraints. These
first two categories encompass NTMs that are applied at the border, either to imports or to
exports. A third and final category of NTMs are those imposed internally in the domestic
economy. Such behind-the-border measures include domestic legislation covering health/
technical/ product/ labor/ environmental standards, internal taxes or charges, and domestic
subsidies.
There are various types of barriers are available to the Non-Tariff Barriers to Trade
Following are the various Six Types of Non-Tariff Barriers to Trade
1. Specific Limitations on Trade: it includes the Quotas, Import Licensing requirements,
Proportion restrictions of foreign to domestic goods (local content requirements), Minimum
import price limits, Embargoes
2. Customs and Administrative Entry Procedures: It includes the Valuation systems, Anti-
dumping practices, Tariff classifications, Documentation requirements, Fees and so on.
3. Standards: In this type the Standard disparities, Intergovernmental acceptances of testing
methods and standards, Packaging, labeling, and marking etc. are included.
4. Government Participation in Trade: It has Government procurement policies, Export
subsidies, Countervailing duties, Domestic assistance programs
5. Charges on imports: It includes Prior import deposit subsidies, Administrative fees,
Special supplementary duties, Import credit discrimination, Variable levies, Border taxes etc.
6. Others: It has Voluntary export restraints, Orderly marketing agreements and so on.Thus,
the various types of barriers to the Non-Tariff barriers are explained as well. The Non-Tariff
barriers can include wide variety of restrictions to trade. Here is some example of the
―popular Non-Tariff barriers.
Licenses
License is the most common instruments of direct regulation of imports (and sometimes
export) are licenses and quotas. Almost all industrialized countries apply these Non-Tariff
methods. The license system requires that a state (through specially authorized office) issues
permits for foreign trade transactions of import and export commodities included in the lists
of licensed merchandises. The main types of licenses are general license that permits
unrestricted importation of goods included in the lists for a certain period of time. A license is
granted to a business by the government, and allows the business to import a certain type of
good into the country. For example, there could be a restriction on imported cheese, and
licenses would be granted to certain companies allowing them to act as importers. This
creates a restriction on competition, and increases prices faced by consumers. The most
common instruments of direct regulation of imports (and sometimes export) are licenses and
quotas. Almost all industrialized countries apply these non-tariff methods. The license system
requires that a state (through specially authorized office) issues permits for foreign trade
transactions of import and export commodities included in the lists of licensed merchandises.
Product licensing can take many forms and procedures.
The main types of licenses are general license that permits unrestricted importation or
exportation of goods included in the lists for a certain period of time; and one-time license for
a certain product importer (exporter) to import (or export). One-time license indicates a
quantity of goods, its cost, its country of origin (or destination), and in some cases also
customs point through which import (or export) of goods should be carried out. The use of
licensing systems as an instrument for foreign trade regulation is based on a number of
international level standards agreements. In particular, these agreements include some
provisions of the General Agreement on Tariffs and Trade and the Agreement on Import
Licensing Procedures, concluded under the GATT (GATT).
Quota
The commercial policy contains a direct restrictive instrument called import quota. Import
quota is a positive restriction on incoming goods regardless of tariff. It is not a demand
instrument. It does not provide freedom of consumption. Quota is imposed as a serious
retaliatory measure.
Following are the objective of quota:
1. To restrict import directly from a particular country globally.
2. It is used as a strong retaliatory move.
3. Quota imposes B.O.P disequilibrium position.
4. With import license quota provides better supervision of precious imports.
Import quota can be levied with tariff commonly called as tariff quota. An ideal commercial
policy should be made up of quota and tariff. Import quotas provide all the effect provided by
tariff except revenue. However tariff quota can bring in revenue.
1. Protection effect: Restriction on import automatically increases theprice. At the enhanced
price the industry can expand supply. This is the offset of production.
2. Consumption effect: Imposition of quota is a direct restriction on consumption. With
decrease in demand the consumption also decreases.
3. Redistribution effect: quota restriction enhance price uniformly. The industry which was
economical at lower price now draws super normal profit. This is the effect of redistribution
effect where incomes flow from other sectors
4. Balance of payment effect: Control of imports improve Balance of payment position.
This position on merchandise improves.
5. Retaliation effect: Quota can be used as an retaliatory policy. Severe quota restriction and
prohibition of imports can be termed as import embargo or economic sanction.
6. Integration effect: quota restriction followed by group of countries is found as regional
economic co-operation. This is integration of regional countries.
In addition quota may offer all those effects found with tariff income effect, employment
effect, bargaining power, terms of trade effect can be found. However with pure quota
revenue cannot be derived. Import quotas together with import licensing system may not only
control import but also supervise usage of imports. Under developed countries apply quota to
protect home industry and developed nations use quota for improving bargaining power.
A quota is a limitation in value or in physical terms, imposed on import and export of certain
goods for a certain period of time. It is also an important instrument to restrict trade as far as
Non-Tariff barriers are concerned. Licensing of foreign trade is closely related to quantitative
restrictions – quotas - on imports and exports of certain goods. In addition quota may offer all
those effects found with tariff income effect, employment effect, bargaining power, terms of
trade effect can be found. However with pure quota revenue cannot be derived. Import quotas
together with import licensing system may not only control import but also supervise usage
of imports. Under developed countries apply quota to protect home industry and developed
nations use quota for improving bargaining power.
A quota is simply a maximum limitation, specified in either value or physical units, on
imports of a product for a given period. It is enforced through licenses issued to either
importers or exporters and may be applied to imports from specific countries or from all
foreign countries generally. Two examples illustrate these different characteristics. The
United States imposes a general quota on dried milk imports; licenses are granted to certain
U.S. trading companies, who are allowed to import a maximum quantity of dried milk based
on their previous imports. In a different situation U.S. sugar imports are limited by a quota
that specifies the shares of individual countries; the right to sell sugar to the United States is
given directly to the governments of these countries.
Under this system, a country may fix in advance, the limit of import quantity of a commodity
that would be permitted for import from various countries during a given period. The quota
system can be divided into the following categories:
(a) Tariff/Customs Quota (b) Unilateral Quota
(c) Bilateral Quota (d) Multilateral Quota
Tariff/Customs Quota: Certain specified quantity of imports is allowed at duty free or
at a reduced rate of import duty. Additional imports beyond the specified quantity are
permitted only at increased rate of duty. A tariff quota, therefore, combines the
features of a tariff and an import quota.
Unilateral Quota: The total import quantity is fixed without prior consultations with
the exporting countries.
Bilateral Quota: In this case, quotas are fixed after negotiations between the quota
fixing importing country and the exporting country.
Multilateral Quota: A group of countries can come together and fix quotas for exports
as well as imports for each country.
Licenses and quotas limit the independence of enterprises with a regard to entering foreign
markets, narrowing the range of countries, which may be entered into transaction for certain
commodities, regulate the number and range of goods permitted for import and export. The
licensing and quota systems are an important instrument of trade regulation of the vast
majority of the world.The consequence of this trade barrier is normally reflected in the
consumers‘ loss because of higher prices and limited selection of goods as well as in the
companies that employ the imported materials in the production process, increasing their
costs.
Voluntary Export Restraints (VERs)
Voluntary export restraints, which are nearly identical to quotas, are agreements between an
exporting and an importing country limiting the maximum amount of exports in either value
or quantity terms to be sold within a given period. Characterizing these restraints as
“voluntary” is somewhat misleading because they are frequently designed to prevent official
protective measures by the importing country. In the 1980s, for example, exports by the
Japanese automobile industry to the United States and the United Kingdom have been limited
“voluntarily” to prevent the governments of these countries from directly limiting imports of
Japanese autos.
An example of a voluntary export restraint on a much broader scale is the Multifiber
Arrangement. Originally signed in 1974 as a temporary exception to CA’T’T and renewed
three times since, the Multifiber Arrangement allows for special rules to govern trade in
textiles and apparel.
Under this agreement, quotas are set on most imports of textiles and apparel by developed
countries from developing countries, while imports of textiles and apparel from other
developed countries except Japan are not subject to any restrictions. Multilateral voluntary
export restraint agreements are frequently called “orderly marketing agreements.”
This type of trade barrier is "voluntary" in that it is created by the exporting country rather
than the importing one. A voluntary export restraint is usually levied at the behest of the
importing country, and could be accompanied by a reciprocal VER. For example, Brazil
could place a VER on the exportation of sugar to Canada, based on a request by Canada.
Canada could then place a VER on the exportation of coal to Brazil. This increases the price
of both coal and sugar, but protects the domestic industries.
A Voluntary Export Restraints (VERs) is a restriction set by a government on the quantity of
goods that can be exported out of a country during a specified period of time. Often the word
voluntary is placed in quotas because these restraints are typically implemented upon the
insistence of the importing countries. This category includes global quotas in respect to
specific countries, seasonal quotas, and so-called ―voluntary" export restraints. Quantitative
controls on foreign trade transactions carried out through one-time license.
Embargo:
Embargo is a specific type of quotas prohibiting the trade. As well as quotas, embargoes may
be imposed on imports or exports of particular goods, regardless of destination, in respect of
certain goods supplied to specific countries, or in respect of all goods shipped to certain
countries. Although the embargo is usually introduced for political purposes, the
consequences, in essence, could be economic.
Standards:
Standards take a special place among Non-Tariff barriers. Countries usually impose standards
on classification, labeling and testing of products in order to be able to sell domestic
products, but also to block sales of products of foreign manufacture. These standards are
sometimes entered under the pretext of protecting the safety and health of local populations
Product Standards:
Most developed countries impose product standards for imported items. If the imported items
do not conform to established standards, the imports are not allowed. For instance, the
pharmaceutical products must conform to pharmacopoeia standards.
Anti-dumping and countervailing duties:
A number of countries both developed and developing have resorted to anti-dumping and
countervailing duties whenever their domestic industries are threatened by other countries.
WTO has provisions for anti-dumping measures which could be introduced in a more
restrictive situation and with rigid tests to prove the dumping
Domestic Content Requirements:
Governments impose domestic content requirements to boost domestic production. For
instance, in the US bailout package (to bailout General Motors and other organisations), the
US Govt. introduced ‘Buy American Clause’ which means the US firms that receive bailout
package must purchase domestic content rather than import from elsewhere.
Product Labelling:
Certain nations insist on specific labeling of the products. For instance, the European Union
insists on product labeling in major languages spoken in EU. Such formalities create
problems for exporters.
Packaging Requirements:
Certain nations insist on particular type of packaging materials. For instance, EU insists on
recyclable packing materials, otherwise, the imported goods may be rejected.
Consular Formalities:
A number of importing countries demand that the shipping documents should include
consular invoice certified by their consulate stationed in the exporting country.
State Trading:
In some countries like India, certain items are imported or exported only through canalising
agencies like MMTC. Individual importers or exporters are not allowed to import or export
canalized items directly on their own.
Preferential Arrangements:
Some nations form trading groups for preferential arrangements in respect of trade amongst
themselves. Imports from member countries are given preferences, whereas, those from other
countries are subject to various tariffs and other regulations.
Foreign Exchange Regulations:
The importer has to ensure that adequate foreign exchange is available for import of goods
by obtaining a clearance from exchange control authorities prior to the concluding of contract
with the supplier.
Other Non-Tariff Barriers:
There are a number of other non – tariff barriers such as health and safety regulations,
technical formalities, environmental regulations, embargoes, etc.
Administrative and bureaucratic delays at the entrance:
Among the methods of non-tariff regulation should be mentioned administrative and
bureaucratic delays at the entrance, which increase uncertainty and the cost of maintaining
inventory.
Import deposits:
Another example of foreign trade regulations is import deposits. Import deposits is a form of
deposit, which the importer must pay the bank for a definite period of time (non-interest
bearing deposit) in an amount equal to all or part of the cost of imported goods.
At the national level, administrative regulation of capital movements is carried out mainly
within a framework of bilateral agreements, which include a clear definition of the legal
regime, the procedure for the admission of investments and investors. It is determined by
mode (fair and equitable, national, most-favored-nation), order of nationalization and
compensation, transfer profits and capital repatriation and dispute resolution.
Foreign exchange restrictions and foreign exchange controls:
Foreign exchange restrictions and foreign exchange controls occupy a special place among
the non-tariff regulatory instruments of foreign economic activity. Foreign exchange
restrictions constitute the regulation of transactions of residents and nonresidents with
currency and other currency values. Also an important part of the mechanism of control of
foreign economic activity is the establishment of the national currency against foreign
currencies.
Import Quotas:
An import quota is a restriction placed on the amount of a particular good that can be
imported. This sort of barrier is often associated with the issuance of licenses. For example, a
country may place a quota on the volume of imported citrus fruit that is allowed.
Local Content Requirement:
Instead of placing a quota on the number of goods that can be imported, the government can
require that a certain percentage of a good be made domestically. The restriction can be a
percentage of the good itself, or a percentage of the value of the good. For example, a
restriction on the import of computers might say that 25% of the pieces used to make the
computer are made domestically, or can say that 15% of the value of the good must come
from domestically produced components.
Subsidy:
A subsidy is a type of financial support paid to a business or economic sector. The
government makes most subsidies to producers or distributors in an industry to stop the
decline of that business or a boost in the prices of its goods or plainly to persuade it to
employ more labor. Some examples of subsidies to encourage the sale of exports; subsidies
on some foods to keep down the cost of living, especially in cities; and subsidies to support
the expansion of farm production and achieve self-reliance in food production
Import deposits:
Import deposits is a type of deposit required importers to put a certain of money in an account
for a significant period of time whose purpose is to guarantee that import duties will be paid,
or the deposit may simply be a non-tariff barrier intended to discourage imports.
CHAPTER 3
IMPORTANCE OF NON TARIFF BARRIERS
NON-TARIFF BARRIERS
The drastic rise in the use of non-tariff barriers stemmed largely from the WTO new rules
about reduction in tariff use, which formed part of the WTO’s mission to ensure free trade
across the globe. While the WTO rules do allow for the use of NTBs in some circumstances,
the specifications about when they can be used are very strict such that they can only be
employed for purposes such as to guarantee health, safety or sanitation, or to safeguard non-
renewable natural resources. Should NTMs be used for other purposes, they are deemed to be
ways of evading free trade rules.
Another reason for the transition from tariffs to NTMs is that many countries, especially
developed countries do not have to rely on tariffs as a source of funding anymore, like they
did in their early stages of development. They can afford to switch to other trade barriers that
do not involve tariffs, but that still provide them with a means to regulate international trade.
NTBs allow these countries to help weak industries or provide compensation to those
industries that have been adversely impacted by the WTO laws on reduction of tariffs.
NTBs offer traders an alternate method of influencing the market.Also, it is a logical way
for countries to respond to the reduction of tariffs - since it has been declared that tariffs are
no more to be used.
NTBs can be quite similar to tariffs, apart for a few exceptions. After the laws of tariff
reduction were enacted during the eight rounds of negotiations in the WTO and the General
Agreement on Tariffs and Trade (GATT), those who persisted in believing in the concept of
protectionism have turned to NTBs. In fact, most of the NTMs can be defined as protectionist
measures.
NTBs can be thought of as a ‘new’ means of protection which has replaced tariffs as the
“old” method of protection.
The use of NTBs can also result in trade wars. By raising trade barriers against a foreign
country, the latter can decide to do the same in retaliation. The imports and exports of both
countries are thus restricted, and this greatly reduces the markets open to them, lowering their
scope for growth and efficiency. If many countries across the world engage in these trade
wars, global trade and economic activity will suffer drastically. These retaliations can also
quickly spread beyond the source of conflict and affect the countries’ other economy policies
as a way to retaliate.
It can be seen that all participants can take advantage of free trade through efficiency of the
market, for instance, increased choice and reduced prices. However, non-tariff measures also
have their uses and are necessary in certain conditions. There must be a balance between the
quest for efficiencies and the use of barriers to trade.
ADVANTAGES AND DISADVANTAGES OF NON TARIFF BARRIERS
Advantages
Since the main purpose of NTMs is protectionism, the advantages of NTMs will also
mainly be those of protectionism. Non-tariff barriers help protect the development of
new industries against foreign rivals.
If foreign industries compete with domestic industries that are not developed enough
or large enough yet to take advantage of economies of scale, then NTBs, such as
import quotas, can protect the ‘infant’ industry from too much competition through
its maturing stages until it can compete on its own.
NTMs also offer protection to certain economies against foreign countries that are
interested to trade with them only because they know that the domestic economies
will not be able to face competition from them and will eventually collapse, leaving
them a monopoly of the domestic market. An example of such unfair trading is
‘dumping’.
The barriers to trade protect the domestic economies from such countries with an
unfair relative advantage.
It is believed that the use of NTBs can result in increased domestic employment.
Since foreign firms create jobs abroad, NTBs such as import quotas, reduce imports,
make domestic production rise instead, and thus create domestic employment.
Also, reducing imports from countries with cheaper labour levels the competition
compared to the higher wages being paid for local production.
NTBs, moreover, by cutting down imports, help countries boost those local industries
that are concerned with the national security and also those industries which help give
the country economic independence.
Disadvantages
The main disadvantage of NTMs is that they hinder free trade and the benefits that
accompany the latter.
The protectionist aspect of NTBs discourages competition from bigger industries
and also from foreign countries. While this might help domestic firms and industries
to grow at first, in the long run, it in fact dampens future growth. This is because, due
to the lack of competition, domestic firms can then afford to provide a narrow choice
of goods to customers, to lower the goods’ quality, and to raise their prices.
Because of this inefficient production, there is also no more incentive for the firms to
strive for constant innovation and excellence. Thus, ultimately, NTBs do not help in
the future growth of firms.
There is another way in which NTMs drive up the prices of goods in the domestic
economy. By restricting access to foreign countries where goods could be made
more cheaply, more resources have to be employed domestically itself to make the
same goods at a higher price.
Also, while free trade allows countries to benefit from the concept of comparative
advantage, the use NTMs prevents countries from enjoying these benefits.
If countries specialise only in the production of goods in which they have a
competitive advantage, this allows each country to produce at the minimum prices.
This efficiency in production benefits all parties to the trade. However, NTMs, by
restricting trade, do not help in achieving that goal
CHAPTER 4
DIFFERENCE BETWEEN TARIFF AND NON TARIFF BARRIER
The transition from tariffs to non-tariff barriers
One of the reasons why industrialized countries have moved from tariffs to NTBs is the fact
that developed countries have sources of income other than tariffs. Historically, in the
formation of nation-states, governments had to get funding. They received it through the
introduction of tariffs. This explains the fact that most developing countries still rely on
tariffs as a way to finance their spending. Developed countries can afford not to depend on
tariffs, at the same time developing NTBs as a possible way of international trade regulation.
The second reason for the transition to NTBs is that these tariffs can be used to support weak
industries or compensation of industries, which have been affected negatively by the
reduction of tariffs. The third reason for the popularity of NTBs is the ability of interest
groups to influence the process in the absence of opportunities to obtain government support
for the tariffs.
Non-tariff barriers today
With the exception of export subsidies and quotas, NTBs are most similar to the tariffs.
Tariffs for goods production were reduced during the eight rounds of negotiations in the
WTO and the General Agreement on Tariffs and Trade (GATT). After lowering of tariffs, the
principle of protectionism demanded the introduction of new NTBs such as technical barriers
to trade (TBT). According to statements made at United Nations Conference on Trade and
Development (UNCTAD, 2005), the use of NTBs, based on the amount and control of price
levels has decreased significantly from 45% in 1994 to 15% in 2004, while use of other
NTBs increased from 55% in 1994 to 85% in 2004.
Increasing consumer demand for safe and environment friendly products also have had their
impact on increasing popularity of TBT. Many NTBs are governed by WTO agreements,
which originated in the Uruguay Round (the TBT Agreement, SPS Measures Agreement, the
Agreement on Textiles and Clothing), as well as GATT articles. NTBs in the field of services
have become as important as in the field of usual trade.
Most of the NTB can be defined as protectionist measures, unless they are related to
difficulties in the market, such as externalities and information asymmetries between
consumers and producers of goods. An example of this is safety standards and labeling
requirements.
The need to protect sensitive to import industries, as well as a wide range of trade restrictions,
available to the governments of industrialized countries, forcing them to resort to use the
NTB, and putting serious obstacles to international trade and world economic growth. Thus,
NTBs can be referred as a new of protection which has replaced tariffs as an old form of
protection.
All countries are dependent on other countries for some products and services as no country
can ever hope to be self reliant in all respects. There are countries having abundance of
natural resources like minerals and oil but are deficient in having technology to process them
into finished goods. Then there are countries that are facing shortage of manpower and
services. All such shortcomings can be overcome through international trade. Though it
seems easy, in reality, importing goods from foreign countries at cheap prices hits domestic
producers badly. As such, countries impose taxes on goods coming from abroad to make their
cost comparable with domestic goods. These are called tariff barriers. Then there are non
tariff barriers also that serve as impediments in free international trade. This article will try to
find out differences between tariff and non tariff barriers.
Tariff Barriers
Tariffs are taxes that are put in place not only to protect infant industries at home, but also to
prevent unemployment because of shut down of domestic industries. This leads to unrest
among the masses and an unhappy electorate which is not a favorable thing for any
government. Secondly, tariffs provide a source of revenue to the government though
consumers are denied their right to enjoy goods at a cheaper price. There are specific tariffs
that are a onetime tax levied on goods. This is different for goods in different categories.
There are Ad Valorem tariffs that are a ploy to keep imported goods pricier. This is done to
protect domestic producers of similar products.
Non Tariff Barriers
Placing tariff barriers are not enough to protect domestic industries, countries resort to non
tariff barriers that prevent foreign goods from coming inside the country. One of these non
tariff barriers is the creation of licenses. Companies are granted licenses so that they can
import goods and services. But enough restrictions are imposed on new entrants so that there
is less competition and very few companies actually are able to import goods in certain
categories. This keeps the amount of goods imported under check and thus protects domestic
producers.
Import Quotas is another trick used by countries to place a barrier to the entry of foreign
goods in certain categories. This allows a government to set a limit on the amount of goods
imported in a particular category. As soon as this limit is crossed, no importer can import
further quantities of the goods.
Non tariff barriers are sometimes retaliatory in nature as when a country is antagonistic to a
particular country and does not wish to allow goods from that country to be imported. There
are instances where restrictions are placed on flimsy grounds such as when western countries
cite reasons of human rights or child labor on goods imported from third world countries.
They also place barriers to trade citing environmental reasons.
CHAPTER 5EFFECTS OF NON-TARIFF BARRIERS
Effects on trade
It is generally assumed that NTMs have negative effect on trade, even if it has been elusive
for quantitative assessment. Sometimes, these policy measures are referred to as barriers,
when the emphasis is made on the difficulties an exporter may have to comply with them. In
fact, NTMs can hinder exports for countries or companies when they are not able to pay the
cost of adapting their product or production process to the norm of a trade partner. Then,
another less competitive exporter may be able to take on a restrictive market if it complies
with that regulation. NTMs would be trade distorting in this case.
However, NTMs may also facilitate trade when they reduce asymmetries in information
between consumers and producers, for example about the quality or safety of the product.
The effort of complying with NTMS could also help countries to upgrade capacities, in which
case the ultimate development impact is positive for the exporting country. On the importing
country's side, NTMs could reduce negative externalities, for example in the case of
environmental threat or food safety.
Effects on Price
A quota is defined as an upper limit on the number of units of a commodity that can be
imported into a country. When such a restriction is imposed, domestic consumers are
prevented from buying an imported good, the supply of which is no longer perfectly elastic as
it would have been in a free trade situation resulting in a rise in the price of the product. This
can be better explained using a demand and supply diagram as follows:
In a situation where there is free trade and no barriers to trade are imposed then at the world
price of "wp" domestic producers will supply Q1 and Q1-Q2 will be imported, i.e,
equilibrium quantity will be at Q1.
The supply curve to the domestic market will be denoted by the curve "ABws". The effect of
imposing a quota will be to limit the amount of imported goods. Let us suppose that the quota
cut imports from Q1-Q2 to Q1-Q3. A new supply curve can now be drawn incorporating the
amount of the quota (Q1-Q3). The world price "wp" no longer acts as the supply curve but
instead the latter is represented by the curve "ABCSS". we can nothe that the new
equilibrium will be at "E" and the new equilibrium price will be at "pq". It is clear that price
has risen from the implementation of quota. This is explained by the fact that the supply of
the commodity is now restricted causing a slight increase in the price of the commodity. The
extent of the increase will depend on the quota imposed. The lower the quota, the higher will
be the price.
A simple example can be taken to explain the above theory. Suppose you have milk imported
freely into a country and account for 50% of the domestic demand. If government imposes a
quota on the amount that can be imported, the supply of milk will fall giving rise to a
shortage. This shortage will exert pressure on price which will finally rise to eliminate that
shortage and restore the equilibrium.
Effects on society
Another measure is embargo. This is a complete ban on imported product. Such a measure
can be imposed to protect the society as whole. For example, a country may ban or severely
curtail the importation of things such as harmful drugs, pornographic literature and live
animals. Had embargoes not imposed on such products, society would suffer enormous
damage as they have high level of negative externalities
Effects on multinational
Import quotas generally have a negative impact on multinational companies. These
enterprises such as Nike and General Motors are intensively engaged in international trade as
domestic consumption only cannot meet their high targets. When a quota is imposed on their
goods by a major buyer, MNCs must find other markets to supply their products, otherwise
they will have to cut production and profits figure will suffer.
Effects on employment
However, import quotas affect positively domestic employment. The fall in imports will
divert demand to local suppliers and the latter will have to increase production to cover the
gap which foreign products used to occupy. This applies to domestic supplies that have the
capabilities and were unable to compete internationally. In order to boost production, they
will have to recruit more people. This will have a multiplier effect in the economy giving rise
a lower unemployment rate and higher economic growth.
The Effect Of Globalization On NTMs
Globalization is a process by which countries are linked altogether in a peaceful manner as
view to only one planet. In technical terms, it is described as being a process by which
national and regional economies, societies and cultures have all been united via global
network of trade, communication, immigration and transportation.
The evolving nature of NTMS has gained an important place in international trade today.
More recently, it has been considered in the annual World Trade Report of 2012.
NTMs has become a necessity not only to protect domestic industries but to the globalized
world as a whole. Globalisation raised changes in countries among which are increased social
awareness, growing concerns regarding health, safety and environmental quality which led to
increase in NTMs. For the better understanding of the impact of globalization on NTMs,
trade in goods and services were considered.
Examples of regulatory measures are Technical Barriers to Trade and Sanitary and Phyto-
Sanitary measures in goods and regulations in services which have recently cropped up.
These measures do not have a direct influence on trade but have a strong influence on trade
agreements and amount of trade between countries. Some say that NTMs have been
encouraged via globalization for a viable peace. Public policy can thus enhance trade flows in
a positive or even negative way. Trade in services has evolved in recent years and is no
longer similar to traditional trade. New policies came into force to handle these new trends.
Globalization relates to WTO. Trade in services has the relatively same importance as trade
in goods for good networks between countries.
The WTO knows they hold the same weight in international production affairs and hence
measures to restrict trade and competition in the services market that could affect more than
the sector directly concerned. Examples where cases are most suited are infrastructural
services, spill-over effects on other services and goods.
Unlike in the past when NTMS role were solely to protect domestic producers from foreign
competition, nowadays NTMs are more to do with public policy objectives. These policies
not only consider protectionism but also take precaution measures. In the sector of health and
environmental services, NTMS were recently boosted in numbers.
NTMS were found not to be an easy task to be observed and quantified, however with
globalization, WTO observes that NTMS are meant to have a long stay with their several
arrangements between countries which adds to the main agreements.
The emerging in change of NTMs with time is not protected against negative effects. NTMs
may in other words reduce benefits gained from the main agreement, for example negate
some tariff reductions. Moreover, non-tariffs measures have a long list of measures which are
also difficult to quantify and also sometimes are invisible in the agreements. In addition to
that, those measures are not regular to all countries that it is served and to that, their effect
sometimes bring distortions in agreements between sectors and countries.
Globalisation is known to have brought changes or complete change in more than one
country structure and future. It has greatly changed policies of countries and to that NTMs
continue to be evaluated and are still expanding.
The foremost thought, hence, of NTMs is that it will not have a decreasing or reducing
effect on the tariffs agreements between countries.
As deducted from above, globalization does not only bring positive results onto a country
trade flow. As globalization strengthens alliances amongst nations, NTMs continue to be on
the rise in their arrangements. NTMs may also be used as a tool to restrict trade flows in the
case of where some countries might be oligopolies of certain commodities on the global
market.
Technical Barriers to Trade and Sanitary and Phyto-Sanitary measures is said to be the
source of last resort for some developing countries since it impacts the worst results on them.
The reason is that these countries may be differently structured and may not be able to meet
those criteria mentioned in the measures.
Though, globalization intensify the relationship between countries does bring both good
and bad results, harmonious plans between countries may help to reduce the negatives
effects.
CHAPTER 6
IMPACT OF NON-TARIFF BARRIERS ON TRADE
Positive Impacts of Non-Tariff Measures on Trade
Conversely, since tariff measures are constantly being cut such as, customs under multilateral
and regional agreements, there is now an increasing role of Non-tariff measures.
NTMs are also viewed as being crucial and beneficial to trading.
The majority of NTMs aim to protect health (human, plants and animals) and in addition
some NTMs may promote and establish trust among trading partners.
NTMs like Sanitary and Phytosanitary (SPS) measures, though, contain some drawbacks , but
are still very important in promoting sound trading internationally, where defected, low
quality products are banned, hence resulting in the enhancement of consumers’ safety.
NTMs ensure that the imported goods meet the domestic requirements and enable countries
to protect themselves from the imports of noxious and contaminated products.
Furthermore, the Sanitary and Phytosanitary measures allow countries to enforce trade
restrictions for health and safety reasons based on scientific risk assessments. As such,
following the use of antibiotics in shrimps, countries impose sturdy controls on shrimp’s
imports. Hence two methods were applied, whereby some countries such as the EU countries
impose stringent equivalence-based imports system where only countries that have set the
uniformity of their food safety procedures with European ones can export to the EU. On the
other hand, only certified producers who showed the equality of their safety standards and
controls with European ones were given the right to export to EU market. Other countries like
Japan or Canada adopt a risk analysis method to ensure the food safety of their seafood
imports.
NTMs like Intellectual Property Rights (IPR) protections are regarded as playing an integral
part in the international trade. In this empirical world, use of patents, trademarks and
copyrights, geographical indications, industrial designs are of utmost importance in further
enhancing trade. Also, its effective use of knowledge contributes greatly in making the
national economic prosper.
NTMs are viewed as impeding trade, yet, country having an adequate and effective
Intellectual Property Protection, are instead regarded as a plus to trade at international level.
As such, Intellectual Property is on priority list of the Indonesian government, since
Indonesia form part among the countries with the weakest IP protection, the government
wants to persuade the US, their biggest trading partner that Indonesia has a strong IP
protection.
The main reason behind enforcing powerful protection on intellectual property by Indonesian
government is to avoid tariffs trade that could obstruct its economic growth and to curtail
foreign investment. Thus, what can be deduced is that in order to be competitive to trade
globally, countries must make provisions for strong IP protection. Hence, it can be argued not
all NTMs have adverse effect on trade but there are some like IP protections that rather
underpin international trade and also motivate firms to be more involved in research and
development projects, since they are secured and receive strong protections an example of a
student's work
Negative Impacts of Non-Tariff Measures on Trade
Generally, Non-Tariff Measures (NTMs) are applied for legitimate reasons.
NTMs really met the purpose of the WTO in freeing up international trade or have instead
been hampering the flow of trade among countries.
The imposition of most of the NTMs was found to be rather a barrier to trade. NTMs, to
enhance trade particularly in developing countries, are now viewed as impediments to trade.
There are some specific types of NTMs that directly impact on imports of countries, like the
Para-tariff measures, variables levies, dumping/countervailing duties (investigation and
undertakings), import surcharges and deposits, imports surveillance, non-automatic licenses,
some price control measures and voluntary export restraints, these NTMs are viewed as
having the pronounced restricting impacts on imports. In addition, it was argued by Messerlin
(1988) that countervailing investigations may themselves cause a reduction in imports.
A survey was carried out to spot and understand the negative impact of NTMs and was found
that an initial finding of the ongoing survey indicate that NTMs effects varies from countries,
for instance, in Burkina Faso 70% of interviewed companies reported that NTMs strongly
affect their daily operations, compared to only 24% in Hong Kong (China).
Besides, the survey also put forward from the perspective of an individual company, how
NTMs can prove to be barriers to trade, for example, companies may not know about the
requirements and the regulations may be so stringent the company cannot abide by them
without making significant modification to its production processes or the cost to comply
with these measures may be prohibitive, where companies have to test its products in third
party country or be forced to show and translate some health certificates which cause delays
and expensive compliance processes. Hence, these procedural obstructions include
restrictions from administrative burden to time delays to lack of legal protection in home
country, export destination and transit countries.
Furthermore, it is analysed by Walkenhorst P. that in April 2000 there were around 1708
business complaints about the non-tariff measures in good sectors.
As such, in China, it was found that application of some NTMs have not proved fruitful to the
country. Following this line of thought, it was advanced by Kirsten et al (1996) that, ‘for
many foreign companies, the biggest barrier to the China market is not high tariffs as much as
NTMs, including licensing requirements, import quotas, and certification requirements. Some
300 NTMs remain, thwarting foreign exporters, though 176 NTMs were phased out on
December 31, 1995. Both import licenses and quotas were lifted on engine-equipped motor
vehicle chassis, for example. Licensing requirements were removed on vehicle bodies, air
conditioners, and copy machines, while import quotas were abolished on certain integrated
circuits, alcoholic beverages, chemical products, antibiotics, and photographic films.
Extrudation machines and mineral casting devices, too, saw their import controls lifted.’
Furthermore, another constraint of NTMs affecting imports are that most of the time, the
import requirements set differ among countries, hence, causing further obstructions for both
importers and exporters to deal at international level.
Following this line of thought, it can be argued that the differences in import requirements
between importing countries affect the competitiveness of exporters, where the latter must
have the capacity of complying with the regulations and standards at global level. Yet,
differing standards and regulations are very often costly. Hence, below is an illustration of
how differing NTMs may hamper trade.
CHAPTER 7
CONCLUSION
Despite significant reductions in tariff rates during the Uruguay Round of trade
negotiations, the issue of market access for developing countries remains elusive. Two related
issues—tariff escalation and tariff peaking—have remained contentious. The third one
affecting the market access for developing countries is non-tariff barriers. Given the weak
infrastructure base and capacity, developing countries are not in a position to approach these
issues pro-actively. The result is that often developing countries are compelled to take
reactive stance which alienates them further in the international trade scenario.
Some of non-tariff barriers are not directly related to foreign economic regulations but
nevertheless have a significant impact on foreign-economic activity and foreign trade
between countries
GATT takes on a particular and modest approach to handling NTMs. That approach
developed over time, and with the formation of the WTO, the handling of NTMs evolved
further still. Tariffs for goods production were decreased during the eight rounds of
negotiations in the WTO and the General Agreement on Tariffs and Trade (GATT). After
reducing of tariffs, the principle of protectionism demanded the introduction of new NTMs
such as technical barriers to trade (TBT).
Increasing consumer demand for secure and environment friendly products also have had
their impact on increasing popularity of TBT.
Many NTMs are administered by WTO agreements, which originated in the Uruguay
Round, as well as GATT articles. NTMs in the field of services have become as significant as
in the field of usual trade. The requirement to protect sensitive to import industries, as well as
a wide range of trade restrictions, available to the governments of industrialized countries,
forcing them to resort to use the NTM, and putting serious obstacles to international trade and
world economic growth. Thus, NTMs can be referred as a new of protection which has
replaced tariffs as an old form of protection.
It can be argued that non-tariff measures have both positive and negative impact on
international trade, where NTMs can be used as tools for consumer protection and regulation
of domestic markets but on the other hand, viewed as obstacles to trade. Consequently, the
challenge is to apply these measures without imposing barrier to trade, that is, NTMs is
crucial for trading as long as trade is not hampered by these measures. Hence, it is clear that
more work still need to be done to limit the consequences of NTMs on trade.
RECOMMENDATIONS
Non-tariff barriers need to be brought to the forefront of the global trade debate and made a
priority by trade negotiators.
Developing countries need to remove their hugely bureaucratic non-tariff barriers to trade.
Currently, for example, exporters from India have to go through 12 separate bureaucratic
processes involving 10 separate agencies.
More reliable data on non-tariff barriers need to be collected in order to quantify their
coverage and the problems caused by them.
Developing countries also need to remove tariff barriers which are still prevalent in some
industries. India, for example, has a tariff barrier of 99 per cent on roasted coffee and
Mexico 71 per cent.
The WTO is to make sure that non-trade objectives are not used for pursuing protectionist
policies or creating (non-tariff) trade barriers.
Governments are to provide exporters with timely and useful information regarding phasing
out of quotas, initiation of anti-dumping, countervailing duty or such other action.
Improvements in product quality and equivalent standard setting between importing and
exporting nations are sometimes least costly ways of increasing market access.