Tariff and Non2

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Tariff and Non Tariff

Barriers in Trade


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INDEX

Sr.No Topic

1 Introduction

2 Tariff and Non Tariff Trade Barriers

- Tariff Barriers

- Non-Tariff Barriers

3 Background

-Tariff and Tariff Rate Quotas

4 Issues

-Non Tariff Trade Barriers

-Domestic Content Requirements

-Import Licenses

-Import State Trading Enterprises

-Technical Barriers to Trade

-Exchange Rate Management Policies

-The Precautionary Principle and Sanitary and

Phytosanitary Barriers to Trade

5 Tariff Vs Non Tariff Trade Barriers

6 Trade Policy

7 Trade Liberalization

8 Advantages of Trade Barriers

9 Disadvantages of Trade Barriers

10 Bibliography


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Introduction

This paper examines tariff and non-tariff policies that restrict trade between

countries in agricultural Commodities. Many of these policies are now subject to

important disciplines under the 1994 GATT Agreement that is administered by the

World Trade Organization (WTO). The paper is organized as follows. First,

tariffs, import quotas, and tariff rate quotas are discussed. Then, a series of non-

tariff barriers to trade are Examined, including voluntary export restraints,

Technical barriers to trade, domestic content Regulations, import licensing, the

operations of import State Trading Enterprises (stes), and exchange rate

Management policies. Finally, the precautionary Principle, an environment-related

rationale for trade Restrictions, and sanitary and phytosanitary barriers to Trade are

discussed.


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Tariff and non-tariff barriers

From 1947 to 1991, India's import and export policies were such that a vast

majority of goods could be imported only under license from the Central

government's Controller of Imports & Exports (CCI&E). In 1991, India initiated

economic reforms to tide over the budget deficit, balance of payments problems

and structural imbalances in several industry sectors of the economy. In successive

years, India has made the trade regime increasingly more transparent. However,

India's tariffs are still high by international standards, and many quantitative

restrictions on imports still exist. These high tariffs and import restrictions haveconstrained U.S. firms from selling in this market and U.S. investors from

importing competitive inputs in several industries.

India's policy relating to the general provisions regarding exports and imports is

guided by the Export Import (EXIM) Policy of 2002-2007. Imports are now

permitted in most of the cases without a license. Exceptions to this arise where

items are prohibited or restricted (import permitted under license) or where imports

are allowed only through a state-owned enterprise. A new 8-digit commodity

classification based on ITC- Harmonized System of coding for imports was

adopted in April 2002. The common classification to be used by DGFT and

Customs will eliminate the classification disputes and hence reduce transaction

costs and time.

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Since April 2001, India removed quantitative restrictions (QR) on a final batch of

715 items, completing the process of phased trade policy liberalization that was

started in 1991. Out of these 715 items 342 are textile products, 147 are

agricultural products including alcoholic beverages and 226 are other

manufactured products including automobiles.

While India has removed some tariff barriers, it has introduced other curbs such as

adjustment of tariffs and anti dumping duties. Approximately 300 items comprise a

'sensitive' list of imports that the Government monitors. A 'war room' group has

been created to closely monitor the import trends for these items.

India has appealed to the Appellate Body of the World Trade Organization against

the recommendations of a WTO panel report on its quantitative restrictions on

import of agricultural, textile and industrial products. India has challenged the

panel's authority to determine whether the balance of payments can be used to

justify imposition of import restrictions and the overall compatibility of regional

trade agreements with WTO norms. The removal of QR's and the prospect of

further reduction in tariffs to the Asian levels within a span of two years are likely

to lead to a high degree of import competition. Tariff and non-tariff effect global

financing operations by having an impact on whether countries will build and

invest in companies in the home country.

If an organization wants to build a company that imports raw material that has a

tariff on it, it would make the product considerably more expensive to produce and

export. Tariffs do benefit the government by increasing the revenue and also

benefit home-based businesses by decreasing foreign competition.

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The tariff also helps protect jobs in the industry that has eliminated the foreign

competition but a negative impact is felt because it causes the consumer to pay

more for a product that is imported (Hill, 2004). If a country it prone to levy tariffs

on items that an organization may need, it would increase the risk of doing

business while located in that company. By having a country manufacture or

produce product that can be done for less elsewhere is not a wise utilization of

resources and in turn harms global trade.

When foreign countries can enter a home country and sell product for less, people

usually see this as a great trade opportunity. However, if that product is

manufactured in the home country then the home country not only loses revenue

from sales on that product but the economic impacts can run even deeper. With no

need to manufacture that product companies will no longer need to purchase the

raw materials or hire the employees necessary to maintain the demand. To

eliminate this from occurring or to impose a type of trade restriction on a foreign

country tariffs and non-tariffs are utilized. General Agreement on Tariffs andTrade (GATT) was succeeded by the World Trade Organization monitors tariffs

and promotes free trade (Hill, 2004).

Tariffs can protect the local industries that face competition from imported goods

by imposing tariffs. Tariffs are effective and widely used to protect the local

industries from foreign competition (Saranovic, 2006).


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Tariff BarriersTariff in international trade refers to the duties or taxes imposed on the import

traded goods when they cross the national borders. After Second World War, there

has been a reduction in the average level of Tariffs in the advanced countries.

Tariff rates are generally high in developing countries. With the recent economic

liberalization across the world, many developing countries have reduced the tariff

as a part of their trade liberalization. in most economies and organization like

WTO prefers tariff to non-tariff barriers because tariff are transparent and less

regressive than non-tariff barriers. The developed countries tariff continues to be

very strenuously loaded against the developing ones. Tariffs barriers represent

taxes on imports of commodities into a country/region and are among the oldest

form of government intervention in the economic activity.

Tariffs or import duties are tax imposed on imported goods primarily for the

purpose of raising their selling price in the importing nations market to reduce

competition for domestic producers or stimulate local production. A few smaller

nations apply them to raise revenue on both imports and exports. Imposing of

tariffs can result in retaliation that is harmful rather than helpful for a country and

its well-being.

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In 1920, American farmers lobbied congress for tariff protection on its agricultural

products. Overtime more domestic producers joined with agricultural interests,

seeking their own protection from foreign competitors. The resulting legislative

proposal increased tariffs for more than 20,000 items across a broad range of

industries. In 1929, the Smoot-Hawley Tariff Act established some of the highest

levels of tariffs ever imposed by US. That day stock market crashed, falling 12%.

Despite protest from 34 foreign countries, the act was signed in 1930.

The result was a retaliatory trade war, characterized by tit-for-tat tariffs and

protectionism between trading nations. World trade fell from $5.7 billion to $1.9

billion, industrial efficiency and the effects of comparative advantage were sharply

reduced, unemployment increased dramatically and the world was pushed into

decade-long economic depression.

Ad Valorem, Specific and Compound Duties. Import duties are three types; 1) Ad

Valorem, 2) Specific, or 3) a combination of two called compound. An Ad

Valorem Duty is stated as a percentage of the invoice value of the product.Example: US tariff schedule states that flavoring extracts and fruit flavors not

containing alcohol are subjected to a 6% Ad Valorem Duty. When a shipment of

flavoring extracts invoiced at $10,000 arrives at USA, the importer is required to

pay $600 to US customs as duty. A Specific Duty is a fixed sum of money charged

for a specific physical unit of product.

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Characteristics of Tariff Barriers:

I. Tariff applied on to consumer goods are often higher than on the cheapergoods of luxury version.

II. There is also tariff escalation, when tariff increases with degree ofprocessing involved in the product.

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Non-Tariff BarriersNon-tariff barriers are new protectionism measures that have grown considerably,

particularly since around the beginning of 1980s. The export growth of many

developing countries has been seriously affected by non-tariff barriers.Non tariffbarriers represent the great variety of mechanisms that countries use in order to

restrict the imports.

For example:

technical barriers to entry; import licensing; domestic content regulations; Voluntary export restrains etc.

Non- tariff barriers are broadly defined as any impediment to trade other than

tariffs. Non tariff barriers can be classified into two groups; Direct and Indirect.

(a)Direct Barriers are barriers that specifically limit import of goods or services.

Eg: Embargoes and quotas

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EMBARGOES:

Embargoes are the most restrictive of the direct non tariff barriers. They are

either a complete ban on trade with a foreign nation or a ban on sales or transfer

of specific products.

Eg: The U.S. has imposed embargoes on Afghanistan, Cuba, Iraq and Iran.

QUOTAS:

Quotas are a quantitative restriction on imports. They are based on either valueof goods or on quantity. They can be placed on all goods of a particular kind

coming from all countries, a group of countries or only one country.

(b) Indirect Barriers are laws, administrative regulations, industrial/commercial

practices and even social and cultural forces that either limit or discourage sale

or purchase of foreign goods or services in a domestic market.

To restrict imports, countries may impose monetary or exchange controls on

currencies. Foreign governments can impose technical barriers to trade, for

example, performance standards for products, product specifications or

products safety.

Eg: Japan has governmental restrictions on the use of food preservatives. It is a

trade barrier in disguise, because foods without preservatives cannot be

transported long distance.

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Import Licensing Schemes and Customs Procedures

Some governments require importers to apply for permission to import

products, subjecting them to complex and discriminatory requirements. It is

often expensive and time-consuming.

Categories of Non -Tariff Barriers:

I. Those which are generally adopted by developing countries to preventforeign outflow or result from their chosen strategy of economic

development. These are mostly traditional NTBs like import licensing,

import quotas, foreign exchange regulations and canalization imports.

II. Those which are mostly used by developed countries to protect domesticindustries which have lost international competitiveness or which are

politically sensitive for government. For example Import Prohibition,

Quantitative Restrictions, Variable Levis, Multi-Fiber Arrangements,

Voluntary Export Restraint and Non-Automatic Licensing. Example of

NTBs excluded from the group includes technical barriers (including health

and safety restriction and standards), Minimum Pricing Regulations and Use

of Price Investigation and Pricing Surveillance.

The non tariff barriers are mentioned in GATT 1947, art.37 (1/b):1. The developed contracting parties shall to the fullest extent possible _ that is,

except when compelling reasons, which may include legal reasons, make it

impossible _ give effect to the following provisions:(b) refrain from introducing, or increasing the incidence of, customs duties or non-

tariff import barriers on products currently or potentially of particular export

interest to less-developed contracting parties.


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Trade policy

Trade policy is a collection of rules and regulations which pertain to trade. Every

nation has some form of trade policy in place, with public officials formulating the

policy which they think would be most appropriate for their country. The purpose

of trade policy is to help a nation's international trade run more smoothly, by

setting clear standards and goals which can be understood by potential trading

partners. In many regions, groups of nations work together to create mutually

beneficial trade policies.

Things like import and export taxes, tariffs, inspection regulations, and quotas can

all be part of a nation's trade policy. Some nations attempt to protect their local

industries with trade policies which place a heavy burden on importers, allowing

domestic producers of goods and services to get ahead in the market with lower

prices or more availability. Others eschew trade barriers, promoting free trade, in

which domestic producers are given no special treatment, and international

producers are free to bring in their products.

Safety is sometimes an issue in trade policy. Different nations have different

regulations about product safety, and when goods are imported into a country with

stiff standards, representatives of that nation may demand the right to inspect the

goods, to confirm that they conform to the product safety standards which have

been laid out. Security is also an issue, with nations wanting to protect themselvesfrom potential threats while maintaining good foreign relations with frequent

trading partners.

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When nations trade with each other regularly, they often establish trade

agreements. Trade agreements smooth the way for trading, spelling out the desires

of both sides to create a stronger, more effective trading relationship. Many trade

agreements are designed to accommodate a desire for free trade, with signatories to

such agreements making certain concessions to each other to establish a good

trading relationship. Regular meetings may also be held to discuss changes in the

financial climate, and to make adjustments to trade policy accordingly.

For lay people, understanding trade policy can get quite complex. The relevantrules, regulations, agreements, and treaties are often scattered across numerous

government documents and departments, from State Departments which handle

foreign policy to economic departments which deal with the nuts and bolts of

things like converting currency. Often, the best resource for information is

documents pertaining to specific trade agreements, such as the North American

Free Trade Agreement. These documents spell out the trade policy of the nations

involved in one convenient location, although the language used can become very

complex.

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Trade Liberalization

The history of trade between nations has been a long and colorful one, punctuated

by wars and dramatic changes in beliefs about trade. Because of the economicimpact that trade has always had on civilizations, governments often become

involved in trade with the goal of producing a particular economic outcome for

their countries. Trade liberalization refers to the removal of government incentives

and restrictions from trade between nations. It is a subject of much scholarly and

political debate, given the impact that trade has on the livelihood of so many

people, especially in developed countries.

Economists in particular have debated the advantages and disadvantages of trade

liberalization for centuries. Classical economists such as David Ricardo and Adam

Smith were strongly in favor of free trade, believing that it led to the economic

prosperity of civilizations. They pointed to examples of civilizations that had

flourished as a result of increased trade liberalization, such as Egypt, Greece, and

the Roman Empire, as well as the more modern example of the Netherlands.

The Netherlands had been under the imperial rule of Spain, but after they rejected

the rule of the Spanish Empire and declared complete freedom of trade, they

experienced unprecedented prosperity. This made the debate over trade

liberalization into the most important question in economics for many years to

come. Modern economists who favor trade liberalization cite evidence that it

creates jobs, fosters economic growth, and improves the standard of living becauseof increased consumer choice in the marketplace.

Those who argue against rapid trade liberalization also cite statistical evidence that

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free trade can harm the ecology of the marketplace and have negative effects on

poor countries. For example, the World Bank estimates that the number of people

in the world living on less than $2 U.S. Dollars (USD) per day has risen by almost

50% since 1980. This correlates precisely with the period of the most worldwide

trade liberalization in recent history. The implication of many of the arguments

against trade liberalization is that trade negotiations should focus first on fairness

to developing countries, rather than further opening up the markets of the poorest

countries to competition.

All developed countries have had to deal with the question of free trade versus its

opposite, protectionism. In most of the worlds developed nations, tariffs are in

place on agricultural products, and in the developing world, there are high tariffs

on many goods, especially manufactured goods. Trade barriers such as these are

the subject of debates that will undoubtedly continue as long as economic

disparities exist between nations.

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Background

Tariffs and Tariff Rate QuotasClassification: The Indian customs classification on tariff items follows theHarmonized Commodity Description and Coding System (Harmonized

System or HS). India has fully adopted HS through the Customs Tariff

Amendment Act, 1985. There has been some modification of HS as

appropriate to the Indian environment concerning excise taxes. It is pertinent

to note that the excise authorities also use the HS codes for classifying the

goods for levying the excise duty (manufacturing taxes) on the goods

produced in India.

Customs duties: The Customs Act was formulated in 1962 to control the

imports through preventing illegal imports and exports of goods. The

Customs Tariff Act specifies the tariffs rates and provides for the imposition

of anti-dumping and countervailing duties. With some exceptions, most

tariffs are ad valorem. Tariff rates, excise duties, regulatory duties, and

countervailing duties are revised in each annual budget.

From February 1, 2003 Indian Customs uses the 8-digit customs

classification code based on Harmonized System of Nomenclature (HSN).

Currently, Indian Customs, the Directorate-General of Commercial

Intelligence and Statistics, and the Directorate General of Foreign Trade usedifferent nomenclatures and codes for classification of imports and exports.

While Customs use six-digit codes, DGCI&S uses eight-digit codes for

statistical purposes. The DGFT has broadly extended the eight-digit

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DGCI&S codes up to 10 digits. The new harmonized codes, finalized by an

inter-Ministerial Task Force, will be common for customs, excise, trade and the

DGFT.

Indian tariffs have been progressively brought down since early 90's and now the

peak tariff rate announced in this budget (2003-04) was reduced to a ceiling (with a

few exceptions) of 25 percent in the last fiscal budget. The budget announcement

committed to a phased reduction in duty rates in accordance with WTO guidelines.

A special additional duty will continue to be charged at 4 percent on all products,

except on duty free imports. Import duties are quite product specific and may be

altered by notifications that are issued throughout the year. American companies

are advised to verify the relevant rates for their products.

In order to give a broad guide as to classification of goods for the purpose of duty

liability, the central Board of Excises Customs (CBEC) bring out periodically a

book called the "Indian Customs Tariff Guide" which contains various tariff

rulings issued by the CBEC. The Act also contains detailed provisions forwarehousing of the imported goods and manufacture of goods is also possible in

the warehouses.

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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.

Therefore, since 1948, when average tariffs on manufactured goods exceeded 30

percent in most developed economies, those economies have sought to reduce

tariffs on manufactured goods through several rounds of negotiations under the

General Agreement on Tariffs Trade (GATT). Only in the most recent Uruguay

Round of negotiations were trade and tariff restrictions in agriculture addressed.

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In the past, and even under GATT, tariffs levied on some agricultural

commodities by some countries have been very large. When coupled with

other barriers to trade they have often constituted formidable barriers to

market access from foreign producers. In fact, tariffs those are set high

enough can block all trade and act just like import bans. A tariff-rate quota

(TRQ) combines the idea of a tariff with that of a quota. The typical TRQ

will set a low tariff for imports of a fixed quantity and a higher tariff for any

imports that exceed that initial quantity. In a legal sense and at the WTO,

countries are allowed to combine the use of two tariffs in the form of a TRQ,

even when they have agreed not to use strict import quotas. In the United

States, important TRQ schedules are set for beef, sugar, peanuts, and many

dairy products. In each case, the initial tariff rate is quite low, but the over-

quota tariff is prohibitive or close to prohibitive for most normal trade.

Explicit import quotas used to be quite common in agricultural trade.

They allowed governments to strictly limit the amount of imports of a

commodity and thus to plan on a particular import quantity in setting

domestic commodity programs. Another common non-tariff barrier (NTB)

was the so-called voluntary export restraint (VER) under which exporting

countries would agree to limit shipments of a commodity to the importing

country, although often only under threat of some even more restrictive or

onerous activity. In some cases, exporters were willing to comply with a

VER because they were able to capture economic benefits through higher

prices for their exports in the importing countrys market.

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Duty Exemption Scheme: The Duty Exemption Scheme enables duty free

import of inputs required for export production. An Advance License is

issued under Duty Exemption Scheme. The Duty Remission Scheme enables

post export replenishment/ remission of duty on inputs used in the export

product. Duty Remission scheme consist of (a) DFRC and (b) DEPB. DFRC

permits duty free replenishment used in the export product. The DEPB

scheme allows drawback of import charges on inputs used in the export

product.

The government has wide discretionary power to declare full or partial duty

exemptions "in the public interest" and to specify conditions such as end-use

provisions. Almost half of India's total inputs enter under concessional

tariffs, though the use of exemptions is falling in tandem with the tariff-

reduction program.

While reduced tariffs have assisted several U.S. export industries, further

reductions in basic tariff rates would benefit a wide range of U.S. exports.

Industries that might benefit from reduced tariff rates and removal of

Quantitative Restrictions (QR's) include the following: consumer products,

processed food, footwear, toys and telecommunications products. Fertilizers,

mining equipment, wood products, jewelry, camera components, paper and

paperboard, ferrous waste and scrap, computers, office machines and spares,

textile machinery and spare parts, hand tools, soft drinks, cling peaches,

vegetable juice and canned soup would also benefit.

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Taxes

India's 28 states may tax goods "imported" from other states. In principle,

the power to tax inter-state commerce fragments the economy, especially

trade in agricultural goods. The Government has sought to simplify the tax

structure by introducing a nation-wide Value Added Tax. Disparate internal

levies on commerce have long made India's tax system opaque, and have

been cited as a factor impeding economic growth. The Government had set

April 1, 2003 as the launch date, but it has been postponed indefinitely

because not all of India's 28 states made the necessary preparations for thetransition. The episode marked the third consecutive year that the

Government has been required to postpone the planned launch date because

of a lack of consensus on modalities with the state governments.

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Issues

In the Uruguay round of the GATT/WTO negotiations, members agreed to drop

the use of import quotas and other non-tariff barriers in favor of tariff-rate quotas.

Countries also agreed to gradually lower each tariff rate and raise the quantity to

which the low tariff applied. Thus, over time, trade would be taxed at a lower rate

and trade flows would increase. Given current U.S. commitments under the WTO

on market access, options are limited for U.S. policy innovations in the 2002 Farm

Bill vis a vis tariffs on agricultural imports from other countries. Providing higher

prices to domestic producers by increasing tariffs on agricultural imports is not

permitted. In addition, particularly because the U.S. is a net exporter of many

agricultural commodities, successive U.S. governments have generally taken a

strong position within the WTO that tariff and TRQ barriers need to be reduced.

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Non-Tariff Trade Barriers:

Countries use many mechanisms to restrict imports. A critical objective of the

Uruguay Round of GATT negotiations, shared by the U.S., was the elimination of

non-tariff barriers to trade in agricultural commodities (including quotas) and,

where necessary, to replace them with tariffs a process called tarrification.

Tarrification of agricultural commodities was largely achieved and viewed as a

major success of the 1994 GATT agreement.

Thus, if the U.S. honors its GATT commitments, the utilization of new non-tariff

barriers to trade is not really an option for the 2002 Farm Bill.

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Domestic Content Requirements:

Governments have used domestic content regulations to restrict imports. The

intent is usually to stimulate the development of domestic industries. Domestic

content regulations typically specify the percentage of a products total value that

must be produced domestically in order for the product to be sold in the domestic

market (Carbaugh). Several developing countries have imposed domestic content

requirements to foster agricultural, automobile, and textile production. They are

normally used in conjunction with a policy of import substitution in which

domestic production replaces imports.

Domestic content requirements have not been as prevalent in agriculture as

in some other industries,such as automobiles, but some agricultural examples

illustrate their effects. Australia used domestic content requirements to support

leaf tobacco production. In order to pay a relatively low import duty on imported

tobacco, Australian cigarette manufacturers were required to use 57 percent

domestic leaf tobacco. Member countries of trade agreements also use domestic

content rules to ensure that nonmembers do not manipulate the agreements to

circumvent tariffs.

For example, North American Free Trade Agreement (NAFTA) rules of

origin provisions stipulate that all single-strength citrus juice must be made from

100 percent NAFTA origin fresh citrus fruit. Again, as is the case with other trade

barriers, it seems unlikely that introducing domestic content rules to enhance

domestic demand for U.S. agricultural commodities is a viable option for the 2002

Farm Bill.

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Import Licenses:Import State Trading Enterprises (STEs) are government owned or sanctioned

agencies that act as partial or pure single buyer importers of a commodity or set of

commodities in world markets. They also often enjoy a partial or pure domestic

monopoly over the sale of those commodities. Current important examples of

import STEs in world agricultural commodity markets include the Japanese Food

Agency (barley, rice, and wheat), South Koreas Livestock Products Marketing

Organization, and rather than through domestic Farm Bill policy initiatives.

Exchange Rate Management Policies:Some countries may restrict agricultural imports through managing their exchange

rates. To some degree, countries can and have used exchange rate policies to

discourage imports and encourage exports of all commodities. The exchange rate

between two countries currencies is simply the price at which one currency trades

for the other. For example, if one U.S. dollar can be used to purchase 100

Japanese yen (and vice versa), the exchange rate between the U.S. dollar and the

Japanese yen is 100 yen per dollar. If the yen depreciates in value relative to the

U.S. dollar, then a dollar is able to purchase more yen. A 10 percent depreciation

or devaluation of the yen, for example, would mean that the price of one U.S.

dollar increased to 110 yen.

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One effect of currency depreciation is to make all imports more expensive in the

country itself. If, for example, the yen depreciates by 10 percent from an initial

value of 100 yen per dollar, and the price of a ton of U.S. beef on world markets is

$2,000, then the price of that ton of beef in Japan would increase from 200,000 yen

to 220,000 yen. A policy that deliberately lowers the exchange rate of a countrys

currency will, therefore, inhibit imports of agricultural commodities, as well as

imports of all other commodities. Thus, countries that pursue deliberate policies of

undervaluing their currency in international financial markets are not usually

targeting agricultural imports.

Some countries have targeted specific types of imports through implementing

multiple exchange rate policy under which importers were required to pay different

exchange rates for foreign currency depending on the commodities they were

importing. The objectives of such programs have been to reduce balance of

payments problems and to raise revenues for the government. Multiple exchange

rate programs were rare in the 1990s, and generally have not been utilized by

developed economies. Finally, exchange rate policies are usually not sector-

specific.

In the United States, they are clearly under the purview of the Federal Reserve

Board and, as such, will not likely be a major issue for the 2002 Farm Bill. There

have been many calls in recent congressional testimony, however, to offset the

negative impacts caused by a strengthening US dollar with counter-cyclical

payments to export dependent agricultural products.

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The Precautionary Principle and Sanitary and Phytosanitary Barriersto Trade:

The precautionary principle, or foresight planning, has recently been frequently

proposed as a justification for government restrictions on trade in the context of

environmental and health concerns, often regardless of cost or scientific evidence.

It was first proposed as a household management technique in the 1930s in

Germany, and included elements of prevention, cost effectiveness, and ethical

responsibility to maintain natural systems (ORiordan and Cameron).

In the context of managing environmental uncertainty, the principle enjoyed a

resurgence of popularity during a meeting of the U.N. World Charter for Nature (of

which the U.S. is only an observer) in 1982. Its use was re-endorsed by the U.N.

Convention on Bio-diversity in 1992, and again in Montreal, Canada in January

2000. The precautionary principle has been interpreted by some to mean that new

chemicals and technologies should be considered dangerous until proven

otherwise.

It therefore requires those responsible for an activity or process to establish its

harmlessness and to be liable if damage occurs. Most recent attempts to invoke the

principle have cited the use of toxic substances, exploitation of natural resources,

and environmental degradation. Concerns about species extinction, high rates of

birth defects, learning deficiencies, cancer, climate change, ozone depletion, and

contamination with toxic chemicals and nuclear materials have also been used to

justify trade and other government restrictions on the basis of the precautionary

principle.

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Thus, countries seeking more open trading regimes have been concerned that the

precautionary principle will simply be used to justify nontariff trade barriers. For

example, rigid adherence to the precautionary principle could lead to trade

embargoes on products such as genetically modified oil seeds with little or no

reliance on scientific analysis to justify market closure. Sometimes, restrictions on

imports from certain places are fully consistent with protecting consumers, the

environment, or agriculture from harmful diseases or pests that may accompany

the imported product.

The WTO Sanitary and Phytosanitary (SPS) provisions on technical trade rules

specifically recognize that all countries feel a responsibility to secure their borders

against the importation of unsafe products. Prior to 1994, however, such barriers

were often simply used as excuses to keep out a product for which there was no

real evidence of any problem. These phony technical barriers were just an excuse

to keep out competitive products.

The current WTO agreement requires that whenever a technical barrier is

challenged, a member country must show that the barrier has solid scientific

justification and restricts trade as little as possible to achieve its scientific

objectives. This requirement has resulted in a number of barriers being relaxed

around the world. It should be emphasized that WTO rules do not require member

countries to harmonize rules or adopt international standards only that there

must be some scientific basis for the rules that are adopted. Thus, any options for

sanitary and phytosanitary initiatives considered in the 2002 Farm Bill must bebased on sound science and they do not have to be harmonized with the initiatives

of other countries.

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Tariff Barriers vs Non Tariff Barriers

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.

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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 one time 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.

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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 offoreign 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.

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Difference between Tariff Barriers and non Tariff Barriers

The purpose of both tariff and non tariff barriers is same that is to impose

restriction on import but they differ in approach and manner.

Tariff barriers ensure revenue for a government but non tariff barriers do not

bring any revenue. Import Licenses and Import quotas are some of the non tariff

barriers.

Non tariff barriers are country specific and often based upon flimsy grounds that

can serve to sour relations between countries whereas tariff barriers are more

transparent in nature.

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Advantages of Trade Barriers

According to the Congressional Research Service, most economists agree that

trade barriers like tariffs or import quotas are counterproductive or harmful over

the long run. In certain circumstances, however, there might be advantages to trade

barriers---or at least arguments made in favor of trade restrictions---particularly in

times of instability or when a country has a vested interest in preserving domestic

industries.

Increased National Security

o One advantage to trade restrictions is that it can encourage economicindependence---a policy known as "autarky." For example, a country

that is dependent on hostile neighbors for criticalnatural resources

might attempt to secure a stable domestic supply, so that they are not

beholden to other countries for their defense. If a country isn't self-

sufficient, trade embargoes can be used as a weapon against them.

Protection of Growing Industries

o Another advantage of trade barriers is that they can help protect thedevelopment of new industries against foreign competitors. For

instance, a country that is heavily dependent on exporting crude oil,

and recognizing that oil is not a renewable resource, might wish to

expand into consumer electronics. Without trade restrictions, their

domestic electronics industry might be crushed by competition from

abroad; trade barriers can help keep the industry safe until it can

compete on its own.

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Protection against Other Countries

o Trade barriers can also protect a country against other, predatorynations. "Dumping" occurs when one nation sells large amounts of its

product in another country below cost, allowing them to starve out

possible competition. For example, if a lumber-exporting country

wishes to establish a monopoly in another nation, they may "dump"

their exports on that country until its lumber companies can no longer

afford to compete. In these cases, trade barriers in the form of import

quotas or tariffs can limit the ability of another country to "dump" its

industry, preserving domestic competitors against those with an unfair

advantage.

Promotion of Domestic Jobs

o The most frequently cited advantage of trade barriers is that they helpto promote domestic employment by keeping companies from "off

shoring," or transferring domestic jobs abroad. Overall, according to

the Federal Reserve Bank of San Francisco, economists believe that

off shoring does not result in a net loss of domestic jobs, but rather,

that jobs lost in certain sectors are recovered in others; however, this

argument is nevertheless commonly used in support of trade barriers

or restrictions. These trade barriers do help to preserve current

employment, which can be seen as a key advantage. On the otherhand, by limiting the competitive advantage of a country, they may

also decrease opportunities for future employment.

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The Disadvantages of Trade Barriers

In business, trade barriers are policies or regulations that in some way limit

international trade. They can take many forms, such as import and export licenses,embargoes, import quotas and subsidies; most trade barriers take the form of non-

tariff restrictions on trade. The basic principle behind any type of trade barrier is to

increase the price of traded goods, making it more advantageous to purchase

domestically produced goods. Most economists recognize the disadvantage of

trade barriers to international trade in general, for a number of reasons.

1. Increased Cost to Consumerso Perhaps one of the most important disadvantages of trade restrictions is that

it drives up the price of goods in a country where trade barriers artificially

raise the price of imported products. The apparent effect of trade barriers is

to prevent jobs from being lost to foreign competition, which is an argument

used by many special interest groups to justify various types of trade

barriers. In the long run, however, trade barriers force consumers to pay

higher prices, since products that could otherwise be made cheaply overseas

take more resources to produce domestically.

2. Increased Costs to Domestic Supplierso Price hikes due to trade barriers don't just affect consumers. It also puts a

strain on firms which supply raw goods and commodities to domestic

industries. Without trade barriers in place, such firms can rely on the law

of comparative advantage, meaning that it would cost them more to try to

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find a certain raw material in their own country than it would to buy from a

country rich in a particular commodity. Trade barriers artificially raise prices on

foreign commodities, making it less profitable to buy from other countries.

3. Less Competitiono The fact that trade restrictions make it more costly to purchase goods from

abroad results in the domestic industry facing less competition from foreign

markets. In the short term, this can save jobs in select domestic industries.

However, in the long run, it leads to customers having fewer choices in the

products they buy. It also gives producers less incentive to create high-quality products available to the public.

4. Escalationismo Over time, one country's policy of trade restrictions may lead to similar

measures taken by foreign governments, who lose out in the international

trade game because they can't export products for a profit. This cuts down on

economic efficiency and competition on a global scale.

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Bibliography

Google.com Wikipedia.com Looking beyond Tariffs -OECD Publications Tariff and Non Tariff BarriersB2B online Publications

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