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International Trade Barrier:


Trade barriers are government-induced restrictions on international trade. One of the most common reasons for the creation of trade barriers is to encourage local production by making it more difficult for foreign firms to compete here. Another reason is to help local firms export and thus build worldwide market share by doing such things as providing them with subsidies in the form of tax breaks and low interest loans. There are two kinds of barriers: 1. Tariff . !on-tariff "arriers #!T"$

Tariff Barriers
Tariff is a tax levied on goods traded internationally. %hen imposed on goods being brought into the country& it is referred to as an import duty. 'mport duty is levied to increase the effective cost of imported goods to increase the demand for domestically produced goods. Another type of tariff& less fre(uently imposed& is the export duty& which is levied on goods being taken out of the country& to discourage their export. This may be done if the country is facing a shortage of that particular commodity or if the government wants to promote the export of that good in some other form& for example& a processed form rather than in raw material form. 't may also be done to discourage exporting of natural resources. %hen imposed on goods passing through the country& the tariff is called transit duty. Tariff can be imposed on three different bases. A specific duty is a flat duty based on the number of units regardless of the value of the goods. )or example& there may be a duty of *s.+& ,,, per computer imported into 'ndia. 'n this case& a person importing& say& , computers would have to pay a duty of #+&,,, x , -$ *s.1& ,,&,,,. An ad valorem duty is expressed as a percentage of the value of the good. .o a person importing a walkman worth *s. & ,,, carrying an import duty of 1,/ would have to pay *s. ,, towards duty charges. A compound duty is a combination of a specific and an ad valorem duty. )or example& a book worth *s.+,, carrying a specific duty of *s. + and an ad valorem duty of / would in effect be carrying a compound duty of *s.0+. Over the last few decades& tariffs have been losing their importance as barriers to trade& their place being taken by non-tariff barriers.

Non-tariff Barriers
!on-tariff barriers #!T"s$ include all the rules& regulations and bureaucratic delays that help in keeping foreign goods out of the domestic markets. The following are the different types of !T"s:

Quotas
A (uota is a limit on the number of units that can be imported or the market share that can be held by foreign producers. )or example& the 1. has imposed a (uota on textiles imported from 'ndia and other countries. 2eliberate slow processing of import permits under a (uota system acts as a further barrier to trade.

Embargo:
%hen imports from a particular country are totally banned& it is called an embargo. 't is mostly put in place due to political reasons. )or example& the 1nited !ations imposed an embargo on trade with 'ra( as a part of economic sanctions in 133,. 4oluntary 5xport *estraint #45*$ A country facing a persistent& huge trade deficit against another country may pressuri6e it to adhere to a self-imposed limit on the exports. This act of limiting exports is referred to as voluntary export restraint. After facing consistent trade deficits over a number of years with 7apan& the 1. persuaded it to impose such limits on itself. Subsidies to Local Goods 8overnments may directly or indirectly subsidi6e local production in an effort to make it more competitive in the domestic and foreign markets. )or example& tax benefits may be extended to a firm producing in a certain part of the country to reduce regional imbalances& or duty drawbacks may be allowed for exported goods& or& as an extreme case& local firms may be given direct subsidies to enable them to sell their goods at a lower price than foreign firms. Local Content Re uirement: A foreign company may find it more cost effective or otherwise attractive to assemble its goods in the market in which it expects to sell its product& rather than exporting the assembled product itself. 'n such a case& the company may be forced to produce a minimum percentage of the value added locally. This benefits the importing country in two ways 9 it reduces its imports and increases the employment opportunities in the local market. Tec!nical Barriers: :ountries generally specify some (uality standards to be met by imported goods for various health& welfare and safety reasons. This facility can be misused for blocking the import of certain goods from specific countries by setting up of such standards& which deliberately exclude these products. The process is further complicated by the re(uirement that testing and certification of the products regarding their meeting the set standards be done only in the importing country. These testing procedures being expensive& time consuming and cumbersome to the exporters& act as a trade barrier. 1nder the new system of international trade& trading partners are re(uired to consult each other before fixing such standards. 't also re(uires that the domestic and imported goods be treated e(ually as far as testing and certification procedures are concerned and that there should be no disparity between the (uality standards re(uired to be fulfilled by these two. The importing country is now expected to accept testing done in the exporting country. "rocurement "olicies: 8overnments (uite often follow the policy of procuring their re(uirements #including that of government-owned companies$ only from local producers& or at least extend some price advantage to them. This closes a big prospective market to the foreign producers.

#nternational "rice $i%ing: .ome commodities are produced by a limited number of producers scattered around the world. 'n such cases& these producers may come together to form a cartel and limit the production or price of the commodity so as to protect their profits. O;5: #Organi6ation of ;etroleum 5xporting :ountries$ is an example of such cartel formation. This artificial limitation on the production and price of the commodity makes international trade less efficient than it could have been. E%c!ange Controls: :ontrolling the amount of foreign exchange available to residents for purchasing foreign goods domestically or while travelling abroad is another way of restricting imports. &irect and #ndirect Restrictions on $oreign #n'estments A country may directly restrict foreign investment to some specific sectors or up to a certain percentage of e(uity. 'ndirect restrictions may come in the form of limits on profits that can be repatriated or prohibition of payment of royalty to a foreign parent company. These restrictions discourage foreign producers from setting up domestic operations. )oreign companies are generally interested in setting up local operations when they foresee increased sales or reduced costs as a conse(uence. Thus& restrictions against foreign investments add impediments to international trade by giving rise to inefficiencies. Customs (aluation There is a widely held view that the invoice values of goods traded internationally do not reflect their real cost. This gave rise to a very sub<ective system of valuation of imports and exports for levy of duty. 'f the value attributed to a particular product would turn out to be substantially higher than its real cost& it could result in affecting its competitiveness by increasing the total cost to the importer due to the excess duty. This would again act as a barrier to international trade. This problem has now been considerably reduced due to an agreement between various countries regarding the valuation of goods involved in a cross-border trade.