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PARTICULARS

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Introduction

Barriers to International Trade

Six Types of Non-tariff barriers

Recent examples

References

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CONTENTS

Introduction
International trade is the exchange of capital, goods, and services across international borders
or territories. In most countries, such trade represents a significant share of gross domestic
product (GDP). While international trade has been present throughout much of history (see Silk
Road, Amber Road), its economic, social, and political importance has been on the rise in recent
centuries. It is the presupposition of international trade that a sufficient level of geopolitical
peace and stability are prevailing in order to allow for the peaceful exchange of trade and
commerce to take place between nations.
Industrialization, advanced in technology transportation, globalization, multinational
corporations, and outsourcing are all having a major impact on the international trade system.
Increasing international trade is crucial to the continuance of globalization. Without international
trade, nations would be limited to the goods and services produced within their own borders.
International trade is, in principle, not different from domestic trade as the motivation and the
behavior of parties involved in a trade do not change fundamentally regardless of whether trade
is across a border or not. The main difference is that international trade is typically more costly
than domestic trade. The reason is that a border typically imposes additional costs such as tariffs,
time costs due to border delays and costs associated with country differences such as language,
the legal system or culture.

Barriers to International Trade

International Trade

Introduction

Exports, ImportsWhy Bother?

The Argument for Free Trade

Arguments Against Free Trade

Barriers to International Trade

International Trade Agreements

Free trade refers to the elimination of barriers to international trade. The most common barriers
to trade are tariffs, quotas, and nontariff barriers.
A tariff is a tax on imports, which is collected by the federal government and which raises the
price of the good to the consumer. Also known as duties or import duties, tariffs usually aim first
to limit imports and second to raise revenue.
A quota is a limit on the amount of a certain type of good that may be imported into the country.
A quota can be either voluntary or legally enforced.
The effect of tariffs and quotas is the same: to limit imports and protect domestic producers from
foreign competition. A tariff raises the price of the foreign good beyond the market equilibrium
price, which decreases the demand for and, eventually, the supply of the foreign good. A quota
limits the supply to a certain quantity, which raises the price beyond the market equilibrium level
and thus decreases demand.
Tariffs come in different forms, mostly depending on the motivation, or rather the stated
motivation. (The actual motivation is always to limit imports.) For instance, a tariff may be
levied in order to bring the price of the imported good up to the level of the domestically
produced good. This so-called scientific tariffwhich to an economist is anything buthas the
stated goal of equalizing the price and, therefore, leveling the playing field, between foreign
and domestic producers. In this game, the consumer loses.
A peril-point tariff is levied in order to save a domestic industry that has deteriorated to the point
where its very existence is in peril. An economist would argue that the industry should be
allowed to expire. That way, factors of production used by that inefficient industry could move
into a new one where they would be better employed.

A retaliatory tariff is one that is levied in response to a tariff levied by a trading partner. In the
eyes of an economist, retaliatory tariffs make no sense because they just start tariff wars in which
no oneleast of all the consumerwins.
Nontariff barriers include quotas, regulations regarding product content or quality, and other
conditions that hinder imports. One of the most commonly used nontariff barriers are product
standards, which may aim to serve as barriers to trade. For instance, when the United States
prohibits the importation of unpasteurized cheese from France, is it protecting the health of the
American consumer or protecting the revenue of the American cheese producer?
Other nontariff barriers include packing and shipping regulations, harbor and airport permits, and
onerous customs procedures, all of which can have either legitimate or purely anti-import
agendas, or both.
Non-tariff barriers to trade (NTBs)
Non-tariff barriers to trade 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.
Trade between countries is referred to trade in goods, services and factors of production. Nontariff barriers to trade include import quotas, special licenses, unreasonable standards for the
quality of goods, bureaucratic delays at customs, export restrictions, limiting the activities of
state trading, export subsidies, countervailing duties, technical barriers to trade, sanitary and
phyto-sanitary measures, rules of origin, etc. Sometimes in this list they include macroeconomic
measures affecting trade.

Six Types of Non-Tariff Barriers to Trade

1. Specific Limitations on Trade:
1. Import Licensing requirements
2. Proportion restrictions of foreign domestic goods (local content
requirements)
3. Minimum import price limits
4. Free
5. Embargoes
2. Customs and Administrative Entry Procedures:
1. Valuation systems
2. Anti-dumping practices
3. Tariff classifications
4. Documentation requirements
5. Fees
3. Standards:
1. Standard disparities
2. Intergovernmental acceptances of testing methods and standards
3. Packaging, labeling, and marking
4. Government Participation in Trade:
1. Government procurement policies
2. Export subsidies
3. Countervailing duties
4. Domestic assistance programs
5. Charges on imports:
1. Prior import deposit subsidies
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2. Administrative fees
3. Special supplementary duties
4. Import credit discrimination
5. Variable levies
6. Border taxes
6. Others:
1. Voluntary export restraints
2. Orderly marketing agreements

Types of Non-Tariff Barriers

There are several different variants of division of non-tariff barriers. Some scholars divide
between internal taxes, administrative barriers, health and sanitary regulations and government
procurement policies. Others divide non-tariff barriers into more categories such as specific
limitations on trade, customs and administrative entry procedures, standards, government
participation in trade, charges on import, and other categories.
The first category includes methods to directly import restrictions for protection of certain
sectors of national industries: licensing and allocation of import quotas, antidumping and
countervailing duties, import deposits, so-called voluntary export restraints, countervailing
duties, the system of minimum import prices, etc. Under second category follow methods that
are not directly aimed at restricting foreign trade and more related to the administrative
bureaucracy, whose actions, however, restrict trade, for example: customs procedures, technical
standards and norms, sanitary and veterinary standards, requirements for labeling and packaging,
bottling, etc. The third category consists of methods that are not directly aimed at restricting the
import or promoting the export, but the effects of which often lead to this result.
The non-tariff barriers can include wide variety of restrictions to trade. Here are some example
of the popular NTBs.
Licenses

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)..
Quotas

Licensing of foreign trade is closely related to quantitative restrictions quotas - on imports and
exports of certain goods. 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. 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.
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Quantitative restriction on imports and exports is a direct administrative form of government

regulation of foreign trade. 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. However, the system of licensing and quota imports and exports, establishing firm
control over foreign trade in certain goods, in many cases turns out to be more flexible and
effective than economic instruments of foreign trade regulation. This can be explained by the
fact, that 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. An import quota can be unilateral,
levied by the country without negotiations with exporting country, and bilateral or multilateral,
when it is imposed after negotiations and agreement with exporting country. An export quota is a
restricted amount of goods that can leave the country. There are different reasons for imposing of
export quota by the country, which can be the guarantee of the supply of the products that are in
shortage in the domestic market, manipulation of the prices on the international level, and the
control of goods strategically important for the country. In some cases, the importing countries
request exporting countries to impose voluntary export restraints.

Agreement on a "voluntary" export restraint

In the past decade, a widespread practice of concluding agreements on the "voluntary" export
restrictions and the establishment of import minimum prices imposed by leading Western nations
upon weaker in economical or political sense exporters. The specifics of these types of
restrictions is the establishment of unconventional techniques when the trade barriers of
importing country, are introduced at the border of the exporting and not importing country. Thus,
the agreement on "voluntary" export restraints is imposed on the exporter under the threat of
sanctions to limit the export of certain goods in the importing country. Similarly, the
establishment of minimum import prices should be strictly observed by the exporting firms in
contracts with the importers of the country that has set such prices. In the case of reduction of
export prices below the minimum level, the importing country imposes anti-dumping duty, which
could lead to withdrawal from the market. Voluntary" export agreements affect trade in textiles,
footwear, dairy products, consumer electronics, cars, machine tools, etc.
Problems arise when the quotas are distributed between countries because it is necessary to
ensure that products from one country are not diverted in violation of quotas set out in second
country. Import quotas are not necessarily designed to protect domestic producers. For example,
Japan, maintains quotas on many agricultural products it does not produce. Quotas on imports is
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a leverage when negotiating the sales of Japanese exports, as well as avoiding excessive
dependence on any other country in respect of necessary food, supplies of which may decrease in
case of bad weather or political conditions.
Export quotas can be set in order to provide domestic consumers with sufficient stocks of goods
at low prices, to prevent the depletion of natural resources, as well as to increase export prices by
restricting supply to foreign markets. Such restrictions (through agreements on various types of
goods) allow producing countries to use quotas for such commodities as coffee and oil; as the
result, prices for these products increased in importing countries.
A quota can be a tariff rate quota, global quota, discriminating quota, and export quota.
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.
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.

Some recent examples of Non-Tariff barriers imposed by leading importing countries are
enumerated below

USA
In the case of the USA, which is the largest single market for textile products exported from
India, restrictions have been imposed in the form of rules of origin. Norms violating US child
labor policies, issues relating to compliance with environmental norms and security checks of
consignments.
Indian exporters also face stringent cornpliance audits for ensuring maintenance of labour
standards.
The US also imposes product characteristic requirements or labeling requirement in over 95% of
apparel tariff lines.
European Union
In the case of the EU, the current push being given to a separate Agreement on Labelling
provisions for the Textile & Clothing sector has the potential to become a serious trade barrier in
the years to come.
Further the EU's policy of granting special incentives for enforcing labor standards and
environmental safeguards is a direct attempt to link non-trade issues with trade policy.
The repeated attempts to initiate anti dumping and anti subsidy measures against the exports of
Bed linen from India, which have been well documented are also part of the ECs efforts to
Impose non-tariff barriers on Indian exports
The recent legislation passed on use of certified chemical substances acronymed REACH
(Registration, Evaluation, Authorisation and Restriction of Chemical Substances) is being seen in
many quarters, emerging, as a serious barrier to trade In apparel and processed goods
Other Countries
Apart from the USA, EU, other countries have also Imposed non-tariff barriers on Indian exports
of Textiles.
In recent months, Turkey has not only Imposed safeguard measures on export of cotton yarn
from India but has also placed special export registration arrangements only for Textiles &
Clothing products which requires cumbersome procedures to be followed by importers and
exporters resulting in incurring of high costs of compliance.
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Safeguard measures on Import of cotton yarn from India were also sought to be imposed by
Egypt and Peru.
Both Egypt and Peru withdrew the measure after the Council mounted diplomatic pressure.
However, Peru has recently put in place Phytosanitary measures on Imports of cotton from India,
thereby restricting trade
Argentina has also Imposed Minimum Reference prices on Imports of various textile products to
safeguard against low cost Imports.
Labelling requirements for textile & clothing products have been imposed by the Mercouser
Group of countries viz. Argentina, Brazil, Paraguay & Uruguay
Nearer home, In South Asia, Pakistan has not granted Most Favored Nation (MFN) status to
India. Bangladesh, on the other hand has been giving cash subsidy of 2% for use of local cotton
yarn.
It has also not implemented the regional cumulation clause. for SAARC, which would enable
Garments made in Bangladesh from Indian fabrics eligible for GSP benefits Many such
examples can be cited to show how countries are imposing non-tariff barriers in order to protect
the local industries.

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References

http://www.econlib.org/library/Enc/InternationalTrade.html
http://www.infoplease.com/cig/economics/barriers-international-trade.html
http://www.tradebarriers.org/ntb/non_tariff_barriers

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