Barriers to Trade Tariff and Non-Tariff

Tariff Barriers

When two countries trade in the goods, a certain amount is charged as a fee by the country, in which goods are entered, so as to provide revenue to the government as well as raise the price of foreign goods, so that the domestic companies can easily compete with the foreign items. This fee is in the form of tax or duty, which is called a tariff barrier.

The amount of tax or duty charged as tariff is added to the cost of the import, which makes the foreign goods more expensive, whose price is ultimately borne by the consumer of the products. The tariff is paid to the customs authority of the country in which goods are sent. It includes:

• Import Duties: It is the custom duty imposed by the importing country i.e. the tax imposed on goods imported. It is levied to raise revenue and protect domestic industries.
• Export Duties: It is the duty imposed on goods by the exporting country on its exports. Generally certain mineral and agricultural products are taxed.
• Transit Duties: It is levied on commodities that originate in one country, cross another and are consigned to another. Transit duties are levied by the country through which the goods pass. It results in increased cost of products and reduction in amount of commodities traded.
• Ad-valorem Duties: It is levied on commodities that originate in one country, cross another and are consigned to another. Transit duties are levied by the country through which the goods pass. It results in increased cost of products and reduction in amount of commodities traded.
• Specific Duties: It is levied on commodities that originate in one country, cross another and are consigned to another. Transit duties are levied by the country through which the goods pass. It results in increased cost of products and reduction in amount of commodities traded.
• Compound Duties: It is a combination of specific duty and ad valorem duty on a single product. It is partly based on quantity and partly on the value of goods.
• Protective Tariffs
• Revenue Tariffs
• Countervailing and Anti-dumping Duties
• Single column Tariff
• Double column Tariff

As we have discussed, tariff barriers have two-fold objective on the one hand, it helps in increasing government revenue and on the other hand, it provides protection and support to the local industries and companies against foreign competition.

Non-Tariff Barriers

Non-tariff barriers to trade (NTBs; also called non-tariff measures, NTMs) are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs.

The Southern African Development Community (SADC) defines a non-tariff barrier as “any obstacle to international trade that is not an import or export duty. They may take the form of import quotas, subsidies, customs delays, technical barriers, or other systems preventing or impeding trade”. According to the World Trade Organization, non-tariff barriers to trade include import licensing, rules for valuation of goods at customs, pre-shipment inspections, rules of origin (‘made in’), and trade prepared investment measures. A 2019 UNCTAD report concluded that trade costs associated with non-tariff measures were more than double those of traditional tariffs.

Non-tariff barriers refer to non-tax measures used by the country’s government to restrict imports from foreign countries. It covers those restrictions which lead to prohibition, formalities or conditions, making the import of goods difficult and decrease market opportunities for foreign items.

These are quantitative and exchange control that affects the trade volume or prices, or both.

It can be in the form of laws, policies, practices, conditions, requirements, etc., which are specified by the government to restrict import. Hence it encompasses popular trade-distorting practices such as:

• Import quotas: It is a numerical limit on the quantity of goods that can be imported or exported during a specified time period. The quantity may be stated in the license of the firm. If the importer imports more than specified amount, he has to pay a penalty or fine.
• VERs, i.e. Voluntary Export Restraints: It is a quota on exports fixed by the exporting country on the request of the importing country. The exporting country fixes a quota regarding the maximum amount of quantity that will be exported to the concerned nation.
• Subsidiaries: It is the payment made by the government to the domestic producer so that they can compete against foreign goods. It can be a cash grant, subsidized input prices, tax holiday, government equity participation etc. It helps a local firm to reduce costs and gain control over the market.
• Import licensing
• Technical and administrative regulations
• Price control
• Foreign exchange regulations
• Canalization of imports
• Consular Formalities
• Quantity Restrictions
• Pre-shipment inspection
• Rules of origin