TRADE RESTRICTIONS

TARIFF AND NON-TARIFF BARRIERS

INTRODUCTION:
DEFINITION:

A trade restriction is an artificial restriction on the trade of goods and/or services between two countries. It is the result of protectionism. Or

A government imposed restriction on the free international exchange of goods or services.

REASONS FOR TRADE RESTRICTIONS:

Free Trade is the pattern of imports and exports that would result in the absence of trade barriers. Governments impose restrictions on free trade for:

ECONOMIC MOTIVES

POLITICAL MOTIVES:
PROTECT JOBS
. If jobs are "shipped overseas", then domestic unemployment increases. IMPORTS EXPORTS it makes no sense for one nation to allow free trade if other nations protect their own industries. Governments of the worlds largest nations may become involved in trade to gain influence over smaller nations Politicians bow to pressure from special interests, and protect specific Industries

PRESERVE NATIONAL SECURITY RESPOND TO UNFAIR TRADE

GAIN INFLUENCE POLITICS RETALIATION

"if they impose restrictions on us, we should impose restrictions on them

ECONOMIC MOTIVES:

CULTURAL MOTIVES:
Cultures are slowly altered by exposure to the people and products of other countries. Unwanted cultural influence causes great distress and can force governments to block imports. Many countries have laws that protect their media programming for cultural reasons (e.g., French ban on foreign-language words from business and government communications, radio and TV. And Canadian requirement that at least 35% of music played be by Canadian artists). The United States is seen as a threat to national cultures because of its global strength in consumer goods entertainment and media. This is where the theory of international trade meets the reality of international business today.

TYPES OF TRADE RESTRICTIONS

TYPES OF TRADE RESTRICTIONS:

Trade restrictions

Tariff barriers

Non- tariff barriers

TARIFF BARRIERS:
TARIFF:

A tariff is a tax on imported goods.

OR A tariff is a government tax levied on a product as it enters or leaves a country

This increases the cost of imports in the domestic market

This will decrease imports and increase domestic production in a protected industry Those who gain : domestic producers and the government (tax revenue). Those who lose : domestic consumers and foreign producers.

OBJECTIVE OF TARIFF BARRIERS:

Tariffs, or customs duties, may be levied on imported goods by a government either:

To raise revenue

To protect domestic industries

PROS AND CONS OF TARIFF BARRIERS:

CLASSIFICATION OF TARIFF BARRIERS:

Transit duties

Export duties

Tariff barriers

Import duties

TRANSIT DUTIES:
This type of duty is levied on commodities that originate in one country, cross another, and are consigned to a third. As the name implies, transit duties are levied by the country through which the goods pass.

The most direct and immediate effect of transit duties is to reduce the amount of commodities traded internationally and raise their cost to the importing country.

EXPORT DUTIES:
Export duties are levied on goods passing out of the country.

The main function of export duties is to safeguard domestic supplies rather than to raise revenue
Export duties are now generally levied by raw-materialproducing countries rather than by advanced industrial countries. Commonly taxed exports include coffee, rubber, palm oil, and various mineral products.

IMPORT DUTIES:
Import duties are the most important and most common types of custom duties that are levied on goods entering the country. They may be levied either for revenue or protection or both. An import tariff may be either :

Ad valorem

TYPES OF IMPORT DUTIES:

Specific tariff:

A "specific tariff" is a levy of a given amount of money per unit of the import, such as $1.00 per yard or per pound. Specific tariffs are a fixed charge for each unit of good imported (e.g. $4 per barrel of oil).
Ad valorem tariff:

An "ad valorem tariff," on the other hand, is calculated as a percentage of the value of the import.. (e.g. 30% on imported clothing).
Compound tariff A compound tariff is calculated partly as a percentage of the stated price of an imported product, and partly as a specific fee for each unit .

NON-TARIFF BARRIERS OF TRADE:

NON-TARIFF BARRIERS TO TRADE:

Definition: Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff.

TYPES OF NON-TARIFF BARRIERS:

QUOTAS

EMBARGOES
LOCAL CONTENT REQUIREMENTS ADMINISTRATIVE DELAYS CURRENCY CONTROLS SUBSIDIES

ANTIDUMPING DUTY OR COUNTERVAILING DUTY

LICENSES STANDARDS ADMINISTRATIVE AND BUREAUCRATIC DELAYS AT THE ENTRANCE IMPORT DEPOSITS FOREIGN EXCHANGE RESTRICTIONS AND FOREIGN EXCHANGE CONTROLS

QUOTA:
A quota is a restriction on the amount (measured in units or weight) of a good that can enter or leave a country during a certain period of time.
Governments administer quota systems by granting quota licenses to other nations companies or governments (import quotas) and domestic producers (export quotas).

QUOTAS:
Reason for Import Quotas

1. Protects domestic producers by placing a limit on the amount of goods entering the country. This helps domestic producers maintain market shares and prices by retraining competition.
2. Domestic producers win because of market protection, but consumers lose because of higher prices and limited selection. Reasons for Export Quotas 1. A country may wish to maintain supplies in the home market. This is common for countries that export natural resources that are needed in the domestic market. 2. A country may restrict supply on world markets to increase the international price (e.g., The Organization of Petroleum Exporting Countries, OPEC).

QUOTAS:
Voluntary export restraint (VER)

A voluntary export restraint (VER) is a unique version of export quota that a nation imposes on its exports, usually at the request of an importing nation. Normally a response to threat of an import quota or total ban on the product by an importing nation.
Tariff-Quotas: A tariff-quota is a lower tariff rate for a certain quantity of imports and a higher rate for quantities that exceed the quota (e.g., agricultural trade).

EMBARGOES:
An embargo is a complete ban on trade (imports and exports) in one or more products with a particular country.
It may be placed on one or a few goods or completely ban trade in all goods. It is the most restrictive nontariff trade barrier and often has political goals..

LOCAL CONTENT REQUIREMENT

Local content requirements are laws stipulating that producers in the domestic market must supply a specified amount of a good or service.

Designed to force companies from other nations to employ local resources in their production processes particularly labor.

ADMINISTRATIVE DELAYS:
Administrative delays are regulatory controls or bureaucratic rules designed to impair the rapid flow of imports into a country.
Can include government actions such as requiring international air carriers to land at inconvenient airports, requiring inspections that damage the product, understaffing customs offices to cause delays, and requiring special licenses that take time to obtain. Objective is protectionism

CURRENCY CONTROLS
Currency controls are restrictions on the convertibility of a currency into other currencies.
Governments reduce imports by stipulating an exchange rate that is unfavorable to potential importers. Also can give exporters favorable rates to encourage exports.

SUBSIDY
A subsidy is a payment that the government makes to domestic producers of products that are produced for export.
A subsidy basically lowers the cost of production for domestic producers, making it more profitable for them to sell their products relative to foreign competition. Subsidies ard sometimes referred to as negative taxes.

TYPES OF SUBSIDIES

Red light

Prohibited (Red Light): Subsidies that are contingent in law or in fact on exporting or on using domestic rather than imported inputs (local content).

Green light
Yellow light

Non-Actionable (Green Light): Assistance for research, spending on education, assistance for promoting development of poor regions, assistance for adapting existing facilities to comply with environmental regulations.

Actionable (Yellow Light): Subsidies that are specific and injure the domestic industry of another country.

ANTIDUMPING DUTY
Dumping is when the normal value of a good exceeds its export price. Governments are concerned that foreign companies will dump their products into the country at the expense of domestic companies. Some foreign firms, for example, operate in a protected market at home. As a result, they may be able to cover their fixed costs at home. When selling abroad, then, all they have to do to make money is price their products above variable costs. This gives such firms a price advantage over domestic firms, who must cover their fixed costs. Antidumping or countervailing duties that do not exceed the dumping margin or subsidy amount, are permitted under the WTO rules. An anti-dumping law is the other side of a subsidy. A country pays a subsidy so its producers can export to the world at a lower cost.

LICENSES
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 1. general license that permits unrestricted importation or exportation of goods included in the lists for a certain period of time; 2. 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.

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

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
Import deposits is a form of deposit, which the importer must pay the bank for a definite period of time (noninterest bearing deposit) in an amount equal to all or part of the cost of imported goods.

FOREIGN EXCHANGE RESTRICTIONS AND FOREIGN EXCHANGE CONTROLS

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.

TRADE BLOCS

REGIONAL TRADE BLOCS

Regional trade blocks are associations of nations at a governmental level to promote trade within the block and defend its members against global competition . Defense against global competition is obtained through established tariffs on goods produced by member states, import quotas, government subsidies, bureaucratic import processes, and technical and other non-tariff barriers. Since trade is not an isolated activity, member states within regional blocks also cooperate in economic, political, security, climatic, and other issues affecting the region.

MAJOR TRADE BLOCS

ASEAN

EU

Trade Blocs

MERCOSUR

NAFTA

ASEAN (ASOCIATION OF SOUTH EAST ASIAN NATIONS)

Established on August 8, 1967, in Bangkok/Thailand.

Member States: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. Goals: (1) Accelerate economic growth, social progress and cultural development in the region and (2) Promote regional peace and stability and adhere to United Nations Charter.

EU (EUROPEAN UNION)
Founded in 1951 by six neighboring states as the European Coal and Steel Community (ECSC). Over time evolved into the European Economic Community, then the European Community and, in 1992, was finally transformed into the European Union. Regional block with the largest number of members states (27). These include Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, The Netherlands, and the United Kingdom. Goals: Evolved from a regional free-trade association of states into a union of political, economic and executive connections.

MERCOSUR (MERCADO COMUN DEL CONO SULSOUTHERN CONE COMMON MARKET)

Established on 26 March 1991 with the Treaty of Assuncin.

Full members include Argentina, Brazil, Paraguay, Uruguay, and Venezuela. Associate members include Bolivia, Chile, Colombia, Ecuador, and Peru. Associate members have access to preferential trade but not to tariff benefits of full members. Mexico, interested in becoming a member of the region, has an observer status.
Goals: Integration of member states for acceleration of sustained economic development based on social justice, environmental protection, and combating poverty.

NAFTA (NORTH AMERICAN FREE TRADE AGREEMENT)

Members: Canada, Mexico, and the United States of America.
Goals: Eliminate trade barriers among member states, promote conditions for free trade, increase investment opportunities, and protect intellectual property rights.

GRATITUDE!!