TRADE BARRIERS

BY: DHIREN AGRAWAL

RAHUL JAISWAL
 INTRODUCTION: TRADE BARRIERS

 Restrictions imposed on the movement of goods between

countries (import and export)
 To promote domestic goods than exported goods, and
thereby safeguard the domestic industries
 Two types of trade barriers:

NON-
TARIFF
TARIFF
BARRIERS
BARRIERS
Trade Barriers:

Tariff Barriers Non-Tariff Barriers

• Specific Tariffs • Subsidies
• Ad Valorem Tariffs • Quotas
• Compound Tariffs • Voluntary Export
• Export Tariff Restraints(VERs)
• Transit Tariff • Local Content
• Import Tariff Requirement
• Buy Local Legislation
• Labeling and Testing
Standards
• Others
Tariff Barriers:
 The term tariff means ‘Tax’ or ‘Duty’
 Tariff Barriers are the tax barriers or the monetary
barriers imposed on internationally traded goods
when they cross the national borders
Major Tariff Barriers:
Export tariff.

• Tariffs collected by the exporting country

Transit tariff.

• Tariff collected by a country through which the goods have passed

Import tariff.

• Tariff collected by the importing country, the import tariff is by far the most common.

Compound duty.

• A tariff assessed as both a specific duty and an ad valorem duty on the same product

Ad valorem duty.

• A tariff assessed as a percentage of the value of the item

Specific duty.

• A government may also assess a tariff on a per-unit basis

Non-Tariff Barriers:
 Any barriers other than tariff
 They are administrative measures

imposed by a domestic government to

discriminate against foreign goods and in
favor of domestic goods
Subsidies:
 Direct Payments made by the government to domestic companies
to encourage exports or to protect them from imports.
 They take the form of cash payments, low-interest loans, and
tax grants.
 By lowering production costs, subsidies help domestic producers
in two ways:
a) Competing against foreign imports
b) Gaining export markets
 Agriculture tends to be one of the largest beneficiaries of
subsidies in most countries.

Subsidies on food, fertilisers and petroleum have been pegged

higher by 15% to Rs. 2.64 lakh crore for the 2018-19 fiscal.
Antidumping Policies:
 Dumping: Selling goods in a foreign market at below their
costs of production or below their “fair” market value.
 Dumping is viewed as a method by which firms unload
excess production in foreign markets.
 Antidumping policies are designed to punish foreign firms
that engage in dumping. The ultimate objective is to protect
domestic producers from unfair foreign competition.

An alleged example of dumping occurred in 1997, when two South Korean

manufacturers of semiconductors, LG Semicon and Hyundai Electronics, were
accused of selling Dynamic Random Access Memory (DRAM) chips in the U.S.
market at below their costs of production. It was alleged that the firms were trying to
unload their excess production in the U.S.
Quotas:
 The quota is the most common type of quantitative import or
export restriction, which prohibits or limits the quantity of product
that can be imported or exported in a given year.

 An import quota prohibits or limits the quantity of a product that

can be imported in a given year and an export quota prohibits or
limits the quantity of a product that can be exported in a given year.

 A notable difference between tariffs and quotas is their direct effect

on revenues. Tariffs generate revenue for the government. Quotas
generate revenues for those companies which are able to obtain a
portion of the limited supply of the product by selling it in the
domestic market.
Example: Quota
For example, the U.S. has a quota on cheese
imports. The only firms allowed to import
cheese are certain trading companies, each of
which is allocated the right to import a maximum
number of pounds of cheese each year.

India allows 6,50,000 tonnes of pulse

imports in FY 2020
Voluntary Export Restraint:
 A variant of the import quota is the Voluntary export restraint.
A Voluntary export restraint (VER) is a quota on trade
imposed by the exporting country, typically at the request of
the importing country’s government.

 It is voluntary because a country has a formal right to

eliminate or modify it any time.

 One of the famous historical example is the limitation on

auto exports to the United States enforced by Japanese
automobile producers in 1981.
Local Content Requirements:
 A Local content requirement is a requirement that some specific
fraction of a good be produced domestically .

 The requirement can be expressed either in physical terms(e.g., 75

% of component parts for this product must be produced locally) or
in value terms (e.g., 75% of the value of this product ,must be
produced locally).

 For example, a little- known law in the U.S., the Buy America Act,
specifies that government agencies must give preference to
American products when putting contracts for equipment out to bid
unless the foreign products have a significant price advantage.
In 2016, the
Government
of India
shortlisted
137 products
for a technical
regulation
including 25
sectors under
Make In
India
initiative
Administrative Policies:
 Administrative trade policies are bureaucratic rules designed
to make it difficult for import to enter a country.
 It has been argued that the Japanese are the master of this
trade barrier. In recent decades, Japan’s formal tariff barriers
have been among the lowest in the world.

At one point the Netherlands exported tulip bulbs to almost every country in
the world except Japan. In Japan, customs inspectors insisted on checking
every tulip bulb by cutting it vertically down the middle, and even Japanese
ingenuity could not put any back together.
Standards:
 Countries have various classifications, labeling, and testing
standards to protect the health and safety of its citizens. For
exporting firms, however, these are a source of complex and
discriminatory barriers for free trade. The purpose for these is often
to promote the sale of domestic products and complicate the sales of
foreign products.

 An example of these is product labels, which need to indicate their

source of manufacture.

 This adds to the firm’s production cost, since it may also need to be
translated into different languages for different markets. Further,
since raw materials, components, design, and labor increasingly
come from various countries, lot of products today are of mixed
Example: Standards
For example, In 1989 EU banned the import of hormone treated beef
on the grounds of health, despite the fact that a reasonable consensus
existed among scientists that it posed no health problems.

In 2012, Indian Govt. launched Compulsory Registration Scheme

for Electronic and IT products such as video games, wireless
keyboard, mobile phones and laptops. Introduction of this regulation
was a response to India’s growing trade deficit with China.