WHAT ARE NON-TARIFF BARRIERS TO TRADE

 

WHAT ARE NON-TARIFF BARRIERS TO TRADE

Non-tariff barriers are obstacles to imports other than tariffs. They are administrative measures that are imposed by a domestic government to discriminate against foreign goods in favour of home goods.

CLASSIFICATION OF NTBs:

Quantitative trade restrictions are import quotas, tariff quotas, voluntary export restraints (VERS), orderly marketing arrangements /agreements (OMAs), multifiber agreements (MFA) etc.

Fiscal measures relate to export or production subsidies, export credit subsidy or tax concessions on exports, exports tax, government procurement, anti-dumping duties, countervailing duties, tied aid etc.

 Administrative or standards and regulators refer to health, sanitary and safety regulations, environmental (pollution) controls, customs valuation and classification, marking and packaging requirements import licensing procedures, state trading, government monopolies, delaying imports at the borders or customs, local content requirements etc.

Others include bilateral trade agreements, dumping, international commodity agreements, international cartels etc.

Types of NTBs:

Voluntary Export Restraints:  Voluntary Export Restraints is an agreement by an exporter’s country’s government with an importing country to limit their exports to it. This is done by the importing country when its domestic industry is suffering from large exports. They are accepted by exporters because otherwise they may be checked by stronger measures. VER has been adopted because the use of quotas and tariffs has been forbidden by GATT.

Export Subsidy: Export Subsidy is a government grant given to an export firm to reduce price per unit of goods exported. It enables the firm to sell a larger quantity at lower price in export market than in home market. Export subsidies may be direct or indirect. Direct export subsidies are prohibited under the GATT agreement. Therefore, governments resort to indirect export subsidies in various forms such as subsidized credit, refunds of tariffs on their inputs, priority in the allocation of scarce raw materials or foreign currency, assistance in financing such promotional activities as trade fairs, market research, advertisements, tax concessions etc.

Countervailing Duty:  Countervailing Duty is an import duty / tariff imposed by an importing country to raise the price of a subsidized export product to offset its lower price.

Government Procurement:  Governments discriminate between domestic and foreign suppliers of goods and services required by government departments. In some countries there is legislation to buy domestic goods and services even if they are available from abroad at low rates.

Local Content Regulation:  In many developing countries, import of manufactured products like cars, televisions, computers etc. are restricted if they do not meet local content regulations. Some foreign manufacturers in India are required to have sufficient local content in the form of spare part manufactured within India. Such regulations discourage foreign investments.

Technical Barriers: Technical Barriers include health and safety regulations, sanitary regulations, industrial standards, labeling and packaging regulations and so on. Such regulation imposes additional costs on foreign suppliers of goods to restrict their imports.

ROLE OF TRADE RESTRICTIONS IN PROMOTING ECONOMIC DEVELOPMENT

Developing countries adopt various types of trade barriers such as import licensing and quantitative restrictions. In addition, there are hidden import duties like stamps taxes, port duties, advance minimum deposit requirements etc. Besides non-tariff barriers, there are tariffs which restrict trade. The different types of trade restrictions help in promoting growth of LDCs in the following ways.

  1. Protection: Tariff and non-tariff barriers to trade protect domestic industries from foreign competition, specially from the MNCs. They help the high-priced domestic producers to learn and develop their industries to achieve the economies of large-scale production and lower unit costs and prices. As a result, they are able to produce not only for the domestic market but also to export their produce in the long run without protective tariffs.

    2. Improving Balance of Payments: Trade restrictions by developing countries help in improving their balance of payments. Trade restrictions help in the growth of domestic industries. Consequently, fewer consumer goods are imported and exports are expanded. So, the country can generate more foreign exchange earnings.

    3. Increase in savings and investments: with trade restrictions, producers can raise their prices and earn more profits. These profits are saved and invested. This leads to higher capital formation and growth.

    4. Increase in productivity: When direct foreign investments are allowed under trade restrictions, LDCs benefit from modern industrial techniques and know-how. They raise the technical efficiency and productivity.

    5. Increase in employment: When domestic industries are protected by various trade barriers, they provide gainful employment to the existing unemployed and under employed labour force in LDCs.

    6. Increase in Public Revenue: Restrictions in trade tend to increase government revenue. Advalorem and specific taxes on imports collected at ports and border check posts are the cheapest and most efficient ways to raise government revenue. Other ways to raise revenues from trade barriers are import licensing, quota auctions, minimum deposit requirements etc.

    7. Self-Reliance: Import restrictions are the most important means to overcome economic dependence and achieve industrial self-reliance for LDCs. By protecting domestic industries and establishing import substitution industries, increasing capital formation through larger savings, investment and profits, improving balance of payments and reducing foreign debt, trade restrictions help LDCs to achieve the goal of self-reliance.

NTBs vs TARIFFs

All NBTs tend to reduce imports and are similar in their effects of tariffs. Still tariffs possess certain advantages over NTBs.

    1. Tariffs only disturb the market mechanism whereas many NTBs displace it.

    2. Tariffs are transparent because these are visible to all. But NTBs are hidden in most cases.

    3. Tariffs are simple and easy to negotiate and implement than some of the NTBs.

    4. Tariffs bring revenue to the government while little revenue accrues from NTBs.

    5. NTBs lead to greater misallocation of resources than tariffs.

Despite the superiority of tariffs over NTBs, the NTBs are favoured by governments to protect consumers, producers and economies from foreign competition.