iep~session 4~trade barriers and trade control measures

7/27/2019 IEP~Session 4~Trade Barriers and Trade Control Measures

1/58

Amity Business School

1

Amity Business SchoolMBA 2013, 3rd Semester

IEP

Amanpreet Kang


2/58


2

Trade Barriers


3/58


3

Obstacle/ hurdle, that makes it more difficult for a firm to enter

a market, or establish its product in the market.

Cost of trade barriers

Economic costs

Higher prices for the consumer

Gatekeeper holds the key to the market

Import vs. Export Barriers

Tariff & Non tariff barriers

Government regulations

Natural barriers

Trade Barriers


4/58


4

Tariff & Non tariff barriers

Tariff barriers

Value added product vs. raw material

Complete vs. knocked down

Screwdriver assembly plants

Level of local content

Establishing manufacturing in member country

Non-tariff barriers

Slow custom procedures

Special product tests

Bureaucratic inertia

Trade Barriers


5/58


5

Government Regulations

Adaptation

Homogenization of regulations among regional trade blocs

Collaborative alliance/ national partners

Distribution access

Retailers trust

Wholesalers extra rebates

Slotting fee

to get trade interested Downside to close ties inefficiency of the partner

OEMs

Inability to hire local talent

Trade Barriers


6/58


6

Natural barriers

Market success

Customer loyalty/ allegiance

Country of origin bias

Developing vs. Advanced Nations

Exit barriers

Tarnished reputation

Non recoverable investments

Legal issues

Trade Barriers


7/58


7

Trade Control Measures

TRAINS


8/58


8

TRAINS (Trade Analysis and Information System) refers to tradecontrol measures classified under the following categories:

1. Tariff measures

2. Para-tariff measures3. Price control measures

4. Finance measures

5. Automatic licensing measures

6. Quantity Control Measures7. Monopolistic measures

8. Technical measures



9/58


9

1) Tariff Measures

Statutory customs duties

MFN Duties

GATT ceiling duties

Tariff Quota duties

Seasonal duties

Temporary reduced duties

Temporary increased duties

Preferential duties under trade agreements



10/58


10

1) Tariff Measures

Tariff measures serve to raise fiscal revenue or

to protect domestic industry from foreign competition

applied when a product crosses the boundary of a customsarea.

increase the import price by a fixed percentage or by a fixedamount, calculated respectively on the basis on the value (AdValorem tariffs) and the physical quantity (specific tariffs).

Statutory customs duties - Basic duties as laid down in theprovisions of the customs tariff law, often defined also asgeneral duties. Almost all countries apply in practice theMFN duties as general duties, while few countries applyduties higher than MFN duties.



11/58


11

Tariff Measures (Contd.)

MFN duties - Defining the General Most-Favoured-NationTreatment, GATT states that "any advantage, favour,privilege or immunity granted by any contracting party to

any product originating in or destined for any other countryshall be accorded immediately and unconditionally to thelike product originating in or destined for the territories of allother contracting parties".

GATT ceiling duties - Maximum duties that may be appliedby a GATT contracting party to other parties, which havebeen bound against concessions as a result of GATTnegotiations.



12/58


12


Tariff quota duties - Rates applicable to a quota of importsunder a given tariff heading, whereas higher rates arecharged on imports which exceed the quota amount; quota

may be defined in terms of quantity or value.

Seasonal duties - Duties applicable according to the time ofthe year, usually to agricultural products

Temporary reduced duties - Duties intended to stimulatelocal consumption or production. These duties may beapplied to all imports under a given tariff heading or only toindustrial inputs, investment goods, etc. for specificpurposes.



13/58


13


Temporary increased duties - Rates on specific articles toretaliate against actions by trading partners or to provideimport relief (safeguard actions).

Preferential duties under trade agreements - Dutiesapplicable in trade under multilateral or bilateral tradeagreements or duties extended without reciprocity by onegroup of countries to another group of countries (e.g. the

Generalized System of Preferences). These duties may beapplied with no limitation of quantity or may be linked topreferential tariff quota



14/58


14

(2) Para-tariff measures

Customs surcharges

Additional charges Internal taxes and charges levied on imports

Decreed customs valuation



15/58


15

(2) Para-tariff measures

Other measures that increase the cost of imports in a manner similar totariff measures, i.e. by a fixed percentage or by a fixed amount.Four groups are distinguished:

customs surcharges;

additional charges;

internal taxes and charges levied on imports; and

decreed customs valuation.

Customs surcharges - The customs surcharge, also calledsurtax or additional duty, is an ad hoc trade policyinstrument to raise fiscal revenue or to protect domesticindustry.



16/58


16

Para-tariff measures (Contd.)

Additional charges - Additional charges, which are levied onimported goods in addition to customs duties and surcharges andwhich have no internal equivalent, comprise various taxes andfees. The category of additional charges includes:

the tax on foreign exchange transactions, stamp tax, importlicense fee, consular invoice fee, statistical tax, tax ontransport facilities and charges for sensitive productcategories.

Various other taxes, such as the export promotion fund tax,taxes for the special funds, the municipal tax, registration feeon imported motor vehicles, customs formality tax, etc.,.

It should be noted that Article VIII of GATT states that fees andcharges other than customs duties and internal taxes "shall belimited in amount to the approximate cost of services rendered andshall not represent an indirect protection to domestic products or a

taxation of imports or exports for fiscal purposes."



17/58


17


Internal taxes and charges levied on imports - GATT Article IIIpermits the application of internal taxes to imports; however,these taxes should not be applied so as to afford protection todomestic production. Three types of internal taxes can bedistinguished:

first, the one commonly known as sales tax, which is and advalorem tax based on the gross receipts of sales of goods,collected at regular intervals from traders;

secondly, the turnover tax or multiple sales tax, which is a taximposed at more than one level of production and distributionand is based on gross receipts, resulting in a cumulation oftaxes;

thirdly, the value-added tax which is a modified turnover taxbased on the net value added instead of on the gross receipts,avoiding cumulation of taxes and not affecting the pricestructure and the allocation of resources.



18/58


18


The excise tax levied on imports is the equivalent of the excisetax on domestic products, which is an internal tax imposed onselected types of commodities, usually of a luxurious or non-essential nature, such as alcoholic beverages and tobacco. Thistax is levied either ad valorem or on a specific basis, separatefrom, and in addition to, the general sales taxes.

Sumptuary taxes, luxury taxes, commodity or consumption taxesall have the same nature as the excise tax. Therefore, fordatabase purposes, all such taxes are coded as excise taxes.

Charges for sensitive product categories include emissioncharges, product taxes and administrative charges. They arecharges are meant to recover the costs of administrative control.

Certain internal taxes which cannot be clearly identified as salestaxes, for instance the equalization tax on industrial inputs, thebusiness tax based on a fixed profit rate, etc., are classified forpragmatic reasons as internal taxes and charges levied on

imports.



19/58


19


Decreed customs valuation - Customs duties and othercharges on selected imports can be levied on the basis of adecreed value of goods (the so-called "valeur mercuriale" in

French). Decreed value of goods -

This practice is presented as a means to avoid fraud or toprotect domestic industry. The decreed value de facto

transforms an ad valorem duty into a specific duty.



20/58


20

3) Price control measures

Administrative price fixing

Voluntary export price restraint

Variable charges Anti-dumping measures

Countervailing measures



21/58


21

3) Price control measures

Measures intended to control the prices of imported articles: to sustain domestic prices of certain products when the import

price is inferior to the sustained price;

to establish the domestic price of certain products because ofprice fluctuation in the domestic market or price instability inthe foreign market; and

to counteract the damage caused by the application of unfairpractices of foreign trade.

Most of these measures affect the cost of imports in a variableamount, calculated on the basis of the existing differencebetween two prices of the same product, compared forcontrol purposes.



22/58


22

Price control measures (Contd.)

The measures initially adopted can be administrative fixing ofprices and voluntary restriction of the minimum price levelof exports or investigation of prices, to subsequently arrive

at one of the following adjustment mechanisms: suspension of import licenses;

application of variable charges,

antidumping measures or countervailing duties.

Administrative price fixing - The authorities of the importingcountry take into account the domestic prices of theproducer or consumer; establish floor and ceiling pricelimits; or revert to determined international market values.Various terms to denominate the different administrativeprice fixing methods, such as official prices, minimum

import prices or basic import prices.



23/58


23


Voluntary export price restraint - A restraint arrangement inwhich the exporter agrees to keep the price of his goodsabove a certain level.

Variable charges - Variable charges bring the market pricesof imported agricultural and food products close to those ofcorresponding domestic products, in advance, for a givenperiod of time, and for a pre-established price. These prices

are known as reference prices, threshold prices or triggerprices. Primary commodities may be charged per totalweight, while charges on processed foodstuffs can belevied in proportion to the primary product contents in thefinal product.



24/58


24


Antidumping measures - Antidumping measures may be takenafter an investigation by the investigating authority of theimporting country has led to a determination of dumping andmaterial injury resulting there from.

It is considered that dumping takes place when a product isintroduced into the commerce of an importing country at lessthan its normal value, i.e. if the export price of the productexported is less than the comparable price, in the ordinarycourse of trade, for the like product when destined forconsumption in the exporting country.

Antidumping investigations - Antidumping investigations intodumping and injury are conducted by the investigatingauthority of the importing country in accordance with the

provisions of the GATT Antidumping Code.



25/58


25


Antidumping duties - Duties levied on certain goodsoriginating from (a) specific trading partner/s to offset thedumping margin. Duty rates are generally enterpr ise-

speci f ic .

Antidumping price undertakings - Undertakings may beoffered by exporters to avoid the imposition of antidumpingduties. They may be accepted by the investigating authority

of the importing country if the exporter is prepared to revisehis prices or ceases to export at dumped prices so that theinjurious effect of the dumping is eliminated.



26/58


26


Countervailing measures - Countervailing measures maybe taken after an investigation by the investigating authorityof the importing country has led to a determination that the

imported goods are benefiting from subsidies, and that theyresult in injury.

Countervailing investigations - Countervailing investigationson subsidization and injury are conducted by the

investigating authority of the importing country inaccordance with the provisions of the GATT SubsidiesCode.



27/58


27


Countervailing duties - Duties levied on certain goodsoriginating from (a) specific trading partner/s to offset theamount of subsidization granted on the production or export

of these goods.

Countervailing undertakings - Undertakings may be offeredby exporters or by the authorities of the exporting country toavoid the imposition of countervailing duties. Undertakingsby the exporters may be accepted by the investigatingauthority of the importing country if the exporter is preparedto revise his prices or renounces the benefit of thesubsidies so that the injurious effect of the subsidies iseliminated.



28/58


28

(4) Finance measures

Advance payment requirements

Advance import deposits

Cash margin requirement

Advance payment of customs duties

Refundable deposits for sensitive product categories

Multiple exchange rates Restrictive official foreign exchange allocation

Regulations concerning terms of payments

Transfer delays



29/58


29

(4) Finance measures

Measures that regulate the access to and cost of foreignexchange for imports and define the terms of payment. Theymay increase the import cost in a fashion similar to tariff

measures.

Advance payment requirements - Advance payment of thevalue of the import transaction and/or related import taxes,which is required at the moment of the application for, or the

issuance of, the import license.

Advance import deposits - Obligation to deposit a percentageof the value of the import transaction for a given time period inadvance of the imports, with no allowance for interest to be

accrued on the deposit.



30/58


30

Finance measures (Contd.)

Cash margin requirement - Obligation to deposit the totalamount corresponding to the transaction value, or aspecified part of it, in a commercial bank, before the

opening of a letter of credit; payment pay be required inforeign currency.

Advance payment of customs duties - Advance payment ofthe totality or a part of customs duties, with no allowancefor interest to be accrued.

Refundable deposits for sensitive product categories - Thedeposit refunds are charges which are refunded when theused products or its containers are returned to a collectionsystem.



31/58


31


Multiple exchange rates - Varying exchange rates forimports, depending on the product category. Usually, theofficial rate is reserved for essential commodities while theother goods must be paid at commercial rates oroccasionally by buying foreign exchange through auctions.

Restrictive official foreign exchange allocation - Restrictiveallocation of foreign exchange intended to control importflows, usually executed by the central bank in the form ofpermits, visas, authorizations, etc. Sometimes takes theform of prohibition of foreign exchange allocation.



32/58


32


Regulations concerning terms of payment for imports -

Special regulations regarding the terms of payment of

imports and the obtaining and use of credit (foreign or

domestic) to finance imports.

Transfer delays, queuing - Minimum permitted delays

between the date of delivery of goods and that of final

settlement of the import transaction (usually 90, 180 or 360

days for consumer goods and industrial inputs and two to

five years for capital goods). Queuing takes place when the

prescribed delays cannot be observed because of foreign

exchange shortage, and transactions are settled

successively after a longer waiting period.



33/58


33

(5) Automatic licensing measures

Automatic license

Import monitoring



34/58


34

(5) Automatic licensing measures

Measures of a formal character only, which do not involve arestriction.

Automatic license - Freely-granted approval of theapplication for imports. Sometimes also referred to as theopen general or liberal license.

Import monitoring - Monitoring of the import trends of

specified products, sometimes through inscription in aregister. It may be applied with the purpose of signalingconcern over import surges and to persuade tradingpartners to reduce export growth. It may also be applied forenvironmental purposes. Sometimes it is a precursor to

import restraints.



35/58


35

(6) Quantity Control measures

Non-automatic licensing

License with no specific ex-ante criteria (depending on

judgment of issuing authority) License for selected purchasers

License for specific use

License linked with local production

Purchase of local goods Local content requirement

Barter or counter trade

License linked with non-official foreign exchange



36/58


36


License combined with or replaced by special importauthorization

Prior authorization for sensitive product categories Quotas

Global Quotas

Bilateral Quotas

Seasonal Quotas

Quotas linked with export performance

Quotas linked with the purchase of local goods

Quotas for sensitive product categories

Prohibitions



37/58


37


Total Prohibitions

Suspension of Issuing of Licenses by Issuing Authority

Seasonal prohibition

Temporary prohibition

Import diversification

Prohibition for sensitive product category

Prohibition for political reasons

Export Restraint Arrangement

Enterprise-specific restrictions



38/58


38

(6) Quantity Control Measures

Measures intended to restrain the quantity of imports of anyparticular good, from all sources or from specified sourcesof supply, either through restrictive licensing, fixing of a

predetermined quota or through prohibitions.

Non-automatic licensing - The practice to require, as a priorcondition to importation, an import license which is notgranted automatically. The license may either be issued ona discretionary basis or may depend on specific criteria.

License with no specific ex-ante criteria - Licensedepending on the judgement of the issuing authority,

sometimes also referred to as a discretionary license.



39/58


39

Quantity Control Measures (Contd.)

License for selected purchasers - License issued on certaingoods only to specific categories of importers, e.g.manufacturers, service industry, governmental

departments, etc. The purpose is to limit imports byrestraining direct consumption, while providing the localprocessing industry with the necessary inputs.

License for specific use - License limited to operationsgenerating anticipated benefit in important domains of the

economy, such as export production, investment projects,etc.

License linked with local production - Compulsory linkage ofimports with local market outputs.



40/58


40


Purchase of local goods - License granted under the conditionof the purchase of a share of locally produced goods which aresimilar to the imported goods.

Local content requirement - License granted under thecondition that a certain product will include a specificpercentage of local inputs.

Barter or counter trade - Swap of goods in kind.

License linked with non-official foreign exchange - Licensegranted if official foreign exchange is not required. This caseincludes imports under technical assistance projects and othersources of external foreign exchange, as well as imports paidfrom the importer's own foreign exchange holdings.



41/58


41


License combined with or replaced by special importauthorization - In addition to or instead of a licence issued bythe main licensing body (usually the ministry of trade)

according to the above specified criteria, a special importauthorization or an inscription in a register is required by aspecialized authority which is coordinating a sector of thedomestic economy (ministry of industry, ministry of agriculture,etc).

Prior authorization for sensitive product categories - Priorauthorization subject to registered inscription, provision ofinformation or other admission procedures required as acondition for undertaking imports of goods subject to healthand safety regulations, provisions of international treaties on

environmental and wildlife protection, etc.



42/58


42


Quotas - Restriction of imports of specified products by setting amaximum quantity or value of goods authorized for import.

Global quotas - Quotas of imports of specific products set as atotal quantity or value. The quotas can be either unallocated, i.e.goods may be imported from all origins; or allocated by individualexporting countries. The global quotas may either be distributedamong individual importers on a first-come, first-served basis orbe allocated in advance to determined importers, often inproportion to their former performance.

Bilateral quotas - Quotas of imports reserved for a specificcountry.

Seasonal quotas - Quotas of imports for a given period of theyear, usually set for certain agricultural goods.



43/58


43


Quotas linked with export performance - Quotas of importsdefined as a percentage of the value of exported goods.

Quotas linked with the purchase of local goods - Quotasdefined as a percentage of the value of locally purchasedgoods similar to the imported articles.

Quotas for sensitive product categories - Quotas determinedfor reasons of protection of human health, animal health and

life or plant health, the environment, wildlife and to ensurehuman safety and to control drug abuse.

Prohibitions - Unconditional interdiction to import. The so-called "prohibition with exceptions" is incorporated in thecategory of licensing which is relevant to the nature of the

exception



44/58


44


Total prohibition - Prohibition without further qualifications. Thismeasure may be applied in order to utilize scarce foreignexchange resources exclusively for imports of essential goodsor to protect domestic industry completely from foreign

competition.

Suspension of issuance of licenses - A form of de factoprohibition, usually applied for balance-of-payments problemswhich are expected to be of a short-term character.

Seasonal prohibition - Prohibition of imports for a given periodof the year, usually applied to certain agricultural products.

Temporary prohibition - Prohibition with decreed limitedduration.



45/58


45


Import diversification - Prohibition of imports of certaingoods from countries with which the importing countryremains in a significant trade deficit.

Prohibition for sensitive product categories - Product orcountry-oriented prohibition for reasons of protectinghuman health, animal health and life or plant health, theenvironment and wildlife, to control drug abuse or ensure

human safety.

Prohibition for political reasons (embargo) - Prohibition ofimports from a country or group of countries, applied forpolitical reasons.



46/58


46


Export restraint arrangements - By virtue of an export restraintarrangement between an importer and an exporter, the latteragrees to limit exports in order to avoid imposition of mandatoryrestrictions by the importing country. The arrangement may beconcluded at either government or industry level. Thesearrangements are known as voluntary export restraintarrangements (VERs), orderly marketing arrangements, etc. Theyare generally concluded on goods such as iron and steel,machine tools, automobiles, road transport equipment,

electronics, footwear, textiles and clothing as well as agriculturaland food products.



47/58


47


Enterprise-specific restrictions - These restrictions mayreplace the quantitative restrictions of a generalcharacter or may be applied parallel to them. They

include such restrictions as selective approval ofimporters, limitations at the enterprise level resultingfrom the national import programme. Value or quantityquotas for individual enterprises, etc.



48/58


48

(7) Monopolistic measures

Single channel for imports

Compulsory national services



49/58


49

(7) Monopolistic measures

Measures which create a monopolistic situation, by givingexclusive rights to one or a limited group of economicoperators, for either social, fiscal or economic reasons.

Single channel for imports - All imports or imports ofselected commodities have to be channeled through state-owned agencies or state-controlled enterprises. Sometimesthe private sector may also be granted exclusive importrights.

Compulsory national services - Government-sanctionedexclusive rights of national insurance and shippingcompanies on all or a specified share of imports



50/58


50

(8) Technical measures

Technical Regulations

Product Characteristics Requirements

Marking requirements

Labeling requirements

Packaging requirements

Testing, inspection and quarantine requirements

Information requirements

Requirement relative to transit

Requirement to pass through specified customs

Pre-shipment Inspection

Special customs formalities

Obligation to return used product



51/58


51

(8) Technical measures

Measures referring to product characteristics such as quality,safety or dimensions, including the applicableadministrative provisions, terminology, symbols, testing and

test methods, packaging, marking and labelingrequirements as they apply to a product.

The technical regulations are subdivided according to specificpurposes, likewise

as the measures for sensitive product categories, etc.

for protection of human health, etc.

for protection of animal health and life, etc.



52/58


52

Technical measures (Contd.)

Technical regulations - Regulations that provide technicalrequirements, either directly or by referring to orincorporating the content of a standard, technical

specification or code of practice, in order to: protect human life or health or to protect animal life or

health (sanitary regulation);

to protect plant health (phytosanitary regulation);

to protect the environment and to protect wildlife; to ensure human safety;

to ensure national security;

to prevent deceptive practice.



53/58


53


The regulation may be supplemented by technical guidancethat outlines some means of compliance with therequirements of the regulation, including administrative

provisions for customs clearance, such as prior registrationof the importer or obligation to present a certificate issuedby relevant governmental services in the country of origin ofthe goods. In certain cases, a prior recognition of theexporter or certificate issuing service by the importing

country is also required.

Product characteristics requirements - Technicalspecifications prescribing technical requirements to befulfilled by a product.



54/58


54


Marking requirements - Measures defining the information fortransport and customs, that the packaging of goods shouldcarry (country of origin, weight, special symbols for dangerous

substances, etc.).

Labeling requirements - Measures regulating the kind and sizeof printing on packages and labels and defining the informationthat may or should be provided to the consumer.

Packaging requirements - Measures regulating the mode inwhich goods must be or cannot be packed, in conformity withthe importing country handling equipment or for other reasons,and defining the packaging materials to be used.



55/58


55


Testing, inspection and quarantine requirements - Compulsorytesting of product samples by a designated laboratory in theimporting country, inspection of goods by health authorities

prior to release from customs or a quarantine requirement inrespect of live animals and plants.

Information requirements - A measure that obliges detailedinformation to be provided on the product, such as

enumeration of the contents or advisory notes for use anddisposal.

Requirement relative to transit - A measure that obligesshipment to be made directly to from the country of origin to

that of destination without passing through a third country



56/58


56


Requirement to pass through specified customs - Ameasure that obliges shipment to pass through adesignated customs office

Pre-shipment inspection - Compulsory quality, quantity andprice control of goods prior to shipment from the exportingcountry, effected by an inspecting agency mandated by theauthorities of the importing country. Price control is

intended to avoid under invoicing and over invoicing, sothat customs duties are not evaded or foreign exchange isnot being drained.



57/58


57


Special customs formalities - Formalities which are notclearly related to the administration of any measure appliedby the given importing country such as the obligation to

submit more detailed product information than normallyrequired on the basis of a customs declarations, therequirement to use specific points of entry, etc.

Obligation to return used product - A measure that obliges

the return of the product after use.



58/58


Thanks

iep~session 4~trade barriers and trade control measures

Documents