trade barriers

TRADE BARRIERS

TRADE BARRIERSINTRODUCTION

• A TRADE BARRIER IS DEFINED AS “ANY HURDLE, IMPEDIMENT OR ROAD BLOCKTHAT HAMPERS THE SMOOTH FLOW OF GOODS, SERVICES AND PAYMENTS FROM ONE DESTINATION TO ANOTHER”.

• THEY ARISE FROM THE RULES AND REGULATIONS GOVERNING TRADE EITHER FROM HOME COUNTRY OR HOST COUNTRY OR INTERMEDIARY.

• TRADE BARRIERS ARE MAN-MADE OBSTACLES TO THE FREE MOVEMENT OF GOODS BETWEEN DIFFERENT COUNTRIES AND IMPOSE ARTIFICIAL RESTRICTIONS ON TRADING ACTIVITIES BETWEEN COUNTRIES

TRADE BARRIERSOBJECTIVES

• TO PROTECT DOMESTIC INDUSTRIES FROM FOREIGN GOODS

• TO PROMOTE NEW INDUSTRIES AND RESEARCH & DEVELOPMENT ACTIVITIES BY PROVIDING A HOME MARKET FOR DOMESTIC INDUSTRIES

• TO MAINTAIN FAVOURABLE BALANCE OF PAYMENT

• TO CONSERVE FOREIGN EXCHANGE RESERVES OF THE COUNTRY BY RESTRICTING IMPORTS FROM FOREIGN COUNTRIES

TRADE BARRIERSOBJECTIVES (CONTD…)

• TO PROTECT THE NATIONAL ECONOMY FROM DUMPING BY OTHER COUNTRIES WITH SURPLUS PRODUCTION

• TO MOBILISE ADDITIONAL REVENUE BY IMPOSING HEAVY DUTIES ON IMPORTS. THIS ALSO RESTRICTS CONSPICIOUS CONSUMPTION WITHIN COUNTRY

• TO COUNTERACT TRADE BARRIERS IMPOSED BY OTHER COUNTRIES

• TO ENCOURAGE DOMESTIC PRODUCTION IN THE DOMESTIC MARKET AND THEREBY MAKE THE COUNTRY STRONG AND EFFICIENT

TYPES OF TRADE BARRIERS

TRADE BARRIERS ARE CLASSIFIED AS TARIFF BARRIERS AND NON-TARIFF BARRIERS. A COUNTRY MAY USE BOTH TARIFF AND NON-TARIFF BARRIERS INORDER TO RESTRICT THE ENTRY OF FOREIGN GOODS.

TYPES OF TRADE BARRIERSTARIFF BARRIER

• A TARIFF BARRIER IS A LEVY COLLECTED ON GOODS WHEN THEY ENTER A DOMESTIC TARIFF AREA THROUGH CUSTOMS.

• TARIFF REFERS TO THE DUTIES IMPOSED ON INTERNATIONALLY TRADED COMMODITIES WHEN THEY CROSS NATIONAL BOUNDARIES AND MAY BE IN THE FORM OF HEAVY TAXES OR CUSTOM DUTIES ON IMPORTS, SO AS TO DISCOURAGE THEIR ENTRY INTO THE HOME COUNTRY FOR MARKETING PURPOSES.

• TARIFFS ENHANCE THE PRICE OF THE IMPORTED GOODS, THEREBY RESTRICTING THEIR SALES AS WELL AS THEIR IMPORT. GOVERNMENTS IMPOSE TARIFFS ONLY ON IMPORTS AND NOT ON EXPORTS AS THEY ARE INTERESTED IN EXPORT PROMOTION

• THE AIM OF A TARIFF IS THUS TO RAISE THE PRICES OF IMPORTED GOODS IN DOMESTIC MARKETS, REDUCE THEIR DEMAND AND THEREBY DISCOURAGE THEIR IMPORTS.

TYPES OF TRADE BARRIERSCLASSIFICATION OF TARIFFS

• 1) ON THE BASIS OF ORIGIN AND DESTINATION OF THE GOODS CROSSING NATIONAL BOUNDARIES.

• 2) ON THE BASIS OF QUANTIFICATION OF TARIFFS.

• 3) ON THE BASIS OF PURPOSE THEY SERVE.

• 4) ON THE BASIS OF TRADE REALATIONS.


(1) ON THE BASIS OF ORIGIN AND DESTINATION OF GOODS CROSSING NATIONAL BOUNDARIES

• EXPORT DUTY : AN EXPORT DUTY IS LEVIED BY THE COUNTRY OF ORIGIN ON A COMMODITY DESIGNATED FOR USE IN OTHER COUNTRIES. THE MAJORITY OF FINISHED GOODS DO NOT ATTRACT EXPORT DUTY. SUCH DUITIES ARE NORMALLY IMPOSED ON THE PRIMARY PRODUCTS INORDER TO CONSERVE THEM FOR DOMESTIC INDUSTRIES. IN INDIA, EXPORT DUTY IS LEVIED ON OILSEEDS, COFFEE AND ONIONS, ETC.

• IMPORT DUTY : AN IMPORT DUTY IS A TAX IMPOSED ON A COMMODITY ORIGINATING IN ANOTHER COUNTRY BY THE COUNTRY FOR WHICH THE PRODUCT IS DESIGNATED. THE PURPOSE OF HEAVY IMPORT DUTIES IS TO EARN REVENUE, TO MAKE IMPORTS COSTLY AND TO PROVIDE PROTECTION TO DOMESTIC INDUSTRIES.

• TRANSIT DUTY : A TRANSIT DUTY IS A TAX IMPOSED ON A COMMODITY WHEN IT CROSSES THE NATIONAL FRONTIER BETWEEN THE ORIGINATING COUNTRY AND THE COUNTRY WHICH IT IS CONSIGNED TO.


(2) ON THE BASIS OF QUANTIFICATION OF TARIFFS

• SPECIFIC DUTY : A SPECIFIC DUTY IS A FLAT SUM COLLECTED ON PHYSICAL UNIT OF THE COMMODITY IMPORTED. HERE, THE RATE OF THE DUTY IS FIXED AND IS COLLECTED ON EACH UNIT IMPORTED. FOR EXAMPLE, Rs 800 ON EACH TV SET OR WASHING MACHINE OR Rs 3000 PER METRIC TON ON COLD ROLLED IRON COILS.

• AD-VALOREM DUTY : THIS DUTY IS IMPOSED AT A FIXED % ON THE VALUE OF A COMMODITY IMPORTED. HERE THE VALUE OF THE COMMODITY ON THE INVOICE IS TAKEN AS THE BASE FOR CALCULATION OF THE DUTY E.G., 3% AD-VALOREM DUTY ON THE C&F VALUE OF THE GOODS IMPORTED.

• COMPOUND DUTY : A TARIFF IS REFERRED TO A COMPOUND DUTY WHEN THE COMMODITY IS SUBJECT TO BOTH SPECIFIC AND AD-VALOREM DUTY


(3) ON THE BASIS OF THE PURPOSE THEY SERVE

• REVERSE TARIFF : IT AIMS AT COLLECTING SUBSTANTIAL REVENUE FOR THE GOVERNMENT, BUT DOES NOT REALLY OBSTRUCT THE FLOW OF IMPORTED GOODS. HERE, THE DUTY IS IMPOSED ON ITEMS OF MASS CONSUMPTION, BUT THE RATE OF DUTY IS LOW.

• PROTECTIVE TARIFF : IT AIMS AT GIVING PROTECTION TO HOME INDUSTRIES BY RESTRICTING OR ELIMINATING COMPETITION. PROTECTIVE TARIFFS ARE USUALLY HIGH SO AS TO REDUCE IMPORTS

• ANTI-DUMPING DUTY : DUMPING IS THE COMMERCIAL PRACTICE OF SELLING GOODS IN FOREIGN MARKETS AT A PRICE BELOW THEIR NORMAL COST OR EVEN BELOW THEIR MARGINAL COST SO AS TO CAPTURE FOREIGN MARKETS.

• COUNTERVAILING DUTY : SUCH DUTIES ARE SIMILAR TO ANTI-DUMPING DUTIES BUT ARE NOT SO SEVERE. THEY ARE IMPOSED TO NULLIFY THE BENEFITS OFFERED THROUGH CASH ASSISTANCE OR SUBSIDIES BY THE FOREIGN COUNTRY TO ITS MANUFACTURERS. THE RATE OF SUCH DUTY WILL BE PROPORTIONAL TO THE EXTENT OF CASH ASSISTANCE OR SUBSIDY GRANTED.


(4) ON THE BASIS OF TRADE RELATIONS

• SINGLE COLUMN TARIFF : UNDER THIS SYSTEM, TARIFF RATES ARE FIXED FOR VARIOUS COMMODITIES AND THE SAME RATES ARE MADE APPLICABLE TO IMPORTS FROM ALL OTHER COUNTRIES.

• DOUBLE COLUMN TARIFF : UNDER THIS SYSYTEM, TWO RATES OF DUTY ARE FIXED ON ALL OR SOME COMMODITIES. THE LOWER RATE IS MADE APPLICABLE TO A FRIENDLY COUNTRY OR TO A COUNTRY WITH WHICH THE IMPORTING COUNTRY HAS A BILATERAL TRADE AGREEMENT. THE HIGHER RATE IS APPLICABLE TO ALL OTHER COUNTRIES.

• TRIPLE COLUMN TARIFF : HERE THREE DIFFERENT RATES OF DUTIES ARE FIXED. THEY ARE GENERAL TARIFF, INTERNATIONAL TARIFF AND PREFENTIAL TARIFF. THE FIRST TWO CATEGORIES HAVE MINIMUM VARIANCE BUT THE PREFERENTIAL TARIFF IS SUBSTANTIALLY LOWER THAN THE GENERAL TARIFF AND IS APPLICABLE TO FRIENDLY COUNTRIES WHERE THERE IS A BILATERAL RELATIONSHIP.

TYPES OF TRADE BARRIERSBENEFITS OF TARIFF TO THE HOME COUNTRY

• IMPORTS FROM ABROAD ARE DISCOURAGED OR EVEN ELIMINATED TO A CONSIDERABLE EXTENT.

• PROTECTION IS GIVEN TO THE HOME INDUSTRIES AND MANUFACTURING SECTOR. THIS FACILITATES AN INCREASE IN DOMESTIC PRODUCTION.

• CONSUMPTION OF FOREIGN GOODS IS REDUCED TO A MINIMUM AND THE ATTRACTION FOR IMPORTED GOODS IS BROUGHT DOWN.

• TARIFF BRINGS IN SUBSTANTIAL REVENUE TO THE GIOVERNMENT . IN ADDITION IT ALSO CREATES EMPLOYMENT OPPORTUNITIES WITHIN THE COUNTRY BY PROMOTING DOMESTIC INDUSTRIES.

• TARIFFS AIMS TO REDUCE THE DEFICIT IN THE BALANCE OF TRADE AND BALANCE OF PAYMENT OF A COUNTRY.

TYPES OF TRADE BARRIERSNON-TARIFF BARRIERS

• 1) QUOTA SYSTEM• 2) IMPORT LICENSING• 3) CONSULAR FORMALITIES• 4) PREFRENTIAL TREATMENT THROUGH

TRADING BLOCKS• 5) CUSTOMS REGULATIONS• 6) STATE TRADING• 7) FOREIGN EXCHANGE REGULATIONS• 8) HEALTH & SAFETY MEASURES


(1) QUOTA SYSTEM

UNDER THIS SYSTEM, THE QUANTITY OF A COMMODITY PERMITTED TO BE IMPORTED FROM VARIOUS COUNTRIES DURING A GIVEN PERIOD IS FIXED IN ADVANCE. SUCH QUOTAS ARE USUALLY ADMINISTERED BY REQUIRING IMPORTERS TO HAVE LICENCES TO IMPORT A PARTICULAR COMMODITY. IMPORTS ARE NOT ALLOWED OVER AND ABOVE A SPECIFIC LIMIT. THE TYPES OF QUOTAS ARE :

• TARIFF QUOTA : IT COMBINES THE FEATURES OOF THE TARIFF AS WELL AS THE QUANTITY HERE, THE IMPORTS OF A COMMODITY UPTO A SPECIFIED VOLUME ARE ALLOWED DUTY FREE OR AT A SPECIAL LOW RATE OF DUTY. IMPORTS IN EXCESS OF THIS LIMIT ARE SUBJECT TO A HIGHER RATE OF DUTY

• UNILATERAL QUOTA : IN A UNILATERAL QUOTA SYSTEM, A COUNTRY FIXES ITS OWN CEILING ON THE IMPORT OF A PARTICULAR ITEM.

• BILATERAL QUOTA : IN A BILATERAL QUOTA, THE QUANTITY TO BE IMPORTED IS DECIDED IN ADVANCE, BUT IT IS THE RESULT OF NEGOTIATIONS BETWEEN THE COUNTRY IMPORTING THE GOODS AND THE COUNTRY EXPORTING THEM.

• MIXING QUOTA : UNDER THE MIXING QUOTA, THE PRODUCERS ARE OBLIGED TO UTILIZE A CERTAIN % OF DOMESTIC RAW MATERIALS IN MANUFACTURING THE FINISHED PRODUCTS.

TYPES OF TRADE BARRIERSNON-TARIFF BARRIERS(2) IMPORT LICENSING

• In this system, imports are allowed under license. Importers have to approach the licensing authorities for permission to import certain commodities. Foreign exchange for imports is provided against license.

• Such import licenses are the practice in many countries. This method is used to control the quantity of imports.


(3) CONSULAR FORMALITIES

• Some importing countries impose strict rules regarding the consular documents necessary to import goods. Such documents include import certificates, certificates of origin and certified consular invoices.

• Penalties are imposed for non-compliance of such documentation formalities.

• The purpose of consular formalities is to restrict imports to some extent and prevent free imports of commodities that are not necessary.


(4) PREFERENTIAL TREATMENT THROUGH TRADING BLOCS

• SOME COUNTRIES FORM REGIONAL GROUPS AND OFFER SPECIAL CONCESSIONS AND PREFERENCE TO MEMBER COUNTRIES. AS A RESULT TRADE IS DEVELOPED AMONG THE MEMBER COUNTRIES AND ALLOWS ADVANTAGES TO ALL MEMBER COUNTRIES.

• ON THE OTHER HAND, IT CAN CAUSE CONSIDERABLE LOSS TO NON MEMBER COUNTRIES, AS A TRADING BLOC ACTS AS A TRADE BARRIER.

TYPES OF TRADE BARRIERSNON-TARIFF BARRIERS(5) CUSTOMS REGULATIONS

• CUSTOMS REGULATIONS AND ADMINISTRATIVE REGULATIONS ARE VERY COMPLICATED IN MANY COUNTRIES. THERE ARE A NUMBER OF ‘COMMODITIES ACTS’, PERTAINING TO THE MOVEMENT OF DRUGS, MINERALS, BULLION, ETC

• RESTRICTIONS UNDER SUCH ACTS ARE USEFUL TO CURTAIL IMPORTS. TAX ADMINISTRATION ALSO ACTS AS BARRIER TO FREE MARKETING AMONGST COUNTRIES.


(6) STATE TRADING

• STATE TRADING REFERS TO IMPORT-EXPORT ACTIVITIES CONDUCTED BY THE GOVERNMENT OR A GOVERNMENT AGENCY.STATE TRADING IS USEFUL TO RESTRICT IMPORTS AS THE FINAL DECISION IS TAKEN BY THE GOVERNMENT.

• SUCH STATE TRADING ACTS AS A BARRIER, RESTRICTING THE FREEDOM OF PRIVATE PARTIES.


(7) FOREIGN EXCHANGE REGULATIONS

• COUNTRIES IMPOSE VARIOUS RESTRICTIONS ON THE USE OF FOREIGN EXCHANGE EARNED THROUGH IMPORTS.

• SUCH RESTRICTIONS HAVE THE FOLLOWING OBJECTIVES: (a) TO RESTRICT THE DEMAND FOR FOREIGN EXCHANGE AND TO USE THE FOREIGN EXCHANGE RESERVES IN THE BEST POSSIBLE MANNER. (b) TO CHECK THE FLOW OF CAPITAL. (c)TO MAINTAIN THE VALUE OF EXCHANGE RATES. UNDER SUCH REGULATIONS, THE FOREIGN EXCHANGE EARNED SHOULD BE SURRENDERED TO THE GOVERNMENT. THE GOVERNMENT PROVIDES FOREIGN EXCHANGE TO THE BUSINESSMEN AS PER PRIORTIES THAT ARE FIXED PERIODICALLY


(8) HEALTH & SAFETY MEASURES

• MANY COUNTRIES HAVE SPECIFIC RULES REGARDING HEALTH & SAFETY REGULATIONS, WHICH ARE APPLICABLE TO IMPORTS.

• SUCH HEALTH & SAFETY MEASURES ARE MAINLY APPLICABLE TO RAW MATERIALS AND FOOD ITEMS. IMPORTS ARE NOT ALLOWED IF THE REGULATIONS ARE NOT FOLLOWED PROPERLY.

trade barriers

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import duty

rate of duty

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compound duty

countervailing duty

tariffs specific duty

trade barriers introduction

nontariff barriers