CHAPTER 1

INTRODUCTION AND MEANING

Introduction

International Trade

International trade is the exchange of goods and services between countries. This type of

trade gives rise to a world economy, in which prices, or supply and demand, affect and are

affected by global events. Political change in Asia, for example, could result in an increase in

the cost of labor, thereby increasing the manufacturing costs for an American sneaker

company based in Malaysia, which would then result in an increase in the price that you have

to pay to buy the tennis shoes at your local mall. A decrease in the cost of labor, on the other

hand, would result in you having to pay less for your new shoes.

Trading globally gives consumers and countries the opportunity to be exposed to goods and

services not available in their own countries. Almost every kind of product can be found on

the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and

water. Services are also traded: tourism, banking, consulting and transportation. A product

that is sold to the global market is an export, and a product that is bought from the global

market is an import. Imports and exports are accounted for in a country's current account in

the balance of payments.

International trade not only results in increased efficiency but also allows countries to

participate in a global economy, encouraging the opportunity of foreign direct investment

(FDI), which is the amount of money that individuals invest into foreign companies and other

assets. In theory, economies can therefore grow more efficiently and can more easily become

competitive economic participants.

For the receiving government, FDI is a means by which foreign currency and expertise can

enter the country. These raise employment levels, and, theoretically, lead to a growth in the

gross domestic product. For the investor, FDI offers company expansion and growth, which

means higher revenues.

International trade has two contrasting views regarding the level of control placed on trade:

free trade and protectionism. Free trade is the simpler of the two theories: a laissez-faire

approach, with no restrictions on trade. The main idea is that supply and demand factors,

operating on a global scale, will ensure that production happens efficiently. Therefore,

nothing needs to be done to protect or promote trade and growth, because market forces will

do so automatically.

In contrast, protectionism holds that regulation of international trade is important to ensure

that markets function properly. Advocates of this theory believe that market inefficiencies

may hamper the benefits of international trade and they aim to guide the market accordingly.

Protectionism exists in many different forms, but the most common are tariffs, subsidies and

quotas. These strategies attempt to correct any inefficiency in the international market.

As it opens up the opportunity for specialization and therefore more efficient use of

resources, international trade has the potential to maximize a country's capacity to produce

and acquire goods. Opponents of global free trade have argued, however, that international

trade still allows for inefficiencies that leave developing nations compromised. What is

certain is that the global economy is in a state of continual change, and, as it develops, so too

must all of its participants.

International trade increases the number of goods that domestic consumers can choose from,

decreases the cost of those goods through increased competition, and allows domestic

industries to ship their products abroad. While all of these seem beneficial, free trade isn't

widely accepted as completely beneficial to all parties. This article will examine why this is

the case, and look at how countries react to the variety of factors that attempt to influence

trade.

Tariffs, which are taxes on imports of commodities into a country or region, are among the

oldest forms of government intervention in economic activity. They are implemented for two

clear economic purposes. First, they provide revenue for the government. Second, they

improve economic returns to firms and suppliers of resources to domestic industry that face

competition from foreign imports. Tariffs are widely used to protect domestic producers’

incomes from foreign competition. This protection comes at an economic cost to domestic

consumers who pay higher prices for import competing goods, and to the economy as a

whole through the inefficient allocation of resources to the import competing domestic

industry.

Trade barriers are restrictions imposed on movement of goods between countries. Trade

barriers are imposed not only on imports but also on exports. The trade barriers can be

broadly divided into two broad groups:

(a) Tariff Barriers

(b) Non-tariff Barriers.

TARIFF BARRIERS

Tariff is an important instrument of protection. It is a tax duty imposed on imports. The

objective is to make import expensive, discourage import and courage domestic industries.

In practice tariff can be levied in four ways :

1. Specific duty: It is a duty levied as per the quantity. Specific duty is levied in case of bulk

low value merchandise.

2. Ad velorm: it is a duty imposed as per the value. Ad velorm duty is imposed on high

value merchandise.

3. Sliding scale duties: it is a variable duty imposed on imports to make their price less

competitive in the home market.

4. Tariff quota: it is a tariff duty imposed together with quota restriction. Tariff is a

domestic instrument of protection. It gives the choice of consumption but at a higher price.

Tariffs are uniformly imposed by developing countries due to various effects. Following are

various effects of tariff.

1. Protection effect: When tariff is levied the price increases. At increased price the domestic

industry can expand supply this is protection effect.

2. Consumption effect: When price increases due to tariff, there is a decline in demand and

consumption. This is consumption effect.

3. Revenue effect: On imports the government levies tax and mobilizes revenue. This is

revenue effect.

4. Redistribution effect: A part of domestic industry was competitive even at lower price.

This industry now earns super normal profit due to increased price. This is the income

redistributed by the industry from other sectors. This is Redistribution effect

5. Balance of payment effect: tariff improves Balance of payment by contracting imports.

6. Terms of trade effect: Imposition of tariff will force the exporting country to reduce its

price. It improves terms of trade position.

7. Income effect: Expansion of domestic production will increase the level of employment

and income. It is the income effect. Tariff is commonly used for its multiple effects. The

commercial policy of a country should be made up of tariff and quotas. Tariff is a democratic

method which also brings in revenue for the govt. It is a significant recourse for a developing

economy.

On the other hand quota is a positive restriction. It helps the government plan imports with

minor defects. However quota is not a popular instrument because it attracts retaliation.

In simplest terms, a tariff is a tax. It adds to the cost of imported goods and is one of several

trade policies that a country can enact. Tariff means Tax. So Tariff barriers means to impose

taxes on international trade goods and services.

Example of tariff barriers –

Say India imposes some tax on import of Chinese plastic goods which raises its final price in

India. Since now it becomes more expensive than price of plastic made in India, it will be

difficult to sell Made in China plastic goods in India and hence its import will stop. This is

called tariff barrier because government imposes tax or tariff on it.

Tariffs are often created to protect infant industries and developing economies, but are also

used by more advanced economies with developed industries. Here are five of the top reasons

tariffs are used:

1. Protecting Domestic Employment:

The levying of tariffs is often highly politicized. The possibility of increased competition

from imported goods can threaten domestic industries. These domestic companies may

fire workers or shift production abroad to cut costs, which means

higher unemployment and a less happy electorate. The unemployment argument often

shifts to domestic industries complaining about cheap foreign labor, and how poor

working conditions and lack of regulation allow foreign companies to produce goods

more cheaply. In economics, however, countries will continue to produce goods until they

no longer have a comparative advantage (not to be confused with an absolute advantage).

2. ProtectingConsumers:

A government may levy a tariff on products that it feels could endanger its population.

For example, South Korea may place a tariff on imported beef from the United States if it

thinks that the goods could be tainted with disease.

3. Protect infant industries:

The use of tariffs to protect infant industries can be seen by the Import Substitution

Industrialization (ISI) strategy employed by many developing nations. The government of

a developing economy will levy tariffs on imported goods in industries in which it wants

to foster growth. This increases the prices of imported goods and creates a domestic

market for domestically produced goods, while protecting those industries from being

forced out by more competitive pricing. It decreases unemployment and allows

developing countries to shift from agricultural products to finished goods. Criticisms of

this sort of protectionist strategy revolve around the cost of subsidizing the development

of infant industries. If an industry develops without competition, it could wind up

producing lower quality goods, and the subsidies required to keep the state-backed

industry afloat could sap economic growth.

4. NationalSecurity:

Barriers are also employed by developed countries to protect certain industries that are

deemed strategically important, such as those supporting national security. Defense

industries are often viewed as vital to state interests, and often enjoy significant levels of

protection. For example, while both Western Europe and the United States are

industrialized, both are very protective of defense-oriented companies.

5. Retaliation 

Countries may also set tariffs as a retaliation technique if they think that a trading partner

has not played by the rules. For example, if France believes that the United States has

allowed its wine producers to call its domestically produced sparkling wines

"Champagne" (a name specific to the Champagne region of France) for too long, it may

levy a tariff on imported meat from the United States. If the U.S. agrees to crack down on

the improper labeling, France is likely to stop its retaliation. Retaliation can also be

employed if a trading partner goes against the government's foreign policy objectives.

NON-TARIFF BARRIERS

The issue of non-tariff barriers crops up because of the gearing defects of tariffs. As is

already seen in the previous modules, "Tariffs" that at the imposition of tariff leads to

bringing about gains to the tariff Imposing country but at the same time it reduces the volume

of trade. At the highest of the high tariff the losses will be more than the gains. Moreover,

Tariff produces indirect effect through raising of the price of the tariff imposed goods.

Therefore tariffs should be within limits which should lead to minimization of losses and

maximization of gains i.e. the "tariff should be optimum tariffs". Hence it paves the way for

non-tariff barriers.

Tariffs are not very effective in under developed countries. Their problems are different from

the problems faced by the developed countries. The problem before the developed countries

is to maintain the already attained high rate of economic growth while the problem before the

undeveloped countries is to accelerate the rate of economic growth. The underdeveloped

countries face the problem of deficit in the balance of payment. To correct the deficit in the

balance of payment the underdeveloped countries need to have indirect controls like non-

tariff barriers i.e. import quota and not the direct controls like tariffs.

CONCEPT :

The measures which are used other than tariffs to restrict imports get collectively referred to

as non-tariff barriers. These are direct measures of import restrictions. The setting up if

GATT and WTO led to progressive reduction in tariffs. However it paved the way for the

adoption of non-tariff barriers methods by the developed countries for the reduction of

imports.

The non-tariff barriers include a cafeteria of Trade barriers viz. Import Quota, Import

licensing, voluntary export restraints, Dumping, International Cartels, Subsidies etc.

The non-tariff barriers can broadly be divided into two categories viz.

i) Those non-tariff barriers which restrict imports directly,

ii) Those which restrict imports by encouraging domestic production.

Example of non-tariff barrier –

Say India does not impose any tariff barrier on Chinese plastic goods, but makes it mandatory

that any imported plastic should be of such and such qualities which say the Chinese plastic

does not meet, and consequently such plastic goods cannot be sold in India. Such barrier by

government of India would come under non-tariff barriers.

Like in case of India banning mobile phones without IMEI code, when suddenly all Chinese

mobile phones from market disappeared.

Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports, but are unlike the

usual form of a tariff. Some common examples of NTB's are anti-dumping measures and

countervailing duties, which, although called non-tariff barriers, have the effect of tariffs

once they are enacted.

Their use has risen sharply after the WTO rules led to a very significant reduction in tariff

use. Some non-tariff trade barriers are expressly permitted in very limited circumstances,

when they are deemed necessary to protect health, safety, sanitation, or depletable natural

resources. In other forms, they are criticized as a means to evade free trade rules such as

those of the World Trade Organization (WTO), the European Union (EU), or North

American Free Trade Agreement (NAFTA) that restrict the use of tariffs.

Some of non-tariff barriers are not directly related to foreign economic regulations but

nevertheless have a significant impact on foreign-economic activity and foreign trade

between countries.

CHAPTER 2

TYPES OF TARIFFS AND NON-TARIFFS BARRIER

Types of Tariffs and Trade Barriers

TARIFF BARRIERS

Tariff is a customs duty or a tax on products that move across borders. The most important of

tariff barriers is the customs duty imposed by the importing country. A tax may also be

imposed by the exporting country on its exports. However, governments rarely impose tariff

on exports, because, countries want to sell as much as possible to other countries.

Tariffs and Modern Trade

The role tariffs play in international trade has declined in modern times. One of the primary

reasons for the decline is the introduction of international organizations designed to improve

free trade, such as the World Trade Organization (WTO). Such organizations make it more

difficult for a country to levy tariffs and taxes on imported goods, and can reduce the

likelihood of retaliatory taxes. Because of this, countries have shifted to non-tariff barriers,

such as quotas and export restraints. Organizations like the WTO attempt to reduce

production and consumption distortions created by tariffs. These distortions are the result of

domestic producers making goods due to inflated prices, and consumers purchasing fewer

goods because prices have increased. The main important tariff barriers are as follows:

1. Specific Duty:

Specific duty is based on the physical characteristics of goods. When a fixed sum of money,

keeping in view the weight or measurement of a commodity, is levied as tariff, it is known as

specific duty.

For instance, a fixed sum of import duty may be levied on the import of every barrel of oil,

irrespective of quality and value. It discourages cheap imports. Specific duties are easy to

administer as they do not involve the problem of determining the value of imported goods.

However, a specific duty cannot be levied on certain articles like works of art. For instance, a

painting cannot be taxed on the basis of its weight and size.

2. Ad valorem Duty:

These duties are imposed “according to value.” When a fixed percent of value of a

commodity is added as a tariff it is known as ad valorem duty. It ignores the consideration of

weight, size or volume of commodity.

The imposition of ad valorem duty is more justified in case of those goods whose values

cannot be determined on the basis of their physical and chemical characteristics, such as

costly works of art, rare manuscripts, etc. In practice, this type of duty is mostly levied on

majority of items.

3. Combined or Compound Duty:

It is a combination of the specific duty and ad valorem duty on a single product. For instance,

there can be a combined duty when 10% of value (ad valorem) and Re 1/- on every meter of

cloth is charged as duty. Thus, in this case, both duties are charged together.

4. Sliding Scale Duty:

The import duties which vary with the prices of commodities are called sliding scale duties.

Historically, these duties are confined to agricultural products, as their prices frequently vary,

mostly due to natural factors. These are also called as seasonal duties.

5. Countervailing Duty:

It is imposed on certain imports where products are subsidised by exporting governments. As

a result of government subsidy, imports become more cheaper than domestic goods. To

nullify the effect of subsidy, this duty is imposed in addition to normal duties.

6. Revenue Tariff:

A tariff which is designed to provide revenue to the home government is called revenue

tariff. Generally, a tariff is imposed with a view of earning revenue by imposing duty on

consumer goods, particularly, on luxury goods whose demand from the rich is inelastic.

7. Anti-dumping Duty:

At times, exporters attempt to capture foreign markets by selling goods at rock-bottom

prices, such practice is called dumping. As a result of dumping, domestic industries find it

difficult to compete with imported goods. To offset anti-dumping effects, duties are levied in

addition to normal duties.

8. Protective Tariff:

In order to protect domestic industries from stiff competition of imported goods, protective

tariff is levied on imports. Normally, a very high duty is imposed, so as to either discourage

imports or to make the imports more expensive as that of domestic products.

TYPES OF NON-TARIFF BARRIERS

A non tariff barrier is any barrier other than a tariff, that raises an obstacle to free flow of

goods in overseas markets. Non-tariff barriers, do not affect the price of the imported goods,

but only the quantity of imports. Non tariff barriers are other forms of restrictions on the scale

of international trade. Examples of non tariff barriers are import quotas, specific licenses etc.

These barriers are used to protect small sized industries and developing economies but world

trade organization is stressing on countries to minimize these barriers to increase in trade

among the countries.

A first category of NTMs are those imposed on imports. This category includes import

quotas, import prohibitions, import licensing, and customs procedures and administration

fees. A second category of NTMs are those imposed on exports. These include export taxes,

export subsidies, export quotas, export prohibitions, and voluntary export restraints. These

first two categories encompass NTMs that are applied at the border, either to imports or to

exports. A third and final category of NTMs are those imposed internally in the domestic

economy. Such behind-the-border measures include domestic legislation covering health/

technical/ product/ labor/ environmental standards, internal taxes or charges, and domestic

subsidies.

There are various types of barriers are available to the Non-Tariff Barriers to Trade

Following are the various Six Types of Non-Tariff Barriers to Trade

1. Specific Limitations on Trade: it includes the Quotas, Import Licensing requirements,

Proportion restrictions of foreign to domestic goods (local content requirements), Minimum

import price limits, Embargoes

2. Customs and Administrative Entry Procedures: It includes the Valuation systems, Anti-

dumping practices, Tariff classifications, Documentation requirements, Fees and so on.

3. Standards: In this type the Standard disparities, Intergovernmental acceptances of testing

methods and standards, Packaging, labeling, and marking etc. are included.

4. Government Participation in Trade: It has Government procurement policies, Export

subsidies, Countervailing duties, Domestic assistance programs

5. Charges on imports: It includes Prior import deposit subsidies, Administrative fees,

Special supplementary duties, Import credit discrimination, Variable levies, Border taxes etc.

6. Others: It has Voluntary export restraints, Orderly marketing agreements and so on.Thus,

the various types of barriers to the Non-Tariff barriers are explained as well. The Non-Tariff

barriers can include wide variety of restrictions to trade. Here is some example of the

―popular Non-Tariff barriers.

Licenses

License is the most common instruments of direct regulation of imports (and sometimes

export) are licenses and quotas. Almost all industrialized countries apply these Non-Tariff

methods. 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. The main types of licenses are general license that permits

unrestricted importation of goods included in the lists for a certain period of time. A license is

granted to a business by the government, and allows the business to import a certain type of

good into the country. For example, there could be a restriction on imported cheese, and

licenses would be granted to certain companies allowing them to act as importers. This

creates a restriction on competition, and increases prices faced by consumers. The most

common instruments of direct regulation of imports (and sometimes export) are licenses and

quotas. Almost all industrialized countries apply these non-tariff methods. 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 general license that permits unrestricted importation or

exportation of goods included in the lists for a certain period of time; 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. The use of

licensing systems as an instrument for foreign trade regulation is based on a number of

international level standards agreements. In particular, these agreements include some

provisions of the General Agreement on Tariffs and Trade and the Agreement on Import

Licensing Procedures, concluded under the GATT (GATT).

Quota

The commercial policy contains a direct restrictive instrument called import quota. Import

quota is a positive restriction on incoming goods regardless of tariff. It is not a demand

instrument. It does not provide freedom of consumption. Quota is imposed as a serious

retaliatory measure.

Following are the objective of quota:

1. To restrict import directly from a particular country globally.

2. It is used as a strong retaliatory move.

3. Quota imposes B.O.P disequilibrium position.

4. With import license quota provides better supervision of precious imports.

Import quota can be levied with tariff commonly called as tariff quota. An ideal commercial

policy should be made up of quota and tariff. Import quotas provide all the effect provided by

tariff except revenue. However tariff quota can bring in revenue.

1. Protection effect: Restriction on import automatically increases theprice. At the enhanced

price the industry can expand supply. This is the offset of production.

2. Consumption effect: Imposition of quota is a direct restriction on consumption. With

decrease in demand the consumption also decreases.

3. Redistribution effect: quota restriction enhance price uniformly. The industry which was

economical at lower price now draws super normal profit. This is the effect of redistribution

effect where incomes flow from other sectors

4. Balance of payment effect: Control of imports improve Balance of payment position.

This position on merchandise improves.

5. Retaliation effect: Quota can be used as an retaliatory policy. Severe quota restriction and

prohibition of imports can be termed as import embargo or economic sanction.

6. Integration effect: quota restriction followed by group of countries is found as regional

economic co-operation. This is integration of regional countries.

In addition quota may offer all those effects found with tariff income effect, employment

effect, bargaining power, terms of trade effect can be found. However with pure quota

revenue cannot be derived. Import quotas together with import licensing system may not only

control import but also supervise usage of imports. Under developed countries apply quota to

protect home industry and developed nations use quota for improving bargaining power.

A quota is a limitation in value or in physical terms, imposed on import and export of certain

goods for a certain period of time. It is also an important instrument to restrict trade as far as

Non-Tariff barriers are concerned. Licensing of foreign trade is closely related to quantitative

restrictions – quotas - on imports and exports of certain goods. In addition quota may offer all

those effects found with tariff income effect, employment effect, bargaining power, terms of

trade effect can be found. However with pure quota revenue cannot be derived. Import quotas

together with import licensing system may not only control import but also supervise usage

of imports. Under developed countries apply quota to protect home industry and developed

nations use quota for improving bargaining power.

A quota is simply a maximum limitation, specified in either value or physical units, on

imports of a product for a given period. It is enforced through licenses issued to either

importers or exporters and may be applied to imports from specific countries or from all

foreign countries generally. Two examples illustrate these different characteristics. The

United States imposes a general quota on dried milk imports; licenses are granted to certain

U.S. trading companies, who are allowed to import a maximum quantity of dried milk based

on their previous imports. In a different situation U.S. sugar imports are limited by a quota

that specifies the shares of individual countries; the right to sell sugar to the United States is

given directly to the governments of these countries.

Under this system, a country may fix in advance, the limit of import quantity of a commodity

that would be permitted for import from various countries during a given period. The quota

system can be divided into the following categories:

(a) Tariff/Customs Quota (b) Unilateral Quota

(c) Bilateral Quota (d) Multilateral Quota

Tariff/Customs Quota: Certain specified quantity of imports is allowed at duty free or

at a reduced rate of import duty. Additional imports beyond the specified quantity are

permitted only at increased rate of duty. A tariff quota, therefore, combines the

features of a tariff and an import quota.

Unilateral Quota: The total import quantity is fixed without prior consultations with

the exporting countries.

Bilateral Quota: In this case, quotas are fixed after negotiations between the quota

fixing importing country and the exporting country.

Multilateral Quota: A group of countries can come together and fix quotas for exports

as well as imports for each country.

Licenses and quotas limit the independence of enterprises with a regard to entering foreign

markets, narrowing the range of countries, which may be entered into transaction for certain

commodities, regulate the number and range of goods permitted for import and export. The

licensing and quota systems are an important instrument of trade regulation of the vast

majority of the world.The consequence of this trade barrier is normally reflected in the

consumers‘ loss because of higher prices and limited selection of goods as well as in the

companies that employ the imported materials in the production process, increasing their

costs.

Voluntary Export Restraints (VERs)

Voluntary export restraints, which are nearly identical to quotas, are agreements between an

exporting and an importing country limiting the maximum amount of exports in either value

or quantity terms to be sold within a given period. Characterizing these restraints as

“voluntary” is somewhat misleading because they are frequently designed to prevent official

protective measures by the importing country. In the 1980s, for example, exports by the

Japanese automobile industry to the United States and the United Kingdom have been limited

“voluntarily” to prevent the governments of these countries from directly limiting imports of

Japanese autos.

An example of a voluntary export restraint on a much broader scale is the Multifiber

Arrangement. Originally signed in 1974 as a temporary exception to CA’T’T and renewed

three times since, the Multifiber Arrangement allows for special rules to govern trade in

textiles and apparel.

Under this agreement, quotas are set on most imports of textiles and apparel by developed

countries from developing countries, while imports of textiles and apparel from other

developed countries except Japan are not subject to any restrictions. Multilateral voluntary

export restraint agreements are frequently called “orderly marketing agreements.”

This type of trade barrier is "voluntary" in that it is created by the exporting country rather

than the importing one. A voluntary export restraint is usually levied at the behest of the

importing country, and could be accompanied by a reciprocal VER. For example, Brazil

could place a VER on the exportation of sugar to Canada, based on a request by Canada.

Canada could then place a VER on the exportation of coal to Brazil. This increases the price

of both coal and sugar, but protects the domestic industries.

A Voluntary Export Restraints (VERs) is a restriction set by a government on the quantity of

goods that can be exported out of a country during a specified period of time. Often the word

voluntary is placed in quotas because these restraints are typically implemented upon the

insistence of the importing countries. This category includes global quotas in respect to

specific countries, seasonal quotas, and so-called ―voluntary" export restraints. Quantitative

controls on foreign trade transactions carried out through one-time license.

Embargo:

Embargo is a specific type of quotas prohibiting the trade. As well as quotas, embargoes may

be imposed on imports or exports of particular goods, regardless of destination, in respect of

certain goods supplied to specific countries, or in respect of all goods shipped to certain

countries. Although the embargo is usually introduced for political purposes, the

consequences, in essence, could be economic.

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

Product Standards:

Most developed countries impose product standards for imported items. If the imported items

do not conform to established standards, the imports are not allowed. For instance, the

pharmaceutical products must conform to pharmacopoeia standards.

Anti-dumping and countervailing duties:

A number of countries both developed and developing have resorted to anti-dumping and

countervailing duties whenever their domestic industries are threatened by other countries.

WTO has provisions for anti-dumping measures which could be introduced in a more

restrictive situation and with rigid tests to prove the dumping

Domestic Content Requirements:

Governments impose domestic content requirements to boost domestic production. For

instance, in the US bailout package (to bailout General Motors and other organisations), the

US Govt. introduced ‘Buy American Clause’ which means the US firms that receive bailout

package must purchase domestic content rather than import from elsewhere.

Product Labelling:

Certain nations insist on specific labeling of the products. For instance, the European Union

insists on product labeling in major languages spoken in EU. Such formalities create

problems for exporters.

Packaging Requirements:

Certain nations insist on particular type of packaging materials. For instance, EU insists on

recyclable packing materials, otherwise, the imported goods may be rejected.

Consular Formalities:

A number of importing countries demand that the shipping documents should include

consular invoice certified by their consulate stationed in the exporting country.

State Trading:

In some countries like India, certain items are imported or exported only through canalising

agencies like MMTC. Individual importers or exporters are not allowed to import or export

canalized items directly on their own.

Preferential Arrangements:

Some nations form trading groups for preferential arrangements in respect of trade amongst

themselves. Imports from member countries are given preferences, whereas, those from other

countries are subject to various tariffs and other regulations.

Foreign Exchange Regulations:

The importer has to ensure that adequate foreign exchange is available for import of goods

by obtaining a clearance from exchange control authorities prior to the concluding of contract

with the supplier.

Other Non-Tariff Barriers:

There are a number of other non – tariff barriers such as health and safety regulations,

technical formalities, environmental regulations, embargoes, etc.

Administrative and bureaucratic delays at the entrance:

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:

Another example of foreign trade regulations is import deposits. Import deposits is a form of

deposit, which the importer must pay the bank for a definite period of time (non-interest

bearing deposit) in an amount equal to all or part of the cost of imported goods.

At the national level, administrative regulation of capital movements is carried out mainly

within a framework of bilateral agreements, which include a clear definition of the legal

regime, the procedure for the admission of investments and investors. It is determined by

mode (fair and equitable, national, most-favored-nation), order of nationalization and

compensation, transfer profits and capital repatriation and dispute resolution.

Foreign exchange restrictions and foreign exchange controls:

Foreign exchange restrictions and foreign exchange controls occupy a special place among

the non-tariff regulatory instruments of foreign economic activity. 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.

Import Quotas:

An import quota is a restriction placed on the amount of a particular good that can be

imported. This sort of barrier is often associated with the issuance of licenses. For example, a

country may place a quota on the volume of imported citrus fruit that is allowed.

Local Content Requirement: 

Instead of placing a quota on the number of goods that can be imported, the government can

require that a certain percentage of a good be made domestically. The restriction can be a

percentage of the good itself, or a percentage of the value of the good. For example, a

restriction on the import of computers might say that 25% of the pieces used to make the

computer are made domestically, or can say that 15% of the value of the good must come

from domestically produced components.

Subsidy:

A subsidy is a type of financial support paid to a business or economic sector. The

government makes most subsidies to producers or distributors in an industry to stop the

decline of that business or a boost in the prices of its goods or plainly to persuade it to

employ more labor. Some examples of subsidies to encourage the sale of exports; subsidies

on some foods to keep down the cost of living, especially in cities; and subsidies to support

the expansion of farm production and achieve self-reliance in food production

Import deposits:

Import deposits is a type of deposit required importers to put a certain of money in an account

for a significant period of time whose purpose is to guarantee that import duties will be paid,

or the deposit may simply be a non-tariff barrier intended to discourage imports.

CHAPTER 3

IMPORTANCE OF NON TARIFF BARRIERS

NON-TARIFF BARRIERS

The drastic rise in the use of non-tariff barriers stemmed largely from the WTO new rules

about reduction in tariff use, which formed part of the WTO’s mission to ensure free trade

across the globe. While the WTO rules do allow for the use of NTBs in some circumstances,

the specifications about when they can be used are very strict such that they can only be

employed for purposes such as to guarantee health, safety or sanitation, or to safeguard non-

renewable natural resources. Should NTMs be used for other purposes, they are deemed to be

ways of evading free trade rules.

Another reason for the transition from tariffs to NTMs is that many countries, especially

developed countries do not have to rely on tariffs as a source of funding anymore, like they

did in their early stages of development. They can afford to switch to other trade barriers that

do not involve tariffs, but that still provide them with a means to regulate international trade.

NTBs allow these countries to help weak industries or provide compensation to those

industries that have been adversely impacted by the WTO laws on reduction of tariffs.

NTBs offer traders an alternate method of influencing the market.Also, it is a logical way

for countries to respond to the reduction of tariffs - since it has been declared that tariffs are

no more to be used.

NTBs can be quite similar to tariffs, apart for a few exceptions. After the laws of tariff

reduction were enacted during the eight rounds of negotiations in the WTO and the General

Agreement on Tariffs and Trade (GATT), those who persisted in believing in the concept of

protectionism have turned to NTBs. In fact, most of the NTMs can be defined as protectionist

measures.

NTBs can be thought of as a ‘new’ means of protection which has replaced tariffs as the

“old” method of protection.

The use of NTBs can also result in trade wars. By raising trade barriers against a foreign

country, the latter can decide to do the same in retaliation. The imports and exports of both

countries are thus restricted, and this greatly reduces the markets open to them, lowering their

scope for growth and efficiency. If many countries across the world engage in these trade

wars, global trade and economic activity will suffer drastically. These retaliations can also

quickly spread beyond the source of conflict and affect the countries’ other economy policies

as a way to retaliate.

It can be seen that all participants can take advantage of free trade through efficiency of the

market, for instance, increased choice and reduced prices. However, non-tariff measures also

have their uses and are necessary in certain conditions. There must be a balance between the

quest for efficiencies and the use of barriers to trade.

ADVANTAGES AND DISADVANTAGES OF NON TARIFF BARRIERS

Advantages

Since the main purpose of NTMs is protectionism, the advantages of NTMs will also

mainly be those of protectionism. Non-tariff barriers help protect the development of

new industries against foreign rivals.

If foreign industries compete with domestic industries that are not developed enough

or large enough yet to take advantage of economies of scale, then NTBs, such as

import quotas, can protect the ‘infant’ industry from too much competition through

its maturing stages until it can compete on its own.

NTMs also offer protection to certain economies against foreign countries that are

interested to trade with them only because they know that the domestic economies

will not be able to face competition from them and will eventually collapse, leaving

them a monopoly of the domestic market. An example of such unfair trading is

‘dumping’.

The barriers to trade protect the domestic economies from such countries with an

unfair relative advantage.

It is believed that the use of NTBs can result in increased domestic employment.

Since foreign firms create jobs abroad, NTBs such as import quotas, reduce imports,

make domestic production rise instead, and thus create domestic employment.

Also, reducing imports from countries with cheaper labour levels the competition

compared to the higher wages being paid for local production.

NTBs, moreover, by cutting down imports, help countries boost those local industries

that are concerned with the national security and also those industries which help give

the country economic independence.

Disadvantages

The main disadvantage of NTMs is that they hinder free trade and the benefits that

accompany the latter.

The protectionist aspect of NTBs discourages competition from bigger industries

and also from foreign countries. While this might help domestic firms and industries

to grow at first, in the long run, it in fact dampens future growth. This is because, due

to the lack of competition, domestic firms can then afford to provide a narrow choice

of goods to customers, to lower the goods’ quality, and to raise their prices.

Because of this inefficient production, there is also no more incentive for the firms to

strive for constant innovation and excellence. Thus, ultimately, NTBs do not help in

the future growth of firms.

There is another way in which NTMs drive up the prices of goods in the domestic

economy. By restricting access to foreign countries where goods could be made

more cheaply, more resources have to be employed domestically itself to make the

same goods at a higher price.

Also, while free trade allows countries to benefit from the concept of comparative

advantage, the use NTMs prevents countries from enjoying these benefits.

If countries specialise only in the production of goods in which they have a

competitive advantage, this allows each country to produce at the minimum prices.

This efficiency in production benefits all parties to the trade. However, NTMs, by

restricting trade, do not help in achieving that goal

CHAPTER 4

DIFFERENCE BETWEEN TARIFF AND NON TARIFF BARRIER

The transition from tariffs to non-tariff barriers

One of the reasons why industrialized countries have moved from tariffs to NTBs is the fact

that developed countries have sources of income other than tariffs. Historically, in the

formation of nation-states, governments had to get funding. They received it through the

introduction of tariffs. This explains the fact that most developing countries still rely on

tariffs as a way to finance their spending. Developed countries can afford not to depend on

tariffs, at the same time developing NTBs as a possible way of international trade regulation.

The second reason for the transition to NTBs is that these tariffs can be used to support weak

industries or compensation of industries, which have been affected negatively by the

reduction of tariffs. The third reason for the popularity of NTBs is the ability of interest

groups to influence the process in the absence of opportunities to obtain government support

for the tariffs.

Non-tariff barriers today

With the exception of export subsidies and quotas, NTBs are most similar to the tariffs.

Tariffs for goods production were reduced during the eight rounds of negotiations in the

WTO and the General Agreement on Tariffs and Trade (GATT). After lowering of tariffs, the

principle of protectionism demanded the introduction of new NTBs such as technical barriers

to trade (TBT). According to statements made at United Nations Conference on Trade and

Development (UNCTAD, 2005), the use of NTBs, based on the amount and control of price

levels has decreased significantly from 45% in 1994 to 15% in 2004, while use of other

NTBs increased from 55% in 1994 to 85% in 2004.

Increasing consumer demand for safe and environment friendly products also have had their

impact on increasing popularity of TBT. Many NTBs are governed by WTO agreements,

which originated in the Uruguay Round (the TBT Agreement, SPS Measures Agreement, the

Agreement on Textiles and Clothing), as well as GATT articles. NTBs in the field of services

have become as important as in the field of usual trade.

Most of the NTB can be defined as protectionist measures, unless they are related to

difficulties in the market, such as externalities and information asymmetries between

consumers and producers of goods. An example of this is safety standards and labeling

requirements.

The need to protect sensitive to import industries, as well as a wide range of trade restrictions,

available to the governments of industrialized countries, forcing them to resort to use the

NTB, and putting serious obstacles to international trade and world economic growth. Thus,

NTBs can be referred as a new of protection which has replaced tariffs as an old form of

protection.

All countries are dependent on other countries for some products and services as no country

can ever hope to be self reliant in all respects. There are countries having abundance of

natural resources like minerals and oil but are deficient in having technology to process them

into finished goods. Then there are countries that are facing shortage of manpower and

services. All such shortcomings can be overcome through international trade. Though it

seems easy, in reality, importing goods from foreign countries at cheap prices hits domestic

producers badly. As such, countries impose taxes on goods coming from abroad to make their

cost comparable with domestic goods. These are called tariff barriers. Then there are non

tariff barriers also that serve as impediments in free international trade. This article will try to

find out differences between tariff and non tariff barriers.

Tariff Barriers

Tariffs are taxes that are put in place not only to protect infant industries at home, but also to

prevent unemployment because of shut down of domestic industries. This leads to unrest

among the masses and an unhappy electorate which is not a favorable thing for any

government. Secondly, tariffs provide a source of revenue to the government though

consumers are denied their right to enjoy goods at a cheaper price. There are specific tariffs

that are a onetime tax levied on goods. This is different for goods in different categories.

There are Ad Valorem tariffs that are a ploy to keep imported goods pricier. This is done to

protect domestic producers of similar products.

Non Tariff Barriers

Placing tariff barriers are not enough to protect domestic industries, countries resort to non

tariff barriers that prevent foreign goods from coming inside the country. One of these non

tariff barriers is the creation of licenses. Companies are granted licenses so that they can

import goods and services. But enough restrictions are imposed on new entrants so that there

is less competition and very few companies actually are able to import goods in certain

categories. This keeps the amount of goods imported under check and thus protects domestic

producers.

Import Quotas is another trick used by countries to place a barrier to the entry of foreign

goods in certain categories. This allows a government to set a limit on the amount of goods

imported in a particular category. As soon as this limit is crossed, no importer can import

further quantities of the goods.

Non tariff barriers are sometimes retaliatory in nature as when a country is antagonistic to a

particular country and does not wish to allow goods from that country to be imported. There

are instances where restrictions are placed on flimsy grounds such as when western countries

cite reasons of human rights or child labor on goods imported from third world countries.

They also place barriers to trade citing environmental reasons.

CHAPTER 5EFFECTS OF NON-TARIFF BARRIERS

Effects on trade

It is generally assumed that NTMs have negative effect on trade, even if it has been elusive

for quantitative assessment. Sometimes, these policy measures are referred to as barriers,

when the emphasis is made on the difficulties an exporter may have to comply with them. In

fact, NTMs can hinder exports for countries or companies when they are not able to pay the

cost of adapting their product or production process to the norm of a trade partner. Then,

another less competitive exporter may be able to take on a restrictive market if it complies

with that regulation. NTMs would be trade distorting in this case.

However, NTMs may also facilitate trade when they reduce asymmetries in information

between consumers and producers, for example about the quality or safety of the product.

The effort of complying with NTMS could also help countries to upgrade capacities, in which

case the ultimate development impact is positive for the exporting country. On the importing

country's side, NTMs could reduce negative externalities, for example in the case of

environmental threat or food safety.

Effects on Price

A quota is defined as an upper limit on the number of units of a commodity that can be

imported into a country. When such a restriction is imposed, domestic consumers are

prevented from buying an imported good, the supply of which is no longer perfectly elastic as

it would have been in a free trade situation resulting in a rise in the price of the product. This

can be better explained using a demand and supply diagram as follows:

In a situation where there is free trade and no barriers to trade are imposed then at the world

price of "wp" domestic producers will supply Q1 and Q1-Q2 will be imported, i.e,

equilibrium quantity will be at Q1.

The supply curve to the domestic market will be denoted by the curve "ABws". The effect of

imposing a quota will be to limit the amount of imported goods. Let us suppose that the quota

cut imports from Q1-Q2 to Q1-Q3. A new supply curve can now be drawn incorporating the

amount of the quota (Q1-Q3). The world price "wp" no longer acts as the supply curve but

instead the latter is represented by the curve "ABCSS". we can nothe that the new

equilibrium will be at "E" and the new equilibrium price will be at "pq". It is clear that price

has risen from the implementation of quota. This is explained by the fact that the supply of

the commodity is now restricted causing a slight increase in the price of the commodity. The

extent of the increase will depend on the quota imposed. The lower the quota, the higher will

be the price.

A simple example can be taken to explain the above theory. Suppose you have milk imported

freely into a country and account for 50% of the domestic demand. If government imposes a

quota on the amount that can be imported, the supply of milk will fall giving rise to a

shortage. This shortage will exert pressure on price which will finally rise to eliminate that

shortage and restore the equilibrium.

Effects on society

Another measure is embargo. This is a complete ban on imported product. Such a measure

can be imposed to protect the society as whole. For example, a country may ban or severely

curtail the importation of things such as harmful drugs, pornographic literature and live

animals. Had embargoes not imposed on such products, society would suffer enormous

damage as they have high level of negative externalities

Effects on multinational

Import quotas generally have a negative impact on multinational companies. These

enterprises such as Nike and General Motors are intensively engaged in international trade as

domestic consumption only cannot meet their high targets. When a quota is imposed on their

goods by a major buyer, MNCs must find other markets to supply their products, otherwise

they will have to cut production and profits figure will suffer.

Effects on employment

However, import quotas affect positively domestic employment. The fall in imports will

divert demand to local suppliers and the latter will have to increase production to cover the

gap which foreign products used to occupy. This applies to domestic supplies that have the

capabilities and were unable to compete internationally. In order to boost production, they

will have to recruit more people. This will have a multiplier effect in the economy giving rise

a lower unemployment rate and higher economic growth.

The Effect Of Globalization On NTMs

Globalization is a process by which countries are linked altogether in a peaceful manner as

view to only one planet. In technical terms, it is described as being a process by which

national and regional economies, societies and cultures have all been united via global

network of trade, communication, immigration and transportation.

The evolving nature of NTMS has gained an important place in international trade today.

More recently, it has been considered in the annual World Trade Report of 2012.

NTMs has become a necessity not only to protect domestic industries but to the globalized

world as a whole. Globalisation raised changes in countries among which are increased social

awareness, growing concerns regarding health, safety and environmental quality which led to

increase in NTMs. For the better understanding of the impact of globalization on NTMs,

trade in goods and services were considered.

Examples of regulatory measures are Technical Barriers to Trade and Sanitary and Phyto-

Sanitary measures in goods and regulations in services which have recently cropped up.

These measures do not have a direct influence on trade but have a strong influence on trade

agreements and amount of trade between countries. Some say that NTMs have been

encouraged via globalization for a viable peace. Public policy can thus enhance trade flows in

a positive or even negative way. Trade in services has evolved in recent years and is no

longer similar to traditional trade. New policies came into force to handle these new trends.

Globalization relates to WTO. Trade in services has the relatively same importance as trade

in goods for good networks between countries.

The WTO knows they hold the same weight in international production affairs and hence

measures to restrict trade and competition in the services market that could affect more than

the sector directly concerned. Examples where cases are most suited are infrastructural

services, spill-over effects on other services and goods.

Unlike in the past when NTMS role were solely to protect domestic producers from foreign

competition, nowadays NTMs are more to do with public policy objectives. These policies

not only consider protectionism but also take precaution measures. In the sector of health and

environmental services, NTMS were recently boosted in numbers.

NTMS were found not to be an easy task to be observed and quantified, however with

globalization, WTO observes that NTMS are meant to have a long stay with their several

arrangements between countries which adds to the main agreements.

The emerging in change of NTMs with time is not protected against negative effects. NTMs

may in other words reduce benefits gained from the main agreement, for example negate

some tariff reductions. Moreover, non-tariffs measures have a long list of measures which are

also difficult to quantify and also sometimes are invisible in the agreements. In addition to

that, those measures are not regular to all countries that it is served and to that, their effect

sometimes bring distortions in agreements between sectors and countries.

Globalisation is known to have brought changes or complete change in more than one

country structure and future. It has greatly changed policies of countries and to that NTMs

continue to be evaluated and are still expanding.

The foremost thought, hence, of NTMs is that it will not have a decreasing or reducing

effect on the tariffs agreements between countries.

As deducted from above, globalization does not only bring positive results onto a country

trade flow. As globalization strengthens alliances amongst nations, NTMs continue to be on

the rise in their arrangements. NTMs may also be used as a tool to restrict trade flows in the

case of where some countries might be oligopolies of certain commodities on the global

market.

Technical Barriers to Trade and Sanitary and Phyto-Sanitary measures is said to be the

source of last resort for some developing countries since it impacts the worst results on them.

The reason is that these countries may be differently structured and may not be able to meet

those criteria mentioned in the measures.

Though, globalization intensify the relationship between countries does bring both good

and bad results, harmonious plans between countries may help to reduce the negatives

effects.

CHAPTER 6

IMPACT OF NON-TARIFF BARRIERS ON TRADE

Positive Impacts of Non-Tariff Measures on Trade

Conversely, since tariff measures are constantly being cut such as, customs under multilateral

and regional agreements, there is now an increasing role of Non-tariff measures.

NTMs are also viewed as being crucial and beneficial to trading.

The majority of NTMs aim to protect health (human, plants and animals) and in addition

some NTMs may promote and establish trust among trading partners.

NTMs like Sanitary and Phytosanitary (SPS) measures, though, contain some drawbacks , but

are still very important in promoting sound trading internationally, where defected, low

quality products are banned, hence resulting in the enhancement of consumers’ safety.

NTMs ensure that the imported goods meet the domestic requirements and enable countries

to protect themselves from the imports of noxious and contaminated products.

Furthermore, the Sanitary and Phytosanitary measures allow countries to enforce trade

restrictions for health and safety reasons based on scientific risk assessments. As such,

following the use of antibiotics in shrimps, countries impose sturdy controls on shrimp’s

imports. Hence two methods were applied, whereby some countries such as the EU countries

impose stringent equivalence-based imports system where only countries that have set the

uniformity of their food safety procedures with European ones can export to the EU. On the

other hand, only certified producers who showed the equality of their safety standards and

controls with European ones were given the right to export to EU market. Other countries like

Japan or Canada adopt a risk analysis method to ensure the food safety of their seafood

imports.

NTMs like Intellectual Property Rights (IPR) protections are regarded as playing an integral

part in the international trade. In this empirical world, use of patents, trademarks and

copyrights, geographical indications, industrial designs are of utmost importance in further

enhancing trade. Also, its effective use of knowledge contributes greatly in making the

national economic prosper.

NTMs are viewed as impeding trade, yet, country having an adequate and effective

Intellectual Property Protection, are instead regarded as a plus to trade at international level.

As such, Intellectual Property is on priority list of the Indonesian government, since

Indonesia form part among the countries with the weakest IP protection, the government

wants to persuade the US, their biggest trading partner that Indonesia has a strong IP

protection.

The main reason behind enforcing powerful protection on intellectual property by Indonesian

government is to avoid tariffs trade that could obstruct its economic growth and to curtail

foreign investment. Thus, what can be deduced is that in order to be competitive to trade

globally, countries must make provisions for strong IP protection. Hence, it can be argued not

all NTMs have adverse effect on trade but there are some like IP protections that rather

underpin international trade and also motivate firms to be more involved in research and

development projects, since they are secured and receive strong protections an example of a

student's work

Negative Impacts of Non-Tariff Measures on Trade

Generally, Non-Tariff Measures (NTMs) are applied for legitimate reasons.

NTMs really met the purpose of the WTO in freeing up international trade or have instead

been hampering the flow of trade among countries.

The imposition of most of the NTMs was found to be rather a barrier to trade. NTMs, to

enhance trade particularly in developing countries, are now viewed as impediments to trade.

There are some specific types of NTMs that directly impact on imports of countries, like the

Para-tariff measures, variables levies, dumping/countervailing duties (investigation and

undertakings), import surcharges and deposits, imports surveillance, non-automatic licenses,

some price control measures and voluntary export restraints, these NTMs are viewed as

having the pronounced restricting impacts on imports. In addition, it was argued by Messerlin

(1988) that countervailing investigations may themselves cause a reduction in imports.

A survey was carried out to spot and understand the negative impact of NTMs and was found

that an initial finding of the ongoing survey indicate that NTMs effects varies from countries,

for instance, in Burkina Faso 70% of interviewed companies reported that NTMs strongly

affect their daily operations, compared to only 24% in Hong Kong (China).

Besides, the survey also put forward from the perspective of an individual company, how

NTMs can prove to be barriers to trade, for example, companies may not know about the

requirements and the regulations may be so stringent the company cannot abide by them

without making significant modification to its production processes or the cost to comply

with these measures may be prohibitive, where companies have to test its products in third

party country or be forced to show and translate some health certificates which cause delays

and expensive compliance processes. Hence, these procedural obstructions include

restrictions from administrative burden to time delays to lack of legal protection in home

country, export destination and transit countries.

Furthermore, it is analysed by Walkenhorst P. that in April 2000 there were around 1708

business complaints about the non-tariff measures in good sectors.

As such, in China, it was found that application of some NTMs have not proved fruitful to the

country. Following this line of thought, it was advanced by Kirsten et al (1996) that, ‘for

many foreign companies, the biggest barrier to the China market is not high tariffs as much as

NTMs, including licensing requirements, import quotas, and certification requirements. Some

300 NTMs remain, thwarting foreign exporters, though 176 NTMs were phased out on

December 31, 1995. Both import licenses and quotas were lifted on engine-equipped motor

vehicle chassis, for example. Licensing requirements were removed on vehicle bodies, air

conditioners, and copy machines, while import quotas were abolished on certain integrated

circuits, alcoholic beverages, chemical products, antibiotics, and photographic films.

Extrudation machines and mineral casting devices, too, saw their import controls lifted.’

Furthermore, another constraint of NTMs affecting imports are that most of the time, the

import requirements set differ among countries, hence, causing further obstructions for both

importers and exporters to deal at international level.

Following this line of thought, it can be argued that the differences in import requirements

between importing countries affect the competitiveness of exporters, where the latter must

have the capacity of complying with the regulations and standards at global level. Yet,

differing standards and regulations are very often costly. Hence, below is an illustration of

how differing NTMs may hamper trade.

CHAPTER 7

CONCLUSION

Despite significant reductions in tariff rates during the Uruguay Round of trade

negotiations, the issue of market access for developing countries remains elusive. Two related

issues—tariff escalation and tariff peaking—have remained contentious. The third one

affecting the market access for developing countries is non-tariff barriers. Given the weak

infrastructure base and capacity, developing countries are not in a position to approach these

issues pro-actively. The result is that often developing countries are compelled to take

reactive stance which alienates them further in the international trade scenario.

Some of non-tariff barriers are not directly related to foreign economic regulations but

nevertheless have a significant impact on foreign-economic activity and foreign trade

between countries

GATT takes on a particular and modest approach to handling NTMs. That approach

developed over time, and with the formation of the WTO, the handling of NTMs evolved

further still.  Tariffs for goods production were decreased during the eight rounds of

negotiations in the WTO and the General Agreement on Tariffs and Trade (GATT). After

reducing of tariffs, the principle of protectionism demanded the introduction of new NTMs

such as technical barriers to trade (TBT).

Increasing consumer demand for secure and environment friendly products also have had

their impact on increasing popularity of TBT.

Many NTMs are administered by WTO agreements, which originated in the Uruguay

Round, as well as GATT articles. NTMs in the field of services have become as significant as

in the field of usual trade. The requirement to protect sensitive to import industries, as well as

a wide range of trade restrictions, available to the governments of industrialized countries,

forcing them to resort to use the NTM, and putting serious obstacles to international trade and

world economic growth. Thus, NTMs can be referred as a new of protection which has

replaced tariffs as an old form of protection.

It can be argued that non-tariff measures have both positive and negative impact on

international trade, where NTMs can be used as tools for consumer protection and regulation

of domestic markets but on the other hand, viewed as obstacles to trade. Consequently, the

challenge is to apply these measures without imposing barrier to trade, that is, NTMs is

crucial for trading as long as trade is not hampered by these measures. Hence, it is clear that

more work still need to be done to limit the consequences of NTMs on trade.

RECOMMENDATIONS

Non-tariff barriers need to be brought to the forefront of the global trade debate and made a

priority by trade negotiators. 

Developing countries need to remove their hugely bureaucratic non-tariff barriers to trade.

Currently, for example, exporters from India have to go through 12 separate bureaucratic

processes involving 10 separate agencies.

More reliable data on non-tariff barriers need to be collected in order to quantify their

coverage and the problems caused by them.

Developing countries also need to remove tariff barriers which are still prevalent in some

industries. India, for example, has a tariff barrier of 99 per cent on roasted coffee and

Mexico 71 per cent.

The WTO is to make sure that non-trade objectives are not used for pursuing protectionist

policies or creating (non-tariff) trade barriers.

Governments are to provide exporters with timely and useful information regarding phasing

out of quotas, initiation of anti-dumping, countervailing duty or such other action.

Improvements in product quality and equivalent standard setting between importing and

exporting nations are sometimes least costly ways of increasing market access.