CONTRAINTS TO INTERNATIONAL MARKETING

TARIFF AND NON TARIFF BARRIERS

TRADE BARRIERS
Trade barriers are the artificial restrictions imposed by the governments on free flow of goods and services between countries.

 Tariffs, quotas, taxes, duties, foreign exchange restrictions, trade agreements and trading blocs are the techniques used for restricting free movement of goods from one country to the other Trade barriers are broadly classified into following two categories: Tariff barriers or Fiscal controls Non-tariff barriers or quantitative restrictions.

OBJECTIVES OF TRADE BARRIERS

To Protect Home Industries from Forei n Com!etition To Promote Ne" Industries #nd Rese#rc$ #nd De%e&o!ment To Conser%e Forei n E'c$#n e Reser%es To M#int#in F#%or#(&e B#&#nce of P#)ments To Protect Econom) for Dum!in To Cur( Cons!icuous Consum!tion To M#*e Econom) Se&f+re&i#nt To Mo(i&i,e Pu(&ic Re%enue To Counter#ct Tr#de B#rriers Im!osed () Ot$er Countries

ethods of !aluing "mports

Free #&on side -F.A.S./ !rice
T$e !rice of t$e im!orted ood #s t$e forei n countr)0s m#r*et !rice (efore &o#din t$e ood for s$i!ment to t$e im!ortin countr)

Free on Bo#rd -FOB/ !rice

T$e !rice of t$e im!orted ood #s t$e forei n countr)0s m#r*et !rice !&us t$e cost of &o#din t$e ood in t$e me#ns of con%e)#nce

 Cost1 Insur#nce1 #nd Frei $t -C.I.F./ !rice

T$e !rice of t$e im!orted ood #s t$e forei n countr)0s m#r*et !rice !&us t$e cost of &o#din t$e oods into t$e me#ns of con%e)#nce !&us #&& inter+countr) tr#ns!ort#tion costs u! to t$e im!ortin countr)0s !ort of entr). Most countries use t$e C.I.F. !rice for c#&cu&#tin #d %#&orem t#riffs.

B2T t$e 2.S. uses t$e FOB !rice for c#&cu&#tin #d %#&orem t#riffs.

T#$"FF% &#$$"'$%
T#riffs in intern#tion#& tr#de refer to t$e duties or t#'es im!osed on intern#tion#&&) tr#ded commodities "$en t$e) cross t$e n#tion#& (orders.

()#%%"F"(#T"*N *F T#$"FF%

ON THE BASIS OF DIRECTION

'xport +uties An e'!ort dut) is # t#' im!osed on # commodit) ori in#tin from t$e dut)+ &e%)in countr) destined for some ot$er countr). "mport duties An im!ort dut) is # t#' im!osed on # commodit) ori in#tin #(ro#d #nd destined for t$e dut)+&e%)in countr).

ON THE BASIS OF TARIFF RATES

%pecific +uties A s!ecific dut) is # f&#t sum !er !$)sic#& unit of t$e commodit) im!orted or e'!orted1 t$us # s!ecific im!ort dut) is # fi'ed #mount of dut) &e%ied u!on e#c$ unit of t$e commodit) im!orted. #d-!alorem +uties Ad+%#&orem duties #re &e%ied #s # fi'ed !ercent# e of t$e %#&ue of commodit) im!orted3e'!orted. T$us1 "$i&e t$e s!ecific dut) is (#sed on t$e 4u#ntum of commodit) im!orted3 e'!orted1 t$e #d+%#&orem dut) is (#sed on t$e %#&ue of t$e commodit) im!orted3e'!orted. (ompound +uties 5$en # commodit) is su(6ect to (ot$ s!ecific #nd #d+%#&orem duties1 t$e t#riff is ener#&&) referred to #s com!ound dut).

ON THE BASIS OF APPLICATION

%ingle (olumn Tariff T$e sin &e+co&umn1 #&so *no"n #s t$e uni+&ine#r1 t#riff s)stem !ro%ides # uniform r#te of dut) for #&& &i*e commodities "it$out m#*in #nd discrimin#tion (et"een countries. +ouble (olumn Tariff 2nder t$e dou(&e+co&umn t#riff s)stem1 t$ere #re t"o r#tes of dut) on some or on #&& commodities. T$us1 t$e dou(&e co&umn t#riff discrimin#tes (et"een countries. T$e dou(&e+ co&umn t#riff s)stem m#) (e (ro#d&) di%ided into7 -#/ Gener#& #nd con%ention#& t#riff8 -(/ M#'imum #nd minimum t#riff.

9continued
Triple-(olumn Tariff T$e tri!&e+co&umn t#riff s)stem consists of t$ree #utonomous&) determined t#riff sc$edu&es t$e ener#&1 t$e intermedi#te #nd t$e !referenti#&. T$e ener#& #nd intermedi#te r#tes #re simi&#r to t$e m#'imum #nd minimum r#tes mentioned #(o%e under t$e dou(&e+co&umn t#riff s)stems. T$e !referenti#& r#te is ener#&&) #!!&ied in tr#de (et"een t$e mot$er countr) #nd t$e co&onies.

On t$e (#sis of !ur!ose

$evenue Tariff Sometimes t$e m#in intention of t$e o%ernment in im!osin # t#riff m#) (e to o(t#in re%enue. 5$en r#isin re%enue is t$e !rim#r) moti%e1 t$e r#tes of dut) #re ener#&&) &o"1 &est im!orts s$ou&d (e $i $&) discour# ed1 defe#tin t$e o(6ecti%e of mo(i&i,in re%enue for t$e o%ernment. ,rotective Tariff Protecti%e t#riff is intended !rim#ri&)1 to #ccord !rotection to domestic industries from forei n com!etition. N#tur#&&)1 t$e r#tes of dut) tend to (e %er) $i $ in t$is c#se (ec#use ener#&&)1 on&) $i $ r#tes of dut) curt#i& im!orts to # si nific#nt e'tent.

Ot$ers
(ountervailing and #nti-+umping +uties (ountervailing duties m#) (e im!osed on cert#in im!orts "$en t$e) $#%e (een su(sidi,ed () forei n o%ernments. #ntidumping duties #re #!!&ied to im!orts "$ic$ #re dum!ed on t$e domestic m#r*et #t !rices eit$er (e&o" t$eir cost of !roduction or su(st#nti#&&) &o"er t$#n t$eir domestic !rices. Counter%#i&in #nd #nti+dum!in duties #re1 ener#&&) !en#&t).

" ,#(T *F T#$"FF%

T#riffs #ffect on econom) in different "#)s. An im!ort dut) ener#&&) $#s t$e fo&&o"in effect7 -i. ,rotective 'ffect An im!ort dut) is &i*e&) to incre#se t$e !rice of im!orted oods. T$is incre#se in t$e !rice of im!orts is &i*e&) to reduce im!orts #nd incre#se t$e dem#nd for domestic oods. Im!ort duties m#) #&so en#(&e domestic industries to #(sor( $i $er !roduction costs. T$us1 #s # resu&t of t$e !roduction #ccorded () t#riffs1 domestic industries #re #(&e to e'!#nd t$eir out!ut. -ii. (onsumption 'ffect T$e incre#se in !rices resu&tin from t$e &e%) of im!ort dut) usu#&&) reduces t$e consum!tion c#!#cit) of t$e !eo!&e.

-iii. $edistribution 'ffect If t$e im!ort dut) c#uses #nd incre#se in t$e !rice of domestic#&&) !roduced oods1 it #mounts to redistri(ution of income (et"een t$e consumers #nd !roducers in f#%or of t$e !roducers. -iv. $evenue 'ffect As mentioned #(o%e1 # t#riff me#ns incre#sed re%enue for t$e o%ernment -un&ess1 of course1 t$e r#te of t#riff is so !ro$i(iti%e t$#t it com!&ete&) sto!s t$e im!ort of t$e commodit) su(6ect to t$e t#riff/.

-v. "ncome and 'mployment 'ffect T$e t#riff m#) c#use # s"itc$o%er from s!endin on forei n oods to s!endin on domestic oods. T$is $i $er s!endin "it$in t$e countr) m#) c#use #n e'!#nsion in domestic income #nd em!&o)ment. -vi. (ompetitive 'ffect T$e com!etiti%e effect on t$e t#riff is1 in f#ct1 #n #nti+ com!etiti%e effect in t$e sense t$#t t$e !rotection of domestic industries # #inst forei n com!etition m#) en#(&e t$e domestic industries to o(t#in mono!o&) !o"er "it$ #&& its #ssoci#ted e%i&s.

-vii. Term of Trade 'ffect In # (id to m#int#in t$e !re%ious &e%e& of im!orts to t$e t#riff im!osin countr)1 if t$e e'!orter reduces $is !rices1 t$e t#riff+im!osin countr) is #(&e to et im!orts #t # &o"er !rice. T$is "i&&s1 ceteris !#ri(us1 im!ro%e t$e terms of tr#de of t$e countr) im!osin t$e t#riff. -vii. &alance of ,ayments 'ffect T#riffs1 () reducin t$e %o&ume of im!orts1 m#) $e&! t$e countr) to im!ro%e its (#&#nce of !#)ments !osition.

N*N T#$"FF &#$$"'$%

A&& forms of discrimin#tion # #inst im!orts ot$er t$#n im!ort duties

Administered !rotection-Non :u#ntit#ti%e/ :u#ntit#ti%e

:uot#s7 numeric#& &imits !&#ced on s!ecific c&#sses of im!orts ;o&unt#r) e'!ort restr#ints -;ERs/7 E'!ort 4uot#s im!osed () e'!ortin n#tion

#dministered ,rotection
Administered !rotection encom!#sses # "ide r#n e of (ure#ucr#tic o%ernment #ctions1 "$ic$ $#%e ro"n in #(so&ute #s "e&& #s re&#ti%e im!ort#nce o%er t$e &#st dec#de or more Im!ort#nt #dministr#ti%e !rotection me#sures inc&ude t$e fo&&o"in 7

/ealth and ,roduct %tandards 7+ Se%er#& $e#&t$ #nd !roduct st#nd#rds im!osed () t$e de%e&o!ed countries $inder t$e e'!orts of de%e&o!in countries (ec#use of t$e #dded costs or tec$nic#& re4uirements. T$e need for m#int#inin $e#&t$ #nd !roduct st#nd#rds is un4uestion#(&e.

(ustoms ,rocedures 7 Cert#in customs !rocedures of m#n) countries (ecome tr#de (#rriers. For e'#m!&e1 studies !oint out t$#t fre4uent c$#n es of <#!#n0s customs re u&#tions #re t$emse&%es # si nific#nt (#rrier to e'!orters1 es!eci#&&) t$ose not #ffi&i#ted "it$ <#!#nese o%erse#s 6oint %entures.

(onsular Formalities : A num(er of countries insist on cert#in consu&#r form#&ities &i*e certific#tion of e'!ort documents () t$e res!ecti%e consu&#te1 of t$e im!ortin countr)1 in t$e e'!ortin countr). T$is (ecomes # tr#de (#rrier "$en t$e fees c$#r ed for t$is is %er) $i $ or t$e !rocedure is %er) cum(ersome

)icensing7 M#n) countries re u&#te forei n tr#de !#rticu&#r&) im!orts1 () &icensin . In most c#ses1 t$e !ur!ose of im!ort &icensin is to restrict im!orts.

0overnment ,rocurement 7 Go%ernment !rocurements often tend to $inder free tr#de. T$e To*)o Round $#s1 t$erefore1 formu&#ted #n # reement on o%ernment !rocurement "it$ # %ie" to securin re#ter intern#tion#& com!etition in o%ernment !rocurements.

%tate Trading 7 St#te tr#din #&so $inders free tr#de m#n) # time (ec#use of t$e counter tr#de !r#ctices1 c#n#&i,#tion1 etc. St#te tr#din "#s #n im!ort#nt fe#ture of t$e forei n tr#de of t$e centr#&&) !&#nned economics #nd m#n) de%e&o!in countries. 5it$ t$e economic &i(er#&i,#tions in most of t$ese countires1 t$e ro&e of st#te tr#din $#s dec&ined.

onetary (ontrols7 In #ddition to forei n e'c$#n e re u&#tions1 ot$er monet#r) contro&s #re sometimes em!&o)ed to re u&#te tr#de1 !#rticu&#r&) im!orts. For inst#nce1 to tide o%er t$e forei n e'c$#n e crisis in =>>?+>= #nd =>>=+>@1 t$e Reser%e B#n* of Indi# too* se%er#& me#sures "$ic$ inc&uded #s @A !er cent interest r#te surc$#r e on (#n* credit for im!orts su(6ect to # commerci#& r#te of interest of # minimum =B !er cent1 t$e re4uirement of su(st#nti#&&) $i $ c#s$ m#r in re4uirement on most im!orts ot$er t$#n c#!it#& oods1 #nd restrictions on t$e o!enin of &etters of credit for im!orts.

Foreign 'xchange $egulations 7 Forei n e'c$#n e re u&#tions #re #n im!ort#nt "#) of re u&#tin im!orts in # num(er of countries. T$is is done () t$e St#te mono!o&i,in t$e forei n e'c$#n e resources #nd not re#&i,in forei n e'c$#n e for im!ort of items "$ic$ t$e o%ernment do not #!!ro%e of for %#rious re#sons.

1uantitative restrictions 2!oluntary3 'xport $estraints

Im!ortin countries C!ersu#deD e'!ortin countries to %o&unt#ri&) &imit t$eir e'!orts.
E'#m!&e7 =.EF mi&&ion <#!#nese c#rs !ermitted #nnu#&&) (e innin in =>F=.

T$ere is #n im!&ied t$re#t of t#riffs or 4uot#s if e'!ortin countr) doesn0t com!&). ;ERs e'ist for !o&itic#& re#sons1 not economic#&&) %#&id ones.

1uantitative $estrictions 1uotas

:u#ntit#ti%e restrictions or 4uot#s #re #n im!ort#nt me#ns of restrictin im!orts #nd e'!orts. A 4uot# re!resents # cei&in on t$e !$)sic#& %o&ume of t$e im!ort3e'!ort of # commodit) Types of "mport 1uota T$ere #re four im!ort#nt t)!es of im!ort 4uot#s1 inc&udin im!ort &icensin . T$ese #re7

-i. Tariff 1uota A t#riff 4uot# com(ines t$e fe#tures of t$e t#riff #s "e&& #s of t$e 4uot#. 2nder # t#riff :uot# t$e im!orts of # commodit) u! to # s!ecified %o&ume #re #&&o"ed dut) free or #t # s!eci#& &o" r#te8 (ut #n) im!orts in e'cess of t$is &imit #re su(6ect to dut)+# $i $er r#te of dut)

-ii. 4nilateral 1uota In # uni&#ter#& 4uot#1 # countr) uni&#ter#&&) fi'es # cei&in on t$e 4u#ntit) of t$e im!ort of !#rticu&#r commodit).

-iii. &ilateral 1uota A (i&#ter#& 4uot# resu&ts from ne oti#tions (et"een t$e im!ortin countr) #nd # !#rticu&#r su!!&ier countr)1 or (et"een t$e im!ortin countr) #nd e'!ort rou!s "it$in t$e su!!&iercountr)

-iv.

ixing 1uota

2nder t$e mi'in 4uot#1 t$e !roducers #re o(&i ed to uti&i,e domestic r#" m#teri#&s u! to # cert#in !ro!ortion in t$e !roduction of # finis$ed !roduct

"mport )icensing
:uot# re u&#tions #re ener#&&) #dministered () me#ns of im!ort &icensin . In Indi#1 for inst#nce1 t$e im!ort of #&most #&& t$e items is !ro$i(ited e'ce!t under1 #nd in #ccord#nce "it$1 # &icense or # customs c&e#r#nce !ermit issued under t$e Im!orts-Contro&/ Order1 =>AA1 or #n O!en Gener#& Licence issued () t$e Go%ernment or under #n) ot$er !ro%ision under t$e #(o%e order.

 2nder t$e im!ort &icensin s)stem1 t$e !ros!ecti%e im!orters #re o(&i ed to o(t#in # &icense from t$e &icensin #ut$orities7 t$e !ossession of #n im!ort &icense is necess#r) to o(t#in t$e forei n e'c$#n e to !#) for t$e im!orts1 In # &#r e num(er of countries1 im!ort &icensin $#s (ecome # %er) !o"erfu& de%ice for contro&&in t$e 4u#ntit) of im!orts+eit$er of !#rticu&#r commodities or # re #te im!orts.

"mpact of 1uotas
Li*e fisc#& contro&s1 t$e 4u#ntit#ti%e restrictions on im!orts $#%e # num(er of effects on t$e econom). T$e fo&&o"in #re1 in ener#& 1 t$e im!ort#nt economic effects of 4uot#s7

 -i. &alance of ,ayments 'ffect As 4uot#s en#(&e # countr) to restrict t$e # re #te im!orts "it$in s!ecified &imits1 4uot#s #re $e&!fu& in im!ro%in its (#&#nce of !#)ments !osition. -ii. ,rice 'ffect As 4uot#s &imit t$e tot#& su!!&)1 t$e) m#) c#use #n incre#se in domestic !rices.

 -iii. (onsumption 'ffect If 4uot#s &e#d to #n incre#se in !rices1 !eo!&e m#) (e constr#ined to reduce t$eir consum!tion of t$e commodit) su(6ect to 4uot#s or some ot$er commodities. -iv. ,rotective 'ffect B) u#rdin domestic industries # #inst forei n com!etition to some e'tent1 4uot#s encour# e t$e e'!#nsion of domestic industries.

v. $edistributive 'ffect :uot#s #&so $#%e # redistri(uti%e effect if t$e f#&& in su!!&) due to im!ort#nt restrictions en#(&es t$e domestic !roducers to r#ise !rices. T$e rise in !rices "i&& resu&t in t$e redistri(ution of income (et"een t$e !roducers #nd consumers in f#%or of t$e !roducers. -vi. $evenue 'ffect :uot#s m#) $#%e re%enue effect. T$e o%ernment m#) o(t#in some re%enue () c$#r in # &icense fee.

Comparison of an Import Quota to an Import Tariff 1. With a given import quota, an increase in demand will result in a higher domestic price and greater domestic production than with an equivalent import tariff. However, with a given import tariff, an increase in demand will leave the domestic price and domestic production unchanged but will result in higher consumption and imports than with an equivalent import quota.

2. The quota involves the distribution of import licenses. The government does not auction off these licenses in a competitive market, firms that receive them will reap monopoly profits. These profits will make potential importers devote efforts to lobbying and even bribing to obtain the licenses rent seeking activities!. Thus import quotas not only replace market mechanism but also result in waste from the point of view of the economy as a whole and contain the seeds of corruption.

". #n import quota limits imports to the specified level with certainty, while a tariff$s effect is uncertain. The reason is that the elasticity of supply and demand often unknown, making it difficult to estimate the import tariff required to restrict imports to a desired level. %urthermore, foreign e&porters may absorb all or part of the tariff by increasing their efficiency or accepting lower profits. '&porters cannot do this with an import quota since quantity of imports is clearly specified. %or this reason domestic producers prefer quotas to tariffs. However, since quotas more restrictive than tariffs, society should resist these efforts.

(rgani)ations *romoting +nternational Trade

The General Agreement on Tra e an !GATT" came into e&istence in 1,-. Tariff

+t sought substantial reduction in tariff and other barriers to trade and to eliminate discriminatory treatment in international commerce. +ndia signatory to /#TT 1,-. along with twenty two other countries 'ight rounds of negotiations had taken place during five decades of its e&istence

#OR$D TRADE ORGA%ISATIO% !#TO" 0ame into e&istence on 11111,,2 with the conclusion of 3ruguay 4ound 5ultilateral Trade 6egotiations at 5arrakesh on 12th #pril 1,,-, to 7

Transparent, free and rule1based trading system *rovide common institutional framework for conduct of trade relations among members %acilitate the implementation, administration and operation of 5ultilateral Trade #greements 4ules and *rocedures /overning 8ispute 9ettlement Trade *olicy 4eview 5echanism 0oncern on 6on1trade issues such as %ood 9ecurity, environment, health, etc.

&a'or International Tra e Agreements( #orl Tra e Organi)ation !#TO"

Represents *+, negotiate tra e agreements among -ountries .e/ Fun-tions Cooperating 0ith other International Organi)ations
1ro2i ing a forum for tra e negotiations 3an ling tra e isputes 4et0een nations

A ministering #TO agreement &onitoring 1ro2i ing te-hni-al assistan-e an national tra e training for people in poli-ies e2eloping -ountries

Nort$ Americ#n Free Tr#de A reement

5$#t is NAFTAG

Be #n on <#nu#r) =1 =>>H

Bet"een C#n#d# t$e 2nited St#tes #nd Me'ico

Associ#tion of Sout$e#st Asi#n N#tions

5$#t is ASEANG

Est#(&is$ed on Au ust Ft$1 =>EB

=? mem(er countries

+Brunei D#russ#&#m1 C#m(odi#1 Indonesi#1 L#os1 M#&#)si#1 M)#nm#r1 P$i&i!!i#ns1 Sin #!ore1 T$#i&#nd1 #nd ;ietn#m

Euro!e#n 2nion
5$#t is t$e E2G

@B mem(er st#tes7 Austri#1 Be& ium1 Bu& #ri#1 C)!rus1 C,ec$ Re!u(&ic1 Denm#r*1 Estoni#1 Fin&#nd1 Fr#nce1 Germ#n)1 Greece1 Hun #r)1 Ire&#nd1 It#&)1 L#t%i#1 Lit$u#ni#1 Lu'em(ur 1 M#&t#1 Net$er&#nds1 Po&#nd1 Portu #&1 Rom#ni#1 S&o%#*i#1 S&o%eni#1 S!#in1 S"eden1 #nd t$e 2nited Kin dom.

IMF
1. +5% was created to assist nations in becoming and remaining economically viable 2. +t assists countries that seek capital for economic development and restructuring ". +5% loans come with stipulations that borrowing countries slash spending and impose controls to curb inflation -. +t helps maintain stability in the world financial markets

 *b5ectives of the " F include: =. st#(i&i,#tion of forei n e'c$#n e r#tes @. est#(&is$ con%erti(&e currencies to f#ci&it#te intern#tion#& tr#de I. &end mone) to mem(ers in fin#nci#& trou(&e

5or&d (#n*
*5 len ing mone/ to -ountries to finan-e e2elopment pro'e-ts in e u-ation6 health6 an infrastru-ture7 85 pro2i ing assistan-e for pro'e-ts to the poorest e2eloping -ountries7 95 len ing ire-tl/ to the pri2ate se-tor in e2eloping -ountries 0ith long: term loans6 e;uit/ in2estments6 an other finan-ial assistan-e7 +5 pro2i e in2estors 0ith in2estment guarantees against <non-ommer-ial ris=6> so e2eloping -ountries 0ill attra-t FDI7 an ?5 pro2i e -on-iliation an ar4itration of isputes 4et0een go2ernments an foreign in2estors