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TARIFF AND NON TARIFF

BARRIERS

A PROJECT
In the subject of Economics of Global Trade & Finance

SUBMITTED TO
UNIVERSITY OF MUMBAI
FOR SEMESTER I OF
MASTER OF COMMERCE
BY
KSHITIJ TRIVEDI
Roll No. 13
Specialization: Business Management
UNDER THE GUIDANCE OF
PROF. K VENKATESWARLU

YEAR - 2013-14
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DECLARATION BY THE STUDENT


I, Shri Kshitij Trivedi, student of M. Com. Part-I, Roll Number 13, at the Department
of Commerce, University of Mumbai, do hereby declare that the project titled,
TARIFF AND NON TARIFF BARRIERS submitted by me in the subject of
Economics of Global Trade & Finance for Semester-I during the academic year
2013-14, is based on actual work carried out by me under the guidance and
supervision of Prof. K. Venkateswarlu.

I further state that this work is original and not submitted anywhere else for any other
examination.

Date: 8
th
October 2013
Mumbai Signature of Student










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EVALUATION CERTIFICATE


This is to certify that the undersigned have assessed and evaluated the project on
TARIFF AND NON TARIFF BARRIERS in the subject of Economics of Global
Trade & Financesubmitted by Shri Kshitij Trivedi, student of M. Com. Part-I at the
Department of Commerce, University of Mumbai for Semester-I during the academic
year 2013-14.

This project is original to the best of our knowledge and has been accepted for
Internal Assessment.



Internal Examiner External Examiner Director
Dr V. Deolankar

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University of Mumbai
Department of Commerce
Internal Assessment: Subject: Economics of Global Trade & Finance

Name of the Student

Class

Branch

Roll
Number
First name : Kshitij
Fathers Name: Kulin B.
Trivedi
Surname : Trivedi

M. Com
Part-I

Business
Management

13

Topic for the Project: TARIFF AND NON TARIFF BARRIERS

Marks Awarded Signature
DOCUMENTATION
Internal Examiner
(Out of 10 Marks)

External Examiner
(Out of 10 Marks)

Presentation
(Out of 10 Marks)

Viva and Interaction
(Out of 10 Marks)


TOTAL MARKS (Out of 40)


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CONTENT

SR.
NO.
PARTICULARS PAGE NO.
1 CHAPTER 1: INTRODUCTION 6
Background 6
Issues 7
Objective Of The Study 7
3 CHAPTER 2 INTRODUCTION TO TRADE BARRIERS 8
What Are Tariff Barriers? 8
Impact Of Tariffs 11
What Are Non Tariff Barriers? 13
Types Of Non Tariff Barriers 15
Impact Of Quotas 17
Why Are Tariff And Trade Barriers Used? 21
4 CHAPTER 3 ANALYSIS 27
5 CHAPTER 4 CONCLUSION 41
Suggestions 41
Bibliography 42








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CHAPTER 1: I NTRODUCTI ON
This report examines tariff and non-tariff policies that restrict trade between countries in
agricultural commodities. Many of these policies are now subject to important disciplines
under the 1994 GATT agreement that is administered by the World Trade Organization
(WTO). The paper is organized as follows. First, tariffs, import quotas, and tariff rate quotas
are discussed. Then, a series of non-tariff barriers to trade are examined, including voluntary
export restraints, technical barriers to trade, domestic content regulations, import licensing,
the operations of import State Trading Enterprises (STEs), and exchange rate management
policies. Finally, the precautionary principle, an environment-related rationale for trade
restrictions, and sanitary and phytosanitary barriers to trade are discussed.
BACKGROUND
Tariffs and Tariff Rate Quotas
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. Therefore, since 1948, when average
tariffs on manufactured goods exceeded 30 percent in most developed economies, those
economies have sought to reduce tariffs on manufactured goods through several rounds of
negotiations under the General Agreement on Tariffs Trade (GATT). Only in the most recent
Uruguay Round of negotiations were trade and tariff restrictions in agriculture addressed. In
the past, and even under GATT, tariffs levied on some agricultural commodities by some
countries have been very large. When coupled with other barriers to trade they have often
constituted formidable barriers to market access from foreign producers. In fact, tariffs that
are set high enough can block all trade and act just like import bans.
A tariff-rate quota (TRQ) combines the idea of a tariff with that of a quota. The typical TRQ
will set a low tariff for imports of a fixed quantity and a higher tariff for any imports that
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exceed that initial quantity. In a legal sense and at the WTO, countries are allowed to
combine the use of two tariffs in the form of a TRQ, even when they have agreed not to use
strict import quotas. In the United States, important TRQ schedules are set for beef, sugar,
peanuts, and many dairy products. In each case, the initial tariff rate is quite low, but the
over-quota tariff is prohibitive or close to prohibitive for most normal trade. Explicit import
quotas used to be quite common in agricultural trade. They allowed governments to strictly
limit the amount of imports of a commodity and thus to plan on a particular import quantity
in setting domestic commodity programs. Another common non-tariff barrier (NTB) was the
so-called voluntary export restraint (VER) under which exporting countries would agree to
limit shipments of a commodity to the importing country, although often only under threat of
some even more restrictive or onerous activity. In some cases, exporters were willing to
comply with a VER because they were able to capture economic benefits through higher
prices for their exports in the importing countrys market.
ISSUES
In the Uruguay round of the GATT/WTO negotiations, members agreed to drop the use of
import quotas and other non-tariff barriers in favor of tariff-rate quotas. Countries also agreed
to gradually lower each tariff rate and raise the quantity to which the low tariff applied. Thus,
over time, trade would be taxed at a lower rate and trade flows would increase.
Given current U.S. commitments under the WTO on market access, options are limited for
U.S. policy innovations in the 2002 Farm Bill vis a vis tariffs on agricultural imports from
other countries. Providing higher prices to domestic producers by increasing tariffs on
agricultural imports is not permitted. In addition, particularly because the U.S. is a net
exporter of many agricultural commodities, successive U.S. governments have generally
taken a strong position within the WTO that tariff and TRQ barriers need to be reduced.
The Objective of the present study is:
(i) To identify tariff, non-tariff barriers in U.S and Japan which constitute major
impediments to Indias exports
(ii) To understand the concept of trade barriers and their implication on International
trade


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CHAPTER 2: I NTRODUCTI ON TO TRADE BARRI ERS
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.
What Is a Tariff and what are Tariff Barriers?
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.
Tariffs (often called customs) were by far the largest source of federal revenue
from the 1790s to the eve of World War I, until they were surpassed by
income taxes.
Tariffs are import tax rates and the collected income is called customs or
custom duties or Ad valorem taxes.
Tariff barriers are duties imposed on goods which effectively create an
obstacle to trade, although this is not necessarily the purpose of putting tariffs
in place.
Tariff barriers are also sometimes known as import restraints, because they
limit the amount of goods which can be imported into a country.




Tariff
Export
Tariff
Import
Tariff
Transit
Tariff
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Export Tariff :
An export duty is a tax imposed on a commodity originating from the duty-levying
country destined for some other country.
Import Tariff :
An import duty is a tax imposed on a commodity originating abroad and destined for
the duty-levying country.
Transit Tariff :
A transit duty is a tax imposed on a commodity crossing the national frontier
originating from, and destined for, other countries.
With reference to the basis for quantification of the tariff, we may have the following
threefold classification:

Specific Duties
A specific duty is a flat sum per physical unit of the commodity imported or exported, thus a
specific import duty is a fixed amount of duty levied upon each unit of the commodity
imported.

Ad-Valorem Duties
Ad-valorem duties are levied as a fixed percentage of the value of commodity
imported/exported. Thus, while the specific duty is based on the quantum of commodity
imported/exported, the ad-valorem duty is based on the value of the commodity
imported/exported.

Compound Duties
When a commodity is subject to both specific and ad-valorem duties, the tariff is generally
referred to as compound duty.
With respect to its application between different countries, the tariff system may be classified
into following three types:



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Single Column Tariff
The single-column, also known as the uni-linear, tariff system provides a uniform rate of duty
for all like commodities without making any discrimination between countries.

Double Column Tariff
Under the double-column tariff system, there are two rates of duty on some or on all
commodities. Thus, the double column tariff discriminates between countries.
The double-column tariff system may be broadly divided into:
(a) General and conventional tariff;
(b) Maximum and minimum tariff.

The general and conventional tariff system consits of two schedules of tariff- the general and
the conventional. The general schedule is fixed by the legislature at the very start and the
conventional schedule results from the conclusion of commercial treaties with other
countries. The maximum and minimum system consists of two autonomously determined
schedules of tariff the maximum and the minimum. The minimum schedule applies to those
countries which have obtained a concession as a result of a treaty or through M.F.N. (most
favoured nation) pledge. The maximum schedule applies to all the other countries.

Triple-Column Tariff
The triple-column tariff system consists of three autonomously determined tariff schedules
the general, the intermediate and the preferential. The general and intermediate rates are
similar to the maximum and minimum rates mentioned above under the double-column tariff
systems. The preferential rate is generally applied in trade between the mother country and
the colonies.
With reference to the purpose they serve, tariffs may be classified into the following
categories.

Revenue Tariff
Sometimes the main intention of the government in imposing a tariff may be to obtain
revenue. When raising revenue is the primary motive, the rates of duty are generally low, lest
imports should be highly discouraged, defeating the objective of mobilizing revenue for the
government. Revenue tariffs tend to fall on articles of mass consumption.

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Protective Tariff
Protective tariff is intended primarily, to accord protection to domestic industries from
foreign competition. Naturally, the rates of duty tend to be very high in this case because
generally, only high rates of duty curtail imports to a significant extent.

Countervailing and Anti-Dumping Duties
Countervailing duties may be imposed on certain imports when they have been subsidized by
foreign governments. Antidumping duties are applied to imports which are dumped on the
domestic market at prices either below their cost of production or substantially lower than
their domestic prices. Countervailing and anti-dumping duties are, generally, penalty duties
and an addition to the regular rates.

Impact of Tariff:
Tariffs affect on economy in different ways. An import duty generally has the following
effect:
(i) Protective Effect: An import duty is likely to increase the price of imported goods. This
increase in the price of imports is likely to reduce imports and increase the demand for
domestic goods. Import
duties may also enable domestic industries to absorb higher production costs. Thus, as a
result of the production accorded by tariffs, domestic industries are able to expand their
output.
(ii) Consumption Effect: The increase in prices resulting from the levy of import duty
usually reduces the consumption capacity of the people.

(iii) Redistribution Effect: If the import duty causes and increase in the price of
domestically produced goods, it amounts to redistribution of income between the consumers
and producers in favour of the producers. Further, a part of the consumer income is
transferred to the exchequer by means of the tariff.

(iv)Revenue Effect: As mentioned above, a tariff means increased revenue for the
government (unless, of course, the rate of tariff is so prohibitive that it completely stops the
import of the commodity subject to the tariff).
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(v) Income and Employment Effect: The tariff may cause a switchover from spending on
foreign goods to spending on domestic goods. This higher spending within the country may
cause an expansion in domestic income and employment.

(vi) Competitive Effect: The competitive effect on the tariff is, in fact, an anti-competitive
effect in the sense that the protection of domestic industries against foreign competition may
enable the domestic industries to obtain monopoly power with all its associated evils.

(vii) Term of Trade Effect: In a bid to maintain the previous level of imports to the tariff
imposing country, if the exporter reduces his prices, the tariff-imposing country is able to get
imports at a lower price. This wills, ceteris paribus, improve the terms of trade of the country
imposing the tariff.

(vii) Balance of Payments Effect: Tariffs, by reducing the volume of imports, may help the
country to improve its balance of payments position.

Nominal Tariff and Effective Tariff
Nominal tariff refers to the actual duty on an imported item. For example, if a commodity X
is subject to an import duty of 25 percent ad valorem, the nominal tariff is 25 per cent.
Corden defines the effective protective rate as the percentage increase in value added per unit
on an economic activity which is made possible by the tariff structure relative to the situation
in the absence of tariffs but the same exchange rates. It depends not only on the tariff on the
commodity produced but also on the input coefficients and the tariffs on the inputs.
The effective protective rate of industry j (Ej) may be defined as the difference between the
industrys value added under protection (Vj) and under free market conditions (Vj) expressed
as a percentage of the free market value added.

Obviously, the protective effect of a tariff on domestic manufacturing is larger if the import
duty on the raw materials used in its manufacture is lower.

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Optimum Tariff
If a country raises its tariff (import duty) unilaterally, its terms of trade may improve and its
volume of trade may decline. The improvement in the terms of trade initially tends to more
than offset the accompanying reduction in the volume of trade, Hence a higher trade
indifference curve is reached and community welfare is enhanced. Beyond some point,
however, it is likely that the detrimental effect of successive reductions in the trade volume
begins to outweigh the positive effect of further improvements in their terms of trade; as a
result, community welfare begins to fall. Somewhere in between there must be a tariff which
optimizes a countrys welfare level under these conditions. Thus, the optimum tariff is the
rate of tariff beyond which any further gain from an improvement in the terms of trade will
be more than offset by the related decline in volume. By raising the rate of tariff beyond the
optimum rate, it may still be possible to improve the countrys terms of trade; but the gain
from this improvement in the terms of trade is more than offset by the related decline in the
volume of trade.

What are Non-Tariff Barriers?
Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the
usual form of a tariff. Some common examples of NTB's are anti-dumping measures
and countervailing duties, which, although they are called "non-tariff" barriers, have the
effect of tariffs once they are enacted.
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Six Types of Non-Tariff Barriers to Trade
1. Specific Limitations on Trade:
1. Quotas
2. Import Licensing requirements
3. Proportion restrictions of foreign to domestic goods (local content
requirements)
4. Minimum import price limits
5. Embargoes
2. Customs and Administrative Entry Procedures:
1. Valuation systems
2. Anti-dumping practices
3. Tariff classifications
4. Documentation requirements
5. Fees
3. Standards:
1. Standard disparities
Non
Tariff
Quotas Subsidies Embargo
Currency
Controls
Local
Content
Requireme
nts
Product &
Testing
Standards
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2. Intergovernmental acceptances of testing methods and standards
3. Packaging, labeling, and marking
4. Government Participation in Trade:
1. Government procurement policies
2. Export subsidies
3. Countervailing duties
4. Domestic assistance programs
5. Charges on imports:
1. Prior import deposit subsidies
2. Administrative fees
3. Special supplementary duties
4. Import credit discrimination
5. Variable levies
6. Border taxes
6. Others:
1. Voluntary export restraints
2. Orderly marketing agreements

Types of Non-Tariff Barriers
There are several different variants of division of non-tariff barriers. Some scholars divide
between internal taxes, administrative barriers, health and sanitary regulations and
government procurement policies. Others divide non-tariff barriers into more categories such
as specific limitations on trade, customs and administrative entry procedures, standards,
government participation in trade, charges on import, and other categories. We choose
traditional classification of non-tariff barriers, according to which they are divided into 3
principal categories.
The first category includes methods to directly import restrictions for protection of certain
sectors of national industries: licensing and allocation of import quotas, antidumping and
countervailing duties, import deposits, so-called voluntary export restraints, countervailing
duties, the system of minimum import prices, etc. Under second category follow methods that
are not directly aimed at restricting foreign trade and more related to the administrative
bureaucracy, whose actions, however, restrict trade, for example: customs procedures,
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technical standards and norms, sanitary and veterinary standards, requirements for labeling
and packaging, bottling, etc. The third category consists of methods that are not directly
aimed at restricting the import or promoting the export, but the effects of which often lead to
this result.
The non-tariff barriers can include wide variety of restrictions to trade. Here are some
example of the popular NTBs.
Licenses
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).
Quotas
Licensing of foreign trade is closely related to quantitative restrictions quotas - on imports
and exports of certain goods. 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. 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.
Quantitative restriction on imports and exports is a direct administrative form of government
regulation of foreign trade. 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
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for import and export. However, the system of licensing and quota imports and exports,
establishing firm control over foreign trade in certain goods, in many cases turns out to be
more flexible and effective than economic instruments of foreign trade regulation. This can
be explained by the fact, that 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. An import quota can be
unilateral, levied by the country without negotiations with exporting country, and bilateral or
multilateral, when it is imposed after negotiations and agreement with exporting country. An
export quota is a restricted amount of goods that can leave the country. There are different
reasons for imposing of export quota by the country, which can be the guarantee of the
supply of the products that are in shortage in the domestic market, manipulation of the prices
on the international level, and the control of goods strategically important for the country. In
some cases, the importing countries request exporting countries to impose voluntary export
restraints.
Impact of Quotas:
Like fiscal controls, the quantitative restrictions on imports have a number of effects on the
economy. The following are, in general , the important economic effects of quotas:

(i) Balance of Payments Effect
As quotas enable a country to restrict the aggregate imports within specified limits, quotas are
helpful in improving its balance of payments position.

(ii) Price Effect
As quotas limit the total supply, they may cause an increase in domestic prices.

(iii) Consumption Effect
If quotas lead to an increase in prices, people may be constrained to reduce their consumption
of the commodity subject to quotas or some other commodities.



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(iv) Protective Effect
By guarding domestic industries against foreign competition to some extent, quotas
encourage the expansion of domestic industries.

(v) Redistributive Effect
Quotas also have a redistributive effect if the fall in supply due to important restrictions
enables the domestic producers to raise prices. The rise in prices will result in the
redistribution of income between the producers and consumers in favour of the producers.

(vi) Revenue Effect
Quotas may have revenue effect. The government may obtain some revenue by charging a
license fee.

Agreement on a "voluntary" export restraint
In the past decade, a widespread practice of concluding agreements on the "voluntary" export
restrictions and the establishment of import minimum prices imposed by leading Western
nations upon weaker in economical or political sense exporters. The specifics of these types
of restrictions is the establishment of unconventional techniques when the trade barriers of
importing country, are introduced at the border of the exporting and not importing country.
Thus, the agreement on "voluntary" export restraints is imposed on the exporter under the
threat of sanctions to limit the export of certain goods in the importing country. Similarly, the
establishment of minimum import prices should be strictly observed by the exporting firms in
contracts with the importers of the country that has set such prices. In the case of reduction of
export prices below the minimum level, the importing country imposes anti-dumping duty
which could lead to withdrawal from the market. Voluntary" export agreements affect trade
in textiles, footwear, dairy products, consumer electronics, cars, machine tools, etc.
Problems arise when the quotas are distributed between countries, because it is necessary to
ensure that products from one country are not diverted in violation of quotas set out in second
country. Import quotas are not necessarily designed to protect domestic producers. For
example, Japan, maintains quotas on many agricultural products it does not produce. Quotas
on imports is a leverage when negotiating the sales of Japanese exports, as well as avoiding
excessive dependence on any other country in respect of necessary food, supplies of which
may decrease in case of bad weather or political conditions.
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Export quotas can be set in order to provide domestic consumers with sufficient stocks of
goods at low prices, to prevent the depletion of natural resources, as well as to increase export
prices by restricting supply to foreign markets. Such restrictions (through agreements on
various types of goods) allow producing countries to use quotas for such commodities as
coffee and oil; as the result, prices for these products increased in importing countries.
Quota can be of the following types:
1) Tariff rate quota
2) Global quota
3) Discriminating quota

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.
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.
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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.
Examples of Non-Tariff Barriers to Trade
Non-tariff barriers to trade can be:
Import bans
General or product-specific quotas
Rules of Origin
Quality conditions imposed by the importing country on the exporting countries
Sanitary and phyto-sanitary conditions
Packaging conditions
Labeling conditions
Product standards
Complex regulatory environment
Determination of eligibility of an exporting country by the importing country
Determination of eligibility of an exporting establishment (firm, company) by the
importing country.
Additional trade documents like Certificate of Origin, Certificate of Authenticity etc.
Occupational safety and health regulation
Employment law
Import licenses
State subsidies, procurement, trading, state ownership
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Export subsidies
Fixation of a minimum import price
Product classification
Quota shares
Foreign exchange market controls and multiplicity
Inadequate infrastructure
"Buy national" policy
Over-valued currency
Intellectual property laws (patents, copyrights)
Restrictive licenses
Seasonal import regimes
Corrupt and/or lengthy customs procedures

Some Practical examples of Non-Tariff barrier
It is a common practice in many countries to use non-tariff barriers to control the
entry of imports. For instance, Philippine mangoes and bananas have to meet strict
phytosanitary requirements from the US and Australia.
New Zealand's apples account for a third of its agricultural exports but have been
banned from Australia since 1921 due to fears about the spread of fire blight, a crop
pest.
Why Are Tariffs and Trade Barriers Used?
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
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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. Protecting Consumers
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. 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. National Security
Barriers are also employed by developed countries to protect certain industries that are
deemed strategically important, such as those supporting national security. Defence
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 defence-oriented companies.

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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.

Who Benefits?
The benefits of tariffs are uneven. Because a tariff is a tax, the government will see increased
revenue as imports enter the domestic market. Domestic industries also benefit from a
reduction in competition, since import prices are artificially inflated. Unfortunately for
consumers - both individual consumers and businesses - higher import prices mean higher
prices for goods. If the price of steel is inflated due to tariffs, individual consumers pay more
for products using steel, and businesses pay more for steel that they use to make goods. In
short, tariffs and trade barriers tend to be pro-producer and anti-consumer.

The effect of tariffs and trade barriers on businesses, consumers and the government shifts
over time. In the short run, higher prices for goods can reduce consumption by individual
consumers and by businesses. During this time period, businesses will profit and the
government will see an increase in revenue from duties. In the long term, businesses may see
a decline in efficiency due to a lack of competition, and may also see a reduction in profits
due to the emergence of substitutes for their products. For the government, the long-term
effect of subsidies is an increase in the demand for public services, since increased prices,
especially in foodstuffs, leave less disposable income. (For related reading, check out In
Praise Of Trade Deficits.)
How Do Tariffs Affect Prices?
Tariffs increase the prices of imported goods. Because of this, domestic producers are not
forced to reduce their prices from increased competition, and domestic consumers are left
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paying higher prices as a result. Tariffs also reduce efficiencies by allowing companies that
would not exist in a more competitive market to remain open.
Figure 1 illustrates the effects of world trade without the presence of a tariff. In the graph, DS
means domestic supply and DD means domestic demand. The price of goods at home is
found at price P, while the world price is found at P*. At a lower price, domestic consumers
will consume Qw worth of goods, but because the home country can only produce up to Qd,
it must import Qw-Qd worth of goods.

Figure 1. Price without the influence of a tariff

When a tariff or other price-increasing policy is put in place, the effect is to increase prices
and limit the volume of imports. In Figure 2, price increases from the non-tariff P* to P'.
Because price has increased, more domestic companies are willing to produce the good, so
Qd moves right. This also shifts Qw left. The overall effect is a reduction in imports,
increased domestic production and higher consumer prices. (To learn more about the
movement of equilibrium due to changes in supply and demand, read Understanding Supply-
Side Economics.)
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Figure 2. Price under the effects of a tariff

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.
Since the 1930s, many developed countries have reduced tariffs and trade barriers, which has
improved global integration and brought about globalization. Multilateral agreements
between governments increase the likelihood of tariff reduction, while enforcement on
binding agreements reduces uncertainty.
The Bottom Line
Free trade benefits consumers through increased choice and reduced prices, but because the
global economy brings with it uncertainty, many governments impose tariffs and other trade
barriers to protect industry. There is a delicate balance between the pursuit of efficiencies and
the government's need to ensure low unemployment.
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GATT provisions that allow restrictions

1. Restrictions that require specific GATT approval
Waiver, Article XXV;
Retaliation authorized under dispute settlement, Article XXIII
Special provisions in accession agreement, Article XXXIII
Release from bindings to pursue infant industry protection, Article XVIII.C, D

2. Provisions for renegotiating previous concessions and commitments
Periodic renegotiation, Article XXVII.1 and Article XXVIII.5;
Special circumstances renegotiation, Article XXVIII.4;
Increase of duty with regard to formation of a customs union, Article XXIV.6
Withdrawal of concession in order to provide infant industry protection, Article XVIII.A
Restrictions that can be imposed unilaterally
General exception, Article XX
Import and export restrictions or prohibitions necessary to standards or to apply regulations
for classification, grading or marketing, Article XI.2.b
Import restrictions on agriculture or fisheries products necessary to enforce policies to
restrict domestic output, Article XI.2.C
National security exception, Article XXI
Non-application at the time of accession, article XXXVII
Withdrawal of concession, Article XXVII
Restriction to safeguard the balance of payments, Articles XII and Article XVIII.B
Emergency actions, Article XIX
Anti-dumping duties, Article VI
Countervailing duties, Article VI
Source: Finger 1995 in (Pandey, 2003: 5 -6)







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CHAPTER 3: ANALYSIS

Analysis of Tariff and Non-Tariff Barriers on Indias Export to U.S.A
Indias Trade With U.S.A
India US Trade
Trade and commerce form a crucial component of the rapidly expanding and multi-faceted
relations between India and US. From a modest $ 5.6 billion in 1990, the bilateral trade in
merchandise goods has increased to $ 57.8 billion in 2011 representing an impressive
932.14% growth in a span of 21 years.
Indias merchandise exports to the U.S. grew by 10.81% from $ 17.94 billion during the
period January- June 2011 to $ 19.88 billion in January- June 2012. US exports of
merchandise to India declined by 2.86% from $ 10.48 billion during the period January
June 2011to $ 10.18 billion in January June 2012. India US bilateral merchandise trade
stands at $ 30.06 billion during this period.
Trade during the period January June 2012
i) Major items of export from India to US
Select major items with their percentage shares, are given below.
a) Textiles (16.5%)
b) Precious stones & metals (17%)
c) Pharmaceutical products (9.9%)
d) Mineral Fuel, Oil (7.8%)
e) Lac, Gums, Resins (8.5%)
f) Organic chemicals (5.8%)
g) Machinery (5.4%)
h) Electrical Machinery ( 3.9%)

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ii) Major items of export from US to India
Select major items with their percentage shares, are given below
a) Precious stones & metals (20.5%)
b) Machinery (13.7%)
c) Mineral fuel, Oil, etc. (9.9%)
d) Optical instruments & equipment (7.3%)
e) Electrical machinery (6.6%)
f) Aircraft and parts (3.8%)
g) Organic chemicals (4 %)
h) Iron and steel (3.4%)







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Trends with respect to the major items of bilateral trade during the past two years are as
follows.
Indias exports to US
Cut and polished diamonds and jewelry is a major item of Indias exports to the
US, accounting for 22.2%. Exports of this item increased from $ 6.86 billion in 2010
to $ 8.02 billion in 2011, an increase of 17%.
Textiles exports accounted for 17.4% of Indias exports to the US in 2011. Textile
exports grew from $ 5.69 billion in 2010 to reach $ 6.28 billion in 2011, an increase
of 10.37%.
Exports of pharmaceutical products grew from $ 2.39 billion in 2010 to $ 3.22
billion in 2011, an increase of 34.5%.
Exports of mineral fuel, oil grew from $ 2.32 billion in 2010 to $ 3.19 billion in
2011, an increase of 37.2%.
Exports of organic chemicals grew by 15.5% from $ 1.72 billion in 2010 to $ 1.98
billion in 2011.
US exports to India
Exports of precious stones and metals which accounted for 21.4% of exports from
US to India grew by 9.9% to reach $ 4.62 billion in 2011 from $ 4.21 billion in 2010.
Machinery exports grew by 9.8% from $ 2.67 billion in 2010 to $ 2.93 billion in
2011.
Exports of electrical machinery grew by 12.7% from $ 1.36 billion in 2010 to $1.54
billion in 2011.
Exports of aircraft, aviation machinery and parts, fell by 39.7% to $ 0.77 billion in
2011 from $1.28 billion in 2010.
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During the year 2007, the basket of US imports to India included exceptionally large imports
of aircraft /parts, which resulted in a leap in the growth rate of US exports to 54.7%. With
this component excluded, the growth rates of US exports in 2007 and 2008 are 37.5% and
39.9% respectively.
Important Statics showing importance of export to U.S.

Top Export Markets for India:


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U.S. Contributes 34% to Indias Total Export
Analysis of Trade Barriers faced by India Export to U.S.
HS Code Commodity Type of
Barriers
Country Details
30000 Fish Regulations U.S. Increased inspections under the Public
Health Security and Bioterrorism and
Response Act of 2002 (Bioterrorism
Act 02).
30000 Fish Labelling U.S. Mandatory labelling of country of
origin/ whether "farm raised" or "wild"
for
fresh fish and shellfish under the
Country of Origin Labeling
Programme (wef
September 2004) and Public Law 107-
171. Punitive fines of $ 10000 per
violation
30000 Fish Certification U.S. US has not agreed to recognition of
EIC certification on account of the
costs
and the complications involved
30613 Shrimp &
Prawn
Standards U.S. Random checking and FDA rejection
based on criteria of Salmonella, Filth
and
Decomposition.
480000 Paper Import U.S. cargo handling, domestic boycotts, ani
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products Restriction import campaigns, non scientific
quarantine restrictions
480000 Paper
products
Customs U.S. surcharges, port charges, statistical
taxes
480000 Paper
products
Environmen
tal
U.S. Eco labelling for copying/ graphic
paper and tissue paper products
480000 Paper
products
Standards U.S. Food safety and health requirements
520000 Cotton
Textiles
Labelling U.S.
520000 Cotton
Textiles
Rules of
Origin
U.S.
520000 Cotton
Textiles
Documentati
on
U.S.
520000 Cotton
Textiles
Customs U.S.
730000 Industrial,
Municipal &
Sanitary
Castings
Public
Procurement
U.S. 1933 Buy American Clause used in
North Carolina and maybe in Virginia
in
the future
730000 Industrial,
Municipal &
Sanitary
Castings
Standards U.S. Zero tolerance on radioactive
contamination caused by Cobalt 60
sought by
US Customs which is unreasonable
840000 Engineering
Goods
Inspection U.S. Inspection procedure for detection of
bugs which is cost prohibitive (5-7%
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of
the CIF value of US imports)
24011010 FCV Tobacco
- not
stemmed or
stripped
Import
Restriction
U.S. TRQ of 3000 tons with 350% out of
quota duty on FCV / Burley tobacco
24011040 Burley
Tobacco-not
stemmed or
stripped
Import
Restriction
U.S. TRQ of 3000 tons with 350% out of
quota duty on FCV / Burley tobacco
24011040 FCV Tobacco
- partly
stemmed or
stripped
Import
Restriction
U.S. TRQ of 3000 tons with 350% out of
quota duty on FCV / Burley tobacco
24012040 Burley
Tobacco-
partly
stemmed or
stripped
Import
Restriction
U.S. TRQ of 3000 tons with 350% out of
quota duty on FCV / Burley tobacco
Food products Labelling U.S. Detailed labeling requirements with
extensive products/content description
Food products Regulations U.S. Production, storage & handling
facilities to be registered with FDA
and
advance notice to FDA of imports.


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List of Non-tariff Barriers in United States of America towards India Merchandise Trade:

Analysis of Tariff and Non-Tariff Barriers on Indias Export to Japan
India-Japan Trade
This site provides detail information on Indian Exports to Japan. The site also focuses on
the current development of exports from India to Japan.
Indian Exports to Japan is as old as post world war II era. The trade relations between
India and Japan flourished after the establishment of diplomatic ties, especially after the
World War II. Japan resurrected form the debacle of the World War II loss with the help of
India's iron ore export. Japan reciprocated India by providing yen loans to India in 1958, first
of its type, by Japanese government. And as a matter of fact since then, Japan is India's
largest aid donor.
Indian Exports to Japan includes items like -
Agricultural products,
Fresh Fruits and dried fruits,
Fruit juices and concentrates,
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Vegetables,
Oilseeds,
Vegetable oils and fats,
Edible nuts,
Sugar and honey,
Grains and Pulses,
Wheat,
Tea,
Coffee,
Spices and herbs,
Tobacco,
Leather garments and goods,
Handicrafts,
Carpets,
Cashew.
Fisheries products,
Cotton,
Animal feed.
The block buster item from India remains Indian seafood products, especially Indian
shrimps. Japan is the largest importer of Indian shrimps. Indian mangoes are getting
huge popularity in Japan. Inspections by Japanese personnel and representatives were held at
different facilities in India to verify and confirm the vapor heat treatment facilities for
agricultural products. This was done as a proactive measure against prevention of possible
cross-country transmission of infected agro-products, especially to check infested mango
export from India to Japan. Japan have deep concern regarding pests especially, fruit flies.
Some times back there were high rejections of imported Indian mangoes since, it was found
infected with pests. As a matter of fact, to fill up the vacuum of Indian mangoes Japan started
importing mangoes from other East Asian countries like countries like Philippines and
Indonesia. Japan's deep liking for Indian mangoes can be well apprehended, since the current
crop imported from Philippines and Indonesia are sold at a high premium. Moreover,Indian
mangoes are of same quality but are much less expensive than crops from the south East
Asian countries.
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Recently, Mr. Kamal Nath, the minister for trade and commerce, India have signed
agreements which would facilitate opening of -
Research Commission on Trade in Agriculture,
Forestry Products,
Fishing Products.
The tradition and social values of India and Japan are similar and to commemorate the
long and good friendship between India and Japan, the government of both the countries
have marked the Year 2007 as India and Japan Friendship year.
NTBs Facing India's Exports in Japan
Japan is seen to have the highest listed NTBs for a large number of items compared with EU.
UNCTAD has identified around 36 categories of hard-core NTB, which Japan is imposing on
its imported goods. Out of this, at least half of it are imposed on imports of manufactured
goods to Japan (Table 4), i.e. there are 2742 manufactured commodities (lines) which face at
least one or other type of listed NTBs. Also, a significant number of Japanese imports are
subject to multiple types of NTBs; and most of these items, among industrial products,
belong to commodity groups like mineral fuel (HS Chapter 27), organic chemical (chapter
29), pharmaceutical products (chapter 30), fur skin and artificial skin (chapter 43) and wood
and wood products (chapter 44). Apart from these, imports of a large number of commodities
require licenses, must meet particular specifications, and imported only through specific
agencies etc.

Sr.
No.
Types of NTBs imposed by Japan on Non-Agriculture Products
1 Broad categories of NTBs imposed:
1. Tariff Quota
2. Variable charges
3. Antidumping duties
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4. Automatic license
5. Non-automatic license
6. Authorization for wild life protection
7. Authorization to ensure national security
8. Authorization for political reasons
9. Global quota
10. Quota for seminar products
11. State monopoly of imports
12. Sale importing Agency
13. Product characteristic Requirements to protect human health
14. Product characteristic requirements to protect environment
15. Product characteristics to protect wild life
2 Some select examples of NTBs
1. Tariff quota on certain food products, alcohol, leather and footwear products
2. Prior to importation motor vehicles generally need to meet a type approval test
3. Only some select branded vehicles approved for car imports: (a) BMW (46
types), (b) Volkswagen / audi (84 types), (c) Mercedes Bens (62 types), (d)
Oper (20 types) (e) GH (12 types) (f) Chrysler (6 types). Examination period: 2
months
4. Auto components regarded as essential to vehicle safety called critical parts
must be replaced either by a certified garage approved or capable of repairing
all critical parts, or the replacement needs to be checked by Ministry of
Transport.
5. According to the provision of Law, importing pharmaceuticals require a license
from the Minister of Health and Welfare.
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6. For granting a license to import cosmetics, the MHW uses a protective list, such
that only ingredients with prior approval can be used.
7. Iron and steel production can apply for government assistance, such as low
interest loan, loan guarantees and tax breaks.

Analysis of Indias Export trade to Japan




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CHAPTER 4: CONCLUSI ON

From the analysis of Data it can be concluded that India is getting affected by the
trade barriers raised by U.S.A and Japan.
Export will play a very important role if India wants to become a super power and
economically strong nation, hence such barriers should be reduced.
Below are few suggestions that can help us to eliminate or reduce the barriers to trade.
SUGGESTIONS:
India should try to make a strong representation in WTO and other international
forum to eliminate the barriers
Proper guidance should be given by Various export promotion organisation like FIEO
to the Indian exporter has to how to deal with such trade barriers
More subsidies and promotion scheme should be provided in our foreign trade policy
for helping India to exporter face such Trade Barriers
India should enter into various Trade Agreements with different countries which
would help to reduce the trade barriers to Indian exporters










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Bibliography:

BOOKS
1. Non Tariff Measures- A Fresh Look At The Trade Policy
2. Non Tariff Measures With Market Imperfection: Trade And Welfare I mplications.

WEBSI TES
www.google.co.in
commerce.nic.in/
dgft.gov.in
www.investopedia.com/
www.slideshare.com
www.scrib.com