TRADE BARRIERS

Trade Barriers

• “Any hurdle, impediment or road

block that hampers the smooth flow
of goods/services and payments from
one destination to another
• They arise from the rules and
regulations governing trade either
from home country or host country or
intermediary.
• They are man –made obstacles
to the free movement of goods
between different countries .
• Free and fair international trade
is an ideal situation as it is
beneficial to all countries.
• Inspite of WTO , trade barriers
exist.
Objectives of Trade
Barriers
• To protect domestic industries from foreign goods.
• To promote new industries and R & D activities by
providing a home market for domestic industries.
• To maintain favourable balance of payment, by
restricting imports from foreign country.
• To conserve foreign exchange reserves of the
country by restricting imports from foreign
countries.
• To protect the national economy from dumping by
other countries with surplus production.
Objectives of Trade
Barriers
• To mobilise additional revenue by
imposing heavy duties on imports.This also
restricts conspicuous consumption within
the country.
• To counteract trade barriers imposed by
other countries.
• To encourage domestic production in the
domestic market and thereby making the
country strong and self –reliant.
Demerits of protection
• Protection is against the interest of
consumers as it increases price and
reduces variety and choice.
• Protection makes producers and
sellers less quality conscious.
• It encourages domestic monopolies
• Even inefficient firms may feel
secure under protection and it
encourages innovation
Demerits of protection

• Protection leads to corruption.

• Reduces the volume of foreign trade.
• Protection leads to uneconomic
utilization of world’s resources.
• Two types of trade barriers
• A) Tariff barriers
• B) Non-Tariff barriers.
Non-Tariff Barriers
• Types of Non-tariff barriers

• A) Quota system:
The quantity of a commodity permitted to
be imported from various countries during a
given period is fixed in advance.
The different types of quota are
• 1) Tariff quota: imports of a commodity up
to a specific volume are allowed duty free
or at a special low rate.
• Imports in excess of this limit are subject
to duty or a higher rate of duty.
• 2) Unilateral quota:
Here a country unilaterally fixes a ceiling on the quantity
of the import of a particular commodity.

• 3) Bilateral quota :
results from negotiation between the importing country
and a particular supplier country. Or between the
importing country and export groups within the supplier
country.

• 4) Mixed quota:

Here the producers are obliged to utilize domestic raw

materials up to a certain proportion in the production of a
finished product.
• B) Import Licensing:
• Here the prospective importers are
obliged to obtain a licence from the
licensing authorities .
• The possession of an import licence
is necessary to obtain the foreign
exchange to pay for the imports.
• It is a powerful device for
controlling the quantity of imports.
• C) Voluntary Export Restraints:
are bilateral arrangements instituted to restrain the
rapid growth of exports of specific manufactured goods.
U.S and EU have regulated the imports of several
products (e.g--- MFA—Multi-Fibre arrangement).

• Under VERs , the exporting country voluntarily restrains

the export of the specific product in order to either help
the other country to reduce its trade deficit or to protect
domestic industry (of the importing country).

• VERs are adopted under pressure from the importing

country
• D) State Trading :
refers to import-export
activities conducted by the
government or a govt. agency.
State trading acts as a barrier,
restricting the freedom of
private parties.
• E) Preferential treatment through trading
blocs:

Some countries form regional groups and

offer special concessions and preferences
to member countries.
As a result trade is developed among the
member countries and allows advantages
to all member countries.
But it acts as a barrier to non-member
countries.
• F) Health and safety measures:
many countries have specific rules
regarding health and safety
regulations. Such health and safety
measures are mainly applicable to
raw materials and food items.
e.g Import of chicken was banned
from china after bird flu was
reported.
Tariff Barriers
• A tariff barrier is a levy collected on goods when they
enter a domestic tariff area through customs.

• Tariff refers to the duties imposed on internationally

traded commodities when they cross national boundaries
and may be in the form of heavy taxes/import duties.

• Tariffs enhance the price of the imported goods, thereby

restricting their sales as well as their import.

• The aim of tariff is thus to raise the prices of imported

goods in domestic markets , reduce their demand and
thereby discourage their imports.
Classification of Tariffs
• A) On the basis of origin and destination of the
goods crossing national boundaries:

a) Export duty:

tax levied by the country of origin, on a commodity

designated for use in other countries.

The majority of finished goods do not attract export

duty.

Such duties are normally imposed on the primary

products in order to conserve them for domestic
industries/consumers.e.g oilseeds, onions, coffee.
• b) Import duty:
is a tax imposed on a commodity originating in
another country by the country for which the
product is designated.
The purpose of heavy duty is to raise revenue and
to provide protection to domestic countries .
• c) Transit duty:
tax imposed on a commodity when it crosses the
national frontier between the originating country
and the country to which it is consigned to.
• B_) On the basis of quantification of tariffs:
• 1) Specific duty: a flat sum collected on
physical unit of commodity imported. for
e.g Rs 3000 per metric ton on cold rolled
iron coils.
• 2) Ad-valorem duty: This duty is imposed at
a fixed percentage on the value of
commodity imported.
• 3) Compound duty: here the commodity is
subjected to both specific and ad-valorem
duty.
• C) On the basis of the purpose they serve
• 1) Revenue tariff:
It aims at collecting substantial revenue for the
government .
Here the duty is imposed on items of mass
consumption, but the rate of duty is low (e.g
biscuits)

• 2)Protective tariff :
aims at giving protection to home industries by
restricting or eliminating competition.
• These tariffs are usually high so as to reduce
imports.
• 3) Anti-dumping duty:
dumping is the commercial
practice of selling goods in
foreign markets at a price
below their normal cost so as to
capture the foreign market.
e.g Indian steel companies were
accused of dumping by USA
• 4) Countervailing duty:
duty imposed to nullify the benefits
offered through cash assistance or
subsidies , by the foreign country to
its manufacturers in the destination
country.
The rate of such duty will be
proportional to the extent of cash
assistance or subsidy granted.
• D) On the basis of trade relations:

• 1) Single column tariff:

tariff rates are fixed for various commodities and
the same rates are made applicable to imports from
all other countries
• 2) Double column tariff :
here , two rates of duties are fixed.
The lower rate is made applicable to a friendly
country or to a country with which the importing
country has a bilateral trade agreement.
The higher rate is applicable to all other countries.