Introduction

A nontariff barrier (NTB) is any policy used by the government to reduce or halt trade other than a simple tariff or we can define it more precisely as; “Any measure (public or private) that causes internationally traded goods and services, or resources devoted to the production of these goods and services, to be allocated in such a way as to reduce potential real world income.” Although the term NTBs is widely used by experts and non-experts alike it presents a number of challenges in the context of trade policy. Four of them are highlighted here:  The term denotes a residual category, i.e. all trade obstacles, which are not due to import or export duties (tariffs) are non-tariff ones. Since the number of measures dealt with in trade agreements has increased over time the list of NTBs has been extended as well. Various attempts at categorizing or classifying them have been made but there is no universally accepted solution. Contrary to tariff measures (duties) which are normally transparent, NTBs are often more difficult to detect because they can be “hidden” in rules and practices that have a perfectly legitimate objective. They also leave more discretion to administrators in applying them. Furthermore, NTBs can have more trade-restrictive effects than tariffs, which raise the cost of a given product, and go as far as excluding a good from a market altogether. Commentators thus agree that the economic effect of NTBs is very substantial. NTBs are quite frequent and can be found all over the world. They became more visible as a result of the lowering of tariffs following the multilateral trade negotiations in the context of the General Agreement on Tariffs and Trade (GATT) and the conclusion of free trade agreements (FTAs). It appears that in some cases NTBs were also introduced in order to counter-balance the loss of protection in the wake of lower tariffs. Most commentators agree that the main reason for the frequent use of NTBs can be found in the arena of internal politics of a country. Legislators and governments seem to find it easier to conceive of non-tariff measures against imports in times of economic difficulties or in the case of a struggling business sector than taking less popular measures of a domestic nature. In the absence of an effective domestic resistance against such decisions, which often hurt consumers, harmonization measures, the elimination of NTBs or outright counter measures in the context of international agreements are often the most effective ways of convincing governments to rescind such NTBs.

1|Page

Not all non-tariff measures impacting trade are necessarily illegal. Measures and decisions leading to complications, slowdowns, price increases and even prohibitions for imports and exports may be justified if they are needed to preserve the health and safety of animals and humans or protect the environment. For such cases, rules and guidelines had to be found that define the conditions under which such trade-restrictive measures are allowed.

Background History: Non Tariff Barriers in Multilateral Trade Negotiations
Despite a long history of non-tariff barriers (NTB) in international trade, the special attention they have got only in the early 70th when the discussion of the NTB was explicitly scheduled in the framework of Tokyo Round of the GATT negotiations. The understanding of importance of the NTB has appeared alongside with gradual reduction of tariff barriers and, consequently, expected growth in importance of the NTB. These barriers are less transparent, more flexible, and extremely variable. According to the United Nations Conference on Trade and Development (UNCTAD) classification, there are approximately one hundred different codes representing various nontariff measures. These characteristics made the NTB important substitutes for country‟s tariff regime. GATT Trade Rounds Year 1947 1949 1951 1956 19601961 19641967 19731979 19861994 Place/name Geneva Annecy Torquay Geneva Geneva Dillon Round Geneva Kennedy Round Geneva Tokyo Round Geneva Uruguay Round Subjects covered Tariffs Tariffs Tariffs Tariffs Tariffs Tariffs and anti-dumping measures Tariffs, non-tariff measures, “framework” agreements Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc Countries 23 13 38 26 26 62

102 123

The multilateral trade negotiations dealing with non-tariff barriers are brief. Multilateral trade negotiations are conducted under the auspices of the General Agreement on Tariffs and Trade, which was created shortly after World War II. GATT, a term that encompasses the multilateral agreement governing international trade, the bodies administering the agreement, and all associated trade-related activities, has focused on the reduction of tariff rather than non-tariff
2|Page

was a comprehensive effort to reduce trade obstacles stemming from tariffs and non-tariff measures. 5) customs valuation. similar to the code on technical standards. Domestic subsidies that treat domestic and export activities identically are generally allowed. for qualifying nonmilitary purchases.barriers. it establishes rules for setting standards and resolving disputes. Generally speaking. which are tariffs to offset a subsidy received by a foreign exporter. governments (including government-controlled entities) must treat foreign and domestic producers alike. the most recently completed round lasting from 1973 to 1979. and 6) antidumping The code on subsidies and countervailing duties prohibits direct export subsidies. safety.  The Tokyo Round The Tokyo Round. In addition to resolving disputes. the code established criteria to distinguish between a domestic and an export subsidy. The code on government procurement states that. 2) government procurement. 3) technical standards. except under certain situations in agriculture. This code also allows a country to seek redress for cases in which another country‟s subsidized exports displace its exports in thirdcountry markets. To date. with the first six concerned almost exclusively with tariffs. 4) Import licensing procedures. The code on technical standards attempts to ensure that technical regulations and product standards such as labeling. Reducing delays in licensing and paperwork are two areas of special interest. however. The code does not specify standards. seven rounds of GATT negotiations have been completed. are prohibited unless the subsidized goods are shown to be causing (or threatening) “material” injury to a domestic producer. the code establishes procedures for opening and awarding bids. pollution and quality requirements do not create unnecessary obstacles to trade. This code is noteworthy in extending GATT‟s prohibition of export subsidies to trade in raw materials. New or reinforced agreements called “codes.” were reached on the following non-tariff measures: 1) Subsidies and countervailing duties. Because nearly all governments subsidize domestic producers to some extent. governments stated their commitment to simplify the procedures that importers must follow to obtain licenses.The code on import licensing procedures. is not spelled out in detail. Countervailing duties. 3|Page .

GATT has not effectively combated rising non-tariff barriers for many reasons. A recent study by the Congressional Budget Office (1987) predicts that the performance of the Uruguay Round will be judged largely on its handling of nontariff barrier issues. has and will discuss a number of nontariff barrier issues. the sweeping nature of the U. proposal has been resisted by some nations. the anti-dumping code prescribes rules for anti-dumping investigations. With respect to services. The United States has proposed the elimination of all trade. A major issue in the anti-dumping code is how to handle input dumping (that is. Trade issues involving agriculture and services (banking. Streamlining and resolving disputes is a priority during the current round of multilateral negotiations. While the major agricultural nations have agreed to the principle of liberalizing agriculture. A major obstacle is determining at what point a national economic policy. whose international effects are somewhat uncertain. The Uruguay Round.The code on customs valuation established a uniform system of rules to determine the customs value for imported goods. many of which extend beyond the codes of the Tokyo Round. especially the European Community. broadening the government procurement code to include service contracts will be discussed. Finally. the primary goal is to establish principles for extending GATT coverage to this trade. agreements dealing with the mutual acceptance of test data generated by other parties and the openness of the activities of standards bodies will be sought.S. the imposition of anti-dumping duties and settling disputes. In particular. export sales of products that contain inputs purchased at dumped prices). This code uses transaction prices to determine value and is designed to preclude the use of arbitrary values that increase the protective effect of a tariff rate. The standards for determining injury are clarified. non-tariff barriers are designed to satisfy a domestic rather than an international objective. which has tended to undermine their effectiveness. Concerning the technical standards code. The Tokyo Round codes will be reviewed and possibly modified during the Uruguay Round. the Uruguay Round. becomes an internationally unacceptable 4|Page . Two reasons are that the effects of non-tariff barriers are less transparent than the effects of tariffs and.  The Uruguay Round The Tokyo Round codes have relied on good faith compliance. insurance and transportation) are of paramount importance. This code obligates developed countries to treat developing countries preferentially. begun in September 1986. in many cases.and production-distorting agricultural policies. construction.

such as clarifying or simplifying customs rules and procedures. „Thus. where possible.These socalled non-tariff barriers (NTBs) are so serious that they are specifically under negotiation within the World Trade Organization Doha Round. the reduction or elimination of non-tariff barriers (NTBs) to trade in industrial and manufactured goods is a major part of the non-agricultural market access (NAMA) negotiations in the current WTO Doha Round. The work program covers about 20 areas of trade. The Round is also known semi-officially as the Doha Development Agenda as a fundamental objective is to improve the trading prospects of developing countries. in November 2001. which began earlier. which block them from selling products in other countries. notably the negotiations around the formula for determining the size of tariff cuts. The work being done on NTBs at the WTO provides an opportunity to encourage WTO members to find the least trade restrictive ways to meet their regulatory objectives. Although work to address NTBs has been underway for some time now – both by the general membership as well as by New Zealand – it has tended to take a back seat to the other NAMA issues. having found that these non-tariff barriers have cost exporters more than $1 billion annually.non-tariff barrier. including on agriculture. such as customs rules or import standards. reduced or eliminated. New Zealand fully supports this objective.  The Doha Round The Doha Round is the latest round of trade negotiations among the WTO membership. The Doha Ministerial Declaration provided the mandate for the negotiations. In some overseas markets. The negotiations deal principally with pushing forward trade facilitation issues. Its aim is to achieve major reform of the international trading system through the introduction of lower trade barriers and revised trade rules. Qatar. The Round was officially launched at the WTO‟s Fourth Ministerial Conference in Doha. ministers also approved a decision on how to address the problems developing countries face in implementing the current WTO agreements. services and an intellectual property topic. Exporters often find that it is not only tariffs but other issues. 5|Page . In addition. These national economic policies have frequently resulted from the lobbying efforts of strong domestic constituencies such as agricultural interests. In Doha. The aim is to ensure that such obstacles are subjected to effective rules and. major trade policy reform will be met with much resistance from these groups. New Zealand trade officials spend a great deal of time and effort seeking to ensure that products can enter the market and compete fairly with domestic products.

this reflects the greater historical importance of tariff reductions to securing trade liberalization. such as inspections and documentation creating trading cost. it is important to ensure that these NTBs do not become unnecessary obstacles to trade. competition policies. and customs clearance procedures. foreign direct investment policies. and immigration policies. animal welfare. and countertrade. Two better-targeted categories deal with customs procedure and administrative practices. foreign exchange controls often based on licensing. Classification of NTBs Economists usually suggest the following classification with five categories. national taxation and social security policies. Technical barriers to trade (TBT) relate to health. discriminatory preferential trading agreements and rules of origin. prohibitions such as embargos. and border tax adjustment such as value-added taxes potentially imposed asymmetrically on imported and domestic competing goods. customs classification procedures other than the international harmonized system of classification to levy further fees. but it also highlights the inherent difficulty in dealing with a broad range of often unrelated NTBs. This category covers direct governmental participation and restrictive practices in trade. This category includes variable levies triggered once prices reach a threshold or target level. government procurement policies with domestic preferences. It includes import quotas and their administration methods (licensing. and industrial policy favoring domestic firms with associated subsidies and aids. domestic content and mixing requirements forcing the use of local components in a final product. the category extends to macro-economic and foreign exchange policies.  A first broad category covers quantitative NTBs and similar restrictions. sanitary. such as barter and payments in kind. which are central to NTBs. A second category covers fees other than tariffs and associated policies affecting imports. In addition.To some extent. One of the difficulties in dealing with NTBs is that they are often linked to legitimate public policy objectives such as health and safety or environmental protection. auctions. including a wide set of macro-economic policies. however. They may therefore be in place for valid regulatory reasons. and technical barriers to trade. anti-dumping and countervailing duties imposed on landing goods allegedly exported “below cost” or with the help of export subsidies provided by foreign governments. a limit on imports but managed by exporters. At the same time. It collects various forms of government policies. advanced deposit requirements on imports. voluntary export restraints. export limitations and bans. and 6|Page    . A third category is extensive. and other). The former covers custom valuation methods that may depart from the actual import valuation. such as state-trading and state-sponsored monopoly.

and government reports. The data are derived from various official national publications and information supplied by governments to the GATT.environmental regulations. But. General Methods for Measuring NTBs One of the main questions in study of the NTB is a methodology of their measurement. quantity measures. Direct information. surveys. and trade coverage of non-tariff trade policies as determined from special. or categories of trade. The two broad measurement methods commonly identified are. form. It record the number.  Frequency-Type Measures This method is simply to measure the policies in terms of their numbers and trade coverage. their variety. is an appropriate approach only when trying to assess NTBs‟ impact at a quite disaggregated level. safety and industrial standards.   NTB specific Indirect consideration of NTBs NTB-specific methods use direct information on NTBs to define their possible impact. There are several types of non-tariff barriers measurement: frequency measures. and disparity in influences. The problems exist because of non-transparency of the NTB. Even if exhaustive information were available. and indices deflators. Nevertheless there exist arrays of more general approaches that are capable of addressing some of the shortcomings of direct approach. as general equilibrium effects are likely to be excluded. 7|Page . quantification of NTBs is a must. even at the industry or sector level. packaging and labeling regulations and other media/advertising regulations. obtaining the complete information set. sectors. quality standards. the construction of a general measure of NTBs could be tedious. quantity-impact measures based upon econometric estimates of models of trade flows. which should normally be avoided when dealing with a more general analysis. Missing information could introduce a downward bias on the estimates of the trade impact of NTBs. Like the frequency type measures based upon inventory listings of observed NTBs that apply to particular countries. and measures of equivalent nominal rates of assistance. pricecomparison measures calculated in terms of tariff equivalents or price relatives. price-change measures. is likely to be difficult and would require intensive and extensive data collection work. Measurement and Quantification of NTBs To address concerns related to the use and impacts of NTBs. then. frequency of complaints by trading partners.

On the other hand. mercantilist trade restrictiveness index and trade restrictiveness index. Quotas are government-imposed limits on the quantity or value of goods traded between countries. The result is treated as a NTB. These indices are very sound in terms of their theoretical background. Price-Comparison Measures This measure provides direct measures of the price impacts of NTBs. One way or another. the quota has an impact on the market for this product. Forms of Non Tariff Barriers At its most detailed level. For instance. their application suffers from same problems as price-based methods. the classification identified over 100 different types of NTBs at its most detailed level though it does not incorporate any measures applied to production or to exports. However. by how much it reduces trade. that are defined as deflators that if applied to undistorted prices produce the same trade volume (for mercantilist index) or same real income (for trade restrictiveness index) as the initial set of trade . This approach calculates the differential between the import price and the domestic price and the domestic price of each commodity at a disaggregated level and subtracts the tariff rate on the commodity from this differential.  Indices deflators This method of trade barriers estimation that could be applied both to tariff and nontariffs was proposed by Anderson and nearly in 90th. the government gives out a limited number of licenses to import the quota quantity legally and prohibits importing without a license. Quotas The best known nontariff barrier is quota or import quota. 8|Page . The authors constructed two indices. There are several reasons why protectionists and government‟s officials may favor using a quota instead tariff. 1. As long as the quota quantity is less than the quantity that people would want to import without the quota. the price measures such as tariff equivalents fail to provide this information.  Quantity-Impact Measures Jager and Lanjouw (1977) in an article „An Alternative Method for Quantifying International Trade Barriers‟ argued that a quantity measure is preferable to a price measure since quantity measure tries to tell us what we really want to know about the effects of an NTB: that is. But we will discuss here some most important and frequently practiced by whole world.

Often. with no restriction as to source.  A quota ensures that the quantity of imports is strictly limited. or with groups of its exporters.for example. Such a quota may be global or allocated. Embargo Quotas that entirely eliminate trade in a certain product are known as embargoes. no more import licenses are issued. If it is allocated. Unilateral Quotas These are quotas set by a country without pervious consultation or negotiation with others. i. the exporting country is given the responsibility for issuing licenses to its exporter. ii. Once the quota for the period has been filled. iii. If it is global. a tariff would allow import quantity to increase if foreign producers cut their prices or if our domestic demand increases. the importing country. Types of Quota An exporter may find that the foreign country restricts mostly imports not only by means of tariffs but also by qualitative measures. These officials often have administrative authority over who gets the import licenses under a quota system. by taking bribes). A quota gives government officials greater power. Sometimes a negotiated bilateral quota goes under the guise of a voluntary export quota . with a bilateral negotiated quota. Embargoes are sometimes established as a form of economic sanction against the 9|Page . the restriction is placed on the total amount of imports only. Embargoes sometimes established as a form of economic sanction against the policies or practices of another country. allots shares of the quota to each country. Negotiated Quotas In this case. the total volume of goods that may be imported is set regardless of the countries of origin or the importers and exporters involved. and they can use this power to their advantage (for instance. after negotiations with the government of each exporting country. the permitted volume of imports is allocated among countries of origin and private traders in accordance with some previous pattern. These usually take the form of import quotas for each particular product. With a multilateral quota. the “voluntary" quotas that Japan places on its exports of man-made textiles to the United States.

In these circumstances. Phase out of worldwide textile and apparel quotas is not scheduled to be completed until 2005. trade occurs. Despite the movement to replace them with these alternative forms of protection. butter. the NATO allies have an agreement that restricts exports of certain high tech goods to countries considered to be unfriendly. Perhaps as a result of this attitude. iv. various products containing sugar (including chocolate). Despite these examples. They may be imposed against all countries or used against only a few. quotas are very flexible tool of commercial policy. For internal and external impact of the quota depends in part on how the policy is administered. countries have found ways of imposing quotas indirectly by obtaining agreements from exporting countries to voluntarily limit exports. but then apply (often substantially) higher tariffs to quantities that exceed the quota. Sometimes countries will impose embargoes for national defense reasons. Sometimes countries announce an unallocated global quota. quotas on most manufactured products have long been prohibited by the international trade law administered by the World Trade Organization (WTO). These latter agreements are also gradually being phased out under the auspices of the WTO. In addition to formal restrictions. custom officials are instructed to maintain a count of the imported product (in terms of value or quantity) as it arrives at docks from different foreign suppliers. and cotton waste. quotas still exist. though limited. Tariff Rate Quotas (TRQs) TRQs are quota policies that allow a certain quantity of a good into a country at low (often zero) tariff rates. Rather quotas are most often set at levels greater than zero so that some. as of 1995. the United States had import quotas on many types of textiles and apparel. Once the quota 10 | P a g e    .policies and practices of another country. sugar. International trade law allows countries to impose quotas to provide temporary protection to aid locally distressed industries or when they have balance of payments problems. peanuts. Practical Implications of quotas  For example. From the point of view of government officials. cream. the United States has had an embargo on the export of most products from Cuba since 1962. cotton. cheese. For instance. For instance. For a variety of reasons that it has been explored that quotas are more restrictive then tariffs. and TRQs on milk. embargoes are relatively scarce. margarine.

Latecomers are turned away. Unallocated global quotas can lead to extraordinary profits for those lucky enough to be able to import the product into the country. licenses may be sold or given away. ii. under this type of quota scheme. especially among industrialized countries. Ways to Allocate Import Licenses The quota license to import is a license to buy the product from foreign suppliers at the world price and resell these units at the domestic price. 11 | P a g e . Thus. ports of entry into the country tends to be clogged during some parts of the year and empty during other parts. no more of the product is allowed into the country. some foreign producers may lose markets that had traditionally been theirs. This leads to considerable inefficiency in the use of cargo-handling facilities. The government auctions off the licenses to the highest bidders. This could lead to considerable friction between countries. The government allocates the licenses for free to importers using a rule or process that involves (almost) no resources costs. iii. i.  Quota licenses provide the bearer with the right to import into the country a specific amount of the product during a specific period of time. ii.has been reached. those foreign suppliers who get their product to domestic market first are able to sell their product. it is often the case that imports of the product that reach the docks exceed the levels permitted by the quota. In addition. government officials may want to ensure that certain groups (perhaps including themselves) become the beneficiaries of these policies. Depending upon the quota scheme in force. The recipients may be domestic or foreign. The quota results in mark up and who will get this mark up depend on how the licenses to import the quota quantity are distributed.  Unallocated global quotas are relatively uncommon. Because the system rewards those who import early in the quota period. Followings are some main ways to allocate import licenses: i. Quota does not discriminate between various potential sources of supply.

The auction revenues to government will be (almost) equal to the revenues that the government would instead collect with the equivalent tariff. One common way of fixing the license recipients and amounts is to give the licenses to firms that were doing the importing before the quota was imposed. Auction The government can run an import-license auction. Although they will have a lower volume of import business. The importers generally will be hurt by the imposition of quota. However. There are some other ways to examine who will get the mark up of imported goods and whether this affects the view of the inefficiency of the quota. b. In this case. or negotiation. Importers will be willing to pay something to buy a quota license because the right to acquire imports at the low world price and sell these imports at the higher domestic prices is valuable. Fixed Favoritism Import licenses adding up to the total quota can be allocated for free on the basis of fixed favoritism. 12 | P a g e . This is how the US government ran its oil import quotas between 1959 and 1973. if they receive the valuable quota licenses. In this case the importers lucky enough to receive the import license will get the mark up. the importing that they do will be very profitable. and they would then be a group opposing the quota. government will get all of the mark up in the form of auction revenues. in the same proportion to the amounts that they had previously been importing. selling import license on a competitive basis to the highest bidders. Each of them should be able to buy from some foreign exporters at the world price (playing different foreign exporters off against each other if any one of them tries to charge a higher price). They can resell the imports at the higher domestic price. applications. The price difference is pure profit. The government allocates the licenses through application and selection procedures that require the use of substantial resources.iii. There is a political reason for allocating import licenses in this way. they are much less likely to oppose the quota. a. Licenses to import were simply given to companies on the basis of the amount of oil they had imported before 1959. in which the government simply assigns the licenses to the firms (and/or individuals) without competition.

similarities between quotas and tariffs have been discussed that both of them are similar in their effects on prices. or compared to having no quota at all). these resources used up in the rent-seeking activities are being wasted (compared to the other two ways of allocating quota licenses. this variant of the auction entails some social costs that go beyond economic market inefficiency. Resource-using application procedures include allocating quota license on a first-come. Now we will highlight the main differences existing between tariffs and quotas. Using resources in this way is privately sensible for each individual firm seeking to get the economic created by the licenses. or on the basis of negotiations. the government can insist that firms (and/or individuals) that want to acquire licenses must compete for them in some way other than simple bidding or bribing. But. An example of resource wastage from negotiation is the time and money spent on lobbying with government officials to press each firms‟ case for receiving quota licenses. output. from the point of view of the entire country. and imports. It would be rational for the firms to use resources up to the value of the licenses themselves i. Suppose.e. on the basis of demonstrating need or worthiness. and Colombia in the 1980s. those seeking the licenses use resources to try to get to and stay at the front of the line. In New Zealand. up to the value of mark up. Resource-Using Procedures Instead of holding an auction. New Zealand. once or twice a year the government auctioned the rights to import over 400 different goods. c. that 13 | P a g e . Public awareness of corruptions also raises social tensions over injustice in high places.Public auctions of import license auctions are rare. Corrupt government officials can do a thriving business by selling import licenses under the table to whoever pays them the highest bribes. They were used in Australia. first-served allocation. With first-come. for instance. An example of allocation by worthiness is awarding quota licenses for materials and components based on how much production capacity firms have for producing the products that use these inputs. The equivalence or non equivalence of Tariffs and Quotas So far. Persistent corruption can cause talented persons to become bribe-harvesting officials instead of pursuing productive careers. As with other forms of corruption. There is an informal variant of a quota auction that is probably more prevalent.  One principal difference between Tariffs and quota concerns the effects of these alternatives policies on the behavior of the protected industry. first-served basis.

especially when compared with the bureaucratic costs of holding an auction. no new imports are allowed in. With a tariff. the monopolist knows that his or her competition is limited to a specific amount of imports.the domestic industry is a monopoly. With quota protection. potential beneficiaries will devote considerable sums of money on legal methods of persuasion. Moreover. This expenditure 14 | P a g e  .  The final difference is that relative to tariffs. even when authorities are known to resist bribes. And with higher the domestic prices come greater deadweight costs. governments would later be reluctant to drop quotas because of the loss in revenues. he or she merely subtracts the amount of quota-restrained imports from overall market demand and is then free to exercise his or her market power over the remaining part of the domestic market. The increased demand will be met by a rise in imports. the domestic monopolist can charge no more than the world price plus the tariff. Because monopolist faces potential competition from suppliers in other countries. internal price remains the world price plus the tariff. The chase for these valuable quota rents leads. he or she is unable to exploit his or her domestic monopoly power. If the domestic firm has market power in its own market. This is not the case with quota protection. They can also be different in administration difficulties. Under a quota. then it will charge higher prices and produce less under quota protection than under tariff protection. there is an incentive to bribe authorities to make particular decisions.  Tariff and quota protection can also be different if market forces change over time. With tariff protection. such as campaign contributions and expensive dinners or weekend vacations with lobbyists. Thus. quota protection encourages much more graft and corruption. Some economists argue that it is because politicians don‟t want consumers to know what individuals would be willing to pay for the quota rights. Such information would provide a clear signal of the consumer cost of the quota. It has already been cleared that the welfare impact of a quota depends in part on which of many interested parties obtains the quota rights and whether or not the rights are sold by government. the only way the market can reach the equilibrium is for the price to adjust. There is no clear cut answer as to why so few governments auction off quota rights. then. Suppose that domestic demand increases. Less cynical commentators note that in many cases the value of the quota rents may be relatively low. Others have argued that in the cases where the goal of protection is temporary shelter from foreign competition. to an expenditure of resources. Because of the arbitrary nature of the disposition of the quota rights.

Characteristics of Voluntary Export Restraints  VER is used by large countries as a rear-guard action to protect their industries that are having trouble competing against a rising tide of imports. these importers should be able to buy at the world price and sell these imports domestically at higher price and price markup will stay within the importing country. that is considered by many to be economic waste. As part of the Uruguay Round agreement. the since early 1960s the United States. In import quota. they should act like cartel that has agreed to limit total sales and to divide up the market. 2. The export producer should realize that there is much less incentive to compete among themselves for export sales. importer will be given quota rights such as if foreign export is competitive.  With the VERs. Voluntary Export Restraints (VERs) A voluntary export restraint is an odd-looking trade barrier in which the importing country government forces the foreign exporting country to agree voluntarily to restrict its exports to his country that‟s why it is also called as Protection with integrity.brings about no new production of goods generally valued for consumption purposes.  15 | P a g e . therefore. and some other industrialized countries have forced most developing countries to impose export quotas on most kinds of textile and clothing. For instance. and it is expenditure. and call their compliance voluntary. the industrialized countries have agreed to phase out these quotas by 2005. the European Union. restricting sales and raising prices. The key differences between import quota and VER are the effects on the export price and who gets the price mark up or economic rent created by the quantitative limit on trade. Instead. but they will probably be replaced (at least for some products) by other forms of protection. Through VERs the importing country actually gives foreigners monopoly power. forces them to take it. The export quotas were initially impose as temporary restraints in response to the protectionists pleas from import-competing firms that they needed time to adjust to the rising foreign competition. the exporting country‟s government usually distributes licenses to export specified quantities to its producers. This set of VERs is called the Multi-Fiber Arrangement. The export restraint usually requires that foreign exporting firms act like a cartel.

The economic effects of export subsidies are symmetrical with those of import tariffs. so the exporters shift towards exporting these varieties and this process is called as quality upgrading. The WTO does permit subsidies on primary (i.  In comparison with import quota. export subsidies on manufactured goods are outlawed by the WTO. Usually. With lower prices. Therefore. Indeed.  Other Examples of Non Tariff Barriers In addition to Quotas and VERs. Export Subsidy “An export subsidy is a direct (or indirect) payment from a country‟s government to one or more of its export industries that leads to an expansion of exports by that industry. and thereby enables exporters to charge a price that is lower than would otherwise be charged. is one of many countries that subsidizes the export of at least some of its agricultural products. we should be impressed with government‟s creativity in coming up with new ways to discriminate against imports. the foreign exporters now get the price mark up as additional revenue on the VER-limited quantity of exports.S. We will discuss some important types of nontariff barriers here. while remaining within the overall quantitative limit. and the U. faced with limited export quantity. law.S. Resources are drawn from 16 | P a g e . i. the profit margin on higher-quantity varieties is larger.But in VERs. non manufactured) products. the VER causes a loss of the price mark up that has to be paid to the foreign exporters rather than kept within the importing country. there are many other kinds of nontariff import barriers. Foreign export subsidies are also against U. Another important characteristic of VER is that for many products foreign producers can adjust the mix of varieties or models of the products that they export.” This payment is usually related to the level of exports. It can also be viewed as national loss due to the deterioration in the importing country‟s terms of trade (the higher price paid to the foreign exporters) because of the VER. Like quotas. Just as tariff cause production to expand in the import-competing sector. The legal means for dealing with export subsidies is to impose a tariff on the subsidized exports in order to offset the subsidy and raise the price of the product to the presubsidy price and the tariff imposed is known as countervailing duty. the exporters should charge the highest price that the market will bear. exporters are able to gain a larger share of the world market.e. export subsidies lead to a greater level of output of exportables than would otherwise occur.

and local) purchase goods and services. Governments are major purchasers of goods and services. Government procurement practices can be a nontariff barrier to imports. guarantee against losses. if the purchasing processes are biased against foreign products. For different types of purchases the bias takes different forms. Export subsidies take on many forms in the real world. local content requirements. the Buy American act of 1933 is the basic law that mandates that governmentfunded purchases favor domestic products. Many other countries have similar rules and practices.import-competing sectors. The fact that tariff protection is the chosen means to offset foreign subsidies provides domestic industry with an incentive to allege the existence of foreign subsidization. in the form of wages paid to local workers or materials and components produced within the country.S. One estimate is that government purchases of products that could be traded internationally amounts to close to one-tenth of all product sales in the industrialized countries. subsidized loans to foreign purchasers. 17 | P a g e . Such allegations are often aimed at practices that may have only very indirect links to exports. as they often are. insurance guarantees. and mandating that domestic products be purchased unless imported products are priced much lower (for instance. state.  They can be barrier to imports of the products that do not meet the content rules. the governments buy relatively few imported products and instead buy mostly locally produced products. they are often constrained by legislative mandate to purchase from domestic producers. In the U. government funding for research & development. iii. These includes tax rebates. including prohibitions on buying imports.. Economic waste is created because the cost of increasing output to expand export sales exceed the revenue earned from these sales in the international market. Domestic Content Requirement A domestic content requirements mandates that a product produced and sold in a country must have a specified minimum amount of domestic production value. at least one-third lower). More than half of the states and many cities and towns also have Buy American or Buy Local rules for purchases by their governments. Domestic content requirements can create import protection at two levels. and direct grants or subsidized loan. In many countries. Government Procurement Policies When governments (federal. ii.

artists. A closely related NTB.S. Trademarks assure consumers about product characteristics. 18 | P a g e . the Philippines government requires that certain retail stores in the country must source at least 30 percent of their inventory in the Philippines. Such mixing requirements have also been used to restrict imports of foreign entertainment. Failure to Protect Intellectual Property Rights Intellectual property is defined as the innovative or creative ideas of inventors. it can force domestic production of such expensive parts as engines or transmissions. computer software industry estimates that 49 out of 50 software programs used in China are pirated and calculates its lost export sales to China to stand at $500 million annually. And they can limit the import of materials and components that otherwise would have been used in domestic production of the products. and public performance of their work. copyright. at least for a certain period of time. used by Malaysia and other countries. Different countries provide different levels of intellectual property protection.S. For instance. forcing them to devote a certain share of their air time to songs and shows recorded in Canada. or authors. the U.g. U. sheet metals or seat covers). stipulates that an importer or import distributor must buy a certain percentage of the product locally. Patent. iv. force local auto manufacturers to use more domestically produced automobiles components and parts ( e. These requirements create the usual deadweight losses because the protected local products are less desired or more costly to produce. local content requirements for automobiles. and trademark laws exist to provide incentives to create intellectual properties by ensuring that the owners of the intellectual properties maintain exclusive control over ideas. such as quality. For instance. and this can have significant effects on international trade. patents allow inventors the opportunity to recover their investment and the costs of creating and marketing inventions. Copyrights give authors control over the reproduction. dissemination. Canada has often imposed “Canada time” requirements on radio and TV stations. For instance. If domestic content requirement set high enough. sometimes called as mixing requirements. government measures aimed at Chinese copyright piracy in 1996 almost led to a trade war between the two countries. For example. The gain on the price markups are captured by the protected home-country sellers of the protected products.

After protest from foreign governments. so this type of “technical” rule would effectively ban the sales of California oranges and protect the market for Korean oranges. if a government is determined to protect local producers. the standards can be higher for imported products or enforced more strictly. The standards can bring a net gain in overall wellbeing to the extent that they truly protect health. the government of Japan announced that foreign-made skis would not be allowed into Japan because they were unsafe. Legitimate manufacturer may be blamed for this performance and thereby lose their reputation and further sales of these and other products. 19 | P a g e . and the environment. Or. Yet it is easy for government to disguise costly protectionism in virtuous clothing. in the mid eighties. In the context of international trade. Fraudulent copies are often substandard and perform poorly. On the contrary. the standards can be tailored to fit local products. Sometimes. safety. such standards are established merely to provide a mechanism for protecting domestic producers from foreign completion. or more uncertain for foreign products. labeling. Product standards usually do not raise tariff or tax revenue for the importing country‟s government. many such examples exist. however. Or. For instance. Standards that accomplish these goals need not discriminate against imports. Technical Barriers to Trade All countries impose technical rules about packaging.Similarly. Oranges grown in Korea happen to be much smaller than Navel oranges grown in California. the testing and certification procedures can be more costly. it can always write rules that can be met more easily by local producers than by imported products. product definitions. enforcing these rules up government resources (and businesses must use resource to meet the standards). imagine if Korea were to require that oranges sold in the country be less than two inches in diameter. v. Such goods are sold in international markets with fraudulent (or counterfeit) trademarks. vi. The reason cited for this regulation was a claim (no doubt encouraged by local manufacturers) that Japanese snow differed from snow in Europe or in United States. Health and Safety Standard Governments often regulate the production and distribution of products deemed to be hazardous to the health and safety of their citizens. a growing problem in international trade is counterfeit goods. such rules may also be used as non-tariff trade barriers. slower. For example. Firms with valid trademarks lose more than sales due to counterfeit goods. but to require costly modifications to foreign producers. the ban was rescinded. etc. But. For instance.

S. After a few months and an inquiry by the exporters. however. Red Tape This is another method by which governments try to restrict imports into their countries. Anti-Dumping Import Duties This type of duty is of course allowed under WTO if the country can prove--with reasonable data and facts-. vii. they claimed they were still testing the wine! viii. the foreign firm may have indeed a cost advantage over domestic firm and the dumping charge could be used primarily as a protectionist measure. This may restrict the import of large items such as cars and trucks. There have been many calls in recent congressional testimony. The trouble is that dumping cases are very hard to prove. with its commercial big budget films. These countries are quite worried about the "cultural imperialism" of the U. Korea and have taken bottles of wine for testing. Again. to offset the negative impacts caused by a strengthening US dollar with counter-cyclical payments to export dependent agricultural products. customs officials of a country may take samples of imported food items for "testing" that may take forever. Nonetheless.that another country's firm is dumping its good there. Much like a tariff.S. however. Some of these items may simply have to be brought in smaller parts only to be assembled in a factory inside the importing country. In many cases. For example the government may designate a port with only a small opening into the sea to allow the import ships to duck. even in indirect ways. charging that the Korean customs' officials have kept their wine at the border warehouses in S. They charge that their own smaller. One such claim was made by a wine official from California. 20 | P a g e . In other cases. it is considered a form of non-tariff barrier. will not likely be a major issue for the 2002 Farm Bill. ix. these issues will likely be dealt with through bilateral and multilateral trade negotiations as such. the antidumping duty maybe used in order to protect the local industry from foreign imports. more innovative movie and entertainment industries are in danger of collapsing in view of invasion of American films and music. To some extent this fear may be justified as these countries fear their young (and possibly old) populations are being culturally Americanized. Import Restrictions to Preserve Local or National Culture The French and Spanish trade officials had imposed restrictions on the amount of entertainment services (movies and songs) imported into those countries from the U.Such rules violate WTO provisions that require countries to treat imports and domestic products equivalently and not to advantage products from one source over another.

caused its tapioca exports to decline by 40 per cent and its export earnings fell by about $ 300 million (representing over 10 per cent of Thailand's total export earnings from the EC). whereby the system of administrative controls creates such uncertainties. exporters have attempted to diversify their exports to non-quota countries. Another important cost of the MFA is rent seeking i. declining production and employment due to reporting. non-tariff barriers to imports of manufactures have increased in relative importance in these countries. that export production must be curtailed or abandoned by many firms. Several country studies cite instances of lost apparel exports. especially to less developed countries of negotiated tariff reductions. established exporters tend to enjoy greater than perfectly competitive returns from their exports sales since quota rights enable them to sell in protected markets. Non-Tariff Barriers also cause diversion of production and exports.. As discussed in types of NTBs. developing countries exports to developed countries face considerable NTBs. Similarly. established in 1982. some Indian textile and apparel firms decided to set up manufacturing facilities in Nepal in order to circumvent MFA quota controls of their exports from India and to avoid the local costs of purchasing added quota rights. including in categories of labor intensive and other products for which less developed countries have a strong comparative advantage. especially for new exporters or financially weak firms. For example. For example. causing bilateral trade arrangements in many cases to reign over more globally efficient multilateral trade arrangements and threatening the gains.e. This study has also observed that through the exercise of various forms of administrative protection non-tariff barriers have increased in importance in absolute terms and have been applied with increasing discrimination.Effects of Non Tariff Barriers on International Trade  Non-Tariff Barriers seriously affect many exporting countries. This has been mostly via the Multi-Fiber Arrangement (MFA) which "constitutes a restrictive system. the VER covering the tapioca exports of Thailand to the European Community. In several cases. Apparel exports of the developing countries are the most affected because of such barriers. However. certification and other problems involved in administering bilateral MFA agreements. An Asian Development Bank study has brought out that with the reduction of the average tariff levels in the industrial countries. such draconian VERs which not only reduces the growth rate but also the level of exports has not been widely applied to non-apparel exports of developing Asian countries other than South Korea.     21 | P a g e . imposing economic costs on the economies of the developing as well as industrial countries. the impact is very severe.

Governments in consultations with private sector representatives identify key objectives and subsequently enter into negotiations with trading partners to seek compromises that reduce or eliminate trade barriers. National Trade Estimate Report or the Report on the WTO Inconsistency of Trade Policies by Major Trading Partners issued by the Japanese Ministry of Economy. and aggressive trade advocacy. Some of the primary tools are active engagement in multilateral and bilateral negotiations. offering an opportunity for firms.Role of Home Government in Reducing NTBs in Export Market Governments can utilize various methods to remove or reduce nontariff trade barriers for their exporters. to actively influence priorities and objectives. governments may attempt to negotiate specific agreements to reduce tariffs and nontariff barriers sector wise (such as the WTO Information Technology Agreement) or enter into cooperative regulatory relationships to reduce excessive compliance costs. Many governments catalogue trade barriers cited by their exporters in foreign markets and periodically issue reports (such as the U. these proceedings concern major trade policy issues and involve complex. In general. Trade and Industry). governments usually develop their strategy in close consultation with various national actors.  Legal Proceedings Governments may raise perceived foreign-country trade barriers or other issues considered to be inconsistent with international obligations before the WTO Dispute Settlement Body (DSB) or similar regional. before directly addressing barriers. However.S.  Trade Advocacy Governments also pursue trade policy advocacy as a means to remove trade barriers. recourse to international legal proceedings to resolve disputes. including SMEs. This can entail various actions including active in-market 22 | P a g e . legal questions that may be too costly and time-consuming for individual SMEs to become involved. Moreover.  International Negotiations Governments can address trade barriers by organizing and participating in multilateral (WTO). Such steps are usually taken after diplomacy has failed to resolve the issue. (such as the US-EU Regulatory Cooperation Agreement). These are just some of the key components of a government‟s toolkit for dealing with trade barriers. regional or bilateral trade negotiations. In addition. home-country governments can play an active role in assisting exporters overcome trade barriers by directly interceding on exporters‟ behalf with foreign government officials.

Members can also in certain circumstances take specified action to protect their domestic industry. the world economy is still far from the textbook model of unfettered trade. The non-tariff measures act as barriers if they are applied as protectionist measures in a disguise. The non-tariff measures need. 23 | P a g e . The WTO Agreements permit the Members to take measures to protect human. estimates of the corresponding price or quantity distortions are difficult to construct because of the lack of good data and often contain substantial methodological flaws. Conclusions Despite all the talk of globalization. non-tariff barriers at and behind the border have been lowered significantly in the course of successive trade negotiations. most of the agreements envisage special and preferential treatment for the developing country members. But a complete review of all of the issues associated with the estimation of the economic effects of NTBs is beyond the scope of my Assignment due to the time and data sources constraints. meetings by high-level government officials or discussion in multilateral forum. therefore. In the case of tariffs. If a country feels that non-tariff measures taken against its exports are inconsistent with the WTO provisions. the future efforts are more likely to concentrate on the non-tariff issues. to conserve natural resources or to ensure the quality of goods finding an access in their markets. in the case of nontariff barriers.representation by consular staff. Even where the measures are consistent with the WTO provisions. animal or plant life or health. WTO provisions. of a global market place without barriers. for both policy makers and economists who conduct applied commercial trade-policy research. Researchers have also used econometric techniques and developed various computational models (partial and general equilibrium) to estimate the effects of NTBs. it may take the matter to the WTO dispute settlement mechanism. Estimates of the costs of protection. therefore. Bilateral consultations can perhaps help a lot in this regard. It is not true that the non-tariff measures are entirely unnecessary. however. Researchers have used a number of frequency measures to capture the scope and potential effects of NTBs across countries and industries as well as over time. however. besides seeking bilateral consultations. but more can be done. to be examined for their consistency with the WTO disciplines and whether they are applied as a protectionist measures in a disguised form or manner. depend on reliable estimates of the price or quantity distortions caused by trade barriers. the estimates are straightforward and readily available. As far as trade in goods is concerned. do not cover all areas and. While tariffs have been already brought down substantially in the Uruguay Round. some difficulties may be experienced where WTO provisions do not exist.

Similarly they should also carefully examine the notices or notification made by the importing countries under the Agreement on Application of Sanitary and Phytosanitary measures and the Agreement on Technical Barriers to Trade. The exporters need to carefully study the laws and regulations of the importing countries and their likely impact on the exports. be identified.  The manufacturing techniques used must be carefully selected so as to ensure that the resultant products do not cause any harm to human. Any difficulties due to technological or economical limitations must be adequately brought forward to the notice of the Government. For this purpose they need to plan production and packaging methods especially for the export markets. Since any dispute in the WTO can be raised by the Governments only.    24 | P a g e . Specific problems being faced and the favor required should therefore. Most of the WTO Agreements envisage special and preferential treatment to developing countries. the exporters will do well to fully cooperate with their Government and to provide it with all the necessary information through their association etc. This may help the Government to have effective bilateral consultations with the concerned countries and to seek specific dispensation. The exporters should maintain an effective interaction with their counterpart associations etc in the importing countries.Recommendations Some of the non tariff barriers can be tackled by the exporters themselves by ensuring that they adhere to quality and standards requirements of the importing countries. animal or plant life or health.

pp. NON-TARIFF BARRIERS IN COMPUTABLE GENERAL EQUILIBRIUM MODELLING. Lindert. The Political economy of nontariff barriers: a cross-nations analysis. 1995. Micheal Melvin. Iowa 50011-1070.iastate. John C. Cuts International. Pranav Kumar. Mansfield. Thomas A. Pugel. Jimmye S. Ames.179. OECD Economics Department Working Paper No. IO Foundation and the Massachusetts Institute of Technology. 38. Stern (1997). SAFIT-II 5/2007. 4th edition. Marc L.edu. Chandan Mukherjee and Simi TB (2007). M. 4. 723-49. Working Paper #96-2. Peter H. Nontariff Barriers. International Economics. Deardorff A. Beghin (December 2006). Carbaugh. V. Negotiations on Non-Tariff Barriers under NAMA The Major South Asian Concerns. Busch (Autumn 1995). International Edition. McGraw Hill International Edition. South-Western. International Organization 49. Marco Fugazza. Robert J. International Economics.References Steven Husted. [ONLINE] available at www.card. Jean-Christophe Maur (2008). Nontariff Agricultural Trade Barriers Revisited. 25 | P a g e . Edward D. and R. “Measurement of Non-Tariff Barriers”. Internal Economics. Working Paper 06-WP 438. Hillman (March1996). Interanational Trade and Commerce study Series No. 11th edition. International Agricultural Trade Consortium.