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What are trade barriers?

Trade barriers are government-induced restrictions on international trade. Most
trade barriers work on the same principle: the imposition of some sort of cost on
trade that raises the price of the traded products. If two or more nations repeatedly
use trade barriers against each other, then a trade war results.
Economists generally agree that trade barriers are detrimental and decrease
overall this can be explained by the theory of comparative advantage .In
theory, free trade involves the removal of all such barriers, except perhaps those
considered necessary for health or national security. In practice, however, even
those countries promoting free trade heavily subsidize certain industries, such
as agriculture and steel


Trade in India is often conditioned by bureaucratic delays, inadequate
infrastructure, and corruption. Moreover, cultural differences are often perceived
as a challenge by foreign operators - although English is one of the official
languages in India, local assistance is recommended for negotiation situations. It is
important to keep in mind that the trade conditions may vary significantly between
states. Likewise, the barriers for FDI (foreign direct investment) depend on the

Tariffs, Taxes & Duties

Tariff barriers moreover constitute an significant trade barrier. Tariffs in India
vary from sector to sector and between product groups. Please find sector specific
information on EUs Market Access Database, which also includes information on
non-tariff barriers to trade. Moreover, the Trade Council can help finding the
current custom duty for specific industries and products.
Tariff rates have been reduced over the past years, but are still quite high
compared to other countries. Additional duty is generally applied to the import
tariff, which means the total import duty often adds up to 30 pct. or more. Please
contact the Trade Council for information on specific import duties.
Corporate tax for foreign companies is approx. 30 pct. Please read more on
Indias taxation laws on Department of Industrial Policy & Promotion (DIPP).
Import duties, which were previously prohibitively high at levels of 180% or more,
have been rationalised to conform to international levels, albeit in the high end.
Duties have been used as means for anti-dumping at several occasions in previous
Companies operating within a range of sectors can benefit from Indias
arrangement with Special Economic Zones (SEZ). The purpose of SEZ is to boost
Indian exports by establishing favourable framework conditions for business
activities and thus attract foreign investments. SEZ units enjoy comprehensive
benefits including tax relief and the possibility of evade duties on goods bought for
development, operation and maintenance of SEZ units. These SEZs have given the
level of foreign investment a substantial boost, but are considered less efficient to
China among other countries. Read more on Special Economic Zones India.
India has a number of Inland Container Depots (ICDs) which handle exported as
well as imported shipments. Please find more information on these depots as well
as on shipment and transport between the federal states on Indias Department of
Although India has steadily opened up its economy, its tariffs continue to be high
when compared with other countries, and its investment norms are still restrictive.
This leads some to see India as a rapid globalizer while others still see it as a
highly protectionist economy.
Till the early 1990s, India was a closed economy: average tariffs exceeded 200
percent, quantitative restrictions on imports were extensive, and there were
stringent restrictions on foreign investment. The country began to cautiously
reform in the 1990s, liberalizing only under conditions of extreme necessity.
Since that time, trade reforms have produced remarkable results. Indias trade to
GDP ratio has increased from 15 percent to 35 percent of GDP between 1990 and
2005, and the economy is now among the fastest growing in the world.
Average non-agricultural tariffs have fallen below 15 percent, quantitative
restrictions on imports have been eliminated, and foreign investments norms have
been relaxed for a number of sectors.
India however retains its right to protect when need arises. Agricultural tariffs
average between 30-40 percent, anti-dumping measures have been liberally used to
protect trade, and the country is among the few in the world that continue to ban
foreign investment in retail trade. Although this policy has been somewhat relaxed
recently, it remains considerably restrictive.
Nonetheless, in recent years, the governments stand on trade and investment
policy has displayed a marked shift from protecting producers to benefiting
consumers. This is reflected in its Foreign Trade Policy for 2004/09 which states
that, "For India to become a major player in world trade ...we have also to facilitate
those imports which are required to stimulate our economy."
India is now aggressively pushing for a more liberal global trade regime, especially
in services. It has assumed a leadership role among developing nations in global
trade negotiations, and played a critical part in the Doha negotiations.
Regional and Bilateral Trade Agreements
India has recently signed trade agreements with its neighbors and is seeking new
ones with the East Asian countries and the United States. Its regional and bilateral
trade agreements - or variants of them - are at different stages of development:
India-Sri Lanka Free Trade Agreement,
Trade Agreements with Bangladesh, Bhutan, Sri Lanka, Maldives, China,
and South Korea.
India-Nepal Trade Treaty,
Comprehensive Economic Cooperation Agreement (CECA) with
Framework Agreements with the Association of Southeast Asian Nations
(ASEAN), Thailand and Chile.
Preferential Trade Agreements with Afghanista, Chile, and Mercosur (the latter is
a trading zone between Brazil, Argentina, Uruguay, and Paraguay).
World Bank Involvement
As a number of research institutions in the country provide the Government with
good, just-in-time, and low-cost analytical advice on trade-related issues, the
World Bank has focused on providing analysis on specialized subjects at the
Governments request.
In the last three years, the Bank has been working with the Ministry of Commerce
in a participatory manner to help the country develop an informed strategy for
domestic reform and international negotiations.
Given the sensitivity of trade policy and negotiation issues, the Banks role has
been confined to providing better information and analysis than was previously
available to Indias policymakers.

Types of tariffs:-
1. Ad volurum tax:-An ad valorem tax (Latin for "according to value") is
a tax based on the value of real estate or personal property. It is typically
imposed at the time of a transaction, as in the case of a sales tax or value-
added tax (VAT). However, an ad valorem tax may also be imposed on an
annual basis, as in the case of a real or personal property tax, or in
connection with another significant event (e.g.inheritance tax, expatriation
tax, or tariff).
In some countries a stamp duty is imposed as an ad
valorem tax.
Sales tax
A sales tax is a consumption tax charged at the point of purchase for certain goods
and services. The tax is usually set as a percentage by the government charging the
tax. There is usually a list of exemptions. The tax can be included in the price (tax-
inclusive) or added at the point of sale (tax-exclusive). Ideally, a sales tax is fair,
has a high compliance rate, is difficult to avoid, is charged every time an item is
sold retail, and is simple to calculate and simple to collect. A conventional or retail
sales tax attempts to achieve this by charging the tax only on the final end user,
unlike a gross receipts tax levied on the intermediate business who purchases
materials for production or ordinary operating expenses prior to delivering a
service or product to the marketplace. This prevents so-called tax "cascading" or
"pyramiding," in which an item is taxed more than once as it makes its way from
production to final retail sale. There are several types of sales taxes: seller or
vendor taxes, consumer excise taxes, retail transaction taxes, or value-added

1) Value-added tax
A value-added tax (VAT), or goods and services tax (GST), is tax on exchanges. It
is levied on the added value that results from each exchange. It differs from a sales
tax because a sales tax is levied on the total value of the exchange. For this reason,
a VAT is neutral with respect to the number of passages that there are between the
producer and the final consumer. A VAT is an indirect tax, in that the tax is
collected from someone other than the person who actually bears the cost of the tax
(namely the seller rather than the consumer). To avoid double taxation on final
consumption, exports (which by definition are consumed abroad) are usually not
subject to VAT and VAT charged under such circumstances is usually refundable.
2) Bound tariff rate:-
The Bound tariff rate is the most-favored-nation tariff rate resulting from
negotiations under the General Agreement on Tariffs and Trade (GATT) and
incorporated as an integral component of a countrys schedule of concessions or
commitments to other World Trade Organization members. If a country raises a
tariff to a higher level than its bound rate, those adversely affected can seek
remedy through the dispute settlement process and may obtain the right to retaliate
against an equivalent value of the offending countrys exports or the right to
receive compensation, usually in the form of reduced tariffs on other products they
export to the offending country

3) Environmental tariff:-
An Environmental tariff, also known as a green tariff or eco-tariff, is an import or
export tax placed on products being imported from, or also being sent to countries
with substandard environmental pollution controls. They can be used as controls
on global pollution and can also be considered as corrective measures against
"environmental races to the bottom" and "eco-dumping".Agitation against use of
environmental tariffs
Environment tariffs were not implemented in the past, in part, because they were
not sanctioned by multilateral trade regimes such as the World Trade
Organization and within the General Agreement on Tariffs and Trade (GATT), a
fact which generated considerable criticism and calls for reform
Additionally, many foreign factory owners in newly industrialized countries and
underdeveloped countries saw the attempts to impose pollution controls on them as
suspicious seeing it as a threat to their growth and fearing that developed countries
would attempt to export their preferences for pollution control or to place
'environmental' tariffs on imports from countries with lower standards."
4) Excise duty
An excise or excise tax (sometimes called a duty of excise special tax) is an
inland tax on the sale, or production for sale, of specific goods or a tax on a good
produced for sale, or sold, within a country or licenses for specific activities.
Excises are distinguished from customs duties, which are taxes on importation.
Excises are inland taxes, whereas customs duties are bordertaxes.
An excise is considered an indirect tax, meaning that the producer or seller who
pays the tax to the government is expected to try to recover or shift the tax by
raising the price paid by the buyer. Excises are typically imposed in addition to
another indirect tax such as a sales tax or value added tax (VAT). In common
terminology (but not necessarily in law), an excise is distinguished from a sales tax
or VAT in three ways: (i) an excise typically applies to a narrower range of
products; (ii) an excise is typically heavier, accounting for a higher fraction of the
retail price of the targeted products; and (iii) an excise is typically a per unit tax,
costing a specific amount for a volume or unit of the item purchased, whereas a
sales tax or VAT is an ad valorem tax and proportional to the price of the good.
Typical examples of excise duties are taxes on gasoline and other fuels, and taxes
on tobacco and alcohol (sometimes referred to assin tax)

In India, an excise is described as an indirect tax levied and collected on the
goods manufactured in India.
In the United Kingdom, HM Revenue and Customs lists "alcohol,
environmental taxes, gambling, holdings & movements, hydrocarbon
oil, money laundering, refunds of duty, revenue trader's records, tobacco duty,
and visiting forces" as being subject to excise.
Some of the listed items are
not goods, but rather services.
The Australian Taxation Office describes an excise as "a tax levied on certain
types of goods produced or manufactured in Australia. These... include alcohol,
tobacco and petroleum and alternative fuels".

In Australia, the meaning of "excise" is not merely academic, but has been the
subject of numerous court cases. The High Court of Australia has repeatedly held
that a tax can be an "excise" regardless of whether the taxed goods are of domestic
or foreign origin; most recently, in Ha v New South Wales (1997), the majority of
the Court endorsed the view that an excise is "an inland tax on a step in production,
manufacture, sale or distribution of goods", and took a wide view of the kind of
"step" which, if subject to a tax, would make the tax an excise.
Targets of taxation
Tobacco, alcohol and gasoline
These are the three main targets of excise taxation in most countries around the
world. They are everyday items of mass usage (even, arguably, "necessity") which
bring significant revenue for governments. The first two are considered to be legal
drugs, which are a cause of many illnesses (e.g. lung cancer, cirrhosis of the liver),
which are used by large swathes of the population, with tobacco being widely
recognized as addictive. Gasoline (or petrol), as well as diesel and other fuels,
meanwhile, despite being indispensable to modern life, have excise tax imposed on
them mainly because they pollute the environment and to raise funds to support the
transportation infrastructure.
Many US states tax illegal drugs.
Gambling licenses are subject to excise in many countries today. In 18th-
century England, and for a brief time in British North America, gambling itself was
for a time also subject to taxation, in the form of stamp duty, whereby a revenue
stamp had to be placed on the ace of spades in every pack of cards to demonstrate
that the duty had been paid (hence the elaborate designs that evolved on this card
in many packs as a result). Since stamp duty was originally only meant to be
applied to documents (and cards were categorized as such), the fact that dice were
also subject to stamp duty (and were in fact the only non-paper item listed under
the1765 Stamp Act) suggests that its implementation to cards and dice can be
viewed as a type of excise duty on gambling.

5)Import quota:-
An import quota is a limit on the quantity of a good that can be produced abroad
and sold domestically. It is a type of protectionist trade restriction that sets a
physical limit on the quantity of a good that can be imported into a country in a
given period of time. If a quota is put on a good, less of it is imported.
like other trade restrictions, are used to benefit the producers of a good in a
domestic economy at the expense of all consumers of the good in that economy.
Import quotas vs tariffs
Both tariffs and import quotas reduce quantity of imports, raise domestic price of
good, decrease welfare of domestic consumers, increase welfare of domestic
producers, and cause deadweight loss. However, a quota can potentially cause an
even larger deadweight loss, depending on the mechanism used to allocate the
import licenses. The difference between these tariff and import quota is that tariff
raises revenue for the government, whereas import quota generates surplus for
firms that get the license to import.
For a firm that gets a license to import, profit per unit equals domestic price (at
which imported good is sold) minus world price (at which good is bought) (minus
any other costs). Total profit equals profit per unit times quantity sold.
Government may charge fees for import license. If the government sets the import
license fee equal to difference between domestic price and world price, the import
quota works exactly like a tariff. The entire profit of the firm with an import
license is paid to the government. Thus government revenue is the same under
such an import quota and a tariff. Also, consumer surplus and producer surplus are
the same under such an import quota and a tariff.

So why do countries use import quotas instead of always using a tariff?
When an import quota is used, it allows a country to be sure of the amount of the
good imported from the foreign country. When there is a tariff, if the supply curve
of the foreign country is unknown, the quantity of the good imported may not be
If world supply in the home country is upward-sloping and less elastic than
domestic demand (as may be the case when the home country is the United States)
then the incidence of the tariff may fall on producers, and the price paid
domestically may not rise by much. Then if the tariff is supposed to make price of
the good rise to allow domestic producers to sell at a higher price, the tariff may
not have much of the desired effect. A quota may do more to raise price. However
in competitive markets there is always some tariff that raises the price as high as
the quota does.
6) A tariff-rate quota (TRQ) is a trade policy tool used to protect a domestically-
produced commodity or product from competitive imports.

A TRQ combines two policy instruments that nations historically have used to
restrict such imports: quotas and tariffs. In a TRQ, the quota component works
together with a specified tariff level to provide the desired degree of import
protection. Essentially, a TRQ is a two-tiered tariff. The first Q imports entering
within the quota portion of a TRQ are usually subject to a lower, tariff rate called
the Inside tariff quota rate or ITQR. Imports above the quotas quantitative
threshold (Q) face a much higher (usually prohibitive) Outside tariff quota rate or
The Q units are called the quota volume, and this volume serves as the
cut off between the ITQR and the OTQR.
For example, in 2013, South Africa applied the following TRQ on imports of
Frozen cuts and edible offal of fowls of the species Gallus domestics a type of
chicken (HS code 02071420) originating from the United States of America:
Inside tariff quota rate (ITQR): 16.4%
Outside tariff quota rate (OTQR): 27.0%

In 2013, the cut-off for this quota rate was 29,033 tonnes of imported offal / year.

There are several different ways in which quotas can be administered by
First-come, first-
No shares are allocated to importers. Imports are permitted entry at
the in-quota tariff rates until such a time as the tariff quota is
filled; then the higher tariff automatically applies. The physical
importation of the good determines the order and hence the
applicable tariff.
Licenses on
Importers' shares are generally allocated, or licenses issued, in
relation to quantities demanded and often prior to the
commencement of the period during which the physical
importation is to take place. This includes methods involving
licenses issued on a first-come, first-served basis and those
systems where license requests are reduced pro rata where they
exceed available quantities.
Importers' shares are allocated, or licenses issued, largely on the
basis of an auctioning or competitive bid system.
Importers' shares are allocated, or licenses issued, principally in
relation to past imports of the product concerned.
Imports undertaken
by state trading
Import shares are allocated entirely or mainly to a state trading
entity which imports (or has direct control of imports undertaken
by intermediaries) the product concerned.
Producer groups or
Import shares are allocated entirely or mainly to a producer group
or association which imports (or has direct control of imports
undertaken by the relevant Member) the product concerned.
As part of the 1995 Uruguay Round Agreement on Agriculture, the World Trade
Organization prohibited agricultural trade quotas among its member nations.
TRQs, however, were permitted as a form of transition to simple tariffs.

As of 2005, TRQs apply to U.S. imports of certain dairy products, beef, cotton,
green olives, peanuts, peanut butter, sugar, certain sugar-containing products, and
A TRQ was applied to US steel imports in 2002.

7) Telecommunication tariff:-
A telecommunications tariff is an open contract between a telecommunications
service provider and the public, filed with a regulating body such as state and
municipal Public Utilities Commissions as well as federal entities such as
the Federal Communications Commission.
Such tariffs outline the terms and
conditions of providing telecommunications service to the public including rates,
fees, and charges.
Impact of tariffs on traffic
Call minutes are highly elastic against price, this means that the demand for call
minutes varies greatly according to price. A slight decrease in price leads to a great
increase in call minutes. The higher the price, the more this effect is noticeable, for
both business and residential customers on international or local calls. This means
that it is often the case that more revenue is achievable at lower prices, that is, E <

Internet traffic research show that the traffic intensity is directly affected by the
tariffs charged in connecting customers to their Internet Service
Provider (ISP).
For example, a circuit-switched network provider charges
different tariffs at different times of the day. It was noted that at the time that the
rates decreased, the traffic intensity logged by the ISP increased dramatically and
then decayed over time at an exponential rate. The conclusion of the research was
that by varying prices over time, a telecommunications service provider can reduce
the level of the traffic intensity at peak periods, resulting in lower equipment costs
because of the reduced need to provision to meet peak demand, which in turn leads
to increases in long-term revenue and profitability.

The General Agreement on Tariffs and Trade (GATT) was a multilateral
agreement regulating international trade. According to its preamble, its purpose
was the "substantial reduction of tariffs and other trade barriers and the elimination
of preferences, on a reciprocal and mutually advantageous basis." It was negotiated
during the United Nations Conference on Trade and Employment and was the
outcome of the failure of negotiating governments to create the International Trade
Organization (ITO). GATT was signed in 1947, took effect in 1948, and lasted
until 1994; it was replaced by the World Trade Organization in 1995.The original
GATT text (GATT 1947) is still in effect under the WTO framework, subject to
the modifications of GATT 1994
In economics, an international free trade agreement is an agreement that results
from cooperation between at least two countries to reduce trade barriersimport
quotas and tariffs and to increase trade with each other.

North American Free Trade Agreement (NAFTA)
South Asia Free Trade Agreement (SAFTA)
European Free Trade Association
European Union (EU)
Union of South American Nations
New West Partnership (an internal free-trade zone in Canada between Alberta,
British Columbia, and Saskatchewan)
Gulf Cooperation Council common market
World Trade Organization

The United States International Trade Commission (USITC) is an independent,
bipartisan, quasi-judicial, federal agency of the United States that provides trade
expertise to both the legislative and executive branches. Furthermore, the agency
the impact of imports on U.S. industries and directs actions against
unfair trade practices, such as subsidies, dumping, patent, trademark, and copyright
infringement. The USITC was established by the U.S. Congress on September 8,
1916, as the U.S. Tariff Commission.
In 1974, the name was changed to the U.S.
International Trade Commission by section 171 of the Trade Act of 1974.
agency has broad investigative powers on matters of trade. The USITC is a
national resource where trade data is gathered and analyzed. This data is provided
to the President and Congress as part of the information on which U.S.
international trade policy is based.
The U.S. International Trade Commission seeks to:
1. Administer U.S. trade remedy laws within its mandate in a fair and objective
2. Provide the President, Office of the United States Trade Representative,
and Congress with independent, quality analysis, information, and support
on matters of tariffs and international trade and competitiveness; and
3. Maintain the Harmonized Tariff Schedule of the United States.
In so doing, the Commission serves the public by implementing U.S. law and
contributing to the development and implementation of sound and informed U.S.
trade policy.
In economics, a deadweight loss (also known as excess burden or allocative
inefficiency) is a loss of economic efficiency that can occur when equilibrium for
a good or service is not Pareto optimal.
Causes of deadweight loss can include monopoly pricing (in the case of artificial
scarcity), externalities, taxes or subsidies, and binding price
ceilings or floors (including minimum wages). The term deadweight loss may also
be referred to as the "excess burden" of monopoly or taxation.
Deadweight loss created by a bindingprice ceiling. Producer surplus is necessarily
decreased, while consumer surplus may or may not increase; however the decrease
in producer surplus must be greater than the increase (if any) in consumer surplus.

tariffication is an effort to convert all existing agricultural Non-tariff barriers to
trade (NTBs) into bound tariffs and to reduce these tariffs over time. A bound
tariff is one which has a "ceiling" beyond which it cannot be increased.
Economic issues
The main economic issues that arise with tariffication stem from the
nonequivalence of tariffs in NTBs in a number of scenarios. The issue analyzes
nonequivalence arising from the existence of imperfect competition in importing
countries, price instability in importing and exporting countries, and inefficient
allocation of quantitative restrictions. It is shown that in all these cases the
definition of an appropriate "equivalent tariff" to be used in tariffication is not
straightforward, and that in general this equivalent tariff cannot be computed on
the basis of only observed price differences between countries. Tariff-rate quotas,
which are meant to be the main tool in implement tariffication according to the
existing proposal, are analyzed in some detail. Concerning the relationship
between tariffication and the other elements of the trade liberalization package, it is
shown that tariffication would limit the scope of export subsidy policies, and that
the existence of production and export subsidies makes observed price gaps
between countries of questionable value in setting equivalent tariff levels. Finally,
it is argued that the main focus on tariffication should be the conversion of NTBs
to acceptable long-run (bound) tariffs rates, and considerable flexibility in the
conversion process could be exercised during the transition period.

Technical Barriers to Trade

The liberalization of the Indian economy since the 1990s has had a very palpable
impact on Indias trade policy vis--vis foreign trade. Import regulations have been
progressively eased - both in terms of quantitative restrictions and import duties
and almost all items are now allowed to be imported into India. However, some
import restrictions still remain for certain goods.
There are import prohibitions and restrictions on some goods for sanitary reasons
and for other goods testing and certification is required. Bureau for Indian
Standards (BIS) demands that certain products fulfil the Indian BIS-quality
standards which have gradually come closer to ISO-standards. In particular import
of foodstuff is subject to various restrictions and import conditions are generally
intransparent. It is therefore recommended to read more on Bureau for Indian
Standards and/or to contact the Trade Council for specific information.
Imported goods are subject to various labelling requirements including the
maximum retail price before they leave their place of origin. A limited number of
products are still not allowed to be imported, or they have to be imported through
an official authority or on the foundation of specific licenses. Please contact
the Trade Council for specific information.


Neoclassical economic theorists tend to view tariffs as distortions to the free
market. Typical analyses find that tariffs tend to benefit domestic producers and
government at the expense of consumers, and that the net welfare effects of a tariff
on the importing country are negative. Normative judgements often follow from
these findings, namely that it may be disadvantageous for a country to artificially
shield an industry from world markets and that it might be better to allow a
collapse to take place. Opposition to all tariff Organization aims to reduce tariffs
and to avoid countries discriminating between differing countries when applying
tariffs. The diagrams to the right show the costs and benefits of imposing a tariff
on a good in the domestic economy, Home.
[citation needed]

When incorporating free international trade into the model we use a supply curve
denoted as (Diagram 1.) or (Diagram 2.). This curve makes the
assumption that the international supply of the good or service is perfectly
elasticand that the world can produce at a near infinite quantity of the good. Before
the tariff, there is a demand of Qc1 (diagram 1) or D (diagram 2). The difference in
demand (between S and D on diagram 2) was filled by importing from abroad.
This is shown on diagram 1 as Quantity of Imports (without tariff). After the
imposition of a tariff, domestic price rises, but foreign export prices fall due to the
difference in tax incidence on the consumers (at home) and producers (abroad).
The new price level at Home is Ptariff or Pt, which is higher than the world price.
More of the good is now produced at Home it now makes Qs2 (diagram 1)
or S' (diagram 2) of the good. Due to the higher price, only Qc2 or D* of the good
is demanded by Home. The difference between the supply and demand is still
filled by importing from abroad. However, the imposition of the tariff reduces the
quantity of imports from SD to S*D* (diagram 2). This is also shown on Diagram
1 as Quantity of Imports (with tariff).
Domestic producers enjoy a gain in their surplus. Producer surplus, defined as the
difference between what the producers were willing to receive by selling a good
and the actual price of the good, expands from the region below Pw to the region
below Pt. Therefore, the domestic producers gain an amount shown by the area A.
Domestic consumers face a higher price, reducing their welfare. Consumer
surplus is the area between the price line and the demand curve. Therefore, the
consumer surplus shrinks from the area above Pw to the area above Pt, i.e. it
shrinks by the areas A, B, C and D. This includes the gained producer surplus, the
deadweight loss, and the tax revenue.
The government gains from the taxes. It charges an amount PtPt' of tariff for every
good imported. Since S*D* goods are imported, the government gains an area
of C and E. However, there is a Deadweight loss of the triangles B and D, or in
Diagram 1, the triangles labeled Societal Loss. Deadweight loss is also
called efficiency loss. This cost is incurred because tariffs reduce the incentives for
the society to consume and produce.
The net loss to the society due to the tariff would be given by the total costs of the
tariff minus its benefits to the society. Therefore, the net welfare loss due to the
tariff is equal to:
Consumer Loss Government revenue Producer gain
or graphically, this gain is given by the areas shown by:

That is, tariffs are beneficial to the society if the area given by the
rectangle E is greater than the deadweight loss. Rectangle E is called
the terms of trade gain.
The model above is completely accurate only in the extreme case where no
consumer belongs to the producers group and the cost of the product is a
fraction of their wages. If the opposite extreme is taken, assuming that all
consumers come from the producers' group, consumers' only purchasing
power comes from the wages earned in production, and the product costs
their whole wage, the graph looks radically different. Without tariffs, only
those producers/consumers able to produce the product at the world price
will have the money to purchase it at that price.

The tariff has been used as a political tool to establish an independent
nation; for example, the United States Tariff Act of 1789, signed
specifically on July 4, was called the "Second Declaration of Independence"
by newspapers because it was intended to be the economic means to achieve
the political goal of a sovereign and independent United States.

In modern times, the political impact of tariffs has been seen in a positive
and negative sense. The 2002 United States steel tariff imposed a 30% tariff
on a variety of imported steel products for a period of three years. American
steel producers supported the tariff,
but the move was criticised by
the Cato Institute.

Tariffs can occasionally emerge as a political issue prior to an election. In
the leadup to the 2007 Australian Federal election, the Australian Labor
Party announced it would undertake a review of Australian car tariffs if
The Liberal Party made a similar commitment, while independent
candidate Nick Xenophon announced his intention to introduce tariff-based
legislation as "a matter of urgency".
Unpopular tariffs are known to have
ignited social unrest. Example of this are the 1905 Meat riots in Chile that
evolved from protests against tariffs applied to the cattle imports from

Then tariffs are an integral element of a country's technology strategy, the
tariffs can be highly effective in helping to increase and maintain the
country's economic health. As an integral part of the technology strategy,
tariffs are effective in supporting the technology strategy's function of
enabling the country to outmaneuver the competition in the acquisition and
utilization of technology in order to produce products and provide services
that excel at satisfying the customer needs for a competitive advantage in
domestic and foreign markets This is related to the Infant industry
In contrast, in economic theory tariffs are viewed as a primary element in
international trade with the function of the tariff being to influence the flow
of trade by lowering or raising the price of targeted goods to create what
amounts to an artificial competitive advantage. When tariffs are viewed and
used in this fashion, they are addressing the country's and the competitors'
respective economic healths in terms of maximizing or minimizing revenue
flow rather than in terms of the ability to generate and maintain a
competitive advantage which is the source of the revenue. As a result, the
impact of the tariffs on the economic health of the country are at best
minimal but often are counter-productive..
A program within the US intelligence community, Project Socrates, that was
tasked with addressing America's declining economic competitiveness,
determined that countries like China and India were using tariffs as an
integral element of their respective technology strategies to rapidly build
their countries into economic superpowers. It was also determined that the
US, in its early years, had also used tariffs as an integral part of amounted to
technology strategies to transform the country into a superpower.

Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports, but are
unlike the usual form of a tariff. Some common examples of NTB's are anti-
dumping measures and countervailing duties, which, although called non-tariff
barriers, have the effect of tariffs once they are enacted.
Their use has risen sharply after the WTO rules led to a very significant reduction
in tariff use. Some non-tariff trade barriers are expressly permitted in very limited
circumstances, when they are deemed necessary to protect health, safety,
sanitation, or depletable natural resources. In other forms, they are criticized as a
means to evade free trade rules such as those of the World Trade
Organization (WTO), the European Union (EU), or North American Free Trade
Agreement (NAFTA) that restrict the use of tariffs.
Some of non-tariff barriers are not directly related to foreign economic regulations
but nevertheless have a significant impact on foreign-economic activity and
foreign trade between countries.
Trade between countries is referred to trade in goods, services and factors of
production. Non-tariff barriers to trade include import quotas, special licenses,
unreasonable standards for the quality of goods, bureaucratic delays at customs,
export restrictions, limiting the activities of state trading, export subsidies,
countervailing duties, technical barriers to trade, sanitary and phyto-sanitary
measures, rules of origin, etc. Sometimes in this list they include macroeconomic
measures affecting trade.

The transition from tariffs to non-tariff barriers
One of the reasons why industrialized countries have moved from tariffs to NTBs
is the fact that developed countries have sources of income other than tariffs.
Historically, in the formation of nation-states, governments had to get funding.
They received it through the introduction of tariffs. This explains the fact that most
developing countries still rely on tariffs as a way to finance their spending.
Developed countries can afford not to depend on tariffs, at the same time
developing NTBs as a possible way of international trade regulation. The second
reason for the transition to NTBs is that these tariffs can be used to support weak
industries or compensation of industries, which have been affected negatively by
the reduction of tariffs. The third reason for the popularity of NTBs is the ability of
interest groups to influence the process in the absence of opportunities to obtain
government support for the tariffs
With the exception of export subsidies and quotas, NTBs are most similar to the
tariffs. Tariffs for goods production were reduced during the eight rounds of
negotiations in the WTO and the General Agreement on Tariffs and Trade
(GATT). After lowering of tariffs, the principle of protectionism demanded the
introduction of new NTBs such as technical barriers to trade (TBT). According to
statements made at United Nations Conference on Trade and Development
(UNCTAD, 2005), the use of NTBs, based on the amount and control of price
levels has decreased significantly from 45% in 1994 to 15% in 2004, while use of
other NTBs increased from 55% in 1994 to 85% in 2004.
Increasing consumer demand for safe and environment friendly products also have
had their impact on increasing popularity of TBT. Many NTBs are governed by
WTO agreements, which originated in the Uruguay Round (the TBT Agreement,
SPS Measures Agreement, the Agreement on Textiles and Clothing), as well as
GATT articles. NTBs in the field of services have become as important as in the
field of usual trade.
Most of the NTB can be defined as protectionist measures, unless they are related
to difficulties in the market, such as externalities and information
asymmetries between consumers and producers of goods. An example of this is
safety standards and labeling requirements.
The need to protect sensitive to import industries, as well as a wide range of trade
restrictions, available to the governments of industrialized countries, forcing them
to resort to use the NTB, and putting serious obstacles to international trade and
world economic growth. Thus, NTBs can be referred as a new of protection which
has replaced tariffs as an old form of protection.

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.
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, 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.
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)
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 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. 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.
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.
A quota can be a tariff rate quota, global quota, discriminating quota, and export
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 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.
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.

News related to trade barriers
Malaysia says non-tariff barriers hinder Asean-India trade ties
(This article from THE HINDU BUSINESS LINE was published on August 31,
In 2013, India imported crude oil worth $1.87 million and palm oil worth $1.71
billion from Malaysia.
Malaysia, which will assume Chairmanship of Asean in 2015, wants India to
reduce non-tariff barriers along with scheduled dismantling of tariff barriers to
Aida Safinaz Allias, Minister Counsellor (economic affairs) of High Commission
of Malaysia, toldBusinessLine that non-tariff barriers were hindrances to free flow
of goods, services and capital between the ASEAN and India. Red tape, old rules
and redundant regulations serve as non-tariff barriers, she said. The official was
part of a Malaysia team led by High Commissioner Dato Naimul Ashakli Bin
Mohammad, which was here to explore trade and investment opportunities.
India-Asean trade currently stands at around $80 billion. In the past decade, it grew
at a compound annual growth rate of 23 per cent. The free trade agreement in
goods between the 10-nation economic grouping and India is on since 2010. This
FTA liberalised tariffs on over 90 per cent of items. It is now being reviewed in
terms of removal of tariff and non-tariff barriers, the Malaysian official said.
Another FTA in services and investment, which faced resistance from Thailand,
Indonesia and the Philippines over a proposed clause on 51 per cent multi-brand
retail FDI, is expected to be signed shortly with a revised capping of 49 per cent.
Indo-Malaysian trade
Malaysia, one of the key members of Asean, signed an MoU last year on customs
cooperation with India. A Comprehensive Economic Cooperation agreement
between the two countries had come into force on July 11. In 2013, India imported
crude oil worth $1.87 million and palm oil worth $1.71 billion from Malaysia.
Indian investment in Malaysia stands at around $2 billion.
Big numbers
According to Sanjay Budhia, Chairman, National Committee on Exports, CII,
though Malaysian investment through the FDI route between April 2000 and
February this year was $636.07 million, about $6 billion are understood to be
through the Mauritius route.
Incidentally, India had signed a revised double taxation avoidance treaty with
Malaysia in May 2012. The High Commissioner said his team discussed business
and investment opportunities with West Bengal Chief Minister on Friday.
However, he declined to give details.
India poses barriers to American trade: USTR
Indian policies on wholesale foods labelling, security regulations on telecom
equipment, safety testing requirements for electronics and IT equipment and
proposed amendment to the hazardous waste act as trade barriers
Indian policies pose barriers to American trade and the US will keep pressing India
to remove obstacles to smoothen business relation, says a USTR report. Noting
that it is holding talks with India both at bilateral and the World Trade
Organisation level, the 2014 report of the UN Trade Representative (USTR) on
Technical Barriers to Trade listed out some of the issues obstructing trade
Indian policies on wholesale foods labelling, security regulations on telecom
equipment, safety testing requirements for electronics and IT equipment and
proposed amendment to the hazardous waste act as trade barriers, the report said.
The United States will continue to press India to resolve these issues in 2014, the
USTR said in its annual report released on Monday. According to the report, the
proposed Fifth Amendment to the Hazardous Waste Act, published in November
2013, but not notified to the WTO, sets out conditions for the import and
movement of used and refurbished electrical and electronic equipment (EEE).
The United States fully supports the protection of the environment and health
against adverse impacts of wastes. US industry has expressed concerns that, under
the proposed Fifth Amendment, hazardous waste controls on imports of used EEE
for direct reuse and imports of refurbished EEE pursuant to a service warranty, and
other similar controls on EEE, would impose unnecessary burdens on trade that
facilitates reuse and extension of life of EEE to the benefit of the environment, it
US electronics and IT goods manufacturers have raised concerns about the Indian
Department of Electronics and Information Technologys (DEITY) September
2012 order that mandates compulsory registration for 15 categories of imported
electronic and IT goods, it said.
The policy, originally set to take effect from April 2013, mandates exporters to
register their products with laboratories affiliated or certified by the Bureau of
Indian Standards (BIS).
This is despite the fact that all US electronic exports currently sold in India are
fully certified in internationally recognised laboratories, and the government of
India has never articulated how such a domestic certification requirement advances
Indias legitimate public safety objectives, the USTR report said.
Notwithstanding ongoing efforts by global industry to engage the government of
India to resolve concerns and ambiguities in the policy without undermining those
objectives, the Order entered into force in January 2014, it said.
Although US industry would ultimately like to see the entire policy repealed, an
important first step is to seek an exemption for Highly Specialised Equipment
(HSE), including servers, storage, printing machines, and IT products that are
installed, operated, and maintained by professionals who are trained to manage the
products inherent safety risks, the report said.
USTR said the United States will continue to seek clarification on the scope and
application of the revised Preferential Market Access (PMA) policy for
domestically manufactured telecommunications equipment and closely monitor its
implementation in 2014.
The United States, it said, has detailed concerns about onerous India-specific
labelling issues in previous TBT Reports since the FSSR were published in Indias
Gazette in 2011. Indias responses have failed to provide additional or reliable
information with regard to how the elements of this measure advances safety or
efficacy or quality of the products in question or meets the specific needs of India,
the report said.
The Legal Metrology Rules create mandatory package sizes in metric units
excluding many US food products from the market since they are packaged in
traditional English units (fluid ounces, pounds and pints), it said. Highly impacted
commodities include canned and bottled drinks, packaged biscuits and bottled
vegetable oils.
Mandatory package size requirements are not recommended by international
standards, it said.
Net weight declaration, supported by Codex and other international bodies, better
protects consumers from fraudulent packaging practices, the report said.

While tariffs having been already brought down substantially in the Uruguay
Round, the future efforts are more likely to concentrate on the non-tariff issues.
It is not true that the non-tariff measures are entirely unnecessary. The WTO
Agreements permit the Members to take measures to protect human, animal or
plant life or health, to conserve natural resources or to ensure the quality of goods
finding an access in their markets. Members can also in certain circumstances take
specified action to protect their domestic industry. The non-tariff measures act as
barriers if they are applied as protectionist measures in a disguise. The non-tariff
measures need, therefore, 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.
If a country feels that non-tariff measures taken against its exports are inconsistent
with the WTO provisions, it may take the matter to the WTO dispute settlement
mechanism, besides seeking bilateral consultations. WTO provisions, however, do
not cover all areas and, therefore, some difficulties may be experienced where
WTO provisions do not exist. Even where the measures are consistent with the
WTO provisions, most of the agreements envisage special and preferential
treatment for the developing country members. Bilateral consultations can perhaps
help a lot in this regard.


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