S.

K SOMAIYA COLLEGE OF ARTS, SCIENCE & COMMERCE

VIDYAVIHAR (EAST), MUMBAI - 400077

PROJECT ON:
STUDY

OF tariff & non-tariff barriers.

MASTERS OF COMMERCE
(BANKING & FINANCE)

PART 1 (SEM 1)
(2015-2016)

Submitted:
In Partial Fulfillment of the requirements
For the Award of the Degree of
MASTERS OF COMMERCE
( BANKING & FINANCE )
BY
KUNJAL M SHAH
ROLL NO : 44
1 | Page

DECLARATION

I KUNJAL M SHAH student of class Mcom (BANKING & FINANCE) PART

1 (SEM-1), ROLL NO. 44, academic year 2015-2016 Studying at S.K.
SOMAIYA COLLEGE OF ARTS, SCIENCE AND COMMERCE, hereby
declare that the work done on the project Entitled STUDY OF tariff &
non-tariff barriers. is true and original and any Reference used in this
project is duly acknowledged.

DATE: 11-10-2015

PLACE: MUMBAI
SIGNATURE OF STUDENT
( KUNJAL M SHAH )

2 | Page

CERTIFICATE
This is to certify that MISS KUNJAL SHAH, studying in Mcom (BANKING &
FINANCE) PART 1 (SEM-1), ROLL NO. 44, academic year 2015-2016 at
S.K.SOMAIYA COLLEGE OF ARTS, SCIENCE & COMMERCE has
completed the project on STUDY OF tariff & non-tariff barriers.
under the guidance of Proff. KALAVATI UPADHYAY
The information submitted herein is true and original to the best of my
knowledge.

____________________

Proff. KALAVATI UPADHYAY

[PROJECT GUIDE]

____________________
EXTERNAL EXAMINER

___________________

DR. SANGEETA KOHLI

[PRINCIPAL]

___________________
MR. RAVIKANT
[CO-ORDINATOR]

3 | Page

DECLARATION BY GUIDE
I, the undersigned Prof. has guided MISS KUNJAL SHAH ROLL NO. 44 for
her project. She has completed the project on STUDY OF TARIFF & NONTARIFF BARRIERS. successfully.
I, hereby declare that information provided in this project is true as per the
best of my knowledge.

Prof.
Project Guide

ACKNOWLEDGEMENT
It gives me immense pleasure to present a project on STUDY OF TARIFF &
NON-TARIFF

BARRIERS. As a Mcom student it is a great honour to

4 | Page

undergo a project work at an graduate level and I would like to thank the
University of Mumbai for giving me such a golden opportunity.
I am eternally grateful to almighty god for giving me the spirit to put in my best
effort towards my project. I owe my sincere gratitude to DR. SANGEETA
KOHLI, the principal of our college. I am also thankful to my project guide
MRS. KALAVATI UPADHYAY for his valuable guidance and for providing an
insight to the subject.
I am also obliged to the library staff of S.K..Somaiya College for the numerous
books made me available for the handy reference.
Although, I have taken every care to check mistake and misprint yet it is difficult
to claim perfection. Any error, omission and suggestion brought to my notice, will
be thankfully acknowledged by me.

INDEX
SR
NO.

CHAPTER NAME
1 INTRODUCTION
1.1 Introduction

PAGE
NO.
8-12
9
5 | Page

1.2 Background

1.3 Issues

10

1.4 Non-Tariff Trade Barriers

11

1.5 Instruments of Trade policy

12

2 BARRIERS

13-16

3 TARIFF BARRIERS

17-22

3.1 Impact of Tariff Barriers

19

3.2 Impact of Tariff on Traffic

19

3.3 Types of Tariff

20

3.4 Functions of Tariff

21

4 NON-TARIFF BARRIERS

23-34

4.1 Types of Non-Tariff Barriers

24

4.2 Impact of Non-Tariff Barriers

30

4.3 Impact of Non-Tariff Barriers to Trade

31

4.4 Non-Tariff Measures

32

4.5 Non-Tariff Barriers Today

34

5 TARIFF V/S NON-TARIFF

35-39

5.1 Tariff v/s non-Tariff Barriers

36

5.2 Examples of Non-Tariff Barriers to Trade on Tariff Barriers

39

CONCLUSION

40

BIBLOGRAPHY

41

6 | Page

TARIFF
AND
NON-TARIFF
BARRIERS

7 | Page

CHAPTER 1
INTRODUCTION

1.1 INTRODUCTION

8 | Page

This

report

examines

tariff

and

non-tariff

policies

restrict

trade

betweencountries in agricultural commodities. Many of these policies are now subject toimporta
nt disciplines under the 1994 GATT agreement that is administered by the World Trade
Organization (WTO). The paper is organized as follows. First, tariffs, import quotas, and tariff
rate quotas are discussed. Then, a series of non-tariff barriers to trade are examined, including
voluntary export restraints, technical barriers to trade, domestic content regulations, import
licensing, the operations of import State Trading Enterprises(STEs), and exchange rate
management policies. Finally, the precautionary principle, an environment related rationale for
trade, and phytosanitary barriers to trade are discussed.

1.2 BACKGROUND
Tariffs and Tariff Rate Quotas
Tariffs, which are taxes on imports of commodities into a country or region,
areamong the oldest forms of government intervention in economic activity. They areimplemente
d for two clear economic purposes. First, they provide revenue for thegovernment. Second, they
improve economic returns to firms and suppliers of resources to domestic industry that face
competition from foreign imports. Tariffs are widely used to protect domestic producers incomes
from foreign competition. This protection comes at an economic cost to domestic consumers
who pay higher prices for import competing goods and to the economy as a whole through the
inefficient allocation of resources to the import competing domestic industry. Therefore,
since1948, when average tariffs on manufactured goods exceeded 30 percent in mostdeveloped
economies, those economies have sought to reduce tariffs on manufactured goods through
several rounds of negotiations under the General Agreement on Tariffs Trade (GATT). Only in
the most recent Uruguay Round of negotiations were trade and tariff restrictions in agriculture
addressed. In the past, and even under GATT, tariffs levied on some agricultural commodities by
some countries have been very large. When coupled with other barriers to trade they have often
constituted formidable barriers to market access from foreign producers. In fact, tariffs that is set
high enough can block all trade and act just like import bans. A tariff-rate quota (TRQ) combines
the idea of a tariff with that of a quota. The typica lTRQ will set a low tariff for imports of a
fixed quantity and a higher tariff for any imports that exceed that initial quantity. In a legal sense
and at the WTO, countries are allowed to combine the use of two tariffs in the form of a TRQ,
9 | Page

even when they have agreed not to use strict import quotas. In the United States, important TRQ
schedules are set for beef, sugar, peanuts, and many dairy products. In each case, the initial tariff
rate is quite low, but the over-quota tariff is prohibitive or close to prohibitive for most normal
trade. Explicit import quotas used to be quite common in agricultural trade. They allowed
governments to strictly limit the amount of imports of a commodity and thus to plan on
a particular import quantity in setting domestic commodity programs. Another commonnon-tariff
barrier

(NTB)

was

the

so-called

voluntary

export

restraint

(VER)

under which exporting countries would agree to limit shipments of a commodity to theimporting
country, although often only under threat of some even more restrictive or onerous activity. In
some cases, exporters were willing to comply with a VER because they were able to capture
economic benefits through higher prices for their exports in the importing countrys market.

1.3 ISSUES
In the Uruguay round of the GATT/WTO negotiations, members agreed to drop the use of import
quotas and other non-tariff barriers in favor of tariff-rate quotas. Countries also agreed to
gradually lower each tariff rate and raise the quantity to which the low tariff applied. Thus, over
time, trade would be taxed at a lower rate and trade flows would increase. Given current U.S.
commitments under the WTO on market access, options are limited for U.S. policy innovations
in the 2002 Farm Bill Vis a Vis tariffs on agricultural imports from other countries. Providing
higher prices to domestic producers by increasing tariff son agricultural imports is not permitted.
In addition, particularly because the U.S. is a net exporter of many agricultural commodities,
successive U.S. governments have generally taken a strong position within the WTO that tariff
and TRQ barriers need to be reduced.

1.4 NON-TARIFF TRADE BARRIERS

10 | P a g e

Countries use many mechanisms to restrict imports. A critical objective of the Uruguay Round of
GATT negotiations, shared by the U.S., was the elimination of non-tariff barriers
to trade in agricultural commodities (including quotas) and, where necessary, to replace them
with tariffs a process called tarrification. Tarrification of agricultural commodities was largely
achieved and viewed as a major success of the 1994 GATT3 Agreement. Thus, if the U.S. honors
its GATT commitments, the utilization of new non-tariff barriers to trade is not really an option
for the 2002 Farm Bill.

Domestic Content Requirements

Governments have used domestic content regulations to restrict imports. The intent
isusually to stimulate the development of domestic industries. Domestic contentregulations typic
ally specify the percentage of a products
total value that must be produced domestically in order for the product to be sold in the domestic
market (Carbaugh). Several developing countries have imposed domestic content requirements
tofoster agricultural, automobile, and textile production. They are normally used in

conjunction

with a policy of import substitution in which domestic production replaces imports. Domestic
content requirements have not been as prevalent in agriculture as in some other industries, such
as automobiles, but some agricultural examples illustrate their effects. Australia used domestic
content

requirements

to

support

leaf

tobacco

production.In

order to pay a relatively low import duty on imported tobacco, Australian cigarettemanufacturers
were required to use 57 percent domestic leaf tobacco. Member countries of trade agreements
also use domestic content rules to ensure that nonmembers do not manipulate the agreements to
circumvent tariffs. For example, North American Free Trade Agreement (NAFTA) rules of origin
provisions stipulate that all single-strength citrus juice must be made from 100 percent NAFTA
origin fresh citrus fruit
OBJECTIVE OF STUDY
International trade policies deals with the policies of the national govt. relating to exports
of various goods and services in various countries either on equal terms & conditions or
on discriminatory terms & conditions.

11 | P a g e

 Trade policies also aim at protecting the domestic industry from the competition of the
advanced countries through imposing quotas & build competencies by providing
subsidies.

1.5 INSTRUMENTS OF TRADE POLICY:

Tariff
Non-tariff

Tariffs Barriers represent taxes on imports of commodities into a country/region and are
among the oldest form of government intervention in the economic activity.
Non Tariff Barriers represent the great variety of mechanisms that countries use in order to
restrict the imports. For example:

Technical Barriers To Entry;

Import Licensing;

Domestic Content Regulations;

Voluntary Export Restrains Etc.

The non tariff barriers are mentioned in GATT 1947, art.37 (1/b):
(a) The developed contracting parties shall to the fullest extent possible _ that is, except when
compelling reasons, which may include legal reasons, make it impossible _ give effect to the
following provisions:
(b) refrain from introducing, or increasing the incidence of, customs duties or non-tariff import
barriers on products currently or potentially of particular export interest to less-developed
contracting parties.

12 | P a g e

CHAPTER 2
BARRIERS

13 | P a g e

BARRIERS
Accessibility to an import market may be hampered by the tariff barriers, and the non-tariff
barriers, of the imporing country. The tarif barriers restraint are to protect the domestic l
manufactures or producers from forign competitin. Exports products generally become less
competitive as aresult of barriers.
High custom duty
The high import duties in many ountries have been reduced the former GATT ( general
agreement on tariff & trade) multilateral agrements. The GATT was formed in geneva,
switzerland, in 1947 & it was succeeded by the WTO (world trade organization) on january
1,1995. Ther organization, thourgh multilateral agreements, helps reduce trade barriers between
the signatory countries & promotes trade thourgh tareiff concessions. WTO has widw power to
regulate international competition.
Countervaling duty
Counterveling duty is a duty imposed in addition to the regular (general) import duty, in order to
counteract or offset the subsidy & bounty paid to forighn export manufactures by their
government as an incentive to export, that would reduce the cost of goods,.Imposing a
countervailing duty is the answer to unfair competition from subsidized forign goods.
Anti-dumping duty
Anti dumping duty is a duty imposed to offset the advantage gained by the foreign expoters
when they sell their goods to an importing country at a price far lower than their domestic selling
price or below cost. Dumping usually occurs from the oversupply of goods, which is often a
result of overproduction, and from disposing obsolete to other markets.
Customs Duty Assements
Customs duties are generally assessed in three ways: ad valorem duty, specific duty and
compound duty.

14 | P a g e

 Ad Valorem duty: Ad valorem

means according to value. Duty is aasessed as

percentage of the import value of goods (e.g. 30% of FOB price)

Specify duty : Specify duty is assessed on the basis of some units of measurements, such
as quantity (e.g.$5 per dozen) or weight, either net weight or gross weight (e.g. $20 per
kilogram net).
Compound Duty :Compound duty is assessed as a combination of the specific duty and
ad valoren duty ($20 per kilogram net, plus 30% of FOB price).

Tariff are often created to protect infant indutries and developing economices, but are also
used by more advanced economices with developed industries. Here are five top resons
tariffs are:

1. PROTECTING DOMESTIC EMPOLOYMENT

The levying of tariffs is often highly politiczed. The possibility of increased compotition from
imported goods can threaten domestic industries. These domestic componies may fire workers or
shift production abroad cut costs, which means higher unemployment and less happy electorate.
The unemployment argument often shifts to domestic industries complaning about chep forigh
labour, and how poor working conditions and lack of regulation allow foreign companies to
produce goods more cheply. In economices, however, countries will continue to produce goods
until they no longer have a comparative advantage ( non to be confused with an advantages).

2. PROTECTING CONSUMERS
A goerment levy a tariff or products it feels could endanger its population. For example, soth
korea may place a tariff on imported beet from the united states if its thinks that the goods can be
tainted with diseases.

15 | P a g e

3. INFANT INDUSTRIES
The use of tariffs to protect infant industries can be seen by the Import Substitution
Industrialization (ISI) strategy employed by many developing nations. The government of a
developing economy will levy tariffs on imported goods in industries in which it wants to foster
growth. This increases the prices of imported goods and creates a domestic market for
domestically produced goods, while protecting those industries from being forced out by more
competitive pricing. It decreases unemployment and allows developing countries to shift from
agriculture. Criticisms of this sort of protectionist strategy revolve around the cost of subsidizing
the development of infant industries. If an industry develops without competition, it could
wind up producing lower quality goods, and the subsidies required to keep the state-backed
industry.

4. NATIONAL SECURITY
Barriers are also employed by developed countries to protect certain industries that are deemed
strategically important, such as those supporting national security. Defense industries are often
viewed as vital to state interests, and often enjoy significant levels of protection. For example,
while both Western Europe and the United States are industrialized, both are very protective
of defense-oriented.

5. RETALIATION
Countries may also set tariffs as a retaliation technique if they think that a trading partner has not
played by the rules. For example, if France believes that the United States has allowed its wine
producers to call its domestically produced sparkling wines "Champagne" (a name specific to the
Champagne region of France) for too long, it may levy a tariff on imported meat from the United
States. If the U.S. agrees to crack down on the improper labeling, France is likely to stop its
retaliation. Retaliation can also be employed if a trading partner goes against the government's
foreign policy objectives.

16 | P a g e

CHAPTER 3
TARIFF BARRIERS

17 | P a g e

TARIFF BARRIERS:
Meaning:
Refers to the tax imposed on the goods when they enter or leave the national frontier
or boundary.
Definition:
(Economics) A Barrier To Trade Between Certain Countries Or Geographical Areas
Which Takes The Form Of Abnormally High Taxes Levied By A Government On Imports Or
Occasionally Exports For Purposes Of Protection, Support Of The Balance Of Payments, Or The
Raising Of Revenue.
Tariffs are the most common kind of barrier to trade; indeed, one of the purposes of the WTO is
to enable Member countries to negotiate mutual tariff reductions. Before we consider the legal
framework that provides the discipline regarding tariffs, we must understand the definition of
tariffs, their functions, and their component elements (rates, classifications, and valuations).
Tariff barriers are duties imposed on goods which effectively create an obstacle to trade,
although this is not necessarily the purpose of putting tariffs in place. Tariff barriers are also
sometimes known as import restraints, because they limit the amount of goods which can be
imported into a country. Many organizations which promote trade are concerned about both tariff
and non-tariff barriers to free trade, and a number of nations have agreed to radically reduce their
trade barriers to promote the exchange of goods across their borders.
A number of different types of duties can be levied when goods cross international boundaries.
With an ad valorem duty, for example, the importer must pay a fee which is calculated as a
percentage of the value of the goods being imported. Specific tariffs are set amounts which are
levied on products which are imported, regardless of values, while environmental tariffs penalize
nations with poor environmental records.
For importers, tariff barriers can make it difficult to bring goods into a country. The importer
may be forced to import less because the tariff barriers cannot be afforded otherwise, and it may
need to charge more for the goods to make importing worthwhile. Tariffs are designed to force
18 | P a g e

importers to do this to level the field between domestic producers and importers, allowing costly
domestic producers to compete with importers who may be able to bring in goods at lower cost.

3.1 IMPACTS OF TARIFF BARRIERS:

Tariff barriers tend to increase:

Inflationary pressures
Special interest privileges.
Government control & political considerations in economic matters.

Tariff barriers tend to weaken:

Balance of payments positions.
Supply & demand patterns.
International relations (they can start trade wars)

Tariff barriers tend to restrict:

Manufacture supply sources
Choices available to consumers.
Competition.

3.2 IMPACT OF TARIFF 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 < -1.
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
19 | P a g e

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.

3.3 TYPES OF TARIFFS:

On the basis of purpose:
Revenue Tariff:
To provide state with revenue.
Levied on luxury goods.
Protective Tariff:
To maintain & encourage those branches of home industry protected by the duties.

TYPES OF TARIFFS AND TRADE BARRIERS

There are several types of tariffs and barriers that a government can employ:

Specific tariffs
Ad valorem tariffs
Licenses
Import quotas
Voluntary export restraints
Local content requirements

SPECIFIC TARIFFS
A fixed fee levied on one unit of an imported good is referred to as a specific tariff. This tariff
canvary according to the type of good imported. For example, a country could levy a $15
tariff on each pair of shoes imported, but levy a $300 tariff on each computer imported.
20 | P a g e

AD VALOREM TARIFFS
The phrase AD VALOREM is Latin for "according to value", and this type of tariff is levied on a
good based on a percentage of that good's value. An example of an ad valorem tariff would be
a15% tariff levied by Japan on U.S. automobiles. The 15% is a price increase on the value of the
automobile, so a $10,000 vehicle now costs $11,500 to Japanese consumers. This price increase
protects domestic producers from being undercut, but also keeps prices artificially high for the
Japanese car shoppers.

3.4 FUNCTIONS OF TARIFFS

Tariffs have three primary functions: to serve as a source of revenue, to protect domestic
industries, and to remedy trade distortions (punitive function).
The revenue function comes from the fact that the income from tariffs provides governments
with a source of funding. In the past, the revenue function was indeed one of the major reasons
for applying tariffs, but economic development and the creation of systematic domestic tax codes
have reduced its importance in the developed countries. For example,
Japan generates about 90 billion yen in tariff revenue, but this is only 1.7 percent of total tax
revenues (fiscal 1996). In some developing countries, however, revenue may still be an
Tariffs is also a policy tool to protect domestic industries by changing the conditions under which
goods compete in such a way that competitive imports are placed at a disadvantage. In point of
fact, a cursory examination of the tariff rates employed by different countries does seem to
indicate that they reflect, to a considerable extent, the competitiveness of domestic industries. In
some cases, tariff quotas are used to strike a balance between market access and the protection
of domestic industry. Tariff quotas work by assigning low or no duties to imports up to a certain
volume (primary duties) and then higher rates (secondary duties) to any imports that exceed that
level.
The WTO bans in principle the use of quantitative restrictions as a means of protecting domestic
industries, but does allow tariffs to be used for this purpose.3 The cost of protecting domestic
industry comes in the form of a general reduction in the protecting country's economic welfare
21 | P a g e

and in the welfare of the world economy at large, but tariffs are still considered to be more
desirable than quantitative restrictions.
Punitive tariffs may be used to remedy trade distortions resulting from measures adopted by
other countries. For example, the Antidumping Agreement allows countries to use "antidumpingduties" to remedy proven cases of injurious dumping; similarly, the Subsidies Agreement allows
countries to impose countervailing duties when an exporting country provides its manufacturers
with subsidies that, while not specifically banned, nonetheless damage the domestic industry of
an importing country.
Purpose: To Protect The Domestic Industry By Increasing The Cost Of Imported Goods.
Example: GoI imposed tariffs to protect domestic automobile industry, sugar industry, cement
industry & steel industry.

22 | P a g e

CHAPTER 4
NON-TARIFF BARRIERS.

NON TARIFF BARRIERS

Non-Tariff measures include all measures, other than tariffs, the effect of which is to restrict
imports, or to significantly distort trade.
Tariff raise prices & limit trade sometime the govt. alter the prices of products to limit their
product import & export.( Direct price influence)-Susidies help companies be competitive when
to overcome the market imperfections are least controversial.Aid and aLoans to other countries
& the recipient is required to spend the fund in the donor country known as tied aids and tied
23 | P a g e

loans. (Quantity Controls)- Quota means setting the total amount to be traded or allocate amount
by its country. Voluntaru Export Restraint(VER)-when a voluntary choice by a particular country
to constrain its shipment to another country to protect the political relations. Embargoes-A
specific type of quota the prohibits all forms of trade (fixed the limit at zero) regardless of origin
or destinations. Buy local legislation-Govt. give preference to domestically made goods or
specify a domestic content resrictions.Standard & labels- Arbitrary standard, licesing
arrangements, administarative delays, reciprocal requirement service resrictions
4.1 TYPES OF NON-TARIFF BARRIERS:
Specific limitation and trade:
Quotas
Imports licensing requirements.
Proportion restrictions of foreign to domestic goods (local content requirement)
Custom and administrative entry procedure:

Valuation system.
Antidumping practice.
Documentation requirement.
Fees.
Government participation in trade:

Government procurement policies.

Exports subsidies.
Countervailing duties.
Domestic assistant programs.

Charges on imports:

Prior import deposit subsidies

Administrative fees
Special supplementary duties
Import credit discriminations
Border taxes.

TYPES OF NON- TARIFF BARRIERS

24 | P a g e

There are several different variants of division of non-tariff barriers. Some scholars divide
between internal taxes, administrative barriers, health and sanitary regulations and government
procurement policies. Others divide non-tariff barriers into more categories such as specific
limitations on trade, customs and administrative entry procedures, standards, government
participation in trade, charges on import, and other categories. We choose traditional
classification of non-tariff barriers, according to which they are divided into 3 principal
categories.
The first category includes methods to directly import restrictions for protection of certain
sectors of national industries: licensing and allocation of import quotas, antidumping and
countervailing duties, import deposits, so-called voluntary export restraints, countervailing
duties, the system of minimum import prices, etc. Under second category follow methods that
are not directly aimed at restricting foreign trade and more related to the administrative
bureaucracy, whose actions, however, restrict trade, for example: customs procedures, Technical
standards and norms, sanitary and veterinary standards, requirements for labeling and packaging,
bottling, etc. The third category consists of methods that are not directly aimed at restricting the
import or promoting the export, but the effects of which often lead to this result.
The non-tariff barriers can include wide variety of restrictions to trade. Here are some
Example of the popular NTBs.
Licenses
The most common instruments of direct regulation of imports (and sometimes export) are
licenses and quotas. Almost all industrialized countries apply these non-tariff methods. The
license system requires that a state (through specially authorized office) issues permits for
foreign trade transactions of import and export commodities included in the lists of licensed
merchandises. Product licensing can take many forms and procedures. The main types of licenses
are general license that permits unrestricted importation or exportation of goods included in
theists 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

25 | P a g e

origin (or destination), and in some cases also customs point through which import (or export) of
goods should be carried out. The use of licensing systems as an instrument for foreign trade
regulation is based on a number of international level standards agreements. In particular, these
agreements include some provisions of the General Agreement on Tariffs and Trade and the
Agreement on Import Licensing Procedures, concluded under the GATT (GATT).

Quotas
Licensing of foreign trade is closely related to quantitative restrictions quotas on imports and
exports of certain goods. A quota is a limitation in value or in physical terms, imposed on import
and export of certain goods for a certain period of time. This category includes global quotas in
respect to specific countries, seasonal quotas, and so-called "voluntary" export restraints.
Quantitative controls on foreign trade transactions carried out through one-time license.
Quantitative restriction on imports and exports is a direct administrative form of government
regulation of foreign trade. Licenses and quotas limit the independence of enterprises With a
regard to entering foreign markets, narrowing the range of countries, which may be entered into
transaction for certain commodities, regulate the number and range of goods permitted 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.

Agreement On A "Voluntary" Export Restraint

In the past decade, a widespread practice of concluding agreements on the "voluntary

export restrictions and the establishment of import minimum prices imposed by leading
Western nations upon weaker in economical or political sense exporters. The specifics of
these types of restrictions is the establishment of unconventional techniques when the
trade barriers of importing country, are introduced at the border of the exporting and not
26 | P a g e

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 with Drawl 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 ou tin
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.

EMBARGO
Embargo is a specific type of quotas prohibiting the trade. As well as quotas, embargoes may be
imposed on imports or exports of particular goods, regardless of destination, in respect of certain
goods supplied to specific countries, or in respect of all goods shipped to certain countries.
Although the embargo is usually introduced for political purposes, the consequences, in essence,
could be economic.
STANDARDS
27 | P a g e

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.

The Transition From Tariffs To Non-Tariff Barriers

28 | P a g e

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.

4.2 IMPACT OF NON-TARIFF BARRIERS:

Have emerged as potent protectionist tool
It being less transparent, its difficult to identify & quantify its impact.

Non Tariff Barriers and Exports: An Impact Analysis from Africa EU and Africa USA
There have been divergent opinions as to what undermine Africas export flows to the developed
nations particularly the European Union (EU) and United State of America (USA). While tariff
barriers had been said to be a major hindrance to Africas exports according to African
governments, studies have found that tariffs which are part of instruments of trade restrictions
(ITRs) were not the only problems to Africas export flows. However, most of these studies
examined only the tax (price) related trade restrictions without considering the non tariff
barriers. Besides, conclusions of these studies were based on data that were limited to sub
Saharan Africa (SSA). These gaps were filled by this study by providing an econometrics
analysis of trade restriction issues and also determine the most significant trade restriction
29 | P a g e

instruments that inhibit Africas export to these markets. Thus, this study evaluates the impact of
non tariff barriers in the EU and USA on Africas exports with the view of examining the
extent to which its determined market

access.

TARIFFS AND MODERN TRADE

The role tariffs play in international trade has declined in modern times. One of the primary
reasons for the decline is the introduction of international organizations designed to improve free
trade, such as the World Trade Organization (WTO). Such organizations make it more difficult
for a country to levy tariffs and taxes on imported goods, and can reduce the likelihood
of retaliatory taxes. Because of this, countries have shifted to non-tariff barriers, such as quotas
and export restraints. Organizations like the WTO attempt to reduce production and consumption
distortions created by tariffs. These distortions are the result of domestic producers making
goods due to inflated prices, and consumers purchasing fewer goods because prices have
increased. (To learn about the WTO's efforts, read
What Is The World Trade Organization?
Since the 1930s, many developed countries have reduced tariffs and trade barriers, which has
improved global integration and brought about globalization. Multilateral agreements between
governments increase the likelihood of tariff reduction, while enforcement on binding
agreements reduces uncertainty.
4.3 IMPACT OF NON-TARIFF BARRIERS TO TRADE
(NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff. Some
common examples of NTB's are anti-dumping measures and countervailing duties, which,
although they are called "non-tariff" barriers, have the effect of tariffs once they are enacted.
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, or sanitation, or to protect delectable 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.
30 | P a g e

Some of non-tariff barriers are not directly related to foreign economic regulations, but
nevertheless they 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 phi to-sanitary measures, rules of origin, etc. Sometimes in this list they include
macroeconomic measures affecting trade.

4.4 NON-TARIFF MEASURES

Non-tariff measures (NTMs) are of particular concern to exporters and importers in

developing countries, as they are a major impediment to international trade and can prevent
market access. Exporting companies seeking access to foreign markets and companies importing
products need to comply with a wide range of requirements including technical regulations,
product standards and customs

procedures.

The business sector, particularly in developing countries, often lacks the information, capabilities
and facilities needed. Meeting the complex requirements and demonstrating compliance with
NTMs can also come at a considerable cost.

o UNDERSTANDING NTMS
o NTM OFFICIAL DATA
o NTM BUSINESS SURVEY
o PROCEDURAL OBSTACLES
31 | P a g e

o PUBLICATIONS
o NEWS & EVENTS
Similarly, national policymakers often lack a clear understanding of what their business

sector perceives as predominant obstacles to trade, which can make it difficult to develop
appropriate trade-related policies. At the same time, while there is an on-going global effort to
increase economic liberalization that seek to eliminate or reduce tariffs, during the past decade
there has also been a steady increase in the number of non-tariff measures.

UNDERSTANDING NON-TARIFF MEASURES

NTMs can be broadly defined as policy measures, other than ordinary custom tariffs, that

may have an economic effect on international trade in goods. They may also affect the price of
traded goods or in the quantity of trade goods, or both. Although the use of NTMs is in many
cases legitimate - for example to ensure quality or protect consumers' health - they are also
sometimes used as protectionist measures. It is usually difficult to clearly determine if the
purpose of the regulation is for legitimate or protectionist

reasons.

ITCS PROGRAMME ON NON-TARIFF MEASURES

The International Trade Centre's (ITC) programmed on NTMs aims at increasing

transparency and help countries better understand obstacles to trade faced by the business
community. In close collaboration with national and regional stakeholders, ITC is engaged in a
multi-agency initiative that assists countries in finding solutions tailored to meet their specific
needs.
32 | P a g e

The programme consists of two main activities:

1.

Official NTM data: One part of the project is focused on the collection of official
regulation related to export or import of goods. These regulations are uniformly classified
according to measure types using the international NTM nomenclature that was
developed under a multi-agency framework, including ITC, and led by the United
Nations Conference on Trade and Development (UNCTAD). Since the data is collected
from published official sources it is often very reliable. ITC creates a central depository
for all the collected data and disseminates this through its ITCs Market Access Tool.

2.

NTM Business Survey: The second part of the programmed aims to complement
the official data collected by identifying measures that exporters and importers perceive
problematic and why. For this purpose ITC conducts large-scale company-level surveys
to identify regulations that are too strict to comply with and regulations whose
compliance is difficult because of related procedural obstacles. ITC collaborates closely
with ministries, export promotion agencies, research institutes, business associations and
local experts in each country.

4.5 NON-TARIFF BARRIERS TODAY

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
Wotan 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.

33 | P a g e

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 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.

CHAPTER 5
34 | P a g e

TARIFF V/S NON-TARIFF

5.1 Tariff Barriers v/s Non Tariff Barriers.

All countries are dependent on other countries for some products and services as no country can
ever hope to be self reliant in all respects. There are countries having abundance of natural
resources like minerals and oil but are deficient in having technology to process them into
finished goods. Then there are countries that are facing shortage of manpower and services. All
such shortcomings can be overcome through international trade. Though it seems easy, in reality,
importing goods from foreign countries at cheap prices hits domestic producers badly. As such,
countries impose taxes on goods coming from abroad to make their cost comparable with
domestic goods. These are called tariff barriers. Then there are non tariff barriers also that serve
as impediments in free international trade. This article will try to find out differences between
tariff and non tariff barriers.

Tariff Barriers
35 | P a g e

Tariffs are taxes that are put in place not only to protect infant industries at home, but also to
prevent unemployment because of shut down of domestic industries. This leads to unrest among
the masses and an unhappy electorate which is not a favorable thing for any government.
Secondly, tariffs provide a source of revenue to the government though consumers are denied
their right to enjoy goods at a cheaper price. There are specific tariffs that are a onetime tax
levied on goods. This is different for goods in different categories. There are Ad Valorem tariffs
that are a ploy to keep imported goods pricier. This is done to protect domestic producers of
similar products.

Non Tariff Barriers

Placing tariff barriers are not enough to protect domestic industries, countries resort to non tariff
barriers that prevent foreign goods from coming inside the country. One of these non tariff
barriers is the creation of licenses. Companies are granted licenses so that they can import goods
and services. But enough restrictions are imposed on new entrants so that there is less
competition and very few companies actually are able to import goods in certain categories. This
keeps the amount of goods imported under check and thus protects domestic producers.

Import Quotas is another trick used by countries to place a barrier to the entry of foreign goods in
certain categories. This allows a government to set a limit on the amount of goods imported in a
particular category. As soon as this limit is crossed, no importer can import further quantities of
the goods. Non tariff barriers are sometimes retaliatory in nature as when a country is
antagonistic to a particular country and does not wish to allow goods from that country to be
imported. There are instances where restrictions are placed on flimsy grounds such as when
western countries cite reasons of human rights or child labor on goods imported from third world
countries. They also place barriers to trade citing environmental reasons.
Tarff for are import for several reasons though basically it may sound the protection for domestic
industry is the main reason. Traffic provide protection domestic industry and basically it is
expected that during the initial stages only the protection should be provided in order to
protected the domestic industry form the international competitive product and therefore
economic forget in front the industry forgive for traffic due to traffic the redistribution of income
between consumers and producers texts place it is called as redistribution of income between
consumers and producers texts place it is called as redistribution of transfer effects because
36 | P a g e

money gets transferred from one group of consumers to another group of producers the
government collects revenue due to tariff or custom duties the revenue collected by the
government equals the traffic multiplied by the volume of imports a traffic produces
consumption effects because it reduces total consumption of commodities due to the price rise
generally a traffic causes increase in rice of the protected commodity assuming that a price in the
exporting country rise by the full amount of the tariff sometimes in the imposing g country
remains the same which face entire burden is on the exposing country due to tariff generally
imported commodities available in the domestic economy and therefore rational consumer
prefers to off for domestic commodity than the imported one therefore import the bill becomes
lesser which helps to bring down deficit in the balance of payments due to the imposing of tariff
as a policy matter sometimes country has to face the effects and therefore terms on trends suffer
imposing
tariff as a policy on the basis of in front industry arrangement allows protection through tariff
only during the initial stages therefore efficiency of the production induces ultimately leads to
production of qualitative goods. At the competitive price due to tarrif the revenue is collected and
generated out of which different the works are undertaken where employment opportunity are
created & incomes are generated.

Tariffs Duty
While shipping goods internationally, the government directly charges a duty on a goods for
crossing its national boundary for protection and revenue on a per unit or a value system is
known as tariffs. Tariffs collected by the exporting country are called export tariffs. Levied by a
country through which the gods have passed called transit tariffs. Collected by the importing
countries are called import tariffs.

37 | P a g e

38 | P a g e

5.2 Examples Of Non-Tariff Barriers To Trade On-Tariff Barriers

To Trade Can Be:

Import bans
General or product-specific quotas
Rules of Origin
Quality conditions imposed by the importing country on the exporting countries
Sanitary and phy to-sanitary conditions
Packaging conditions
Labeling conditions
Product standards
Complex regulatory environment
Determination of eligibility of an exporting country by the importing country
Determination of eligibility of an exporting establishment (firm, company) by the
importing country.
Additional trade documents like Certificate of Origin, Certificate of Authenticity etc.
health regulation
Employment law
Import licenses
State subsidies procurement, trading, state
Export subsidies
Fixation of a minimum import price
Product classification
Quota shares
market controls and multiplicity
Inadequate infrastructure
"Buy national" policy
Over-valued currency
property laws patents, copyrights
Restrictive licenses
Seasonal import regimes

CONCLUSION

39 | P a g e

Governmental interference is often argued to be beneficial if it promotes industrialization.

Different trade control instruments are used to improve the economic relations with other
countries. A countrys development of an international strategy greatly depend on trade controls
that directly affect price and indirectly affect quantity (traffic, subsidies, arbitrary customs
valuation methods & special fees) and directly affect quantity and indirectly affect price ( quotas
VER , buy local, arbitrary standards, licensing arrangements, foreign exchange controls &
administrative delays)
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
hell a lot in this regard.

BIBLOGRAPHY

40 | P a g e

WEBSITES

www.asiatrade .com
www.google.com
www.mecklai.com
www.wipro.com
http://en.wikipedia.org
http://en.wikipedia.org/wiki/ETrace

BOOKS
1. Non-Tariff Barriers affecting Indian exports- Raj Mehta
NEWS PARERS
The Economic Times
Business Line

41 | P a g e