Trade Barriers

BBA-306 INTERNATIONAL
BUSINESS MANAGEMENT 2/13/2021 1

 Mercantilism focuses on gold and silver.
 Absolute advantage : Countries should
specialize in the production of goods for
which they have an absolute advantage and
then trade these goods for the goods traded
by other countries.
 Comparative advantage: This theory holds
that nations should produce those goods for
which they have the greatest relative
advantage.
 Factor endowment: Factor endowments mean
the extent to which a country is endowed
with such resources as land, labor and
capital.
 Other firm specific theories such as product
life cycle, New trade theory and Competitive
advantage.
 Students will be able to understand various
tariff and Non tariff barriers of International
trade.
 PO1: Use knowledge of management concepts,

theories and practices in different business
scenarios.
PO4: Ability to understand, analyze and
communicate internal, external and global
environment of business by making efficient use
of ICT.
Tariff Barriers
In simplest terms, a tariff is a tax. It adds to the cost of

imported goods and is one of several trade policies that a
country can enact. Tariffs are often created to protect infant
industries and developing economies but are also used by
more advanced economies with developed industries. Here
are five of the top reasons tariffs are used:
Reasons for using tariff barriers
 Protecting Domestic Employment
 Protecting Consumers
 Infant Industries
 National Security
 Retaliation
A fixed fee levied on one unit of an imported
good is referred to as a specific tariff. This
tariff can vary according to the type of goods
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.
 According to value
 tariff is levied on a good based on a
percentage of that good's value.
 When a fixed percent of value of a commodity
is added as a tariff it is known as ad valorem
duty. It ignores the consideration of weight,
size or volume of commodity.
 It is a combination of specific duty and ad
valorem duty on a single product.
 It is partly based on quantity and partly on
value of goods.
 The import duties which vary with the prices
of commodities are called sliding scale
duties.
 Historically, these duties are confined to

agricultural products, as their prices
frequently vary, mostly due to natural factors.
 These are also called as seasonal duties.
 It is imposed on certain imports where
products are subsidised by exporting
governments. As a result of government
subsidy, imports become more cheaper than
domestic goods. To nullify the effect of
subsidy, this duty is imposed in addition to
normal duties.
 At times, exporters attempt to capture
foreign markets by selling goods at rock-
bottom prices, such practice is called
dumping. As a result of dumping, domestic
industries find it difficult to compete with
imported goods. To offset anti-dumping
effects, duties are levied in addition to normal
duties
 A tariff which is designed to provide revenue
to the home government is called revenue
tariff. Generally, a tariff is imposed with a
view of earning revenue by imposing duty on
consumer goods, particularly, on luxury
goods whose demand from the rich is
inelastic.
 In order to protect domestic industries from
stiff competition of imported goods,
protective tariff is levied on imports.
Normally, a very high duty is imposed, so as
to either discourage imports or to make the
imports more expensive as that of domestic
products.
 A preferential tariff duty rate is a rate
of duty that is lower than the normal tariff
duty rate.
 A preferential duty rate can be applied to

certain goods from certain specified countries
and groups of countries.
 A multiple column tariff is a system where the
tariff rate or import tax assessed on a
particular product depends on its country of
origin.
 This is diametrically opposite to a single tariff

system, which levies the same tariff rate on a
product regardless of its point of origin.
 Non-tariff barriers, do not affect the price of
the imported goods, but only the quantity of
imports.
 Some of the important non-tariff barriers are

as follows:
 Under this system, a country may fix in
advance, the limit of import quantity of a
commodity that would be permitted for
import from various countries during a given
period.
 The quota system can be divided into the

following categories:
 Tariff/Customs Quota
Certain specified quantity of imports is allowed

at duty free or at a reduced rate of import duty.
Additional imports beyond the specified
quantity are permitted only at increased rate of
duty. A tariff quota, therefore, combines the
features of a tariff and an import quota.
 Unilateral Quota: The total import quantity is
fixed without prior consultations with the
exporting countries.
 Bilateral Quota: In this case, quotas are fixed
after negotiations between the quota fixing
importing country and the exporting country.
 Multilateral Quota: A group of countries can
come together and fix quotas for exports as
well as imports for each country.
 Most developed countries impose product
standards for imported items. If the imported
items do not conform to established
standards, the imports are not allowed. For
instance, the pharmaceutical products must
conform to pharmacopoeia standards.
 Governments impose domestic content
requirements to boost domestic production.
 For instance, in the US bailout package (to
bailout General Motors and other
organisations), the US Govt. introduced ‘Buy
American Clause’ which means the US firms
that receive bailout package must purchase
domestic content rather than import from
elsewhere.
 Certain nations insist on specific labelling of
the products. For instance, the European
Union insists on product labelling in major
languages spoken in EU. Such formalities
create problems for exporters.
 Certain nations insist on particular type of
packaging materials. For instance, EU insists
on recyclable packing materials, otherwise,
the imported goods may be rejected.
 In some countries like India, certain items are
imported or exported only through canalising
agencies like MMTC. Individual importers or
exporters are not allowed to import or export
canalised items directly on their own.
 Some nations form trading groups for
preferential arrangements in respect of trade
amongst themselves. Imports from member
countries are given preferences, whereas,
those from other countries are subject to
various tariffs and other regulations.
 Trading blocs are usually groups of countries
in specific regions that manage and
promote trade activities.
 Trading blocs lead to trade liberalisation

and trade creation between members, since
they are treated favourably in comparison to
non-members.
 The importer has to ensure that adequate
foreign exchange is available for import of
goods by obtaining a clearance from
exchange control authorities prior to the
concluding of contract with the supplier.
 The most common instruments of direct
regulation of imports (and sometimes export)
are licenses and quotas.
 The license system requires that a state

issues permits for foreign trade transactions
of import and export commodities included
in the lists of licensed merchandises.
 There are a number of other non – tariff
barriers such as health and safety
regulations, technical formalities,
environmental regulations, embargoes, etc.
POSITIVE CONSEQUENCES OF NON-TARIFF BARRIERS
Technological innovation
Social Benefits
Environmental Benefits
Managerial innovation
Competitive advantages
Integration of regional blocks
Basis Tariff barriers Non tariff barreirs
Meaning Tariff Barriers implies Non-tariff barriers
the taxes or duties cover all the
imposed by the restrictions other than
government on its taxes imposed by the
imports, so as to government on its
provide protection to imports, so as to
its domestic provide protection to
companies and the domestic
increase government companies and
revenue discriminate new
entrants.
Permissibility World Trade World Trade
Organization allowed Organization
the imposition of tariff abolished the
barriers to its member imposition of import
nation but at a quotas and voluntary
reasonable rate BBA-306
only. export restraints.
INTERNATIONAL
Nature Explicit Implicit
Form Taxes and Duties Regulations,

Conditions,
Requirements,
Formalities, etc.
Revenue Government receives No revenue is received

revenue by the government
Affects It affects the price of It affects the quantity
imported goods. or price or both of the
imported goods.
Monopolistic As the government The monopolistic

Organizations charges import duty, organization charges
monopolistic groups high prices through
can be controlled. low output.
Profit High profits made by Importers can make

the importers can be more profits.
controlled.
Thank You

Trade Barriers

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Trade Barriers

Uploaded by

Copyright:

Available Formats

BBA-306 INTERNATIONAL

BUSINESS MANAGEMENT 2/13/2021 1

 PO1: Use knowledge of management concepts,

In simplest terms, a tariff is a tax. It adds to the cost of

 Historically, these duties are confined to

 These are also called as seasonal duties.

 A preferential duty rate can be applied to

 This is diametrically opposite to a single tariff

 Some of the important non-tariff barriers are

 The quota system can be divided into the

Certain specified quantity of imports is allowed

 Trading blocs lead to trade liberalisation

 The license system requires that a state

Form Taxes and Duties Regulations,

Revenue Government receives No revenue is received

Monopolistic As the government The monopolistic

Profit High profits made by Importers can make

You might also like