Non-tariff Barriers

 Any government regulation, policy, or procedure other than a tariff that has the effect of 124
impeding international trade
 Three kinds of non-tariff barriers:
1. Quotas
2. Numerical export controls
3. Other Non-Tariff Barriers

Quotas
 Numerical limit on the quantity of a good that may be imported into a country during some time
period, such as a year.
 Quotas have traditionally been used to protect politically powerful industries, such as
agriculture, automobiles, and textiles, from the threat of competition, as in the use of quotas to
limit imports of rice by Japan, Korea, Taiwan, and the Philippines.

Tariff Rate Quotas (TRA)

Imposes a low tariff rate on a limited amount of imports of a specific good; above that
threshold, a TRQ imposes a prohibitively high tariff rate on the good.
- Minimum Access Volume (MAV) refers to the quantities of a given imported agricultural product that the
government allows entry into, the Philippines at the lower in-quota tariff rate.
- Under the MAV system, the Philippines imposes a tariff rate quota on numerous agricultural products,
including corn, coffee and coffee extracts, potatoes, pork, and poultry products. In-quota tariffs range
from 30 percent to 50 percent.
 Low Tariff Rate (TL) under the quota’s threshold
 Prohibitive High Tariff Rate (TH) above threshold

This situation is depicted in Figure 9.4, where the first 100,000 widgets imported into a
country are subjected to a low tariff rate, TL; all widgets after the first 100,000 are subjected
to the high tariff rate, TH.

Numerical Export Controls

A country also may impose quantitative barriers to trade in the form of numerical limits on the amount
of a good it will export.

 Voluntary export restraint (VER).

 A promise by a country to limit its exports of a good to another country to a pre-
specified amount or percentage of the affected market.
 Often this is done to resolve or avoid trade conflicts with an otherwise friendly trade
partner.
 Embargo
 Adopted to punish a country’s political enemies.
  An absolute ban on the exporting (or importing) of goods to a particular destination
 Adopted by a country or international governmental authority to discipline another
country.

Other Non-tariff Barriers

 Countries also use various other NTBs to protect themselves from foreign competition.
 Some NTBs are adopted for legitimate domestic public policy reasons but have the effect of
restricting trade.
 Most NTBs, however, are blatantly protectionist.

Among the most common forms of non-quantitative NTBs are the following:

 Product and testing standards

 Restricted access to distribution networks
 Public-sector procurement policies
 Local-purchase requirements
 Regulatory controls
 Currency controls
 Investment controls
1. Product and Testing Standards - A common form of NTB is a requirement that foreign goods
meet a country’s product standards or testing standards before the goods can be offered for
sale in that country.
2. Restricted Access to Distribution Networks - Restricting foreign suppliers’ access to the normal
channels of distribution may also function as an NTB.
3. Public-Sector Procurement Policies - Public-sector procurement policies that give preferential
treatment to domestic firms are another form of NTB. Public sector procurement policies are
particularly important in countries that have extensive state ownership of industry and in
industries in which state ownership is common.
4. Local-Purchase Requirements - Host governments may hinder foreign firms from exporting to or
operating in the host countries by requiring the firms to purchase goods or services from local
suppliers.
5. Regulatory Controls - Governments can create NTBs by adopting regulatory controls, such as
conducting health and safety inspections, enforcing environmental regulations, requiring firms
to obtain licenses before beginning operations or constructing new plants, and charging taxes
and fees for public services that affect the ability of international businesses to compete in host
markets.
6. Currency Controls - Many countries, particularly developing countries and those with centrally
planned economies, raise barriers to international trade through currency controls. Exporters of
goods are allowed to exchange foreign currency at favorable rates so as to make foreign
markets attractive sales outlets for domestic producers. Importers are forced to purchase
foreign exchange from the central bank at unfavorable exchange rates, thus raising the domestic
prices of foreign goods. Tourists may be offered a separate exchange rate that is designed to
extract as much foreign exchange as possible from free-spending foreigners.
7. Investment Controls - Controls on foreign investment and ownership are common, particularly
in key industries such as broadcasting, utilities, air transportation, defense contracting, and
financial services. Such controls often make it difficult for foreign firms to develop an effective
presence in such markets.