TRADE BARRIERS

TRADE BARRIERS
At the end of this module the learning outcomes are What are trade barriers? Types of trade barriers?

TRADE BARRIERS
We all want free trade In reality it is not Why Nations discourage free trade Trade barriers

TRADE BARRIERS
Definition Government laws, regulations, policies or practices that either protects domestic producers from foreign competition or artificially stimulate exports of particular product.

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Two types Tariff barriers Non-tariff barriers

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Tariff barriers Imposing duties on import/exports Non-tariff barriers Can be of various categories

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Types Import policies Standards, testing Government procurement Export subsidies Lack of intellectual property protection Service barriers Investment barriers Other barriers
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Reasons Why discourage free trade Protection to local industry Restrict entry of foreign players

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Reasons Keeping money at home Reducing unemployment Equalizing cost and price Enhancing national security Protecting infant industry

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Keeping money at home One view International trade Outflow of money Foreigners rich Local poorer

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Reducing unemployment Imports encourage unemployment Stimulate unemployment Discourage imports Criticism
Domestic manufacturers Increase profits Increase inflation
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Equalizing cost and price Foreign goods lower prices Lower domestic prices Trade barriers Make imported goods less competitive Local items more competitive

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Enhancing national security Proponents patriotism Self-sufficient Willing to pay for inefficiency Increasing national security

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Protecting infant industry Start-ups Protect Till become viable Critics
How far Spoiled child Will never change habits
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TARIFFS French word Meaning rate, price Tax, duty on products that move across borders Based on
Direction Purpose Length Rate

Not mutually exclusive

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Direction import and export tariffs Can be on export or import Mostly imports Exports if shortage

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Russia Export tariffs Shortage of essential commodities

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Purpose Can be revenue and protective tariffs Protective tariffs Protect home industry against foreign competitors Dumping India 200% duty on fully built imported cars to protect domestic industry
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Revenue tariff Generate tax revenue Lower rates Purpose is primarily to generate revenue and not protect the industry Many items come under this category in India
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Length Tariff surcharge versus countervailing duty Protective tariffs according to the length of time Tariff surcharge
Temporary action

Countervailing duty
Permanent action
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Rate Can be specific, ad-valorem or combined Specific
Fixed depends on product Rs 4000/ on 1.5 ton window air-conditioner

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Ad-Valorem
Duties according to price of the product As a percentage 200% duty on import of Honda City from Thailand

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NON-TARIFF BARRIERS Tariff barriers are quite clearly understood Non-tariff barriers
Vague Not that transparent Various types

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Government participation in trade Government involvement can be active to passive Procurement only from government controlled entities Import of minerals by MMTC in India

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Subsidies Cash Interest rate Income-tax Free electricity Loans on concessional rate Criticism of Chinese government by many US organizations
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Customs and entry procedures Classification Valuation Documentation Licence Inspection Health and safety regulations Product standards
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Classification How you classify is critical Arbitrary Different duties

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Valuation How it is assessed Duties based on value subjective

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Documentation Lengthy Complicated Point of entry

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License or Permit Certain items Need permission Long procedure

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Inspection Checking for quality and quantity Discourage imports

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Health and Safety regulation Health clearances Permits required

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Product requirements Product standards Packaging, labeling Product testing

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