TRADE BARRIERS

Module 2
 TRADE BARRIERS

“Any hurdle, impediment or road block that hampers

the smooth flow of goods and services and
payments from in destination to another”
 Man made obstacles  Use artificial
 To the free movement restrictions
of goods  On trading activities
 Between different between countries.
countries
They rise from rules and regulations governing

trade either from home country or host country

or intermediary
Trade Barriers Objective
Protect domestic industries
Promote new industries, research and
development
Favourable balance of payment
Protect national economy (Avoid
dumping)
Revenue to Govt.
Counteract barriers
Domestic production
Make the country strong and efficient
Trade Barriers

Trade barriers may be

(I) Tariff Barriers

(II) Non Tariff Barriers Or Protective
Barriers.
 Tariff Barriers
Classical method for regulating international trade
It refers to taxes on the imports. (Levy collected)
Tariff barriers are the 'tax barriers' or the 'monetary barriers'
imposed on internationally traded goods when they cross the
national borders
In the form of heavy taxes or custom duties on
imports
To discourage entry into home country for marketing.
Tariffs only on imports and not on exports (Export
promotion)
Specific Duties (Rates)
Specific characters like ( weight, length, numbers etc.)
 Tariff Barriers- Objectives
It aims at
Restricting the inward flow of goods
To protect the country's own industries
(Extra cost for others)
Revenue
Balance its balance of trade (Surplus)
Influence the political and economic policies
of other countries
May impose tariffs as counteract - against
(something) in order to reduce its force or
neutralize it.
 Sometimes the duty on a product becomes so steep

that it is not worthwhile importing it.

 In addition, the duty so imposed also provides a

substantial source of revenue to the importing

country.
 In India, Customs duty forms a significant part of the

total revenue, and therefore, is an important element

in the budget.
Classification of Tariff
Barriers

Origin & Destination

Quantification Of Tariffs

Purpose They Serve

Trade Relations
 Based on
ORIGIN & DESTINATION
OF GOODS CROSSING NATIONAL BOUNDARIES

1. Export duty 2. Import duty

• In origin of product • In Consumer country
• For Primary Goods • Revenue
• To conserve • Make imports costly
• Eg. Oilseed, coffee, • Protection to domestic industries
onion

3. Transit duty
Impose Tax when it crosses the
national boundary between the
originating country and the
country which it is consigned to.
 Based on
Quantification Of Tariffs

1. Specific duty 2. Ad-valorem duty

• Collected on physical • Collected on both physical
unit and
• Per unit • Total value of bill (Cost +
• Fixed rate Freight)
• Eg. Rs. 800 on each TV • Fixed % on the value of a
commodity/ property
• property taxes
3. Compound duty • Eg. 3% on total invoice
when the commodity is subject amount
to both
specific and ad-valorem duty
both the value of the goods as well as the
weight, volume or number.
 Based on Purpose They Serve
1. Reverse Tariff 2. Protective Tariff
• Aims for Govt. revenue • Aims for protection to home
• Not really obstruct the industries
import • Restricting or eliminating
• On items of mass competition
consumption • Rate of tariff is very high
• Rate of duty is low • To reduce imports
4. Countervailing duty
3. Anti-dumping duty • Similar to anti-dumping,
• To avoid dumping not so strict ; to
• Selling goods in foreign neutralize the negative
markets at a price below effects of subsidies
the normal cost or below • To avoid misuse the
the marginal cost to benefits (cash assistance
capture foreign markets. or subsidies)
 Based on Trade Relations
Single Column Tariff Double Column Tariff
• Two rates of duty are
• Fixed Rates fixed
• For various commodities • For all or some
• Applicable to all other commodities.
countries • Lower rate for friendly
• No exceptions country
(bilateral trade agreement)
Triple column tariff • Higher rate for all other
• 3 different rates are fixed countries.

• #General Tariff #International Tariff

• Less variance – higher • Lower than General and
#Preferential
rates Tariff.
International
• For other country • For Friendly country
(Bilateral)
 Benefits Of Tariff To The Home Country

 Imports are discouraged or even

eliminated
 Protection to home industries and
manufacturing sector
 Facilitates an increase in domestic
production
 Attraction to imported goods will brought
down.
 Revenue to the government
 Creates employment opportunities within
the country
 Reduce trade deficit
Types Of Trade Barriers Non-tariff
Barriers

1) Quota system
2) Import licensing
3) Consular formalities
4) Preferential treatment through
trading blocks
5) Customs regulations
6) State trading
7) Foreign exchange regulations
8) Health & safety measures
 1) Quota System

Under this system, the quantity of a

commodity permitted to be imported
from various countries during a given
period is fixed in advance.
Required importers to have licences to
import a particular commodity.
Imports are not allowed over and above
a specific limit
 The Types Of Quotas

Tariff Quota Mixing quota

• Mix of tariff & quantity • The producers are
• A specific quantity is obliged to utilize a
allowed duty free or a certain % of domestic
special low duty raw materials in
• Excess quantity - higher manufacturing the
rate finished products.
Unilateral Quota Bilateral quota

• A country fixes its own • Quantity is fixing in

ceiling on the import of advance by a
a particular item. negotiation with
exporting country
 (2) Import Licensing

To control the quantity of imports.

Imports are allowed under license.
Importers have to approach the
licensing authorities for permission to
import certain commodities.
Foreign exchange is provided based
on license.
Practice in many countries.
 (3) Consular Formalities
Impose strict rules regarding the consular
documents necessary to import goods.
Documents include:- import certificates,
certificates of origin and certified consular
invoices.
Penalties for ignorance of such documentation
formalities.
To restrict imports to some extent and prevent
free imports of commodities that are not
necessary.
 (4) Preferential Treatment
Through Trading Blocs

Creating regional groups

Offer special concessions and preference to members.
Result:- Trade development among the member countries
and allows advantages to all member countries.
On the other hand, it can cause considerable loss to non
member countries. (Trading bloc acts as a trade barrier.)
examples include - World Trade Organisation (WTO),
European Union (EU) , North American Free Trade
Agreement (NAFTA), , Association of Southeast Asian
Nations (ASEAN) , Asia-Pacific Economic
Corporation (APEC).
 (5) Customs Regulations
Or Administrative Regulations

Very complicated in many countries.

There are number of ‘commodities acts’,
related to the movement of drugs,
minerals, gold etc.
Restrictions are useful to reduce imports.
Tax administration also acts as barrier to
imports.
 (6) State Trading

It refers to import - export activities

conducted by the government or a
government agency.
To restrict imports as the final
decision is taken by the government.
It acts as a barrier, restricting the
freedom of private parties.
 (7) Foreign Exchange Regulations

Countries impose various restrictions on the

use of foreign exchange earned through
imports.
Such restrictions have the following
objectives:
 To restrict the demand for foreign
exchange and to use the foreign exchange
reserves in the best possible manner.
 To check the flow of capital.
 To maintain the value of exchange rates.
(8) Health & Safety Measures

Many countries have specific rules

regarding health & safety regulations,
which are applicable to imports.
Such health & safety measures are
mainly applicable to raw materials and
food items.
Imports are not allowed if the
regulations are not followed properly.
Huge penalty and ban will be there
 Stages Of Internationalization

Multinational Transnational
Domestic Company Company Company

Different
Limits Focus on Either produce Produces,
strategy for
operation, domestic in one country markets,
different
Vision, practices but and market invests and
market
Mission to extend wings globally or operates
National to foreign produce across the
political countries globally and world
boundaries (Mere export- market
import) domestically
 Gains or Advantages Of International Business

 High living standards  Opportunity for challenge to

domestic business
 Increased socio-economic
 Division of labour and specialization
welfare  Economic growth of the world
 Wider market  Optimum and proper utilization of
 Reduced effects of world resources
business cycles  Cultural transformation
 Knitting the world into a traditional
 Reduced risks
village
 Large-scale economies
 Potential Untapped
markets