International Trade

Part - 3

Dr. M. Imran Malik

April 17, 2020
Non-Tariff Barriers
 Non-Tariff barriers
• Quota System
• Import Licensing
• Consular formalities
• Preferential treatment through trading blocks
• Custom regulations
• State trading
• Foreign exchange regulations
• Health & Safety Measures
 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.

Imports are not allowed over and above a specific

limit
 Example
• Cars 20 Million
• Cars 500,000
• Chemicals xxxx
• Electrical equipment xxxx
• Paint xxxx
• Gems xxxx
• Cloth xxxx
 Types of Quota
• TARIFF QUOTA : It combines the features of the tariff as well as
the quantity here, the imports of a commodity up to a specified
volume are allowed duty free or at a special low rate of duty.
imports in excess of this limit are subject to a higher rate of duty

• UNILATERAL QUOTA : In a unilateral quota system, a country fixes

its own ceiling on the import of a particular item.

• BILATERAL QUOTA : In a bilateral quota, the quantity to be

imported is decided in advance, but it is the result of negotiations
between the country importing the goods and the country exporting
them.

• MIXING QUOTA : Under the mixing quota, the producers are

obliged to utilize a certain % of domestic raw materials in
manufacturing the finished products.
 Import Licensing
• In this system, imports are allowed under license.

• Importers have to approach the licensing authorities

for permission to import certain commodities.

• Foreign exchange for imports is provided against

license.

• Such import licenses are the practice in many

countries. This method is used to control the
quantity of imports.
 Consular Formalities
• Some importing countries impose strict rules regarding
the consular documents necessary to import goods.
Such documents include import certificates, certificates
of origin and certified consular invoices.

• Penalties are imposed for non-compliance of such

documentation formalities.

• The purpose of consular formalities is to restrict

imports to some extent and prevent free imports of
commodities that are not necessary.
Preferential treatment through trading blocks

• Some countries form regional groups and offer

special concessions and preference to member
countries. as a result trade is developed among
the member countries and allows advantages
to all member countries.

• On the other hand, it can cause considerable

loss to non member countries, as a trading bloc
acts as a trade barrier
 Customs Regulations
• Customs regulations and administrative
regulations are very complicated in many
countries. there are a number of
‘commodities acts’, pertaining to the
movement of drugs, minerals, etc.

• Restrictions under such acts are useful to

curtail imports.
 State Trading
• State trading refers to import- export activities
conducted by the government or a government
agency. state trading is useful to restrict imports
as the final decision is taken by the government.

• Such state trading acts as a barrier,

restricting the freedom of private parties.
 Foreign Exchange Regulations
• Countries impose various restrictions on the use of
foreign exchange earned through imports.

• Such restrictions have the following objectives:

– (a) To restrict the demand for foreign exchange and to use the
foreign exchange reserves in the best possible manner.

– (b) To check the flow of capital.

– (c)To maintain the value of exchange rates.

 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.
 Six Commonly Used Barriers
(Besides tariff and non-tariff barriers)
• Price-based barriers
– Tariffs: a tax on goods shipped internationally
• Quantity limits
– Quotas: a quantity limit on imported goods
– Embargos: a quota set to zero
• International price fixing
– A cartel: a group of firms that collectively agree to fix
prices or quantities sold in an effort to control price
• Non-tariff barriers
• Financial limits
– Exchange controls: controls that restrict the flow of
currency
• Foreign investment controls
– Limits on FDI
– Limits on transfer or remittance of funds
Slide 6.25

Other Economic
Developments
• Countertrade: barter trade in which the
exporting firm receives payments in products
from the importing country.
• Trade in services: as high-income countries
move toward a service economy, trade in
services has grown.
• Free trade zones: a designated area where
importers can defer payment of customs duty while
further processing of products takes place (as a
foreign trade zone).
Thank You