Tariff & Non-Tariff Barriers

PROJECT ON ORIGIN AND DEVELOPMENT OF TARIFF & NON TARIFF BARRIERS
ORIGIN & DEVELOPMENT OF TARIFF & NON-TARIFF BARRIERS
University of Mumbai (M.COM- Business Economics) 2012-13
INTRODUCTION
Tariff
A tariff is either (1) a fee, not a tax, on imports or exports (trade tariff) in and out of a country, or (2) a list or schedule of prices for such things as rail service, bus routes, and electrical usage (electrical tariff, etc.).
Economic analysis
Neoclassical economic theorists tend to view tariffs as distortions to the free market. Typical analyses find that tariffs tend to benefit domestic producers and government at the expense of consumers, and that the net welfare effects of a tariff on the importing country are negative. Normative judgements often follow from these findings, namely that it may be disadvantageous for a country to artificially shield an industry from world markets, and that it might be better to allow a collapse to take place. Opposition to all tariffs is part of the free trade principle; the World Trade Organization aims to reduce tariffs and to avoid countries discriminating between differing countries when applying tariffs. When incorporating free international trade into the model we use a supply curve denoted as Pw. This curve makes the assumption that the international supply of the good or service is perfectly elastic and that the world can produce at a near infinite quantity at the given price. Obviously, in real world conditions this is somewhat unrealistic, but making such assumptions is unlikely to have a material impact on the outcome of the model.
At world equilibrium, Pw, Home produced only S amount of the good, but had a demand of D. The difference between S and D, SD was filled by importing from abroad. After the imposition of tariff, domestic price rises from Pw to Pt but foreign export prices fall from Pw to Pt* due to the difference in tax incidence on the consumers (at home) and producers (abroad).
Political analysis
The tariff has been used as a political tool to establish an independent nation; for example, the United States Tariff Act of 1789, signed specifically on July 4, was called the "Second Declaration of Independence" by newspapers because it was intended to be the economic means to achieve the political goal of a sovereign and independent United States. In modern times, the political impact of tariffs has been seen in a positive and negative sense. The 2002 United States steel tariff imposed a 30% tariff on a variety of imported steel products for a period of three years. American steel producers supported the tariff, but the move was criticised by the Cato Institute. Tariffs can occasionally emerge as a political issue prior to an election. In the leadup to the 2007 Australian Federal election, the Australian Labor Party announced it would undertake a review of Australian car tariffs if elected. The Liberal Party made a similar commitment, while independent candidate Nick Xenophon announced his intention to introduce tariff-based legislation as "a matter of urgency".
Tariffs within technology strategies

When tariffs are an integral element of a country's technology strategy, the tariffs can be highly effective in helping to increase and maintain the country's economic health. As an integral part of the technology strategy, tariffs are effective in supporting the technology strategy's function of enabling the country to outmaneuver the competition in the acquisition and utilization of technology in order to produce products and provide services that excel at satisfying the customer needs for a competitive advantage in domestic and foreign markets. In contrast, in economic theory tariffs are viewed as a primary element in international trade with the function of the tariff being to influence the flow of trade by lowering or raising the price of targeted goods to create what amounts to an artificial competitive advantage. When tariffs are viewed and used in this fashion, they are addressing the country's and the competitors' respective economic healths in terms of maximizing or minimizing revenue flow rather than in terms of the ability to generate and maintain a competitive advantage which is the source of the revenue. As a result, the impact of the tariffs on the economic health of the country are at best minimal but often are counter-productive.
RESEARCH METHODOLOGY
MEANING OF RESEARCH
Research in common parlance refers to a search for knowledge. One can also define research as a scientific and systematic search for pertinent information on a specific topic. In fact, research is an art of scientific investigation. The advanced learners Dictionary of current English lays down the meaning of research as a careful investigation or inquiry especially through search for new facts in any branch of knowledge. Redman and Mory define research as a Systematized effort to gain new knowledge.
OBJECTIVES OF RESEARCH
1. To gain familiarity with a phenomenon or to achieve new insights into it (studies with this object in view are termed as exploratory or formulative research studies); 2. To portray accurately the characteristics of particular individual, situation or a group (studies with this object in view are known as descriptive research studies); 3. To determine the frequency with which something occurs or with which it is associated with something else (studies with this object in view are known as diagnostic research studies); 4. To test a hypothesis of a casual relationship between variables (such studies are known as hypothesis testing research studies.)
RESEARCH AND SCIENTIFIC METHOD
The Scientific Method is thus based on certain basic postulates which can be stated as under 1. It relies on empirical evidence 2. It utilizes relevant concepts 3. It is committed to only objective considerations 4. It presupposes ethical neutrality i.e.it aims at nothing but making only adequate and correct Statements about population objects 5. It results into probabilistic predictions 6. Its methodology is made known to all concerned for critical scrutiny and for use in testing the conclusions through replication 7. It aims at formulating most general axioms or what can be termed as scientific theories
RESEARCH PROCESS
Before embarking on the details of research methodology and techniques it seems appropriate to present a brief overview of the research process Research process consists of series of actions or steps necessary to effectively carry out research and the desired sequencing of these steps the chart given on page 14 well illustrates a research process.
However the following order concerning various steps provides useful procedural guideline regarding the research process 1. Formulating the research problem 2. Extensive literature survey 3. Developing the hypothesis 4. Preparing the research design 5. Determining sample design 6. Collecting the data 7. Execution of the project 8. Analysis of data 9. Hypothesis testing 10.Generalizations and interpretation and 11. Preparation of the report or presentation of the results i.e. format write up of conclusions reached
ORIGIN OF TARIFF
The word Tariff originated from old Spanish coast town of Tarifa, 21 miles from Gibraltar, which received its name in the Arab who are said to named it after Tariff Iban Malik. This historic little town has existed far more than twelve centuries. Like Gibraltar, Tarifa is a high promontory and is connected to the coast only by a narrow cause way, easily defended. When the moors, many centuries ago, founded the town of Tarifa, they prepared the way for a system that is probably the most important factor in the international trade. As the name suggest, this factor is the tariff. In the days when commerce began to expand from the Mediterranean, a gang of racketeers made Tarifa their headquarters, held up all merchant ships at this point and levied tribute according to a fixed rate on all merchandise passing in and out of the Straits of Gibraltar. The mariners called this tribute a tariff and the word became current in England whose vessels formed the majority in the merchant trade. The word has adopted, doubtless for same reason, into the Spanish tarifa (price list, rate book) Portuguese tarifa (schedule), French tarifa or tariff rate and Italian tarifa (price list), the government of Europe began to make similar levies on imports and tariff became a prolific source of revenue. The tariff system was already established in the Old World when the American colonies were founded. In the days of the Moors, the tariff was little better than to hold up. The fierce fighters of Tarifa levied at will. Because of its position, steady and fruitful source of revenue it controlled, Tarifa was the scene of much warfare and changed hands many times in its early history.
Tariff Distinguished From Customs Tariff may be distinguished from customs although the two are often used interchangeably.
TARIFFS a term found in many languages, denotes the list of

schedules of commodities with the particular duties or charges upon each. CUSTOMS is the English term which originally denoted all customary tolls or dues paid by merchants upon commodities on their way to and from the market, not necessarily differentiated by the class of goods, for the benefit of the king, lord, local government of the authority. In the course of time, as the national state became the dominant economic as well as political unit, the complex structure of multiple local and provincial tolls on trade was substantially replaced by those levied only upon crossing the frontier of the country. The Term then became restricted, in most centuries by the late 18th or early 19th century, to taxes on importation or exportation of commodities across national boundaries.
MODERN CUSTOMS TARIFF, DEFINED

Modern customs tariffs are a systematic arrangement of customs duties levied on goods when they cross the border of a political unit. They are an official list of schedule setting forth the several customs duties to be imposed on imports and export of goods in transit. Import duties are by far the most important these modern tariff changes, because practically no self-governing nation is entirely free of it. For example, the Philippine Tariff Act of 1903, was an import tariff. Tariff exerts a profound influence upon international trade. They have become an important issue in the affairs of nations. World peace and harmony are influenced to no little extent by tariffs.
NON-TARIFF BARRIERS- AN OVERVIEW

A nontariff barrier (NTB) is any policy used by the government to reduce or halt trade other than a simple tariff or we can define it more precisely as; Any measure (public or private) that causes internationally traded goods and services, or resources devoted to the production of these goods and services, to be allocated in such a way as to reduce potential real world income. Although the term NTBs is widely used by experts and non-experts alike it presents a number of challenges in the context of trade policy. Four of them are highlighted here: The term denotes a residual category, i.e. all trade obstacles, which are not due to import or export duties (tariffs) are non-tariff ones. Since the number of measures dealt with in trade agreements has increased over time the list of NTBs has been extended as well. Various attempts at categorizing or classifying them have been made but there is no universally accepted solution. Contrary to tariff measures (duties) which are normally transparent, NTBs are often more difficult to detect because they can be hidden in rules and practices that have a perfectly legitimate objective. They also leave more discretion to administrators in applying them. Furthermore, NTBs can have more trade-restrictive effects than tariffs, which raise the cost of a given product, and go as far as excluding a good from a market altogether. Commentators thus agree that the economic effect of NTBs is very substantial.
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NTBs are quite frequent and can be found all over the world. They became more visible as a result of the lowering of tariffs following the multilateral trade negotiations in the context of the General Agreement on Tariffs and Trade (GATT) and the conclusion of free trade agreements (FTAs). It appears that in some cases NTBs were also introduced in order to counter-balance the loss of protection in the wake of lower tariffs. Most commentators agree that the main reason for the frequent use of NTBs can be found in the arena of internal politics of a country. Legislators and governments seem to find it easier to conceive of nontariff measures against imports in times of economic difficulties or in the case of a struggling business sector than taking less popular measures of a domestic nature. In the absence of an effective domestic resistance against such decisions, which often hurt consumers, harmonization measures, the elimination of NTBs or outright counter measures in the context of international agreements are often the most effective ways of convincing governments to rescind such NTBs. Not all non-tariff measures impacting trade are necessarily illegal. Measures and decisions leading to complications, slowdowns, price increases and even prohibitions for imports and exports may be justified if they are needed to preserve the health and safety of animals and humans or protect the environment. For such cases, rules and guidelines had to be found that define the conditions under which such trade-restrictive measures are allowed.
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Background History: Non Tariff Barriers in Multilateral Trade Negotiations

Despite a long history of non-tariff barriers (NTB) in international trade, the special attention they have got only in the early 70th when the discussion of the NTB was explicitly scheduled in the framework of Tokyo Round of the GATT negotiations. The understanding of importance of the NTB has appeared alongside with gradual reduction of tariff barriers and, consequently, expected growth in importance of the NTB. These barriers are less transparent, more flexible, and extremely variable. According to the United Nations Conference on Trade and Development (UNCTAD) classification, there are approximately one hundred different codes representing various nontariff measures. These characteristics made the NTB important substitutes for countrys tariff regime.
The Tokyo Round

The Tokyo Round, the most recently completed round lasting from 1973 to 1979, was a comprehensive effort to reduce trade obstacles stemming from tariffs and non-tariff measures. New or reinforced agreements called codes, were reached on the following non -tariff measures: 1) Subsidies and countervailing duties; 2) Government procurement; 3) Technical standards; 4) Import licensing procedures; 5) Customs valuation; 6) Antidumping University of Mumbai (M.COM- Business Economics) 2012-13
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The Uruguay Round

The Tokyo Round codes have relied on good faith compliance, which has tended to undermine their effectiveness. Streamlining and resolving disputes is a priority during the current round of multilateral negotiations, the Uruguay Round. The Tokyo Round codes will be reviewed and possibly modified during the Uruguay Round. In particular, broadening the government procurement code to include service contracts will be discussed. Concerning the technical standards code, agreements dealing with the mutual acceptance of test data generated by other parties and the openness of the activities of standards bodies will be sought. A major issue in the anti-dumping code is how to handle input dumping
The Doha Round

The Doha Round is the latest round of trade negotiations among the WTO membership. Its aim is to achieve major reform of the international trading system through the introduction of lower trade barriers and revised trade rules. The work program covers about 20 areas of trade. The Round is also known semi-officially as the Doha Development Agenda as a fundamental objective is to improve the trading prospects of developing countries. The Round was officially launched at the WTOs Fourth Ministerial Conference in Doha, Qatar, in November 2001. The Doha Ministerial Declaration provided the mandate for the negotiations, including on agriculture, services and an intellectual property topic, which began earlier. In Doha, ministers also approved a decision on how to address the problems developing countries face in implementing the current WTO agreements.
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THE BASICS OF TARIFFS AND TRADE BARRIERS

International trade increases the number of goods that domestic consumers can choose from, decreases the cost of those goods through increased competition, and allows domestic industries to ship their products abroad. While all of these seem beneficial, free trade isn't widely accepted as completely beneficial to all parties. This article will examine why this is the case, and look at how countries react to the variety of factors that attempt to influence trade. 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.
Why Are Tariffs and Trade Barriers Used?

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: 1.
Protecting Domestic Employment

The levying of tariffs is often highly politicized. The possibility of
increased competition from imported goods can threaten domestic industries. These domestic companies may fire workers or shift production abroad to cut costs, which means higher unemployment and a less happy electorate. The unemployment argument often shifts to domestic industries complaining about cheap foreign labor, and how poor working conditions and lack of regulation allow foreign companies to produce goods more cheaply. In economics, however, countries will continue to produce goods until they no longer have a comparative advantage (not to be confused with an absolute advantage).
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2.
Protecting Consumers
A government may levy a tariff on products that it feels could
endanger its population. For example, South Korea may place a tariff on imported beef from the United States if it thinks that the goods could be tainted with disease. 3.
Infant Industries
The use of tariffs to protect infant industries can be seen by the
Import Substitution Industrialization (ISI) strategy employed by many developing nations. The government of a developing economy will levy tariffs on imported goods in industries in which it wants to foster growth. This increases the prices of imported goods and creates a domestic market for domestically produced goods, while protecting those industries from being forced out by more competitive pricing. 4.
National Security
Barriers are also employed by developed countries to protect
certain industries that are deemed strategically important, such as those supporting national security. Defense industries are often viewed as vital to state interests, and often enjoy significant levels of protection. 5.
Retaliation
Countries may also set tariffs as a retaliation technique if they think
that a trading partner has not played by the rules. For example, if France believes that the United States has allowed its wine producers to call its domestically produced sparkling wines "Champagne" (a name specific to the Champagne region of France) for too long, it may levy a tariff on imported meat from the United States. If the U.S. agrees to crack down on the improper labeling, France is likely to stop its retaliation.
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TYPES OF TARIFFS AND TRADE BARRIERS

There are several types of tariffs and barriers that a government can employ: Specific tariffs Ad valorem tariffs Licenses Import quotas Voluntary export restraints Local content requirements
Specific Tariffs
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 good 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.
Ad Valorem Tariffs
The phrase ad valorem is Latin for "according to value", and this type of tariff is levied on a good based on a percentage of that good's value. An example of an ad valorem tariff would be a 15% tariff levied by Japan on U.S. automobiles. The 15% is a price increase on the value of the automobile, so a $10,000 vehicle now costs $11,500 to Japanese consumers. This price increase protects domestic producers from being undercut, but also keeps prices artificially high for Japanese car shoppers.
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HOW DO TARIFFS AFFECT PRICES?

Tariffs increase the prices of imported goods. Because of this, domestic producers are not forced to reduce their prices from increased competition, and domestic consumers are left paying higher prices as a result. Tariffs also reduce efficiencies by allowing companies that would not exist in a more competitive market to remain open. Figure 1 illustrates the effects of world trade without the presence of a tariff. In the graph, DS means domestic supply and DD means domestic demand. The price of goods at home is found at price P, while the world price is found at P*. At a lower price, domestic consumers will consume Qw worth of goods, but because the home country can only produce up to Qd, it must import Qw-Qd worth of goods.
Figure 1. Price without the influence of a tariff When a tariff or other price-increasing policy is put in place, the effect is to increase prices and limit the volume of imports. In Figure 2, price increases from the non-tariff P* to P'. Because price has increased, more domestic companies are willing to produce the good, so Qd moves right. This also shifts Qw left. The overall effect is a reduction in imports,
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increased domestic production and higher consumer prices. (To learn more about the movement of equilibrium due to changes in supply and demand, read Understanding Supply-Side Economics.)
Figure 2. Price under the effects of a tariff
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TARIFFS AND MODERN TRADE

The role tariffs play in international trade has declined in modern times. One of the primary reasons for the decline is the introduction of international organizations designed to improve free trade, such as the World Trade Organization (WTO). Such organizations make it more difficult for a country to levy tariffs and taxes on imported goods, and can reduce the likelihood of retaliatory taxes. Because of this, countries have shifted to non-tariff barriers, such as quotas and export restraints. Organizations like the WTO attempt to reduce production and consumption distortions created by tariffs. These distortions are the result of domestic producers making goods due to inflated prices, and consumers purchasing fewer goods because prices have increased. (To learn about the WTO's efforts, read What Is The World Trade Organization?) Since the 1930s, many developed countries have reduced tariffs and trade barriers, which has improved global integration and brought about globalization. Multilateral agreements between governments increase the likelihood of tariff reduction, while enforcement on binding agreements reduces uncertainty.
The Bottom Line

Free trade benefits consumers through increased choice and reduced prices, but because the global economy brings with it uncertainty, many governments impose tariffs and other trade barriers to protect industry. There is a delicate balance between the pursuit of efficiencies and the government's need to ensure low unemployment.
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CLASSIFICATION OF NTBS
Economists usually suggest the following classification with five categories. A first broad category covers quantitative NTBs and similar restrictions. It includes import quotas and their administration methods (licensing, auctions, and other); export limitations and bans; voluntary export restraints, a limit on imports but managed by exporters; foreign exchange controls often based on licensing; prohibitions such as embargos; domestic content and mixing requirements forcing the use of local components in a final product; discriminatory preferential trading agreements and rules of origin; and countertrade, such as barter and payments in kind. A second category covers fees other than tariffs and associated policies affecting imports. This category includes variable levies triggered once prices reach a threshold or target level; advanced deposit requirements on imports, anti-dumping and countervailing duties imposed on landing goods allegedly exported below cost or with the help of export subsidies provided by foreign governments; and border tax adjustment such as value-added taxes potentially imposed asymmetrically on imported and domestic competing goods.
Measurement and Quantification of NTBs

To address concerns related to the use and impacts of NTBs, quantification of NTBs is a must. The two broad measurement methods commonly identified are; NTB specific Indirect consideration of NTBs
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NTB-specific methods use direct information on NTBs to define their possible impact. But, obtaining the complete information set, even at the industry or sector level, is likely to be difficult and would require intensive and extensive data collection work. Even if exhaustive information were available, the construction of a general measure of NTBs could be tedious, as general equilibrium effects are likely to be excluded. Missing information could introduce a downward bias on the estimates of the trade impact of NTBs. Direct information, then, is an appropriate approach only when trying to assess NTBs impact at a quite disaggregated level, which should normally be avoided when dealing with a more general analysis. Nevertheless there exist arrays of more general approaches that are capable of addressing some of the shortcomings of direct approach. Like the frequency type measures based upon inventory listings of observed NTBs that apply to particular countries, sectors, or categories of trade; price-comparison measures calculated in terms of tariff equivalents or price relatives; quantity-impact measures based upon econometric estimates of models of trade flows; and measures of equivalent nominal rates of assistance. General Methods for Measuring NTBs One of the main questions in study of the NTB is a methodology of their measurement. The problems exist because of non-transparency of the NTB, their variety, and disparity in influences. There are several types of non-tariff barriers measurement: frequency measures, price-change measures, quantity measures, and indices deflators. Frequency-Type Measures This method is simply to measure the policies in terms of their numbers and trade coverage. It record the number, form, and trade coverage of non-tariff trade policies as determined from special, surveys, frequency of
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complaints by trading partners, and government reports. The data are derived from various official national publications and information supplied by governments to the GATT. Price-Comparison Measures This measure provides direct measures of the price impacts of NTBs. This approach calculates the differential between the import price and the domestic price and the domestic price of each commodity at a disaggregated level and subtracts the tariff rate on the commodity from this differential. The result is treated as a NTB. Quantity-Impact Measures Jager and Lanjouw (1977) in an article An Alternative Method for Quantifying International Trade Barriers argued that a quantity measure is preferable to a price measure since quantity measure tries to tell us what we really want to know about the effects of an NTB: that is, by how much it reduces trade. On the other hand, the price measures such as tariff equivalents fail to provide this information. Indices deflators This method of trade barriers estimation that could be applied both to tariff and non-tariffs was proposed by Anderson and nearly in 90th. The authors constructed two indices, mercantilist trade restrictiveness index and trade restrictiveness index, that are defined as deflators that if applied to undistorted prices produce the same trade volume (for mercantilist index) or same real income (for trade restrictiveness index) as the initial set of trade . These indices are very sound in terms of their theoretical background. However, their application suffers from same problems as price-based methods.
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FORMS OF NON-TARIFF BARRIERS

At its most detailed level, the classification identified over 100 different types of NTBs at its most detailed level though it does not incorporate any measures applied to production or to exports. But we will discuss here some most important and frequently practiced by whole world.
Quotas
The best known nontariff barrier is quota or import quota. Quotas are government-imposed limits on the quantity or value of goods traded between countries. One way or another, the government gives out a limited number of licenses to import the quota quantity legally and prohibits importing without a license. As long as the quota quantity is less than the quantity that people would want to import without the quota, the quota has an impact on the market for this product. There are several reasons why protectionists and governments officials may favor using a quota instead tariff. For instance; A quota ensures that the quantity of imports is strictly limited; a tariff would allow import quantity to increase if foreign producers cut their prices or if our domestic demand increases. A quota gives government officials greater power. These officials often have administrative authority over who gets the import licenses under a quota system, and they can use this power to their advantage (for instance, by taking bribes).
Types of Quotas
An exporter may find that the foreign country restricts mostly imports not only by means of tariffs but also by qualitative measures.
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These usually take the form of import quotas for each particular product. Once the quota for the period has been filled, no more import licenses are issued.
Unilateral Quotas
These are quotas set by a country without pervious consultation or negotiation with others. Such a quota may be global or allocated. If it is global, the total volume of goods that may be imported is set regardless of the countries of origin or the importers and exporters involved. If it is allocated, the permitted volume of imports is allocated among countries of origin and private traders in accordance with some previous pattern.
Negotiated Quotas
In this case, the importing country, after negotiations with the government of each exporting country, or with groups of its exporters, allots shares of the quota to quota, the each country. country Often, with a is given the
bilateral negotiated
exporting
responsibility for issuing licenses to its exporter. Sometimes a negotiated bilateral quota goes under the guise of a voluntary export quota - for example, the voluntary" quotas that Japan places on its exports of man-made textiles to the United States. With a multilateral quota, the restriction is placed on the total amount of imports only, with no restriction as to source.
Embargo Quotas
Quotas that entirely eliminate trade in a certain product are known as embargoes. Embargoes sometimes established as a form of economic sanction against the policies or practices of another country. Embargoes are sometimes established as a form of economic sanction against the University of Mumbai (M.COM- Business Economics) 2012-13
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policies and practices of another country. For instance, the United States has had an embargo on the export of most products from Cuba since 1962. Sometimes countries will impose embargoes for national defense reasons. For instance, the NATO allies have an agreement that restricts exports of certain high tech goods to countries considered to be unfriendly. Despite these examples, embargoes are relatively scarce. Rather quotas are most often set at levels greater than zero so that some, though limited, trade occurs. For a variety of reasons that it has been explored that quotas are more restrictive then tariffs. Perhaps as a result of this attitude, quotas on most manufactured products have long been prohibited by the international trade law administered by the World Trade Organization (WTO).
Tariff Rate Quotas (TRQs)

TRQs are quota policies that allow a certain quantity of a good into a country at low (often zero) tariff rates, but then apply (often substantially) higher tariffs to quantities that exceed the quota. Despite the movement to replace them with these alternative forms of protection, quotas still exist. Phase out of worldwide textile and apparel quotas is not scheduled to be completed until 2005. International trade law allows countries to impose quotas to provide temporary protection to aid locally distressed industries or when they have balance of payments problems.
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PRACTICAL IMPLICATIONS OF QUOTAS

For example, as of 1995, the United States had import quotas on many types of textiles and apparel, and TRQs on milk, cream, cheese, butter, margarine, peanuts, sugar, various products containing sugar (including chocolate), cotton, and cotton waste. In addition to formal restrictions, countries have found ways of imposing quotas indirectly by obtaining agreements from exporting countries to voluntarily limit exports. These latter agreements are also gradually being phased out under the auspices of the WTO. Unallocated global quotas are relatively uncommon, especially among industrialized countries.
Ways to Allocate Import Licenses

The government allocates the licenses for free to importers using a rule or process that involves (almost) no resources costs. The government auctions off the licenses to the highest bidders. The government allocates the licenses through application and selection procedures that require the use of substantial resources. There are some other ways to examine who will get the mark up of imported goods and whether this affects the view of the inefficiency of the quota;
1. The equivalence or non-equivalence of Tariffs and Quotas

So far, similarities between quotas and tariffs have been discussed that both of them are similar in their effects on prices, output, and imports. Now we will highlight the main differences existing between tariffs and quotas;
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One principal difference between Tariffs and quota concerns the effects of these alternatives policies on the behavior of the protected industry. Suppose, for instance, that the domestic industry is a monopoly. With a tariff, the domestic monopolist can charge no more than the world price plus the tariff. Because monopolist faces potential competition from suppliers in other countries, he or she is unable to exploit his or her domestic monopoly power. Tariff and quota protection can also be different if market forces change over time. Suppose that domestic demand increases. With tariff protection, internal price remains the world price plus the tariff. The increased demand will be met by a rise in imports. With quota protection, no new imports are allowed in. the only way the market can reach the equilibrium is for the price to adjust. And with higher the domestic prices come greater deadweight costs.
2. Voluntary Export Restraints (VERs)

A voluntary export restraint is an odd-looking trade barrier in which the importing country government forces the foreign exporting country to agree voluntarily to restrict its exports to his country thats why it is also called as Protection with integrity. The export restraint usually requires that foreign exporting firms act like a cartel, restricting sales and raising prices. Through VERs the importing country actually gives foreigners monopoly power, forces them to take it, and call their compliance voluntary.
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OTHER EXAMPLES OF NON TARIFF BARRIERS

In addition to Quotas and VERs, there are many other kinds of nontariff import barriers. Indeed, we should be impressed with governments creativity in coming up with new ways to discriminate against imports. We will discuss some important types of nontariff barriers here;
Export Subsidy
An export subsidy is a direct (or indirect) payment from a countrys government to one or more of its export industries that leads to an expansion of exports by that industry. The legal means for dealing with export subsidies is to impose a tariff on the subsidized exports in order to offset the subsidy and raise the price of the product to the presubsidy price and the tariff imposed is known as countervailing duty.
Government Procurement Policies

When governments (federal, state, and local) purchase goods and services, they are often constrained by legislative mandate to purchase from domestic producers. Governments are major purchasers of goods and services. One estimate is that government purchases of products that could be traded internationally amounts to close to one-tenth of all product sales in the industrialized countries.
Domestic Content Requirement

A domestic content requirements mandates that a product produced and sold in a country must have a specified minimum amount of domestic production value, in the form of wages paid to local workers
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or materials and components produced within the country. Domestic content requirements can create import protection at two levels; They can be barrier to imports of the products that do not meet the content rules. And they can limit the import of materials and components that otherwise would have been used in domestic production of the products. For instance, local content requirements for automobiles, used by Malaysia and other countries, force local auto manufacturers to use
more domestically produced automobiles components and parts ( e.g. sheet metals or seat covers). If domestic content requirement set high enough, it can force domestic production of such expensive parts as engines or transmissions.
Failure to Protect Intellectual Property Rights

Intellectual property is defined as the innovative or creative ideas of inventors, artists, or authors. Patent, copyright, and trademark laws exist to provide incentives to create intellectual properties by ensuring that the owners of the intellectual properties maintain exclusive control over ideas, at least for a certain period of time. For instance, patents allow inventors the opportunity to recover their investment and the costs of creating and marketing inventions. Copyrights give authors control over the reproduction, dissemination, and public performance of their work. Trademarks assure consumers about product characteristics, such as quality.
Health and Safety Standard

Governments often regulate the production and distribution of products deemed to be hazardous to the health and safety of their citizens. Sometimes, however, such standards are established merely University of Mumbai (M.COM- Business Economics) 2012-13
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to provide a mechanism for protecting domestic producers from foreign completion, many such examples exist.
Technical Barriers to Trade

All countries impose technical rules about packaging, product definitions, labeling, etc. In the context of international trade, such rules may also be used as non-tariff trade barriers. For example, imagine if Korea were to require that oranges sold in the country be less than two inches in diameter.
Red Tape
This is another method by which governments try to restrict imports into their countries. For example the government may designate a port with only a small opening into the sea to allow the import ships to duck. This may restrict the import of large items such as cars and trucks. Some of these items may simply have to be brought in smaller parts only to be assembled in a factory inside the importing country.
Import Restrictions to Preserve Local or National Culture

The French and Spanish trade officials had imposed restrictions on the amount of entertainment services (movies and songs) imported into those countries from the U.S.
Anti-Dumping Import Duties

This type of duty is of course allowed under WTO if the country can prove--with reasonable data and facts-- that another country's firm is dumping its good there. The trouble is that dumping cases are very hard to prove. In many cases, the foreign firm may have indeed a cost advantage over domestic firm and the dumping charge could be used primarily as a protectionist measure.
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EFFECTS OF NON TARIFF BARRIERS ON INTERNATIONAL TRADE

Non-Tariff Barriers seriously affect many exporting countries. As discussed in types of NTBs, developing countries exports to developed countries face considerable NTBs. In several cases, the impact is very severe. For example, the VER covering the tapioca exports of Thailand to the European Community, established in 1982, caused its tapioca exports to decline by 40 per cent and its export earnings fell by about $ 300 million (representing over 10 per cent of Thailand's total export earnings from the EC). However, such draconian VERs which not only reduces the growth rate but also the level of exports has not been widely applied to non-apparel exports of developing Asian countries other than South Korea. An Asian Development Bank study has brought out that with the reduction of the average tariff levels in the industrial countries, nontariff barriers to imports of manufactures have increased in relative importance in these countries, including in categories of labor intensive and other products for which less developed countries have a strong comparative advantage. This study has also observed that through the exercise of various forms of administrative protection non-tariff barriers have increased in importance in absolute terms and have been applied with increasing discrimination, causing bilateral trade arrangements in many cases to reign over more globally efficient multilateral trade arrangements and threatening the gains, especially to less developed countries of negotiated tariff reductions.
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Apparel exports of the developing countries are the most affected because of such barriers. This has been mostly via the Multi-Fiber Arrangement (MFA) which "constitutes a restrictive system, imposing economic costs on the economies of the developing as well as industrial countries. Several country studies cite instances of lost apparel exports, declining production and employment due to reporting, certification and other problems involved in administering bilateral MFA agreements, whereby the system of administrative controls creates such uncertainties, especially for new exporters or financially weak firms, that export production must be curtailed or abandoned by many firms. Another important cost of the MFA is rent seeking i.e., established exporters tend to enjoy greater than perfectly competitive returns from their exports sales since quota rights enable them to sell in protected markets. Non-Tariff Barriers also cause diversion of production and exports. For example, some Indian textile and apparel firms decided to set up manufacturing facilities in Nepal in order to circumvent MFA quota controls of their exports from India and to avoid the local costs of purchasing added quota rights. Similarly, exporters have attempted to diversify their exports to non-quota countries.
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CONCLUSION
Despite all the talk of globalization, the world economy is still far from the textbook model of unfettered trade, of a global market place without barriers. While tariffs have been already brought down substantially in the Uruguay Round, the future efforts are more likely to concentrate on the non-tariff issues. As far as trade in goods is concerned, non-tariff barriers at and behind the border have been lowered significantly in the course of successive trade negotiations, but more can be done. Estimates of the costs of protection, for both policy makers and economists who conduct applied commercial trade-policy research, depend on reliable estimates of the price or quantity distortions caused by trade barriers. In the case of tariffs, the estimates are straightforward and readily available; however, in the case of nontariff barriers, estimates of the corresponding price or quantity distortions are difficult to construct because of the lack of good data and often contain substantial methodological flaws. Researchers have used a number of frequency measures to capture the scope and potential effects of NTBs across countries and industries as well as over time. Researchers have also used econometric techniques and developed various computational models (partial and general equilibrium) to estimate the effects of NTBs. But a complete review of all of the issues associated with the estimation of the economic effects of NTBs is beyond the scope of my Assignment due to the time and data sources constraints.
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RECOMMENDATIONS
Some of the non-tariff barriers can be tackled by the exporters themselves by ensuring that they adhere to quality and standards requirements of the importing countries. For this purpose they need to plan production and packaging methods especially for the export markets. The manufacturing techniques used must be carefully selected so as to ensure that the resultant products do not cause any harm to human, animal or plant life or health. The exporters need to carefully study the laws and regulations of the importing countries and their likely impact on the exports. Similarly they should also carefully examine the notices or notification made by the importing countries under the Agreement on Application of Sanitary and Phytosanitary measures and the Agreement on Technical Barriers to Trade. The exporters should maintain an effective interaction with their counterpart associations etc in the importing countries. Any difficulties due to technological or economical limitations must be adequately brought forward to the notice of the Government. Most of the WTO Agreements envisage special and preferential treatment to developing countries. Specific problems being faced and the favor required should therefore, be identified. This may help the Government to have effective bilateral consultations with the concerned countries and to seek specific dispensation.
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BIBLIOGRAPHY
Website
www.wikipedia.com http://www.international.gc.ca http://www.cepr.org http://commerce.nic.in http://www.tradebarriers.org
Books
Business Economics Michel Vaz. Business Economics Sheth.
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Tariff &amp; Non-Tariff Barriers

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PROJECT ON ORIGIN AND DEVELOPMENT OF TARIFF & NON TARIFF BARRIERS

ORIGIN & DEVELOPMENT OF TARIFF & NON-TARIFF BARRIERS

University of Mumbai (M.COM- Business Economics) 2012-13

PROJECT ON ORIGIN AND DEVELOPMENT OF TARIFF & NON TARIFF BARRIERS

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PROJECT ON ORIGIN AND DEVELOPMENT OF TARIFF & NON TARIFF BARRIERS

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RESEARCH AND SCIENTIFIC METHOD

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PROJECT ON ORIGIN AND DEVELOPMENT OF TARIFF & NON TARIFF BARRIERS

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PROJECT ON ORIGIN AND DEVELOPMENT OF TARIFF & NON TARIFF BARRIERS

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The Doha Round

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Figure 2. Price under the effects of a tariff

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