TRADE BARRIERS

TRADE BARRIERS
INTRODUCTION

• A TRADE BARRIER IS DEFINED AS “ANY HURDLE,

IMPEDIMENT OR ROAD BLOCKTHAT HAMPERS
THE SMOOTH FLOW OF GOODS, SERVICES AND
PAYMENTS FROM ONE DESTINATION TO
ANOTHER”.
• THEY ARISE FROM THE RULES AND REGULATIONS
GOVERNING TRADE EITHER FROM HOME
COUNTRY OR HOST COUNTRY OR INTERMEDIARY.
• TRADE BARRIERS ARE MAN-MADE OBSTACLES TO
THE FREE MOVEMENT OF GOODS BETWEEN
DIFFERENT COUNTRIES AND IMPOSE ARTIFICIAL
RESTRICTIONS ON TRADING ACTIVITIES BETWEEN
COUNTRIES
 TRADE BARRIERS
OBJECTIVES

• TO PROTECT DOMESTIC INDUSTRIES FROM

FOREIGN GOODS
• TO PROMOTE NEW INDUSTRIES AND
RESEARCH & DEVELOPMENT ACTIVITIES BY
PROVIDING A HOME MARKET FOR
DOMESTIC INDUSTRIES
• TO MAINTAIN FAVOURABLE BALANCE OF
PAYMENT
• TO CONSERVE FOREIGN EXCHANGE
RESERVES OF THE COUNTRY BY
RESTRICTING IMPORTS FROM FOREIGN
COUNTRIES
 TRADE BARRIERS
OBJECTIVES (CONTD…)
• TO PROTECT THE NATIONAL ECONOMY
FROM DUMPING BY OTHER COUNTRIES
WITH SURPLUS PRODUCTION
• TO MOBILISE ADDITIONAL REVENUE BY
IMPOSING HEAVY DUTIES ON IMPORTS.
THIS ALSO RESTRICTS CONSPICIOUS
CONSUMPTION WITHIN COUNTRY
• TO COUNTERACT TRADE BARRIERS
IMPOSED BY OTHER COUNTRIES
• TO ENCOURAGE DOMESTIC PRODUCTION
IN THE DOMESTIC MARKET AND THEREBY
MAKE THE COUNTRY STRONG AND
EFFICIENT
TYPES OF TRADE BARRIERS

TRADE BARRIERS ARE

CLASSIFIED AS TARIFF
BARRIERS AND NON-TARIFF
BARRIERS. A COUNTRY MAY
USE BOTH TARIFF AND NON-
TARIFF BARRIERS INORDER
TO RESTRICT THE ENTRY OF
FOREIGN GOODS.
 TYPES OF TRADE BARRIERS
TARIFF BARRIER

• A TARIFF BARRIER IS A LEVY COLLECTED ON GOODS WHEN

THEY ENTER A DOMESTIC TARIFF AREA THROUGH
CUSTOMS.
• TARIFF REFERS TO THE DUTIES IMPOSED ON
INTERNATIONALLY TRADED COMMODITIES WHEN THEY
CROSS NATIONAL BOUNDARIES AND MAY BE IN THE FORM
OF HEAVY TAXES OR CUSTOM DUTIES ON IMPORTS, SO AS
TO DISCOURAGE THEIR ENTRY INTO THE HOME COUNTRY
FOR MARKETING PURPOSES.
• TARIFFS ENHANCE THE PRICE OF THE IMPORTED GOODS,
THEREBY RESTRICTING THEIR SALES AS WELL AS THEIR
IMPORT. GOVERNMENTS IMPOSE TARIFFS ONLY ON
IMPORTS AND NOT ON EXPORTS AS THEY ARE INTERESTED
IN EXPORT PROMOTION
• THE AIM OF A TARIFF IS THUS TO RAISE THE PRICES OF
IMPORTED GOODS IN DOMESTIC MARKETS, REDUCE THEIR
DEMAND AND THEREBY DISCOURAGE THEIR IMPORTS.
 TYPES OF TRADE BARRIERS
CLASSIFICATION OF TARIFFS

• 1) ON THE BASIS OF ORIGIN AND

DESTINATION OF THE GOODS
CROSSING NATIONAL BOUNDARIES.
• 2) ON THE BASIS OF QUANTIFICATION
OF TARIFFS.
• 3) ON THE BASIS OF PURPOSE THEY
SERVE.
• 4) ON THE BASIS OF TRADE
REALATIONS.
 TYPES OF TRADE BARRIERS
CLASSIFICATION OF TARIFFS
(1) ON THE BASIS OF ORIGIN AND DESTINATION OF GOODS
CROSSING NATIONAL BOUNDARIES
• EXPORT DUTY : AN EXPORT DUTY IS LEVIED BY THE
COUNTRY OF ORIGIN ON A COMMODITY DESIGNATED FOR
USE IN OTHER COUNTRIES. THE MAJORITY OF FINISHED
GOODS DO NOT ATTRACT EXPORT DUTY. SUCH DUITIES ARE
NORMALLY IMPOSED ON THE PRIMARY PRODUCTS
INORDER TO CONSERVE THEM FOR DOMESTIC INDUSTRIES.
IN INDIA, EXPORT DUTY IS LEVIED ON OILSEEDS, COFFEE
AND ONIONS, ETC.
• IMPORT DUTY : AN IMPORT DUTY IS A TAX IMPOSED ON A
COMMODITY ORIGINATING IN ANOTHER COUNTRY BY THE
COUNTRY FOR WHICH THE PRODUCT IS DESIGNATED. THE
PURPOSE OF HEAVY IMPORT DUTIES IS TO EARN REVENUE,
TO MAKE IMPORTS COSTLY AND TO PROVIDE PROTECTION
TO DOMESTIC INDUSTRIES.
• TRANSIT DUTY : A TRANSIT DUTY IS A TAX IMPOSED ON A
COMMODITY WHEN IT CROSSES THE NATIONAL FRONTIER
BETWEEN THE ORIGINATING COUNTRY AND THE COUNTRY
WHICH IT IS CONSIGNED TO.
 TYPES OF TRADE BARRIERS
CLASSIFICATION OF TARIFFS
(2) ON THE BASIS OF QUANTIFICATION OF TARIFFS

• SPECIFIC DUTY : A SPECIFIC DUTY IS A FLAT SUM

COLLECTED ON PHYSICAL UNIT OF THE COMMODITY
IMPORTED. HERE, THE RATE OF THE DUTY IS FIXED AND IS
COLLECTED ON EACH UNIT IMPORTED. FOR EXAMPLE, Rs
800 ON EACH TV SET OR WASHING MACHINE OR Rs 3000 PER
METRIC TON ON COLD ROLLED IRON COILS.
• AD-VALOREM DUTY : THIS DUTY IS IMPOSED AT A FIXED %
ON THE VALUE OF A COMMODITY IMPORTED. HERE THE
VALUE OF THE COMMODITY ON THE INVOICE IS TAKEN AS
THE BASE FOR CALCULATION OF THE DUTY E.G., 3% AD-
VALOREM DUTY ON THE C&F VALUE OF THE GOODS
IMPORTED.
• COMPOUND DUTY : A TARIFF IS REFERRED TO A COMPOUND
DUTY WHEN THE COMMODITY IS SUBJECT TO BOTH
SPECIFIC AND AD-VALOREM DUTY
 TYPES OF TRADE BARRIERS
CLASSIFICATION OF TARIFFS
(3) ON THE BASIS OF THE PURPOSE THEY SERVE
• REVERSE TARIFF : IT AIMS AT COLLECTING SUBSTANTIAL
REVENUE FOR THE GOVERNMENT, BUT DOES NOT REALLY
OBSTRUCT THE FLOW OF IMPORTED GOODS. HERE, THE
DUTY IS IMPOSED ON ITEMS OF MASS CONSUMPTION, BUT
THE RATE OF DUTY IS LOW.
• PROTECTIVE TARIFF : IT AIMS AT GIVING PROTECTION TO
HOME INDUSTRIES BY RESTRICTING OR ELIMINATING
COMPETITION. PROTECTIVE TARIFFS ARE USUALLY HIGH SO
AS TO REDUCE IMPORTS
• ANTI-DUMPING DUTY : DUMPING IS THE COMMERCIAL
PRACTICE OF SELLING GOODS IN FOREIGN MARKETS AT A
PRICE BELOW THEIR NORMAL COST OR EVEN BELOW THEIR
MARGINAL COST SO AS TO CAPTURE FOREIGN MARKETS.
• COUNTERVAILING DUTY : SUCH DUTIES ARE SIMILAR TO
ANTI-DUMPING DUTIES BUT ARE NOT SO SEVERE. THEY ARE
IMPOSED TO NULLIFY THE BENEFITS OFFERED THROUGH
CASH ASSISTANCE OR SUBSIDIES BY THE FOREIGN
COUNTRY TO ITS MANUFACTURERS. THE RATE OF SUCH
DUTY WILL BE PROPORTIONAL TO THE EXTENT OF CASH
ASSISTANCE OR SUBSIDY GRANTED.
 TYPES OF TRADE BARRIERS
CLASSIFICATION OF TARIFFS
(4) ON THE BASIS OF TRADE RELATIONS

• SINGLE COLUMN TARIFF : UNDER THIS SYSTEM, TARIFF

RATES ARE FIXED FOR VARIOUS COMMODITIES AND THE
SAME RATES ARE MADE APPLICABLE TO IMPORTS FROM ALL
OTHER COUNTRIES.
• DOUBLE COLUMN TARIFF : UNDER THIS SYSYTEM, TWO
RATES OF DUTY ARE FIXED ON ALL OR SOME COMMODITIES.
THE LOWER RATE IS MADE APPLICABLE TO A FRIENDLY
COUNTRY OR TO A COUNTRY WITH WHICH THE IMPORTING
COUNTRY HAS A BILATERAL TRADE AGREEMENT. THE
HIGHER RATE IS APPLICABLE TO ALL OTHER COUNTRIES.
• TRIPLE COLUMN TARIFF : HERE THREE DIFFERENT RATES
OF DUTIES ARE FIXED. THEY ARE GENERAL TARIFF,
INTERNATIONAL TARIFF AND PREFENTIAL TARIFF. THE FIRST
TWO CATEGORIES HAVE MINIMUM VARIANCE BUT THE
PREFERENTIAL TARIFF IS SUBSTANTIALLY LOWER THAN THE
GENERAL TARIFF AND IS APPLICABLE TO FRIENDLY
COUNTRIES WHERE THERE IS A BILATERAL RELATIONSHIP.
 TYPES OF TRADE BARRIERS
BENEFITS OF TARIFF TO THE HOME COUNTRY

• IMPORTS FROM ABROAD ARE DISCOURAGED OR

EVEN ELIMINATED TO A CONSIDERABLE EXTENT.
• PROTECTION IS GIVEN TO THE HOME INDUSTRIES
AND MANUFACTURING SECTOR. THIS FACILITATES
AN INCREASE IN DOMESTIC PRODUCTION.
• CONSUMPTION OF FOREIGN GOODS IS REDUCED
TO A MINIMUM AND THE ATTRACTION FOR
IMPORTED GOODS IS BROUGHT DOWN.
• TARIFF BRINGS IN SUBSTANTIAL REVENUE TO THE
GIOVERNMENT . IN ADDITION IT ALSO CREATES
EMPLOYMENT OPPORTUNITIES WITHIN THE
COUNTRY BY PROMOTING DOMESTIC INDUSTRIES.
• TARIFFS AIMS TO REDUCE THE DEFICIT IN THE
BALANCE OF TRADE AND BALANCE OF PAYMENT
OF A COUNTRY.
 TYPES OF TRADE BARRIERS
NON-TARIFF BARRIERS
• 1) QUOTA SYSTEM
• 2) IMPORT LICENSING
• 3) CONSULAR FORMALITIES
• 4) PREFRENTIAL TREATMENT THROUGH
TRADING BLOCKS
• 5) CUSTOMS REGULATIONS
• 6) STATE TRADING
• 7) FOREIGN EXCHANGE REGULATIONS
• 8) HEALTH & SAFETY MEASURES
 TYPES OF TRADE BARRIERS
NON-TARIFF BARRIERS
(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. SUCH QUOTAS ARE USUALLY ADMINISTERED BY REQUIRING
IMPORTERS TO HAVE LICENCES TO IMPORT A PARTICULAR COMMODITY.
IMPORTS ARE NOT ALLOWED OVER AND ABOVE A SPECIFIC LIMIT. THE
TYPES OF QUOTAS ARE :
• TARIFF QUOTA : IT COMBINES THE FEATURES OOF THE TARIFF AS WELL AS
THE QUANTITY HERE, THE IMPORTS OF A COMMODITY UPTO 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.
 TYPES OF TRADE BARRIERS
NON-TARIFF BARRIERS
(2) 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.
 TYPES OF TRADE BARRIERS
NON-TARIFF BARRIERS
(3) 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.
 TYPES OF TRADE BARRIERS
NON-TARIFF BARRIERS
(4) PREFERENTIAL TREATMENT THROUGH TRADING BLOCS

• 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.
 TYPES OF TRADE BARRIERS
NON-TARIFF BARRIERS
(5) 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, BULLION, ETC
• RESTRICTIONS UNDER SUCH ACTS ARE
USEFUL TO CURTAIL IMPORTS. TAX
ADMINISTRATION ALSO ACTS AS BARRIER
TO FREE MARKETING AMONGST
COUNTRIES.
 TYPES OF TRADE BARRIERS
NON-TARIFF BARRIERS
(6) 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.
 TYPES OF TRADE BARRIERS
NON-TARIFF BARRIERS
(7) 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.
UNDER SUCH REGULATIONS, THE FOREIGN
EXCHANGE EARNED SHOULD BE SURRENDERED
TO THE GOVERNMENT. THE GOVERNMENT
PROVIDES FOREIGN EXCHANGE TO THE
BUSINESSMEN AS PER PRIORTIES THAT ARE
FIXED PERIODICALLY
 TYPES OF TRADE BARRIERS
NON-TARIFF BARRIERS
(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.