IBM-Unit 2- Tariffs & Non Tariff Barriers

8/6/2019 IBM-Unit 2- Tariffs & Non Tariff Barriers

1/26

Trade Barriers - Tariffs &Non Tariff Barriers

Unit II

Anjali Singh


2/26

Trade Barriers What ?

Part of the foreign trade policy

Protective measures to achieve certainnational objectives.

Manmade barriers to foreign trade

Two broad barriers

Tariff Barriers

Non- Tariff Barriers


3/26

Objective

Protect domestic industries

Curb imports of a particular item

Increase revenue for government Discourage or encourage imports from a

particular country


4/26

Tariff & Non-Tariff BarriersThe most important type of trade restriction

historically is the tariff.

This is a tax or duty on the imports orexports.

Imposition of the tariff changes the price forthe individual buyer. However the nation as a

whole faces the unchanged world price.


5/26

Tariffs

Tariffs can be ad-Valorem, specific, orcompound. Ad-Valorem tariff is expressed as a fixed

percentage of the value of the tradedcommodity.

Specific tariff is expressed as a fixed sum perphysical unit of the traded commodity.

A compound tariff is a combination of an Ad

Valorem and a specific tariff.


6/26

Trade Restrictions /Trade Barriers

An import tariff - duty on the importedcommodity, while an export tariff is a duty onthe exported commodity.

Export tariffs are prohibited by the U.S.

Constitution, common amongst developingcountries

Developing nations rely heavy on export tariff toraise revenues because of their ease of collection.( Ghana cocoa, Brazil coffee)

On the other hand, industrial countries invariablyimpose tariffs or other trade restrictions to protectsome(usually labor-intensive)industry, while usingmostly income taxes to raise revenues.


7/26

Advantages

Protect the domestic Industry

Government gets more revenue

Protects jobs in domestic Industry

Also helps protect ancillary industries,servicing and market intermediaries.


8/26

Disadvantages

Consumers pay a higher prices both forimported product and domestic product

Inefficient resource allocation

encourages inefficient production inimporting country and discouragesefficient production in exporting country

May result in retaliation by imposing tariffson the exports of the importing country


9/26

Non Tariff Barriers

Measures other than import duties which acountry adopts to restrict foreign tradeeither directly or indirectly.

Range of measures

Aim at reducing imports though some mayboost exports

Non- Tariff barriers interfere with marketforces and free competition


10/26

Non-Tariff Barriers

Non-Tariff Barriers displace the marketforces

Effects of non-tariff barriers are not visible

as these are hidden devices

Non-tariff do not generate revenue

Non- tariff barriers cause greater mal-

allocation of resources.


11/26

Main Non-Tariff Barriers

Quantitative restrictions

Exchange Control

Fiscal measures

Subsidies

Administrative Regulations

Technical Barriers


12/26


Quantitative restrictions

Import Quotas

Voluntary Export Restraint


13/26

Main Non-Tariff Barriers -Exchange

Control

Exchange Restrictions

Blocked Accounts

Multiple Exchange Rates

Exchange Intervention

Exchange clearing Arrangements


14/26

Main Non-Tariff Barriers Fiscal

Measures

Anti Dumping Duties

Countervailing Duties


15/26


Subsidies Refund of duties paid on inputs

Priority in allotment of scarce resources

Finance at lower rates of interest

Grants for market research/surveys

Aid for research and development

Supply of inputs at concessional reates


16/26


A

dministrative Administrative regulations

Long and complicated forms

Delay and red tape

Elaborate and expensive import licensingprocedure

Complicated procedure for obtaining permit

Routing imports through a particular port

Samples to be provided at the time of applyingfor import license

Minimum deposit requirement

Counter trade arrangement


17/26


Technical Barriers Health and safety barriers

Sanitary regulations

Quality standards

Packing and labeling standards

Local content requirement


18/26

Trade Barriers (Contd)

According to Stolper-Samuelson theorem , anincrease in the relative price of a commodity(for example, as a result of a tariff) raises thereturn or earnings of the factor usedintensively in its production.

For example, if a capital-abundant nationimposes an import tariff on the laborintensive commodity, wages in the nation

will rise.

However, since the nations benefit comes atthe expense of other nations, latter are likelyto retaliate, so that in the end all nations

usually lose.


19/26

Trade Barriers (Contd)

Two arguments are that protection is needed toreduce domestic unemployment and a deficitbalance of payments.

A more valid argument for protection is theinfant-industry argument.

However, what trade protection can do, directsubsidies and taxes can do better in overcomingpurely domestic distortions.The same is true for

industries important for national defense.Theclosest we come to a valid economic argument forprotection is the optimal tariff (which,however,invites retaliation).

Trade protection in the United States is usuallyiven to low-wa e workers and to lar e well


20/26

Non-Tariff Barriers International trade also hampered by

numerous

Technical, administrative, and otherregulations.

These include safety regulations forautomobile and electrical equipment, health

regulations for the hygienic Production and packaging of imported food

products, and labeling requirementsshowing origin and contents.


21/26

Non Tariff Barrier [Subsidies] National government sometimes grant

subsidies to domestic producers to helpimprove their trade position. Such devices areindirect form of protection provided todomestic businesses, whether they may beimport competing producers or exporters.

Two types of subsidies can be distinguished: a

domestic subsidy , which is sometimesgranted to producers of import-competinggoods,and an export subsidy, which goes toproducers of goods that are to be sold

overseas.


22/26

Other Non Tariff Barriers

Government Procurement Policies:Because government agencies are largebuyers of goods and services, they are

attractive customers for foreign suppliers.Most governments however, favor domesticsuppliers over foreign ones in theprocurement materials and products. E.g,

Government often extend preferences todomestic suppliers in the form of buy-nationalpolicies campaigns.


23/26

Impact of trade barriers

Advanced industrial nations committedthemselves after World War II to removingbarriers to the free flow of goods, services,andcapital between nations

This goal was enshrined in the General Agreementon Trade and Tariffs [GATT]

Under the umbrella of GATT, eight rounds ofnegotiations among member states(nownumbering 146) have worked to lower barriers to

the free flow of goods and services The most recent round of negotiations, known as

the Uruguay Round, was completed inDec,1993.The Uruguay round further reducedtrade barriers; extended GATT to cover services

as well as manufactured goods; provided


24/26

Impact of trade barriers

In the late 2001, the WTO launched a newround of talks [Doha,Qatar] aimed at furtherliberalizing the global trade and investment

framework. The agenda included cutting tariffs on

industrial goods, services,and agriculturalproducts; phasing out subsidies to agricultural

producers; reducing barriers to cross borderinvestments; and limiting the antidumpinglaws.

The rich nations spend around $300 billion a

year in subsidies to support their farm


25/26

Counter Trade

Counter trade denotes whole range of barterlike agreements; its principle is to tradegoods and services for other goods and

services when they cannot be traded formoney.Some examples are;

1. An Italian co. that manufactures powergenerating equipment, ABB SAE Sadelmi SpA,

was awarded a720 Million Baht $17.7Mn)contract by the Electricity GeneratingAuthority of Thailand.The contract specifiedthat the company had to accept 218 millionbaht($5.4 million) of Thai farm products aspart payment.


26/26

Counter Trade

2.Saudi Arabia agreed to buy 10 747 jets fromBoeing with payment in crude oil, discountedat 10 percent below posted world prices.

3. GE won a contract for a $ 150 million electricgenerator project in Romania by agreeing tomarket $150 million of Romanian products inmarkets to which Romania did not haveaccess.

4.The Venezuelan government negotiated acontract with Caterpillar under whichVenezuela would trade 3,50,000 tons of ironore for Caterpillar earthmoving equipment.

Documents

IBM-Unit 2- Tariffs & Non Tariff Barriers