MAHEDI HASAN JOYDPET. OF FINANCE UNIVERSITY OF DHAKAmahedicox96@gmail.com,www.SixSigmabd.com

TARIFF AND NON – TARIFF BARRIERSOverview

GOVERNMENT CONTROLS OVER TRADETariffs: import duties or taxes imposed on

goods entering the customs territory of a nation

Why impose?revenue collection, protection of domestic industry, political control

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Protectionism: Logic and IllogicCountries use protectionist measures to shield a country’s markets from intrusion by foreign competition and imports.

Arguments for Protectionism include:

1. maintain employment and reduce unemployment.2. increase of business size, and 3. protection of the home market. 4. need to keep money at home.5. encouragement of capital accumulation.6. maintenance of the standard of living and real

wages.7. conservation of natural resources.8. protection of an infant industry 9. industrialization of a low-wage nation 10. national defense

Arguments forNational Defense

Certain industries need protection Imports may not be available during wartime Prevent valuable technologies from being used to

strengthen competition, especially militarilyProtect Infant or Dying Industry

In the long run will have a comparative advantage Meant to be temporary for emerging industry or to

protect jobs of dying industryProtect Domestic Jobs from Cheap Foreign Labor

Productivity per worker greater in developed countries

Scientific Tariff or Fair Competition Bring cost of imported goods up to domestically produced goods to prevent unfair advantage

Retaliation Import restrictions placed by another country may result in similar restrictions by domestic government

The Impact of Tariff (Tax) BarriersTariff Barriers tend to Increase:1. Inflationary pressures2. Special interests’ privileges3. Government control and political considerations in

economic matters

Tariff Barriers tend to Weaken:1. Balance-of-payments positions2. Supply-and-demand patterns3. International relations (they can start trade wars)

Tariff Barriers tend to Restrict:1. Manufacturer’ supply sources2. Choices available to consumers3. Competition

Monetary Barriers

Three types of monetary barriers include:

1. Blocked currency: Blockage is accomplished by refusing to allow importers to exchange its national currency for the sellers’ currency.

2. Differential exchange rates: It encourages the importation of goods the government deems desirable and discourages importation of goods the government does not want by adjusting the exchange rate. The exchange rate for importation of a desirable product is favorable and vice-versa

3. Government approval: In countries where there is a severe shortage of foreign exchange, an exchange permit to import foreign goods is required from the government

Non-Tariff Barriers

(2) Customs and Administrative Entry Procedures:1. Valuation systems2. Antidumping practices3. Tariff classifications4. Documentation requirements5. Fees

(1) Specific Limitations on Trade:1. Quotas2. Import Licensing requirements3. Proportion restrictions of foreign to domestic goods (local content

requirements)4. Minimum import price limits5. Embargoes

Non-Tariff Barriers

(3) Standards:1. Intergovernmental acceptances of testing methods and standards2. Packaging, labeling, and marking

(4) Government Participation in Trade:1. Government procurement policies2. Export subsidies3. Domestic assistance programs

Non-Tariff Barriers

(5) Charges on imports:1. Prior import deposit subsidies2. Administrative fees3. Special supplementary duties4. Variable levies5. Border taxes

(6) Others:1. Marketing agreements

Dumping - is the export of a commodity at below cost or at least the sale of a commodity at a lower price abroad than domestically.

Dumping is the selling of a product abroad for less than The average cost of production in the exporting

nation The market price in the exporting nation The price to third countries

Result of Excess production Cyclical or seasonal factors Attempt to force domestic producers out of

business

Dumping is classified as either:

1) Persistent Dumping (or international price discrimination): is the continuous tendency of a domestic monopolist to maximize total profits by selling the commodity at a higher price in the domestic market than internationally (where it must meet the competition of foreign producers).

2) Predatory Dumping: is the temporary sale of a commodity at below cost or at a lower price abroad in order to drive foreign producers out of business, after which prices are raised to take advantage of the newly acquired monopoly power abroad.

3) Sporadic Dumping: is the occasional sale of a commodity at below cost or at below price abroad than domestically in order to unload an unforeseen and temporary surplus of the commodity without having to reduce domestic prices.

Domestic producers demand protection against any type of dumping, so they discourage imports and increase their own production and profits.

Examples: Japan was accused of dumping steel and TV sets in the US, while European nations were accused from dumping cars, steel and agricultural products.

When dumping is proved, the violating nation or firm usually choose to raise prices rather than face dumping duties.

1. GATT created as an agency to serve as watchdog over world trade and provide a process to reduce tariffs

2. GATT also provided a mechanism to resolve trade disputes bilaterally

GATT covers three basic areas:1. trade shall be conducted on a nondiscriminatory basis; 2. protection shall be afforded domestic industries through

customs tariffs, not through such commercial measures as import quotas; and

3. consultation shall be the primary method used to solve global trade problems.

3. GATT now replaced by the World Trade Organization

General Agreement on Tariffs and Trade (GATT)

World Trade Organization (WTO)

1. It sets many rules governing trade between its 132 members

2. WTO provides a panel of experts to hear and rule on trade disputes between members, and, unlike GATT, issues binding decisions

Unlike GATT, is an institution, not an agreement

The International Monetary Fund (IMF)

1. IMF was created to assist nations in becoming and remaining economically viable

2. It assists countries that seek capital for economic development and restructuring

3. IMF loans come with stipulations that borrowing countries slash spending and impose controls to curb inflation

4. It helps maintain stability in the world financial markets

Objectives of the IMF include:1. stabilization of foreign exchange rates 2. Facilitate international trade3. lend money to members in financial trouble

The world is moving toward more free trade. There are many communities and groups that monitor

and promote trade International Economic Communities reduce trade

barriers and promote regional economic cooperation. Free-trade area: Members trade freely among selves

without tariffs or trade restrictions. Customs union: Establishes a uniform tariff structure for

members’ trade with nonmembers. Common market: Members bring all trade rules into

agreement.

North American Free Trade Agreement (NAFTA) • World’s largest free-trade zone: United States, Canada, Mexico.• U.S. and Canada are each other’s biggest trading partners.

Central America-Dominican Republic Free Trade Agreement (CAFTA)

• Free-trade zone among United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.

• $33 billion traded annually between U.S. and these countries.

European Union• Best-known example of a common market.• Goals include promoting economic and social progress, introducing

European citizenship as complement to national citizenship, and giving EU a significant role in international affairs.

International Economic Communities

Countervailing duties Voluntary export restraints Standard disparities International Cartels Ad Valorem Comparison of an Import Quota to an Import

Tariff Social dumping, Environmental dumping,

Cultural dumping Department of Commerce:

http://www.commerce.nic.in