Trade barriers may occur in international trade when goods have to cross political boundaries. A trade barrier is a restriction on what would otherwise be free trade. The most common form of trade barriers are tariffs, or duties (the two words are often used interchangeably in the context of international trade), which are usually imposed on imports. There is also a category of nontariff barriers, also known as nontariff measures, which also serve to restrict global trade.
There are several different types of duties or tariffs. An export duty is a tax levied on goods leaving a country, while an import duty is charged on goods entering a country. A duty or tariff may be categorized according to how it is calculated. An ad valorem tariff is one that is calculated as a percentage of the value of the goods being imported or exported. For example, a 20 percent ad valorem duty means that a duty equal to 20 percent of the value of the goods in question must be paid. Duties that are calculated in other ways include a specific duty, which is based on the quantity, weight, or volume of goods, and a compound duty (also known as a mixed tariff), which is calculated as a combination of an ad valorem duty and a specific duty.
Duties and tariffs are also categorized according to their function or purpose. An antidumping duty is imposed on imports that are priced below fair market value and that would damage domestic producers. Antidumping duties are also called punitive tariffs. A countervailing duty, another type of punitive tariff, is levied after there has been substantial or material damage done to domestic producers. A countervailing duty is specifically charged on imports that have been subsidized by the exporting country's government. The purpose of a countervailing duty is to offset the subsidy and increase the domestic price of the imported product.
A prohibitive tariff, also known as an exclusionary tariff, is designed to substantially reduce or stop altogether the importation of a particular product or commodity. It is typically used when the amount of an imported good exceeds a certain permitted level. It may be used to protect domestic producers. Another type of tariff is the end-use tariff, which is based on the use of an imported product. For example, the same product may be charged a different duty if it is intended for educational use as opposed to commercial use.
In addition to duties and tariffs, there are also nontariff barriers (NTBs) to international trade. These include quantitative restrictions, or quotas, that may be imposed by one country or as the result of agreements between two or more countries. Examples of quantitative restrictions include international commodity agreements, voluntary export restraints, and orderly marketing arrangements.
Administrative regulations constitute a second category of NTBs. These include a variety of requirements that must be met in order for trade to occur, including fees, licenses, permits, domestic content requirements, financial bonds and deposits, and government procurement practices. The third type of NTB covers technical regulations that apply to such areas as packaging, labeling, safety standards, and multilingual requirements.
In 1980 the Agreement on Technical Barriers to Trade, also known as the Standards Code, came into effect for the purpose of ensuring that administrative and technical practices do not act as trade barriers. By the end of 1988 the agreement had been signed by 39 countries. Additional work on promoting unified standards to eliminate these NTBs was conducted by the General Agreement on Tariffs and Trade (GATT) Standards Committee, which in 1994 was succeeded by the newly created World Trade Organization (WTO). As a result more than 131 governments accepted the provisions of the Technical Barriers to Trade (TBT) Agreement enforced by the WTO.
Standards and testing practices can become technical barriers to trade when they are developed by national or regional interests and then imposed on the international trading. The U.S. Department of Commerce' s 1998 report, "National Export Strategy," identified "the global manipulation of international standards and testing practices by governments and regional economic blocs" as a major threat to U.S. competitiveness abroad. Under the TBT Agreement the WTO is supposed to guarantee due process and transparency in the establishment of international standards. The Department of Commerce, however, has presented examples where narrow regional or market interests have resulted in standards forced on international trade, and governments and regional economic blocs such as the European Union (EU) have openly used standards and related practices to achieve market domination. The United States was among those countries calling for technology- and trade neutral standards, especially for markets in Latin America and Asia.
Other types of existing technical trade barriers include environmental, health, and safety certification requirements. In Europe such requirements range from banning imported beef from cattle raised with hormones to not allowing older airplanes to land because of noise pollution concerns.
Since the passage of the Omnibus Trade and Competitiveness Act of 1988, the U.S. State Department periodically submits reports to Congress called "Country Reports on Economic Policy and Trade." These reports detail significant barriers to U.S. exports. Such barriers include not only tariffs, sanctions, embargoes, and technical regulations, they can also cover local conditions such as fuel shortages, lack of a modern telecommunications system, backward banking systems, and low purchasing power.
Tariffs and other trade barriers have a definite effect on consumption and production. They serve to reduce consumption of the imported product, because the tariff raises the domestic price of the import. They also serve to stimulate domestic production of the product when that is possible, also because of the higher domestic price. Proponents of tariffs argue that such an increase in domestic production is desirable, while opponents argue that it is inefficient from an economic standpoint. The overall effect of tariffs and trade barriers on international trade is to reduce the volume of trade and to increase the prices of imports. Proponents of free trade argue that both of those results are undesirable, while proponents of protectionism argue that tariffs may be necessary for a variety of reasons.
There are several reasons advanced for imposing trade barriers. These include protecting domestic producers against foreign competitors (especially infant industries), improving a nation's terms of trade, reducing domestic unemployment, and improving a nation's balance of-payments position. Those who would argue against imposing trade barriers point to the possibility of retaliation by other nations, leading to a trade war. The more trade barriers there are, the lower the volume of international trade and the higher the domestic prices of imported goods. As a result, global resources are less efficiently allocated and the level of world income and production is reduced. It has been the recognition of the negative effects of trade barriers on international trade that has led to international agreements, such as GATT, designed to reduce or eliminate them.
SEE ALSO : Dumping
[ David P. Bianco ]
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