TRADE BARRIERS

Trade barriers may be (i) Tariff Barriers and (ii) Non Tariff Barriers or protective barriers.

i) TARIFF BARRIERS: Tariff barriers have been one of the classical methods of
regulating international trade. Tariffs may be referred to as taxes on the imports. It aims
at restricting the inward flow of

goods from other countries to protect the country's own industries by making the goods costlier
in that country. Sometimes the duty on a product becomes so steep that it is not worthwhile
importing it. In addition, the duty so imposed also provides a substantial source of revenue to
the importing country. In India, Customs duty forms a significant part of the total revenue, and
therefore, is an important element in the budget. Some countries use this method of imposing
tariffs and Customs duties to balance its balance of trade. A nation may also use this method to
influence the political and economic policies of other countries. It may impose tariffs on certain
imports from a particular country as a protest against tariffs imposed by that country on its
goods.

Specific Duties, imposed on the basis of per unit of any identifiable characteristic of
merchandise such as per unit volume, weight, length, etc. The duty schedules so specified must
specify the rate of duty as well as the determining factor such as weight, number, etc. and basis
of arriving at the determining factor such as gross weight, net weight or tare weight.

Ad valorem Tariffs are based on the value of imports and are charged in the form of specified
percentage of the value of goods. The schedule should specify how the value of imported goods
would be arrived at. Most of the countries follow the practice of charging tariffs on the basis of
CIF cost or FOB cost mentioned in the invoice. As tariffs are based on the cost, sometimes
unethical practices of under invoicing are adopted whereby Customs revenue is affected. In
order to eliminate such malpractices, countries adopt a fair value (given in the schedule) or the
current domestic value of the goods as the basis of computing the duties.

NON - TARIFF MEASURES (BARRIERS)

To protect the domestic industries against unfair competition and to give them a fair chance of
survival various countries are adopting non-tariff measures. Some of these are :

Quantity Restrictions, Quotas and Licensing Procedures:-

Under quantity restriction, the maximum quantity of different commodities which would be
allowed to be imported over a period of time from various countries is fixed in advance. The
quota fixed normally depends on the relations of the two countries and the needs of the importing
country. Here, the Govt. is in a position to restrict the imports to a desired level. Quotas are very
often combined with licensing system to regulate the flow of imports over the quota period as
also to allocate them between various importers and supplying countries.

Foreign Exchange Restrictions -Exchange control measures are used widely by a number of
developing countries to regulate imports. Under this system an importer has to ensure that
adequate foreign exchange is available for imports by getting a clearance from the exchange
control authorities of the country.

Technical Regulations -
Another measure to regulate the imports is to impose certain standards of technical production,
technical specification, etc. The imported commodity has to meet these specifications. Stringent
technical regulations and standards beyond international norms, expensive testing and
certification, and complicated marking and packaging requirements.

Voluntary Export Restraint:

The agreement on 'voluntary' export restraint is imposed on the exporter under the threat of
sanctions to limit the export of certain goods in the importing country. Similarly, establishment
of minimum import prices should be strictly observed by the exporting firms in contracts with
the importers of the country that has set such prices.

In case of reduction of export prices below the minimum price level, the importing country
imposes anti- dumping duty which could lead to withdrawal from the market. Voluntary export
restraints mostly affect trade in textiles, footwear, dairy products, cars, machine tools, etc.

Local Content Requirement:-

A local content requirement is an agreement between the exporting and the importing country
that the exporting country will use some amount or, content of resources of the importing
country in its process of production. If the exporting country agrees to do that only then the
importing country will import their goods.

Embargo:- Embargo is a specific type of quota prohibiting trade. Like quotas, embargoes may
be imposed on imports, or exports of particular goods, regardless of destinations, in respect
of certain goods supplied to specific countries, or in respect of all goods shipped to certain
countries. Although the embargo is usually introduced for political purposes, the
consequences, in essence, could be economics

Difference between Tariff and Non-Tariff Barriers

Anti - Dumping

Anti dumping is a new weapon in the trade war. Anti dumping is one policy which is creating
a non tariff barrier, hindering free trade.
If a company exports a product at a price lower than the one charged in its home market, it is
said to be dumping. If the importing company succeeds, its country will levy an anti dumping
duty on the product exported by the Indian Co. to him. This adds to the landed cost of the product
and reduces the Indian exporter's competitiveness.

Trade Bloc

An agreement between states, regions, or countries, to reduce barriers to trade between the
participating regions Trading blocs are a form of economic integration, and increasingly shape
the pattern of world trade.

Economic integration is the unification of economic policies between different states through
the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them
prior to their integration

The degree of economic integration can be categorized into five stages:

1. Preferential trading area

2. Free trade area,

3. Customs union,

4. Common market

5. Economic union,

Stages/types / Forms/ of economic integration

Preferential Trade Area

Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to
reduce or eliminate tariff barriers on selected goods imported from other members of the area.
This is often the first small step towards the creation of a trading bloc.

Free Trade Area

Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or
eliminate barriers to trade on all goods coming from other members.
Customs Union

A customs union involves the removal of tariff barriers between members, plus the acceptance
of a common (unified) external tariff against non-members. This means that members may
negotiate as a single bloc with 3rd parties, such as with other trading blocs, or with the WTO

Common Market

A ‘common market’ is the significant step towards full economic integration, and occurs when
member countries trade freely in all economic resources – not just tangible goods. This means
that all barriers to trade in goods, services, capital, and labour are removed.

The main advantages for members of trading blocs

□ Free trade practices

□ Market access and trade creation.

□ Trade creation and trade diversion

□ Economies of scale

□ lowering costs and lower prices for consumers.

□ Jobs creation and employment opportunities

□ Protection of individual interests of member countries.

NAFTA

North American Free Trade Agreement (NAFTA) established a free-trade zone in North America; it was
signed in 1992 by Canada, Mexico, and the United States and took effect on Jan. 1, 1994. NAFTA
immediately lifted tariffs on the majority of goods produced by the signatory nations. It also calls for
the gradual elimination of all trade barriers between these three countries.

Goals of the NAFTA

 to reduce barriers to trade

 to increase cooperation for improving working conditions in North America
  to create an expanded and safe market for goods and services produced in North America
 to establish clear and mutually advantageous trade rules

 to help develop and expand world trade and provide a catalyst to broader international
cooperation

European Union (EU)

Comprising 28 European countries and governing common economic, social, and security
policies. Originally confined to Western Europe, the EU undertook a robust expansion into
central and eastern Europe in the early 21st century. The EU was created by the Maastricht
Treaty, which entered into force on November 1, 1993.
Objectives of EU

 an area of freedom, security and justice without internal frontiers;

 an internal market where competition is free and undistorted;

 sustainable development, based on balanced economic growth and price stability, a

highly competitive social market economy, aiming at full employment and social
progress, and a high level of protection and improvement of the quality of the
environment;

 the promotion of scientific and technological advance;

 the combating of social exclusion and discrimination, and the promotion of social justice
and protection, equality between women and men, solidarity between generations and
protection of the rights of the child; the promotion of economic, social and territorial
cohesion, and solidarity among Member States.

South Asian Association for Regional Cooperation (SAARC)

South Asian nations, which was established on 8 December 1985 when the government of
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka formally adopted its
charter providing for the promotion of economic and social progress, cultural development
within the South Asia region and also for friendship and co-operation with other developing
countries. It is dedicated to economic, technological, social, and cultural development
emphasizing collective self-reliance.

Objectives of SAARC
 to promote the welfare of the people of South Asia and to improve their quality of life;
 to accelerate economic growth, social progress and cultural development in the region
and to provide all individuals the opportunity to live in dignity and to realise their full
potential ;
 to promote and strengthen selective self-reliance among the countries of South Asia;

 to contribute to mutual trust, understanding and appreciation of one another's problems;

 to promote active collaboration and mutual assistance in the economic, social,

cultural, technical and scientific fields;

 to strengthen co-operation with other developing countries;

 to strengthen co-operation among themselves in international forums on matters of

common interest; and

 to co-operate with international and regional organisations with similar aims and
purposes.

ASEAN

On 8 August 1967, five leaders - the Foreign Ministers of Indonesia, Malaysia, the Philippines,
Singapore and Thailand - sat down together in the main hall of the Department of Foreign
Affairs building in Bangkok, Thailand and signed a document. By virtue of that document, the
Association of Southeast Asian Nations (ASEAN) was born.

PRINCIPLES of ASEAN

o Mutual respect for the independence, sovereignty, equality, territorial integrity, and
national identity of all nations;
o The right of every State to lead its national existence free from external
interference, subversion or coercion;
 o Non-interference in the internal affairs of one another;
o Settlement of differences or disputes by peaceful manner;
o Renunciation of the threat or use of force; and
o Effective cooperation among themselves

BRICS
“BRIC” was an acronym for the four emerging countries that are expected to be the world’s
major providers of manufactured products, services, and raw resources by the year 2050: Brazil,
Russia, India and China. Both China and India are on track to overtake Brazil and Russia as the
world’s leading suppliers of manufactured products and services, respectively. South Africa
became a member of the BRICS group in 2010, and the acronym BRICS now refers to the entire
organisation.

BRICS: Objectives
It was born out of a common interest in promoting trade and development across countries in the
region. It was formed to improve the economies of these nations and the global socio-economic
situation.
It was established on June 16, 2009. The main objectives of BRICS are to strengthen
sustainability, security, development, peace, and collaboration.

General Agreement On Tariffs And Trade

The General Agreement on Tariffs and Trade (GATT) was created after World War II to aid
global economic recovery through reconstructing and liberalizing global trade. GATT's main
objective was to reduce barriers to international trade through the reduction of tariffs, quotas
and subsidies. It has since been superseded by the creation of the World Trade Organization
(WTO).
The General Agreement on Tariffs and Trade (GATT) was formed in 1947 with a treaty
signed by 23 countries, and signed into international law on January 1, 1948. GATT
remained one of the focal features of international trade agreements until it was replaced by
the creation of the World Trade Organization on January 1, 1995. By this time, 125 nations
were signatories to its agreements, which covered about 90% of global trade.
The aim behind GATT was to form rules to end or restrict the most costly and undesirable
features of the pre- war protectionist period, namely quantitative trade barriers such as trade
controls and quotas. The agreement also provided a system to arbitrate commercial disputes
between nations, and the framework enabled a
number of multilateral negotiations for the reduction of tariff barriers. GATT was regarded as
a significant success in the post-war years.
Objectives:
The General Agreement on Tariff and Trade was a multilateral treaty that laid down rules for
conducting international trade. The preamble to the GATT can be linked to its objectives.
• To raise the standard of living of the people,
• To ensure full employment and a large and steadily growing volume of real income and
effective demand.
• To tap the use of the resources of the world fully.
• To expand overall production capacity and international trade.

World Trade Organization (W T O) : Location: Geneva, Switzerland, Established: 1

January 1995, Created by: Uruguay Round negotiations (1986-94)
WTO is an organization comprising of developed, developing and least developed countries,
under the UN Umbrella, headquartered in Geneva. Its aim is to promote trade amongst member
nations, especially after globalization of trade, arrange aid technically and in other forms for
growth of trade amongst member countries, creating all possible facilitation measures. Main
Functions of WTO To facilitate the implementation, administration and further operations of
the agreement establishing the WTO.

Functions:
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for developing countries
• Cooperation with other international organizations

WTO Organizational structure