Explanations for this figure are given as follows……
NON TARIFF BARRIERS
2nd M.A. in Economics
Professor of economics
NTBs are obstacles to imports other than tariffs.
They are administrative measures that are
imposed by a domestic govt to discriminate
against foreign goods and in favour of home
with the reduction of tariff barriers
under GATT, there has been a growing emergence
of NTBs adversely affecting free trade notion and
TYPE OF NTBs
The following are the major NTBs being practised;
Voluntary export restraints(VERs)
Customs valuation and classification
Import licensing procedures
Local content regulations
• Like tariffs,import quotas are another
protectionist device and an old form of trade
restriction that came into existence since the
• An import quota implies a fixed quantity or
value of a commodity that has been allowed
to be imported in the country during a given
period of time.
• In practice,quotas may be fixed either in terms
of the physical volume or monetary value of
imports or a combination of the two.
• Quotas assigned in quantitative terms are
referred to as direct quotas and those
expressed in value units implying exchange
control,are called indirect quotas.
OBJECTIVES OF IMPORT QUOTAS
1. To regulate imports in an effective manner.
2. To check imports in order to correct an
adverse balance of payments.
3. To protect domestic industries from severe
foreign competition .
4. To maintain and stabilize domestic price level
by restricting import inflows.
5. To control speculation in imports.
6.To discourage the import of luxury goods.
7.To strengthen a country’s bargaining power by
limiting import demands.
8.To save the country’s foreign exchange for
importing essential raw materials, capital goods
and other important items.
TYPES OF IMPORT QUOTAS
1.Tariff quota: under this system, a given
quantity of a good is permitted to enter duty free
or upon payment of relatively low duty. But
imports in excess of that quantity are charged a
relatively high rate of duty.
2.UNILATERAL QUOTA: It is imposed without
prior negotiation with foreign governments.
3.BILATERAL QUOTA: In this system, quotas are
set through negotiation between the importing
country and the exporting country.
4.MIXING QUOTA: It is a type of regulation which
requires producers to utilize a certain
proportion of domestic raw materials along
with imported parts to produce finished goods
5.IMPORT LICENSING: Under this, prospective
importers are required to obtain a licence from
the proper authorities for importing any
quantity within the specified quotas.
O Q Q1 Q2 Q3 X
EFFECT OF IMPORT QUOTAS
• In the above figure D and S are the domestic
demand and supply curves. PB is the foreign
supply curve under free trade which intersects
the domestic demand curve D at point B and OP
price is determined. Thus the total domestic
demand for the commodity is OQ3. But the
domestic supply is OQ. So QQ3 quantity of the
commodity is being imported under free trade at
OP price. Suppose the govt fixes an imports quota
equal to the amount of Q1Q2. Now the total
supply curve of the commodity S+Q which
consists of the domestic supply plus the quota
amount. It intersects the domestic demand curve
at N so that the quota raises the domestic price
from OP to OP1. Thus PP1 is the price effect of
• In the above figure when Q1Q2 amount of
import quota is fixed, the domestic production
of the commodity increases from OQ to OQ1.
Thus QQ1 is the protective effect of the
In the figure where under free trade the
domestic consumption of the commodity is
OQ3. With the fixation of the quota of Q1Q2
amount ,the total domestic consumption falls
• The determination of the revenue effect of an
import quota is quite complicated and difficult
to determine. If the govt auctions the import
licences at the price PP1 Q1Q2 quantity
allowed of the commodity,the revenue effect
of the import quota will be equal to the area
aMNb in the above figure.
• When the Q1Q2 amount of quota will be imposed,then
the prices will be rises.So the domestic producers earn
higher profits than earlier.It is shown in the above
figure area of PP1MA.
6.Balance of payments effect:
The balance of payment effect of an import quota is
favorable to the quota imposing country. In the above
figure where under free trade QQ3 commodity is
imported at OP price. The total value of imports is
represented by the rectangle AQQ3B. This represents a
balance of payments deficit because the amount paid
by the importers. To correct this BOP deficit, an import
quota of Q1Q2 is fixed so that the imports are reduced
to this quantity.
VOLUNTARY EXPORT RESTRAINTS(VERs)
• A VER is an agreement by an exporter
country’s exporters or govt with an importing
country to limit their exports to it. It is entered
into by the importing country when its
domestic industry is suffering from large
VERs have been adopted by
countries because the use of quotas and
tariffs has been forbidden by the GATT. But
the VERs do not come under the GATT rules.
Q Q1 Q2 Q3O
Z Ra b
• The above figure shows effects of VERs, where Dd
is the domestic demand curve and Sd is the
domestic supply curve. At price OPw OQ is
supplied by domestic producers and OQ3 is
imported. Now if instead of an import quota of
Q1Q2,a VER of the same quantity is adopted by
an exporting country, its effect will be equivalent
to that of an import quota. The only difference
between VER and import quota is the rent which
goes to the suppliers of the exporting country.
With VER, the domestic demand curve Dd
remains the same, but the supply curve Sd shifts
to Sv, so that equillibrium occurs at a higher price
OPv. At the price OPv the quantity OQ1 is
domestically supplied which is greater than
earlier and QQ1 is VER on its imports.
• An export subsidy is a govt grant to an export
firm to reduce the price per unit of goods
exported abroad. It enables the firm to sell a
larger quantity of its goods at a lower price in the
export market than in the home market.
• Export subsidy
may be direct and indirect. But direct export
subsidies are prohibited under the GATT
agreement. Therefore, govt resort to indirect
export subsidies in various forms such as
subsidised credit, refunds an tariffs on their
inputs, priority in the allocation of scarce raw
materials, market research, tax concessions,
• In the above figure D and S are the domestic
demand and supply curves,for some
exportable goods. with the world price Opw
which is the above the domestic price(E),the
domestic demand is OQ1 and domestic supply
is OQ2.Supply being greater than demand,the
country exports Q1Q2 quantity.To encourge
the expansion of exports,the govt gives Pw-Ps
subsidy for each unit exported.This rises the
domestic price to OPs. At this price,the
demand for the goods falls to OQ3,but its
supply increases to OQ4. Finally we can say
that, if the country subsidising its products,
then its net welfare loss is greater.
• A countervailing duty is an import duty or
tariff imposed by an importing country to
raise the price of a subsidised export product
to offset its lower price.
This analysis assumes that,
1. The export good is subsidised.
2. The supply of the good is perfectly elastic.
3. The importing countries imposes the duty on
this good equal to the export subsidy.
• In the above figure Dm and PwS curves are
import demand and supply curves. Before the
subsidy, OQ quantity of the good is being
exported and imported at OPw price. When the
subsidy given to the good, the supply curve PWs
shifts down to PsS1 by the full amount of the
subsidy .Assuming that there is no change in
demand for imports with the fall in price to OPs,
the new equilibrium is established at point E1
and imports increase from OQ to OQ1. Even
though the subsidy benefits(F+G) the foreign
consumers of the good, the importing country
suffers a loss in production of this good due to its
lower price equal to the area H.TO offset this,it
imposes a countervailing duty equal to the export
subsidy. As a result, the price of the product
• Govts discriminates between domestic and
foreign suppliers. The discrimination may be in
various ways. In certain countries, there is
legislation to buy domestic goods and services
even if they are available from abroad at low
CUSTOMS VALUATION AND
• Various commodities are described in the
customs list and separate tariffs rate are
prescribed for each category. The customs
officials often charge high tariff rates by their
own categorisation of goods with high rates.
Such procedures restrict imports because they
make them dearer and non-competitive in the
local market. They are meant to create
uncertainty among importers.
IMPORT LICENCING PROCEDURES
• Many countries adopt complicated and
expensive import licencing procedures to
• Such procedures restrict imports. For example
LOCAL CONTENT REGULATIONS
In many developing countries,import of manufactured
products like cars, TVs, computers, …etc..are restricted
If they do not meet local content regulations.
Technical barriers are of various types which restrict
imports. They include health and safety regulations,
sanitary regulations, labelling and packaging
• In this way NTBs work as a barriers to international
trade. After the forbidden of tariffs by GATT, NTBs
are the major obstacles to international trade.
Through this many countries restricting and
regulating imports in order to protect domestic
industries from foreign competition.