Brief description of trade barrier

1. TRADE BARRIERS
By
Bhuvan , Ks srijeeth , Sandhya ,
Shivangi , Vidhi N. , Tanya .

2. MEANING
A government imposed restriction on the free international exchange
of goods or services.
Trade barriers are generally classified as
import policies reflected in tariffs and other import charges,
quotas, import licensing, customs practices,
standards, testing, labeling, and various types of certification
direct procurement by government,
subsidies for local exporters,
lack of copyright protection,
restrictions on franchising, licensing, technology transfer,
restrictions on foreign direct investment, etc.

3. • Trade barriers are being narrowly used in the 2000s
than they were in the 20th century. Those barriers
are believed to reduce the overall welfare of those
countries. But some countries are still imposing trade
barriers for different reasons. Even though trade
barriers are expected to cut down the overall welfare
of the importing countries, policy makers in many
countries continue to use trade barriers for
economic, political and social reasons.

4. • Firstly, the economic reasons: Some countries use trade barriers to achieve
economic objectives such as protecting domestic producers and industries and
providing revenue for the government. As for protecting domestic producers,
some countries use trade barriers is to protect immature domestic producers
and industries that cannot effectively compete with foreign products. Trade
barriers makes imported goods and products less attractive than locally
produced goods. That enables domestic producers to successfully compete
with foreign producing firms or producers. Protecting domestic industries has
a positive effect on GDP and employment rates. Using this strategy in the short
run with a specified gradual timeframe pressures domestic producers to
improve the quality of their products and control their cost before reopening
the markets. Having this strategy for the long run may cause domestic
industries to relay on that and not have an incentive to improve and control
their costs which cause a strategy failure.
• The second economic reason is using trade barriers to provide revenue for the
government. As a matter of fact, tariffs represents an important percentage of
some countries’ revenue. So those countries cannot cut their tariffs and
taxes because they cannot raise revenue for the government from other
sources.

5. • Secondly, the political reasons for using trade barriers: some policy
makers believe that maintaining imports at a minimum guarantee
political independence. If a country is not mainly dependent on
imported products, the exporting countries cannot use their
exports as a threat by making an economic embargo. For example,
the trade barriers that Iraq, Syria and Iran has prior to the economic
embargos in different times enabled those countries to endure
economic embargos more than if they didn’t have those barriers.
• Finally, social reasons: many countries use trade barriers to
accomplish social goals. Tariffs and taxes are used to reduce the
public consumption of harmful and unhealthy behaviors such as
alcohol and tobacco consumption. Some policy makers believe that
increasing the price of harmful goods decreases their
consumption. But most of those addictive products has a low price
electricity meaning that the percentage decrease of quantity
consumed is less than the percentage increase in price. So it can be
argued that awareness campaigns are more effective than trade
barriers in deterring people from consuming those products. But
the tax revenue can be used to fund those awareness programs to
effectively achieve the desired goal; lowering the consumption of
those products.

6. Objective of trade barriers
1. Protect home industry from foreign competition .
• In developing countries the industry are at initial
stages .
• these industries have to be protected from foreign
competitor through high tariffs and quantitative
restriction.

7. 2. Promote new industries and research &
development .
• via protection to the potential areas of
development.
• scientist and technocrats are motivated to
develop indigenous technology in the area
protected through trade barrier

8. 3. Conserve foreign reserve
• immediate solvency depend on foreign exchange
reserve .
• excessive import will lead to Erosion of foreign
currency .
• quotas and tariff are used to control unnecessary
import.

9. 4. Maintain favorable BOP
• BOP is the difference b/w inflows & outflow of
foreign currency in economy.
• Favorable BOP shows goodwill and reputation
of the country in international market.

10. 5. Protect economy from dumping
• when MNC tries to sell it product in foreign
country at a price much lesser than the Cost of
Production .
• immediate result will be driving away the domestic
supplier .
• To prevent this government use tariff to increase
price of dumping goods .

11. 6. Make economy self reliant
• infant industries need protection
during initial stages of their development
from foreign competition .
• this helps countries to become self reliant in
long term .

12. Types of trade barrier
A. Tariff barrier
B. Non Tariff Trade Barriers

13. Types of tariff barriers
1. Import restrictions
– Also called import controls.
– Methods employed in controlling the volume or
value of goods coming into a country, usually to
maintain the exchange rate of the country's
currency.

14. 2. Export Duties
tax imposed on commodity exported from a
country . Generally no duties are levied on
export.
3. Import Duties
tax imposed on the commodities imported
by a country
4. Transit Duties
tax imposed on a commodity when it passes
through the national frontier of a country .

15. 5.Countervailing Duty
This duty is imposed by the Central
Government when a country is paying the
subsidy to the exporters who are exporting
goods to India. This amount of duty is
equivalent to the subsidy paid by them.
6.Basic Customs Duty
Basic custom duty is the duty imposed on the
value of the goods at a specific rate. The duty
is fixed at a specified rate of ad-
valorem(according to the value) basis.

16. B.Non Tariff Trade Barriers
• A nontariff barrier is a way to restrict trade
using trade barriers in a form other than
a tariff .
• Nontariff barriers have a common basis on the
availability of goods and services and political
alliances with trading countries.
• Countries commonly use nontariff barriers in
international trade.

17. IT INCLUDE GOVERNMENT
PARTICIPATION
• Government procurement
policies
• Export Subsidies
• Countervailing duties
• Domestic assistance program

18. SPECIFIC LIMITATION ON TRADE
• QUOTAS
• Import licensing requirements
• Proportion restriction of foreign to
domestic goods
• Embargoes

19. CUSTOM AND ADMINISTRATIVE ENTRY
PROCEDURE
• Tariff Classification
• Documentation requirement
• Fees
• Antidumping Practices

20. FINANCIAL CONTROL
• Manage Finance
• Accountability, Responsibility, Automation
• By placing the right financial control, the
negative situations are brought back on track
with the help of targeted information
provided by financial controls:
• ACCOUNTING STANDARDS
• FINANCIAL STATEMENT

21. Contd..
• POLICIES
• SEGRAGATION OF DUTIES
• RESPONSIBILITY
• DISBURSMENT POLOCIES
• INFORMATION SECURITY

22. Difference-between-tarrif-and-non-
tarrif-barriers

25. Positive effects of Trade
Barriers
Governments or public authorities employ trade barriers, such
as tariffs, to control the free inflow of international goods and
services.
Although these barriers often discourage trade between
nations, they come in place when a government wants to
improve the consumption of local goods, create local
employment, Enhanced national security and increase
national revenue.

26.  Increased Consumption of Local Goods
Duty tax increases the overall cost of imported goods
and services. When a government impose this tax on
imports, it aims to discourage local consumers from
importing. As a result, the consumption of locally-
produced goods increases since there are fewer
substitute or alternative goods
 Increased Domestic Employment
As the consumption of local goods increases, so does
the demand. To satisfy the growing consumer
demand, domestic producers have to produce more
products.

27.  Enlarged National Revenue
Imposing tariffs on imported goods and services is a
strategy governments can use to increase national
revenue. The duty from importers goes directly to the
government’s revenue collection agency. Although
tariffs are generally designed to discourage
importation, some goods -- such as apparel and
household appliances -- are so essential importers
won't give them up. When the government raises
tariffs on such goods, or starts taxing goods that were
previously imported free of duty, it collects more
revenue

28.  Improved Consumer Protection
The government sets import regulations on some
consumer goods to ensure they are safe for domestic use
or consumption.
 Enhanced National Security
The national security of a government that heavily imports
military weapons can be compromised should the
exporting country restrict the export of the weapons. To
prevent this from happening, a government, especially that
of a developed country, tries to encourage domestic
production of defense equipment.

29. Negative effect of trade barriers

30. Barriers Result in Higher Costs
Trade barriers result in higher costs for both customers and companies. As a
manufacturer or distributor, you may need to pay more for the goods required to
run your business smoothly. For example, if you're selling electronics, importing
laptops and cameras will be more expensive unless you stick to domestic brands.
Therefore, you will need to raise the prices customers must pay. For instance, the
proposed increased tariffs on Chinese imports in 2018 could result in higher prices
next time you are in the market to buy your next smartphone, tablet or laptop.
Due to increases like these, the National Taxpayers Foundation Union estimates
that the annual cost of tariffs in the United States economy is $41.65 billion.
Limited Product Offering
With free trade, customers have access to more products than ever before
including high-end goods that were not otherwise available in their region.
Imposing trade barriers has the opposite effect. Now, the increase in import costs
translates into a limited choice of products. Small businesses, for instance, might
not be able to afford to pay these costs so that they will offer fewer goods. Despite
this fact, import restrictiveness remains high in developing countries, especially
East and South Asia. Many governments put trade restrictions in place to reserve
the domestic industry and protect special interests. In the long run, this practice
affects economic growth and reduces overall economic efficiency.

31. • Loss of Revenue
Many companies make their money off international trade. Automobile
manufacturers, for example, sell cars in foreign markets. Trade barriers can limit
their ability to export products, leading to loss of revenue and decreased profit. On
a larger scale, trade barriers affect economic growth. For example, in developing
countries which are unable to export goods because of high tariffs, trade barriers
can limit their ability to prosper and expand their operations. Furthermore, it has a
direct impact on wages and international relations.
• Fewer Jobs Available
Nowadays, many organizations have offices and factories in multiple locations
across the world, which allows them to employ locals and pay higher wages
compared to the national average. Trade barriers limit their expansion and affect
the labor market. As a result, fewer jobs will be available for those living in
developing countries.
• Higher Monopoly Power
Free trade promotes competition among different countries, which forces local
companies to keep product prices at a reasonable level. Trade barriers have the
opposite effect. They increase monopoly power and limit competition allowing
producers to charge higher prices. Additionally, limiting the competition leads to
inflation, causing a decline in customer spending power. It might also stifle
innovation, since protectionism provides no incentive for a company to invest in
technological advancement. Since there is less incentive to provide superior
products, quality will decline over time.

32. • Trade Barriers Hurt Everyone, Especially the Poor
The case for free trade is about more than economic efficiency. At
heart, free trade is a moral issue. Everyone who wants to make the
world better off should be advocating for lower trade barriers
around the world. The current administration’s return to pre-
industrial trade policies are not just bad politics and bad
economics; Trump’s trade policies disproportionately hurt the poor.
Tariffs on agricultural products mean higher food prices. As a
proportion of income, the poor spend more on food than their
better-off fellows, leaving less left over for other needs, such as
transportation and rent. Speaking of which, new steel tariffs mean
more expensive cars and buildings. Guess who pays proportionally
more for transportation and rent? And so on, for tariffs on
thousands of goods that were not in place a year ago.
The principles behind free trade are economically sound and
morally right. Economists, who disagree with each other on most
everything else, have almost unanimously favored free trade since
the days of Adam Smith.