Tariff & Non- Tariff barriers to Trade Unit 3 Chapter 1
Introduction: International Trade policies deals with the policies of the national governments relating to exports of various goods and services in various countries either on equal terms and conditions or on discriminatory terms and conditions. Trade policies also aim at protecting the domestic industry from the competition of the advanced countries through imposing quotas and build competencies by providing subsidies.
Tariff Barriers What are tariff barriers? Refers to the tax imposed on the goods when they enter or leave the national frontier or boundary. What is the purpose of tariffs? To protect the domestic industry by increasing the cost of imported goods. Example : GoI imposed tariffs to protect domestic automobile industry, sugar industry, cement industry and steel industry.
Types of Tariffs: On the basis of Purpose: Revenue Tariff: To provide state with the revenue. Levied on luxury goods. Protective Tariff: To maintain and encourage those branches of home industry protected by the duties.
On the Basis of Origin and Destination: Ad Valorem Duty: Levied as the percentage of the total value of the imported common duty. Specific Duty: Levied per physical unit of the imported commodity. Compound Duty: Levied a percentage ad valorem duty plus a specific duty on each unit of the commodity. Eg. 1 lac + 10% of the price.
On the Basis of Country-wise Discrimination: Single Column Tariff: A uniform rate of duty is imposed on all similar commodities irrespective of the country from which they are imported. Double Column Tariff: Two different rates of duty have been imposed. Triple Column Tariff: Two or more tariff rates are levied on each category of commodity.
Who Gain from Tariff? Government of the importing country earns in the form of the revenue. Industries of the importing country would find market for their products as the imported goods will be expensive. Jobs in the domestic markets are saved. Business for the ancillary industry, servicing, market intermediation etc. is also protected.
Who are adversely affected? Consumers Industries of the exporting country.
Other Impacts of Tariff BarriersTariff Barriers tend to Increase:Tariff Barriers tend to Increase:1. Inflationary pressures1. Inflationary pressures2. Special interests’ privileges2. Special interests’ privileges3. Government control and political considerations in3. Government control and political considerations in economic matters. economic matters.Tariff Barriers tend to Weaken:Tariff Barriers tend to Weaken:1. Balance-of-payments positions1. Balance-of-payments positions2. Supply-and-demand patterns2. Supply-and-demand patterns3. International relations (they can start trade wars)3. International relations (they can start trade wars)Tariff Barriers tend to Restrict:Tariff Barriers tend to Restrict:1. Manufacturer’ supply sources1. Manufacturer’ supply sources2. Choices available to consumers2. Choices available to consumers3. Competition3. Competition
Non- Tariff Barriers Non-Tariff measures include all measures, other than tariffs, the effect of which is to restrict imports, or to significantly distort trade.
Different Types of Non-Tariff Barriers:(1) Specific Limitations on Trade:(1) Specific Limitations on Trade:1. Quotas1. Quotas2. Import Licensing requirements2. Import Licensing requirements3. Proportion restrictions of foreign to3. Proportion restrictions of foreign to domestic goods (local content requirements) domestic goods (local content requirements)
(2) Customs and Administrative Entry Procedures:(2) Customs and Administrative Entry Procedures:1. Valuation systems1. Valuation systems2. Antidumping practices2. Antidumping practices3. Documentation requirements3. Documentation requirements4. Fees4. Fees (3) Government Participation in Trade: (3) Government Participation in Trade: 1. Government procurement policies 1. Government procurement policies 2. Export subsidies 2. Export subsidies 3. Countervailing duties 3. Countervailing duties 4. Domestic assistance programs 4. Domestic assistance programs