Trade Barriers

PGDIB - I

Trade Barriers

Trade Barriers can be classified as: Tariff Barriers Non – Tariff Barriers Currency control Administration delay

Tariff Barriers

Tariffs are the taxes on the goods that is traded internationally.

Tariff Barriers can be classified as: Specific duty Ad Valorem duty Compound duty Countervailing duty

Tariff Barriers Specific duty:

It refers to the duty based on the value of goods. It is calculated on per unit basis.

Ex: Rs. 2 tax on 1 kg Sugar. Ad Valorem duty:

It is the duty based on the value of the goods. It is calculated on the basis of percentage of value of good.

Ex: 5% tax on whatever volume purchased

Tariff Barriers Compound duty:

When both type of tariffs are charged on the same product, it is known as compound duty.

It is based on both the unit and the value of the product.

Countervailing duty: It refers to cancel out the impact of

unfair business practices, such as subsidy.

Non - Tariff Barriers Barriers influencing Prices :

Customs Valuation Subsidies Special Fee

Barriers influencing Quantity : Quota Embargo Technical Barriers

Customs Valuation Custom officials use a great deal of

carefulness in valuing imported products.

Higher the value of the product, the greater the duty imposed on it & vice-versa.

Ex: Semi manufactured goods face lower rate of duty than manufactured goods.

Subsidies Subsidy is the benefits provided by

importing government to the domestic producers so as to reduce the production cost and thus the price of that good.

The provision of subsidy depends upon the budgetary resources.

Ex: Cash grants, Low-interest rates, Tax advantage etc.

Special Fee

Special is a kind of fee charged by the custom officials/authorities for custom clearance.

The greater the custom fee, the larger the value of imported good and more restricted its import will be.

Quota

It is the direct restriction on the quantity of some good that may be imported into a country.

The importing country prescribes specific quantum beyond which a commodity cannot be imported in a particular year.

Embargo Embargo is an official ban on the

trade with a particular country. Due to strained political relation, a

country imposes embargo on imports from a particular country, which normally includes all commodities.

Ex: UN imposing an embargo on imports from Haiti in 1993.

Technical Barriers Technical Barriers can be classified

as: Product & Testing standards:

It requires foreign government to meet a country’s product/ testing standards before they are offered for sale in that country.

Ex: size, shape, design, performance, labeling, packaging, processes, etc.

Indian Exports face lot of such barriers for export of Rice, Yarn, Meat, Pharmaceuticals, etc.

Technical Barriers “Buy local” legislation:

Under this at least Government departments are forbidden to use imported goods.

Import license: Some countries have a legislation

ensuring that a particular commodity can be imported only using import license.

Technical Barriers Counter Trade:

Under counter trade some countries import goods only in exchange for their own products.

In such cases, the value of their imports are limited to the value of their exports.

It is the bilateral trade where one set of goods is exchanged for another set of goods.

It is an alternative means of carrying out an international transaction when conventional means of payment are difficult, or not possible.

Technical Barriers Voluntary Export Restrain:

It is the voluntary restrain by the exporting country on the exports of a specified product to help the importing country to protect its domestic industry.

Ex: Limitation on auto exports to the US enforced by Japanese automobile producers in 1981.

References

International Business By V. sharan