Trade barriers
• To encourage development of domestic industry and protect existing industry,
governments
• may establish such barriers to trade as tariffs and a variety of nontariff barriers
• While the inspiration for such barriers may be economic or political, they are
encouraged by local industry
• Whether or not the barriers are economically logical, the fact is that they exist.
Tariffs.
• A tariff , simply defined, is a tax imposed by a government on goods entering at its borders.
• Tariffs may be used as revenue-generating taxes or to discourage the importation of goods, or for
both reasons.
• Tariff rates are based on value or quantity or a the types of customs duties used
• are classified as follows:
• (1) ad valorem duties, which are based on a percentage of the determined value of the imported
goods;
• (2) specific duties, a stipulated amount per unit weight or some other measure of quantity;
• (3) a compound duty, which combines both specific and ad valorem taxes on a particular item, that
is, a tax per pound plus a percentage of value.
• Because tariffs frequently change, published tariff schedules for every country are available to the
exporter on a current basis.
Tariffs in general :
• Increase
• Inflationary pressures.
• Special interests’ privileges.
• Government control and political considerations in economic matters.
• The number of tariffs (they beget other tariffs via reciprocity).
• Weaken
• Balance-of-payments positions.
• Supply-and-demand patterns.
• International relations (they can start trade wars).
• Restrict
• Manufacturers’ supply sources.
• Choices available to consumers.
• Competition
Quotas and Import Licenses.
• A quota is a specific unit or dollar limit applied to a particular type of good.
• Quotas put an absolute restriction on the quantity of a specific item that can be
imported.
• Like tariffs, quotas tend to increase prices. The U.S. quotas on textiles are
estimated to add 50 percent to the wholesale price of clothing.
• As a means of regulating the flow of exchange and the quantity of a particular
imported commodity, countries often require import licenses. The fundamental
difference between quotas and import licenses as a means of controlling imports is
the greater flexibility of import licenses over quotas. Quotas permit importing
until the quota is filled; licensing limits quantities on a case-by-case basis.
Voluntary Export Restraints
Similar to quotas are the voluntary export restraints (VERs) or orderly market agreements (OMAs).
Common in textiles, clothing, steel, agriculture, and automobiles, the VER is an agreement between the
importing country and the exporting country for a restriction on the volume of exports.
For years Japan had a VER on automobiles to the United States; that is, Japan agreed to export a fixed number
of automobiles annually.
A VER is called voluntary because the exporting country sets the limits; however, it is generally imposed under
the threat of stiffer quotas and tariffs being set by the importing country if a VER is not established.
Boycotts and Embargoes
• A government boycott is an absolute restriction against the purchase and importation of certain
goods and/or services from other countries.
• This restriction can even include travel bans, like the one currently in place for Chinese tourists;
the Beijing government refuses to designate Canada as an approved tourism destination.
• Officials in Beijing have not been forthcoming with explanations, even after three years of
complaints by and negotiations with their Canadian counterparts, but most believe it has to do with
Canada’s unrelenting criticism of Chinese human rights policies
• An embargo is a refusal to sell to a specific country. A public boycott can be either formal or
informal and may be government sponsored or sponsored by an industry. The United States uses
boycotts and embargoes against countries with which it has a dispute.
• For example, Cuba and Iran still have sanctions imposed by the United States. Among U.S.
policymakers, there is rising concern, however, that government- sponsored sanctions cause
unnecessary harm for both the United States and the country being boycotted without reaching the
desired results. It is not unusual for the citizens of a country to boycott goods of other countries at
the urging of their government or civic groups.
Monetary Barriers
A government can effectively regulate its international trade position by various
forms of exchange-control restrictions. A government may enact such restrictions to
preserve its balance-of-payments position or specifically for the advantage or
encouragement of particular industries.
• Two such barriers are:
1. blocked currency
2. government approval requirements for securing foreign exchange.
Blocked currency
• Blocked currency is used as a political weapon or as a response to difficult balance
of- payments situations. In effect, blockage cuts off all importing or all importing
above a certain level. Blockage is accomplished by refusing to allow an importer
to exchange its national currency for the sellers’ currency
• Government approval to secure foreign exchange is often used by countries experiencing
• severe shortages of foreign exchange. At one time or another, most Latin American and
• East European countries have required all foreign exchange transactions to be approved
• by a central minister. Thus, importers who want to buy a foreign good must apply for an
• exchange permit, that is, permission to exchange an amount of local currency for foreign
• currency.
• The exchange permit may also stipulate the rate of exchange, which can be an unfavorable
• rate depending on the desires of the government. In addition, the exchange
• permit may stipulate that the amount to be exchanged must be deposited in a local bank
• for a set period prior to the transfer of goods. For example, Brazil has at times required
• funds to be deposited 360 days prior to the import date. This requirement is extremely
• restrictive because funds are out of circulation and subject to the ravages of infl ation.
• Such policies cause major cash fl ow problems for the importer and greatly increase the
• price of imports. Clearly, these currency-exchange barriers constitute a major deterrent
• to trade.
Nontariff Barriers
• Standards.
• Nontariff barriers of this category include standards to protect health, safety, and
product quality.
• The standards are sometimes used in an unduly strict or discriminating way to
restrict trade, but the sheer volume of regulations in this category is a problem in
itself.
Antidumping Penalties.
• Historically, tariffs and nontariff trade barriers have impeded free trade, but over the years, they have been
eliminated or lowered through the efforts of the GATT and WTO.
• Antidumping laws were designed to prevent foreign producers from “predatory pricing,” a practice whereby a
foreign producer intentionally sells its products in the United States for less than the cost of production to
undermine the competition and take control of the market.
Domestic Subsidies and Economic Stimuli.