Non-Tariff Barriers Meaning
Non-Tariff Barriers (NTBs) are the restrictions that resulted from prescription, conditions, or certain market obligations that make import or export of products difficult and less profitable. It also includes the improper application of measures such as Price-Control Measures, Non-Automatic Licensing, Quotas, Prohibitions, and Quantity-Control Measures and other barriers to trade.
Non-Tariff Barriers are mainly the protective measures taken by the government and authorities in the form of laws, regulations, policies to put conditions and prohibitions on trade in order to protect the interest of domestic industries.
Types of Non-Tariff Barriers
Non-Tariff Barriers are classified into two types:
- Technical Measures
- Non-Technical Measures.
#1 – Technical Measures
A technical regulation lays down product characteristics and specifications or their related processes and production methodology, along with the applicable administrative provisions, with which conformity is mandatory. It also includes terminology, symbols, packaging, marking or labeling requirements as they apply to a product, process or production method.
An audit procedureAudit ProcedureAudit Procedures are steps performed by auditors to get evidence regarding the quality of the financial information provided by the management of a company. It enables them to form an opinion on financial statements and ensure whether they reflect the true and fair view or not. is any procedure is defined that is used, directly or indirectly, to determine that relevant requirements in technical regulations or standards are fulfilled; it includes procedures for sampling, testing, and inspection; verification, evaluation and assurance of fulfillment of all the obligations; registration, license and approval as well as their combinations.
#2 – Non-Technical Measures
Some of the non-technical measures used as non-tariff barriers are:
#1 – Anti-Dumping Measures
Some products are dumped and cause damage to the domestic industries producing similar products, or to third countries’ exports of that product. Dumping means when a product is introduced into the market of an importing nation at less than its normal price, generally where the export price of the product is less than the price of the product in the normal course of trade. Anti-dumping measures may be taken in the form of anti-dumping dutiesAnti-dumping DutiesAnti -Dumping Duty is a strategy adopted by many countries to safeguard the local businesses by levying a protectionist tariff on importing foreign goods that are believed to be dumped or exported to their nation at a price lower than fair market value..
#2 – Import-Licensing
The license system requires that the authority of particular nation issues permits for import and export of commodities included in the lists of licensed merchandise. The main types of licenses are a general license that permits import and export of goods included in the lists for a limited period of time, and another one is a one-time license and it is for a certain products on which quantity of goods, its price, its country of origin and in some cases also trade or seller points through which import or export of product will be carried out.
#3 – Quotas
Restriction on importation of certain products for which the upper limit of the quantity is defined or the price of the import is defined. Under this, no trade is authorized above the defined quantity limit or price. Quotas can be Permanent, Seasonal or temporary in nature.
#4 – Tariff-Rate Quotas
Under this tariff of the product is linked to the volume or quantity of trade. The lower rates are applied up to a certain value or volume of imports, and the higher rates are charged on imports which exceed the pre-defined limits.
#5 – Custom Surcharges
An ad hoc tax levied solely on imported products in addition to customs tariffs to raise fiscal revenues or to protect domestic industries.
#6 – Finance Measures
Finance measures are used to regulate the access to and cost of foreign exchange for imports and define the terms of payment. Finance measures are used by the government to increase import costs. Some of the financial measures are advance payment requirements, Letter of CreditsLetter Of CreditsA letter of credit is a payment mechanism in which the issuer's bank gives an economic guarantee to the exporter for the agreed payment amount if the buyer defaults. In international trade, buyers employ LC to reduce credit risk., Advance payments of taxes and duties, Security deposits, etc.
#7 – Local Content Measures
Some Countries in order to protect local industries make policy to purchase or use certain minimum levels or types of domestically produced or sourced products, or restricting the purchase or use of imported products based on exports of local products. For example, some countries come up with the policy like, In the production of heavy machinery, locally produced products must account for at least 40% of the value of the material used.
#8 – Intellectual Property
Intellectual property legislation covers patents, trademarks, industrial designs, layout designs of integrated circuits, copyright, geographical indications and trade secrets. Intellectual Property obligations will ensure the authenticity of the product hence the price of the product can not be manipulated.
Reasons Behind Imposition of Non-Tariff Barriers
#1 – Protecting Domestic Interest
Wages in Developed countries are higher than wages in a developing country. So for some products, it would not be possible for domestic industries to match the price of the product exported from other countries and that will make them uncompetitive in the market.
For example, the US has taken price control measures making imported sugar more expensive than domestically produced sugar, which will give domestic product upper hand and thus the people in the US are going to buy US-produced sugar, which keeps money in the pockets of local producers and farmers.
#2 – Ensure Better Quality
Measures that are applied to protect humans and animal life from health risks arising from additives, contaminants, toxins or disease-causing organisms in the imported consumables; to protect human being from disease-causing plant- or animals; and similarly protect animals or plants from getting affected by pests, diseases, or disease-causing organisms; to prevent damage to a country from spread of pests, and to protect biodiversity from foreign weeds and diseases. These include measures taken to protect the health of marine life and wildlife, as well as of forests and vegetation.
#3 – To Maintain Balance of Trade
Upper limits are set for certain materials above which quantity of import is strictly restricted. The government also come up with policies to decide the import from a country according to the quantity of export to that country and this ensures the proper balance of tradeBalance Of TradeThe balance of trade (BOT) is the country’s exports minus its imports. BOT is one of the significant components for any current economic asset as it measures a country’s net income earned on global investments..
Disadvantages Due to Non-Tariff Barriers
- It discourages competition for domestic firms and industries to grow at the initial phase, but in the long term, it will hinder their future growth.
- The use of Non-Trade Barrier can result in the trade war which will impact local trade and economics.
Non-Tariff measures can be referred to as a new method of protection of trade-related interest for the nation, in which the government regulates international tradeInternational TradeThe trading or exchange of products and/or services across international borders is referred to as international trade. It frequently includes other risk factors such as exchange rate, government policies, economy, laws of the other nation, judicial system, and financial markets that impact trade between the two. and price of the product by using various measures that safeguard their domestic interest without impacting the tariff directly. Non-Tariff measures have replaced the tariff barriers which was an old form of protection.
This has been a guide to non-tariff barriers and its meaning. Here we discuss reasons and types (Technical Measures & Non-Technical Measures) of non-tariff barriers. You may learn more about macroeconomics from the following articles –