Definition
A non-tariff barrier is a form of trade restriction that does not involve a direct tax or charge on imported or exported goods. Instead, it uses other regulatory or procedural techniques like quotas, import licensing rules, or complex customs procedures to limit the volume or value of imports. These barriers are often aimed at protecting domestic industries by making foreign goods less competitive.
Phonetic
The phonetics of the keyword “Nontariff Barrier” is: Non-tariff: /nɒn ‘tærɪf/ Barrier: /bə’riːr/
Key Takeaways
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- Nontariff Barriers (NTBs) refer to restrictions that result from prohibitions, conditions, or specific market requirements that make importation or exportation of products difficult and/or costly.
- NTBs also include unjustified and/or improper application of Non-Tariff Measures (NTMs) such as Sanitary and Phyto-Sanitary (SPS) measures and Other Technical Barriers to Trade (TBT).
- NTBs can have a significant and varied impact on trade, often more so than traditional tariff barriers. They can affect the cost and feasibility of trade, manipulate trade flows and patterns, and in some cases, may be used as a form of protectionism to shield domestic industries from international competition.
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Importance
Nontariff barriers are important in the business and finance world because they significantly impact the free flow of goods and services between countries. These measures, which include regulations, quotas, or customs protocols rather than actual tariffs, can manipulate the trade to protect domestic industries, control the volume of incoming products, or pressure political and economic negotiations. They can directly influence the price and availability of foreign products, thereby playing a pivotal role in international trade policies and relations. Understanding these barriers is crucial for companies operating in, or seeking to enter, global markets. They must strategically navigate their business operations and decisions around these obstacles to ensure profitability and legal compliance.
Explanation
Nontariff Barriers (NTBs) are primarily used by governments to regulate or restrict international trade, albeit indirectly, without resorting to explicit taxation on imports or exports. This is often driven by a host of potential reasons including protecting domestic businesses and industries from foreign competition, preserving national security, safeguarding consumers from hazardous products, or supporting environmental measures and labor rights. Nontariff barriers often play an instrumental role in shaping the economics of global trade by altering the imports or exports of a country, thereby influencing the balance of trade.NTBs can encompass a myriad of measures like import bans, quotas, licenses, stringent quality standards, and complex customs procedures. Let’s take the example of trade quotas. A country may impose strict limits on the quantity of a certain good that can be imported within a specific timeframe. By manipulating the supply, these quotas can drive up the prices of imported goods, giving domestic producers a competitive edge. Similarly, imposing stringent quality standards or health and safety regulations can also serve as NTBs, as they may be burdensome for foreign producers to comply with, thereby impeding their ability to compete effectively in the national marketplace.
Examples
1. Import Quotas: An import quota is a type of non-tariff barrier where the authorities limit the quantity of certain goods that can be imported during a specific period. For instance, the United States has quotas on the import of certain types of textiles and clothing. Where set quotas limit the quantity of imports, they protect domestic industries from foreign competition.2. Regulatory Standards: Governments can set high standards for foreign goods to protect local industries. An example of this could be Japan’s strict quality controls and standards for imported agricultural products. These strict and often intricate specifications can be difficult for foreign competitors to meet, therefore acting as a non-tariff barrier.3. Licensing Requirements: The government may issue licenses for importing certain goods, but not others. In a sense, they are selectively “choosing” what goods can be imported. For instance, a particular country might allow imports of a particular type of food only if a company has a specific license, which might be hard to obtain, thus creating a non-tariff barrier.
Frequently Asked Questions(FAQ)
What is a Nontariff Barrier?
A Nontariff Barrier (NTB) is a way to restrict trade using trade barriers in a form other than tariffs. These include quotas, embargoes, sanctions, levies and other restrictions.
What are some examples of Nontariff Barriers?
Examples of NTBs include import quotas, special licenses, unreasonable standards for the quality of goods, bureaucratic delays at customs, export restrictions, limiting the activities of state trading, and discriminatory procurement policies.
How does a Nontariff Barrier impact international trade?
Nontariff Barriers can have serious effects on the volume, direction, and composition of international trade. They could potentially decrease the volume of trade, induce inefficiency in resource allocation and limit access to necessary commodities.
What is the difference between a tariff and a Nontariff Barrier?
A tariff is a tax imposed on the import or export of goods. A Nontariff Barrier, on the other hand, covers a wide range of policy measures other than tariffs that can potentially have an economic effect on international trade in goods.
Why do countries use Nontariff Barriers?
Countries may use Nontariff Barriers to protect domestic industries from foreign competition, to protect consumers from dangerous or undesirable products, or to raise revenue.
Are Nontariff Barriers legal?
Legality of Nontariff Barriers can be complex and depends on certain factors. While many are legal and employed under the regulations of the World Trade Organization (WTO), there are some cases where they may not be.
How can Nontariff Barriers be reduced?
Reduction of NTBs often involves negotiating and agreeing upon international trade agreements, such as those negotiated through the World Trade Organization (WTO) or bilateral trade agreements between individual countries.
Related Finance Terms
- Quotas
- Import Licenses
- Customs Delay
- Technical Barriers
- Sanitary and Phytosanitary Standards
