Trade Restrictions

7/28/2019 Trade Restrictions

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TARIFF AND NON-TARIFF BARRIERS

TRADE RESTRICTIONS



INTRODUCTION:

• DEFINITION:

A trade restriction is an artificial restriction on the trade of goods and/or services between two countries. It is the result of protectionism.

Or

A government imposed restriction on the free international exchange of goods or services.



REASONS FOR TRADE RESTRICTIONS:

• Free Trade is the pattern of imports and exports that would result in theabsence of trade barriers.

• Governments impose restrictions on free trade for:

ECONOMIC

MOTIVES



POLITICAL MOTIVES:

• . If jobs are "shipped overseas", then domesticunemployment increases.

PROTECT JOBS

• IMPORTS• EXPORTS

PRESERVE NATIONALSECURITY

• it makes no sense for one nation to allow free trade if other nations protect their own industries.

RESPOND TO UNFAIRTRADE

• Governments of the world’s largest nations may becomeinvolved in trade to gain influence over smaller nations

GAIN INFLUENCE

• Politicians bow to pressure from special interests, andprotect specific Industries

POLITICS

• "if they impose restrictions on us, we shouldimpose restrictions on them

RETALIATION



ECONOMIC MOTIVES:



CULTURAL MOTIVES:

• Cultures are slowly altered by exposure to the people and products of other countries.

• Unwanted cultural influence causes great distress and can forcegovernments to block imports.

• Many countries have laws that protect their media programming for culturalreasons (e.g., French ban on foreign-language words from business andgovernment communications, radio and TV. And Canadian requirement thatat least 35% of music played be by Canadian artists).

• The United States is seen as a threat to national cultures because of itsglobal strength in consumer goods entertainment and media. This is wherethe theory of international trade meets the reality of international businesstoday.



TYPES OF TRADE RESTRICTIONS



TYPES OF TRADE RESTRICTIONS:

Trade

restrictions

Tariff barriers

Non- tariff barriers



TARIFF BARRIERS:

• TARIFF:

A tariff is a tax on imported goods.

OR

A tariff is a government tax levied on a product as it enters or leaves a country

• This increases the cost of imports in the domestic market

• This will decrease imports and increase domestic production in a protected

industry

• Those who gain: domestic producers and the government (tax revenue).

• Those who lose: domestic consumers and foreign producers.



OBJECTIVE OF TARIFF BARRIERS:

• Tariffs, or customs duties, may be levied on imported goods by a governmenteither:

To raise revenue To protect domestic industries



PROS AND CONS OF TARIFF BARRIERS:



CLASSIFICATION OF TARIFF BARRIERS:

Tariff barriers

Transitduties

ImportdutiesExportduties



TRANSIT DUTIES:

• This type of duty is levied on commodities that originate in one

country, cross another, and are consigned to a third.

• As the name implies, transit duties are levied by the country

through which the goods pass.• The most direct and immediate effect of transit duties is to

reduce the amount of commodities traded internationally andraise their cost to the importing country.



EXPORT DUTIES:

• Export duties are levied on goods passing out of the country.

• The main function of export duties is to safeguard domesticsupplies rather than to raise revenue

• Export duties are now generally levied by raw-material-producing countries rather than by advanced industrialcountries.

• Commonly taxed exports include coffee, rubber, palm oil, and

various mineral products.



IMPORT DUTIES:

• Import duties are the most important and most common types of customduties that are levied on goods entering the country.

• They may be levied either for revenue or protection or both. An import tariff may be either :

Ad valorem



TYPES OF IMPORT DUTIES:

• Specific tariff:

A "specific tariff" is a levy of a given amount of money per unit of the import,such as $1.00 per yard or per pound. Specific tariffs are a fixed charge for each unit of good imported (e.g. $4 per barrel of oil).

• Ad valorem tariff:

An "ad valorem tariff," on the other hand, is calculated as a percentage of the value of the import.. (e.g. 30% on imported clothing).

• Compound tariff

A compound tariff is calculated partly as a percentage of the stated price of an imported product, and partly as a specific fee for each unit .



NON-TARIFF BARRIERS OF TRADE:



NON-TARIFF BARRIERS TO TRADE:

• Definition:

Non-tariff barriers to trade (NTBs) are trade barriers thatrestrict imports but are not in the usual form of a tariff.



TYPES OF NON-TARIFF BARRIERS:

• QUOTAS

• EMBARGOES

• LOCAL CONTENT REQUIREMENTS

• ADMINISTRATIVE DELAYS

• CURRENCY CONTROLS

• SUBSIDIES

• ANTIDUMPING DUTY OR COUNTERVAILING DUTY

• LICENSES

• STANDARDS

• ADMINISTRATIVE AND BUREAUCRATIC DELAYS AT THE ENTRANCE

• IMPORT DEPOSITS

• FOREIGN EXCHANGE RESTRICTIONS AND FOREIGN EXCHANGE CONTROLS



QUOTA:

• A quota is a restriction on the amount (measured in units or

weight) of a good that can enter or leave a country during a

certain period of time.

• Governments administer quota systems by granting quotalicenses to other nations’ companies or governments (import

quotas) and domestic producers (export quotas).



QUOTAS:

• Reason for Import Quotas

1. Protects domestic producers by placing a limit on the amount of goods entering thecountry. This helps domestic producers maintain market shares and prices byretraining competition.

2. Domestic producers win because of market protection, but consumers lose becauseof higher prices and limited selection.

• Reasons for Export Quotas

1. A country may wish to maintain supplies in the home market. This is common for countries that export natural resources that are needed in the domestic market.

2. A country may restrict supply on world markets to increase the international price(e.g., The Organization of Petroleum Exporting Countries, OPEC).



QUOTAS:

• Voluntary export restraint (VER)

A voluntary export restraint (VER) is a unique version of export quota that a nation imposes on its exports, usually at the

request of an importing nation. Normally a response to threat of an import quota or total ban on the product by an importingnation.

• Tariff-Quotas:

A tariff-quota is a lower tariff rate for a certain quantity of imports and a higher rate for quantities that exceed the quota(e.g., agricultural trade).



EMBARGOES:

• An embargo is a complete ban on trade (imports and exports) inone or more products with a particular country.

• It may be placed on one or a few goods or completely ban tradein all goods.

• It is the most restrictive nontariff trade barrier and often haspolitical goals..



LOCAL CONTENT REQUIREMENT

• Local content requirements are laws stipulating that producersin the domestic market must supply a specified amount of a

good or service.

• Designed to force companies from other nations to employ localresources in their production processes—particularly labor.



ADMINISTRATIVE DELAYS:

• Administrative delays are regulatory controls or bureaucraticrules designed to impair the rapid flow of imports into a country.

• Can include government actions such as requiring internationalair carriers to land at inconvenient airports, requiring inspectionsthat damage the product, understaffing customs offices to causedelays, and requiring special licenses that take time to obtain.

• Objective is protectionism



CURRENCY CONTROLS

• Currency controls are restrictions on the convertibility of acurrency into other currencies.

•

Governments reduce imports by stipulating an exchange ratethat is unfavorable to potential importers.

• Also can give exporters favorable rates to encourage exports .



SUBSIDY

• A subsidy is a payment that the government makes to domesticproducers of products that are produced for export.

• A subsidy basically lowers the cost of production for domesticproducers, making it more profitable for them to sell their products relative to foreign competition. Subsidies ardsometimes referred to as negative taxes.



TYPES OF SUBSIDIES

• Prohibited (“Red Light”): Subsidies that are contingent inlaw or in fact on exporting or on using domestic rather thanimported inputs (local content).

Red light

• Non- Actionable (“Green Light”): Assistance for research,spending on education, assistance for promotingdevelopment of poor regions, assistance for adaptingexisting facilities to comply with environmental regulations.

Green light

• Actionable (“Yellow Light”): Subsidies that are specific andinjure the domestic industry of another country.Yellow light



ANTIDUMPING DUTY

• Dumping is when the normal value of a good exceeds its export price. Governmentsare concerned that foreign companies will dump their products into the country at theexpense of domestic companies.

• Some foreign firms, for example, operate in a protected market at home. As a result,they may be able to cover their fixed costs at home. When selling abroad, then, all

they have to do to make money is price their products above variable costs. Thisgives such firms a price advantage over domestic firms, who must cover their fixedcosts.

• Antidumping or countervailing duties that do not exceed the dumping margin or subsidy amount, are permitted under the WTO rules.

• An anti-dumping law is the other side of a subsidy. A country pays a subsidy so itsproducers can export to the world at a lower cost.



LICENSES

• The license system requires that a state (through specially authorized office)issues permits for foreign trade transactions of import and exportcommodities included in the lists of licensed merchandises.

• Product licensing can take many forms and procedures. The main types of

licenses are1. general license that permits unrestricted importation or exportation of goods

included in the lists for a certain period of time;

2. and one-time license for a certain product importer (exporter) to import (or export). One-time license indicates a quantity of goods, its cost, its country of

origin (or destination), and in some cases also customs point through whichimport (or export) of goods should be carried out.



STANDARDS

• Standards take a special place among non-tariff barriers.

• Countries usually impose standards on classification, labelingand testing of products in order to be able to sell domesticproducts, but also to block sales of products of foreignmanufacture.

• These standards are sometimes entered under the pretext of protecting the safety and health of local populations.



ADMINISTRATIVE AND BUREAUCRATIC DELAYS

• Among the methods of non-tariff regulation should be mentionedadministrative and bureaucratic delays at the entrance, whichincrease uncertainty and the cost of maintaining inventory.



IMPORT DEPOSITS

• Import deposits is a form of deposit, which the importer must pay the bank for a definite period of time (non-interest bearing deposit) in an amount equal to all or

part of the cost of imported goods.



FOREIGN EXCHANGE RESTRICTIONS AND FOREIGN EXCHANGE CONTROLS

• Foreign exchange restrictions constitute the regulation of transactions of residents and nonresidents with currency andother currency values.

• Also an important part of the mechanism of control of foreigneconomic activity is the establishment of the national currencyagainst foreign currencies.



TRADE BLOCS



REGIONAL TRADE BLOCS

• Regional trade blocks are associations of nations at a

governmental level to promote trade within the block and defend

its members against global competition.

• Defense against global competition is obtained throughestablished tariffs on goods produced by member states, importquotas, government subsidies, bureaucratic import processes,and technical and other non-tariff barriers.

• Since trade is not an isolated activity, member states withinregional blocks also cooperate in economic, political, security,climatic, and other issues affecting the region.



MAJOR TRADE BLOCS

TradeBlocs

ASEAN

MERCOSUR

NAFTA

EU



ASEAN (ASOCIATION OF SOUTH EAST ASIANNATIONS)

• Established on August 8, 1967, in Bangkok/Thailand.

• Member States: Brunei Darussalam, Cambodia, Indonesia,Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand,and Vietnam.

• Goals: (1) Accelerate economic growth, social progress andcultural development in the region and (2) Promote regionalpeace and stability and adhere to United Nations Charter.



EU (EUROPEAN UNION)

• Founded in 1951 by six neighboring states as the European Coal and SteelCommunity (ECSC).

• Over time evolved into the European Economic Community, then theEuropean Community and, in 1992, was finally transformed into the

European Union.• Regional block with the largest number of members states (27). These

include Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark,Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia,Lithuania, Luxembourg, Malta, Poland, Portugal, Romania, Slovakia,

Slovenia, Spain, Sweden, The Netherlands, and the United Kingdom.• Goals: Evolved from a regional free-trade association of states into a union

of political, economic and executiveconnections.



MERCOSUR (MERCADO COMUN DEL CONO SUL-SOUTHERN CONE COMMON MARKET)

• Established on 26 March 1991 with the Treaty of Assunción.

• Full members include Argentina, Brazil, Paraguay, Uruguay, and Venezuela. Associatemembers include Bolivia, Chile, Colombia, Ecuador, and Peru. Associate

members haveaccess to preferential trade but not to tariff benefits of full members. Mexico,interested in becoming a member of the region, has an observer status.

• Goals: Integration of member states for acceleration of sustained economicdevelopment based on social justice, environmental protection, and

combating poverty.



NAFTA (NORTH AMERICAN FREE TRADE AGREEMENT)

• Members: Canada, Mexico, and the United States of America.

• Goals: Eliminate trade barriers among member states, promote

conditions for free trade,increase investment opportunities, and protect intellectualproperty rights.



GRATITUDE!!

Trade Restrictions

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