Barriers to trade

Barriers to trade refer to any regulation or policy that restricts international trade, especially tariffs, quotas, licenses, etc., according to European Commission.

The beginning and idea of international trade barriers

The single most fundamental understanding in international economics is that trade has benefits; when countries sell goods and services to one another, there is always a mutual advantage.

Free trade increases global output and benefits all nations. However, practically all states restrict the free flow of international trade in some way with different trade barriers. Since these limits and regulations apply to the trade or commerce of the nation, they are commonly referred to as trade or commercial policies.

The history of trade barriers goes back to the 16th of century, since the emergence of modern nation-states when governments have been concerned about the impact of international competition on the prosperity of domestic industries. They have either attempted to shield domestic industries from foreign competition by limiting imports or to aid them in international competition by subsidizing exports.

Barriers to trade

There are various types of barriers to trade. They are divided into two types :

• Tariffs
• Non-tariff barriers.

Tariffs as trade barriers

Historically, the tariff has been the most important form of trade restriction. It is a tax or duty imposed on a good as it crosses a national border. A tariff on an imported good is an import tariff, while a tariff on an exported good is an export tariff. Import duties are more significant than export duties.

The U.S. Constitution prohibits export tariffs, but developing nations frequently impose them on traditional exports (such as Ghana on its cocoa and Brazil on its coffee) to increase prices and profits. Due to the ease of collection, developing nations rely primarily on export levies to increase their revenue.

In contrast, industrialized nations inevitably implement tariffs or other trade barriers to safeguard some (often labor-intensive) industries while mainly relying on income taxes to generate money.

Tariffs could be:

• Ad valorem
• Specific
• Compound.

The ad valorem tariff is a constant proportion of the traded commodity's value (percentage of value). The specific tariff is expressed as a fixed amount per unit of the traded good. A compound tariff combines an ad valorem tariff with a particular tariff.

Tariffs raise the government's revenue and the cost of imported goods, giving domestically produced goods a pricing advantage.

Non-tariff trade barriers

Although tariffs have historically been the most effective form of trade restriction, there are numerous other sorts, including import quotas, voluntary export restrictions, and anti-dumping actions.

• Import Quotas

After the postwar era, the significance of non-tariff trade obstacles expanded dramatically. The most significant non-tariff trade barrier is a quota. It is a quantitative restriction on the quantity of a product that can be imported or exported.

• Anti Dumping Laws

In international trade terminology, "dumping" refers to price discrimination in favor of exports. Dumping could occur between several importing countries and between various buyers. WTO defines dumping in Article VI of GATT 1994; the agreement on implementation of Article VI of GATT, often known as the Anti-dumping agreement.

• Voluntary Export Restraints

Voluntary Export Restraints refer to the situation in which an importing nation compels another nation to "voluntarily" reduce its exports of a commodity, under the prospect of increased global trade restrictions, when these exports threaten an entire domestic industry.

• Technical, Administrative, and Other Regulations

In addition, several technical, administrative, and other regulations hinder international trade. These include safety restrictions for automobiles and electrical equipment, health laws for the sanitary manufacturing and packing of imported foods, licensing and origin and content labeling requirements.

World Trade Organization

The World Trade Organization is where member states attempt to resolve their trade disputes with one another. The WTO agreements are negotiated and signed by most of the world's trade states. In certain instances, the World Trade Organization supports the maintenance of trade barriers, for example, to protect consumers, prevent the spread of illness, or safeguard the environment.

The WTO was established on January 1, 1995, but its trading system is fifty years older. Since 1948, the General Agreement on Tariffs and Trade (GATT) has established the system's guidelines. The 50th anniversary of the system was commemorated at the second WTO ministerial meeting, which was held in Geneva in May 1998.

Footnotes

Barriers to trade — recommended articles

Non-tariff barriers — Carbon emission trading — Free trade zone — Price control — Taxation principles — Agribusiness — Export incentives — Protectionist policy — Tax haven

References

• Trade barrier | Access2Markets (2022), European Commission.
• Trade barriers | Access2Markets (2022), European Commission.
• Ikhenei, A. (2014), Dissertation: Determining Whether Free Trade or Protectionism Serves as the Most Effective Trade Policy for the Libyan Poultry Meat Sector.
• Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2018), International Trade: Theory & Policy. 11th Edition. Pearson Education.
• Salvatore, D. (2013), International Economics. Eleventh Edition. Wiley.
• General Agreement on Tariffs and Trade 1994 (GATT 1994), Article VI. (2022), World Trade Organization.
• Understanding the WTO - what is the World Trade Organization? (2022), World Trade Organization.

Author: Annija Petersone