Navigating the intricacies of international commerce is a complex task for retail businesses. One of the most crucial but often overlooked aspects is non-tariff barriers. They act as filters that can influence which companies succeed and which struggle when expanding beyond their home countries.
Non-tariff barriers can create supply chain bottlenecks and restrict market access, changing the competitive environment. Learn about the intricate world of non-tariff barriers, plus the challenges and opportunities they present for businesses serving customers worldwide.
What are non-tariff barriers?
Non-tariff barriers are trade restrictionscountries impose on imported goods that aren’t in the form of a tariff (a tax on imports). These include quotas, sanctions, licensing requirements, quality standards, and embargoes.
Originating from trade protectionism and economic policies designed to control the flow of goods across borders, these barriers have been used since the early days of international trade.
They can be more complex and less transparent than tariffs, making them a critical consideration for businesses seeking to expand internationally.
Types of non-tariff barriers
In international ecommerce, non-tariff barriers have become increasingly significant, often shaping trade volumes and market dynamics as much as traditional tariff barriers. Governments can use non-tariff barriers to regulate international trade or protect domestic industries. Here are different types of non-tariff barriers to consider:
Licenses, particularly import licenses, restrict trade by requiring permission for the import of certain goods. For example, several countries require a license for importing pharmaceuticals to ensure they meet public health standards. Bodies like the World Trade Organization (WTO) oversee such measures to prevent discrimination.
Quotas set quantitative restrictions on the flow of imported or exported goods. An importing country, for instance, may limit the amount of agricultural produce it imports from other countries to protect its domestic industries. These quotas can distort trade and are generally scrutinized under WTO agreements.
Embargoes are extreme measures taken by one country against another that completely halt trade with another country—usually for political or security reasons. Embargoes can significantly impact economic growth.
Sanctions are less comprehensive restrictions aimed at achieving specific policy objectives. These can range from foreign exchange restrictions to targeted measures against specific sectors. For instance, sanctions can restrict the export of high-tech equipment to countries with questionable human rights records as an economic strategy to influence political actions.
Quality standards, often defined in various regional contexts like EU regulations, aim to protect public health or ensure consumer safety. For example, imported toys have technical standards to ensure they are free from hazardous materials. Though they serve a public health and safety objective, these standards can create a regulatory divergence between countries.
Voluntary export restrictions
Voluntary export restrictions are agreements—often outside formal trade deals—between an exporting country and an importing country to limit the number of exports. For instance, governing bodies may encourage such voluntary restraints to ease trade tensions among its members.
Subsidies are financial aid that governments provide to domestic industries to make them more competitive against foreign products. For example, a country may subsidize its technology sector to help it keep up with foreign competition. While subsidies can bolster economic growth, they may also conflict with free trade agreements and distort tradecosts.
Benefits of non-tariff barriers
- Protecting domestic industries
- Regulation and quality control
- Economic policy flexibility
- Strategic trade facilitation
- Influence over foreign markets
- Diversification of the economy
Non-tariff barriers are a critical part of foreign trade regulation and can offer several benefits—particularly for exporting countries and their domestic markets. While often viewed as restrictions, they also serve as strategic tools for achieving specific policy objectives. Understanding these benefits can provide a new perspective of their role in international trade:
Protecting domestic industries
Non-tariff barriers such as import quotas and technical barriers can protect weak national industries from foreign competition. Limiting the number of goods entering from foreign markets gives these industries a better chance to grow and compete globally. This is especially the case for economies looking to nurture and develop young industries.
Regulation and quality control
Introducing non-tariff barriers like technical standards ensures that imported products meet specific quality criteria. This aims to protect consumers and uphold domestic market standards, fostering trust in foreign trade. Over time, consistently high standards can become a selling point for a country’s exported goods.
Economic policy flexibility
Such restrictions give governments more leeway in managing their economic policies. By using tools like export subsidies and import deposits, states can better adapt to the shifting landscapes of the global economy. This flexibility can be crucial when responding to economic crises or negotiating trade deals.
Strategic trade facilitation
License systems and customs procedures can facilitate trade by making it more organized and efficient. This benefits the domestic market and establishes a standard that can be advantageous in foreign tradeagreements. Effective trade facilitation can also reduce costs for exporters and importers, boosting overall trade volumes.
Influence over foreign markets
Countries can wield influence over foreign markets by imposing non-tariff barriers like import bans. This can be a strategic move to negotiate better trade terms or to serve specific interest groups domestically. It also provides a lever for diplomatic relations, enabling a country to exert soft power through trade policies.
Diversification of the economy
By supporting weak industries through non-tariff barriers such as subsidies, countries can diversify their local economies. In industrialized countries, this diversification can lead to the development of new sectors, adding resilience to the economy. Economic diversification also offers long-term benefits, including better protection against market volatility and economic downturns.
Drawbacks of non-tariff barriers
- Increased costs for consumers
- Inefficiency in resource allocation
- Diplomatic strains
- Complexity in trade
- Encourages smuggling
- Undermines free trade agreements
While non-tariff barriers are useful tools for regulating trade and supporting domestic industries, they have some disadvantages. These drawbacks can impact both the issuing country and its trading partners, leading to inefficiencies and tensions in international trade relations.
Increased costs for consumers
Non-tariff barriers like license systems can lead to higher prices for imported goods. These added costs are often passed onto the consumer. As a result, people may have less disposable income for other goods and services.
Inefficiency in resource allocation
Trade barriers can inadvertently support weak industries at the expense of more efficient sectors. When resources are directed toward industries that are not competitive, it can result in an inefficient allocation of national resources. This may hamper economic growth and productivity in the long run.
Legal barriers and trade restrictions can lead to diplomatic tensions between countries. When one nation imposes barriers, its trading partners may retaliate with their own measures. This escalation can deteriorate diplomatic relations and even lead to trade wars.
Complexity in trade
Implementing a license system or other forms of non-tariff barriers increases the complexity of engaging in foreign trade. Exporters and importers must navigate a maze of regulations, procedures, and paperwork, adding to operational costs. This can impact small and medium businesses who do international shipping.
Trade restrictions can inadvertently encourage the illegal trade of restricted or highly taxed goods. As formal routes become more cumbersome or expensive due to non-tariff barriers, smuggling can become a more attractive option. This undermines national and ecommerce laws and results in a loss of revenue for governments as well as for companies doing legitimate business.
Undermines free trade agreements
Non-tariff barriers can run up against the principles of free trade agreements. While a country may lower traditional tariffs as part of an agreement, the introduction of non-tariff barriers can cancel out the benefits. This not only limits market access but also erodes trust among trading partners.
Non-tariff barriers FAQ
What is the purpose of a non-tariff barrier?
The primary purpose of a non-tariff barrier is to regulate international trade by imposing restrictions or requirements on imports or exports. These barriers can target specific countries, sectors, or commodities to protect domestic products or achieve other policy objectives.
What are the most common non-tariff barriers?
The most common non-tariff barriers include quotas, licenses, and quality standards.
How might non-tariff barriers impact my business?
Non-tariff barriers can affect your business by limiting market access or increasing costs. These barriers can be in effect for a definite period and may target specific countries or sectors, impacting your supply chain and competitive dynamics.