Trade Barriers in International Business

Barrier in international business notes

The two major barriers to international trade are tariff barriers, or taxes on imported goods; and nontariff barriers. The nontariff barriers to trade include import quotas, embargoes, buy-national regulations, and exchange controls.

(A):  TARIFF BARRIER:

• A tariff is a tax it adds to the cost of imported goods and one of several trade policies that a country can enact

• A tariff is paid to the customs authority of the country imposing the tariff.

Reasons for imposing tariff

Tariffs are often created to protect infant industries and developing economies. Here are four of the top reasons tariff  are used:

Protecting domestic employment:

The possibility of increased competition from imported goods can threaten domestic industries. These domestic company may fire workers shift production abroad to cut costs, which mean higher unemployment and a less happy electorate. the government  put the tariff on the same product to protect the domestic unemployment

Protecting consumer:

The government levy tariff on the product that it feels could endanger its population. For example, India may place a tariff on imported beef from the united states if it thinks that the goods could be tainted with a disease.

Infant industries:

Tariffs are often created to protect infant industries. The government of a developing economy will levy tariffs on imported goods in industries in which it wants to foster growth.

National security:

A barrier is employed  by developed country to protect certain industries that are deemed important, such as those supporting national security. Defense industries are often viewed as vital to state interests, and often enjoy a significant level of protection.

Type of tariff or trade barrier

1.     Specific tariff:- is the fixed amount of money per physical unit or according to the weight or measurement of the commodity imported or exported. For example, a country could levy a $10 tariff on the per piece of the washing machine.

2.   Ad valorem tariffs: according to this, the tariff as put on the product on the basis of the “value “ of the product. And this type of tariff is levied on a good based on the percentage of that good’s value. An example of ad valorem would be a 20% tariff levied by England on Indians automobiles.

3.   Licenses: a license is granted to a business by the government and allows the business to import certain types of goods into the country.

4.   Import quota:- is a restriction placed on the amount of a particular good that can be imported. This sort of barrier is often associated with the issuance of the license. For example, a country may place a quota on the volume of imported citrus that is allowed.

5.    Voluntary export restraints (VER): A voluntary export restraint (VER) or voluntary export the restriction is a government-imposed limit on the quantity of some category of goods that can be exported to a specified country during a specified period of time.

6.   Local content requirement: instead of placing a quota on the number of goods that can be imported, the government can require that a certain percentage of goods be made domestically. The restriction can be a percentage of the good itself or a percentage of the value of the good. For example, a restriction on the import of phones might say that 40% of the pieces used to make the computer are made domestically.

 (B):  NON-TARIFF BARRIERS

A non-tariff barrier is a way to restrict trade the barrier in a form other than a tariff

Type of non-tariff barrier

1. Licenses:-  country may use license to limit imported goods to specific businesses, if a business is granted a trade license, it is permitted to import goods that would otherwise be restricted for trade in the country.

2. Quotas:  With quotas, countries agree on specified limits for goods and services allowed for importation to a country. In most cases, there are no restrictions on importing these goods and services until the country reaches its quota.

3. Embargoes:- Embargoes restrict the trade of specified goods and services. An embargo measure a government will use for specific political or economic circumstances.

4. Sanction;- country impose sanctions on other countries to limit their trade activity. Sanctions can include increased administrative actions or additional customs and trade procedures that slow or limit a country’s ability to trade.

5. Voluntary export restriction:- exporting countries sometimes use voluntary export restraints. Voluntary export restraints set limits on the number of goods and services a country will export to specified countries. These restraints are typically based on availability and political alliances.