TARIFF AND NON TARIFF BARRIERS

A PROJECT In the subject of Economics of Global Trade & Finance

SUBMITTED TO UNIVERSITY OF MUMBAI FOR SEMESTER I OF MASTER OF COMMERCE BY KSHITIJ TRIVEDI Roll No. 13 Specialization: Business Management UNDER THE GUIDANCE OF PROF. K VENKATESWARLU

YEAR - 2013-14
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DECLARATION BY THE STUDENT

I, Shri Kshitij Trivedi, student of M. Com. Part-I, Roll Number 13, at the Department of Commerce, University of Mumbai, do hereby declare that the project titled, TARIFF AND NON TARIFF BARRIERS submitted by me in the subject of Economics of Global Trade & Finance for Semester-I during the academic year 2013-14, is based on actual work carried out by me under the guidance and supervision of Prof. K. Venkateswarlu.

I further state that this work is original and not submitted anywhere else for any other examination.

Date: 8th October 2013 Mumbai Signature of Student

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EVALUATION CERTIFICATE

This is to certify that the undersigned have assessed and evaluated the project on TARIFF AND NON TARIFF BARRIERS in the subject of Economics of Global Trade & Finance submitted by Shri Kshitij Trivedi, student of M. Com. Part-I at the Department of Commerce, University of Mumbai for Semester-I during the academic year 2013-14.

This project is original to the best of our knowledge and has been accepted for Internal Assessment.

Internal Examiner

External Examiner

Director Dr V. Deolankar

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University of Mumbai Department of Commerce Internal Assessment: Subject: Economics of Global Trade & Finance

Name of the Student

Class

Branch

Roll Number

First name Fathers Trivedi Surname

: Kshitij Name: Kulin B. M. Part-I : Trivedi Com Business Management 13

Topic for the Project: TARIFF AND NON TARIFF BARRIERS

Marks Awarded DOCUMENTATION Internal Examiner (Out of 10 Marks) External Examiner (Out of 10 Marks) Presentation (Out of 10 Marks) Viva and Interaction (Out of 10 Marks)

Signature

TOTAL MARKS (Out of 40)

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CONTENT

SR. NO. 1

PARTICULARS CHAPTER 1: INTRODUCTION Background Issues Objective Of The Study

PAGE NO. 6 6 7 7 8 8 11 13 15 17 21 27 41 41 42

CHAPTER 2 INTRODUCTION TO TRADE BARRIERS What Are Tariff Barriers? Impact Of Tariffs What Are Non Tariff Barriers? Types Of Non Tariff Barriers Impact Of Quotas Why Are Tariff And Trade Barriers Used?

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CHAPTER 3 ANALYSIS CHAPTER 4 CONCLUSION Suggestions Bibliography

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CHAPTER 1: INTRODUCTION This report examines tariff and non-tariff policies that restrict trade between countries in agricultural commodities. Many of these policies are now subject to important disciplines under the 1994 GATT agreement that is administered by the World Trade Organization (WTO). The paper is organized as follows. First, tariffs, import quotas, and tariff rate quotas are discussed. Then, a series of non-tariff barriers to trade are examined, including voluntary export restraints, technical barriers to trade, domestic content regulations, import licensing, the operations of import State Trading Enterprises (STEs), and exchange rate management policies. Finally, the precautionary principle, an environment-related rationale for trade restrictions, and sanitary and phytosanitary barriers to trade are discussed. BACKGROUND Tariffs and Tariff Rate Quotas Tariffs, which are taxes on imports of commodities into a country or region, are among the oldest forms of government intervention in economic activity. They are implemented for two clear economic purposes. First, they provide revenue for the government. Second, they improve economic returns to firms and suppliers of resources to domestic industry that face competition from foreign imports. Tariffs are widely used to protect domestic producers incomes from foreign competition. This protection comes at an economic cost to domestic consumers who pay higher prices for import competing goods, and to the economy as a whole through the inefficient allocation of resources to the import competing domestic industry. Therefore, since 1948, when average tariffs on manufactured goods exceeded 30 percent in most developed economies, those economies have sought to reduce tariffs on manufactured goods through several rounds of negotiations under the General Agreement on Tariffs Trade (GATT). Only in the most recent Uruguay Round of negotiations were trade and tariff restrictions in agriculture addressed. In the past, and even under GATT, tariffs levied on some agricultural commodities by some countries have been very large. When coupled with other barriers to trade they have often constituted formidable barriers to market access from foreign producers. In fact, tariffs that are set high enough can block all trade and act just like import bans. A tariff-rate quota (TRQ) combines the idea of a tariff with that of a quota. The typical TRQ will set a low tariff for imports of a fixed quantity and a higher tariff for any imports that
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exceed that initial quantity. In a legal sense and at the WTO, countries are allowed to combine the use of two tariffs in the form of a TRQ, even when they have agreed not to use strict import quotas. In the United States, important TRQ schedules are set for beef, sugar, peanuts, and many dairy products. In each case, the initial tariff rate is quite low, but the over-quota tariff is prohibitive or close to prohibitive for most normal trade. Explicit import quotas used to be quite common in agricultural trade. They allowed governments to strictly limit the amount of imports of a commodity and thus to plan on a particular import quantity in setting domestic commodity programs. Another common non-tariff barrier (NTB) was the so-called voluntary export restraint (VER) under which exporting countries would agree to limit shipments of a commodity to the importing country, although often only under threat of some even more restrictive or onerous activity. In some cases, exporters were willing to comply with a VER because they were able to capture economic benefits through higher prices for their exports in the importing countrys market. ISSUES In the Uruguay round of the GATT/WTO negotiations, members agreed to drop the use of import quotas and other non-tariff barriers in favor of tariff-rate quotas. Countries also agreed to gradually lower each tariff rate and raise the quantity to which the low tariff applied. Thus, over time, trade would be taxed at a lower rate and trade flows would increase. Given current U.S. commitments under the WTO on market access, options are limited for U.S. policy innovations in the 2002 Farm Bill vis a vis tariffs on agricultural imports from other countries. Providing higher prices to domestic producers by increasing tariffs on agricultural imports is not permitted. In addition, particularly because the U.S. is a net exporter of many agricultural commodities, successive U.S. governments have generally taken a strong position within the WTO that tariff and TRQ barriers need to be reduced. The Objective of the present study is: (i) To identify tariff, non-tariff barriers in U.S and Japan which constitute major impediments to Indias exports (ii) To understand the concept of trade barriers and their implication on International trade

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CHAPTER 2: INTRODUCTION TO TRADE BARRIERS International trade increases the number of goods that domestic consumers can choose from, decreases the cost of those goods through increased competition, and allows domestic industries to ship their products abroad. While all of these seem beneficial, free trade isn't widely accepted as completely beneficial to all parties. This article will examine why this is the case, and look at how countries react to the variety of factors that attempt to influence trade. What Is a Tariff and what are Tariff Barriers? In simplest terms, a tariff is a tax. It adds to the cost of imported goods and is one of several trade policies that a country can enact. Tariffs (often called customs) were by far the largest source of federal revenue from the 1790s to the eve of World War I, until they were surpassed by income taxes. Tariffs are import tax rates and the collected income is called customs or custom duties or Ad valorem taxes. Tariff barriers are duties imposed on goods which effectively create an obstacle to trade, although this is not necessarily the purpose of putting tariffs in place. Tariff barriers are also sometimes known as import restraints, because they limit the amount of goods which can be imported into a country.

Tariff Export Tariff Import Tariff Transit Tariff

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Export Tariff : An export duty is a tax imposed on a commodity originating from the duty-levying country destined for some other country.

Import Tariff : An import duty is a tax imposed on a commodity originating abroad and destined for the duty-levying country.

Transit Tariff : A transit duty is a tax imposed on a commodity crossing the national frontier originating from, and destined for, other countries.

With reference to the basis for quantification of the tariff, we may have the following threefold classification:

Specific Duties A specific duty is a flat sum per physical unit of the commodity imported or exported, thus a specific import duty is a fixed amount of duty levied upon each unit of the commodity imported.

Ad-Valorem Duties Ad-valorem duties are levied as a fixed percentage of the value of commodity imported/exported. Thus, while the specific duty is based on the quantum of commodity imported/exported, the ad-valorem duty is based on the value of the commodity imported/exported.

Compound Duties When a commodity is subject to both specific and ad-valorem duties, the tariff is generally referred to as compound duty. With respect to its application between different countries, the tariff system may be classified into following three types:

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Single Column Tariff The single-column, also known as the uni-linear, tariff system provides a uniform rate of duty for all like commodities without making any discrimination between countries.

Double Column Tariff Under the double-column tariff system, there are two rates of duty on some or on all commodities. Thus, the double column tariff discriminates between countries. The double-column tariff system may be broadly divided into: (a) General and conventional tariff; (b) Maximum and minimum tariff.

The general and conventional tariff system consits of two schedules of tariff- the general and the conventional. The general schedule is fixed by the legislature at the very start and the conventional schedule results from the conclusion of commercial treaties with other countries. The maximum and minimum system consists of two autonomously determined schedules of tariff the maximum and the minimum. The minimum schedule applies to those countries which have obtained a concession as a result of a treaty or through M.F.N. (most favoured nation) pledge. The maximum schedule applies to all the other countries.

Triple-Column Tariff The triple-column tariff system consists of three autonomously determined tariff schedules the general, the intermediate and the preferential. The general and intermediate rates are similar to the maximum and minimum rates mentioned above under the double-column tariff systems. The preferential rate is generally applied in trade between the mother country and the colonies. With reference to the purpose they serve, tariffs may be classified into the following categories.

Revenue Tariff Sometimes the main intention of the government in imposing a tariff may be to obtain revenue. When raising revenue is the primary motive, the rates of duty are generally low, lest imports should be highly discouraged, defeating the objective of mobilizing revenue for the government. Revenue tariffs tend to fall on articles of mass consumption.

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Protective Tariff Protective tariff is intended primarily, to accord protection to domestic industries from foreign competition. Naturally, the rates of duty tend to be very high in this case because generally, only high rates of duty curtail imports to a significant extent.

Countervailing and Anti-Dumping Duties Countervailing duties may be imposed on certain imports when they have been subsidized by foreign governments. Antidumping duties are applied to imports which are dumped on the domestic market at prices either below their cost of production or substantially lower than their domestic prices. Countervailing and anti-dumping duties are, generally, penalty duties and an addition to the regular rates.

Impact of Tariff: Tariffs affect on economy in different ways. An import duty generally has the following effect: (i) Protective Effect: An import duty is likely to increase the price of imported goods. This increase in the price of imports is likely to reduce imports and increase the demand for domestic goods. Import duties may also enable domestic industries to absorb higher production costs. Thus, as a result of the production accorded by tariffs, domestic industries are able to expand their output. (ii) Consumption Effect: The increase in prices resulting from the levy of import duty usually reduces the consumption capacity of the people.

(iii) Redistribution Effect: If the import duty causes and increase in the price of domestically produced goods, it amounts to redistribution of income between the consumers and producers in favour of the producers. Further, a part of the consumer income is transferred to the exchequer by means of the tariff.

(iv)Revenue Effect: As mentioned above, a tariff means increased revenue for the government (unless, of course, the rate of tariff is so prohibitive that it completely stops the import of the commodity subject to the tariff).

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(v) Income and Employment Effect: The tariff may cause a switchover from spending on foreign goods to spending on domestic goods. This higher spending within the country may cause an expansion in domestic income and employment.

(vi) Competitive Effect: The competitive effect on the tariff is, in fact, an anti-competitive effect in the sense that the protection of domestic industries against foreign competition may enable the domestic industries to obtain monopoly power with all its associated evils.

(vii) Term of Trade Effect: In a bid to maintain the previous level of imports to the tariff imposing country, if the exporter reduces his prices, the tariff-imposing country is able to get imports at a lower price. This wills, ceteris paribus, improve the terms of trade of the country imposing the tariff.

(vii) Balance of Payments Effect: Tariffs, by reducing the volume of imports, may help the country to improve its balance of payments position.

Nominal Tariff and Effective Tariff Nominal tariff refers to the actual duty on an imported item. For example, if a commodity X is subject to an import duty of 25 percent ad valorem, the nominal tariff is 25 per cent. Corden defines the effective protective rate as the percentage increase in value added per unit on an economic activity which is made possible by the tariff structure relative to the situation in the absence of tariffs but the same exchange rates. It depends not only on the tariff on the commodity produced but also on the input coefficients and the tariffs on the inputs. The effective protective rate of industry j (Ej) may be defined as the difference between the industrys value added under protection (Vj) and under free market conditions (Vj) expressed as a percentage of the free market value added.

Obviously, the protective effect of a tariff on domestic manufacturing is larger if the import duty on the raw materials used in its manufacture is lower.

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Optimum Tariff If a country raises its tariff (import duty) unilaterally, its terms of trade may improve and its volume of trade may decline. The improvement in the terms of trade initially tends to more than offset the accompanying reduction in the volume of trade, Hence a higher trade indifference curve is reached and community welfare is enhanced. Beyond some point, however, it is likely that the detrimental effect of successive reductions in the trade volume begins to outweigh the positive effect of further improvements in their terms of trade; as a result, community welfare begins to fall. Somewhere in between there must be a tariff which optimizes a countrys welfare level under these conditions. Thus, the optimum tariff is the rate of tariff beyond which any further gain from an improvement in the terms of trade will be more than offset by the related decline in volume. By raising the rate of tariff beyond the optimum rate, it may still be possible to improve the countrys terms of trade; but the gain from this improvement in the terms of trade is more than offset by the related decline in the volume of trade.

What are Non-Tariff Barriers? Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are enacted.

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Non Tariff Quotas Subsidies Embargo Currency Controls Local Content Requireme nts Product & Testing Standards

Six Types of Non-Tariff Barriers to Trade 1. Specific Limitations on Trade: 1. Quotas 2. Import Licensing requirements 3. Proportion restrictions of foreign to domestic goods (local content requirements) 4. Minimum import price limits 5. Embargoes 2. Customs and Administrative Entry Procedures: 1. Valuation systems 2. Anti-dumping practices 3. Tariff classifications 4. Documentation requirements 5. Fees 3. Standards: 1. Standard disparities

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2. Intergovernmental acceptances of testing methods and standards 3. Packaging, labeling, and marking 4. Government Participation in Trade: 1. Government procurement policies 2. Export subsidies 3. Countervailing duties 4. Domestic assistance programs 5. Charges on imports: 1. Prior import deposit subsidies 2. Administrative fees 3. Special supplementary duties 4. Import credit discrimination 5. Variable levies 6. Border taxes 6. Others: 1. Voluntary export restraints 2. Orderly marketing agreements

Types of Non-Tariff Barriers There are several different variants of division of non-tariff barriers. Some scholars divide between internal taxes, administrative barriers, health and sanitary regulations and government procurement policies. Others divide non-tariff barriers into more categories such as specific limitations on trade, customs and administrative entry procedures, standards, government participation in trade, charges on import, and other categories. We choose traditional classification of non-tariff barriers, according to which they are divided into 3 principal categories. The first category includes methods to directly import restrictions for protection of certain sectors of national industries: licensing and allocation of import quotas, antidumping and countervailing duties, import deposits, so-called voluntary export restraints, countervailing duties, the system of minimum import prices, etc. Under second category follow methods that are not directly aimed at restricting foreign trade and more related to the administrative bureaucracy, whose actions, however, restrict trade, for example: customs procedures,
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technical standards and norms, sanitary and veterinary standards, requirements for labeling and packaging, bottling, etc. The third category consists of methods that are not directly aimed at restricting the import or promoting the export, but the effects of which often lead to this result. The non-tariff barriers can include wide variety of restrictions to trade. Here are some example of the popular NTBs. Licenses The most common instruments of direct regulation of imports (and sometimes export) are licenses and quotas. Almost all industrialized countries apply these non-tariff methods. The license system requires that a state (through specially authorized office) issues permits for foreign trade transactions of import and export commodities included in the lists of licensed merchandises. Product licensing can take many forms and procedures. The main types of licenses are general license that permits unrestricted importation or exportation of goods included in the lists for a certain period of time; 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 which import (or export) of goods should be carried out. The use of licensing systems as an instrument for foreign trade regulation is based on a number of international level standards agreements. In particular, these agreements include some provisions of the General Agreement on Tariffs and Trade and the Agreement on Import Licensing Procedures, concluded under the GATT (GATT). Quotas Licensing of foreign trade is closely related to quantitative restrictions quotas - on imports and exports of certain goods. A quota is a limitation in value or in physical terms, imposed on import and export of certain goods for a certain period of time. This category includes global quotas in respect to specific countries, seasonal quotas, and so-called "voluntary" export restraints. Quantitative controls on foreign trade transactions carried out through one-time license. Quantitative restriction on imports and exports is a direct administrative form of government regulation of foreign trade. Licenses and quotas limit the independence of enterprises with a regard to entering foreign markets, narrowing the range of countries, which may be entered into transaction for certain commodities, regulate the number and range of goods permitted
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for import and export. However, the system of licensing and quota imports and exports, establishing firm control over foreign trade in certain goods, in many cases turns out to be more flexible and effective than economic instruments of foreign trade regulation. This can be explained by the fact, that licensing and quota systems are an important instrument of trade regulation of the vast majority of the world. The consequence of this trade barrier is normally reflected in the consumers loss because of higher prices and limited selection of goods as well as in the companies that employ the imported materials in the production process, increasing their costs. An import quota can be unilateral, levied by the country without negotiations with exporting country, and bilateral or multilateral, when it is imposed after negotiations and agreement with exporting country. An export quota is a restricted amount of goods that can leave the country. There are different reasons for imposing of export quota by the country, which can be the guarantee of the supply of the products that are in shortage in the domestic market, manipulation of the prices on the international level, and the control of goods strategically important for the country. In some cases, the importing countries request exporting countries to impose voluntary export restraints. Impact of Quotas: Like fiscal controls, the quantitative restrictions on imports have a number of effects on the economy. The following are, in general , the important economic effects of quotas:

(i) Balance of Payments Effect As quotas enable a country to restrict the aggregate imports within specified limits, quotas are helpful in improving its balance of payments position.

(ii) Price Effect As quotas limit the total supply, they may cause an increase in domestic prices.

(iii) Consumption Effect If quotas lead to an increase in prices, people may be constrained to reduce their consumption of the commodity subject to quotas or some other commodities.

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(iv) Protective Effect By guarding domestic industries against foreign competition to some extent, quotas encourage the expansion of domestic industries.

(v) Redistributive Effect Quotas also have a redistributive effect if the fall in supply due to important restrictions enables the domestic producers to raise prices. The rise in prices will result in the redistribution of income between the producers and consumers in favour of the producers.

(vi) Revenue Effect Quotas may have revenue effect. The government may obtain some revenue by charging a license fee.

Agreement on a "voluntary" export restraint In the past decade, a widespread practice of concluding agreements on the "voluntary" export restrictions and the establishment of import minimum prices imposed by leading Western nations upon weaker in economical or political sense exporters. The specifics of these types of restrictions is the establishment of unconventional techniques when the trade barriers of importing country, are introduced at the border of the exporting and not importing country. Thus, the agreement on "voluntary" export restraints is imposed on the exporter under the threat of sanctions to limit the export of certain goods in the importing country. Similarly, the establishment of minimum import prices should be strictly observed by the exporting firms in contracts with the importers of the country that has set such prices. In the case of reduction of export prices below the minimum level, the importing country imposes anti-dumping duty which could lead to withdrawal from the market. Voluntary" export agreements affect trade in textiles, footwear, dairy products, consumer electronics, cars, machine tools, etc. Problems arise when the quotas are distributed between countries, because it is necessary to ensure that products from one country are not diverted in violation of quotas set out in second country. Import quotas are not necessarily designed to protect domestic producers. For example, Japan, maintains quotas on many agricultural products it does not produce. Quotas on imports is a leverage when negotiating the sales of Japanese exports, as well as avoiding excessive dependence on any other country in respect of necessary food, supplies of which may decrease in case of bad weather or political conditions.
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Export quotas can be set in order to provide domestic consumers with sufficient stocks of goods at low prices, to prevent the depletion of natural resources, as well as to increase export prices by restricting supply to foreign markets. Such restrictions (through agreements on various types of goods) allow producing countries to use quotas for such commodities as coffee and oil; as the result, prices for these products increased in importing countries. Quota can be of the following types: 1) Tariff rate quota 2) Global quota 3) Discriminating quota

Embargo Embargo is a specific type of quotas prohibiting the trade. As well as quotas, embargoes may be imposed on imports or exports of particular goods, regardless of destination, in respect of certain goods supplied to specific countries, or in respect of all goods shipped to certain countries. Although the embargo is usually introduced for political purposes, the consequences, in essence, could be economic. Standards Standards take a special place among non-tariff barriers. Countries usually impose standards on classification, labeling and testing of products in order to be able to sell domestic products, but also to block sales of products of foreign manufacture. These standards are sometimes entered under the pretext of protecting the safety and health of local populations. Administrative and bureaucratic delays at the entrance Among the methods of non-tariff regulation should be mentioned administrative and bureaucratic delays at the entrance which increase uncertainty and the cost of maintaining inventory. Import deposits Another example of foreign trade regulations is 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.

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At the national level, administrative regulation of capital movements is carried out mainly within a framework of bilateral agreements, which include a clear definition of the legal regime, the procedure for the admission of investments and investors. It is determined by mode (fair and equitable, national, most-favored-nation), order of nationalization and compensation, transfer profits and capital repatriation and dispute resolution. Foreign exchange restrictions and foreign exchange controls Foreign exchange restrictions and foreign exchange controls occupy a special place among the non-tariff regulatory instruments of foreign economic activity. Foreign exchange restrictions constitute the regulation of transactions of residents and nonresidents with currency and other currency values. Also an important part of the mechanism of control of foreign economic activity is the establishment of the national currency against foreign currencies. Examples of Non-Tariff Barriers to Trade Non-tariff barriers to trade can be:

Import bans General or product-specific quotas Rules of Origin Quality conditions imposed by the importing country on the exporting countries Sanitary and phyto-sanitary conditions Packaging conditions Labeling conditions Product standards Complex regulatory environment Determination of eligibility of an exporting country by the importing country Determination of eligibility of an exporting establishment (firm, company) by the importing country.

Additional trade documents like Certificate of Origin, Certificate of Authenticity etc. Occupational safety and health regulation Employment law Import licenses State subsidies, procurement, trading, state ownership

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Export subsidies Fixation of a minimum import price Product classification Quota shares Foreign exchange market controls and multiplicity Inadequate infrastructure "Buy national" policy Over-valued currency Intellectual property laws (patents, copyrights) Restrictive licenses Seasonal import regimes Corrupt and/or lengthy customs procedures

Some Practical examples of Non-Tariff barrier It is a common practice in many countries to use non-tariff barriers to control the entry of imports. For instance, Philippine mangoes and bananas have to meet strict phytosanitary requirements from the US and Australia. New Zealand's apples account for a third of its agricultural exports but have been banned from Australia since 1921 due to fears about the spread of fire blight, a crop pest. Why Are Tariffs and Trade Barriers Used? Tariffs are often created to protect infant industries and developing economies, but are also used by more advanced economies with developed industries. Here are five of the top reasons tariffs are used: 1. Protecting Domestic Employment The levying of tariffs is often highly politicized. The possibility of increased competition from imported goods can threaten domestic industries. These domestic companies may fire workers or shift production abroad to cut costs, which means higher unemployment and a less happy electorate. The unemployment argument often shifts to domestic
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industries complaining about cheap foreign labor, and how poor working conditions and lack of regulation allow foreign companies to produce goods more cheaply. In economics, however, countries will continue to produce goods until they no longer have a comparative advantage (not to be confused with an absolute advantage). 2. Protecting Consumers A government may levy a tariff on products that it feels could endanger its population. For example, South Korea may place a tariff on imported beef from the United States if it thinks that the goods could be tainted with disease. 3. Infant Industries The use of tariffs to protect infant industries can be seen by the Import Substitution Industrialization (ISI) strategy employed by many developing nations. The government of a developing economy will levy tariffs on imported goods in industries in which it wants to foster growth. This increases the prices of imported goods and creates a domestic market for domestically produced goods, while protecting those industries from being forced out by more competitive pricing. It decreases unemployment and allows developing countries to shift from agricultural products to finished goods.

Criticisms of this sort of protectionist strategy revolve around the cost of subsidizing the development of infant industries. If an industry develops without competition, it could wind up producing lower quality goods, and the subsidies required to keep the statebacked industry afloat could sap economic growth. 4. National Security Barriers are also employed by developed countries to protect certain industries that are deemed strategically important, such as those supporting national security. Defence industries are often viewed as vital to state interests, and often enjoy significant levels of protection. For example, while both Western Europe and the United States are industrialized, both are very protective of defence-oriented companies.

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5. Retaliation Countries may also set tariffs as a retaliation technique if they think that a trading partner has not played by the rules. For example, if France believes that the United States has allowed its wine producers to call its domestically produced sparkling wines "Champagne" (a name specific to the Champagne region of France) for too long, it may levy a tariff on imported meat from the United States. If the U.S. agrees to crack down on the improper labeling, France is likely to stop its retaliation. Retaliation can also be employed if a trading partner goes against the government's foreign policy objectives.

Who Benefits? The benefits of tariffs are uneven. Because a tariff is a tax, the government will see increased revenue as imports enter the domestic market. Domestic industries also benefit from a reduction in competition, since import prices are artificially inflated. Unfortunately for consumers - both individual consumers and businesses - higher import prices mean higher prices for goods. If the price of steel is inflated due to tariffs, individual consumers pay more for products using steel, and businesses pay more for steel that they use to make goods. In short, tariffs and trade barriers tend to be pro-producer and anti-consumer.

The effect of tariffs and trade barriers on businesses, consumers and the government shifts over time. In the short run, higher prices for goods can reduce consumption by individual consumers and by businesses. During this time period, businesses will profit and the government will see an increase in revenue from duties. In the long term, businesses may see a decline in efficiency due to a lack of competition, and may also see a reduction in profits due to the emergence of substitutes for their products. For the government, the long-term effect of subsidies is an increase in the demand for public services, since increased prices, especially in foodstuffs, leave less disposable income. (For related reading, check out In Praise Of Trade Deficits.) How Do Tariffs Affect Prices? Tariffs increase the prices of imported goods. Because of this, domestic producers are not forced to reduce their prices from increased competition, and domestic consumers are left

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paying higher prices as a result. Tariffs also reduce efficiencies by allowing companies that would not exist in a more competitive market to remain open. Figure 1 illustrates the effects of world trade without the presence of a tariff. In the graph, DS means domestic supply and DD means domestic demand. The price of goods at home is found at price P, while the world price is found at P*. At a lower price, domestic consumers will consume Qw worth of goods, but because the home country can only produce up to Qd, it must import Qw-Qd worth of goods.

Figure 1. Price without the influence of a tariff

When a tariff or other price-increasing policy is put in place, the effect is to increase prices and limit the volume of imports. In Figure 2, price increases from the non-tariff P* to P'. Because price has increased, more domestic companies are willing to produce the good, so Qd moves right. This also shifts Qw left. The overall effect is a reduction in imports, increased domestic production and higher consumer prices. (To learn more about the movement of equilibrium due to changes in supply and demand, read Understanding SupplySide Economics.)

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Figure 2. Price under the effects of a tariff

Tariffs and Modern Trade The role tariffs play in international trade has declined in modern times. One of the primary reasons for the decline is the introduction of international organizations designed to improve free trade, such as the World Trade Organization (WTO). Such organizations make it more difficult for a country to levy tariffs and taxes on imported goods, and can reduce the likelihood of retaliatory taxes. Because of this, countries have shifted to non-tariff barriers, such as quotas and export restraints. Organizations like the WTO attempt to reduce production and consumption distortions created by tariffs. These distortions are the result of domestic producers making goods due to inflated prices, and consumers purchasing fewer goods because prices have increased. Since the 1930s, many developed countries have reduced tariffs and trade barriers, which has improved global integration and brought about globalization. Multilateral agreements between governments increase the likelihood of tariff reduction, while enforcement on binding agreements reduces uncertainty. The Bottom Line Free trade benefits consumers through increased choice and reduced prices, but because the global economy brings with it uncertainty, many governments impose tariffs and other trade barriers to protect industry. There is a delicate balance between the pursuit of efficiencies and the government's need to ensure low unemployment.
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GATT provisions that allow restrictions

1. Restrictions that require specific GATT approval Waiver, Article XXV; Retaliation authorized under dispute settlement, Article XXIII Special provisions in accession agreement, Article XXXIII Release from bindings to pursue infant industry protection, Article XVIII.C, D

2. Provisions for renegotiating previous concessions and commitments Periodic renegotiation, Article XXVII.1 and Article XXVIII.5; Special circumstances renegotiation, Article XXVIII.4; Increase of duty with regard to formation of a customs union, Article XXIV.6 Withdrawal of concession in order to provide infant industry protection, Article XVIII.A Restrictions that can be imposed unilaterally General exception, Article XX Import and export restrictions or prohibitions necessary to standards or to apply regulations for classification, grading or marketing, Article XI.2.b Import restrictions on agriculture or fisheries products necessary to enforce policies to restrict domestic output, Article XI.2.C National security exception, Article XXI Non-application at the time of accession, article XXXVII Withdrawal of concession, Article XXVII Restriction to safeguard the balance of payments, Articles XII and Article XVIII.B Emergency actions, Article XIX Anti-dumping duties, Article VI Countervailing duties, Article VI Source: Finger 1995 in (Pandey, 2003: 5 -6)

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CHAPTER 3: ANALYSIS

Analysis of Tariff and Non-Tariff Barriers on Indias Export to U.S.A Indias Trade With U.S.A India US Trade Trade and commerce form a crucial component of the rapidly expanding and multi-faceted relations between India and US. From a modest $ 5.6 billion in 1990, the bilateral trade in merchandise goods has increased to $ 57.8 billion in 2011 representing an impressive 932.14% growth in a span of 21 years. Indias merchandise exports to the U.S. grew by 10.81% from $ 17.94 billion during the period January- June 2011 to $ 19.88 billion in January- June 2012. US exports of merchandise to India declined by 2.86% from $ 10.48 billion during the period January June 2011to $ 10.18 billion in January June 2012. India US bilateral merchandise trade stands at $ 30.06 billion during this period. Trade during the period January June 2012 i) Major items of export from India to US Select major items with their percentage shares, are given below. a) Textiles (16.5%) b) Precious stones & metals (17%) c) Pharmaceutical products (9.9%) d) Mineral Fuel, Oil (7.8%) e) Lac, Gums, Resins (8.5%) f) Organic chemicals (5.8%) g) Machinery (5.4%) h) Electrical Machinery ( 3.9%)

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ii) Major items of export from US to India Select major items with their percentage shares, are given below a) Precious stones & metals (20.5%) b) Machinery (13.7%) c) Mineral fuel, Oil, etc. (9.9%) d) Optical instruments & equipment (7.3%) e) Electrical machinery (6.6%) f) Aircraft and parts (3.8%) g) Organic chemicals (4 %) h) Iron and steel (3.4%)

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Trends with respect to the major items of bilateral trade during the past two years are as follows. Indias exports to US Cut and polished diamonds and jewelry is a major item of Indias exports to the US, accounting for 22.2%. Exports of this item increased from $ 6.86 billion in 2010 to $ 8.02 billion in 2011, an increase of 17%. Textiles exports accounted for 17.4% of Indias exports to the US in 2011. Textile exports grew from $ 5.69 billion in 2010 to reach $ 6.28 billion in 2011, an increase of 10.37%. Exports of pharmaceutical products grew from $ 2.39 billion in 2010 to $ 3.22 billion in 2011, an increase of 34.5%. Exports of mineral fuel, oil grew from $ 2.32 billion in 2010 to $ 3.19 billion in 2011, an increase of 37.2%. Exports of organic chemicals grew by 15.5% from $ 1.72 billion in 2010 to $ 1.98 billion in 2011. US exports to India Exports of precious stones and metals which accounted for 21.4% of exports from US to India grew by 9.9% to reach $ 4.62 billion in 2011 from $ 4.21 billion in 2010. Machinery exports grew by 9.8% from $ 2.67 billion in 2010 to $ 2.93 billion in 2011. Exports of electrical machinery grew by 12.7% from $ 1.36 billion in 2010 to $1.54 billion in 2011. Exports of aircraft, aviation machinery and parts, fell by 39.7% to $ 0.77 billion in 2011 from $1.28 billion in 2010.

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During the year 2007, the basket of US imports to India included exceptionally large imports of aircraft /parts, which resulted in a leap in the growth rate of US exports to 54.7%. With this component excluded, the growth rates of US exports in 2007 and 2008 are 37.5% and 39.9% respectively. Important Statics showing importance of export to U.S.

Top Export Markets for India:

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U.S. Contributes 34% to Indias Total Export Analysis of Trade Barriers faced by India Export to U.S. HS Code Commodity Type Barriers 30000 Fish Regulations U.S. Increased inspections under the Public Health Security and Bioterrorism and Response Act of 2002 (Bioterrorism Act 02). 30000 Fish Labelling U.S. Mandatory labelling of country of origin/ whether "farm raised" or "wild" for fresh fish and shellfish under the Country of Origin Labeling of Country Details

Programme (wef September 2004) and Public Law 107171. Punitive fines of $ 10000 per violation 30000 Fish Certification U.S. US has not agreed to recognition of EIC certification on account of the costs and the complications involved 30613 Shrimp Prawn & Standards U.S. Random checking and FDA rejection based on criteria of Salmonella, Filth and Decomposition. 480000 Paper Import U.S. cargo handling, domestic boycotts, ani

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products

Restriction

import campaigns, non scientific quarantine restrictions

480000

Paper products

Customs

U.S.

surcharges, port charges, statistical taxes

480000

Paper products

Environmen tal Standards

U.S.

Eco labelling for copying/ graphic paper and tissue paper products

480000

Paper products

U.S.

Food safety and health requirements

520000

Cotton Textiles

Labelling

U.S.

520000

Cotton Textiles

Rules Origin

of U.S.

520000

Cotton Textiles

Documentati U.S. on Customs U.S.

520000

Cotton Textiles

730000

Industrial, Municipal & Sanitary Castings

Public Procurement

U.S.

1933 Buy American Clause used in North Carolina and maybe in Virginia in the future

730000

Industrial, Municipal & Sanitary Castings

Standards

U.S.

Zero

tolerance

on

radioactive

contamination caused by Cobalt 60 sought by US Customs which is unreasonable Inspection U.S. Inspection procedure for detection of bugs which is cost prohibitive (5-7%

840000

Engineering Goods

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of the CIF value of US imports) 24011010 FCV Tobacco Import - not stemmed stripped 24011040 Burley Tobacco-not stemmed stripped 24011040 FCV Tobacco Import - partly stemmed stripped 24012040 Burley Tobaccopartly stemmed stripped Food products Labelling U.S. Detailed labeling requirements with extensive products/content description Food products Regulations U.S. Production, storage & handling or Import Restriction U.S. TRQ of 3000 tons with 350% out of quota duty on FCV / Burley tobacco or Restriction U.S. TRQ of 3000 tons with 350% out of quota duty on FCV / Burley tobacco or Import Restriction U.S. TRQ of 3000 tons with 350% out of quota duty on FCV / Burley tobacco or Restriction U.S. TRQ of 3000 tons with 350% out of quota duty on FCV / Burley tobacco

facilities to be registered with FDA and advance notice to FDA of imports.

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List of Non-tariff Barriers in United States of America towards India Merchandise Trade:

Analysis of Tariff and Non-Tariff Barriers on Indias Export to Japan India-Japan Trade This site provides detail information on Indian Exports to Japan. The site also focuses on the current development of exports from India to Japan. Indian Exports to Japan is as old as post world war II era. The trade relations between India and Japan flourished after the establishment of diplomatic ties, especially after the World War II. Japan resurrected form the debacle of the World War II loss with the help of India's iron ore export. Japan reciprocated India by providing yen loans to India in 1958, first of its type, by Japanese government. And as a matter of fact since then, Japan is India's largest aid donor. Indian Exports to Japan includes items like

Agricultural products, Fresh Fruits and dried fruits, Fruit juices and concentrates,

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Vegetables, Oilseeds, Vegetable oils and fats, Edible nuts, Sugar and honey, Grains and Pulses, Wheat, Tea, Coffee, Spices and herbs, Tobacco, Leather garments and goods, Handicrafts, Carpets, Cashew. Fisheries products, Cotton, Animal feed.

The block buster item from India remains Indian seafood products, especially Indian shrimps. Japan is the largest importer of Indian shrimps. Indian mangoes are getting huge popularity in Japan. Inspections by Japanese personnel and representatives were held at different facilities in India to verify and confirm the vapor heat treatment facilities for agricultural products. This was done as a proactive measure against prevention of possible cross-country transmission of infected agro-products, especially to check infested mango export from India to Japan. Japan have deep concern regarding pests especially, fruit flies. Some times back there were high rejections of imported Indian mangoes since, it was found infected with pests. As a matter of fact, to fill up the vacuum of Indian mangoes Japan started importing mangoes from other East Asian countries like countries like Philippines and Indonesia. Japan's deep liking for Indian mangoes can be well apprehended, since the current crop imported from Philippines and Indonesia are sold at a high premium. Moreover,Indian mangoes are of same quality but are much less expensive than crops from the south East Asian countries.

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Recently, Mr. Kamal Nath, the minister for trade and commerce, India have signed agreements which would facilitate opening of

Research Commission on Trade in Agriculture, Forestry Products, Fishing Products.

The tradition and social values of India and Japan are similar and to commemorate the long and good friendship between India and Japan, the government of both the countries have marked the Year 2007 as India and Japan Friendship year. NTBs Facing India's Exports in Japan Japan is seen to have the highest listed NTBs for a large number of items compared with EU. UNCTAD has identified around 36 categories of hard-core NTB, which Japan is imposing on its imported goods. Out of this, at least half of it are imposed on imports of manufactured goods to Japan (Table 4), i.e. there are 2742 manufactured commodities (lines) which face at least one or other type of listed NTBs. Also, a significant number of Japanese imports are subject to multiple types of NTBs; and most of these items, among industrial products, belong to commodity groups like mineral fuel (HS Chapter 27), organic chemical (chapter 29), pharmaceutical products (chapter 30), fur skin and artificial skin (chapter 43) and wood and wood products (chapter 44). Apart from these, imports of a large number of commodities require licenses, must meet particular specifications, and imported only through specific agencies etc.

Sr. No. 1

Types of NTBs imposed by Japan on Non-Agriculture Products

Broad categories of NTBs imposed: 1. Tariff Quota 2. Variable charges 3. Antidumping duties

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4. Automatic license 5. Non-automatic license 6. Authorization for wild life protection 7. Authorization to ensure national security 8. Authorization for political reasons 9. Global quota 10. Quota for seminar products 11. State monopoly of imports 12. Sale importing Agency 13. Product characteristic Requirements to protect human health 14. Product characteristic requirements to protect environment 15. Product characteristics to protect wild life 2 Some select examples of NTBs 1. Tariff quota on certain food products, alcohol, leather and footwear products 2. Prior to importation motor vehicles generally need to meet a type approval test 3. Only some select branded vehicles approved for car imports: (a) BMW (46 types), (b) Volkswagen / audi (84 types), (c) Mercedes Bens (62 types), (d) Oper (20 types) (e) GH (12 types) (f) Chrysler (6 types). Examination period: 2 months 4. Auto components regarded as essential to vehicle safety called critical parts must be replaced either by a certified garage approved or capable of repairing all critical parts, or the replacement needs to be checked by Ministry of Transport. 5. According to the provision of Law, importing pharmaceuticals require a license from the Minister of Health and Welfare.

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6. For granting a license to import cosmetics, the MHW uses a protective list, such that only ingredients with prior approval can be used. 7. Iron and steel production can apply for government assistance, such as low interest loan, loan guarantees and tax breaks.

Analysis of Indias Export trade to Japan

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CHAPTER 4: CONCLUSION

From the analysis of Data it can be concluded that India is getting affected by the trade barriers raised by U.S.A and Japan. Export will play a very important role if India wants to become a super power and economically strong nation, hence such barriers should be reduced. Below are few suggestions that can help us to eliminate or reduce the barriers to trade.

SUGGESTIONS: India should try to make a strong representation in WTO and other international forum to eliminate the barriers Proper guidance should be given by Various export promotion organisation like FIEO to the Indian exporter has to how to deal with such trade barriers More subsidies and promotion scheme should be provided in our foreign trade policy for helping India to exporter face such Trade Barriers India should enter into various Trade Agreements with different countries which would help to reduce the trade barriers to Indian exporters

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Bibliography:

BOOKS 1. Non Tariff Measures- A Fresh Look At The Trade Policy 2. Non Tariff Measures With Market Imperfection: Trade And Welfare Implications.

WEBSITES www.google.co.in commerce.nic.in/ dgft.gov.in www.investopedia.com/ www.slideshare.com www.scrib.com

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