Introduction

Commercial or trade policy followed by a country can broadly be divided into

protectionist or liberal. Classical economists were strong proponents of free trade which in
reality meant liberal trade.
The positive aspects include larger production, employment, income, savings,
investment, thus leading to enhanced world economic welfare.
Developing countries, most of them gaining independence from foreign rulers and
who were very eager to promote economic development decided to achieve it under the
policy of import substitution. The approach inevitably required them to follow a policy of
protection. Free trade was not possible with unequal competitors. Therefore the developing
countries protected their home industries on the basis of infant industry, economic
development, employment opportunities, young country, balance of payments, defense and
many other arguments.
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.

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Trade Barriers
Trade barriers are government-induced restrictions on international trade Trade
barriers are measures that governments or public authorities introduce to make imported
goods or services less competitive than locally produced goods and services. Not everything
that prevents or restricts trade can be characterised as a trade barrier.
A trade barrier may be linked to the very product or service that is traded, for example
technical requirements. A barrier can also be of an administrative nature, for example rules
and procedures in connection with the transaction. In a number of areas, special international
ground rules have been agreed, which limit the ways in which countries can regulate trade. It
means that some barriers are legal while others are illegal.
Most trade barriers work on the same principle: the imposition of some sort of cost on
trade that raises the price of the traded products. If two or more nations repeatedly use trade
barriers against each other, then a trade war results.
Economists generally agree that trade barriers are detrimental and decrease overall
economic efficiency, this can be explained by the theory of comparative advantage. In theory,
free trade involves the removal of all such barriers, except perhaps those considered
necessary for health or national security. In practice, however, even those countries
promoting free trade heavily subsidize certain industries, such as agriculture and steel.
Trade barriers are often criticized for the effect they have on the developing world.
Because rich-country players call most of the shots and set trade policies, goods such as crops
that developing countries are best at producing still face high barriers.
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Trade barriers such as taxes on food imports or subsidies for farmers in developed
economies lead to overproduction and dumping on world markets, thus lowering prices and
hurting poor-country farmers. Tariffs also tend to be anti-poor, with low rates for raw
commodities and high rates for labor-intensive processed goods. The Commitment to
Development Index measures the effect that rich country trade policies actually have on the
developing world.
Another negative aspect of trade barriers is that it would cause a limited choice of
products and would therefore force customers to pay higher prices and accept inferior quality.

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Some forms of Trade barriers:

Customs duties

Customs procedures

Technical regulations, standards, etc. - for example for the purpose of

consumer protection, health protection, protection of the environment, etc

Veterinary and phytosanitary measures - barriers based on health and safety

regulations

Restrictions on access to primary products - for example in the form of

export levies that drive up prices artificially or special export prices that are higher
than the price of the same primary products for use in national processing industries

Insufficient protection of intellectual property rights - both with respect to

the scope of protection and with respect to the possibilities of legal protection. This
includes, for instance, protection of patents, copyrights, trademarks and
geographical indications of origin

Barriers to trade in services - for example in the form of discriminatory

conditions

Restrictions on access to investment - for example through national

participation requirements or restrictions on access to repatriation of profits

Unfair application of state aid and other forms of subsidies

Trade barriers can be broadly classified in two types:

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1. Tariff Barriers
2. Non-Tariff Barriers

Tariff Barriers
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. Many organizations which promote trade are concerned about
both tariff and non-tariff barriers to free trade, and a number of nations have agreed to
radically reduce their trade barriers to promote the exchange of goods across their borders.
A number of different types of duties can be levied when goods cross international
boundaries. With an ad valorem duty, for example, the importer must pay a fee which is
calculated as a percentage of the value of the goods being imported. Specific tariffs are set
amounts which are levied on products which are imported, regardless of values, while
environmental tariffs penalize nations with poor environmental records.
For importers, tariff barriers can make it difficult to bring goods into a country. The
importer may be forced to import less because the tariff barriers cannot be afforded
otherwise, and it may need to charge more for the goods to make importing worthwhile.
Tariffs are designed to force importers to do this to level the field between domestic
producers and importers, allowing costly domestic producers to compete with importers who
may be able to bring in goods at lower cost.

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Protectionism, in which nations promote the interests of domestic producers by

restricting importers, is common in many nations, but it is also frowned upon, primarily by
nations which want to be able to export goods for trade in other countries. Organizations such
as the World Trade Organization have promoted the lifting of tariff barriers to reduce the
burden on importers. Non-tariff barriers such as import quotas are also targeted for
elimination by organizations which promote free trade.
Some tariff barriers are likely to always remain in place, even in nations which are
very open to free trade. Changing the structure of tariffs, taxes, and related expenses is a
continual project, and nations occasionally push back or lash out by radically altering their
tariffs and other barriers to trade. Nations may also use trade barriers to make political
statements which are designed to pressure other countries into modifying their behaviour. For
example, Country A might refuse to import beef from Country B until Country B can
demonstrate that its meat supply is free of bovine spongiform encephalitis (BSE), also known
as mad cow disease.

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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.
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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 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.

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Types of tariff barriers

There are different types of tariff barriers on different basis:
On the basis of Purpose: Revenue Tariff and Protective Tariff

On the Basis of Origin and Destination: Ad Valorem Duty , Specific Duty

and Compound Duty

On the Basis of Country-wise Discrimination: Single Column Tariff ,
Double Column Tariff and Triple Column Tariff

1. On the basis of Purpose

Revenue Tariff
A tax applied to imported and exported goods in order to increase the revenue of a region
or national government. An example of a revenue tariff in a business is the tax applied to all
imported oil in the United States.

Protective Tariff

A type of customs duty that serves as a barrier against penetration of the domestic market
by certain foreign goods and against passage of these goods through the country. Protective
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tariffs also serve to impede the export of domestic raw materials and semi-finished products.
They are intended to create optimal conditions for domestic industry.
In the formative period of capitalism, protective tariffs were used to protect developing
national industry from foreign competition. In the late 19th century, for example, the United
States instituted protective tariffs to limit the entry of British goods into the domestic market.
Protective tariffs are now used primarily to maintain high domestic price levels and to ensure
maximum profit for the monopolies. A modified form of protective tariff has been established
by international state-monopoly alliances, such as the European Economic Community
(Common Market), in the struggle to dominate the world capitalist market and capture
spheres of economic and political influence. This tariff policy has a negative effect on
European trade and hurts the developing countries of Africa and Asia.
Modern forms of protective tariffs are high anti-dumping and compensatory duties. They
are employed by importing countries as a supplement to conventional customs duties in cases
where the exporter sells goods on foreign markets at prices lower than those in effect on the
domestic market. The size of the antidumping duty is the difference between the price of the
article in its country of origin and the export price. The United States introduced this type of
duty in the 1920s and 1930s.
Prohibitive tariffs are a variety of protective tariff with very high rates, which can amount
to 30 percent and more of the price of the article and sometimes can even exceed the price of
the article. They appeared in the second half of the 19th century as a reaction to the abolition
of a ban on the export and import of certain articles and the introduction of the policy of free
trade. Prohibitive tariffs are common in many developed capitalist countries. For example,
during the 1960s about one-sixth of all the items on the US customs list had prohibitive

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tariffs. In the socialist countries, prohibitive tariffs account for a negligible share of customs
revenues.
Aggressive duties are one of the types of protective tariff that set very high rates for a
particular product or group of foreign goods. They are used by the United States, France, and
the members of the Common Market. Examples are the duties established by a law passed in
the United States in 1971, which restricts the import of textiles, stereo equipment, television
sets, automobiles, footwear, and other goods from Japan and the Common Market countries.
In their turn, the members of the Common Market have adopted single-schedule tariffs of the
aggressive type in trade with other countries. This has enabled the Common Market countries
to capture a significant part of the European Economic Community market and the markets of
numerous countries in Asia and Africa from foreign rivals, primarily the United States.
Aggressive duties are also used within the European Economic Community. In 1974, for
example, Italy implemented major protectionist measures, including the introduction of
aggressive protective tariffs, and sharply reduced the importation of automobiles, as well as
meat, butter, cheese, and other consumer goods, from the countries of the European
Economic Community, particularly the Federal Republic of Germany. This policy created
better conditions for the development of certain sectors of national industry but led to a new
rise in food prices and a drop in the standard of living of the working people. Prohibitive and
aggressive tariffs are used as a weapon of super protectionism to overcome tariff barriers and
capture markets in the developing and economically underdeveloped countries.
The socialist countries use protective tariffs to bolster sectors of their economies. For
example, in the first Customs Tariff of the Land of the Soviets (1922), protective tariffs were
applied to the products of sectors, such as the leather and cotton-textile industries, that were
being rebuilt after the devastation of the war years. In 1924 a new protective tariff was

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instituted. Protective duties were established for machinery and raw materials in the prewar
tariffs of the USSR of 1927, 1930, and 1932. In the new (1961) Customs Tariff of the USSR,
a large majority of the duties are no longer of the protective type.

2. On the Basis of Origin and Destination

Ad valorem tax
An ad valorem tax (Latin for "according to value") is a tax based on the value of real
estate or personal property. It is more common than a specific tax, a tax based on the quantity
of an item, such as cents per kilogram, regardless of price.
An ad valorem tax is typically imposed at the time of a transaction(s) (a sales tax or
value-added tax (VAT)), but it may be imposed on an annual basis (real or personal property
tax) or in connection with another significant event (inheritance tax, surrendering citizenship,
[1]

or tariffs). In some countries stamp duty is imposed as an ad valorem tax.

Specific Duty

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A specific duty is a tariff levied on imports, defined in terms of a specific amount per
unit, such as cents per kilogram. By contrast, an ad valorem duty is a charge levied on
imports defined in terms of a fixed percentage of value.

Compound Duty
Compound duty is an import tax consisting of both ad valorem and specific duties. It is
calculated based on both the value of the goods as well as the weight, volume or number.

3. On the Basis of Country-wise Discrimination

Single-column tarif
A set import duty paid on a specific item received from any country or from any member
country of a certain international agreement. The tariff amount is strictly determined by the
type of item being imported and not upon the point of origin.

Double Column Tarif:

Two different rates of duty have been imposed.

Triple Column Tarif:

Two or more tariff rates are levied on each category of commodity

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Who Gain from Tariff?

Government of the importing country earns in the form of the revenue.

Industries of the importing country would find market for their products as the
imported goods will be expensive.

Jobs in the domestic markets are saved.

Business for the ancillary industry, servicing, market intermediation etc. is also
protected.

Who are adversely affected?

Consumers

Industries of the exporting country.

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Other Impacts of Tariff Barriers:

Tariff Barriers tend to Increase:

1. Inflationary pressures
2. Special interests privileges
3. Government control and political considerations in economic matters.

Tariff Barriers tend to Weaken:

1. Balance-of-payments positions
2. Supply-and-demand patterns
3. International relations (they can start trade wars)

Tariff Barriers tend to Restrict:

1. Manufacturer supply sources
2. Choices available to consumers
3. Competition

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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 called non-tariff barriers, have the effect
of tariffs once they are enacted.
Their use has risen sharply after the WTO rules led to a very significant reduction in
tariff use. Some non-tariff trade barriers are expressly permitted in very limited
circumstances, when they are deemed necessary to protect health, safety, sanitation, or
depletable natural resources. In other forms, they are criticized as a means to evade free trade
rules such as those of the World Trade Organization (WTO), the European Union (EU), or
North American Free Trade Agreement (NAFTA) that restrict the use of tariffs.
Some of non-tariff barriers are not directly related to foreign economic regulations but
nevertheless have a significant impact on foreign-economic activity and foreign trade
between countries.
Countries use many mechanisms to restrict imports. A critical objective of the
Uruguay Round of GATT negotiations, shared by the U.S., was the elimination of non-tariff
barriers to trade in agricultural commodities (including quotas) and, where necessary, to
replace them with tariffs a process called tarrification. Tarrification of agricultural
commodities was largely achieved and viewed as a major success of the 1994 GATT
agreement. Thus, if the U.S. honors its GATT commitments, the utilization of new non-tariff
barriers to trade is not really an option for the 2002 Farm Bill.

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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.
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, 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 different type of non- tariff barriers are as follows:

Specific Limitations on Trade:

1.

Quotas

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2.

Import Licensing requirements

3.

Proportion restrictions of foreign to domestic goods (local content requirements)

Customs and Administrative Entry Procedures:

1.

Valuation systems

2.

Antidumping practices

3.

Documentation requirements

Standards:
1.

Standard Disparities

2.

Intergovernmental Acceptances of testing methods and standards

3.

Packaging, labeling and marketing

Government Participation in Trade:

1.

Government procurement policies

2.

Export subsidies

3.

Countervailing duties

4.

Domestic assistance programs

Charges on imports:
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1.

Prior import deposit subsidies

2.

Administrative fees

3.

Special supplementary duties

4.

Import credit discriminations

5.

Border taxes

Some of the examples of non-tariffs are as follow:

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

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Agreement on Tariffs and Trade and the Agreement on Import Licensing Procedures,
concluded under the GATT (GATT).
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

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"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 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.
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
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Western nations upon weaker in economic 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.
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. A
quota can be a tariff rate quota, global quota, discriminating quota, and export quota.
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 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.

Dumping
In economics, "dumping" is a kind of predatory pricing, especially in the context
of international trade. It occurs when manufacturers export a product to another country at a
price either below the price charged in its home market, or in quantities that cannot be
explained through normal market competition. A standard technical definition of dumping is
the act of charging a lower price for the like goods in a foreign market than one charge for the
same good in a domestic market for consumption in the home market of the exporter. This is
often referred to as selling at less than "normal value" on the same level of trade in the
ordinary course of trade. Under the World Trade Organization (WTO) Agreement, dumping is
condemned (but is not prohibited) if it causes or threatens to cause material injury to a
domestic industry in the importing country
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 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.

Government procurement
Government procurement, also called public tendering or public procurement, is
the procurement of goods and services on

behalf

of

public

authority,

such

as

a government agency. With 10 to 15% of GDP in developed countries, and up to 20%

in developing countries, government procurement accounts for a substantial part of the global
economy.
To prevent fraud, waste, corruption or local protectionism, the law of most countries
regulates government procurement more or less closely. It usually requires the procuring
authority to issue public tenders if the value of the procurement exceeds a certain threshold.

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Government procurement is also the subject of the Agreement on Government Procurement,

a plurilateral international treaty under the auspices of the WTO.

Countervailing duties
Countervailing duties (CVDs), also known as anti-subsidy duties, are trade import
duties imposed under World Trade Organization (WTO) Rules to neutralize the negative
effects of subsidies. They are imposed after an investigation finds that a foreign country
subsidizes its exports, injuring domestic producers in the importing country.

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.
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.
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 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.

Impact of NTBs:

Have emerged as potent Protectionist tool.

It being less transparent, its difficult to identify and quantify its impact.

Miscellaneous Protection Techniques

There are many other protection techniques have evolved over a period of time both
developed and developing countries, mainly by the former.

Dumping-Anti Dumping Measures

A product is to be considered as being dumped, i.e. introduced into the commerce of
another country at less than its normal value, if the export price of the product is less than the
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comparable price, in the ordinary course of trade for the like product when destined for
consumption in the exporting country.
When there are no sales of the like product in the ordinary course of trade in the
domestic market of the exporting country or when because of the particular market situation,
such sales do not permit a proper comparison, the margin of dumping shall be determined by
a comparison with cost of production in the country of origin plus a reasonable amount for
administrative, selling and any costs and for profits.

Subsidies to Domestic Producers

Domestic industries are protected from low price foreign goods by enabling them sell
at a price lower than charged by the foreign seller. This is possible only if a part of the cost of
production at home is met by the government by granting subsidies.

Tax Concession
Foreign exporters are discouraged by granting those concessions to home producers
which are denied to the former. Tax concession is a very common incentive provided to the
home producers. A tax holiday may be granted for a certain number of years. Such a
concession enables the domestic sellers charge a lower price and discourage foreign sellers.

Local Content Requirement

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Many countries have imposed the rule that some specified fraction of a final good be
produced domestically. Local content requirement may be prescribed either in physical terms
or in value terms. Under this rule a manufacturer is compelled to use local inputs even though
they may be costlier.
Many developing countries impose such a non-tariff barrier in order to protect the
domestic industries. Advanced countries including USA too have made use of this non-tariff
barrier.

Preference to Domestic Suppliers

Imports are discouraged by restricting the demand for foreign goods under the policy
of National Procurement. In many countries, governments are the major purchasers for a
number of goods. To encourage the domestic producers the governments purchase their
requirement from the domestic manufacturers. It discourages imports even at the cost of price
and quality advantage.

Red Tape Barriers

Imports can be restricted through more sophisticated manners. A number of health and
safety standards can be imposed on imports. Customs procedures can be so devised to make
imports highly difficult.

Social Dumping

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In order to discourage low cost cheap labour products, many advanced countries do
not permit their under the pretext of social dumping.
Unfortunately social dumping as a barrier can be used to prevent many labour
intensive products where poor countries have a comparative advantage.

Technical Barriers to Trade

All countries impose technical rules about packaging, product definitions, labeling,
etc. In the context of international trade, such rules may also be used as non-tariff trade
barriers. For example, imagine if Korea were to require that oranges sold in the country be
less than two inches in diameter. Oranges grown in Korea happen to be much smaller than
Navel oranges grown in California, so this type of technical rule would effectively ban the
sales of California oranges and protect the market for Korean oranges. Such rules violate
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WTO provisions that require countries to treat imports a nd domestic products equivalently
and not to advantage products from one source over another, even in indirect ways.
Again, however, these issues will likely be dealt with through bilateral and
multilateral trade negotiations rather than through domestic Farm Bill policy initiatives.

Exchange Rate Management Policies

Some countries may restrict agricultural imports through managing their exchange
rates. To some degree, countries can and have used exchange rate policies to discourage
imports and encourage exports of all commodities. The exchange rate between two countries
currencies is simply the price at which one currency trades for the other. For example, if one
U.S. dollar can be used to purchase 100 Japanese yen (and vice versa), the exchange rate
between the U.S. dollar and the Japanese yen is 100 yen per dollar. If the yen depreciates in
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value relative to the U.S. dollar, then a dollar is able to purchase more yen. A 10 percent
depreciation or devaluation of the yen, for example, would mean that the price of one U.S.
dollar increased to 110 yen. One effect of currency depreciation is to make all imports more
expensive in the country itself. If, for example, the yen depreciates by 10 percent from an
initial value of 100 yen per dollar, and the price of a ton of U.S. beef on world markets is
$2,000, then the price of that ton of beef in Japan would increase from 200,000 yen to
220,000 yen. A policy that deliberately lowers the exchange rate of a countrys currency will,
therefore, inhibit imports of agricultural commodities, as well as imports of all other
commodities. Thus, countries that pursue deliberate policies of undervaluing their currency in
international financial markets are not usually targeting agricultural imports.
Some countries have targeted specific types of imports through implementing
multiple exchange rate policy under which importers were required to pay different exchange
rates for foreign currency depending on the commodities they were importing. The objectives
of such programs have been to reduce balance of payments problems and to raise revenues
for the government. Multiple exchange rate programs were rare in the 1990s, and generally
have not been utilized by developed economies. Finally, exchange rate policies are usually
not sector-specific. In the United States, they are clearly under the purview of the Federal
Reserve Board and, as such, will not likely be a major issue for the 2002 Farm Bill.

Tariff and Non-Tariff Barriers Benefit to Developing

Countries
There is considerable evidence for the hypothesis that under certain conditions,
restrictions on trade can promote growth, especially of developing countries, according to a
study published in the Journal of Development Economics.

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The study by Halit Yanikkaya, an academic at the College of Business and

Administrative Services, Celal Bayar University (Turkey), has examined the growth effects
on 108 economies of a large number of measures of trade openness, using the same
yardsticks or measures of openness and over the same periods, and applying econometric
models and regressions. The study has used two broad categories: measures of trade volumes
and measures of trade restrictions and measures their effects on growth in the 108 economies.
The study and the results of the data analyzed challenges what the author calls the
unconditional optimism in favor of trade openness among the economic profession and policy
circles.
It finds that on the basis of trade volumes, there is a positive and significant
association between trade openness and growth.
According to the conventional view and studies on the growth and trade restrictions,
trade restrictions have an adverse association between trade barriers and growth.
The study finds a contrary evidence and says: our estimation results from most
specifications (of tariff and trade barriers) show a positive and significant relationship
between trade barriers and growth.
Equally important, the study adds, these results are essentially driven by
developing countries, and thus consistent with the predictions of the theoretical growth
literature that certain conditions, developing countries can actually benefit from trade
restrictions.
Several empirical studies of the 80s and 90s provided an affirmative answer for the
view that open economies grew faster than closed ones, and that outward-oriented
economies have consistently higher growth rates than inward-oriented ones. These led to a
strong bias in favor of trade liberalization and under-pinned the World Bank/IMF policy

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conditionalitys and advice to developing countries and the Washington Consensus of the
1990s.
Yanikkaya says that this strong bias in favor of trade liberalization was partly due to
the tragic failures of the import substitution strategies especially in the 1980s, and the
overstated expectations from trade liberalization. The World Bank- sponsored studies, by
Dollar and others, said they had found positive correlations between open economies and
faster growth across countries.
The first major challenge from academia came from Dani Rodrick, and followed by a
cross-country empirical analysis, using the same measures of openness across a range of
countries, which brought out that these studies had reached the conclusion of open economies
growing faster because they used different yardsticks for countries and over different timeperiods: But when the same yardsticks were used and over the same time-periods, the results
showed that fast growth had taken place in some of the countries with higher trade
restrictions (India and China), but which had adopted a measured approach to trade
liberalization (after creating capacity domestically, and calibrating liberalization measures).
Since then a number of studies have come out challenging the view that liberalization
of trade and investments is always a plus and there is growth in the long-run. These studies
have brought out that openness to external trade and trade liberalization are two different
concepts, and that the latter promoted growth (and brought in foreign direct investment and
associated technology) only under certain conditions, and when the host-country State played
an active role.
The Yanikkaya study notes that while there is a near consensus about the positive
correlation between trade flows and growth, the theoretical growth literature (which studied
growth effects of trade restrictions) came to the view that the effects were very complicated

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in the most general case, and mixed in how trade policies play a special role in economic
growth.
This, the author attributes to the way openness is described very differently in
various studies, making classification of countries on basis of openness a formidable task.
Hence, using different measures of openness produces differing results.
The Yanikkaya study looks at the growth effects on a large number of measures of
trade openness. Two broad measures of trade openness are used and studied: one is on effect
of various measures on trade volumes, which indicate a positive and significant association
between openness and growth, and is in line with conclusions of empirical and theoretical
growth literature.
However, the estimation results for various measures for trade barriers, contradicts the
conventional view on the growth effects of restrictions, and suggests an adverse association
between trade barriers and growth. The estimation results from most measures of trade
restrictions show a positive relationship between trade barriers and growth, a result driven by
developing countries.
These results are consistent with the predictions of theoretical growth literature,
namely, that under certain conditions, developing countries can actually benefit from trade
restrictions.
In a survey of the literature, the study finds that international trade theory (based on
static trade gains) provides little guidance to the effects of international trade on growth and
technical progress, the new trade theory argues that gains from trade can arise from several
fundamental sources differences in comparative advantage and economy-wide increasing
returns.

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While there are many studies about the effects of trade policies on growth - during the
failed import substitution strategies of the 1980s and the export-promotion policies - there is a
lack of clear definition of trade liberalization or openness.
The most difficult has been measuring openness. An ideal one would be an index
that includes all trade barriers distorting international trade, such as average tariff rates and
indices of non-trade barriers. Such an index, incorporating effects of both tariff and non-tariff
measures has been developed by J.E.Anderson and J.P.Neary. But it is not available for a
large number of economies. Other studies, like those by Dollar and, Sachs and Warner used
available data.
If the growth engine is driven by innovation and introduction of new products, then
developing countries should benefit more by trading with developed countries than with other
developing countries. However, the Yanikkaya study results do not support this, both
providing growth regressions positively and significantly.

The study finds that a developing country benefits through technology diffusion by
trading with a developed country, and since the US is the leader in technology, developing
countries benefit through this bilateral trade. Also, countries with higher population densities
tend to grow faster than those with lower densities.
In using measures of trade restrictions - several of whom it acknowledges are not free
from measurement errors - the study reaches some very different conclusions than
conventional trade theory suggests. Thus, it finds that trade barriers in the form of tariffs can
actually be beneficial for economic growth.
In the current context (of the Doha Round and the drive of Europe and the US to tear
down and harmonies developing country tariffs), this is a significant and telling result,

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providing support for the viewpoint of developing countries in these talks. The framework for
modalities for tariff liberalization in industrial products in the NAMA negotiations put
forward by the chairman (and WTO secretariat) is misguided and needs to be opposed and
jettisoned. When export taxes and total taxes on international trade are used as a measure of
trade restrictions, the study finds that save for fixed effect estimates, there is a significant
and positive association between trade barriers and growth. This is similar to the results for
average tariffs.
On non-tariff barriers, there are difficulties of estimation because of data limitations;
hence these are excluded in most empirical studies. But studies by J.Edwards (cited in the
Yanikkaya study) found such restrictions having an insignificant relationship with growth,
and came to the view that NTBs are poor indicators of trade orientation, since a broad
coverage of NTBs did not necessarily mean a higher distortion level.
Using several new measures of trade openness and restrictions now available, and
applying them on a framework model explained in details (but needs econometric knowledge
for the lay trade person to test and see), the Yanikkaya study, says that there is considerable
evidence for the hypothesis that trade restrictions can promote growth, especially in
developing countries, under certain conditions. The study makes clear that it has no intention
of establishing a simple and straightforward positive association between trade barriers and
growth, but rather to show that there is no such relationship between trade restrictions and
growth. Such a relationship depends mostly on the characteristics of a country. Restrictions
can benefit a country depending on whether it is developed or developing (a developed one
seems to lose), whether it is a big or small country, and whether it has comparative advantage
in sectors receiving protection.

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Effects on Developing Countries Trade

The developing countries could not reap the benefit of their changing comparative
advantage as the rich countries adopted a number of non-tariff barriers to restrict the entries
of manufactures from the developing nations. The quota system imposed through multifire
arrangement to discourage the exports of garments is one of the many NTBs adopted by the
rich countries. Voluntary export restraints were also imposed wherever the advanced
countries felt threatened either developing countries exports. Many labor intensive goods
were restricted under the clause of social dumping (carpets, match boxes, etc.). Subsidies
granted by the advanced countries to the domestic industries made the developing countries
less or non-competitive in the markets of developed countries. The highly protected European
agriculture under the common agriculture policy made the developing countries mom
competitive in ordinary and agricultural products where they usually enjoyed a comparative
advantage. The clauses such as place of origin, local content requirement and many more
restrictions imposed by taking the advantages of loopholes provided under GATT, have not
allowed the developing countries to realize their potential in the export of manufacturers.
The world economic order under GATT and subsequently under WTO according to
the developing countries is titled against them. The developing countries are required to strike

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a balance of safeguarding their economics from the threats and also at the same time
preparing themselves to face the challenges.

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CONCLUSION
When export taxes and total taxes on international trade are used as a measure of trade
restrictions, the study finds that save for fixed effect estimates, there is a significant and
positive association between trade barriers and growth. This is similar to the results for
average tariffs. On non-tariff barriers, there are difficulties of estimation because of data
limitations; hence these are excluded in most empirical studies. Such restrictions having an
insignificant relationship with growth, and came to the view that NTBs are poor indicators of
trade orientation, since a broad coverage of NTBs did not necessarily mean a higher
distortion level.
Using several new measures of trade openness and restrictions now available, and
applying them on a framework model explained in details (but needs econometric knowledge
for the lay trade person to test and see), the Yanikkaya study, says that there is considerable
evidence for the hypothesis that trade restrictions can promote growth, especially in
developing countries, under certain conditions.
The study makes clear that it has no intention of establishing a simple and
straightforward positive association between trade barriers and growth, but rather to show
that there is no such relationship between trade restrictions and growth.
Such a relationship depends mostly on the characteristics of a country. Restrictions
can benefit a country depending on whether it is developed or developing (a developed one
seems to lose), whether it is a big or small country, and whether it has comparative advantage
in sectors receiving protection.

Bibliography
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BOOKS
Economics of Global Trade and Finance, Johnson and Mascarenhas

WEBSITES
www.wikipedia.org

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