BARRIERS TO international Trade

Dr. Geeti Sharma

Why would countries use Trade Barriers?

• LIST TWO REASONS….

What are barriers to 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

characterized as a trade barrier.
Types of Trade Barriers
• Tariffs.
• Non-tariff barriers to trade. Import licenses.
Export licenses. Import quotas. Subsidies.
Voluntary Export Restraints. Local content
requirements. Embargo. Currency devaluation.
Trade restriction.
Tariff
• A tariff is a tax imposed by the local government on goods
and services coming into a country. They increase the
price of the goods being imported. Tariffs were created by
the government to protect local businesses from low-
priced competitive products.
Functions of Tariff
• Source of Revenue
• To protect Domestic Industries
• To remedy Trade Distortions.
Eg. Anti dumping agreement, Subsidies etc.
Non Tariff Trade Barriers
• Import License
• Export licenses.
• Import quotas.
• Subsidies.
• Voluntary Export Restraints.
• Local content requirements.
• Embargo.
• Currency fluctuations.
• Trade restriction.
Import License
• Though India has eliminated its import licensing
requirements for most consumer goods, certain products
face licensing related trade barriers.
• For example, the Indian government requires a special
import license for motorcycles and vehicles that is very
restrictive.
• Import licenses for motorcycles are provided to only
foreign nationals permanently residing in India, working in
India for foreign firms that hold greater than 30 percent
equity or to foreign nations working at embassies and
foreign missions.
Other information: Import License

• In India, Import License is issued by the Director

General of Foreign Trade. DGFT Delhi office is
situated in Udyog Bhawan, New Delhi 110011.
• Import Licenses are valid for 24 months for capital
goods and 18 months for raw materials components,
consumable and spares, with the license term
renewable.
Export License
• A government document granting the licensee the right to
export a specific quantity of a commodity to a specified
country

• Export control document issued by a government agency

to monitor the export of sensitive technologies (such as
advanced computer chips, encryption-decryption
software),
• prohibited materials (drugs, genetically-modified plants),
dangerous materials (explosives, radioactive substances),
strategic materials (uranium, advanced alloys),
• or goods in short supply in the home market (foodstuffs,
raw materials).
Import Quotas
• An import quota is a type of trade restriction that sets a
physical limit on the quantity of a good that can be
imported into a country in a given period of time.
• Quotas, like other trade restrictions, are typically used to
benefit the producers of a good in that economy.
Subsidies
• A subsidy is a form of financial aid or support extended to
an economic sector (or institution, business, or individual)
generally with the aim of promoting economic and social
policy

• Subsidies come in various forms including: direct (cash

grants, interest-free loans) and indirect like tax breaks,
rent rebates etc. production subsidy etc.
Voluntary Export Restraints
• A voluntary export restraint is a restriction set by a
government on the quantity of goods that can be exported
out of a country during a specified period of time.
• Often the word voluntary is placed in quotes because
these restraints are typically implemented upon the
insistence of the importing nations.

• The most notable example of VERs is when Japan

imposed a VER on its auto exports into the U.S. as a
result of American pressure in the 1980s. The VER
subsequently gave the U.S. auto industry some protection
against a flood of foreign competition.
Local Content Requirement
When a foreign company makes products in a country, the
materials, parts etc that have been made in that country
rather than imported.
A minimum level of local content is sometimes a
requirement under trade laws when giving foreign
companies the right to manufacture in a particular place
Embargo
• An embargo is a government order that restricts commerce or
exchange with a specified country or the exchange of specific goods.
An embargo is usually created as a result of unfavorable political or
economic circumstances between nations.

• Example
• Let's say Country A dislikes Country B's human rights policies. In
order to coerce Country B to change its ways, Country A forbids its
companies from selling widgets to Country B. Country B has a huge
demand for widgets, and being "cut off" from Country A's widgets
could encourage Country B's citizens to demand that Country B's
government change its ways.
• In many cases, a group of countries will join an embargo so that a
country like Country B can't just start buying widgets elsewhere.
Sometimes countries will embargo all products with other countries.
Currency Fluctuations
• Every county has its own currency and its patrons know
how to use it but everything you know about your own
currency changes when you are dealing with another
country.
• The rate given by one country for another countries
currency is called the currency exchange rate. The daily
exchange rate for the rest of the world is made according
to the rates used when two banks trade between different
countries.
• Rates of currency are always fluctuating and that can be a
major barrier to trade because the buyer could end up
paying way more than intended.
Trade Restrictions
• Standards, Testing , Labeling & Restrictions.
• The Indian government has identified 109 commodities
that must be certified by its National Standards body, the
Bureau of Indian Standards (BIS). The idea behind these
certifications is to ensure the quality of goods seeking
access into the market, but many countries use them as
protectionist measures