What Is a Nontariff Barrier?
A nontariff barrier is a way to restrict trade using trade barriers in a form other than a tariff. Nontariff barriers include quotas, embargoes, sanctions, and levies. They are commonly used by countries to limit trade as part of their political or economic strategy.
Key Takeaways
- A nontariff barrier is a trade restriction, such as a quota, embargo, or sanction, that countries use to further their political and economic goals.
- Countries often opt for nontariff barriers rather than traditional tariffs in international trade.
- Nontariff barriers include quotas, embargoes, sanctions, and levies.
How Nontariff Barriers Work
Countries frequently use nontariff barriers in international trade. The decision to impose these barriers is influenced by political alliances and the availability of goods and services.
Any barrier to international trade, including tariffs and nontariff barriers, affects the global economy by limiting the functions of the free market. The revenue losses some companies incur from these barriers may result in economic losses, particularly for proponents of laissez-faire capitalism, who believe that governments should not interfere with the free market.
Nontariff barriers can replace or complement conventional tariff barriers, which are taxes imposed by importing countries on goods or services from exporting countries. Tariffs are common, increasing the cost of products and services in the importing country. Alternative measures to standard tariffs relieve countries of additional taxes on imported goods while still influencing the level of trade.
Types of Nontariff Barriers
Licenses
Countries can use licenses to limit imported goods to specific businesses. If a business receives a trade license, it is authorized to import goods otherwise restricted from trade in that country.
Quotas
Countries often set quotas for both importing and exporting goods and services. Quotas limit the quantity of products and services for importation to a country within a specified timeframe. There are usually no restrictions until a country reaches its quota.
Embargoes
Embargoes occur when one— or multiple—countries officially ban the trade of specified goods and services with another country. This measure is often taken to support specific political or economic goals.
Sanctions
Countries impose sanctions on others to restrict their trade activities. Sanctions can involve increased administrative actions and trade procedures that slow down trade.
Voluntary Export Restraints
Exporting countries may use voluntary export restraints, which set limits on the quantity of goods and services exported to specific countries.
Advantages and Disadvantages of Nontariff Barriers
Pros of Nontariff Barriers
- Protection of Domestic Industries: Shields local businesses from foreign competition and preserves jobs.
- Ensures Product Standards: Helps ensure imported goods meet specific safety and quality standards beneficial to consumers.
- National Security: Safeguards national interests by restricting certain strategic goods and technologies.
- Prevents Product Dumping: Thwarts foreign producers from selling goods at prices below production cost to dominate the market.
Cons of Nontariff Barriers
- Distorted International Trade: Creates trade imbalances and market distortions by disrupting the free flow of goods.
- Restricted Consumer Choices: Limits variety of available products and access to potentially superior or affordable goods.
- Complex Compliance: Increased documentation, inspections, and standardization costs for manufacturers and importers.
- Inefficient Economic Allocation: Protects inefficient domestic industries, misallocating resources.
Nontariff vs. Tariff
Tariffs are monetary barriers in the form of taxes on imported or exported goods, whereas nontariff barriers encompass a range of non-monetary measures. Tariffs and nontariff barriers impact trade in different ways and are subject to negotiation in trade deals.
| Aspect | Tariffs | Nontariff Barriers |
|---|---|---|
| Definition | Taxes on imported or exported goods | Various restrictive measures apart from taxes |
| Nature | Monetary barrier | Non-monetary barrier |
| Purpose | Generate government revenue | Achieve policy objectives |
| Visibility | Transparent | Often less transparent |
| Revenue Generation | Direct source | Indirect impact |
| Impact on Prices | Directly affects prices | Can indirectly affect prices and supply |
| Flexibility | Can adjust rates | Generally rigid |
| Compliance Costs | Straightforward | Can be complex |
| Trade Negotiation | Often negotiated | Often challenging to quantify |
Example of Nontariff Barriers
In December 2017, the United Nations adopted a nontariff measure against North Korea, including sanctions cutting exports of gasoline, diesel, and other refined oils to the nation. These also involved banning industrial equipment, machinery, transport vehicles, and industrial metals, intending to put economic pressure on the nation.
Are Nontariff Barriers Legal in International Trade?
Nontariff barriers can be legal or illegal. Many are legitimate measures for achieving policy objectives like public health, safety, or national security while adhering to international trade rules.
How Can Companies Overcome Nontariff Barriers?
Companies can overcome nontariff barriers by investing in research to understand the standards and adapting products to meet these. Collaborating with local partners and engaging in dialogue with government bodies can also facilitate this process.
How Are Nontariff Barriers Enforced?
Nontariff barriers are enforced through regulatory and administrative measures, involving documentation, customs procedures, inspections, and compliance checks. Specific goods may require licenses and permits, and import quotas are strictly monitored.
The Bottom Line
Nontariff barriers are trade obstacles excluding traditional tariffs. They may take various forms and create hurdles for businesses expanding globally, imposing additional costs and administrative burdens.
Related Terms: tariff, trade barrier, economic sanctions, quota.
References
- Office of the United States Trade Representative. “Non-Tariff Barriers”.
- United Nations Security Council. “Resolution 2397 (2017)”.
