Non-Tariff Barriers

Updated on January 31, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Are Non-Tariff Barriers?

Non-tariff barriers are restrictions other than tariffs imposed on trade by administrative authorities to raise the difficulty of transporting goods. Such prohibitions are introduced when nations aim to reduce the frequency of exports and imports. With the imposition of these barriers, trade becomes difficult, and the purpose is achieved.

What Is Non-Tariff Barriers

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The non-tariff barriers to trade can be imposed in the form of embargoes, import licensing, quotas, etc. Though not all costly impositions can be classified as a non-tariff restriction to a nation’s export-import, the ones related to economic protectionism fall under this category.

Key Takeaways

  • Non-tariff barriers are the restrictions resulting from conditions or certain market obligations that make importing or exporting products difficult and less profitable. 
  • These include quotas, licensing, regulations, embargoes, and other trade barriers.
  • These barriers can be imposed along with other conventional restrictions on trade, including tariff barriers.
  • Quantity restrictions, administrative regulations, foreign exchange restrictions, and consular credentials are some types of non-tariff barriers widely put in place by nations.

Non-Tariff Barriers Explained

Non-tariff barriers, as the name implies, are restrictions other than tariffs on trade imposed by the government. The countries introduce such restrictions to ensure they work in the best interest of the citizens. These restrictions imposed intend to make it difficult for nations around the world to undertake trade with them. 

Why Non-Tariff Barriers

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The first reason behind imposing non-tariff barriers to international trade is to protect the national interest. Wages in developed countries are higher than wages in developing countries. So, it would not be possible for domestic industries to match the product price exported from other countries for some products, making them uncompetitive.

The next reason is to enhance the citizens’ quality of life. Through the execution of these restrictions, the authorities attempt to keep living creatures and vegetation free of the dangers arising from the additives and other harmful products received from other countries.

Another cause for putting such restrictions is maintaining the balance of tradeBalance Of TradeThe balance of trade (BOT) is the country’s exports minus its imports. BOT is one of the significant components for any current economic asset as it measures a country’s net income earned on global investments.read more. Upper limits are set for certain materials, restricting import quantity strictly. The government also creates policies to decide the import from a country according to export capacity, ensuring the proper trade balance.

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Types

Exploring the types of it is important to understand the meaning of non-tariff barriers properly. The restrictions can be of different types, including:  

#1 – Quantity Restrictions

The nations that wish to reduce the frequency of foreign trade restrict the volume or quantity of goods to transport to and from the country. They put restrictions on the import of certain products with a specific or defined upper limit of the quantity. Under this, the authorities allow no trade above the defined quantity limit or cost. The quotas that apply can be permanent, seasonal, or temporary. The lower rates are applicable for a certain value or size of imports; the higher rates apply to imports that exceed the pre-defined limits.

Non-Tariff Barriers Types

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#2 – Administrative Regulations

Countries introduce strict rules and regulations to ensure that other countries find it difficult to trade with them. One such rule is to follow the proper licensing system. The license system requires that the authority of a particular nation issue permits for the import and export of commoditiesCommoditiesA commodity refers to a good convertible into another product or service of more value through trade and commerce activities. It serves as an input or raw material for the manufacturing and production units.read more included in the lists of licensed merchandise.

The main licenses are generally those that allow the import and export of goods included in the lists for a limited period. Another one is a one-time license. It is for certain products on which quantity of goods, its price, its country of origin, and in some cases also trade or seller points through which import or export of product may need proper mention.

In addition, they may specify some technical specifications for a few products, not adhering to which would restrict the trade.

#3 – Consular Formalities

At times, nations ask foreign countries to produce certain credentials along with the trade documents or consular agreement to be eligible to undertake trade with the former. Some such documents are certificates of origin, import certificates, etc. In addition, there are instances where authorities demand the documents to be in the language of the importing countries.

#4 – Foreign Exchange Prohibitions

Finance measures regulate the access to and cost of foreign exchangeForeign ExchangeForeign exchange, or Forex, is trading one currency for values equivalent to another currency.read more for imports and define payment terms. In addition, the government uses financial measures to increase import costs. Some financial steps are advance payment requirements, a letter of creditLetter Of CreditA Letter of Credit (LC) is issued by a buyer’s bank to ensure timely, full payment to the seller. If the buyers default, the bank pays the sellers on their behalf.read more, advance payments of taxes and duties, security deposits, etc.

Examples of Non-Tariff Barriers

Let us consider the following non-tariff barriers to understand the concept better:

Example #1

Country A takes price controlPrice ControlPrice controls refer to the technique of establishing a lower limit or upper limit of the selling price of specified goods and services. read more measures, making imported sugar more expensive than domestically produced sugar, giving domestic products the upper hand. Thus, the citizens buy sugar produced domestically, which guarantees revenue for local producers and farmers. This symbolizes the non-tariff restriction of the nation towards ensuring economic stability.

Example #2

The White House recently acknowledged the increasing inflation to deal with, which the Biden administration has decided to reduce non-tariff barriers to international trade. In addition, it has also shown a willingness to introduce advanced regulations to exacerbate the rising prices of products and services. This, in turn, is likely to cut the costs of consumer goods, making them more accessible to American families.

Advantages & Disadvantages

Non-tariff barriers are introduced and implemented for the good of the nation. However, it can have a mixed impact on the economy. The pros and cons of these restrictions are as follows:

ProsCons
Encourages domestic marketNo extra income for the economy
Boosts employment rateRestricts free market participation, limiting resource allocation to global market
Increases national incomeCost of operating increases
Maintains balance of tradeLeads to unfair competition

Frequently Asked Questions

What are non-tariff barriers to WTO?

The non-tariff barriers are mainly the protective measures taken by the government and authorities in the form of laws, regulations, and policies to put conditions and prohibitions on trade to protect domestic industries’ interests.

What are the differences between tariff and non-tariff barriers?

Tariff barriers are imposed in the form of taxes and duties, thereby increasing the cost of the goods exported and imported. On the other hand, the non-tariff restrictions are imposed as regulations and formalities, which are made mandatory to be followed to undertake and continue international trade relationships. While the former is easy to levy and implement, the latter is difficult to understand and execute.

Are non-tariff barriers good?

Yes, non-tariff barriers are good as they help nations improve their domestic market. When the products from other nations do not meet the demands, citizens are compelled to purchase domestic goods. This boosts the nation’s economy, thereby creating more job opportunities. Plus, these restrictions help maintain the balance of trade.

This article is a guide to what are Non-Tariff Barriers and their meaning. Here, we explain how these work along with the types, examples, and pros & cons. You may learn more about macroeconomics from the following articles: –

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