e235dtrade Barriers

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Amity School of Business

INTERNATIONAL BUSINESS

MANAGEMENT

MODULE - 2

Trade Barriers


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What is a Trade Barrier?

Any hurdle that hampers the smooth flow of goods, services, andpayments from one destination to another/ between two countriesis termed as a trade barrier

Cause: rules and regulations of different countries. Such barriers are usually imposed by the country that imports the

goods but they adversely affect the volumes of both imports andexports.


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Objectives of Trade Barriers

To protect domestic industries from foreign goods. To encourage domestic production in the domestic market and

thereby making the country strong and self sufficient. To promote new industries and R&D activities by providing a

home market for domestic industries. To conserve the foreign exchange reserves of the country by

restricting imports from foreign countries. To protect the national economy from dumping by other

countries with surplus production. To counteract trade barriers imposed by other countries.


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Types of Trade BarriersTrade barriers

Tariff Barriers

On the basisof origin

1. Exportduty

2. Import duty

3. Transitduty

On the basis ofquantification

1. Specificduty

2. Ad-valoremduty

3. Compoundduty

On the basis ofpurpose

1. Revenue tariff

2. Protective tariff

3. Anti dumping

4. Countervailing

On the basis ofrelation

1. Single column2. Double column

3. Tripple column

Non- Tariff Barriers

1. Quota & Licensing

2. Consular formalities

3. Trade blocs4. Customs regulations

5. State trading

6. FOREX regulations

7. Health & safety


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Tariff Barriers

A tariff is a tax on commodities, which is collected by the

government and which raises the price of the good to the

consumer.

These are the duties levied on commodities when they

cross international border.


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Types of Tariff Barriers on the basis of originand destination of goods crossing national

boundaries

1. Export duty: Tax levied by the country of origin on

commodity designated for use in other countries. In India

export duties are levied on coffee, onions.

2. Import duty: Tax imposed on a commodity originating inanother country and is brought in the country imposing tax.

The purpose of import duty is to earn revenue, make

imports costly and to provide protection to domestic

countries.


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Types of Tariff Barriers on the basis ofquantification of tariffs.

1. Specific duty: Flat sum collected on a physical unit of the

imported commodity. Ex: Rs. 800 on each TV

2. Ad-valorem duty: The duty is imposed at a fixed

percentage on the value of an imported commodity.3. Compound duty: When the commodity is subject both to

specific and ad-valorem duty.


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Types of Tariff Barriers on the basis of thepurpose they serve

1. Revenue tariff: The rate of duty is low so that there is noor very little obstruction in the flow of goods. Aims in

revenue generation for the government.

2. Protective tariff: Aims in restricting flow of these goods, sothe duty levied is very high.


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3. Anti- dumping duty: Dumping is the commercial practice

of selling goods in foreign markets at a price below their

normal cost or even below their marginal cost so as to

capture foreign markets. So a penalty is imposed on

suspiciously low-priced imports, to increase their price inthe importing country and so protect local industry from

unfair competition.

4. Countervailing duty: A "countervailing duty" is a special

duty levied, in addition to the regular duty and other

charges, by an importing country on its imports which

have been found to be subsidized in the country of origin

or exportation. It is equal to the ascertained amount of

subsidy provided by the foreign country to its

manufacturers. 9


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Types of Tariff Barriers on the basis of traderelations

1. Single - column tariff: Tariff rates are fixed for certaincommodities and remains same for imports from all

countries.

2. Double - column tariff: two rates of duties are fixed for

certain commodities. The lower rate is made applicable to

a friendly country or with whom a bilateral trade

agreement is in effect. Higher rates are applicable on all

other countries.


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3. Triple - column tariff: Three different rates are fixed

general,, international and preferential tariffs. The

first two categories have minimal variance but the

preferential is substantially lower than the general

tariff and is applicable with countries with which

there is a bilateral relationship

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Types of Non - Tariff Barriers

1. Quota system and license: the quantity of a commodity

permitted to be imported from various countries during a

given period is fixed in advance. So the importers need to

have a license to import a particular commodity.

2 Consular formalities: some countries impose strict rules

regarding documents required for import. Such documentsinclude import certificates, certificates of origin, &

certificate consular invoices. Penalties are imposed in

case of not having those documents.


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3. Preferential treatment through trading blocs: somecountries form regional groups & offer special preferences

to member countries. These countries get mutually

benefited while other countries face a barrier while

entering the markets of these group of countries.

4. Custom regulations: there are a number of commodities

acts pertaining to movement of drugs, medicines,

minerals etc.


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5. State trading: state trading is referred to import- export

activities conducted by the government. Such trading is

useful to restrict import, as the final decision is taken bythe government.

6. Foreign exchange regulations: done in order to use the

foreign exchange in the best possible manner.

7. Health & safety measures: rules are made which aremainly applicable to raw materials and food items. Import

are not allowed if the regulations are not followed

properly.

Documents

e235dtrade Barriers