29 March 2014

Tariff and non tariff barriers

Tariff and non-tariff barriers

Tariff Barriers

Tariffs are taxes that are put in place not only to protect infant industries at home, but also to prevent unemployment because of shut down of domestic industries. This leads to unrest among the masses and an unhappy electorate which is not a favourable thing for any government. Secondly, tariffs provide a source of revenue to the government though consumers are denied their right to enjoy goods at a cheaper price. There are specific tariffs that are a onetime tax levied on goods. This is different for goods in different categories. There are Ad Valorem tariffs that are a ploy to keep imported goods pricier. This is done to protect domestic producers of similar products.

Non Tariff Barriers

Placing tariff barriers are not enough to protect domestic industries, countries resort to non tariff barriers that prevent foreign goods from coming inside the country. One of these non tariff barriers is the creation of licenses. Companies are granted licenses so that they can import goods and services. But enough restrictions are imposed on new entrants so that there is less competition and very few companies actually are able to import goods in certain categories. This keeps the amount of goods imported under check and thus protects domestic producers.
Import Quotas is another trick used by countries to place a barrier to the entry of foreign goods in certain categories. This allows a government to set a limit on the amount of goods imported in a particular category. As soon as this limit is crossed, no importer can import further quantities of the goods.
Non tariff barriers are sometimes retaliatory in nature as when a country is antagonistic to a particular country and does not wish to allow goods from that country to be imported. There are instances where restrictions are placed on flimsy grounds such as when western countries cite reasons of human rights or child labour on goods imported from third world countries. They also place barriers to trade citing environmental reasons.

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