TYPES OF
TRADE BARRIERS
▪ Trading globally allows consumers and
countries to be exposed to goods and services
not available in their own countries, or more
expensive domestically.
▪ The importance of international trade was
recognized early on by political economists such
as Adam Smith and David Ricardo.
▪ Still, some argue that international trade can be
bad for smaller nations, putting them at a
greater disadvantage on the world stage.
▪ The barriers to international trade are policies
that governments implement to prevent
international trade and protect domestic
markets. These include subsidies, tariffs, quotas,
import and export licenses, and standardization.
01. Tariff Barriers
• Usually referred to as a tax on imports which is collected by the
government and which raises the price of the goods to the consumers.
• These are often created to protect the infant industries and developing
economies.
• These are further divided into two categories:
a. Specific Tariffs (Fixed Charge)
b. Ad Valorem Tariffs (Proportionate Value)
02. Non-Tariff Barriers
• Refers to the restrictions that arise from different measures taken by the
Government and authorities in the form of Government laws,
regulations, policies, conditions, prohibitions and specific market
requirements to make import and export of products difficult and costly.
• Some examples include Import bans, product-specific quotas,
unjustified sanitary and phyto-sanitary condition, complex regulatory
environment, product classification, export subsidies, etc.
 TARIFF Usually referred to as a tax on imports which is collected by the government and
which raises the price of the goods to the consumers. These are often created to
BARRIERS protect the infant industries and developing economies.

TYPES OF TARIFF
. BARRIERS

On Basis of On Basis of
On Basis of On Basis of On Basis of
Revenue to Tariff Systems
Incidence Calculation Quantum
Government
1 Import Tariff 1 Specific Tariff 1 Revenue Tariff 1
Single Column 1
Prohibitive
Tariff Tariff
2 Export Tariff 2
Ad-Valorem 2
Protective Preferential Non-
Tariff Tariff 2 2
Tariff Prohibitive
Compound Tariff
3
Tariff
 Effects of Tariffs in Partial Equilibrium Analysis
EQUILIBRIUM
ANALYSIS 1. Production Effect: Tariffs protect domestic industries by reducing foreign
competition, leading to increased domestic production of import substitutes.
OF A TARIFF 2. Consumption Effect: Tariffs reduce consumption and consumer satisfaction
due to higher prices of imported goods.
3. Revenue Effect: Tariffs generate revenue for the government through import
duties.
4. Redistribution Effect: Tariffs redistribute income by reducing consumer
surplus and increasing producer surplus and government revenue.
5. Terms of Trade Effect: Tariffs may improve or worsen the terms of trade
depending on the elasticities of demand and supply in trading countries.
6. Competitive Effect: Tariffs can aid infant industries by shielding them from
foreign competition, but may lead to inefficiency.
7. Income Effect: Tariffs may stimulate domestic production, employment, and
income by reducing imports.
8. Balance of Payments Effect: Tariffs reduce imports, potentially improving the
balance of payments deficit, but may have limited impact on fundamental
imbalances.

01. MEANING
Countervailing duties are
tariffs imposed on imported
goods to offset subsidies
provided by the exporting
country. These duties are
designed to level the playing
field and prevent domestic
producers from being
harmed by unfair trade
practices such as dumping.
COUNTERVAILING DUTIES
02. WORKING 03. BENEFITS
When countervailing duties Countervailing duties can
are imposed, they are added help to protect domestic
to the price of the imported producers from unfair trade
goods. This makes the practices such as dumping.
imported goods more The domestic producers can
expensive, which can make compete with foreign
them less competitive in the producers, which can help
domestic market. The to support domestic jobs
revenue generated from and industries. These can
countervailing duties is also help to prevent the loss
typically used to compensate of important industries and
domestic producers technologies that are critical
to national security.
04. DRAWBACKS
One potential drawback of
countervailing duties is that
they can lead to higher
prices for consumers. When
imported goods are more
expensive due to
countervailing duties,
consumers may be less
likely to purchase them,
which can lead to reduced
competition and higher
prices in the domestic
market
 NON-TARIFF BARRIER: QUOTA

Quotas are quantitative restrictions that • The main objective of an import quota is to
protect domestic industries and stabilize
are imposed on imports and exports of a
domestic prices.
specific product for a specified period.
Countries use quotas as direct forms of • The two main types of import quotas are
absolute quotas and tariff rate quotas.
administrative regulation of foreign
trade, and it narrows down the range • A disadvantage of an import quota is
..that the government does not earn
of countries where firms can trade
....revenue from it instead foreign
certain commodities. It caps the .....producers do.
number of goods that can be
• The concept of import quotas is a
imported or exported at any given way
way to
to protect domestic markets
time. The quota works by only from
fromcheap
from cheapforeign
foreignprices,
prices,by
bylimiting
limiting
allowing those with permission either the
the amount
the amountof of
a agood
goodthat
thatcan
canbebe
through licensing/government agreement imported.
imported.
imported.
to bring in the quantity specified by the • The point of an import quota is to limit
agreement. how much of a foreign product can be
imported into a country.
Imported.
India and
Non-Tariff
Barriers
 Introduction
• In international business, India’s activeness lies not
only in its market size, but also in its potential for
growth, skilled labour force, and increasingly business
friendly regulation.
• While tariff barriers have historically been a
concern, India has been progressively liberalising its
state policy to attract foreign investment and promote
economic growth.
• This includes initiatives like the making in India
campaign aimed at boosting manufacturing and
reducing dependence on imports.
• Additionally, India’s participation in regional trade
agreements like the regional, comprehensive,
economic partnership (RCEP) signals, it’s
commitment to further integration into the global
economy.
NON-TARIFF A nontariff barrier is a way to restrict trade using trade barriers in a form other than a
tariff. As part of their political or economic strategy, some countries frequently use
BARRIERS nontariff barriers to restrict the amount of trade they conduct with other countries.

TYPES OF NON-TARIFF
. BARRIERS

Quality and Sanitary and Government

Customs Phytosanitary Local Content
Technical Import Licensing Procurement
Procedures Measures Requirement
Standards Policies
 Quality and Technical Standards
01 India often imposes stringent quality and technical standards on
imported goods. While these standards can be legitimate for
ensuring consumer safety and product quality, they can also serve as
SIX barriers, especially if they are set higher than necessary or
inconsistently enforced.
NON-TARIFF
BARRIERS Customs Procedures
02 Lengthy and complex customs procedures can act as barriers to trade
by increasing transaction costs and delays at ports and borders.
Streamlining customs processes can help mitigate these barriers.

Import Licensing
03
02
India uses import licensing for various products to regulate their
entry into the country. While licensing can be necessary for certain
products, it can also lead to delays and uncertainty for importers.
 Sanitary and Phytosanitarty
Measures (SPS)
04 SPS measures related to food safety, animal health, and plant health
can sometimes be used as non-tariff barriers. India's regulations in

SIX these areas may sometimes be perceived as overly restrictive by

trading partners.

NON-TARIFF Local Content Requirements

BARRIERS 05 India has implemented local content requirements in certain sectors,
such as renewable energy, telecommunications, and defense, which
mandate a certain percentage of local components or production.
These requirements can act as barriers to imports.

Government Procurement Policies

06 Preference given to domestically produced goods in government

02
procurement can disadvantage foreign suppliers and act as a barrier to
trade.India has been addressing some of these barriers by participating
in trade negotiations, harmonizing standards with international norms,
simplifying customs procedures, and gradually liberalizing its trade
regime. However, addressing non-tariff barriers remains an ongoing
challenge in India's trade policy.
Voluntary Export Technical,
Administrative & International
Restraints Cartel
(VER) other regulations

OTHER NON
TARIFF
BARRIERS

Strategic Trade
Dumping Export Subsidies
Policy
 1 2 3
Voluntary Export Technical, Administrative International Cartel
Restraints (VER) & other Regulations
• Cartel is a method by which firms
• Government Procurement in an industry try to restrict output
• VER is also called Voluntary
Policy in order to raise prices and profit
Restraint Agreement and is a
• Embargo levels by way of collusion or
variant of import quota,
• Standards and Labelling mutual actions.
imposed by importer
Norms • The most famous international
voluntarily.
• Health and Safety Standards cartel is OPEC, controlling crude
• Reduces export quantity to
• Intellectual Property Rights oil supply.
avoid conventional trade
(IPR) • Cartels thrive when few firms
barriers’ damage.
• Specific Permissions dominate a market with no close
• Exporter undertakes VER,
• Administrative Backlogs substitutes, but they face
governs quantity restriction,
• Reciprocative Trade challenges like maintaining
and earns quota rents
Requirements cohesion and preventing member
• More expensive than tariff, as
• Counter Trades defection.
importing government loses
• Restrictive Services • Types of cartels:
potential revenue.
i. Essentiality i. Market Sharing Cartel
• Exporter compensates for
ii. Standards ii. Price Fixing Cartel
export curbs by focusing on
iii. Immigration iii. Limiting Production
high- quality, high-price goods.
• Aid, Grants and Loans iv. Bid Rigging/ Collusive Tendering

OTHER NON-TERIFF BARRIERS

 4 5
Dumping
• Monopolistic firms exploit their
market power by charging
different prices in different
markets, termed as ‘dumping’ in
global trade.
• Foreign countries often respond
to dumping with tariff barriers to
protect their domestic industries
from unfair competition.
• Dumping is criticized as an unfair
trade practice, as firms sell goods
abroad at lower prices than
domestically, potentially
disrupting domestic production.
• 4 types of dumping:
i. Persistent Dumping
ii. Predatory Dumping
iii. Sporadic Dumping
iv. Reciprocal Dumping
OTHER NON-TERIFF BARRIERS
6
Export Subsidies Strategic Trade Policy
• Governments provide subsidies
• Nations adopt protective policies
to exporters through direct
to safeguard national interests,
transfers, tax exemptions, and
employing trade protections,
low-interest loans to promote
taxes, subsidies, and govt.
exports.
supports to bolster domestic
• Subsidies keep domestic prices
producers.
high while reducing world prices,
• High capital investment sectors
benefiting foreign consumers.
with long-term returns or
• Subsidies may also be extended
comparative advantages, like
to foreign consumers through
technology instruments and
agencies like the Export Import
agricultural outputs, are targeted.
Bank (EXIM), resembling
• Example: Japan’s strategic trade
'Dumping' behavior.
policy in the 1970s supported its
• In 1999, WTO deemed export
technology industry through R&D
subsidies illegal, as seen in a
financing, tax breaks, and public-
case between the U.S. and
private cooperation, leading to its
European Union involving tax
transformation into an economic
exemptions for foreign WTO rules
powerhouse- ‘Asean Tiger’.
on export subsidies.
BALANCE OF PAYMENT
• Balance of payments is a statement
listing receipts and payments in the COMPONENTS OF
international transactions of a BALANCE OF PAYMENTS
country.
• In other words it records the inflow
and outflow of foreign exchange.
OFFICIAL
• The system of recording is based on CURRENT CAPITAL
RESERVES
ACCOUNT ACCOUNT
double entry book keeping , where ACCOUNT
the credit side shows the receipts of
foreign exchange from abroad and
the debit side shows payments in
foreign exchange to foreign
residents.
CAPITAL ACCOUNT
Capital account receipts:
• Long term inflow of funds
• Short term inflow of funds
Capital account payments:
• Long term outflow of funds
• Short term outflow of funds
The other major component of balance of payment
account is the capital account leading to monitor
transactions between countries affecting the stock
of capital of the country.
This account records transactions related to
international movements of ownership of financial
assets such as company shares bank loans and
government securities
Transactions in the capital account reflect a change
in stock either assets or liabilities between the
resident of two countries
CURRENT ACCOUNT

Current account receipts:

• Export of goods
• Invisibles: (a) Services (b) Unilateral The current account records transactions
.transfers (c) Investment income arising from trade in goods as well
• Non-monetary movement of gold as services, income accruing to residents of
one country to residents of another .
Current account payments: The current account is important in the sense
that it reflects sources and uses of national
• Import of goods
income.
• Invisibles: (a) Services (b) Unilateral
..transfers (c) Investment income
• Non-monetary movement of gold
BALANCE IN
TWO ACCOUNTS
Transactions in the current account affect National
Income and, in terms of income analysis, the level
of output and employment. Transactions in the
capital account affect the international debtors or
creditors position of the country and the
distribution of wealth and debt. Transactions in the
international reserve account determine the stock
of foreign reserves available to the country for
purpose of settling any 'deficit' in the current
account or capital account." - Gerald M.Meier
In the accounting sense, balance of payments of a
country remain always balanced as these accounts
are prepared under double entry system. Under
this, system, receipts and payments, known as
assets and liabilities are always equal. Here, each
transaction is recorded twice, once as a credit item
and once as a debit item.
DISEQUILIBRIUM IN
BALANCE OF PAYMENTS
The balance of payments (BOP) of a nation records all
economic dealings amongst the residents of that nation
and the rest of the world in a given time period. A
country faces a deficit in its balance of payments when
its total payments exceed its total receipts. A surplus
balance of payments arises when a country's total
receipts exceed its total payments.

Disequilibrium in the Balance of Payments is not

necessarily bad but persistent large deficits or surpluses
are a concern and need correction. Deficits can be
financed by foreign capital in the short run but too much
foreign debt makes the economy vulnerable. Surpluses
often mean losing the opportunity to trade and invest
more with other countries. The disequilibrium can be
corrected using policies.
CAUSES OF DISEQUILIBRIUM IN BALANCE OF PAYMENT

(a) Cyclic Fluctuations:

Cyclic fluctuations in the business activity lead to BOP disequilibrium. When there is a depression in a country, the
volume of both exports and imports fall. But the fall in exports may be greater than fall in imports due to the decline in
domestic production. Therefore, there is adverse BOP situation or disequilibrium.

(b) Price Changes:

If there is inflation in the country, the prices of the exports increases. As a result, the export falls. At the same time, the
demand for the imports increases. This results in adverse balance of payment.

(c) Scope of Economic Development:

If a country is developing, it will have a deficit in the balance of payment because it imports raw material, capital
equipment, machinery and services associated with the development process and export primary products. The
country has to pay more for the imports and receive less leading to disequilibrium.
CAUSES OF DISEQUILIBRIUM IN BALANCE OF PAYMENT

(d) Increase in population

High population growth in poor countries also had adversely affected their balance of payments position. It is easy to
see that an increase in population increases the needs of these countries for imports and decreases the capacity to
export.

(e) Huge external borrowings

A country may tend to have an adverse balance of payments when it borrows heavily from another country, while the
lending country will tend to have a favourble balance and the receiving country will have a deficit balance of
payments.

(f) Inflation
Owing to rapid economic development, the resulting income and price effects will adversely affect the balance of
payments position of a developing country. With an income, the marginal propensity to import being high in these
countries, their demand for imported articles will rise.
 MEASURES TO CORRECT DISEQUILIBRIUM IN
BALANCE OF PAYMENTS
a) Monetary Policy-
The monetary policy is concerned
with money supply and credit in
the economy. The Central Bank
may expand or contract the
money supply in the economy
through appropriate measures
which will affect the prices.
d) Devaluation-
Devaluation is lowering the
exchange value of the official
currency. When a country
devalues its currency, exports
becomes cheaper and imports
become expensive which causes
a reduction in the BOP deficit.
b) Fiscal Policy-
Fiscal policy is government's
policy on income and
expenditure. Government incurs
development and non -
development expenditure,. It gets
income through taxation and non -
tax sources. Depending upon the
situation governments
expenditure may be increased or
decreased.
e) Deflation-
Deflation is the reduction in the
quantity of money to reduce
prices and incomes. In the
domestic market, when the
currency is deflated, there is a
decrease in the income of the
people. This puts curb on
consumption and government can
increase exports and earn more
foreign exchange.
c) Exchange Rate-
Depreciation By reducing the
value of the domestic currency,
government can correct the
disequilibrium in the BOP in the
economy. Exchange rate
depreciation reduces the value of
home currency in relation to
foreign currency. As a result,
import becomes costlier and
export become cheaper. It also
leads to inflationary trends in the
country
f) Exchange Control-
All exporters are directed by the
monetary authority to surrender
their foreign exchange earnings,
and the total available foreign
exchange is rationed among the
licensed importers. The license-
holder can import any good but
amount if fixed by monetary
authority.