Non tariff barrier

What Is Non-Tariff Barrier?

A non-tariff barrier (NTB) refers to any measure, other than a customs tariff, that restricts international trade. These obstacles fall under the broader category of international trade, impacting the flow of goods and services between countries. Non-tariff barriers can take many forms, including quotas, embargoes, sanctions, and technical regulations, all of which aim to protect domestic industries or address public policy concerns, but can inadvertently or intentionally impede imports.

History and Origin

The prominence of non-tariff barriers grew significantly following the progressive reduction of tariffs through various rounds of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). As traditional customs duties became less effective in protecting domestic industries, countries began to employ more subtle, yet equally restrictive, methods.

A major turning point in addressing NTBs was the establishment of the WTO in 1995, which aimed to create a more integrated and enforceable global trading system. Key agreements under the WTO specifically address certain types of non-tariff barriers. For instance, the Agreement on Technical Barriers to Trade (TBT Agreement) seeks to ensure that technical regulations, standards, and conformity assessment procedures do not create unnecessary obstacles to trade²², ²³. Similarly, the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) aims to prevent food safety and animal or plant health regulations from being used as disguised protectionism²⁰, ²¹. These agreements provide a framework for member countries to develop legitimate public policies without unduly hindering global commerce.

Key Takeaways

• Non-tariff barriers are diverse measures, other than tariffs, that restrict international trade.
• They can include quotas, import licenses, subsidies, and technical regulations.
• The World Trade Organization (WTO) has specific agreements, like the TBT and SPS Agreements, to address and minimize the trade-restrictive impact of these barriers.
• Non-tariff barriers can increase costs for exporters and importers, affecting global supply chains.
• While some NTBs serve legitimate public policy goals, others can be protectionist in nature.

Interpreting the Non-Tariff Barrier

Non-tariff barriers are interpreted by their impact on the volume, cost, and complexity of international trade. Unlike tariffs, which directly add a fixed percentage or amount to the cost of imported goods, NTBs often create hidden costs, delays, and administrative burdens. For example, stringent product standards or complex customs procedures can significantly increase the expense and time required to bring goods to market.

Interpreting the effect of a specific non-tariff barrier involves assessing its trade-restrictive potential versus its legitimate policy objective. A country might implement a health regulation on imported food (an SPS measure) to protect its citizens from disease. However, if the requirements are excessively burdensome or scientifically unfounded, they could be interpreted as a protectionist measure designed to shield domestic producers from foreign competition. Organizations like the OECD analyze the impact of these measures on trade costs, distinguishing between legitimate regulatory hurdles and those primarily intended to restrict trade¹⁸, ¹⁹.

Hypothetical Example

Consider a hypothetical scenario involving "Maple Syrup Land" and "Pancake Nation." Maple Syrup Land is renowned for its high-quality maple syrup production. Pancake Nation, seeking to protect its nascent domestic syrup industry, decides to implement a new regulation.

Instead of imposing a tariff, Pancake Nation introduces a "Syrup Purity and Viscosity Standard" (SPVS). This standard requires all imported maple syrup to undergo a new, expensive, and time-consuming testing process at a government-approved laboratory within Pancake Nation, regardless of certifications from the exporting country. The only approved laboratory has a limited capacity, causing significant delays and spoilage for shipments.

This SPVS acts as a non-tariff barrier. While ostensibly for consumer protection, its implementation effectively limits the quantity of Maple Syrup Land's product that can enter Pancake Nation, increasing costs and reducing the competitiveness of the imported syrup compared to locally produced alternatives. Exporters from Maple Syrup Land face higher logistics costs and potential losses due to extended waiting periods.

Practical Applications

Non-tariff barriers manifest in various aspects of international commerce. In regulatory contexts, they appear as import quotas limiting the volume of specific goods, or as subsidies provided to domestic industries, giving them an unfair advantage over imports. Strict sanitary and phytosanitary (SPS) measures for agricultural products or complex technical regulations for manufactured goods (TBTs) are common examples. For instance, a country might require specific packaging or labeling that differs from international norms, increasing production costs for exporters¹⁶, ¹⁷.

NTBs are particularly relevant in trade disputes and negotiations. Countries frequently challenge each other's non-tariff measures at the WTO, arguing that they are disguised forms of protectionism. A well-known example is the dispute over the European Union's ban on U.S. meats treated with growth-promoting hormones, which the U.S. viewed as an SPS barrier rather than a purely health-based measure¹⁵. The United States Trade Representative (USTR) publishes an annual report detailing foreign trade barriers, many of which are non-tariff in nature¹⁴.

Limitations and Criticisms

One of the primary criticisms of non-tariff barriers is their lack of transparency compared to tariffs. While a tariff rate is clear and quantifiable, the true cost and impact of an NTB can be difficult to ascertain, leading to uncertainty for businesses engaged in cross-border trade. This opacity can create a less predictable global trading environment.

Another limitation is the potential for NTBs to be used as tools for disguised protectionism, undermining the principles of free trade. While countries have legitimate reasons to implement regulations for public health, safety, or environmental protection, these measures can be manipulated to favor domestic industries. This can lead to trade friction and retaliatory measures, as seen in various international trade disputes¹², ¹³. Critics also argue that NTBs can disproportionately impact developing countries, which may lack the resources to comply with complex regulatory requirements in export markets, thus hindering their participation in the global economy. An analysis by the Tax Foundation highlights how trade barriers, including those beyond simple tariffs, can raise costs for consumers¹¹.

Non-Tariff Barrier vs. Tariff

The distinction between a non-tariff barrier and a tariff lies in their nature and application. A tariff is a direct tax or duty imposed on imported goods, increasing their price. It is a clear and quantifiable financial levy, making its impact on trade easily measurable. For example, a 10% tariff on imported automobiles directly raises the cost of those cars by 10%.

In contrast, a non-tariff barrier is any non-tax measure that restricts trade. These can include import quotas, which set a maximum quantity of a good that can be imported; import licenses, requiring special permission to import; and technical barriers to trade (TBT), which involve product standards, testing, and certification procedures. While tariffs primarily affect price, non-tariff barriers can affect quantity, access, time, and administrative burden. Both serve to protect domestic industries or achieve policy objectives, but NTBs often present more complex and less transparent hurdles to international trade.

FAQs

What are common examples of non-tariff barriers?

Common examples include import quotas, import licenses, embargoes, voluntary export restraints, local content requirements, subsidies to domestic producers, and stringent technical regulations (e.g., product standards, health and safety regulations, labeling requirements)⁹, ¹⁰.

Why do countries use non-tariff barriers?

Countries use non-tariff barriers for various reasons, including protecting domestic industries from foreign competition, safeguarding public health and safety, national security, environmental protection, and promoting certain social or ethical standards⁷, ⁸.

How do non-tariff barriers affect consumers?

Non-tariff barriers can lead to higher prices for consumers due to reduced supply and less competition. They can also limit the variety and quality of goods available in the market, as foreign products may be excluded or made prohibitively expensive⁶.

What is the role of the WTO in relation to non-tariff barriers?

The World Trade Organization (WTO) aims to reduce and regulate non-tariff barriers through specific agreements like the TBT Agreement and SPS Agreement. These agreements set rules to ensure that regulations are non-discriminatory, transparent, and based on scientific evidence, preventing them from being used as disguised protectionism⁴, ⁵. The WTO provides a forum for members to negotiate and resolve disputes related to these measures³.

Are all non-tariff barriers considered protectionist?

No, not all non-tariff barriers are inherently protectionist. Many non-tariff measures serve legitimate public policy objectives, such as ensuring food safety, protecting the environment, or maintaining national security. However, these measures can become protectionist if they are designed or applied in a way that is more trade-restrictive than necessary to achieve the stated objective, or if they discriminate against imported goods¹, ².