What is a non-tariff barrier
A non-tariff barrier is a means of restricting trade by using trade barriers in a form other than a tariff. Non-tariff barriers include quotas, embargoes, sanctions and levies. As part of their political or economic strategy, large developed countries frequently use non-tariff barriers to control the volume of trade they trade with other countries.
Explanation of the non-tariff barrier
Countries generally use non-tariff barriers in international trade, and they generally base these barriers on the availability of goods and services and political alliances with trading countries. Overall, any obstacle to international trade will affect the economy as it limits the functions of standard trade in the market. The loss of income resulting from the barrier to trade is called an economic loss.
Countries can set different types of alternative barriers in place of standard tariffs. These barriers often free countries from paying an additional tax on imported products and create other barriers that have a significant but different monetary impact.
Key points to remember
- A non-tariff barrier is a trade restriction, such as a quota, an embargo or a sanction, that countries use to achieve their political and economic goals.
- Countries generally use non-tariff barriers in international trade.
- Non-tariff barriers have a common basis on the availability of goods and services and political alliances with trading countries.
- Non-tariff barriers often free countries from paying an additional tax on imported products and create other barriers that have a significant but different monetary impact.
- Countries can use non-tariff barriers instead of or in conjunction with standard tariff barriers.
Countries can use licenses to limit imported goods to specific companies. If a business obtains a business license, it is allowed to import goods that would otherwise be subject to trade restrictions in the country.
Countries often issue quotas for the import and export of goods and services. With quotas, countries agree to specified limits for the products and services allowed to be imported into a country. In most cases, there are no restrictions on the import of these goods and services until a country reaches its quota, which it can set for a specific period of time. In addition, quotas are often used in international commercial license agreements.
Embargoes are when one country or more countries officially prohibit trade in specified goods and services with another country. Governments can take this step to support their specific political or economic goals.
Countries impose sanctions on other countries to limit their trading activities. Sanctions can include increased administrative measures or additional customs and trade procedures that slow or limit a country’s trade capacity.
Voluntary export restrictions
Exporting countries sometimes use voluntary export restrictions. Voluntary export restrictions set limits on the number of goods and services a country can export to specific countries. These constraints are generally based on availability and political alliances.
Countries can use non-tariff barriers instead of or in conjunction with conventional tariff barriers, which are taxes that an exporting country pays an importing country for goods or services. Tariffs are the most common type of trade barrier and increase the cost of goods and services in an importing country.
Example from the real world
An example of non-tariff barriers, as reported by Reuters, is the United Nations cycle of sanctions against North Korea and the Kim Jong Un regime adopted in December 2020. The sanctions reduce exports of gasoline, diesel and other refined petroleum products to the country, and ban the use of export of industrial equipment, machinery, transporting vehicles and industrial metals to North Korea. The barriers are designed to put economic pressure on the country to stop its nuclear weapons and military exercises.