Trade Barriers: Tariffs and NonTariff Restrictions

Protectionism simply denotes the defensive measures of a government in order to protect its local industries from overseas competition. From economic point of view, it supports to decrease the level of imports.

Tariffs can be imposed for protection or revenue functions. A protective tariff refers to decreasing the number of imported products and components entering a country and they protect import-competing manufacturers from overseas. Trade Barriers: Tariffs and Non-Tariff Restrictions competition. This tariff permits growth in the output of import-competing manufacturers that would not have been viable without protection. A revenue tariff is imposed for the motive of generating tax revenues and may be placed on either exports or imports

There are three types of tariffs: specific, ad- valorem, and compound. Specific tariffs are measured in accordance with a physical unit of measurement, such as on a per-ton, per-bushel, or per-meter rate, and are specified at a particular monetary value. Ad-valorem tariffs are measured on the value of the goods and are levied as a percentage of that value. Finally, Compound tariffs are a combination of ad-valorem and specific.

• One of the advantages of tariff is revenue function, it provides revenue to government based on imported products. Interestingly, any kind of government or governing authority that needs cash could generally turn to levying tariffs on imported items. These price lists might be used to offset the costs of managing and defending harbour facilities. They may also be used to enhance the wealth of the rulers, or to pay for prices unrelated to the importation of products.

• A tariff can be levied to shield domestic companies. In fact, that is the most cited reason for levying a tariff. It is a method to make sure that domestic providers preserve, if not a monopoly then, at least a profitable benefit over non-domestic manufacturers of products. Historically, tariffs were imposed by many great empires in order to manage the flow of products between colonies and home countries, and to limit trade with rival countries. Products that needed to be shipped across the ocean were already highly priced, however, it became more expensive because of tariffs.

• A tariff surges the price of the imported products, sometimes uplifting its status to that of a luxury product. Therefore, a tariff could be imposed on certain imported products to make sure that only a few people have an enough supply for those imports. The more expensive an imported product becomes, the fewer people can afford to buy it. Thus, a tariff may be used to ensure or maintain the status of a luxury product.

• By the same token, a tariff may be used to raise the price of an exported product. Even though export tariffs are not practiced regularly, they have been used to defend valuable resources. Countries that would like to hold uncommon artifacts or natural resources may tax their export to discourage both speculative exportation and foreign consumption.

A tariff code is a product-specific code as documented in the Harmonized System (HS) maintained by the World Customs Organization (WCO). Tariff codes exist for nearly each and every product involved in international commerce. Required on official shipping files for tax assessment functions, a tariff code makes sure the uniformity of product category worldwide.

A tariff code is a number assigned to every kind of product sold across the world. The Harmonized System features 21 sections and 97 chapters of product codes that must be utilized by WCO members to stay compliant with trade policies. Tariff codes are used for taxation, customs, and statistical purposes by using WCO member countries.

• Tariffs impede with the concept of ‘free trade’ because it mainly focuses on the protection local industries. Free trade permits the market to set prices on the basis of supply, demand, productivity, and logistics, simply put, market determines the price. Although economists agree in general that free trade has authorized many countries to develop their economies, it fades monopolistic manage over the manufacturing of items. For this reason, countries that were once the best suppliers for high-price goods may eventually find their local industries undermined by comparatively inexpensive competitors in other countries.

• Governments may levy tariffs on imported products that compete with established local industries to defend jobs and investments. These protective tariffs, whilst used moderately, maintain aging economic systems in opposition to both foreign competition and the need to modernize. A significant number of economists debate that defensive tariffs prevent innovation and cripple manufacturing.

• Import tariffs hurt consumers who would like to buy products made in abroad. The consumers may want to save money over domestically produced products, or they may comprehend a degree of quality that is missing in domestically produced products. Arguments about the quality of products are often used to justify import tariffs, too. A business determining high standards of production is and being neglected by a rival industry in another country could lawfully want to guard customers from low-quality imports (while at the same time, to protect their own jobs and profits). However, in a free trade system market pressures tend to even out the quality in production as customers learn to avoid the worst-made product.

• In order to take diplomatic measurements, tariffs have been used as a tool to hurt countries. A government may levy a tariff simply to damage the trade another country depends upon. These crippling tariffs can demolish nascent industries and force economically weak countries to make concessions in unrelated negotiations.

The 12-digit code utilized in Turkey is known as Customs Tariff Statistics Position. The first 6 digits of the code evince the Harmonized System Nomenclature Code utilized by all countries that are the members of the WCO. 7-8th digits illustrate joint Nomenclature Code used by the countries of the EU. 9-10th digits point out positions shaped due to various tax practices. 11-12th digits illustrate the statistical codes. For instance, 4418.90.80.90.11 is the tariff code used for “Wooden Ladder”.

GATT Article II obligates members to impose tariff rates that are no higher than their bound rates. According to WTO, “Bound rate is the maximum rate of duty (tariff) that can be imposed by the importing country on an imported commodity. Here, each country commits itself to a ceiling on customs duties (tariff) on a certain number of products. These rates vary from country to country and commodity to commodity. But no country can raise duties above the bound rate it has committed, and the rate of customs duty actually applied may be lower than the bound rate”

World Trade Organization’s (WTO) regulations do not restrict members from setting high bound rates or not agreeing to be bound at all. The WTO regulations permit members to augment their applied tariff rates in the scope of their bound rates and to elevate tariff rates at will for unbound items. However, even though the guidelines permit such measures, unexpected hikes in tariffs will undoubtedly and inevitably reason negative impacts on trade. Moreover, non-binding tariff rates are also contrary to the spirit of the WTO, that is primarily based on the idea of the usage of “binding” to reduce tariffs. Therefore, the importance of binding cannot be overemphasized.

One of the important benefits of tariffs is that they act as the revenue of government. The effects of a tariff on the well-being of consumers and producers do not exhaust its effects on the importing country. Imposing a tariff with an optimal basis on exporting countries brings revenue to the country’s government. In order to receive this revenue from tariff, the government could follow various ways. This revenue can be utilized in different projects of a country.

Despite significant benefits of tariff, a nation can experience losses from it. The net effect of the tariff on the importing nation as a whole can be determined by combining the effects of the tariff on consumers, producers, and the government. The first key step is to impose a social value judgement. How much do we really care about each group’s gain or losses? If one group gains and another loses, how big must the gain be to outweigh the other group’s loss? To make any overall judgement, one must first decide how to weigh each dollar of effect on each group. That is unavoidable. Anybody who expresses an opinion on whether a tariff is good or bad necessarily does so on the basis of a personal value judgement about how important each group is. The basic analysis practices “the one-dollar one- vote metric”: Every dollar of gain or loss is just as important as every other dollar of gain or loss, regardless of who the gainers or losers are.

Small country

It is a nation which cannot affect the global market by trade restrictions. In other words, small nation cannot affect the world commodity prices

Offer curves give the nation’s offer of quantity of exports and imports. In this respect, it demonstrates the nation’s supply (exports) and demand (imports) offers.

When a country can gain by imposing a tariff, we might ask what the best possible tariff level is. This is known as the optimal tariff issue. Conventionally, the term “optimal tariff” refers to the tariff justified by the terms of trade argument. The terms of trade argument for tariffs is based on the assumption that countries are large enough to influence the world relative prices of their imports and exports.

Due to the declination of the importance of tariff in the current world, non-tariff restrictions have surged substantially. They are currently the most referred type of obstacles to trade within the international economy. Non-tariff restrictions have become a moot topic in trade activity over the past decade. They are a matter of concern because they’re not ancient strategies of discouraging imports through the application of duties. Instead, they work to slow the flow of products into a country by increasing the physical and administrative difficulties concerned in importation.

Due to the declination of the importance of tariff in the current world, non-tariff restrictions have surged substantially. They are currently the most referred type of obstacles to trade within the international economy. Non-tariff restrictions have become a moot topic in trade activity over the past decade. They are a matter of concern because they’re not ancient strategies of discouraging imports through the application of duties. Instead, they work to slow the flow of products into a country by increasing the physical and administrative difficulties concerned in importation.

Valuation systems, anti-dumping practices, tariff classifications, documentation requirements, fees

Multiple Exchange Rate System: Nations implement various exchange rates in the flow of goods and services in the multiple exchange rate system. Thus, if nations want to prevent the import of a product, they apply the multi-exchange rate policy and achieve their objective with a high exchange rate. On the other hand, imports of products enhance the low exchange rate.

Export Subsidies: Export subsidies are also payments made by a government in order to inspire the export of specified goods. As with taxes, subsidies can also be imposed on the basis of specific or ad-valorem. Agricultural and dairy products are the most common product groups where export subsidies are implemented. It is important to know that the subsidy is applied to the exported part of goods, not to the whole of its local production. In this way, the manufacturers or producers will turn to foreign sales more than their domestic sales. The subsidies for this purpose are varied such as tax rebate, direct premium payment, cheap credit and cheap input to export-oriented industries. Export subsidies can be regarded as a form of dumping. Although export subsidies are not legal by international accord, many countries provide them in disguised and not- so-disguised forms

Predatory dumping is the temporary sale of a commodity at below cost or at a lower price abroad as a way to drive overseas producers out of enterprise, and then prices are raised to take advantage of the newly obtained monopoly energy overseas.