Non Tariff Barriers

What It Is and How It Works

Non-tariff barriers to trade are instruments that restrict the importation of products to favor local industry, through alternative mechanisms to the imposition of levies (tariffs). They are measures that alter (directly or indirectly) the quantities and/or prices of a product that are traded.

In addition to the establishment of quotas, the most widespread non-tariff barriers are technical and phytosanitary standards, administrative bureaucracy and preferential national purchases by government agencies.

The Policy Impact

By limiting the importation of foreign goods that compete with local production, the commercialization of these goods is made more expensive or even impossible, thus improving the relative competitiveness of goods traded locally. For example, let's think of a country that forces its footwear importing companies to fill out extensive and specific forms, technically complex, which oblige them to detail each and every one of the materials used to make each pair of sneakers, which are either delayed in being approved or not approved at all. What will happen is that these importing companies will have to hire specific professionals to complete them, increasing the built-in cost of these products. Or even more, with the time they take between starting an import and the products finally arriving, they may have lost many consumers. What will they do then? Well, they will probably now be more willing to buy from local suppliers, even if they have slightly higher prices, or slightly lower quality.

Something similar happens in cases where excessive phytosanitary controls are put in place to prevent the entry of agricultural or food goods from other countries.

At the same time, the reduced demand for foreign exchange for imports can generate external relief on occasions when countries face balance of payments problems.

Stakeholders and Political Implications

As in any trade policy, we must distinguish between those who are directly affected and those who are only affected in a second instance. As for the first ones, we are talking about the importers that belong to the sector restricted by the barrier, as well as the local producers. The other side of this coin is the higher cost faced by their buyers, both the final consumers and those who demand the affected good as an input for the production of another.

Some Debates Among Economists

Since the beginning of economics, there has been authors that maintain that free trade is the best and most efficient policy for countries to exchange products with the outside world, as it is a win-win situation for the nations that practice it. However, there are also those who argue that the pattern of insertion in the international market is not neutral, and therefore grant a relevant role to the State in the productive development of economies.

The intended and positive effects of the implementation of non-tariff barriers have been mentioned; now it is time to talk about their possible disadvantages. Firstly, the higher prices of the products affected by the quota may not only deteriorate the purchasing power of consumers, but also affect exports of goods that use them as inputs (thus reversing the effect on the balance of trade). Secondly, limiting imports could jeopardize supply, which is particularly problematic in the case of staple goods. Finally, limiting imports reduces competition in the sector, which can lead to oligopolistic or monopolistic practices.