What is a Nontariff Barrier?

A nontariff barrier refers to any method employed to impede trade that differs from imposing a tariff. These barriers encompass various measures such as quotas, embargoes, sanctions, and levies. Some nations frequently employ nontariff barriers as part of their political or economic strategies to regulate the volume of trade with other countries.

Key points:

• Nontariff barriers (NTBs), such as quotas, embargoes, or sanctions, are utilised by countries to advance their political and economic objectives.
• In international trade, countries often favour nontariff barriers over traditional tariffs.
• Examples of nontariff barriers include embargoes, quotas, levies and sanctions.

How Nontariff Barriers Work

Nations frequently employ nontariff barriers in international trade, influenced by a country’s political alliances and the availability of goods and services.

Any impediment, be it tariffs or nontariff barriers, affects the global economy by constraining the free market’s operations. The resulting revenue loss for companies due to these trade barriers might be viewed as an economic setback, particularly by advocates of laissez-faire capitalism. Proponents of this economic system advocate for minimal government intervention in the market.

Countries may opt for nontariff barriers alongside or in lieu of conventional tariff barriers, which entail taxes imposed by an importing country on goods or services from an exporting nation. Tariffs, the most prevalent trade barrier, elevate the costs of products and services within the importing country.

At times, nations seek alternatives to standard tariffs to avoid additional taxes on imported goods. These alternatives can significantly impact trade levels, albeit with different financial implications compared to standard tariffs.

Types of Nontariff Barriers

Licences

Nations might employ licences to confine the importation of particular goods to specific businesses. Upon obtaining a trade licence, a business gains the authorisation to import goods that would otherwise face trade restrictions within the country.

Quota

Countries frequently institute quotas for both import and export of goods and services. These quotas define agreed-upon limits for the importation of products and services into a nation. Generally, there are no constraints on importing until a country reaches its predetermined quota, which may be set for a specific period. Additionally, quotas often feature in international trade licence agreements.

Embargo

Embargoes entail the official prohibition of certain goods and services by a country or multiple countries concerning trade with another nation. Governments may implement embargoes to further specific political or economic objectives.

Sanctions

Sanctions imposed by countries aim to curtail the trade activities of other nations. These sanctions may involve heightened administrative measures or additional customs and trade protocols that hinder or limit a country’s trading capabilities.

Voluntary Export Restraints

In some instances, exporting nations opt for voluntary export restraints. These measures establish limitations on the quantity of goods and services a country can export to specified nations, often influenced by availability and political affiliations.

Advantages and Disadvantages of Nontariff Barriers

Advantages

Nontariff barriers offer primary benefits by safeguarding domestic industries against foreign competition. Through regulations and standards, governments can shield local industries from inexpensive imports, thereby bolstering domestic businesses and preserving employment opportunities.

Nontariff barriers, concerning product standards and regulations, serve to ensure that imported goods adhere to specific quality and safety criteria. This serves consumers by minimising the entry of subpar or unsafe products into the market, emphasising adequate manufacturing standards.

Additionally, nontariff barriers serve to uphold national security interests. These measures encompass export controls on sensitive technologies or restrictions on the importation of strategic goods to prevent their misuse. They are employed to counter dumping practices, wherein foreign producers sell goods in a foreign market at prices below their production costs to gain a competitive edge.

Disadvantages

One notable drawback of nontariff barriers lies in their capacity to disrupt international trade dynamics. By erecting hurdles to imports, these barriers can interrupt the natural flow of goods, causing trade imbalances, inefficiencies, and market distortions. Deliberately limiting the variety of goods available to consumers, this impacts consumer choice, potentially denying access to superior or more cost-effective products.

Compliance with nontariff barriers incurs expenses for both producers and consumers. Manufacturers may need to adjust their production processes to meet specific standards, while importers face additional costs tied to documentation, inspections, and adherence checks. Unlike tariffs, nontariff barriers are often intricate and their implications sometimes uncertain.

At times, nontariff barriers exhibit bias against foreign goods, favouring domestic products, contravening the principles of non-discrimination and fair trade outlined in international trade agreements. Moreover, excessively restrictive nontariff barriers can impede economic expansion by limiting entry to global markets and stifling competition. This, in turn, may decelerate innovation and productivity on a global scale.

Additionally, nontariff barriers may endorse activities that do not promote optimal resource allocation. When these barriers protect inefficient domestic industries, resources might be misallocated. This could redirect capital and labour toward industries that might not be globally competitive without trade restrictions, posing an efficiency strain on the global economy overall.

Nontariff vs Tariff Barriers

Countries use two distinct methods, tariffs and nontariff barriers, to regulate international trade. Tariffs function as monetary taxes imposed on imported or exported goods, while nontariff barriers encompass a spectrum of non-monetary measures.

While tariffs specifically target certain products or industries, nontariff barriers often exert a broader and less transparent influence on trade. Tariffs, usually part of trade negotiations, offer flexibility in rate adjustments, whereas quantifying nontariff barriers and ensuring compliance can prove intricate. Hence, nontariff barriers become a crucial focal point in international trade discussions.

In numerous instances, tariffs directly impact imported goods’ prices and can be strategically employed to influence trade volumes and government revenues. On the other hand, NTBs, while potentially affecting prices indirectly, serve varied policy goals beyond revenue generation. These barriers might safeguard domestic industries or ensure product quality and safety, occasionally leading to incidental pricing effects.

Trade agreements commonly involve negotiations concerning both tariffs and nontariff barriers, demanding nuanced approaches for trade facilitation due to their distinct characteristics. In some scenarios, both mechanisms are utilised together, as manipulating one (such as tariffs) may align with agreed-upon nontariff barriers more effectively.

Example of Nontariff Barriers – North Korea

To illustrate how nontariff barriers work, let’s see their application in a more pronounced sense, focusing on North Korea.

The United Nations implemented a new round of nontariff barriers on the reclusive country on December 22, 2017 after Pyongyang conducted a test launch of the Hwasong-15 ICBM three weeks before. Under UN Security Council Resolution 2397, North Korea’s import restrictions include an annual limit of refined petroleum imports at 500,000 barrels, crude oil imports at a maximum four million barrels a year, and import bans on heavy machinery, industrial equipment and vehicles. A total export ban is also in effect for North Korean food and agricultural products, mining machinery, and electrical equipment.

Previous UNSC resolutions already carried their own sets of restrictions on North Korean trade, such as banning export of mineral resources and prohibiting UN member-states from handling cargo with the final destination being North Korean ports. The country has often been criticised for using various methods to generate income primarily for financing the development of its armed forces and its nuclear programme.     

Australia’s Stance on Nontariff Barriers

Australia is known for its commitment to open and liberalised trade. The country generally opposes the use of nontariff barriers that restrict the free flow of goods and services, as stated in the 2017 Foreign Policy White Paper. Australia advocates for transparency and adherence to international trade rules and agreements, including those under the World Trade Organisation (WTO).

Australia also actively engages in trade negotiations and seeks to reduce and eliminate NTBs through bilateral and multilateral agreements. The country’s trade policy aims to create a level playing field for Australian businesses by promoting free and fair trade practices. The NTB Action Plan drafted in 2019 aims to help Australian exporting firms redflag non-trade barriers by reporting them via this link.

However, Australia also recognises the importance of certain nontariff measures, such as those related to product safety and consumer protection. The challenge lies in finding a balance between legitimate regulatory objectives and avoiding unjustified trade restrictions.

FAQs

Are nontariff barriers legal in international trade?

Nontariff barriers within international trade can fall into either legal or illegal categories, contingent upon their characteristics and implementation methods. Many nontariff barriers represent lawful measures adopted by governments to accomplish specific policy goals, like safeguarding public health, ensuring product safety, or upholding national security. These barriers are typically regarded as legal when aligned with international trade regulations and agreements, such as those outlined by the WTO.

How can companies overcome nontariff barriers?

Businesses have various strategies at their disposal to overcome nontariff barriers in international trade. Initially, they can invest in extensive research to comprehend these barriers thoroughly. Additionally, companies can initiate discussions with governmental authorities to advocate for measures that ease trade and offer compliance assistance.

What role do nontariff barriers play in trade agreements?

Businesses have multiple approaches available to tackle nontariff barriers within international trade. They can start by investing in comprehensive research to comprehend these barriers thoroughly. This understanding enables them to adjust their products and operations to meet the necessary standards and regulations. Collaborating with local partners or trade associations can offer valuable insights and assistance in navigating these barriers. Moreover, engaging in discussions with government authorities allows companies to advocate for measures that facilitate trade and ensure compliance.

How are nontariff barriers enforced?

The implementation of NTBs involves a blend of regulatory and administrative actions by the government authorities of the importing country. These measures usually encompass meticulous documentation and customs protocols, which include inspections, testing, and compliance checks, ensuring conformity with specific NTB criteria. Some goods might necessitate licences and permits, while oversight on import quotas ensures that predetermined limits are not surpassed.

Conclusion

nontariff barriers play a significant role in shaping international trade dynamics, influencing the flow of goods and services across borders. While they serve legitimate purposes such as protecting consumer safety and national security, they can also hinder trade, increase costs, and reduce competition.

Australia’s stance on nontariff barriers reflects its commitment to open and fair trade practices. The country actively seeks to reduce these barriers through negotiations and adherence to international trade rules. Balancing the need for regulatory objectives with the desire for free and fair trade remains an ongoing challenge for countries worldwide. As global trade continues to evolve, addressing nontariff barriers will remain a crucial aspect of international economic relations.

DISCLAIMER: This article is for informational purposes only and is the opinion of the author.