Non-Tariff Barriers (2024)

What are Non-Tariff Barriers?

Non-tariff barriers are trade barriers that restrict the import or export of goods through means other than tariffs. The World Trade Organization (WTO) identifies various non-tariff barriers to trade, including import licensing, pre-shipment inspections, rules of origin, custom delayers, and other mechanisms that prevent or restrict trade.

Developed countries use non-tariff barriers as an economic strategy to control the level of trade they conduct with other countries. When making decisions on the non-tariff barriers to implement in international trade, countries base the barriers on the availability of goods and services for import and export, as well as the existing political alliances with other trade partners.

Developed countries may elect to release other countries from being subjected to additional taxes on imported or exported goods, and instead create other non-tariff barriers with a different monetary effect.

Origin of Non-Tariff Barriers

During the formation of nation-states, countries had to devise ways of raising money to finance local projects and pay recurrent expenditures. One of these ways was the introduction of tariffs, which placed restrictions on imported and exported goods and services.

However, industrialized countries transitioned from tariff barriers to non-tariff barriers since they had built other sources of funding. Most developing nations still rely on tariff barriers as a way of raising revenues to finance national projects while regulating international trade with other countries.

Later, the industrialized countries switched from tariff to non-tariff barriers for several reasons. One reason was to regulate international trade, even in the absence of tariff barriers. It exempts certain countries from paying additional taxes on goods, and instead, created other meaningful non-traffic barriers.

A second reason for introducing non-tariff barriers is to support weak industries that have been affected by the reduction or withdrawal of tariff barriers. A final reason is that non-tariff barriers are an avenue for interest groups to influence trade regulation in the absence of trade tariffs.

Types of Non-Tariff Barriers

Non-tariff barriers may take the following forms:

1. Protectionist barriers

Protectionist barriers are designed to protect certain sectors of domestic industries at the expense of other countries. The restrictions make it difficult for other countries to compete favorably with locally produced goods and services. The barriers may take the form of licensing requirements, allocation of quotas, antidumping duties, import deposits, etc.

2. Assistive policies

Although assistive policies are designed to protect domestic companies and enterprises, they do not directly restrict trade with other countries, but they implement actions that can impede free trade with other countries. Examples of assistive barriers include custom procedures, packaging and labeling requirements, technical standards and norms, sanitary standards, etc.

International companies must meet the requirements before they can be allowed to export or import certain goods into the market. The governments also help domestic companies by providing subsidies and bailouts so that they can be competitive in the domestic and international markets.

3. Non-protectionist policies

Non-protectionist policies are not designed to directly restrict the import or export of goods and services, but the overall outcomes may lead to free trade restrictions. The policies are primarily designed to protect the health and safety of people and animals while maintaining the integrity of the environment.

Examples of non-protectionist policies include licensing, packaging and labeling requirements, plant and animal inspections, import bans for specific fishing or harvesting methods, sanitary rules, etc.

Examples of Non-Tariff Barriers

1. Licenses

Licenses are one of the most common instruments that countries use to regulate the importation of goods. A license system allows authorized companies to import specific commodities that are included in the list of licensed goods.

Product licenses can either be a general license or a one-time license. The general license allows the importation and exportation of permitted goods for a specified period. The one-time license allows a specific product importer to import a specified quantity of the product, and it specifies the cost, country of origin, and the customs point through which the importation will be carried out.

2. Quotas

Quotas are quantitative restrictions that are imposed on imports and exports of a specific product for a specified period. Countries use quotas as direct forms of administrative regulation of foreign trade, and it narrows down the range of countries where firms can trade certain commodities. It caps the number of goods that can be imported or exported at any given time.

3. Embargoes

Embargoes are total bans of trade on specific commodities and may be imposed on imports or exports of specific goods that are supplied to or from specific countries. They are considered legal barriers to trade, and governments may implement such measures to achieve specific economic and political goals.

4. Import deposit

Import deposit is a form of foreign trade regulation that requires importers to pay the central bank of the country a specified sum of money for a definite period. The amount paid should be equal to the cost of imported goods.

Additional Resources

Thank you for reading CFI’s guide to Non-Tariff Barriers.To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

• Barriers to Entry
• Free Trade Area
• Maquiladora
• Smoot-Hawley Tariff Act
• See all economics resources