Nontariff Barrier Essay

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One  of the  few things  on which  most  economists agree is that  in the long run, countries  will be better off with a free trade regime—that is, unrestricted flow of goods and services among countries.  For a variety of reasons, however, many countries  choose to  discourage  unrestricted imports  or  exports  of goods and services. The main tools used to achieve this  goal  are  tariffs  and  quotas.  Countries   may impose a tariff on foreign goods entering  the country. Countries  may also specify that  only a certain quantity  of a particular  product  (or service), called a quota, may enter  the country.  In addition,  countries may impose other conditions or restrictions  on the flow of goods among countries. These conditions are known as nontariff barriers. Whereas sometimes these restrictions  are motivated  by objectives other than restriction  of trade, they are classified as nontariff barriers as long as one of their consequences is restriction  of trade flows.

Examples of nontariff barriers include subsidies for producers; national  procurement policies that  give preference to domestic producers; health, safety, and customs  procedures  when they discriminate  against foreign goods; and voluntary or legislated export restrictions.  Subsidies for producers  include all programs  that  artificially  lower  domestic   production costs or increase prices, subsidized prices for inputs to manufacturers or tax rebates, export financing subsidies, or tax rebates on exports. Continuing disputes between the United States and Canada regarding lumber rests on the U.S. claim that Canadian provincial governments  unfairly subsidize saplings needed by lumber  firms. The U.S. government  encourages U.S. farm exports  through  its Export Enhancement Program and its Dairy Export Incentive Program. The European Union (EU) had created notorious  “butter mountains”  and has followed “common agricultural policy” to support EU farmers.

National  procurement policies, now illegal under World  Trade  Organization   (WTO)  rules,  take  the shape of restricting  a certain  percentage  of government purchases to domestic producers or giving domestic producers a specified price advantage.

Health-related nontariff barriers are the most difficult to  assess as to  whether  they are justified. In 2003, concerned  that EU-style restrictions  on genetically modified foods would spread around the world, the United States, Canada, and Argentina launched a case with the WTO  against the EU, demanding  that the EU lift its restriction  on the imports of genetically modified beef and other products. In 2006 the WTO ruled against the EU, finding no scientific justification for Europe’s failure to allow use of new varieties of corn, soybeans, and cotton. The ruling, however, was criticized by environmental and consumer groups for failing to protect consumer health and safety.

Similarly, in the spring of 2008, the EU appeared to be close to removing health-related restrictions on the imports of U.S. poultry. The EU had banned imports of U.S. poultry  on the  grounds  of health  effects in 1997 because of the U.S. practice of washing chicken carcasses with chlorinated  water. U.S. policy makers have challenged the health effects and demanded  an end to the ban. An agreement  seems likely that will require the imports to be washed with potable water and to label the product  as having been cleaned earlier with chlorine.

Export restrictions may be imposed in a bilateral or a multilateral arrangement. In the 1980s auto producers in Japan agreed to voluntarily limit the number  of automobiles  they would export  to the United  States and  Canada.  This arrangement was in  response  to threats  that U.S. automakers  faced in view of the oil crisis and the resulting demand for fuel-efficient cars.

Although the restriction  gave American automakers room to breathe, it had some unanticipated side effects. First, Japanese producers  upgraded  the quality of cars they exported  while maintaining  the quantitative limits to which they had agreed. Second, these  restrictions  resulted  in increased  exports  of knocked-down  autos and auto parts that were then assembled within the United States. The net consequences of these restrictions  were to allow Japanese automakers  to  entrench   themselves  deeply  in  the North American market.

In the  1950s, U.S. textile  producers  managed  to place voluntary  restrictions  on cotton  textiles from Japan. As new  producers  and  new  materials  came into the market,  these restrictions  were replaced by a multilateral  Multi-Fiber  Agreement,  which placed quotas on the exports of all major exporting countries to all the major importing countries of textiles.

Effects

The economic effects of nontariff barriers on imports are similar to those of tariffs and quotas in some ways. Nontariff barriers against imports raise the profits of the domestic producers of competing goods by reducing competition  within the industry. Consumers generally are worse off when the restrictions  are motivated by the desire to protect domestic producers and better off as a result of the imposition of health-related barriers imposed in view of valid and verifiable risks associated with imported products.

Export subsidies almost always result in the fall of national welfare, even though they bring some benefits to the producers who receive the subsidies. Unlike the case with tariffs, however, governments  do not  earn any revenue from the imposition of nontariff barriers.

Bibliography:   

  1. Kym Anderson and L. Alan Winters,  The Challenge of Reducing International  Trade and Migration Barriers (Centre  for  Economic  Policy  Research,  2008);
  2. Martha Kessler, Trade Barriers and China (Nova Science  Publishers,  2008);
  3. Paul Krugman  and  Maurice Obstfeld, International  Economics: Theory and Policy (Addison-Wesley, 2008);
  4. Paula R. Lignelli, European Union and Trade  Barriers in Europe (Nova Science Publishers, 2008);
  5. Aseem Prakash, “Beyond Seattle: Globalization, the Nonmarket Environment  and Corporate  Strategy,” Review of International Political Economy (v.9/3, 2002).

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