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