Trade Barriers

Instruments of trade Policy/control

Trade barriers

• Governments use several instruments to influence exports and imports. The govts measures may limit a firms ability to sell abroad , such as by prohibiting the export of certain products to certain countries, or make it difficult to import / or ban the import of certain goods. Collectively these governmental restriction and incentives to trade are known as protectionism. The main are:

• Tariffs

• Subsidies

• Import quotas

• Voluntary export restrints

• Local content requirements

• Administrative policies, and

• Antidumping duties.

Tariffs

• A tariff(also called a duty) is the most common type of trade control and is a tax that governments levy on a good shipped internationally

ie, Tariff is a tax levied on imports (or Exports) by the government

• Tariffs fall into two categories:

• Specific duty : levied as a fixed charge for each unit of a good imported (eg. Rs 1000/= per ton of steel)

• Ad valorem duty : levied as a proportion of the value of the imported good.

If both , a specific duty and an ad valorem duty is imposed on the same product, the combination is a compound duty

• In most cases , tariffs are placed on imports to protect domestic producers from foreign competition by raising the price of imported goods.

• When an import tariff is imposed – the govt. gains, because the tariff increases govt. revenues; Domestic producers gain, because the tariff affords them some protection against foreign competitors by increasing the cost of imported foreign goods.; consumers lose because they must pay more for certain imports.

• ie, tariffs are pro-producer and anti-consumer. They protect the producers from foreign competitors. This restriction of supply also raises domestic prices, and the consumers pay a higher price.

• Tariff collected by the exporting country are called Export tariff.

If collected by a country through which the goods have passed, is called transit...