Non Tariff Barriers: A General Guide To International Trade

Navigating the complexities of international trade in today's digital age necessitates a foundational understanding of the mechanisms that govern the flow of goods across borders.

While the internet has undoubtedly streamlined access to global markets and facilitated transactions, the traditional barriers to trade, both in the form of tariffs and non-tariff measures, remain significant factors shaping the competitive landscape.

For businesses venturing into importation and exportation, grasping the nuances of these barriers is not merely academic but a practical imperative for strategic planning, cost management, and overall success in the international arena.

Tariff barriers are taxes or duties imposed on goods as they cross international boundaries. They act as a source of revenue for the government, contributing to national coffers. This helps to shield strategic local industries from the competitive pressures of foreign products, allowing them space to grow and mature.

Beyond the direct financial implications of tariffs, a wide array of non-tariff barriers (NTBs) can significantly influence international trade. Unlike tariffs, NTBs encompass a diverse set of regulations, rules, and procedures that can restrict the volume or increase the cost of traded goods and services without the explicit imposition of duties.

In this article, we will be looking at non-tariff barriers, specific types and levels of non-tariff barriers in target markets, evaluating their feasibility for international trade, and developing effective market entry strategies.

Non-Tariff Barriers:

Non-Tariff Barriers (NTBs) are trade restrictions that governments use that are not tariffs (taxes on imports). Instead of making imports more expensive with taxes, NTBs use other means to limit the quantity or make it harder for foreign goods to compete with domestic products. They are essentially any policy measure other than a straightforward tax that makes importing more difficult or less attractive.

Think of it like this: If a tariff is like putting a toll on a bridge to enter a country, NTBs are like making the bridge very narrow (limiting the quantity of cars that can cross) or requiring every car to pass a complicated inspection (making the process of crossing more difficult).

Types Of Non-Tariff Barriers (NTBs):

NTBs are policy measures other than tariffs that restrict international trade. They can be quantitative (limiting the amount of imports) or qualitative (setting standards that imports must meet).

Some common types used in many countries include:

1. Quotas:

Quotas are direct quantitative restrictions imposed by a government on the amount of a specific good that can be imported into a country during a particular period, typically a year. Unlike tariffs, which influence the cost of imports, quotas directly limit the quantity of goods allowed to enter. This makes them a powerful tool for controlling the volume of international trade.

In the realm of international trade, import quotas function by setting a maximum limit on the amount of a specific product that can be brought into a country. Once this limit, expressed in units, weight, or value, is reached, no further imports of that particular good are permitted for the specified period.

Governments typically administer quotas by issuing licenses to domestic importers, allowing them to import a certain share of the total quota. The allocation of these licenses can be based on various criteria, such as the importer's past import volumes, auctioning, or government discretion.

2. Embargoes:

Embargoes in international trade represent the most severe form of trade barrier. Unlike tariffs or quotas that regulate the flow of goods, an embargo is a government-imposed prohibition on trade with a specific country or group of countries.

This ban can encompass all commercial activities, including the import and export of goods, services, and even financial transactions. Embargoes are typically implemented for political reasons, often as a tool of foreign policy to exert pressure on a target nation to change its behavior or policies.

Here are some examples of current embargoes in international trade:

• United States on Cuba: A comprehensive embargo that has been in place for decades, restricting most trade and financial transactions between the US and Cuba. While some aspects have been eased over time, significant restrictions remain.
• United States, European Union, and others on Iran: Various sanctions and embargoes targeting Iran's nuclear program, human rights record, and support for certain groups. These vary in scope and intensity but significantly limit trade in oil, financial transactions, and technology transfer.

3. Voluntary Export Restraints (VERs):

Voluntary Export Restraints (VERs) are a unique type of trade barrier in international trade. Unlike tariffs, which are taxes on imports, or quotas, which are direct limits imposed by the importing country, VERs are self-imposed limitations on the quantity of a specific good that an exporting country will ship to another country.

The term "voluntary" can be misleading, as these restraints are typically implemented under pressure or the implicit threat of more stringent trade barriers from the importing nation.

The primary motivation behind a VER from the exporting country's perspective is often to avoid the imposition of tariffs, quotas, or other more restrictive measures by the importing country.

By "voluntarily" limiting their exports, the exporting nation hopes to appease the importing country's domestic producers who are facing competition and to maintain some level of access to that market.

Note: The use of Voluntary Export Restraints (VERs) in international trade has significantly decreased since the World Trade Organization (WTO) agreement in 1994.

4. Technical Barriers to Trade (TBTs):

Technical Barriers to Trade (TBTs) serve a dual purpose in international commerce. Primarily, they are legitimate measures implemented by governments to achieve crucial policy objectives such as ensuring product safety, protecting human, animal, and plant health, safeguarding the environment, preventing deceptive practices, and enhancing national security.

These measures can take various forms, including technical regulations (mandatory requirements for product characteristics or related processes), standards (voluntary guidelines or characteristics), and conformity assessment procedures (testing, certification, and inspection processes used to verify compliance).

The use of TBTs as trade barriers can manifest in several ways. Here are some concrete examples help  illustrate how Technical Barriers to Trade (TBTs) function as non-tariff barriers:

• Electrical Safety Standards: Country A might require electrical appliances to meet a specific set of safety standards and testing procedures that are different from those in Country B. An exporter from Country B would need to undergo additional testing and certification processes in Country A, incurring extra costs and time delays, making it harder to compete with domestic producers in Country A.
• Language Requirements: Country M might mandate that all imported food products have labels printed in their national language, even if the exporter already uses widely understood languages like English. This necessitates the creation of specific packaging for that market.
• Specific Size or Material Restrictions: Country N could impose unique regulations on the size or material composition of packaging, ostensibly for environmental reasons. Exporters might need to redesign their packaging specifically for this market, increasing costs.
• Health Warnings: Differing sizes, formats, and language requirements for health warnings on products like tobacco or alcohol can create significant costs for exporters needing to produce market-specific packaging.
• Etc.
  

5. Sanitary and Phytosanitary (SPS) Measures:

Sanitary and Phytosanitary (SPS) measures are specific regulations that governments implement to protect human, animal, and plant life or health from certain risks.

These risks can arise from the introduction, establishment, or spread of pests and diseases, from additives, contaminants, toxins, or disease-causing organisms in food, beverages, or feedstuffs. SPS measures are crucial for ensuring food safety, preventing the spread of animal and plant diseases, and safeguarding ecosystems.

In the context of international trade, SPS measures act as a form of non-tariff barrier. While their primary intention is to protect health, the way they are designed and applied can significantly influence the flow of agricultural and food products across borders.

Examples of SPS measures impacting international trade include import bans on certain agricultural products from regions affected by specific diseases, requirements for specific treatments (like heat treatment or fumigation) to eliminate pests, setting maximum residue levels for pesticides in imported fruits and vegetables, and specific hygiene standards for processing imported meat products.

Note: The US has stringent SPS measures enforced by agencies like the USDA's Animal and Plant Health Inspection Service (APHIS) and the Food and Drug Administration (FDA).

7. Customs Procedures:

Customs procedures are the formal processes and regulations that govern the movement of goods across international borders. They are the set of mandatory steps that must be undertaken by importers and exporters to ensure compliance with a country's laws regarding the entry and exit of goods.

These procedures are administered by a country's customs authority, which is responsible for enforcing trade regulations, collecting duties and taxes, and preventing the movement of illegal or restricted items.

Navigating customs procedures can be complex, involving the submission of various documents such as commercial invoices, packing lists, bills of lading, and certificates of origin.

Importers and exporters must also correctly classify their goods according to standardized systems like the Harmonized System (HS) code to determine applicable tariffs and regulations.

Other qaulitative non-tariff barriers used by countries to control international trade include:

• Rules of Origin: Regulations determining the country of origin of a product, which can affect tariff rates or eligibility for trade agreements.
• Import Licensing: Requiring importers to obtain a license before importing certain goods.
• Government Procurement Policies: Favoring domestic suppliers in government purchasing decisions.
• Subsidies: Government support to domestic industries, making them more competitive against imports.

Note: Learn the common categories of NTBs, as they can be imposed through a range of instruments. The government uses NTBs to protecting domestic industries from foreign competition.

How To Identify NTBs of a Country:

1. Conduct Market Research:

• Identify Potential Markets: Determine which countries are most promising for your product.
• Research Import Regulations: Investigate the specific import regulations and standards that apply to your product in those countries.

2. Consult Official Sources:

• Government Agencies: Contact your country's trade agencies or embassies in your target markets. They can provide information on import regulations and NTBs.
• Customs Authorities: Check the websites of the customs authorities in your target markets for detailed information on import procedures and requirements.
• Standards Organizations: Research the standards organizations in your target markets (e.g., ISO, ANSI, IEC) to understand the relevant technical standards.
• Trade Agreements: Review any free trade agreements (FTAs) between your country and your target markets, as these agreements may reduce or eliminate certain NTBs.

2. Engage with Industry Experts:

• Trade Associations: Join relevant trade associations in your industry. They can provide valuable insights into NTBs and best practices for compliance.
• Consultants: Hire trade consultants or legal experts specializing in international trade. They can help you navigate complex regulations and ensure compliance.
• Freight Forwarders: Work with experienced freight forwarders who are familiar with import procedures in your target markets.

3. Monitor Regulatory Changes:

• Stay Informed: Regularly monitor government websites, trade publications, and industry news for updates on import regulations and NTBs.
• Adapt Quickly: Be prepared to adapt your products or processes to comply with any new regulations.

By following this detailed guide, businesses can effectively navigate the challenges posed by non-tariff barriers and expand their access to international markets. Remember that staying informed and adapting to changing regulations are essential for success in international trade.

Why Should Is it Important To Undersand NTBs of a Country?

Understanding non-tariff barriers (NTBs) in a target country is crucial for success in international trade. In fact, in many instances, NTBs can pose a greater challenge and have a more significant impact on market access and profitability than traditional tariffs.

Here is why having a deep understanding of NTBs is vital for international trade success:

1. Market Access and Entry Strategies: NTBs can significantly restrict or even block market access. Knowing the specific regulations, standards, and procedures of a target country allows businesses to assess the feasibility of entering that market and to develop appropriate market entry strategies. This might involve adapting products, modifying packaging, or establishing local partnerships to navigate these barriers.
2. Cost Management: NTBs often involve direct and indirect costs. Compliance with specific technical standards, undergoing mandatory testing and certification, dealing with complex customs procedures, and meeting labeling requirements all add to the overall cost of exporting. Understanding these costs upfront is essential for accurate pricing, budgeting, and profitability projections.
3. Supply Chain Management: NTBs can impact the efficiency and predictability of supply chains. Delays due to customs procedures, lengthy inspection processes, or the need for specific documentation can disrupt the flow of goods and increase lead times. Businesses need to factor these potential disruptions into their logistics and inventory management.
4. Competitive Advantage: By thoroughly understanding and effectively navigating NTBs, businesses can gain a competitive advantage over those who are less informed or prepared. This might involve being the first to obtain necessary certifications, developing products that meet local standards efficiently, or establishing strong relationships with local customs brokers.
5. Risk Mitigation: Ignorance of NTBs can lead to significant risks, including shipment delays, rejection of goods at the border, fines, and damage to reputation. A proactive understanding of these barriers allows businesses to anticipate and mitigate these risks.
6. Negotiation and Advocacy: For larger businesses and trade associations, understanding NTBs is crucial for engaging in dialogue with governments and advocating for more transparent and less trade-restrictive regulations.
7. Long-Term Sustainability: Building a sustainable international trade operation requires a long-term perspective that includes staying informed about evolving NTBs. Regulations and standards can change, and businesses need to be agile and adaptable to maintain compliance and competitiveness.

In conclusion, while tariffs are a visible cost of international trade, non-tariff barriers often operate in a more subtle yet equally impactful way. Investing time and resources in understanding the specific NTBs of a target market is not just advisable – it's a fundamental prerequisite for achieving sustainable success in international trade. It allows businesses to make informed decisions, manage costs effectively, navigate regulatory landscapes, and ultimately thrive in the global marketplace.