A nontariff barrier (NTB) is a type of trade restriction that countries implement to achieve specific political and economic objectives without using traditional tariffs. NTBs can take various forms, including quotas, embargoes, and sanctions.
What is a Nontariff Barrier?
Nontariff Barrier refers to any mechanism other than a tariff that a country employs to control the amount of trade across its borders. These barriers can influence international trade flows through advantages or disadvantages put in place that do not involve direct taxation on imports or exports.
How Nontariff Barriers Work
Nontariff barriers work by either limiting the quantity of goods that can be imported or exported or by creating rules that make trade more difficult or expensive. For instance:
- Quotas limit the quantity or value of goods that can be traded.
- Embargoes completely ban specific goods or trade with particular countries.
- Sanctions are broader and can punish countries economically to coerce them to change certain policies.
Types of Nontariff Barriers
Quotas
A quota sets a direct limit on the quantity or value of a certain good that can be imported or exported during a particular time frame.
Embargoes
An embargo is a more severe restriction that can either completely prohibit trade with a specific country or restrict specific goods.
Sanctions
Sanctions are punitive measures that a country can impose on another to achieve foreign policy goals. These can include restrictions on trade, investment, or other economic activities.
Examples of Nontariff Barriers
Historical Embargoes: U.S. and Cuba
From 1960 onwards, the United States enforced an embargo on Cuba to pressure the Cuban government for political changes.
Quotas: Textile Industry
In agreements like the Multi-Fiber Arrangement, quotas were used to limit the export of textiles from developing countries to protect domestic industries in developed countries.
Applicability of Nontariff Barriers
Nontariff barriers are utilized in various circumstances to protect nascent or strategic industries, to respond to unfair trade practices from other countries, or as instruments of foreign policy.
Comparisons: Nontariff Barriers vs. Tariffs
Nontariff Barriers
Nontariff barriers can sometimes be more effective tools for regulating trade than tariffs since they can target specific trade flows more precisely.
Tariffs
Tariffs impose a fee on imports or exports, directly increasing the cost of traded goods. They are generally easier to measure and more transparent than NTBs.
Related Terms
- Tariff: A tariff is a tax levied on imported or exported goods, used to protect domestic industries from foreign competition or to generate revenue.
- Trade Barrier: Any regulation or policy that restricts international trade, which includes both tariffs and nontariff barriers.
- Free Trade Agreement (FTA): An agreement between two or more countries to reduce or eliminate trade barriers amongst them, aiming to promote freer trade and increase economic integration.
FAQs
What is the main purpose of nontariff barriers?
How do nontariff barriers affect global trade?
References
- Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2018). International Economics: Theory and Policy. Pearson.
- Bhagwati, J. (1988). Protectionism. MIT Press.
Summary
Nontariff barriers (NTBs) are essential tools in the realm of international trade, allowing countries to exert control over their economic interactions without the use of tariffs. With forms ranging from quotas to embargoes and sanctions, NTBs can significantly impact global trade dynamics. Through careful regulation, they can protect domestic industries, achieve political aims, and respond to global economic changes. Understanding NTBs is crucial for navigating international trade and economics.
