Tariffs, Quotas and Non-Tariff Trade Barriers - Research Paper Example

 tariffs, quotas and non-tariff trade barriers To protect the agriculture and other infant home industries, stimulate import substitution, encourage foreign direct investment and due to other balance of payment reasons governments of home country impose certain trade barriers. According to Economy Watch, “Trade barriers aim to hike the prices of imported products in order to secure the domestic industry against fierce competition from foreign products.(“ Trade Barriers”)” Major trade barriers and their affects on international trade are given below.

Tariffs: - “A tax levied by a government against certain imports, designed to raise revenue or to protect domestic firms.” (Kotler & Armstrong, 2006, p.590) Although tariffs may be imposed on both imported and exported goods but usually they are imposed on imported goods. Different types of tariffs are ad valorem tariff, specific tariff, revenue tariff, prohibitive tariff, protective tariff, environmental tariff and retaliatory tariff. Tariffs restrict international trade as due to their imposition, exporters have to bear an additional cost, to which either they have to absorb which increases their approaching costs to the market and reduces their profits and causes a reduction in imports, or they have to raise their selling prices to cover the new expenses, which causes decrease in demand and resultantly imports.

Quotas: -“Means of restricting the quantity of imports through import licenses, either of a certain item or from a certain country.”(Business Dictionary) Its different types are binding quota, non-binding quota, absolute quotas and tariff-rate quotas. Import quotas also restrict international trade as they limit imports to a specified level with certainty, replace market mechanism and according to Solusource , “If you are importing or exporting goods that are subject to a quota, you may have to compete with other buyers or suppliers that are attempting to negotiate similar deals” (“Identifying”).

Non-tariff trade barriers: -These are nonmonetary barriers to restrict imports. These are also called NTBs its common examples are embargoes, anti-dumping measures, biases against foreign company’s bids and countervailing duties etc. Although these are called nontariff trade barriers but when they are implied they affect the international trade in about same way in which tariffs affect.Free trade environment leads closer to market perfection as it results in better allocation and optimum utilization of resources, offers better and greater choices to customers and leads towards economic development and customer satisfaction.

While imposing trade barriers hampers growth of economy as it results in decreased exports, slow economic business and economic disequilibrium by restricting the nation from enjoying economic benefits of international trade and over/under allocation of resources in different sectors. So, to take the advantages of free trade different treaties were signed, its biggest examples are The North American Free Trade Agreement (NAFTA) and Central American Free Trade Agreement (CAFTA), these agreements encourage international trade by the elimination of taxes, substantially reducing other trade barriers and the creation of international rights for investors.

Although they have many benefits as improved agricultural trade, broader array of competitively priced goods etc. but on other hand these agreements have also many negative affects as it is quoted “It lowered wages, heightened unemployment and increased pollution” (White, S.) Reference ListBusiness Dictionary, “Import Quota” businessdictionary.com, Retrieved 24 March 2010 from. Identifying Import Restrictions, (n.d.) Solusource.com, Retrieved 27 March 2010 from.

Kotler, P. & Armstrong, G. (2006), “Principles of Marketing, 11th ed.” Pearson Prentice-hall.Trade Barriers,(n.d.), Economywatch, Retrieved 24 March 2010 from. White, S., (n.d.), “First NAFTA, Now CAFTA?” emagazine.com, Retrieved 27 March 2010 from.