Tariff and Non-Tariff Barriers

Tariff and non-tariff barriers

Tariff and non-tariff effect global financing operations by having an impact on whether countries will build and invest in companies in the home country. If an organization wants to build a company that imports raw material that has a tariff on it, it would make the product considerably more expensive to produce and export. Tariffs do benefit the government by increasing the revenue and also benefit home-based businesses by decreasing foreign competition. The tariff also helps protect jobs in the industry that has eliminated the foreign competition but a negative impact is felt because it causes the consumer to pay more for a product that is imported (Hill, 2004). If a country it prone to levy tariffs on items that an organization may need, it would increase the risk of doing business while located in that company. By having a country manufacture or produce product that can be done for less elsewhere is not a wise utilization of resources and in turn harms global trade.

When foreign countries can enter a home country and sell product for less, people usually see this as a great trade opportunity. However, if that product is manufactured in the home country then the home country not only loses revenue from sales on that product but the economic impacts can run even deeper. With no need to manufacture that product companies will no longer need to purchase the raw materials or hire the employees necessary to maintain the demand. To eliminate this from occurring or to impose a type of trade restriction on a foreign country tariffs and non-tariffs are utilized. General Agreement on Tariffs and Trade (GATT) was succeeded by the World Trade Organization monitors tariffs and promotes free trade (Hill, 2004).

Tariffs can protect the local industries that face competition from imported goods by imposing tariffs. Tariffs are effective and widely used to protect the local industries from foreign competition (Saranovic, 2006). However, this protection comes with an economic cost, where consumers have to pay a higher price to imported goods, which effectively lowering their buying power and leads to inefficient allocation of resources.

Tariff is a tax applied to an import and is one of the oldest trade policies in effect. This tax is generally revenue for the host country’s government. There are two types of tariffs; specific tariff and ad valorem tariff (Hill, 2004). A specific tariff applies a set tax to a certain import. If a specific tax of fifty cents were applied to wine then the government would gain 50 cents from every bottle coming into the United States without regard to the price of the wine. An ad valorem tax is applied at a fixed percentage of the value of the import (Saranovic, 2006). If there were a 1.5% tax levied against the wines, then three dollars would be gained in tariff revenue on each 200-dollar bottle of wine and only three cents on the two-dollar bottle.

Non-tariff trade barriers are other mechanism that is used by the government to further protect the domestic industries. One of the examples of Non-tariff trade barrier is domestic content requirement. Domestic content requirement not only protect the local industries, it also helps the supporting industries to prosper and gain a larger market share.

Non-tariff barriers are restrictions imposed upon countries such as voluntary export restrictions, antidumping and subsidies, quotas (Hill, 2004.) Voluntary export restrictions (VER) is when a country limits the number of product being exported to a certain country in order to gain favor or to diffuse a situation in which trade tensions are running high.

A second type of barrier is a quota. Quota is another form of tariffs where the government restricts the quantity of goods that can be imported into the country. It is usually combine with the use of import taxes, whenever a firm imports a certain goods and it exceed the quota amount, higher tax will be imposed on the remaining goods (Hill, 2004). Quotas not only increase the price of imported products but it can also affect the price of domestically manufactured products. If the product that is under the quota criteria is used to manufacture the domestic item then it too in turn will cost more to manufacture and this cost is then translated in the price to the consumer.

The third type of non-tariff barrier is antidumping. Dumping is when a country sells a product in a foreign country for less than it would sell in its own country (Understanding the WT0, 2006.) When products are introduced to a market in this manner it will do harm to the local businesses. GATT and WTO legislation support antidumping when it can be shown that the local economy has suffered a loss.

The last type of non-tariff is a subsidy.