Tariff barriers are the tax or duty imposed on the goods which are traded to/from abroad. On the contrary, non-tariff barriers are the obstacles to international trade, other than tariffs. These are administrative measures implemented by the country’s government to discourage goods brought in from foreign countries and promote domestically produced items.
Though liberalization widened the scope and opportunities for the domestic companies, however, it has also posed a threat of competition from foreign companies.
Trade barriers often protect domestic companies by putting restrictions on the movement of goods amidst nations. These barriers are classified into two categories – tariff barriers and non-tariff barriers.
Content: Tariff Barriers Vs Non-Tariff Barriers
|Basis for Comparison||Tariff Barriers||Non-tariff Barriers|
|Meaning||Tariff Barriers implies the taxes or duties imposed by the government on its imports, so as to provide protection to its domestic companies and increase government revenue.||Non-tariff barriers cover all the restrictions other than taxes imposed by the government on its imports, so as to provide protection to the domestic companies and discriminate new entrants.|
|Permissibility||World Trade Organization allowed the imposition of tariff barriers to its member nation but at a reasonable rate only.||World Trade Organization abolished the imposition of import quotas and voluntary export restraints.|
|Form||Taxes and Duties||Regulations, Conditions, Requirements, Formalities, etc.|
|Revenue||Government receives revenue||No revenue is received by the government|
|Affects||It affects the price of imported goods.||It affects the quantity or price or both of the imported goods.|
|Monopolistic Organizations||As the government charges import duty, monopolistic groups can be controlled.||The monopolistic organization charges high prices through low output.|
|Profit||High profits made by the importers can be controlled.||Importers can make more profits.|
Definition of Tariff Barriers
When two countries trade in the goods, a certain amount is charged as a fee by the country, in which goods are entered, so as to provide revenue to the government as well as raise the price of foreign goods, so that the domestic companies can easily compete with the foreign items. This fee is in the form of tax or duty, which is called a tariff barrier.
The amount of tax or duty charged as tariff is added to the cost of the import, which makes the foreign goods more expensive, whose price is ultimately borne by the consumer of the products. The tariff is paid to the customs authority of the country in which goods are sent. It includes:
- Export Duties
- Import Duties
- Transit Duties
- Specific Duties
- Ad-valorem Duties
- Compound Duties
- Revenue Tariffs
- Protective Tariffs
- Countervailing and Anti-dumping Duties
- Single column Tariff
- Double column Tariff
As we have discussed, tariff barriers have two-fold objective – on the one hand, it helps in increasing government revenue and on the other hand, it provides protection and support to the local industries and companies against foreign competition.
It also facilitates the conservation of foreign exchange reserves. Tariff barriers often help in reducing dependency on international items and increases self-sufficiency.
Definition of Non-Tariff Barriers
Non-tariff barriers refer to non-tax measures used by the country’s government to restrict imports from foreign countries. It covers those restrictions which lead to prohibition, formalities or conditions, making the import of goods difficult and decrease market opportunities for foreign items.
These are quantitative and exchange control that affects the trade volume or prices, or both.
It can be in the form of laws, policies, practices, conditions, requirements, etc., which are specified by the government to restrict import. Hence it encompasses popular trade-distorting practices such as:
- Import quotas
- VERs, i.e. Voluntary Export Restraints
- Import licensing
- Technical and administrative regulations
- Price control
- Foreign exchange regulations
- Canalization of imports
- Consular Formalities
- Quantity Restrictions
- Preshipment inspection
- Rules of origin
Key Differences Between Tariff and Non-Tariff Barriers
The difference between tariff and non-tariff barriers can be drawn clearly on the following grounds:
- Tariff Barriers implies the tax or duty levied by the country’s government on the import of goods from a foreign country so as to restrict imports, to a certain extent. On the contrary, non-tariff trade barriers are the policies and regulations, which are implemented by the country, with the aim of protecting and supporting domestic industries.
- World Trade Organization (WTO) permitted the levy of tariff barriers to its member nations but at a reasonable rate only. Conversely, World Trade Organization (WTO) has put an end to the imposition of Import Quotas and Voluntary Export Restraints, i.e. non-tariff barriers.
- Tariff barriers are simple to understand and levy, whereas non-tariff barriers are difficult to understand and involve more official.
- Tariff barriers can take the form of taxes and duties, while non-tariff barriers are in the form of regulations, conditions, requirements, formalities, etc.
- The imposition of tariff barriers results in the increase in government revenue. On the other hand, enactment of non-tariff barriers does not adds to government revenue.
- Tariff barriers levied by the government increases the cost of the imported item. As against, non-tariff barriers include quantity restrictions, which affects the volume, as well as it also sometimes affects the price of the imported goods.
- In the case of tariff barriers, as the government levies import duty, monopolistic groups can be controlled. In contrast, when non-tariff barriers are imposed monopolistic organization charges high prices through low output.
- When tariff barriers are levied, the importers cannot make more profits, as the tax imposed will already make the product expensive, and to compete in the country’s market, they need to keep the prices competitive. On the contrary, when non-tariff barriers are imposed, importers can make good profits, as it is a non-tax measure, which does not increase the price.
A significant reduction has been seen in the tariff barriers in recent years, but non-tariff barriers are increasing, specifically in the developed nations.
Other than the protection of domestic produce and increase in government revenue, there are some reasons for imposing tariff and non-tariff barriers which include national security, retaliation, protection of jobs, protection to startups and budding companies, etc.