Non-Tariff Barriers to Trade

Non-tariff barriers (NTBs) restrict imports or exports of goods and services without involving the imposition of tariffs. They could come in the form of regulations, standards, testing, certification, or pre-shipment inspection that are aimed to protect human, animal, or plant health and the environment. Read here to learn more about them.

There are several challenges facing Indian exports, foremost among them being a lack of demand from Western countries amid rising global inflation brought on by protracted geopolitical tensions.

However several non-tariff obstacles hamper the export of commodities. For example, the EU’s recent Carbon Border Adjustment Mechanism (CBAM) is seen as an NTB.

Non-tariff barriers

Non-tariff barriers (NTBs) or non-tariff measures (NTM) are a type of trade barrier that restricts imports or exports of goods and services without involving the imposition of tariffs (taxes on imports).

• Unlike tariffs, which are explicit taxes on goods at the border, non-tariff barriers encompass a wide range of policy measures and regulations that can hinder international trade.
• These barriers are often more subtle and can be more complex to identify and address.

According to the United Nations Conference on Trade and Development (UNCTAD), the official definition of non-tariff barriers or measures is broad:

• NTMs are policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, prices, or both.
• A detailed classification is therefore critical to identify and distinguish among the various forms of NTMs.

The International Classification of Non-tariff Barriers follows a taxonomy of all measures considered relevant in today’s international trade.

• It comprises technical measures, such as sanitary or environmental protection measures.
• It also includes other measures traditionally used as instruments of commercial policy, e.g. quotas, price control, export restrictions, or contingent trade protective measures.
• Finally, the International Classification of NTBs also comprises behind-the-border measures, such as competition, trade-related investment measures, government procurement, or distribution restrictions.

Forms of Non-Tariff Barriers

NTBs can take various forms, including:

• Import Licensing: Requiring importers to obtain licenses or permits before importing certain goods. These licenses can be used to limit the number of imports or control the entry of specific products.
• Quotas: Imposing quantitative restrictions on the quantity of certain goods that can be imported or exported during a specific period. Quotas limit the supply of foreign products in the domestic market.
• Technical Barriers to Trade (TBT): These include technical regulations, standards, and conformity assessment procedures that can make it difficult for foreign products to comply with domestic regulations. TBTs can be legitimate measures to protect health, safety, or the environment, but they can also be used as trade barriers.
• Sanitary and Phytosanitary Measures (SPS): These are measures related to food safety and animal and plant health. SPS measures are meant to protect human, animal, and plant life, but they can be used as barriers to trade if applied arbitrarily.
• Subsidies and Countervailing Measures: Subsidies provided by governments to domestic industries can distort international trade. Countervailing measures can be imposed to counter the adverse effects of such contributions.
• Customs and Administrative Procedures: Cumbersome customs procedures, excessive documentation requirements, and bureaucratic delays at borders can impede the smooth flow of goods.
• Rules of Origin: These determine the nationality of a product and are used to ensure that products benefitting from preferential trade agreements originate from the eligible countries.
• Local Content Requirements: Mandating that a certain percentage of a product must be produced domestically or that a specific number of components must be sourced locally.
• Intellectual Property Protection: Inadequate or inconsistent protection of intellectual property rights (patents, copyrights, trademarks) can create trade barriers, especially in knowledge-intensive industries.
• Currency Controls: Restrictions on currency exchange can impact the ability to conduct international transactions.
• Discriminatory Government Procurement Practices: Favoring domestic suppliers in government procurement contracts can limit market access to foreign goods and services.
• Contingent trade-protective measures: Measures implemented to counteract particular adverse effects of imports in the market of the importing country contingent upon the fulfillment of specific procedural and substantive requirements.

Examples of NTBs

Sanitary and Phytosanitary Measures

• A requirement limiting the use of hormones and antibiotics in the production of meat
• A sample test on imported oranges to check for the residue level of pesticides

Technical barriers to trade

• Restrictions on toxins in children’s toys
• Refrigerators need to carry a label indicating their size, weight, and electricity consumption level

Pre-shipment inspection and other formalities

• Live animals need to be cleared at a designated customs office for inspection
• The requirement that goods must be shipped directly from the country of origin, without stopping at a third country

Contingent trade-protective measures

• Country A imposes anti-dumping duty on imports of biodiesel products from country B, to offset injurious dumping by country B found to exist via an investigation.
• Country A imposes a countervailing duty on imports of semiconductors from country B, to offset the subsidies granted by country B on the production of semiconductors found to exist via an investigation

Quantity control

• Only hotels and restaurants are allowed to import alcoholic drinks
• A quota of 100 tons of tuna fish can be imported any time of the year

Price control measures

• A minimum import price is established for fabric and apparel
• Imports of fresh blueberries may enter free of duty between 1 January to 31 May, while in other months seasonal duties apply

Export related measures

• Exports of processed seafood products must be inspected for sanitary conditions
• Exports of cultural heritage objects – sculptures or precious – are prohibited

Non-trade barriers faced by India

According to an assessment, 80 percent of India’s trade is subject to some or the other non-tariff barrier.

The key Indian exports that routinely face high NTBs are:

• Chilies, tea, basmati rice, milk, poultry, bovine meat, fish, and chemicals products to the EU;
• Sesame seed, shrimp, Medicines, and Apparel to Japan;
• Food, meat, fish dairy, and industrial products to China.
• Fruits and shrimp exports face barriers in the US.
• Bovine Meat in South Korea
• Ceramic tiles to Egypt, chili to Mexico, medicines to Argentina, microbiological regents to Saudi Arabia, and electrical, medical devices, and household appliances to Brazil.

The majority of Indian exporters struggled with lengthy and complicated license, approval, and laboratory testing requirements.

Furthermore, several nations established their own rules and regulations that did not conform to international norms. These put a heavy financial burden on exporters to comply with such strict restrictions.

Because they occasionally need to alter their manufacturing procedures and may be lacking in production technology or infrastructure, this affects their overall worldwide exports.

India signing several free trade agreements is an opportunity to get the non-tariff barriers removed during the negotiations that will help Indian exports become more competitive.

• India has recently signed free trade agreements with UAE and Australia and is negotiating FTAs with the UK, EU, and Canada.

Effect on developing countries

Non-tariff barriers can have significant and often adverse effects on developing countries. While these barriers are used by various governments for different reasons, they can disproportionately impact the economies of developing nations.

• Reduced Export Opportunities: Non-tariff barriers limit the access of goods from developing countries to the markets of developed nations. This can hinder the ability of developing countries to export their products, especially those that are labor-intensive or produced by small and medium-sized enterprises.
• Higher Export Costs: Compliance with complex and varying regulations related to non-tariff barriers can raise the cost of producing and exporting goods. This can make products from developing countries less competitive in the global market.
• Negative Economic Growth: NTBs can limit the growth of industries in developing countries by restricting access to foreign markets. This prevents these countries from fully benefiting from globalization and global value chains.
• Impeded Industrialization: Developing countries often rely on exporting raw materials. Non-tariff barriers can discourage value addition and industrialization, as they hinder the export of processed or value-added products.
• Undermined Agricultural Exports: Agricultural products are especially susceptible to non-tariff barriers such as sanitary and phytosanitary standards. Developing countries that heavily depend on agriculture can face challenges in exporting their products due to these barriers.
• Reduced Foreign Direct Investment (FDI): Non-tariff barriers can make it less attractive for foreign investors to enter markets in developing countries, as these barriers increase uncertainty and risk.
• Inhibited Technology Transfer: Developing countries often seek access to advanced technologies from developed nations. NTBs can limit the transfer of technology by creating obstacles to the import of machinery, equipment, and knowledge-intensive products.
• Unfair Trade Relations: Non-tariff barriers can reinforce the power imbalances between developed and developing countries in global trade negotiations. Developing countries may find it difficult to negotiate and address these barriers effectively.
• Health and Safety Risks: In some cases, non-tariff barriers related to health and safety can be used as a pretext for protectionism. While these measures are intended to protect consumers, they can sometimes exclude products that are safe but produced in developing countries.
• Administrative Burden: Complying with the diverse and changing requirements of non-tariff barriers can be a bureaucratic challenge for developing countries. This administrative burden can deter exporters and hamper economic growth.

Most of these barriers are put by developed countries and regions like the US and the European Union.

The biggest Non-Tariff Barrier is on the horizon of the Carbon Border Adjustment Mechanism or carbon tax.

• First proposed by the European Union, now other developed countries like the UK and the US are planning something along the same lines.
• The protests against the carbon tax have been registered by the developing countries and the issue could also come at the World Trade Organisation.

Also read: Foreign Trade of India: Concepts of International Trade

Way forward

The usage of non-trade barriers has grown over the past several decades to support a variety of domestic agendas, public policy goals, and development initiatives, particularly those connected to achieving the Sustainable Development Goals (SDGs).

Even though they are legal, many Non-Tariff Barriers have evolved into significant trade barriers since they are sometimes opaque and boost prices, particularly for suppliers in poor nations.

The ability of developing nations to effectively comply with the standards of such measures ultimately determines how effectively they can participate in global markets.

Addressing non-tariff barriers requires international cooperation, negotiations, and transparency.

Organizations like the World Trade Organization (WTO) play a role in monitoring and addressing NTBs to promote fair and open trade.

Reducing non-tariff barriers can lead to increased trade, economic growth, and improved market access for all trading partners.

Also read: Global trade disruptions

­-Article by Swathi Satish