Non-tariff barriers (NTBS) are restrictions or barriers on imports rather than the common border tariffs. According to Beghin (2006, p.56) non-tariff barrier were introduced after the world trade organization reduced the use of tariffs. Nontariff barriers affect trade of goods and service and also influence the factors of Production. In addition they help to protect health and safety of consumers. Moreover, nontariff barriers help to protect those natural resources which can be easily depleted (Petersen et al, 1985, 76). This paper discusses nontariff barriers and their advantages and disadvantages. In addition it reviews the effects of nontariff barriers to a country like Turkey.
Nontariff barriers are various polices that hinder or help to regulate trade of goods and services among countries. There are many examples of nontariff barriers to trade. They include; product standards, labeling conditions, import licenses, quota shares, export subsidies, packaging conditions, Sanitary and phyto-sanitary conditions, Inadequate infrastructure, Over-valued currency lengthy customs procedures and overvalued currency. In addition import bans, employment law, intellectual property rights such as patents and copyrights, seasonal import regimes, rules of origin, state subsidies, procurement, trading, state ownership and complex regulatory environment are examples of nontariff barriers. Non-tariff barriers to trade lead to economic loss because they hinder free trade. Free trade contributes to economic growth and development of countries that practice it (Cougoughlinc & Wood, 1989, p. 33).
Types of nontariff barriers
There are six types of nontariff barriers which include standards, specific limitations to trade, government involvement in trade, charges on imports, customs and administrative entry procedures and orderly government agreement
Those nontariff barrier categorized under specific limitations of trade are those that directly affect trade between economies. They control the amount of goods or services that are to be imported during a certain period of time. The non-tariffs sometimes specify the countries from which to import from and products to import from specific countries. The nontariff barriers in this category include; quotas, import licenses, prohibitions such as embargos and limitations on the minimum price of imports (Cougoughlinc & Wood, 1989, p.34).
The other type of nontariff barriers is the standards that are set by the government and imported products should meet those standards. The government sets the methods of testing the commodities entering the country. It may also set the standards of commodities for example the way they should be labeled, marked or packaged. These nontariff barriers ensure that commodities imported are safe or healthy (of good quality and quantity) for human consumption
In addition nontariff barriers categorized under customs and administrative entry procedures are those specific conditions that the importing government has to meet before it imports its commodities. They include, fees charges, advanced deposit requirement on the commodities imported and antidumping duties imposed on commodities imported at a lower cost than the cost of production or the cost in the domestic country.
In some economies the government gets involved in trade. This is also a form of nontariff barriers. The government may have domestic programs that would assist its domestic projects. Boosting of domestic firms increases production reduces its imports leading to increase in the level of exports. This can also be achieved through export subsidies because when exports are subsidized the country exports more. In addition it lowers the level of importation (Deardorff, 1997, para 12).
To control imports the government may impose some charges on the imports. These charges include; border taxes paid at the border before goods are imported, variable levies and administrative charges. These charges restrict commodities entering the economy of a country. Another form of nontariff barriers is where a country voluntarily restraints its exports to some countries. This form of nontariff limits the quantity of imports to some countries because the producing country is not willing to export its commodities. However, sometimes the exporting and the importing countries may make agreements on the quantity of commodities to be traded within a certain period of time. The countries may agree not to be trade-partners. These are called orderly marketing agreements.
Advantages of nontariff barriers
W hen a country restricts the quantity of imports to the country it benefits (Uhlhaas, 2001, para.14). Some of the benefits of nontariff barriers include;
- At the boarder the country charges the exporter some fees or revenues. These charges increase government revenue. The revenue may be used to support domestic firms hence leading to increase in domestic production. When the volume of domestic production is increased it also increases the level of exports.
- The balance of payment is positive. Decrease in the level of imports while exports increases leads to a positive balance of payment. Therefore the country’s debts decrease leading to decrease in external borrowing (Beghin, 2006, p.242).
- The level of domestic production increases. Decrease in quantity of imports to a country leads to increase in domestic production this is because the government supports domestic firms so to increase supply and meet the level of demand. In addition prices of domestic goods increase due to low competition from other countries.
- Restriction of imported commodities’ reduces the chances of dumping. Dumping is the process where a commodity is imported at a price lower than the domestic price or lower than the production cost. Dumping leads to decrease in prices of domestic products (Cougoughlinc & Wood, 1989, p.34).
- Consumers are protected from harmful products. The nontariff barriers restrict harmful products from being sold in the country. In addition they hinder illegal products from being traded in the country. Therefore they help to protect consumers.
- They help to reduce the exploitation of resources which can be depleted easily such as mineral (non renewable resources). The non renewable resources are protected from exploitation. Therefore when government agree on quantity of goods to trade within certain duration of time and it helps in preservation of resources.
Disadvantages of nontariff barriers to a country
Beghin (2006, p.241) suggests that trade restriction has negative impact on the economy of the exporting and the importing countries. Therefore the disadvantages of nontariff barriers are:
- They hinder the unity between countries. During trade the countries forms unions through which they support each other during problems such as hunger, war or financially strain. Therefore nontariff barriers reduce the relationship between countries (Kirkeland, 2000,para.25)
- They reduce employment opportunities. International trade increases employment opportunities. This is because workers in different professionals move to other countries to look for employment. Nontariff barriers hence affect the level of employment which also affects the economy of a country.
- They lower economic growth. Nontariff barriers lower level of production and exportation of primary products such as raw materials discourage expansion of important manufactured and processed products. This is because they hinder exportation and importation of products from developed countries reaching the underdeveloped ones. Therefore important machines and other equipments are not accessed by the undeveloped countries. This causes the under-developed countries not to produce valuable products and hence remain undeveloped. The economic of these countries grow at a law rate (Deardorff, 1997, p. 35).
Effects of non-tariff barriers
Countries impose nontariff barriers on specific products from a certain country differently from the same product from another country. These nontariff barriers have different effects on each country. They have effect on demand, supply and the prices of different products (Dee, &Ferrantino, 2005 p.33). According to the statistics Turkey has not benefited much on foreigner direct investment because of the various nontariff barriers that it imposed on foreign investors. For example a country like Turkey which is a developing country as discussed above nontariff barriers would slow down the country’s rate of development. For example before 2003 the government of turkey did not allow foreigners to acquire any property in Turkey. In addition there was another FDI Act that came to force on the 17th of June, 2003. This law does not allow foreigners to get involved in real estate investment in Turkey. The central bank of Turkey earned great interest from real estates. Therefore there is great effect that real estates have on the balance of payments of Turkey. Foreigners’ investment on real estate in turkey has lead to the growth of turkeys’ GDP (Growth and development product).
In there are also restrictions of foreigners starting businesses in Turkey. The restriction is the minimum capital required when a foreigner wants to start a business in turkey. However Turkey is ranked the 7th among its competitors. The removal of the minimum capital requirement for the foreign investors in the new FDI (foreign direct investment) Act would have also had a positive effect to the economy of Turkey. This is because Turkey would have more foreign investors therefore in crease in the inflow of foreign direct investment. In this case nontariff barriers have effect on demand because when the minimum required capital is high the demand of foreigners to invest in Turkey would be low compared to other countries where minimum capital requirements are low. In addition the nontariff barriers also affect the prices of commodities (Beghin 2006, p.241).
The foreign direct investment act which restricts foreigners from investing in businesses in Turkey is used to protect the firms. This also leads to increase in the prices of goods in Turkey because the competition is low from foreign goods. According to demand law when demand is high and the supply is low automatically prices rises
Nontariff barriers have the same effect as tariffs because they lead to increase of domestic prices of commodities. The General Agreements on Tariffs and Trade (GATT) and World trade Organisation (WTO) had a main goal of reducing tariffs. They have achieved the goal because currently most countries have nontariff barriers. Nontariff barriers are important to a country economy but they should not be many to the extent of slowing down the economic growth of a country. However it is also important for a country to be a partner of an organisation such as ECOWAS, NAFTA (North American Free trade Agreement) or (CIS) Commonwealth of Independent States. Therefore for a country to grow economically it should engage in free trade and also it should have few nontariff if barriers.
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