Economy

non-tariff barriers

What are non-tariff barriers?

A non-tariff barrier is a way of using trade barriers other than tariffs to restrict trade. Non-tariff barriers include quotas, embargoes, sanctions and taxes. As part of their political or economic strategies, some countries often use non-tariff barriers to limit the amount of trade they can conduct with other countries.

key takeaways

  • A non-tariff barrier is a trade restriction—such as a quota, embargo, or sanctions—that countries use to advance their political and economic goals.
  • Countries often opt for non-tariff barriers (rather than traditional tariffs) in international trade.
  • Non-tariff barriers include quotas, embargoes, sanctions and taxes.

How non-tariff barriers work

Countries often use non-tariff barriers in international trade. Decisions about when to impose NTBs are influenced by a country’s political alliance and the overall availability of goods and services.

Generally speaking, any barriers to international trade – including tariffs and non-tariff barriers – affect the global economy because it limits the functioning of free markets. The loss of revenue that some companies may experience as a result of these trade barriers could be seen as an economic loss, especially for proponents of laissez-faire capitalism. Advocates of laissez-faire capitalism argue that governments should avoid interfering with the functioning of free markets.

Countries can use non-tariff barriers in place of or in combination with traditional tariff barriers, which are taxes paid by exporting countries to importing countries for goods or services. Tariffs are the most common type of trade barriers, and they increase the cost of goods and services in importing countries.

Many times countries seek alternatives to standard tariffs because they exempt the country from additional taxes on imported goods. Alternatives to standard tariffs can have a meaningful impact on trade levels (while having a different currency impact than standard tariffs).

Types of non-tariff barriers

license

Countries can use licenses to restrict imports to specific businesses. If a business obtains a trade license, it allows the import of goods that would otherwise be restricted from trade in the country.

quota

Countries frequently issue import and export quotas for goods and services. Through quotas, countries agree on specific limits on the products and services that are allowed to be imported into a country. In most cases, there are no restrictions on importing these goods and services until a country reaches its quota, and it can set a specific time frame. In addition, quotas are often used in international trade licensing agreements.

embargo

An embargo is when a country or countries formally prohibit trade in certain goods and services with another country. Governments can take this measure to support their specific political or economic goals.

sanction

Countries impose sanctions on other countries to restrict their trade activities. Sanctions may include increased administrative action — or additional customs and trade procedures — to slow or limit a country’s ability to trade.

voluntary export restrictions

Exporting countries sometimes use voluntary export restrictions. Voluntary export restrictions limit the amount of goods and services a country can export to a particular country. These restrictions are usually based on availability and political alliances.

Examples of non-tariff barriers

In December 2017, the United Nations passed a round of non-tariff barriers against North Korea and the Kim Jong Un regime. Non-tariff barriers include cutting sanctions on exports of gasoline, diesel and other refined products to the country. They also banned the export of industrial equipment, machinery, transport vehicles and industrial metals to North Korea. The purpose of these non-tariff barriers is to exert economic pressure on countries to stop their nuclear weapons and military exercises.

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