Tariff vs Non-Tariff Barriers
International trade began in the 18th century. The thoughts over the economy and the nation’s development started with international trade.
The countries exported many products which were a result of the nations’ natural resources and in turn exchanged it with money or a product. Over time, economic policies came into existence in many countries.
Then the international currency of exchange was gold. It was easily convertible and the traders had no hassles in the conversion too.
The world wars, natural disasters saw a sea change in international trade norms. It took 5 years to come back to normalcy in trading after the 1st World War.
This followed by the Economic recession in the 1920s, made many countries take up protective measures. Time and again, policies were framed to export and import to safeguard the nation’s interest.
With the advent of the World Trade Organization in the year 1995, made some prolific changes in the international trade norms. The pacts were set by WTO between countries helped seamless and hassle-free trade between them.
WTO is an intergovernmental organization replaced GATT which was existing from 1948. WTO set the trade regulations concrete which helped many countries in the world grow organically.
WTO being the regulatory authority for all the countries, individual nations had their demands of prosperity and security in trade. Every country has certain norms which are not part of the WTO regulations.
The two important trade factors that play a vital role in this business are; Tariff Barriers and Non-Tariff Barriers. These two are crucial aspects which are the major hurdles in international trade.
Tariff and Non-Tariff Barriers are regulations set for the trade to happen. The difference between Tariff and Non-Tariff Barriers lies in the regulations. The tariff barriers are taxes and duties that are imposed on the goods that are traded while non-tariff barriers are extensive formalities set by the importing country’s government to permit the goods to enter.
Comparison Table Between Tariff and Non-Tariff Barriers (in Tabular Form)
|Parameter of Comparison||Tariff Barriers||Non-Tariff Barriers|
|Meaning/Definition||Tariff barriers are the importing government-imposed taxes on the received goods.||Non-Tariff barriers are the regulations and formalities to be followed by the exporter while sending the goods to the country that imports the goods.|
|Revenue Generation||The country that imports generate revenue out of this.||No revenue is generated in the country.|
|Profit Earned||High profit-making can be controlled.||The country that imports can experience higher profit.|
|Impact||Only the Price gets affected||Price or Quantity or both can get affected.|
|Permission||WTO grants permission for tariff barriers.||WTO is not involved in non-tariff barriers.|
What are Tariff Barriers?
Tariff Barriers are the fees paid by the country that exports goods to the country that imports. This fee is in the form of taxes and duties.
The tax and duty charged on the goods may be utilized as the revenue for the government of the importing country. Tariff barriers indirectly impact on the cost of the product that shall be sold in the foreign land.
Tariff barriers are one of the reasons to make indigenous products competitive with foreign products. The tax and duty charged on the imported goods, add to the price of the product.
This is one of the reasons why overseas products are costlier than domestic products. This tariff is paid directly to the customs authority of the country that is intending to import the goods.
Tariff barriers can be seen as a protective measure for domestic products. It also cultivates healthy competition among the products too.
A country’s dependency on foreign products can be limited by the tariff barrier. There are many duties included in the tariff barrier, a few are mentioned below.
|Export Duty||Import Duty||Transit Duty|
|Specific Duty||Compound Duty||Ad-Valorem Duty|
|Revenue Tariff||Protective Tariff||Single Column Tariff|
What are Non-Tariff Barriers?
Non-Tariff barriers are formalities or regulations to be followed while exporting a particular product to a country. These restrictive regulations are imposed by the government of the importing country.
Non-Tariff barriers are nontaxable measures imposed. They are primarily used to restrict the foreign country’s items to be imported.
Non-tariff barriers offer an advantage to the domestic products in sales. This aide the domestic products and industries thrive well in their mother nation.
These measures are inflicted by the government of the importing country to help local industrialists grow in the country. The restrictions may also include the prohibition of certain goods to enter the country.
The market opportunities of the foreign items are controlled and restricted using the non-tariff barriers. This not only controls the price of the product but also affects the volume of trade.
Non-Tariff barriers include rules, regulations, policies, laws and also requirements. These are primarily used to restrict imports to the country.
This helps the local contributors to improve their quality of goods and services. Promotion of domestic products increases multi-fold.
Non-tariff barriers differ from country to country. It is indeed flexible as well.
Few Non-tariff regulations are mentioned below
|Import Quota||Import License||Technical Regulations|
|Administrative Regulations||Price Control||Foreign Exchange Regulations|
|Quantity Control/Restriction||Rules of Origin||Consular Formalities|
Main Differences Between Tariff and Non-Tariff Barriers
- The main difference between Tariff and Non-Tariff Barriers is the nature of support to domestic products. Tariff barriers support the local businesses by imposing tax and duties while Non-tariff barriers support by inflicting rules and regulations for the import to happen.
- The tariff barriers are rigid and have to be followed while non-tariff barriers are flexible if there are good ties between the two countries.
- Tariff barriers help the government earn revenue while non-tariff barriers do not support in this accord.
- Tariff barriers affect the price of the product to be sold in the foreign nation while non-tariff barriers affect both the price as well as the quantity.
- Tariff barriers impact on the overall profit made by the importer while non-tariff barrier does not affect on the profit as it is a non-taxable measure.
A country requires products from foreign nations for various reasons. These reasons must not hamper the growth of local businesses. The countries involving in the trade have a clear understanding of the same. The balance must be always stuck to help the local as well as overseas businesses to thrive well in offering the best products to the general public.
The tariff barrier being a taxable measure is very simple and clear in all its aspects. It also is constant for all the countries under WTO. However, the non-tariff measures are complex and it requires a thorough understanding of it before shipping any goods. Though both the barriers serve towards the betterment of local businesses, tariff barriers serve the same in two-fold areas. It also helps the government earn revenue out of the imported products.
Word Cloud for Difference Between Tariff and Non-Tariff Barriers
The following is a collection of the most used terms in this article on Tariff and Non-Tariff Barriers. This should help in recalling related terms as used in this article at a later stage for you.