Non-tariff trade policy instruments

Placing tariff barriers is not enough to protect domestic industries. That is why countries resort to non tariff barriers that prevent foreign goods from coming inside the country. The introduction of non-tariff barriers is the privilege of the state government, and they are not regulated by international agreements. Governments are free to apply any kind of non -tariff barriers, which is not possible with the tariffs, regulated by the WTO. In addition, non-tariff barriers usually do not result in immediate increase of the price of the goods and, therefore, a consumer does not feel their impact in the form of a supplementary tax (introducing a tariff makes the product price increases by the amount of the duty). Non-tariff barriers can be divided into the following groups: quantitative, hidden and financial ones.

Quantitative restrictions include quotas, licensing, «voluntary»export restraints.

A quota is the most common form of non-tariff barriers. Quotas may prohibit the importation of certain commodities or limit the amounts imported. Such quotas are usually administered by requiring importers to have licences to bring in particular commodities. Quotas raise prices just as tariffs do, but, being set in physical terms, their impact on imports is direct, with an absolute ceiling set on supply. Increased prices will not bring more goods in. There are export and import quotas.

Tarrif quatas should be distinguished from import quotas. A tariff quota permits the import of a certain quantity of a commodity duty freeor at a lower duty rate, while quantities ecceeding the quota are subject to a higher duty rate. An import quota, on the other hand, restricts imports absolutely. If the quantity imported under a quota is less than that which would be imported in the absence of a quota, the domestic price of the commodity in question may rise. Unless the government maintains some system of licensing importers in order to capture (as revenue) the difference between the higher domestic price and the foreign price, the importing of such commodities can prove a lucrative source of private profit.

There is also a difference between tariffs and quotas in their effect on revenues. With tariffs, the government receives the revenue; under quotas, the import licence holders obtain a windfall in the form of the difference between the high domestic price and the low international price of the import.

The introduction of quotas brings the following economic benefits:

ü quotas are a more effective tool, than tariffs on import restrictions, their introduction allows imports to be kept at a constant level, despite the growth in demand that, in its turn, increases the price of a product. At the previous level of imports, domestic production and consumption increase;

ü quotas are an absolute value and they are inflexible to the price of a product;

ü they are more effective for rapid actions of administrative authorities, they are easy to manipulate (tariffs usually require the enactment of corresponding legislation);

ü quotas are a direct source of monopoly profits; they always increase the incomes of producers of import-substituting products; they constrain import competition (tariffs usually permit it).

Quotas are imposed by government authorities through the issuance of licenses. A license is a permission, granted by public authorities for export or import of goods in the assigned amount for a certain period of time. A license is issued by the state through the special authorized agencies.

Licensing may be in the following forms:

ü an integral part of the quota. In this case, a license is a document which certifies the right to import or export the goods within the obtained quota;

ü an independent instrument of government regulation. «Voluntary» export restraints» is a government imposed limit on the

quantity of goods that can be exported out of a country during a specified period of time. An importing country forces its trading partner to reduce voluntarily (unilaterally) the exports. The reason of a VERs implement-tation is usually the statements of national producers that the importation of some product causes the losses in production and disorganization of the local market. In general, the economic effect of the introduction of voluntary export restraints by an exporter is negative for an importer. However, the amount of its losses reduces due to the increase of imports

of similar products originating in countries, which do not impose voluntary restraints on their exports.

Hidden methods of trade restrictions allow countries to restrictexports or imports unilaterally. They include: technical barriers, internal taxes and charges, public procurement, local content requirement.

The term «technical barriers» refers to mandatory technical regulations and voluntary standards that define specific characteristics that a product should have, such as its size, shape, design, labelling / marking / packaging, functionality or performance. Technical barriers arise from the fact that national technical and administrative rules prevent the imports of goods. It occurs in such cases as:

ü non-correspondence of the imported goods to the enforceable standard of quality, health and safety, which are applied to the similar domestic products;

ü non-correspondence of agricultural products to the sanitary and phytosanitary norms, applied to prevent the imported pests and diseases that do not exist in a given country.

State and local governments may impose various direct internal taxes and charges on the imported goods with a view to enhance their internalprices and decline competitiveness in the domestic market.

The policy within the government procurement is that the public authorities and enterprises must buy certain goods only from national firms, even if these goods are more expensive than the imported ones.

The method of local content requirement involves the legal establishment of a share of the final product, which should be produced by local (national) manufacturers, in case of selling this product in the domestic market.

The purpose of financing, as a method of the international trade regulation, is discrimination of foreign companies for domestic producers and exporters by reducing the value of the exported goods and enhancing their competitiveness in the world market. Financial methods of trade policy include: dumping, subsidies, export crediting.

Dumping is the export of goods at prices lower than the cost ofproduction, or, at least, at lower prices than in the domestic market.

Subsidy ismonetary assistance granted by a government to a person orgroup in support of an enterprise regarded as being in the public interest.

Governments use export credits for providing financial incentives to develop exports by domestic producers.

The art of trading policy is to find the point of balance between two trends: free trade and protectionism. Each policy has its own advantages and disadvantages, depending on the circumstances, time and place of its applying.

EXERCISES

I. What are the synonyms from the text of the following

words/phrases?

1. wellbeing, prosperity 8. to bring

2. purchase, delivery, supply 9. a tariff imposed to raise revenue

3. intervention 10. possible, permissible

4. to protect 11. to predominate, dominate

5. payment, cost 12. to refer to, turn to

6. to evaluate 13. restriction

7. to give someone or something 14. an official document giving you

special attention or a particular permission to own or do something

type of treatment for a period of time

15. cancellation, removal

II. Answer the following questions.

1. What does regulation of international trade involve?

2. Can the government interfere in free trade?

3. What government practices can act as barriers to trade?

4. What is a tariff?

5. Why do tariffs usually apply to items that are easily detected, classified, and measured or valued?

6. What is the purpose of imposing a tariff?

7. What are protective tariffs designed to do?

8. What are revenue tariffs aimed at?

9. What are advantages of tariffs?

10. What are counter-arguments to the advantages of tariffs? Is tariff a negotiable instrument?

11. What are the ways in which tariffs on imports may be applied?

12. What is a transit tariff or transit duty levied on?

13. What is an export duty or export tax imposed on?

14. What are quotas usually introduced for?

15. In what way do quotas differ from tariffs?

16. What are the economic benefits of the introduction of quotas?

17. What is licensing?

18. What are the main characteristics of hidden and financial non-tariff barriers to trade?

III. Find the odd ones out.

Tariff means of	Non-tariff means
trade regulation	of trade regulation
voluntary export restraints	dumping
quotas	internal taxes and charges
government procurement	local content requirement
specific tariffs	licensing
subsidies	export crediting
ad valorem tariffs	a transit duty
an export duty	tariff
	import duties

FOLLOW-UP ACTIVITIES

I. Look at the chart and discuss with your partner in what industries different methods of distribution are possible. Has Customs anything to do with this process?

Direct method

Producer Þ Consumer

Inderect method

Producer Þ Wholesaler ÞRetailer Þ Consumer

II. Agree or disagree with the following statements. Give your reasons.

1. The contrast between the wealth, freedom and harmony of the developed world and the poverty, oppression and discord of the developing world has never been so sharp as in the 21st century.

2. Protectionism will crumble.

3. A booming European economy will create new international markets.

4. Most major commercial barriers will be in the CIS countries.

5. East-West trade will boom.

6. A severe financial crisis will be caused by the default of a developing country.

7. International relations are shaped primarily by those states perceived to be Great Powers.¹

8. The US dollar will go into a prolonged slump.

9. Customs procedures will be simplified.

10. In the last decade, political and economic changes – most spectacularly in a large number of transition and developing economics – have emphasized the values of market-based competition.

11. Policies directed at protecting and supporting «domestic» firms and products have become more difficult to implement, not least because of the difficulty of identifying «national origin» with any real meaning in a globalizing world.

12. The growing links between trade and investment as means of doing business are fundamental characteristics of globalization.

13. Market-based approaches and competition values in domestic policy are equally desirable internationally.

14. Lack of (or constraints on) market competition can give rise to international friction.

15. The scope of impediments, de jure and de facto, to market access and of distortions in the international marketplace has grown.

16. Governments should focus their attention on a more balanced, comprehensive, targeted and co-ordinated approach to market access, one that aims to promote the openness of markets to global competition.

¹ A great power is a sovereign state that is recognized as having the ability to exert its influence on a global scale. Great powers characteristically possess military and economic strength, as well as diplomatic and soft power influence.

17. Foreign goods, services, ideas, investments and business people have to be able to benefit from opportunities to compete in the market on terms equal or comparable to those enjoyed by local producers.

18. Guaranteeing access for foreign competitors to domestic markets by reducing government trade barriers is the most important function of a liberal trade policy.

DO IT FOR FUN

I. What do they do?

bank robber blackmailer

mugger smuggler

kidnapper drug trafficker

drug dealer/pusher

II. Explain the meaning of the following proverb in English and translate it into Russian:

As you make your bed, so you must lie on it.

III. Study the following chart. Fill in the missing parts. Use a dictionary.

IV. Fill in the correct word. Choose from:

bag	crate	box	packet
barrel	can	carton	tin
drum	jar	pot	tub

1.	… of groceries	9. … of fruit juice
2.	… of sweets	10.	… of coffee
3.	… of milk	11.	… of paint
4.	… of beer	12.	… of matches
5.	… of chocolate	13.	… of margarine
6.	… of tissues	14.	… of empty bottles
7.	… of ice cream	15.	… of cigarettes
8.	… of cat food	16.	… of honey

V. Solve the crossword.

Across:

2. Undertaking by which the surety assumes obligations towards the Customs.

4. The act of taking out or causing to be taken out any goods from the Customs territory.

6. … from import duties and taxes is clearance of goods for home use free of import duties and taxes, irrespective of their normal tariff classification or normal liability, provided that they are imported in specified circumstances and for specified purposes.

8. The person actually transporting goods or in charge of or responsible for the operation of the means of transport.

11. Inward … is the Customs procedure under which certain goods can be brought into a Customs territory conditionally relieved from payment of import duties and taxes, on the basis that such goods are intended for manufacturing, processing or repair and subsequent exportation.

12. The accomplishment of the Customs formalities necessary to allow goods to enter home use, to be exported or to be placed under another Customs procedure.

Down:

1. Measures applied by the Customs to ensure compliance with Customs law.

3. … of goods is physical inspection of goods by the Customs to satisfy themselves that the nature, origin, condition, quantity and value of the goods are in accordance with the particulars furnished in the Goods declaration.

5. Money … is the process by which the illegal source of proceeds is concealed by means of financial transactions or any other means to make it appear legitimate.

7. Importation into a Customs territory of goods previously exported from that territory.

9. Customs … procedure is the Customs procedure under which imported goods are stored under Customs control in a designated place without payment of import duties and taxes.

10. Customs … is the boundary of a Customs territory.

13. A part of the Customs territory of a Contracting Party where any goods introduced are generally regarded, insofar as import duties and taxes concerned, as being outside this territory.

UNIT 8. THE ROLE OF CUSTOMS

Study the following words and word combinations from the text.

enforcement of commercial		обеспечение соблюдения торговой
policy		политики
implementation of
	реализация преференциальных тор-
preferential trade agreements		говых соглашений
public health and safety		пасности
	законодательство по вопросам здра-
legislation	воохранен я и общественной безо-
counterfeiting and piracy	законодательство по вопросам
legislation	фальсификаций и нарушений ав-
	т рских прав
deferred payment of duty		отсрочка уплаты пошлины
procedure manual		справочник таможенных процедур
circumvention of Customs		нарушение таможенных правил
law		путем обмана
fraud		обман, мошенничество
evasion of duties		уклонение от уплаты пошлин
trade transaction	торговая сделка
to dispense with
	обойтись без чего-либо
without compromising		без ущерба, без подвергания риску
revenue collection	сбор доходов