Trade barriers

Trade barriers are any of a number of government-placed restrictions on trade

between nations. The most common sorts of trade barriers are things like subsidies,
tariffs, quotas, duties, and embargoes. The term free trade refers to the theoretical
removal of all trade barriers, allowing for completely free and unfettered trade. In
practice, however, no nation fully embraces free trade, as all nations utilize some
assortment of trade barriers for their own benefit.
Tariffs are a fairly common form of trade barriers, and are essentially taxes on
goods as they cross the borders of a nation. Tariffs nearly always are placed on
goods that are brought into the country, as opposed to goods sold as exports,
although in some cases they may go both ways. Historically, tariffs were a large
source of government revenue, as they could easily be collected as a tax on ships
as they landed in the nation.
Some types of trade barriers:-

1) Tariff (customs duty) — a tax on imported goods or services.

Tariffs usually make imported goods or services more expensive than the local
version. Tariffs, like most trade barriers, may be imposed for different reasons.
Some tariffs are placed simply to earn money for the government. This might
either be a flat fee on an item, or it might be based on the market value of the item.
Other tariffs exist as a form of protectionism, to make imported goods more
expensive than they might otherwise be, in order to protect domestic industries.
For example, if a country has a fairly high wage, and high labor standards, the cost
of producing a single widget might be around ten units. If a nearby country can
produce a widget for three units, then imports of that country’s widgets could
easily drive the domestic industry out of business. So the country might place a
restrictive tariff on widget imports, to make sure that domestic widgets always
remained competitively priced, or even to make it unfeasible for widgets to be
imported at all. Two most popular types of tariffs are:
 Ad valorem: This tariff involves a set percentage of the price of the imported
goods.
 Specific: This refers to a specific amount charged by the government on
import of goods.

2) Subsidy — a benefit to local producers and export firms, for example, money to
help lower costs, tax benefits and exemptions. Subsidies may actually be intended
simply to make certain key goods affordable to citizens of the nation, but the end
result can still be to make imports non-competitive. Many food crops, for example,
are heavily subsidized, to ensure the citizenry has a constant supply of affordable
food. Steel is also often subsidized, to ensure a nation always has a domestic steel
supply, which can be crucial during times of war when normal shipping avenues
may be cut off

3) Embargo — This is an extreme form of trade barrier. Embargoes prohibit

import from a particular country as a part of the foreign policy. In the modern
world, embargoes are imposed during wartimes or due to severe failure of
diplomatic relations. A complete ban on the import of a product for economic,
political, religious, security or quarantine reasons. An embargo can be seen as the
most extreme of the trade barriers. Embargoes basically prohibit the import or
export of anything with another country. This is often done as a form of
punishment, or to try to force the country to undergo radical change internally as a
result of a weakened economic state. Historically, the embargo was used as a war
tactic, and so was often considered a declaration of war. In modern times, however,
although the most brutal of the trade barriers, it is usually not viewed as an act of
outright aggression, although a declaration of war is often accompanied by an
embargo.

4) Hidden barriers — quality, labelling, safety and packaging requirements can

make it difficult to sell products overseas and add to final costs.

5) Non-tariff barriers to trade (NTBs) - are trade barriers that restrict imports
but are not in the usual form of a tariff. Some common examples of NTB's are anti-
dumping measures and countervailing duties, which, although they are called "non-
tariff" barriers, have the effect of tariffs once they are enacted. Some of non tariff
barriers are as explained below:
a) Licenses - A license is granted to a business by the government, and allows the
business to import a certain type of good into the country. For example, there could
be a restriction on imported cheese, and licenses would be granted to certain
companies allowing them to act as importers. This creates a restriction on
competition,and increases prices faced by consumers.

b)Import Quotas - An import quota is a restriction placed on the amount of a

particular good that can be imported. This sort of barrier is often associated with
the issuance of licenses.  For example, a country may place a quota on the volume
of imported citrus fruit that is allowed.

c)Voluntary Export Restraints (VER) - This type of trade barrier is "voluntary" in

that it is created by the exporting country rather than the importing one. A
voluntary export restraint is usually levied at the behest of the importing country,
and could be accompanied by a reciprocal VER. For example, Brazil could place a
VER on the exportation of sugar to Canada, based on a request by Canada. Canada
could then place a VER on the exportation of coal to Brazil. This increases the
price of both coal and sugar, but protects the domestic industries.

d) Local Content Requirement - Instead of placing a quota on the number of goods

that can be imported, the government can require that a certain percentage of a
good be made domestically. The restriction can be a percentage of the good itself,
or a percentage of the value of the good. For example, a restriction on the import of
computers might say that 25% of the pieces used to make the computer are made
domestically, or can say that 15% of the value of the good must come from
domestically produced components.

Why Are Tariffs and Trade Barriers Used?

Tariffs are often created to protect infant industries and developing economies, but
are also used by more advanced economies with developed industries. Here are
five of the top reasons tariffs are used:
1. Protecting Domestic Employment - The levying of tariffs is often highly
politicized. The possibility of increased competition from imported goods
can threaten domestic industries. These domestic companies may fire
workers or shift production abroad to cut costs, which means higher
unemployment and a less happy electorate. The unemployment argument
often shifts to domestic industries complaining about cheap foreign labor,
and how poor working conditions and lack of regulation allow foreign
companies to produce goods more cheaply. In economics, however,
 countries will continue to produce goods until they no longer have a
comparative advantage
2. Protecting Consumers - A government may levy a tariff on products that it
feels could endanger its population. For example, South Korea may place a
tariff on imported beef from the United States if it thinks that the goods
could be tainted with disease.
3. Infant Industries - The use of tariffs to protect infant industries can be seen
by the Import Substitution Industrialization (ISI) strategy employed by many
developing nations. The government of a developing economy will levy
tariffs on imported goods in industries in which it wants to foster growth.
This increases the prices of imported goods and creates a domestic market
for domestically produced goods, while protecting those industries from
being forced out by more competitive pricing. It decreases unemployment
and allows developing countries to shift from agricultural products to
finished goods.

Criticisms of this sort of protectionist strategy revolve around the cost of

subsidizing the development of infant industries. If an industry develops
without competition, it could wind up producing lower quality goods, and
the subsidies required to keep the state-backed industry afloat could sap
economic growth.

4. National Security - Barriers are also employed by developed countries to

protect certain industries that are deemed strategically important, such as
those supporting national security. Defense industries are often viewed as
vital to state interests, and often enjoy significant levels of protection. For
 example, while both Western Europe and the United States are
industrialized, both are very protective of defense-oriented companies.

5. Retaliation - Countries may also set tariffs as a retaliation technique if they

think that a trading partner has not played by the rules. For example, if
France believes that the United States has allowed its wine producers to call
its domestically produced sparkling wines "Champagne" (a name specific to
the Champagne region of France) for too long, it may levy a tariff on
imported meat from the United States. If the U.S. agrees to crack down on
the improper labeling, France is likely to stop its retaliation. Retaliation can
also be employed if a trading partner goes against the foreign policy
objectives of the government.

DUMPING & TRADE BARRIERS

Dumping is a term that is used in financial markets as well as in international trade.
Dumping is also used in a commercial sense in the context of international trade. It
refers to the practice of one country selling  finished products in another country
below cost or fair market value. Predatory dumping occurs when one nation
exports goods to another nation below cost or fair market value in order to obtain
market share at the expense of domestic competitors. In many cases, predatory
dumping drives out domestic competition. Then, having established a
dominant marketing position in the industry, the predatory dumpers raise their
prices well above previous levels.
Many nations, including the United States, have enacted antidumping laws that
provide for the imposition of antidumping penalties or tariffs when a case of
dumping can be proven. Following the Uruguay Round of Multilateral Trade
Negotiations in 1993, the General Agreement on Tariffs and Trade (GATT)
contained provisions to standardize antidumping measures by different nations.
Antidumping measures affect not only the practice of dumping goods into the U.S.
market, they also affect the ability of U.S. companies to export goods to other
countries at competitive prices.
The enforcement of antidumping measures in the United States and elsewhere has
not only caused friction among trading partners, it has also proven to be
exceedingly complex at times. In foreign markets the use of antidumping laws has
rapidly increased in the 1990s. In the past, U.S. firms have been subject to
dumping decisions where it was not clear by what criteria the cases were decided.
In the United States dumping cases are investigated by the U.S. International
Trade Commission (ITC) and the International Trade Administration on the basis
of industry complaints. Under GATT there must be more expressed support among
domestic producers than expressed opposition to the initiation of an investigation.
In addition, investigations are not to be initiated when imports from any one
country constitute less than 3 percent of U.S. imports of the product in question, or
if imports from all countries subject to a complaint are less than 7 percent of total
U.S. imports of the product.
Although a single firm may be guilty of dumping, antidumping complaints are
brought against all of the firms in the foreign country's industry. That means that
the decision to impose punitive tariffs and duties affects a country's entire industry,
not just a single company.
Among the questions that are material to a dumping investigation are the pricing
policies and profit margins of the exporter in its home market and in other export
markets. The ITC must determine what constitutes unfair pricing. How does the
ITC or an investigative body in another country determine that a product or
commodity is being sold below cost or fair market value? How much above cost
can an exporter sell its goods in the United States and still be accused of dumping?
Using fairly complex rules and guidelines, the ITC compares the price of the goods
in the U.S. market with those in the exporters' domestic market as well as its sales
to other countries. Such price comparisons may be complicated by the fact that
home-market sales may be too small to make valid comparisons, the exporter may
make occasional sales below cost in its home market, and other factors.
The object of the ITC investigation is to determine if an exporter's practices have
injured or might pose the threat of an injury to an existing U.S. industry. If an
industry complaint passes the ITC's preliminary investigation, it must then be
confirmed by the U.S. Secretary of Commerce. The ITC then conducts a final
investigation. Once the ITC determines that dumping has occurred, it is up to the
nations involved to come to a corrective agreement, or else the president of the
United States may impose antidumping measures in the form of higher tariffs and
duties on the imported product or commodity.
From 1980 to 1997, 837 antidumping petitions were filed with the International
Trade Administration, which approved 804 of them for investigation by the ITC.
Under the Uruguay Round Agreements Act, all antidumping duties, tariffs, and
suspension orders would be automatically canceled after five years, unless it was
determined that their revocation would lead to a recurrence of dumping and would
cause injury to domestic industry. Of the 320 cases up for "sunset" review, more
than one-third of them involved the steel industry, which has used antidumping
complaints as a tool to curb imports.
The minivan controversy between the United States and Japan in the early 1990s
provides one example of how antidumping complaints are handled. The major U.S.
automakers accused Japanese automakers of selling minivans in the United States
at less than fair market value. In its preliminary investigation the ITC agreed with
the U.S. automakers. The U.S. Department of Commerce then issued a ruling that
Toyota and Mazda were in fact dumping minivans in the U.S. marketplace. When
the ITC conducted its final investigation, however, it determined that the Big Three
automakers—Ford, Chrysler Corp., and General Motors Corp.—had not been hurt
by Japanese pricing practices in the U.S. minivan market. The Big Three appealed,
but a judge in the U.S. Court of International Trade upheld the ITC decision, and
Toyota and Mazda were cleared of dumping charges.

Tariff & Non Tariff Barriers

Tariff and non-tariff barriers can affect your export business. In most countries, the
governments impose these trade barriers and the general purpose behind them is to
limit (or sometimes totally ban) the imports of some specific product. By imposing
trade barriers, the governments are looking to achieve some or all of these
economic targets.
" Encouraging domestic production 
" Protecting local employees 
" Increasing revenues 
" Reducing consumption and reliance on exports
Whether they are able to achieve these targets or not, one thing is for sure, these
trade barriers are going to hurt your business, if you are looking to export to that
country. Read a little to get an idea of what tariff and non-tariff barriers are.
Tariff: 
In simple words, this is the tax imposed on imported goods. In most cases the tax is
collected at the moment some shipment arrives at ports. Governments normally
force tariffs (or excise duty) to protect local industries and to raise their revenues,
although many economists have debated against it. According to them these
methods are faulty, because in the end it's the consumer who suffers at the hand of
high prices and inflation. As an exporter you'd be better off going for some country
with minimum tariffs because you will loose the low cost advantage once you have
to pay these taxes. Tariff allows local manufacturers to offer lower prices as
compared to the imported items (still the customers are paying more than what
they should be paying for this quality).
Non-Tariff Barriers: 
All other restrictions on trade except tariffs are known as non-tariff barriers. These
rules, regulations or policies are used for the same purposes (i.e. to restrict imports
and protect local industries), however they cannot raise any revenue for the host
country. Some of the common non-tariff barriers are quotas, quality standards,
complex regulations, import license or import bans.
Both tariff and non-tariff barriers can ultimately hurt the national economy in the
longer run, they provide shield to even those under performing industries and
manufacturers who are not competitive at all, hence wasting the country resources
and hurting consumers. World Trade Organization has been established in order to
lower trade barriers all over the world, and to improve transparency and non-
discrimination in international trade. 153 members have joined till now, although
no member country has shown total commitment in implementing rules and
regulations that are decided at various conferences. Still as an international
exporter you should try to target those foreign market where imports are not
discouraged in government policies.

Non-Tariff Measures
While market access would improve on account of reduction of import duties, it may be thwarted
due to the application of non-tariff measures. It is important to define non-tariff barriers. Any
restriction imposed on the free flow of trade is a trade barrier.

Trade barriers can either be tariff barriers, that is levy of ordinary customs duties within the
binding commitments undertaken by the concerned country in accordance with Article II of
GATT or non tariff barriers, that is any trade barriers other than the tariff barriers.
Non-tariff barriers can take various forms. Broadly these can be categorised as
under:
Import Policy Barriers
Standards, Testing, Labelling and Certification requirements
Anti-dumping & Countervailing Measures
Export Subsidies and Domestic Support
Government procurement

i) Import Policy Barriers

One of the most commonly known non-tariff barriers is the prohibition or restrictions on imports
maintained through the import licensing requirements. Article XI of the GATT Agreement
requires Members not to impose any prohibitions or restrictions other than duties, taxes or other
charges, whether made effective through quotas, import or export licences or other measures.
Any form of import licensing (other than an automatic license) is, therefore, to be considered as
an import restriction. Certain restrictions on imports, however, can be imposed in accordance
with various provisions of the GATT. These include restrictions on grounds of safety, security,
health, public morals etc. Article XX of the GATT Agreement provides for certain general
exceptions on grounds of protection of:

public morals,
human, animal or plant life or health,
national treasures of artistic, historic or archaeological value etc.

These are however subject to the requirement that such measures are not applied in a manner
which would constitute a means of arbitrary or unjustifiable discrimination between countries
where the same conditions prevail, or a disguised restriction on international trade. Similarly
Article XXI of the GATT Agreement provides for certain security exceptions.

Import restrictions on some items on grounds of safety and security are being maintained
generally by all the countries, and perhaps these cannot be considered as nontariff barriers
looking to the purpose for which the restrictions are imposed. Article XVIII (B) of the GATT
allows import restrictions to be maintained on grounds of ‘Balance of Payment’ (BOP) problems.

Besides import licensing, import charges other than the customs tariffs and quantitative
restrictions there are other forms in which import restrictions can be imposed through import
policy. MFA quotas are one such example.

ii) Standards, Testing, Labelling & Certification Requirements

Prima-facie Standards, Testing, Labelling and Certification requirements are insisted upon for
ensuring quality of goods seeking an access into the domestic markets but many countries use
them as protectionist measures. The impact of these requirements is felt more by the purpose and
the way in which these are used to regulate trade.
Two of the covered agreements under the WTO namely the Agreement on the Application of
Sanitary & Phytosanitary Measures (SPM) and the Agreement on Technical Barriers to Trade
(TBT), specifically deal with the trade related measures necessary to protect human, animal or
plant life or health, to protect environment and to ensure quality of goods.

The SPM Agreement gives a right to take sanitary and phytosanitary measures necessary for the
protection of human, animal or plant life or health, provided:

such measures are not inconsistent with the provisions of the Agreement;
they are applied only to the extent necessary;
they are based on scientific principles and are not maintained without sufficient
scientific evidence;
they do not arbitrarily or unjustifiably discriminate between Members where identical
or similar conditions prevail including between their own territory and that of other
Members, and
they are not applied in a manner which would constitute a restriction on international
trade.

In regard to the determination of appropriate level of sanitary or phytosanitary protection, the

Agreement requires the objective of minimising negative trade effects to be taken into account.
Further, it permits introduction or maintenance of sanitary and phytosanitary measures resulting
in higher level of sanitary and phytosanitary protection that would be achieved by measures
based on the relevant international standards, guidelines or recommendations only if there is a
scientific justification. However, where no such international standards, guidelines or
recommendations exist or the content of a proposed sanitary or phytosanitary regulation is not
substantially the same as the content of an international standard, guideline or recommendation
and if the regulation may have a significant effect on trade of other Members a notice needs to be
published at an early stage and a notification is required to be made of the products to be covered
with an indication of the objective and rationale of the proposed regulation.

The TBT Agreement also contains similar provisions with regard to preparation, adoption and
application of technical regulations for human, animal or plant safety, protection of environment
and to ensure quality of goods.

Both the Agreements also envisage special and differential treatment to the developing country
Members taking into account their special needs. However, the trade of developing country
Members has often faced more restrictive treatment in the developed countries who have often
raised barriers against developing countries on one pretext or the other.
Some of the non-tariff barriers falling in this category are ban on import of goods (textiles and
leather) treated with azo-dyes and pentachlorophenol, ban on use of all hormones, natural and
synthetic in livestock production for export of meat and meat products, stipulation regarding
pesticides and chemicals residues in tea, rice and wheat etc., and requirement of on-board cold
treatment for fruits and vegetables export.

iii) Anti-dumping & Countervailing Measures

Anti-dumping and countervailing measures are permitted to be taken by the WTO Agreements in
specified situations to protect the domestic industry from serious injury arising from dumped or
subsidised imports. The way these measures are used may, however, have a great impact on the
exports from the targetted countries. If used as
protectionist measurs, they may act as some of the most effective non-tariff barriers.

The number of anti-dumping investigations in the recent past have increased manifolds. Not
every investigation results in the finding of dumping and/or injury to the domestic industry.

But the period for which the investigations are on, and this period may be upto 18 months, the
exports from the country investigated suffer severely. Anti-dumping and countervailing duties
being product specific and source specific the importers well prefer switching over to other
sources of supply.

In some cases the authorities apply innovative methods to prolong the investigation. A recent
practice adopted by the European Commission is a case in example. The European Commission
has terminated anti-dumping investigation following withdrawal of the complaint in two cases
namely unbleached cotton fabrics from India and others (20th February 1996) and bed-linen from
India and others (9th July, 1996), after nearly two years without concluding the investigation,
and started fresh investigations immediately after the termination of the two investigations on
21st February, 1996 and 16th September 1996 respectively. It may be a matter of debate whether
the European Commission was within their rights to do so but the impact of these decisions is
grave on exports of these item from the concerned countries.

Another aspect concerns the quantum of duty levied. The WTO Agreements on Anti-dumping
and Countervailing duties permit the importing countries to impose full margin of dumping and
subsidisation as anti-dumping duty or countervailing duties but recommends levy of lesser
amount as duty if such lesser amount is adequate to remove the injury to the domestic industry.
In other words the Agreements recommend that the amount of duty imposed should be such as is
adequate to remove the injury to the domestic industry as any amount in excess of that would
only provide an undue protection to the domestic industry.

iv) Export Subsidies & Domestic Support

Both export subsidies and domestic support have a great bearing on the trade of other countries.
While export subsidies tend to displace exports from other countries into the third country
markets, the domestic support acts as a direct barrier against access to the domestic market.
Generally the developing countries can hardly find resources to grant subsidies or domestic
support. But developed countries like the Members of the European
Union and Japan have been heavily subsidising their agricultural sector through schemes like
export refunds, production support system and other intervention measures.
Under the Common Agricultural Policy, the EU subsidises European farmers upto $4bn every
year, which end up mostly into the pockets of rich land lords who really do not need it. In 1992,
Ray MacSharry, EU’s agriculture commissioner, calculated that 80% of the subsidies went to
the richest 20% of farmers. For example, Queen Elizabeth receives annually $352,000 for her
Sandringham estate, and her daughter Anne recieves $128,000 annually for her Gatcombe Park
farm. Even Arab princes owning estates in UK are receiving these doles. Saudi Prince Khalid
Abdullah al Saud claimed $192,000 for his country estate in Kent. (Asian Wall Street Journal,
11 December 1996).

Some of these measures include import quotas, licensing, exchange and other financial controls,
prohibitions, discriminatory bilateral agreements, variable levies, advance deposit requirements,
antidumping duties, subsidies and other aids, government procurement policies, government
industrial policy and regional development measures, competition policies, immigration policies,
customs procedures and administrative practices, technical barriers to trade, and sanitary and
phytosanitary measures.

2. Context Of The Present Study

The objective of the present study is to identify non-tariff barriers in Sri Lanka and the ASEAN
which constitute major impediments to India’s exports. The study would also propose the
manner in which such barriers could be dealt with within the FTA framework.
Some of these measures that are under consideration in the context of the present
study have been analysed under two broad groups (i) the first relating to technical barriers to
trade, and sanitary and phytosanitary measure such as product standards, process standards,
certifications, registration and testing procedures, packaging, mark-up, labeling and language
barriers environmental barriers; and (ii) the second group comprising of other non-tariff
measures which includes import quotas, licensing, exchange and other financial controls,
prohibitions, discriminatory bilateral agreements, variable levies, advance deposit requirements,
antidumping duties, subsidies and other aids, government procurement policies, government
industrial policy and regional development measures, competition policies, immigration policies,
customs procedures and administrative practices. While the focus of the study will be largely on
technical barriers to trade and sanitary and phytosanitary measures, care is taken to elicit
information on the other barriers as well so that a wholistic approach to barriers to trade can be
achieved.
So far research on non-tariff barriers faced by Indian exports has focussed on developed
countries, namely, European Union and the USA. There has not been any study so far on non-
tariff barriers faced by exporters exporting to ASEAN and Sri Lanka. This study aims at filling
this lacuna.
To look into the issue of extent of non-tariff barriers faced by Indian exporters to
the ASEAN and Sri Lanka, two approaches have been used (i) measuring the incidence
non-tariff measures applicable to Indian exports by the countries specified in the study viz.,
ASEAN and Sri Lanka using secondary data and (ii) assessing the extent to which Indian
exporters face NTBs through a survey of exporters. It is important to note that while the first
approach we are looking at the import coverage ratio- the value of imports in a tariff line which
are subjected to an NTM, in the second approach we are examining the pattern of NTMs (or
protection) from the perspective of the exporter. In other words, while in the first approach we
are measuring the extent of application of non-tariff measures, the second approach helps in
identifying barriers faced in the application of such measures. The survey approach has been
used to elicit information on - extent of non-tariff barriers faced by exporters, measures adopted
by them to comply with standards and regulations and on expenses incurred to meet such
standards and regulations. Further, in cases where NTBs have been identified, detailed case
studies have been used to understand the nature and depth of the perceived NTBs by exporters.

TECHNICAL BARRIERS TO TRADE

Technical barriers to trade (TBT) refer to technical regulations and voluntary standards that set out
specific characteristics of a product, such as its size, shape, design, functions and performance, or the
way a product is labelled or packaged before it enters the marketplace. Included in this set of
measures are also the technical procedures which confirm that products fulfil the requirements laid
down in regulations and standards.
 
All these measures usually serve legitimate goals of public policy – e.g. protecting human health and
safety, or the environment. At the same time, product standards and other TBT have an important
influence on market access and the export performance of businesses. They can be costly and
burdensome by design or effect and restrict international trade.
 
The World Trade Organization (WTO) Agreement on Technical Barriers to Tradecontains rules
specifically aimed at preventing these measures from becoming unnecessary barriers. However,
technical barriers are reported to continue to pose at times substantial difficulties for traders and merit
scrutiny from a market access perspective.
 
To deepen understanding of their nature and trade effects, OECD is investigating various types of
technical barriers as part of its work programme on non-tariff barriers to trade. It is pursuing work in
the area of product labelling, where practices have grown more complex in recent years and traders
and governments have voiced concerns about potentially negative implications for market access.
 
Other work under way focuses on conformity assessment (CA) procedures. These procedures
assess conformity of products, processes and services to specific requirements or standards and
typically involve components such as testing, certification and accreditation.
 
In this area, the OECD Secretariat recently collected data assessing the nature and extent of trade
problems arising from conformity assessment (CA) procedures. This exercise involved two factual
surveys aimed at 1) exporters and 2) conformity assessment bodies in a selection of OECD member
countries and carried out in 2004-2005. Case studies documenting experiences of exporters in
developing countries, and a review of the CA discussion taking place in the WTO Committee on TBT
since 1995, will complement this work and feed into the analysis of trade problems and opportunities
seen to arise from CA procedures and practices.

The WTO Agreement on Technical Barriers to Trade (“TBT Agreement”), which entered into
force in 1995, is the multilateral successor to the Standards Code, signed by 32 GATT
contracting parties at the conclusion of the 1979 Tokyo Round of Trade Negotiations. The
purposes of the TBT Agreement can be broadly described as:
(1) assuring that technical regulations, standards and conformity assessment procedures, do
not create unnecessary obstacles to international trade, while (2) leaving Members adequate
regulatory discretion to protect human, animal and plant life and health, national security, the
environment, consumers, and other policy interests.
INTRODUCTION
The phrase “technical barriers to trade” refers to the use of the domestic regulatory process as a
means of protecting domestic producers.
The TBT Agreement» seeks to assure that:
(1) mandatory product regulations,
(2) voluntary product standards, and
(3) conformity assessment procedures (procedures designed to test a product’s conformity with
mandatory regulations or voluntary standards) do not become unnecessary obstacles to
international trade and are not employed to obstruct trade.

The TBT Agreement seeks to balance two competing policy objectives:

(1) The prevention of protectionism, with
(2) the right of a Member to enact product regulations for approved (legitimate) public policy
purposes (i.e., allowing Members sufficient regulatory autonomy to pursue necessary domestic
policy objectives).

These goals are described in more detail below.

1.The Prevention of Protectionism

The progressive tariff reductions that have taken place in the GATT/WTO framework have left
certain industrial and political leaders looking for other means of protecting their industries.
These means of protection frequently take the form of non-tariff barriers (i.e., means other than
tariffs for protecting business sectors).

Technical regulations, standards and conformity assessment procedures are all potential non-
tariff measures that are sometimes used for protectionist purposes. As such, they can be potential
barriers to international trade.
The TBT Agreement establishes rules and disciplines designed to prevent mandatory technical
regulations, voluntary standards, and conformity assessment procedures from becoming
unnecessary barriers to international trade. However the TBT Agreement seeks to leave
Members with sufficient domestic policy autonomy to pursue legitimate regulatory objectives.

Trade Barrier Regulation

WHAT IS THE TBR?
The TBR is one of the Community’s commercial policy instruments but is unique
in that it is offensive rather than defensive. It allows individual firms, as well as
industry groups and Member States, access via the European Commission to their
rights under the WTO Agreements signed in 1994.

The Regulation covers trade barriers forbidden by international trade rules, mainly
WTO rules. It is applicable to both goods and trans-frontier services not involving
the movement of persons, and may also cover trade barriers having their origin in
the violation of intellectual property rights.

If trading activities in a third country market are being affected by obstacles

imposed by a foreign country, or there is a threat of future damage, an individual
firm, group of firms, or Member State can submit a formal complaint to the
Commission for investigation. If the Commission finds that the complaint contains
sufficient initial evidence (both factual and legal), then a formal examination
procedure will be conducted by the Commission’s services into the alleged
practices. This is an essential step since the Commission will, at this stage and on
the basis of the additional pressure which is exerted upon third countries, open
talks with the government concerned, hoping to find a mutually acceptable
solution. In addition, information obtained during this investigation may be used in
the case of a WTO dispute settlement proceeding.

HOW HAS THE TBR HELPED?

The TBR investigations that have been carried out so far have dealt with various
industry sectors.

Industry sectors that lodged

TBR complaints
Cars
Cognac
Cosmetics
Leather
Music
Textiles
Steel
Pharmaceuticals
Prosciutto di Parma
Regional aircraft
Swordfish Sorbitol

IN WHAT COUNTRIES HAVE PROBLEMS OCCURRED?

The range of trading partners against which TBR complaints have been lodged is
also broad (see below) and covers North and South America and Asia, both
developed and developing countries. Two TBR investigations have been carried
out concerning Argentina, five in Brazil, two in South Korea, three in the USA and
one each in Chile, Columbia, Canada and Japan.

Countries against which

TBR complaints have been lodged
Argentina Brazil
Canada Chile
Colombia Japan
South Korea U.S.A.

WHAT TYPE OF PROBLEMS HAS THE TBR INVESTIGATED?

The trade barriers investigated have been varied (see annex). Some have been
legislative problems, others have been regulatory or caused by administrative
practices. In the USA, for example, three cases have been investigated where the
US legislation was contrary to WTO 4 Agreements. In the case concerning
cosmetics in South Korea, the enforcement regulations of the legislation created
barriers to trade. Administrative practice in Argentina, in the management of the
customs procedures, created problems for the textiles sector. In Brazil,
administrative practice was again at the root of the difficulties encountered by
various sectors for getting import licenses.

Indicative list of problems addressed in TBR complaints

Nature of problem
Number of
complaints
Transit of products 1
Rules of origin (determination, certificates) 2
Import licenses 4
Customs valuation of goods 2
Discriminatory taxation 2
Abusive trade defence instruments 1
Lack of protection of appellation of origin / geographical
indication
2
Subsidies to domestic producers 2
Labelling of products 2
Standards 1
Copyright violation 1
WHO LODGED COMPLAINTS?
Under the Trade Barriers Regulation a complaint may be lodged by an individual
company, by an industry association or by a Member State. The complaints lodged
with the Commission until now have been made by companies, national industry
associations, European industry associations. Some were prepared by the
complainants themselves and lawyers were used in particularly complex cases.
Complainant Number
Individual company 3
National industry association
6*
European industry association
7
Member State 0
*Two of these, BNIC (Cognac) and Consorzio di Prosciutto di Parma, are also
European associations as the industry is located solely in one country in each case.
The Commission services responsible for TBR investigations are always willing to
meet interested parties to discuss a potential complaint and give preliminary advice
as to whether it might be admissible under the Trade Barriers Regulation or
whether another avenue might be more appropriate to tackle the problem
concerned.

WHAT DID THE TBR ACHIEVE?

The aim of the TBR is of course the removal of the barrier to trade. This can be
achieved through negotiations; about half of the cases have been resolved through
negotiations. However, if those negotiations break down, then a solution can be
sought through the WTO. The following case studies are examples of the various
paths which lead to solutions of the problems raised by TBR complaints
CASE STUDY
Use of Trade Barrier Regulation with respect to Anti Dumping Act- A Classic
Case
TBR CASE CONCERNING THE US ANTI-DUMPING ACT
Complaint lodged by EUROFER on 10 January 1997
_
Trade barrier: US Anti-Dumping Act of 1916 which consists of prohibiting
importers from importing or selling articles from any foreign country at a price
substantially less than the market value or wholesale price of such articles, at the
time of importation, in the country of production or other foreign countries to
which they are commonly exported
_
TBR investigation initiated on 25 February 1997
_
Findings of investigation: Investigation concluded on violations of GATT 1994
and of the provisions of the WTO Anti-dumping Agreement and of the Agreement
establishing the WTO.
_
Informal consultations with the US authorities did not lead to a solution. On 28
April 1998 the Commission decided to initiate WTO dispute settlement
proceedings. Formal consultations in that context were not successful and a Panel
was established. The Panel and the Appellate Body found the US in violation of
several WTO provisions. The Commission will now monitor the implementation of
the DSB recommendations by the US
_
The complainant is satisfied with the outcome of the investigation and theresults of
the WTO dispute settlement proceedings.

CASE STUDY ON TBR

The European Commission has decided to close an investigation into Uruguay’s taxation regime
on spirits, following the removal of unfair barriers to the sale of European spirits in the country.
The investigation had been opened under the EU Trade Barriers Regulation (TBR) following a
complaint by the Scotch Whisky industry. The Commission’s enquiry led to changes in the
Uruguayan legislation without the need to resort to WTO dispute settlement.

EU Trade Commissioner Catherine Ashton said: "The focus of EU trade policy is to create real
benefit for businesses, workers and consumers. I am delighted that we have solved this issue
without having to resort to WTO litigation." 

On 2 September 2004, the Scotch Whisky Association lodged a complaint alleging that sales of
Scotch whisky in Uruguay were hindered by various obstacles to trade, notably a discriminatory
excise tax. During the investigation conducted by the European Commission the Uruguayan
authorities expressed their willingness to seek a mutually satisfactory solution, and proposed to
settle the case on the basis of various elements, notably the legislation on excise taxes. 

The main trade barrier subject to investigation was the discriminatory excise tax in Uruguay
(IMESI - Impuesto Especifico Interno). Instead of using the actual transaction value of the spirits
at the point of first sale as the taxable base, the spirits were divided into groups ("categorias")
on a price-per-litre basis. They were then assigned a price (determined by the Uruguayan
authorities) upon which the excise tax was levied, putting the EU products in the highest-priced
category. In the new legislation, in light of the agreed settlement to the case, the tax is
determined by adding a fixed value to a tax on value of the product, which means that there is a
single tax rate and the discrimination is removed. The volume and value of exports of Scotch
whisky to Uruguay have increased by more than 30% since the entry into force of the revised
legislation.

Aside from the issue of taxation, other barriers included (1) lack of transparency and
predictability of Uruguayan excise taxes in general, (2) exclusion of whiskies matured for three
or more years from the lowest category of taxation (per EC Regulation as of July 2000 all EU
whiskies must be matured for at least three years, while all whiskies produced in Uruguay are
aged less than three years), (3) requirement to affix tax stamps on imported whiskies, (4)
requirement to pre-pay excise taxes at the time of customs clearance. All of these barriers have
been addressed. 
 

Background
The TBR has become an important part of EU trade policy, as it allows the Commission to work
with businesses to identify and address the barriers that matter most to them. The TBR has
been in force since January 1995 and permits any EU enterprise or association to lodge a
complaint with the Commission which will then investigate and seek to remove barriers
inconsistent with international trade rules (those of the WTO and other international
agreements). Since 1995, more then 20 TBR examination procedures have been initiated, and
the TBR has been successful in obtaining the removal of illegal barriers in a broad range of
sectors including textiles, steel, music, spirits, automobile, and shipbuilding and against a broad
range of countries including the United States, Brazil, South Korea and Uruguay.

Economic Impact of Trade Barriers

In times of flourishing international trade, imposing trade barriers prevents the
nation from fully realizing the economic benefits of such globalized trade. A
protectionism regime causes over-allocation of resources in the protected sector
and exploitation or under-allocation of resources in free trade sectors. This usually
leads the country into economic disequilibrium, which hampers growth.
Import restrictions affect international trade relations, which in turn leads to a
decline in exports. Thus, the protectionism regime that is employed to protect

certain sectors actually tends to retard the growth of the entire economy.

Free trade environments offer greater and better choices in the market, leading to
enhanced consumer satisfaction. With trade barriers in place, the government curbs
consumer rights to enjoy competition in the market.

India has been ranked 71st in global enabling trade index (ETI) because of tariff
barriers and corruption-ridden border administration that oversees flow of goods,
according to the World Economic Forum's (WEF's) Global Enabling Trade Report
2008, which was released yesterday.
Unlike China, which is ranked 48th, India continues to have restrictive market
access with tariff barriers "representing a more serious impediment that non-tariff
barriers," says the report.
Consequently, India is ranked 105th in market access among the 118 countries
surveyed in the report with tariff and non-tariff barriers pushing the country to the
112th place.
According to the report, the global ETI measures factors, policies and services
facilitating free flow of goods across borders. It includes four main components —
market access, border administration, transport and communications infrastructure,
and business environment. It is a useful index for policy-makers interested in
benefiting from trade, said Robert Z Lawrence, the author of the report.

EFFECTS OF TRADE BARRIERS

`Since the end of World War II, the United States has been perhaps the leading
advocate among industrialized nations of liberalized international trade'' (Litan and
Suchman 216). Officials are now realizing how the elimination of trade barriers will
improve the economy and benefit American consumers. One of the most destructive
tariff enactments was the Smoot-Hawley Tariff Act of 1930. This bill raised tariffs
against imports to extreme levels, which in turn forced other nations to retaliate with
high tariffs of their own. Because of these high tariffs, trade dropped, money stopped
flowing, and businesses renounced claim to their debts. Banking systems were
destroyed and democracies collapsed all over Europe. Many economists agree that the
Smoot-Hawley Tariff Act was a major contributing cause of the Great Depression
(Archibald and Feldman 857-860). Since then, the world's nations have been working
to lower tariffs. Evidence shows that through free trade, the world economy can
increase its productivity, therefore raising living standards of all citizens.

Free trade allows countries to utilize the principle of comparative advantage and
specialize in goods they are most efficient at producing. Comparative advantage
occurs when one country can produce an item at lower cost than another country.
There are many reasons for differences in production costs. The availability of natural
resources is greater in some parts of the world than others. Technology is much more
advanced in industrialized nations. Lacking education and technological machinery,
the labor forces of most developing countries are not very productive (Espana 48).
These factors, along with many others, lead to differences in domestic opportunity
costs.

According to Janet Yellen, chairperson of the Council of Economic Advisers in

Washington, D.C., even if one country, such as the United States, is better at
producing most goods, it can still benefit from trade.

We all know the story of Robinson Crusoe, who, alone and isolated had to do
everything for himself. . . But if a group of Robinson Crusoes can trade amongst
themselves, each can specialize in the production of what he or she is best at doing,
thus producing more than would be possible were their attentions divided among
goods that they are less skilled at making.

For example, the United States is not very efficient at producing coffee and bananas;
we simply lack the needed resources. It would be profitable for us to import these
products from a country like Brazil, for it produces them at less cost. The United
States, in turn, could provide Brazil with corn and soybeans. This would result in
more efficient distribution of resources and a larger output of products. According to
Hufbauer and Schott, when we specialize in producing one product, all of our money
and labor goes into making that product, therefore making our money and labor much
more productive (5). Through specialization, companies are able to take advantage of
economies of scale and significantly reduce their production costs. Workers who
previously performed four or five different jobs now only perform one. Renowned
economist, Adam Smith, believed that when workers specialized in the production of
one product, they saw ways in which the product or assembly process could be
improved. They became experts at their jobs (Yellen 27). When companies specialize,
they only have to purchase equipment needed to produce a specific product. As a
result, they are able to obtain equipment of the highest quality. This adds to worker
productivity. Lastly, many products have start-up costs that must be paid regardless of
anticipated output. These costs decline with each successive unit produced. All these
factors combine, which leads to increased profits for the company, as well as the
nation.

Despite the advantages of specialization, many people believe that trade barriers are necessary in
order to protect domestic jobs and wage levels. This is a view shared by possible Reform Party
presidential candidate, Pat Buchanan. In his opinion, unrestricted trade hurts American workers
by eliminating domestic jobs and depressing wage levels (Buchanan Reform). Several labor
unions and other special interest groups aggressively lobby for tariffs in order to protect domestic
jobs from foreign competition. While this idea may sound convincing, it is based on several
fallacies. Tariffs and quotas do safeguard import jobs in the United States, but are a detriment to
highly productive export jobs. Nations cannot restrict their imports, while maintaining their same
level of exports. The purpose of exporting goods is to acquire funds in order to purchase imports
from other countries. The imports are obtained at less cost than if they were produced
domestically. Consequently, when the United States restricts imports, we make our trading
partners poorer. They are unable to purchase our exports. Productive export industries, in which
we have a comparative advantage, are forced to decrease production and layoff workers. In terms
of the United States and Mexico, if the North American Free Trade Agreement (NAFTA) were
not passed, Mexico would not be able, financially, to import goods from the United States. As a
result, Americans who produced the exports would lose their jobs:

Mexico imports a minimum of $800 million more in merchandise for each 1 percent increase in
GDP, and U.S. exporters secure more than $500 million of this. The richer Mexico becomes, the
more trade will take place with the United States to the benefit of both. (Weintraub 39)

Janet Yellen believes that as the United States capitalizes on comparative advantage and starts to
specialize, some industries will be shut down (27). The retraining of import sector employees,
which the government is committed to providing under the terms of NAFTA, will allow these
workers to move to export industries where they will be more productive and earn higher wages.
According to economist David Walters, export jobs pay 16.7 percent more than import jobs
(Hufbauer and Schott 23). As a result of trade, citizens will be able to spend their incomes on a
greater variety of products, thereby spurring economic growth. In reality, the United States can
enjoy full employment, efficiently using all available resources, with or without international
trade. International trade simply allows us to specialize and use our resources in the most
productive way possible, thus increasing our standard of living.

In order for the nation to engage in economic growth, some people insist that trade barriers are
needed to protect developing industries from foreign competition. Without protection from large
international firms, small domestic industries run a greater risk of floundering. The infant-
industry argument states that industries that have potential to succeed, such as good transport
facilities and well-trained workers, should have the chance to grow and expand under a
protective tariff. The tariff would enable the firm to upgrade their products and create greater
efficiency in production. Once the industry is firmly established, the tariff can be removed.

Even though this argument appears valid, it contains several flaws. It is very difficult at the onset
to determine which new companies are going to prosper and which ones will fail. Often, firms
with high potential have been turned down after asking for protection from the government
(Perlman 33). Why should one industry be denied protection from competition and another be
given the opportunity to expand and grow? If given a fair chance, even companies that do not
initially appear strong may indeed flourish and prosper under the right circumstances. Another
problem with protective tariffs is the length of time that they are imposed. Once a tariff is placed
on a product, it is not easily removed. When companies mature and reach full potential, they are
still able to take advantage of protective tariffs (Kreinin 303). This enables the mature companies
to monopolize. It is easy to see why protected companies are reluctant to have tariffs removed,
for this gives them definite advantages over their competitors.

Most economists believe that there are better ways to help infant industries than imposing tariffs.
For example, direct subsidies from the government help industries to expand without harming
consumers. Subsidies are distributed by the government to domestic producers. This cuts down
on production costs, and enables producers to charge lower prices for their goods. This allows
domestic producers to compete with foreign firms selling cheaper merchandise. The government
is also able to oversee production, and make sure subsidized companies are using the money
wisely. This makes direct subsidies more economical and efficient compared to tariffs.

In addition to the infant-industry argument, individuals often claim that trade barriers
are necessary to protect against dumping. Dumping occurs when identical products
are sold on the foreign market at below cost, meaning less than they are sold for
domestically. Many nations, including the United States, explicitly prohibit dumping.
If a foreign producer is found guilty of dumping, a duty will be imposed. This extra
cost prompts the producer to raise the price of the item in question, bringing it up to
fair market value. It is interesting to note that the issue of dumping arises even in free-
trade zones. Article 1902 of NAFTA states that ``Each Party reserves the right to
apply its antidumping and countervailing duty law to goods imported from the
territory of any other Party''

There are three main types of dumping: predatory dumping, persistence dumping, and
sporadic dumping. Predatory dumping occurs when foreign firms sell their products at
below cost abroad, in order to eliminate competition. These firms usually enjoy a
monopoly at home and hope to establish one overseas. Of course, once they have
driven out domestic producers, prices will be increased. The greater the inelasticity of
the product, the greater the price increase. Since the demand for inelastic products,
such as clothing and food, remains relatively constant regardless of price changes,
sellers can raise the prices of these goods without lowering their sales volumes. This
makes predatory dumping particularly harmful, hurting consumers in the long run.
However, as the Supreme Court stated in 1986, ``There is a consensus among
commentators that predatory pricing schemes are rarely tried, and even more rarely
successful'' (qtd. in Bovard 83).

When a company possesses a monopoly at home but faces competition overseas, it

may also participate in persistence dumping. Lack of domestic competition allows the
company to sell its product at high cost at home. Once the product enters the
international market, it faces competition from both the host country, as well as other
countries. In order to sell the product and earn a profit, the producer must lower the
price. This is considered dumping, because a lower price is being charged abroad than
at home. Yet, unlike predatory dumping, businesses that engage in persistence
dumping are not focused on eliminating the market shares of domestic producers.
The third type of dumping, sporadic dumping, occurs when companies run a surplus
and try to sell the excess product over the foreign market. If they charge a lower price
abroad than they do domestically, they are guilty of sporadic dumping. On the other
hand, if they lower their domestic price, they are simply having a sale. For example, if
a department store in Chicago charged a higher price than a store in Miami for the
exact same dress, would it be accused of dumping? As Fred Smith of the Competitive
Enterprise Institute said, ``If our antidumping laws applied to U.S. companies, every
after-Christmas sale in the country would be banned'' (qtd. in Bovard 81).

Many trade groups, including the World Trade Organization (WTO), have enacted
laws and provisions aimed at eradicating the practice of international dumping.
However, several problems exist with current antidumping legislation and its use of
duties and tariffs as punishment for violations. While no economist would argue the
negative effects of predatory dumping, sporadic and persistence dumping actually
benefit consumers. By breaking up monopolies and increasing competition, these
forms of dumping lower prices. Janet Yellen believes that, ``Trade liberalization
might adversely affect a small fraction of American workers in their role as producers,
but it benefits all workers in their role as consumers'' (27). It is unfortunate that most
trade laws and provisions are written exclusively to aid producers, ignoring the
damage done to consumers.

In the long run, tariffs and duties will not eliminate the practice of dumping goods on
the foreign market. A more effective prevention method is to strictly enforce domestic
antimonopoly laws. This not only prevents dumping, but also helps consumers. If
monopolies did not exist, producers would be unable to charge high prices
domestically. There would be no need to sell goods cheaper abroad; therefore,
dumping duties and tariffs would be unnecessary.

Besides dumping, many people fear that the elimination of trade barriers will lead to
dramatic increases in immigration. While this may be true in the short run, long-term
decreases will make up for initial transition periods. The question of how free trade
will affect immigration has been pondered and questioned by a large number of
economists. The removal of trade barriers allows for increased movement of workers
to various countries. Most workers will migrate to countries where job opportunities
are greater and wages are higher than those in their home country. In the short term,
this increase will be substantial. Most of the immigrants are poor or working class
people who are striving to rise above poverty level in their country. For most of these
people, the hardships of living in a foreign country will prove too great. Most of them
will eventually return to their home country. According to Lynn Martin, Secretary of
Labor under the Bush administration, only 10 percent of Mexican workers that
migrate to the United States remain for extended periods of time (Hufbauer and Schott
26).

There are several reasons why unskilled immigrants have trouble adapting to life in a
foreign country. Language barriers, climate changes, and family commitments prove
to be too difficult for most individuals to overcome. The majority of these immigrants
are not bilingual. This makes it very difficult for them to communicate and make
acquaintances. Climate adjustment is another factor that must be considered before
deciding to move to another country. However, the major reason most immigrants
return to their home country is because they miss family and friends (Kreinin 407).

Immigration has been an intense topic of debate since NAFTA was approved in 1992.
The number of both legal and illegal immigrants coming to the United States has
increased over the years. In the short term, immigration has increased because of the
availability of jobs and more advanced technologies in the United States. The number
of immigrants will decrease over the long term as a result of strong growth in
Mexican per capita income, due in part to NAFTA (Hufbauer and Schott 26). As
Mexico gains in prosperity, the level of immigration will reduce considerably. As
economic growth accelerates in Mexico, there will be no need for its citizens to
migrate to the United States to find adequate employment. The immigrants that return
to Mexico will take with them the job skills they have acquired, along with the capital
they have earned. This will enable them to start new businesses and make a
substantial contribution to economic development in Mexico. On average, 60 to 70
percent of Mexico's imports originate from the United States (Weintraub 39). Mexican
prosperity, resulting from migration, will allow Mexico to purchase U.S. exports in
larger volumes. Therefore, in the long run, migration will lead to growth patterns in
both the United States and Mexican economies.

Perhaps the leading benefit of free trade is increased competition in domestic,

monopolized markets. By eliminating trade barriers, firms from other countries will
have greater access to United States' markets. Foreign competition is clearly beneficial
to consumers in a variety of ways. It breaks up monopolies and oligopolies, resulting
in lower prices and a larger variety of goods from which to choose. Competition also
motivates companies to improve product quality through technological advancements.
Although a few domestic producers may be hurt by free trade, gains to consumers
more than compensate for these temporary losses (Yellen 27).

When one or two companies control the entire market for a certain commodity, they
become stagnant in production (Kreinin 289). This is especially true if the commodity
is inelastic, and has no close substitutes. The monopolistic company sees no reason to
upgrade the quality of the product, for it faces no competition. Demand for the
product remains high, regardless of quality. Consumers must purchase the good from
the monopolist, for no other choice is available. However, by allowing foreign
products to enter concentrated domestic markets, the elimination of trade barriers aids
consumers by increasing competition. While such competition tends to destroy
inefficient monopolies, ingenious companies can survive and even profit in the long
run. Businesses that previously enjoyed monopolies are forced to improve upon the
quality of their products if they hope to compete in the global marketplace. Fierce
rivalry among firms leads to technological advancements and innovations. New
products are created, and more efficient production methods are implemented. These
improvements enable companies to cut production costs, increasing revenue
dramatically. Excess funds can then be put towards research and development, which
fosters new innovations. This is very important, for these discoveries allow companies
to produce greater quantities of goods, while using fewer scarce resources. These
resources can then be used to produce other valuable products.

Free trade not only improves product quality, it also lowers prices. When tariffs are
imposed on imported goods, the costs of those goods tend to increase. Foreign
producers must compensate for the losses they sustain as a result of added taxes. They
do this by charging higher prices for their products. This results in increases in the
cost of all goods, including those produced domestically. The high prices of foreign
goods give domestic producers freedom to raise their prices, although not to the same
level as their international competitors. Even though prices have increased, consumers
will continue to purchase domestic goods, for they are still cheaper than imported
goods. Price inflation not only harms consumers, but also harms businesses that use
these expensive goods in their production operations. These added costs cause
businesses to be less competitive, both in domestic and overseas markets.

Eliminating trade barriers is essential in the quest to achieve world prosperity and
harmony. By engaging in international trade, nations can substantially increase their
productivity and living standards. For instance, the United States is currently enjoying
great economic prosperity, while concurrently engaging in large amounts of trade with
other nations. Clearly, open trade practices have benefited the United States in recent
years. Since the passage of NAFTA in 1994, employment has risen in U.S.
automotive, manufacturing, electronics, and industrial machinery sectors (Ponnuru
74). Today, America is experiencing full employment, low interest rates, and a
booming stock market. According to John Whitehead deputy secretary of state under
the Reagan administration, ``Global integration is the best way for all countries - rich
and poor, large and small - to become wealthier together'' (34). When countries unite
and utilize each other's resources through free trade, the world and all its citizens
prosper.
Advantages of trade barriers
1) That they increase the competitiveness of domestic producers both
domestically and on foreign markets.
2) Raise money for the government in terms of revenue which can be used for
government spending.
3) Improve the balance of payments position by decreasing imports as they
become more expensive and less attractive to purchase.

Disadvantages of trade barriers

1) Could result in retaliation from other foreign economies... which could mean
import control on goods that the we import...leading to higher prices and
potentially inflationary... (negative world multipiler effect)
2) A tariff will only work if the price elasticity of demand for the good is
elastic. if inelastic then the demand is unresponsive to changes in price and
therefore an import control resulting in a higher price of the good will have
little impact on the demand for it.
3) Trade barriers don’t actually deal with he main cause of the problem instead
governments looking to impose trade barriers. Most likely to improve B.O.P
positions..or increase domestic producers competiveness should look to
implement supply side policies and increase the efficiency of
production...leading to a fall in costs of production. And these lower costs
can be passed on to to consumers through lower prices and therefore
increasing competitiveness.
 INTERNATIONAL CASE STUDIES

1. AUSTRALIAN COTTON TRADE

 53 per cent of cotton produced in the world is subsidised (Source: ICAC, 2005)
 In 2002 the combined level of world subsidies reached almost US$6 billion, more than
a quarter of the global value of production.  This coincided with the worst cotton prices
in 30 years, and meant unsubsidised countries found it even more difficult to compete
(Source: ICAC, 2004)
 Cotton producing countries that subsidise their domestic industry include the USA,
China, Greece, Spain, Turkey, Brazil, Mexico, Egypt and India (Source ICAC, 2005)
 The US Government, for example, sets a target price for cotton, regardless of world
price. This leads to an over supply of cotton on the world market as US growers are not
influenced by normal supply and demand factors
 In 2005 US taxpayers paid an estimated US$4.2 billion to subsidise their own cotton
growers (Source: USDA, 2005)
 Australia’s cotton growers receive no direct government subsidies and are unfairly
disadvantaged against overseas growers from subsidised countries
 The Australian cotton industry would benefit significantly if all trade barriers and
subsidies were lifted
 Less than 10 per cent of US cotton growers received more than 70 per cent of the US
Government handouts in the last ten years (Source: US Environmental Working
Group, 2005)
 It has been estimated that if the US Government removed subsidies then Australian
raw cotton prices and production would each increase by seven per cent, Australian
grower income would rise by 19 per cent, and industry revenue would increase by
A$177 million (Source: CRDC, 2001)
 In 2004 Cotton Australia requested the Australian Government to act as a third party in
support of Brazil’s ultimately successful World Trade Organisation (WTO) action
against the US Government.  The Brazilian Government claimed losses to its own
cotton industry as a direct result of the US Government’s domestic subsidy program
 In 2005 the WTO ordered the US Government to bring its domestic cotton programs
into line with WTO rules
 Trade ministers from 149 member countries at the 6th WTO Ministerial Conference in
2005 agreed for all forms of cotton export subsidies to be eliminated by developed
countries in 2006 with total elimination of agricultural export subsidies by 2013
Case Studies in US Trade Negotiation
This case analyzes the efforts to resolve trade disputes under the World
Trade Organization’s (WTO) dispute settlement system. The old system
under the General Agreement on Tariffs and Trade (GATT) had limited
provisions for dispute settlement: Adjudication was provided, but the
emphasis was on consultation and consensus. The WTO approach entails a
stronger, more routinized, and juridical way of managing conflicts over
trade. The system is more powerful and has a greater ability to enforce trade
rules but is also more controversial. The authors pay particular attention to
the United States and how trade disputes play out in the American political
context. The cases involve conflicts with Europe, Japan, and Brazil over a
wide array of products—notably cotton, steel, beef, bananas, and camera
film. They also span a broad range of trade rules—on food safety, technical
barriers, competition policies, subsidies, safeguards, and quotas. Some of the
trade conflicts are long-term, initiated during the GATT and continuing to
the present day. Others arose after the creation of the WTO. Some focus on
how domestic government officials deal inwith the dispute at hand, while
others highlight the roles of business and consumer groups. But all the cases
explore the interaction between the rules, the politics, and the process of
resolving trade disputes.
 US-EU Trade in Hormone-Treated Beef.
This long-standing dispute began with the widespread adoption of growth-
promoting hormones for raising beef cattle in the United States. In 1989
Europe banned the use of these hormones. The ban covered all beef,
including meat imported from the United States. US officials were frustrated
by what they saw as a political move to protect the EU beef market by
invoking scientifically unsupported claims about the detrimental health
effects of hormones. The real issue, Europe retorted, was that the US trade
system had capitulated to the demands of the beef lobby. Ultimately, the
United States brought a case against the European Union at the WTO. Some
consumer groups argued that trade lawyers should not make decisions
related to health and safety.

Banana Wars.
Trade in bananas was highly regulated, especially in Europe. EU nations
limited the import of inexpensive US brand bananas—a policy they justified
as a way to assist former European colonies, long reliant on banana trade.
The United States brought a successful case against the European Union and
later imposed retaliatory tariffs following EU resistance to the WTO panel’s
findings.

Snapshot: Kodak v. Fuji.

In May 1995, after an intensive lobbying effort, Eastman Kodak Co. asked the US Trade
Representative to initiate an intervention against restrictions on US exports to Japan, claiming
that Japanese authorities’ anticompetitive policies had impeded its sales. A year later, the Clinton
administration chose not to implement this case bilaterally and instead brought the case to the
WTO, which ruled in favor of Japan. Significantly, the United States did not appeal the ruling.
This case reveals private actors’ role in bringing cases and focuses on whether domestic
regulations may, because of their practical application, constitute
trade barriers.

Standing Up for Steel.

The March 2002 decision by President George W. Bush to impose tariffs on some imported steel
capped a long-running campaign by the US steel industry and its unions for assistance in dealing
with surges of low-priced imported steel. The decision came as a surprise to many who assumed
that a free trade–oriented administration would not adopt such measures. The case examines the
behavior of lobby groups and Congress, particularly the role of subgroups (such as the so-called
Congressional Steel Caucus, a group of members from steel-producing states) and committees
within Congress. The case also describes the successful European challenge to these tariffs at the
WTO and the US decision to remove them in the face of threatened retaliation.

Brazil’s WTO Cotton Case.

Between December 2000 and May 2002, the world price of cotton declined by 40 percent,
shrinking the value of the global cotton market from $35 billion to $20 billion in just 18 months.
The reasons for this dramatic price decline are complex, but nearly everyone pointed a finger at
US subsidies to domestic producers. In September 2002 Brazil initiated a WTO case against the
United States—the firstever challenge of a developed country’s agricultural subsidies by a
developing country. West African countries also lobbied the WTO to include a separate initiative
on cotton in the WTO’s Cancún ministerial text. Many in the media have framed the cotton case
as a litmus test of whether the WTO can work for the poor.

US-EU Dispute over Trade in Genetically Modified Crops.

In 1996 American farmers began planting genetically modified (GM) corn and soybean crops.
Use of these herbicide- and insect-resistant varieties skyrocketed in the United States. After some
public debate, GM foods were generally treated the same as non-GM foods by the US regulatory
system using existing laws. But the European Union developed a separate regulatory approach
for GM products, including a different approach toward risk. Resistance to the technology grew
in Europe, and many consumer groups, environmentalists, nongovernmental organizations, and
politicians rejected GMOs. Ultimately, the European Union placed a de facto moratorium on
new GM products in 1998, frustrating US exporters. The Bush administration challenged the
European Union at the WTO, arguing that the moratorium violated the Agreement on the
Application of Sanitary and Phytosanitary Measures.