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Trade barriers are government-induced restrictions on
international trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy) In most countries, such trade represents a significa ...
. According to the
theory of comparative advantage In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Com ...
, trade barriers are detrimental to the world economy and decrease overall economic efficiency. Most trade barriers work on the same principle: the imposition of some sort of cost (money, time, bureaucracy, quota) on trade that raises the price or availability of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results. Barriers take the form of
tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and p ...
s (which impose a financial burden on imports) and non-tariff barriers to trade (which uses other overt and covert means to restrict imports and occasionally exports). In theory,
free trade Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...
involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as
agriculture Agriculture or farming is the practice of cultivating plants and livestock. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that enabled people ...
and
steel Steel is an alloy made up of iron with added carbon to improve its strength and fracture resistance compared to other forms of iron. Many other elements may be present or added. Stainless steels that are corrosion- and oxidation-resistan ...
.


Overview

High-income countries tend to have less trade barriers than middle income countries which, in turn, tend to have less trade barriers than low income countries. Small states tend to have lower trade barriers than large states. The most common trade barriers are on agricultural goods. Textiles, apparel and footwear are the manufactured goods which are most commonly protected by trade barriers. Tariffs have been declining in the last twenty years as the influence of the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and ...
has grown, but states have increased their use of
non-tariff barriers Non-tariff barriers to trade (NTBs; also called non-tariff measures, NTMs) are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs. The Southern African Development C ...
. According to Chad Bown and Meredith Crowley, world trade is "probably" vastly more liberal in current times than was the case historically. According to Ronald Findlay and Kevin H. O’Rourke, "for the nineteenth and twentieth centuries trade barriers and transport costs were the most important barriers to trade". They also write, "during the mercantilist era price gaps were as likely to be due to trade monopolies, pirates, and wars as to transport costs and tariffs, which are more easily quantifiable."
Georgetown University Georgetown University is a private research university in the Georgetown neighborhood of Washington, D.C. Founded by Bishop John Carroll in 1789 as Georgetown College, the university has grown to comprise eleven undergraduate and graduate ...
Professor Marc L. Busch and
McGill University McGill University (french: link=no, Université McGill) is an English-language public research university located in Montreal, Quebec, Canada. Founded in 1821 by royal charter granted by King George IV,Frost, Stanley Brice. ''McGill Univer ...
Professor Krzysztof J. Pelc note that modern trade deals are long and complex because they often tackle non-tariff barriers to trade, such as different standards and regulations, in addition to
tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and p ...
s. Due to steadily decreasing tariff barriers since
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the World War II by country, vast majority of the world's countries—including all of the great power ...
, countries have become increasingly likely to enact trade barriers in forms other than tariffs. National firms often lobby their own governments to enact regulations that are designed to keep out foreign firms, and modern trade deals are one way to do away with such regulations. The barriers can take many forms, including the following: *
Tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and p ...
s * Non-tariff barriers to trade include: ** Import licenses ** Export control / licenses **
Import quota An import quota is a type of trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time. Quotas, like other trade restrictions, are typically used to benefit the producers ...
s ** Subsidies **
Voluntary Export Restraints A voluntary export restraint (VER) or voluntary export restriction is a measure by which the government or an industry in the importing country arranges with the government or the competing industry in the exporting country for a restriction on t ...
** Local content requirements ** Embargo **
Currency devaluation In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national cur ...
** Trade restriction


Impacts of trade barriers on business

Trade barriers are often criticized for the effect they have on the developing world. Because rich-countries are able to set trade policies, goods, such as crops that developing countries are best at producing, still face high barriers. Trade barriers such as tariffs on food imports or subsidies for farmers in developed economies lead to overproduction and dumping on world markets, thus lowering world prices to the disadvantage of farmers in developing economies who typically do not benefit from such subsidies. The Commitment to Development Index measures the effect that rich country trade policies actually have on the developing world. Trade barriers are mostly a combination of conformity and per-shipment requirements requested abroad, and weak inspection or certification procedures at home. The impact of trade barriers on companies and countries is highly uneven. One particular study showed that small firms are most affected (over 50%). Another negative aspect of trade barriers is that they result in a limited choice of products and would therefore force customers to pay higher prices and accept inferior quality. Trade barriers obstruct free trade. Before exporting or importing to other countries, firstly, they must be aware of restrictions that the government imposes on the trade. Subsequently, they need to make sure that they are not violating the restrictions by checking related regulations on tax or duty, and finally they probably need a license in order to ensure a smooth export or import business and reduce the risk of penalty or violation. Sometimes the situation becomes even more complicated with the changing of policy and restrictions of a country.


See also

* * * * Free economic zone (includes Free Port). * *
Free-trade area A free-trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers, import quotas and tariffs, and ...
a region encompassing a trade bloc whose member countries have signed a
free trade agreement A free-trade agreement (FTA) or treaty is an agreement according to international law to form a free-trade area between the cooperating states. There are two types of trade agreements: bilateral and multilateral. Bilateral trade agreements occ ...
. Such agreements involve cooperation between at least two countries to reduce trade barriers, import quotas and tariffs, and to increase trade of goods and services with each other. **
North American Free Trade Agreement The North American Free Trade Agreement (NAFTA ; es, Tratado de Libre Comercio de América del Norte, TLCAN; french: Accord de libre-échange nord-américain, ALÉNA) was an agreement signed by Canada, Mexico, and the United States that crea ...
(NAFTA) ** South Asia Free Trade Agreement (SAFTA) **
European Free Trade Association The European Free Trade Association (EFTA) is a regional trade organization and free trade area consisting of four European states: Iceland, Liechtenstein, Norway and Switzerland. The organization operates in parallel with the European U ...
** European Single Market **
Union of South American Nations The Union of South American Nations (USAN; es, links=no, Unión de Naciones Suramericanas, UNASUR; pt, links=no, União de Nações Sul-Americanas, UNASUL; nl, links=no, Unie van Zuid-Amerikaanse Naties, UZAN; French: ''Union des nations s ...
**
New West Partnership The 'New West Partnership'' is set of agreements that economically integrate the Canadian provinces of Alberta, British Columbia, Saskatchewan and Manitoba. They were created on April 30, 2010. It is composed of: * the New West Partnership Trade ...
(An internal free-trade zone in Canada between Alberta, British Columbia, and Saskatchewan) ** Gulf Cooperation Council common market *


References


External links


Databases on Trade Barriers

* ITC'
Market Access Map
an online database of customs tariffs and market requirements * ITC'
Non-Tariff Measures Business Survey
database, including regulatory and procedural obstacles that trading companies face both at home and abroad {{DEFAULTSORT:Trade Barrier International trade