One of the most important features of the international trading environment is the proliferation of the trade barriers.
The main objectives of imposing trade barriers are to protect domestic industries from foreign competition, to promote indigenous research and development, to conserve the foreign exchange resources of the country, to make the balance of payments position favorable, to curb conspicuous consumption, to mobilize revenue for the government ad to discriminate against certain countries.
After the Second World War there was a progressive liberalization of trade by the developed countries. Successive rounds of negotiations in the GATT have cut tariffs on trade in manufactures from an average level of 40% in 1947 to about 3% now in the industrial countries.
Even though the process of elimination of the tariff barriers has continued, since around the mid-1970s the liberalization trend in the developed countries has been replaced by a growing protectionism. A number of problems like the currency crisis, oil crisis, debt crisis, recession, high unemployment and trade deficits produced an atmosphere in which demands for protection increased dramatically. Added to these has been the growing competition from Japan and the newly industrializing countries. As a response to this, the developed countries have increased the non-tariff barriers (NTBs). In addition to the hard-core NTBs such as quotas, voluntary export restraints, multi-fiber arrangements (MFA) etc, these include measures such as price restraints and health and safety regulations The exports of developing countries have been hit much more than those of the developed ones by such protectionism. The NTBs grew substantially and by 1987, they affected almost one-third of the OECD imports from developing countries. There has been a further growth of the restrictions in recent years. According to World Bank estimates, the restriction cost of developing countries at least $ 40 billion a year in forgone export of goods and services and they reduced the developing countriesâ€™ GNP by 3% — an annual loss of $ 75 million.
There are, broadly, two types of trade barriers, viz, tariff barriers and non-tariff barriers
Tariffs in international trade refer to the duties or taxes imposed on internationally traded goods when they cross the national borders. As noted above, after the Second World War, there has been a reduction in the average level of tariffs in the advanced countries. However, the tariff rates are generally high in the developing countries. With the recent economic liberalization across the world, many developing countries have reduced the tariff rates and NTBs as part of their trade liberalization. India is one among them adhering to WTOâ€™s GATT.
India has had one of the highest tariff walls in the world. The government, following the recommendation of the Tax reforms Committee steadily reduced the peak level of tariffs from over 300% in 1991 to 50% in 1995 to 5% in 2007. Further, import duties on capital goods, project imports, basic feed stocks for petrochemicals etc were brought down. The government proposes to further reduce the average and maximum tariffs and simplify and rationalize the tariff structure in order to bring the countryâ€™s tariff structure in line with those of other developing countries.
Non-tariff barriers (NTBs), some of which are described as new protectionism measures (as against tariffs which are regarded as traditional barriers), have grown considerably, particularly since around the beginning of the 1980s. The export growth of many developing countries has been seriously affected by the NTBs.
The NTBs are of two categories. The first category includes those which are generally used by developing countries to prevent foreign exchange outflows or result from their chosen strategy of economic development. These are mostly traditional NTBs such as import licensing, import quotas, foreign exchange regulations and canalization of imports.
The second category of NTBs is those which are mostly used by developed economies to protect domestic industries which have lost international competitiveness and / or which are politically sensitive for governments of these countries. One of the most important new protectionism measures under this category is the voluntary export restraint (VER). There are different forms of NTBs. The NTBs which have significant restrictive effects are described as hardcore NTBs. These include import prohibitions, quantitative restrictions, voluntary export restraints (VERs) etc.
But the NTBs are bound to be eliminated shortly with yearly round of talks on GATT at WTO nationsâ€™ meeting as world trade is the order of the day.