Protection stands for restrictions imposed on the import of
foreign goods. The theoretical and logical arguments for free trade have equal
validity in all countries; yet the international trader must face the reality
that he lives in a world of tariffs, quotas and non-tariff barriers. All these
governmentally imposed barriers are imposed through the political pressures of
business for protection of their markets. Thus one can see that the arguments
of classical economists based on assumptions of full employment, economic
growth, etc., will not yield the benefits of free trade as implied in the
theories.
The arguments in favour of barriers or protective tariffs are
many. But all arguments can be essentially classified as below: i) Protection
of Infant Domestic Industry ii) Protection of Home market iii) Need to keep
Money at Home iv) Conservation of Natural Resources v) Reduction of
Unemployment vi) National Defence vii) Retaliation and Bargaining
The preference as to free trade or protection depends on the
circumstances prevailing in a country. An economy with strong cost advantage in
manufactured goods or having capacity to manufacture more goods, enjoying high
standard of living will prefer free trade. Similarly a country with a monopoly
will also prefer free trade. But restrictions on trade may be necessary for
developing countries to encourage its industrial production and also to
increase employment and economic activity. In an economy depending primarily on
agriculture, protection also helps in diversification of its production
activities.
Arguments against protection are that it prevents trade, prevents
better productivity, results in higher price, leads to competitive protection
and wars, etc.
Protection is essential for countries that are in the process of
development and this fact has been recognised universally. As a result, a
number of international institutions have been established for the help of
developing and undeveloped economies.
TRADE BARRIERS
Trade barriers may be (i) Tariff Barriers and (ii) Non Tariff
Barriers or protective barriers.
i) TARIFF BARRIERS : Tariff barriers have been
one of the classical methods of regulating international trade. Tariffs may be
referred to as taxes on the imports. It aims at restricting the inward flow of
goods from other countries to protect the country's own industries by making
the goods costlier in that country. Sometimes the duty on a product becomes so
steep that it is not worthwhile importing it. In addition, the duty so imposed
also provides a substantial source of revenue to the importing country. In
India, Customs duty forms a significant part of the total revenue, and
therefore, is an important element in the budget. Some countries use this
method of imposing tariffs and Customs duties to balance its balance of trade.
A nation may also use this method to influence the political and economic
policies of other countries. It may impose tariffs on certain imports from a
particular country as a protest against tariffs imposed by that country on its
goods.
Tariffs may be classified according to (a) the purpose (b) how
they are levied. As far as the purpose of taxes are concerned tariffs may again
be classified as Revenue Tariffs and Protective Tariffs.
Revenue Tariffs are basically intended to raise the Government's
revenue. It does not intend to protect any industry of the country. It is
levied at a very low rate and does not obstruct the free flow of trade.
Protective Tariffs on the other hand aim at protecting the
domestic industries and are generally levied at a very high rate and therefore,
obstruct the free flow of imports. Its purpose is hence not to provide revenue
to the Government but to safeguard the domestic industries. On the basis of how
tariffs are computed, they may be put into two categories as:
Specific Duties, imposed on the basis of per unit of any
identifiable characteristic of merchandise such as per unit volume, weight,
length, etc. The duty schedules so specified must specify the rate of duty as
well as the determining factor such as weight, number, etc. and basis of
arriving at the determining factor such as gross weight, net weight or tare
weight.
Ad valorem Tariffs are based on the value of imports and are
charged in the form of specified percentage of the value of goods. The schedule
should specify how the value of imported goods would be arrived at. Most of the
countries follow the practice of charging tariffs on the basis of CIF cost or
FOB cost mentioned in the invoice. As tariffs are based on the cost, sometimes
unethical practices of under invoicing are adopted whereby Customs revenue is
affected. In order to eliminate such malpractices, countries adopt a fair value
(given in the schedule) or the current domestic value of the goods as the basis
of computing the duties.
One example is edible oils. India's production from oilseeds
cannot meet the demand of refined oil for cooking and other uses, leading us to
necessarily import the balance requirements. The major import is crude palm oil
from Malaysia / Indonesia.
In order to protect the domestic industry, our Govt. revises customs
duties upwards whenever the fob ( ex exporting country ) cost or cif ( cost
insurance, freight at any Indian port ) cost of crude palm oil goes down, to
enable the Indian manufacturer to have a level playing field. In other words,
the tariff on raw material, crude palm oil, is adjusted so that there is a
level playing field between the indigenous manufacturer ( from crude palm oil )
and the refiner ( from imported palm crude ).
ii) NON - TARIFF MEASURES (BARRIERS) To protect
the domestic industries against unfair competition and to give them a fair
chance of survival various countries are adopting non-tariff measures. Some of
these are :
Quantity Restrictions, Quotas and Licensing Procedures :- Under
quantity restriction, the maximum quantity of different commodities which would
be allowed to be imported over a period of time from various countries is fixed
in advance. The quota fixed normally depends on the relations of the two
countries and the needs of the importing country. Here, the Govt. is in a position
to restrict the imports to a desired level. Quotas are very often combined with
licensing system to regulate the flow of imports over the quota period as also
to allocate them between various importers and supplying countries.
Foreign Exchange Restrictions -
Exchange control measures are used widely by a number of
developing countries to regulate imports. Under this system an importer has to
ensure that adequate foreign exchange is available for imports by getting a
clearance from the exchange control authorities of the country.
Technical Regulations -
Another measure to regulate the imports is to impose certain
standards of technical production, technical specification, etc. The imported
commodity has to meet these specifications. Stringent technical regulations and
standards beyond international norms, expensive testing and certification, and
complicated marking and packaging requirments.
Consular Formalities -
A number of countries specify that the shipping documents must
accompany the consular documents such as certificate of origin, certified
invoices, etc. Sometimes, it is also insisted that the document should be drawn
in the language of the importing country. Fees charged for such documentation
is also very heavy.
Voluntary Export Restraint:
The agreement on 'voluntary' export restraint is imposed on teh
exporter under the threat of sanctions to limit the export of certain goods in
the importing country. Similarly, establishment of minimum import prices should
be strictly observed by the exporting firms in contracts with the importers of
the country that has set such prices. In case of reduction of export prices
below the minimum price level, the importing country imposes anti-dumping duty
which could lead to withdrawal from the market. Voluntary export restraints
mostly affect trade in textiles, footwear, dairy products, cars, machine tools,
etc.
Local Content Requirement:-
A local content requirement is an agreement between the exporting
and the importing country that the exporting country will use some amount or,
content of resources of the importing country in its process of production. If
the exporting country agrees to do that only then the importing country will
import their goods.
Embargo:-
Embargo is a specific type of quota prohibiting trade. Like
quotas, embargoes may be imposed on imports, or exports of particular goods,
regardless of destinations, in respect of certain goods supplied to specific
countries, or in respect of all goods shipped to certain countries. Although
the embargo is usually introduced for political purposes, the consequences, in
essence, could be economics.
Customs and administrative procedures such as rules of origin,
customs classifications, anti-dumping duties, import licensing procedures and
others were second major barrier set. SPS measures relating to maximum residue
levels, pest/disease free zones, etc, were the third most often citied
notifications. Quantitative restrictions, charges on imports and others are
there.
The purpose of tariff and non-tariff barriers is to regulate the
free-flow of imports. With tariffs, the Govt. receives revenue while with
non-tariff barriers there is little revenue but protection is given for the
domestic industries. Recently, non tariff measures have become more important
than tariff regulating the imports in the desired direction, keeping in mind
the balance of trade and balance of payment situations.
Main Points
1.
International Trade involves
o Tariffs,
quotas &
o Non-tariffs
2.
Protection stands for restrictions imposed on imported goods to
protect
o domestic
industry, market & economy
o bargaining
power and reduce unemployment
3.
Trade Barriers are of 2 types :
Tariff
Barriers
Non-Tariff
Barriers
a) Tariffs are taxes levied on imports under
terms of GATT
4.
Different types of Tariffs:
o Revenue Tariff
- Increases Govt. revenue
o Protective
Tariff - protects domestic industry
o Counter
active Tariff - Similar to anti-dumping
o Specific
Tariff - based on per units/Vol./
o Length/number
of goods
o Ad
valorem Tariff - based on certain percentage Of FOB/CIF value
o Anti-dumping
Tariff - to counter dumping activity
STANDARDS
Standards are increasingly being used as a protectionist measure
to restrict imports. As such, standards related trade barriers are of deep
concern for exporting countries like India. While on the one hand,
international trade has become more open with reduction in tariff removal of
quotas, on the other hand, non tariff barriers (NTBs) in the form of standards,
testing, labeling, certification and registration requirements is on a steady
rise. Almost all countries use some type of NTBs to protect their domestic
industries from rising imports.
Standards are necessary as they serve two key purposes of
providing compatibility and information. If products are not standardized,
especially the electronic products they may be suitable for domestic
requirements in the importing country. Further, standards provide useful
information on the quality of the product, which is immensely important for
food products, as sub-standard quality could prove harmful to human/animal
health.
Standards related barriers can be of different types product
standards, process standards, testing requirements, environmental standards,
packaging and labeling requirements, etc. While all these standard act as
safety measures, undue use of these measures can act as NTBs. Several
industries in India are facing standard related barriers while exporting their
product in international markets. Some of the sectors greatly affected by NTBs
include agricultural products, marine products, pharmaceutical, processed
foods, textiles, leather and chemicals.
Two agreements under WTO, viz., Sanitary and Phtyosanitary
Measures (SPS) and Technical Barriers on Trade (TBT) encourage member countries
to use common international standards, which can reduce the cost of adapting to
different national standards for the developing countries.
Industries in developed countries are facing tough competition
from cheaper imports from developing countries and as such they are
increasingly lobbying with their respective governments to impose regulations
and standards suited to their interests. Consequently, incidence of standards
related NTBs is unlikely to fade off in the near future. As such, there is a
need to equip Indian exporters to meet these barriers effectively, without
affecting their exports. Steps are needed to build up the capabilities of
Indian exporters to meet the international standards. India's systems of
inspection, testing and certification need to build up the capabilities of
Indian exporters to meet the international standards. India's systems of
inspection, testing and certification need to be strengthened further. Steps
should be taken to spread greater awareness amongst exporters about various
foreign standards and regulations.
Difference between Tariff and Non-Tariff Barriers
New Tariff Barriers
New tariff barriers faced by Indian products in various overseas
markets are severely constraining our exports. These barriers may broadly be
enumerated as :
1.
restrictive import policy regimes (import charges other than
customs tariff, quantitative restrictions, import licensing, custom barriers);
2.
standards, testing, labelling and certification (including
phytosanitary standards), which are set at unrealistic high levels for
developing countries are scientifically unjustified;
3.
export subsidies (including agricultural export subsidies,
preferential export financing schemes, etc.,);
4.
barriers on services (visible and invisible barriers restricting
movements of service providers, etc,);
5.
government procurement regimes; and
6.
other barriers including anti-dumping and countervailing measures
QRs
Quantitative restrictions, especially in the textiles area, are
one of the most important of the non-tariff barriers affecting India's trade.
The major trading partners of India have not made any industrial adjustment nor
have accorded any meaningful access to developing countries like India. The
integration programme implemented by the importing countries has not been in
line with the spirit of the Agreement on Textiles and Clothing (ATC), though it
may have conformed to the narrow technical and legal requirements of the
Agreement, in the first stage starting from 1 January 1995, major restraining
countries integrated no product under restraint for India; and in the second and
third stages, integration of restraint products has been negligible. The result
is that even in the tenth year of the transition period, more than 95% of
India's apparel and yarn trade would remain un-integrated with some of its
major trading partners. Further, the integration schedules have a greater
concentration of low value added products. It is, thus obvious that the major
importing countries have continued to back load the integration process and the
bulk of integration would take place only at the conclusion of the transition
period.
Non-Tariff Measures
In a number of other product sectors of export interest to India,
market access has been affected by several non-tariff Measures (NTMs).
Qualitative Requirements for Agricultural Products
In the agricultural product sector, there are barriers to export
of mangoes and other fruit on account of insistence of some of our major
trading partners to use only the Vapour Heat Treatment (VHT) procedure. In the
floriculture sector, there are certain plant quarantine procedures in some
importing countries including zero tolerance for some insects and pests, which
affect our market access.
The export of Indian milk product is affected on account of
certain conditions like proof of absence of TSE/Scrapie in India insisted upon
by some trading partners. There is continuing ban on import of Indian meat by
some countries even though India has been free from rinderpest for the last
three years and the same has been published in the OIE bulletin released from
Paris. There are different regulations on use of pesticides and pesticides
residues by various importing countries, which has affected market access of
Indian products like grapes, egg products, gherkins, honey, meat products, milk
products, tea and spices, Non-harmonisation of regulations for approval of
exporting units of Indian egg products and non-approval of Indian egg
processing establishments by one of our major Trading partner is another market
access barrier.
NTMs for Leather Products
In the leather products sector, Indian exporters face NTMs like
chemical and dye content of leather, other standards ( like different shoe size
standards, more than appropriate stringent standards for flex testing, tearing
strength, colour fastness and flammability testing), packaging and labelling
requirements (like insistence on use of recyclable card boxes for packing
footwear, at times insistence on reshipping packaging material back to the
point of origin), violation of MFN and national treatment (for instance
testing, double certification and standards compliance may not be mandatory or
as strict for local manufacturers or for some other exporting countries), visa
restrictions and other import bans (like ban on use of nickel in footwear, ban
on use of colour pigments with additive base).
Social Security
Unreasonable social security requirement and visa restrictions
enforced by some of our major trading partners have affected the growth of our
software exports.
Safety Norms
The requirement of assembly of bicycles according to the security
and safety norms of a trading partner in a discriminatory manner and need for a
certificate of compliance by an authorised organisation has severely affected
market access of Indian bicycles to that country.
The illustrative examples of NTM given above indicate the
significant financial and time costs, which have adversely impacted on the
market access for Indian goods and services. (Source : WTO)
Anti - Dumping
Anti dumping is a new weapon in the trade war. Anti dumping is one
policy which is creating a non tariff barrier, hindering free trade.
If a company exports a product at a price lower than the one
charged in its home market, it is said to be dumping. If the importing company
succeeds, its country will levy an anti dumping duty on the product exported by
the Indian Co. to him. This adds to the landed cost of the product and reduces
the Indian exporter's competitiveness.
Over the last century, GATT ( now WTO) has framed rules and
regulations to be followed before an importing member country levies anti
dumping duty on imports from another member country.
In case of non settlement between the exporting and importing
members of WTO, the case is referred to Dispute Settlement Body of WTO at
Geneva. The fight is a long drawn out battle and involves legal expertise and
enormous collection of data.
The exporting industry should get prepared for eventualities of AD
quite well in advance and face with the help of our Govt.
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