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A tariff barrier is a levy collected on goods when they enter a domestic tariff area (DTA)
through customs. Tariff refers to the duties imposed on internationally traded commodities
when they cross national boundaries and may be in the form of heavy taxes or custom
duties (operated through a price mechanism) on imports, so as to discourage their entry into
the home country for marketing purposes.
Tariffs enhance the price of the imported goods, thereby restricting their sales as well as
their import. Governments impose tariffs only on imports and not on exports as they are
interested in export promotion. Only a few exported items of any country are taxed.
The aim of a tariff is thus to raise the prices of imported goods in domestic markets, reduce
their demand and thereby discourage their imports. Tariff barriers are major determinant
factor to build or get away from the business. In India, over the past ten years the prime
import duty has been reduced to 15% from 100% on many consumer durables and
electrical items.
Classification of Tariffs
On the basis of origin and destination of the goods crossing national boundaries
Export duty: An export duty is a tax levied by the country of origin, on a commodity
designated for use in other countries. The majority of finished goods do not attract
export duty. Such duties are normally imposed on the primary products in order to
conserve them for domestic industries. In India, export duty is levied on oilseeds,
coffee and onions.
Import duty: An import duty is a tax imposed on a commodity originating in another
country by the country for which the product is designated. The purpose of heavy
import duties is to earn revenue, to make imports costly and to provide protection to
domestic industries. Countries impose heavy import duties to restrict imports and
thereby remove the deficit in the balance of trade and balance of payment.
Transit duty: A transit duty is a tax imposed on a commodity when it crosses the
national frontier between the originating country and the country which it is cosigned
to. African and Latin American nations impose such transit duties at any point of
time. Sri Lanka is another country enjoying such benefits from Indian companies.
Countervailing duty: Such duties are similar to anti-dumping duties but are not so
severe. Countervailing duties are imposed to nullify the benefits offered, through
cash assistance or subsidies, by the foreign country to its manufacturers. The rate of
such duty will be proportional to the extent of cash assistance or subsidy granted.
2. Import Licensing: Import licensing is an alternative to the quota system. It is useful for
restricting the total quantity to be imported. In this system, imports are allowed under
license. Importers have to approach the licensing authorities for permission to import
certain commodities. Foreign exchange for imports is provided against the license. Such
import licenses are the practice in many countries. This method is used to control the
quantity of imports. Import licensing may be used separately or along with the quota
system.
3. Consular formalities: Some importing countries impose strict rules regarding the
consular documents necessary to import goods. Such documents include import
certificate, certificates of origin and certified consular invoices. Penalties are imposed for
non-compliance of such documentation formalities. The purpose of consular formalities
to restrict imports to some extent and prevent free imports of commodities that are not
necessary.
4. Preferential treatment through trading blocs: Some countries form regional groups
and offer special concessions and preference to member countries. As a result trade is
developed among the member countries and allows advantages to all member
countries. On the other hand, it can cause a considerable loss to non member countries,
as a trading bloc acts as a trade barrier. Even trade agreements and joint commissions
are used as trade barriers as they restrict free movement of goods at the international
level.
5. Customs regulations: Customs regulations and administrative regulations are very
complicated in many countries. There are a number of Commodities Act, pertaining to
the movement of drugs, medicines, minerals, bullion etc. Restrictions under such acts
are useful to curtail imports. Tax administration also acts as barrier to free marketing
amongst countries.
6. State trading: State trading refers to import-export activities conducted by the
government or a government agency. Stat trading is useful to restrict imports, as the final
decision is taken by the government. Such state trading acts as a barrier, restricting the
freedom of private parties.
7. Foreign exchange regulations: Countries impose various restrictions on the use f the
foreign exchange earned through exports. Such restrictions have the following
objectives.
a) To restrict the demand for foreign exchange and to use the foreign exchange
reserves in the best possible manner.
b) To check the flow of capital.
c) To maintain the value of exchange rates. Under such regulations the foreign
exchange earned should be surrendered to the government. The government
provides foreign exchange to the businessmen as per priorities that are fixed
periodically.
8. Health and safety measures: Many countries have specific rules regarding health and
safety regulations, which are mainly applicable to raw materials and food items. Imports
are not allowed if the regulations are not followed properly.
9. Miscellaneous non-tariff barriers: Such barriers include prior import duties such as
deposits, embargoes and import restrictions due to environmental regulations, provision
of subsidies to domestic industry, canalization of imports of some commodities and
technical and administrative regulations. All such measures act as non-tariff barriers as
they restrict the free flow of goods and services between countries.