Non-Tariff Barriers 101: How to Hedge Against the Future of Protectionism

By Matthew Hayes

International business has grown exponentially over the past half-century, benefiting United States companies, communities, and workers. Although recent growth rates have slowed, international trade has expanded at an average annual rate of 6 percent since 1950, according to the World Trade Organization.

This growth is primarily the result of the spread of globalization, improvements in technology, finance and transportation, and, perhaps most importantly, reductions in country tariff levels. But, as national tariff levels have declined, new forms of protectionism have emerged. Collectively known as non-tariff barriers to trade (NTBs), analysts say these restrictions are the main culprit in the stalling of the Doha Development Round.

The Doha Round, which started in 2001, essentially came to a halt in 2008 due to disagreements on the future of NTBs, including agricultural subsidies, international standards, and trade rules for services.

NTBs take a variety of forms, including specific limitations on import quantities, onerous customs and administrative entry procedures, standards and regulations that are difficult to understand and satisfy, and government policies that distort trade.

Limitations on Trade
Simply put, NTBs are designed to limit imports by increasing the costs of international business. And setting physical limits on import quantities, creating price floors, placing fees on imports, and creating barriers to entry are typical NTB mechanisms. Fortunately, they often are relatively easy to identify and sometimes possible to avoid.

Strategies to limit trade often are accomplished by the use of quotas, import licensing requirements, proportion restrictions of foreign to domestic goods, minimum import price limits, embargoes, special supplementary duties, import credit discrimination, variable levies, and border taxes.

Entry Procedures and Abuses
The customs agencies of many countries are becoming an increasing burden to corporations interested in global expansion. Of course, the stated aim of these agencies is to protect the home country from global threats, both physical and economic. But sometimes implementing creative anti-dumping policies and establishing new tariff classifications, documentation requirements and administrative fees only serve to unfairly reduce competition.

The use of anti-dumping policies, which protect domestic markets by raising prices on imports predatorily priced below-cost, have become especially notorious in recent years. In fact, legitimate instances of dumping are few and far between.

Instead, dumping often is used as an excuse to limit international competition and bolster domestic industries. And today, the threat of dumping can come at any time and lead to tremendous losses.

The U.S. Commerce Department recently imposed anti-dumping tariffs ranging from 31%-250% on Chinese solar product imports. At a time when alternative energy investments are on the rise, the country that can expand the fastest will receive the best payouts. Whether this means that Chinese companies are dumping their goods or that the U.S. is using protectionist measures has yet to be seen.

Government Manipulation and Market Distortion
As international business and global supply chains have become more complex, governments have become more sophisticated at manipulating trade. This has led to price distortions and market inefficiencies.

In turn, one of the biggest problems in international trade is the tit-for-tat positions governments often take in an attempt to one-up each other. Thus, trade restrictions beget more restrictions, causing trade wars that can exact a large cost to both industries and consumers.

As a result of the U.S. tariff on Chinese solar products, the Chinese government has retaliated by accusing U.S. manufacturers of dumping polysilicon, the most costly material in solar cell production. These actions will inevitably cause costs to rise in the solar industries of both countries, creating a lose-lose situation for producers and consumers.

Becoming familiar with trade relations between the United States and target country markets, and closely monitoring events and procedures, can be an effective means to protect your business from costly trade manipulation. And this may take the shape of government procurement policies, export subsidies, countervailing duties, domestic assistance programs, orderly marketing agreements, and voluntary export restraints.

Ambiguous Standards and Regulations
Standards and regulations often are not well defined, pose real challenges, and are difficult to overcome. Thus, while a good may be perfectly acceptable in one country, it may not meet the minimum criteria necessary for sale in another.

Consequently, problems often arise regarding packaging and labeling requirements, and testing methods. But the abuse of standards and regulations can take many forms, simply serving as an obstacle to trade and investment.

Monitor and Strategize
As non-tariff barriers grow more prevalent and complex, businesses must learn to adapt. Strategies that continuously identify new trade barriers and establish creative ways around them are essential. The U.S. Department of Commerce offers a wide variety of services that can help U.S. firms avoid these pitfalls.

Importantly, to come to a successful completion of the Doha Round, American companies must work more closely with U.S. trade negotiators and provide up-to-date examples of foreign non-tariff barriers and their impact. In turn, the rules of the global game can be made more free and fair. And this is essential since international trade now contributes approximately $1 trillion to U.S. gross domestic product and supports one in five American jobs.

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About irwellesreport

The Welles Report is The State University of New York at Geneseo's student-run International Relations and Political Science publication. Our goal is two fold goal: allowing information about world events to proliferate on campus, and to allow anyone interested in writing on global affairs a venue to do so. The Welles Report is an entirely student lead venture. Student written articles peer-reviewed, student edited, student-designed layout. We publish one issue per semester with articles ranging from 500 to 1500 words. All majors are more than welcome to write and help edit the student run publication. Feel free to contact irreport@geneseo.edu for details. Got Twitter? Follow Welles!
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