Tariffs are one of the important trade barrier instruments that a country adopts and implements as a geo-economic policy. Besides tariff barriers, there are other significant tools in the form of non-tariff barriers which impose restrictions on the movement of goods and services. These tariff policies serve as the main source of protectionism between countries. In other words, countries use tariffs to protect their domestic consumers and producers from foreign competition.
While both tariff and non-tariff barriers may sound similar, there are quite significant differences that are inherent between the two. Non-tariff trade restrictions are imposed indirectly on imported items, whereas tariffs are placed directly on imported commodities. However, there are other differences as well.
We now know that these are the two types of barriers that negatively affect the trading system on an international level. So, you might put forth a question as to what are the other differences between tariff and non-tariff barriers.
In this blog, we will look at these barriers in a more detailed description by explaining the differences between the two. Let's dive right in.
Do you know? Exporting countries are not the ones paying the tariffs but the domestic consumers of the nation itself.
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What is a Tariff Barrier?
There is a common misconception that many people believe that the concept of tariffs is just like those taxes usually paid for purchasing every product. But, this is not the case with the term 'tariff barrier.' There's a lot more intricate and detailed implementation of this policy. However, it should not shock you simply due to its unusual form and meaning than the 'taxes.'
In simple terms, the tariff is a tax, but it is a tax on all goods imported from foreign countries. Or, you could simply understand it as a 'border tax.' The government authorities most commonly levy these tariffs on imported goods that protect domestic industries from heavy competition from foreign markets. Apart from this, tariffs also act as a source of revenue for the government in the form of taxes and duties.
Moreover, imposing tariff restrictions keeps the cost of foreign goods competitive for the nation's independence from foreign imported goods. Additionally, this sort of trade barrier policy is used to penalise countries that don't follow the government's foreign policy.
A government can impose tariff restraints in several different forms. Some of the most common tariff barriers are as follows:
- Ad-Valorem Tariffs
- Specific Tariffs
- Import Quotas
- Compound Duties
- Protective Tariffs
- Licences
- Voluntary Export Duties
- Transit Duties.
What is a Non-Tariff Barrier?
Non-tariff trade barriers are restrictions that do not necessarily involve paying taxes and duties. In other words, these barriers are obstacles to trading in import of foreign goods other than the measures adopted in tariff policy. To put the concept of the non-tariff barrier more simply and concisely, it is a type of 'non-tax' policy.
Sometimes, a non-tariff barrier policy may have the same effect as the barriers of tariffs. Still, in this case, only restrictions such as prohibitions, conditions, and formalities are implemented, which makes importing foreign goods difficult and restrained. Non-tariff barriers are, however, not implemented in combination with tariff barriers.
Non-tariff barriers usually take the form of restrictions that are listed below:
- Quotas
- Voluntary Export Restraints
- Embargoes
- Technical Barriers to Trade
- Licensing
- Anti-dumping duties
- Countervailing Duties
- Safeguards
- Government Procurement
- Procedures and Formalities
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- Customs Valuation
- Quantity Restrictions
- Import Deposit
- Price Control
- Pre-shipment Inspection
- Administrative Barriers
The Difference BetweenTariff and Non-Tariff Barriers
While each tariff and the non-tariff barrier has unique characteristics, they are nevertheless important policies set by the government that every trading company should know about. These are the two main areas you need to consider when dealing with economies different from yours.
These trade restrictions are hindrances to the trading of goods and services in the global market, while it is beneficially being used to protect domestic producers from foreign market competition.
Below, you will learn some of the major differences between tariff barriers and non-tariff barriers through a detailed comparison chart. The points of difference are–
|
Points of Difference |
Tariff Barriers |
Non-Tariff Barriers |
|
When the government levies restrictions in the form of taxes and duties on importing goods and services, such restrictions are called tariff barriers. |
When the government levies other stringent restrictions in the form of non-tax policy, such restrictions are known to form part of the non-tariff barrier. |
|
The tariff barrier has two-way benefits for the nation. First, it protects the domestic producers from the negative competitive impacts of foreign countries. Secondly, it provides an additional source of revenue to the government. |
A non-tariff barrier also protects domestic manufacturing companies while ensuring that foreign entrants have a share in the nation's market only after fulfilling certain conditions or formalities. |
|
Tariff barriers are implemented in the form of taxes and duties. |
Non-tariff barriers are restrictions in the form of conditions, voluntary export duties, other formalities, etc. |
|
Tariff barriers are explicit. |
Non-tariff barriers are implicit. |
|
In a tariff barrier, due to taxes and duties imposition, the government has the potential to generate and receive revenue. |
In a non-tariff barrier, the government has no scope for the receipt of revenues. |
|
Due to the imposition of taxes and duties in the case of tariff barriers, there is a significant impact on the price of imported goods. That is, the prices of such goods are exorbitantly hiked. |
In the case of non-tariff barriers, the imported goods are affected in both quantity and price aspects. |
|
The application of import tariffs and levies in the context of tariff barriers reduces the likelihood of monopolistic developing organisations. |
In a non-tariff restriction, monopolistic groups have opportunities to make high profits. |
|
The importers in tariff barriers often have less chance of making huge profits. |
Importers can easily make and collect good profits. |
|
Tariff barriers disallow and indirectly restrict the import of goods. |
Non-tariff barriers put direct restraints on the import of goods. |
|
The tariff barrier implementation is simple. This is because there is no need for separate allocation of formalities, licensing, or quotas, as legislative authorities already specify these restrictions in the form of fixed rates. |
In a non-tariff barrier, there are authorities with different functions for its implementation. Such allocated functions may lead to political corruption and interference. |
|
Any changes made to the policy of tariff barriers have a quick and immediate impact on the reduction of goods imported from foreign countries. |
Changes made to the non-tariff barrier policy take time for their implementation to show instant effects. |
|
Tariff barrier examples include the form of Ad-Valorem Tariffs. Specific Tariffs, Import Quotas, Compound Duties, Protective Tariffs, Licences, etc. |
Non-tariff barrier examples are Quotas, Voluntary Export Restraints, Embargoes, Technical Barriers to Trade, Licensing, Anti-dumping duties, Countervailing Duties, Safeguards, Government Procurement, Procedures, Formalities, etc. |
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Conclusion
To conclude, tariff barriers and non-tariff barriers refer to different kinds of restrictions or obstacles implied in trading goods internationally. Although, sometimes they might often be used interchangeably, they have a wide gap of differences that keep the two concepts distinct from one another.
We have looked at all the possible and essential differences between the two that are worth understanding. By now, you must know that when the government imposes trade barriers on the import of goods through certain types of controlled regulations by way of paying taxes or duties, we call such barriers as tariff barriers. Whereas, when the barrier is imposed in such a way that there is no requirement for the payment of any types of taxes or duties on the imported goods, we call this concept a non-tariff barrier.
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