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written by | August 23, 2022

What Separates Tariff from Non-Tariff Barriers?

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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.

Also read: What are Expenses in Accounting? Meaning & Types of Expenses in Accounting

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

Also read: All Facts and Figures About the Nominal Account in Accounting

  • 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

  1. Meaning

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.

  1. Barrier Intent

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.

  1. Form of Implementation

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.

  1. Nature

Tariff barriers are explicit.

Non-tariff barriers are implicit.

  1. Revenue Generation to Government

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.

  1. Impact of Trade Barrier Imposition

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.

  1. Formation of Monopolistic Groups

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.

  1. Profit-making Potential

The importers in tariff barriers often have less chance of making huge profits.

Importers can easily make and collect good profits.

  1. Impact of Restriction: Direct or Indirect

Tariff barriers disallow and indirectly restrict the import of goods.

Non-tariff barriers put direct restraints on the import of goods.

  1. The simplicity of Tariff Implementation

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.

  1. Time of Impact

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.

  1. Trade Barriers Examples

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.

 Also read: Tax Accounting - Definition and Types of Tax Accounting

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.

To learn more about business tips, follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and Accounting.

FAQs

Q: What is the difference between tariff and tax?

Ans:

When a government levies a tax on an individual’s income, such a levy is called a tax. On the other hand, tariffs are such types of taxes that are levied on the import of goods from foreign nations.

Q: Why are tariff and non-tariff barriers used?

Ans:

Trade barriers are instrumental policies of the government that act as a protective shield for domestic manufacturers.

Q: What is the difference between tariff and quota?

Ans:

Tariffs impose taxes at specified rates on imported goods, while quotas specify the quantity of import and export of goods during a particular period.

Q: How do non-tariff barriers affect trade?

Ans:

Non-tariff barriers eventually raise the cost of conducting business across nations.

Q: How do tariff and non-tariff barriers affect international trade?

Ans:

The quotas of non-tariff barriers increase the prices of imported goods just like tariff barriers with a direct influence on such goods due to the imposition of the restraint on specified quantity. However, such an increase in prices does not result in fetching additional imported items.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.