Barriers to International Trade

Despite the many advantages of trade between nations trade barriers are often imposed on certain goods. You have already learned some general infor­mation about the means of controlling foreign trade (see Units 2-3). Here we shall dwell upon these issues in more details.

Two of the most important barriers to trade (import) are tariffs and quotas. A tariff is a duty, or tax, usually levied on imported goods. It is imposed to make imported goods more expensive compared to the domestic product. For this reason tariffs are usually very high and discourage the import of lower-priced foreign goods to the country.

Quotas are physical limits upon the amount of a good or a service, which can be imported or exported. Products limited by quotas may be subject to tariff as well. However quotas tend to increase prices even more than tariffs. Quotas are often used to restrict imports where tariffs seem to be not very effective because consumers are prepared to pay high prices for foreign commodities. Like protective tariffs quotas limit the amount of foreign competition a pro­tected home industry is likely to face. For example, a quota may state that not more than X automobiles may be imported from a definite country in one year, thus protecting home automobile industry.

A specific type of quota that prohibits all trade is known as an embargo. It is a complete ban upon trade with a particular country. Like quotas embargos may be imposed on either imports or exports. Embargo is usually imposed for political reasons but also has an economic effect. The USA has maintained embargo on Cuban goods since 1959, when Castro took power in Cuba. This embargo severely damaged Cuban sugar industry and caused nearly $86 billion losses for Cuban foreign trade in almost 50 years.

A boycott is a restriction against the purchase of goods from a particular country aimed at protecting domestic industries. Sometimes boycotts are used as a punitive measure to restrict both imports and exports between two countries

There are other devices that directly influence the flow of trade among nati­ons. One of these is the export subsidy - a payment by a country to its exporters that enables them to sell their products abroad at a lower price than they could sell them for at home. Selling the same product for a lower price abroad than at home is called dumping. Such policy allows the exporters to penetrate foreign markets and face the competition while all their expenses are compensated by the government subsidies.

Still another tactic to restrict foreign trade can be classified as “admini­strative red tape”. This is the use of governmental rules and regulations to make it difficult to import goods from abroad. All countries have regula­tions about standards for products. They are aimed to protect health, safety and product quality. Occasionally product standards can be deliberately designed to prevent imports.

Since the Second World War countries have attempted to abolish or at least to control restrictions on trade. One of the most important steps was signing the General Agreement on Tariffs and Trade in 1948. The primary goal of GATT was 1) to reduce protectionism that favours home producers over foreign produ­cers and 2) to eliminate discrimination favouring one foreign producer over another. According to the principles of GATT protection should only be given through tariffs while such non-tariff restrictions as import quotas or subsi­dies should be discouraged.