No duty barriers

What are non-tariff barriers?

The no duty barriers refer to restrictions resulting from prohibitions, conditions or specific market requirements, which make it difficult and / or costly to import or export products. They are a way of restricting trade using mechanisms other than the simple imposition of tariffs or taxes..

Examples of non-tariff barriers are import quotas, licenses, certificates of origin, embargoes, sanctions, customs delays, technical barriers, or other systems that prevent or minimize trade. Developed countries frequently use them in international trade to control their trade with another economy..

They are normally based on the availability of goods and services, and on political alliances with the countries with which they trade. In general, any barrier to international trade will influence the economy by limiting the functions of standard trade in the marketplace. The income lost as a result of the barrier is called economic losses.

Characteristics of non-tariff barriers

Non-tariff barriers have a series of characteristics:

More frequent in developed countries

Developed countries have moved from tariffs to non-tariff barriers because these countries have other sources of income than taxes.

Historically, when nation-states were being formed, governments had to raise funds, and they began to receive them with the introduction of tariffs. This explains why most developing countries still rely on them as a way to finance their spending..

Developed countries can afford not to depend on tariffs, while developing non-tariff barriers as a way to regulate international trade.

Support from weak industries

Non-tariff barriers can be used to support weak industries or compensate industries that have been negatively affected by reduced tariffs..

The notoriety of non-tariff barriers is the ability of certain interest groups to influence the process, given the impossibility of obtaining support from the government in setting tariffs..

Tariff reduction

Tariffs for the importation of goods were reduced during the rounds of negotiation in the World Trade Organization (WTO) with the General Agreement on Tariffs and Trade.

After the reduction of tariffs, the principle of protectionism required the introduction of new non-tariff barriers, such as technical barriers to trade..

According to statements made at the United Nations Conference on Trade and Development (UNCTAD 2005), the use of tariff barriers - based on quantity and control of price levels - decreased significantly from 45% in 1994 to 15% in 1994. 2004, while the use of other non-tariff barriers increased from 55% in 1994 to 85% in 2004.

Types of non-tariff barriers

Countries can establish different types of non-tariff barriers with a wide variety of trade restrictions. Some types are described below:

Licensing

The government issues permits for the import and / or export of products included in an official list of licensed goods. Licenses can be:

• Allow importing and / or exporting the products included in the list for a certain period of time.
• Be unique. For a certain company to import and / or export a certain amount of products, with the cost and country of origin and destination already defined.

Import quotas

Import quotas are established to limit the amount that a product can be imported or exported during a certain period.

The objective of the quotas is to limit the supply of certain products, which generally increases their prices and allows local companies to capitalize on unmet demand.

Quotas are also established to avoid dumping, what happens when foreign producers export products at prices lower than their production costs.

Seizures

The embargo is the most severe type of quota, since it totally prohibits trade. Export embargoes can be imposed on all or certain products that are shipped to specific countries. Although the embargo is generally done for political purposes, its consequences are economic.

Other types

• Countries often impose rules on classification, labeling and testing of products to allow their sale domestically, as well as to block the sale of foreign-made products..
• Currency restrictions and control occupy a special place among non-tariff regulatory instruments. Exchange restrictions establish the regulation of transactions with currency and other monetary values.
• Countries impose sanctions on others to limit their business activity. Sanctions can include both specific administrative actions and additional customs and trade procedures that limit a country's ability to trade..
• Governments can help national companies compete by providing subsidies, which reduce their cost of production and generate profits by achieving lower prices. Examples are agricultural subsidies in the United States..

Examples in Mexico

Let's take several examples of non-tariff barriers in Mexico:

Minimum referential prices

Companies face certain non-tariff barriers when exporting to Mexico. In 1992, Mexico published a list of products, establishing an estimated minimum price for such goods, also known as the "reference price.".

However, a resolution published in 2009 abolished these estimated minimum prices in all industries, with the exception of used cars..

Import licenses

Certain products must obtain an import license, the difficulty of which varies depending on the nature of the product. Periodically the Mexican government publishes lists with the articles that have a specific import control.

The following are examples of import licenses required by the Mexican government agencies that administer these particular licenses:

• The Ministry of Economy requires licenses for used products and reconditioned equipment, among others.
• The Ministry of Agriculture requires a prior import authorization for some leather products and frozen meat, among others..
• The Ministry of Health requires a "prior sanitary import authorization" for medical products and equipment, pharmaceuticals, toiletries, processed foods, and certain chemical products. In some cases, only pharmaceutical companies are allowed to import them.
• The Ministry of the Environment requires licenses for products manufactured from endangered species, such as certain eggs, ivory, some types of wood, skins, etc..
• The Ministry of Defense requires an authorization to import weapons, ammunition, explosives and defense equipment.

Steel products

Since 2014, Mexican customs began to demand more information on steel products. Importers are required to provide detailed information on the material prior to arrival at customs.

A quality certificate of the material must be presented, issued by the steel plant from which it was obtained.

Since 2017, steel importers must also be registered in the Sector Promotion Programs for the steel industry.

Health related products

In the case of health goods, products manufactured abroad must have a legal representative in Mexico; must be registered with the Ministry of Health before being sold in the country.

Textile products

Importers of textile products must be registered in Official Registry No. 11 for the textile and clothing sector.

References

1. Investopedia (2018). Commercial Policy. Taken from: investopedia.com.
2. Wikipedia the free encyclopedia (2018). Trade barrier. Taken from: en.wikipedia.org.
3. Globaltrade (2010). Trade Barriers in Mexico. Market Research Report. Taken from: globaltrade.net.
4. Wikipedia the free encyclopedia (2018). Non-tariff barriers to trade. Taken from: en.wikipedia.org.
5. Guillermo Westreicher (2018). No duty barriers. Economipedia. Taken from: economipedia.com