What is a 'Nontariff Barrier'
A nontariff barrier is a form of restrictive trade where barriers to trade are set up and take a form other than a tariff. Nontariff barriers include quotas, embargoes, sanctions, levies and other restrictions and are frequently used by large and developed economies. Nontariff barriers are another way for an economy to control the amount of trade that it conducts with another economy, either for selfish or altruistic purposes.
BREAKING DOWN 'Nontariff Barrier'Nontariff barriers are commonly used by countries in international trade, and they are typically based on the availability of goods and services and the political alliances with the trading countries. Overall, any barrier to international trade will create an economic loss, as it limits the functions of standard market trading. The lost revenues resulting from the barrier to trade can be called an economic loss.
Countries can set various types of alternative barriers to standard tariffs, which often release countries from paying added tax on imported goods and create other barriers which have a meaningful yet different monetary impact.
Countries may use licenses to limit imported goods to specific businesses. If a business is granted a trade license, then it permits it to import goods that otherwise are restricted for trade in the country.
Countries typically use quotas for the importing and exporting of goods and services. In nontariff barrier procedures, countries agree on specified limits of goods and services that are permitted for importation to a country, typically without restrictions, up to a specified limit. Quotas can also be set for specific time frames. Additionally, quotas are also often used in international trade license agreements.
Embargoes restrict the trade of specified goods and services. Embargoes are a measure used by governments for specific political or health circumstances.
Countries impose sanctions on other countries to limit their trade activity. Sanctions can include increased administrative actions and additional customs and trade procedures that slow or limit a country’s ability to trade.
Voluntary Export Restraints
Voluntary export restraints are a type of nontariff barrier used by exporting countries. Voluntary export restraints set specified limits of goods and services to be exported to specified countries. These restraints are typically based on availability and political alliance.
Nontariff barriers can be used in place of or in conjunction with standard tariff barriers, which are taxes that importing countries pay to exporting countries for goods or services. Tariffs are the most common type of trade barrier, and they increase the cost of goods and services for an importing country to the benefit of the exporting country.