What Is a Nontariff Barrier?

A nontariff barrier is a way to restrict trade using trade barriers in a form other than a tariff. Nontariff barriers include quotas, embargoes, sanctions, and levies. As part of their political or economic strategy, large developed countries frequently use nontariff barriers to control the amount of trade they conduct with other countries.

Nontariff Barrier Explained

Countries commonly use nontariff barriers in international trade, and they typically base these barriers on the availability of goods and services and political alliances with trading countries. Overall, any barrier to international trade will influence the economy because it limits the functions of standard market trading. The lost revenue resulting from the barrier to trade is called an economic loss.

Countries can set various types of alternative barriers in place of standard tariffs. Such barriers often release countries from paying added tax on imported goods and create other barriers that have a meaningful yet different monetary impact.

Key Takeaways

  • A nontariff barrier is a trade restriction, such as a quota, embargo or sanction, that countries use to further their political and economic goals.
  • Countries commonly use nontariff barriers in international trade.
  • Nontariff barriers have a common basis on the availability of goods and services and political alliances with trading countries.
  • Nontariff barriers often release countries from paying added tax on imported goods and create other barriers that have a meaningful yet different monetary impact.
  • Countries can use nontariff barriers in place of, or in conjunction with, standard tariff barriers.

Licenses

Countries may use licenses to limit imported goods to specific businesses. If a business is granted a trade license, it is permitted to import goods that would otherwise be restricted for trade in the country.

Quotas

Countries often issue quotas for importing and exporting goods and services. With quotas, countries agree on specified limits for products and services allowed for importation to a country. In most cases, there are no restrictions on importing these goods and services until a country reaches its quota, which it can set for a specific time frame. Additionally, quotas are often used in international trade licensing agreements.

Embargoes

Embargoes are when a country or several countries officially ban the trade of specified goods and services with another country. Governments may take this measure to support their specific political or economic goals.

Sanctions

Countries impose sanctions on other countries to limit their trade activity. Sanctions can include increased administrative actions or additional customs and trade procedures that slow or limit a country’s ability to trade.

Voluntary Export Restraints

Exporting countries sometimes use voluntary export restraints. Voluntary export restraints set limits on the number of goods and services a country can export to specified countries. These restraints are typically based on availability and political alliances.

Standard Tariffs

Countries can use nontariff barriers in place of, or in conjunction with, conventional tariff barriers, which are taxes that an exporting country pays to an importing country for goods or services. Tariffs are the most common type of trade barrier, and they increase the cost of products and services in an importing country.

Real World Example

An example of nontariff barriers, as reported by Reuters, is the round of United Nations sanctions against North Korea and the Kim Jong Un regime adopted in December 2017. The sanctions cut exports of gasoline, diesel, and other refined oil products to the nation, and they prohibit the export of industrial equipment, machinery, transport vehicles, and industrial metals to North Korea. The barriers are designed to put economic pressure on the nation to stop its nuclear arms and military exercises.