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, levies and other restrictions. Large, developed countries frequently use nontariff barriers to control the amount of trade it conducts with another economy for selfish or altruistic purposes.

BREAKING DOWN 'Nontariff Barrier'

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.

An example of nontariff barriers is the recent 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.

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 goods and services allowed for importation to a country. In most cases, there are no restrictions on importing these goods and services until the country reaches its quota. Countries can also set quotas for specific time frames. Additionally, quotas are also often used in international trade licensing agreements.

Embargoes

Embargoes restrict the trade of specified goods and services. An embargo is a measure a government will use for specific political or economic circumstances.

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 will 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 standard 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 goods and services in an importing country.

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