Tariff and Non-Tariff Barriers

Tariff and Non-tariff Barriers When foreign countries can enter a home country and sell product for less than the people usually see this as a great trade opportunity. However, if that product is manufactured in the home country then the home country not only loses revenue from sales on that product but the economic impacts can run even deeper. With no need to manufacture that product companies will no longer need to purchase the raw materials or hire the employees necessary to maintain the demand. To eliminate this from occurring or to impose a type of trade restriction on a foreign country tariffs and nontariffs are utilized. General Agreement on Tariffs and Trade (GATT) was succeeded by the World Trade Organization monitors tariffs and promotes free trade (Hill, 2004.) Tariffs is a tax applied to an import and is one of the oldest trade policies in effect (Hill, 2004.) This tax is generally revenue for the charging country 's government. There are two types of tariffs; they are specific and ad valorem tariffs. A specific tariff applies or levies a set tax to a certain import. If a specific tax of fifty cents were applied to wine then the government would gain 50 cents from every bottle coming into the United States without regard to whether the wine was a 200-dollar bottle of the finest wine or a bottle of two-dollar wine headed for skid row. An ad valorem tax is applied at a fixed percentage of the value of the import (Saranovic, 2006.) Now if there were a 1.5% tax levied against the wines then three dollars would be gained in tariff revenue on each 200-dollar bottle of wine and only three cents on the two-dollar bottle. Nontariff barriers are restrictions imposed upon countries such as voluntary export restrictions, antidumping and subsidies, quotas (Hill, 2004.) The first nontariff barrier is voluntary export restrictions (VER) is when a country limits the number of product being exported to a certain country in order to gain favor or to diffuse a

References: Hill (2004). International Business: Competing in a Global Marketplace. 5th ed. New York: McGraw-Hill. Marchese, Sarafino SCM: Definitions. Retrieved August 22, 2006, from Subsidies Web site: http://www.wto.org/english/thewto_e/whatis_e/eol/e/wto04/wto4_24.htm Saranovic, Steven (2006). Import Tariffs. Retrieved August 21, 2006, from Trade 10-1 Web site: http://www.internationalecon.com/v1.0/ch10/10c050.html Understanding the WTO. Retrieved August 20, 2006, from World Trade Organization Web site: http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm