World Trade Organization: Trade Barriers and Regulations

Topic 4: World Trade Organization (WTO)

Trade barriers are measures that governments or public authorities introduce to make imported goods or services less competitive than locally produced goods and services.

Effect of Trade Barriers

• Cause a limited choice of products and, therefore, would force customers to pay higher prices and accept inferior quality.
• Generally favor rich countries because these countries tend to set international trade policies and standards.
• Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, which can be explained by the theory of comparative advantage.

Legal and Illegal Trade Barriers

Illegal barriers: Violate international agreements and rules.

Legal barriers: Do not violate international agreements and rules.

Nevertheless, whether legal or not, trade barriers prevent or restrict imports or investments to the market in question. For example:

• Customs duties
• Customs procedures
• Technical regulations, standards

Types of Import Barriers

• Tariff levels: Import tariffs are higher compared with the tariffs imposed on goods from other countries.
• Tariff quotas: Import tariffs are low until a certain volume of the product has been imported.
• Internal taxation: Internal direct or indirect taxes make imported goods more expensive than locally manufactured products and thus less competitive.
• Anti-dumping measures: Special duties levied on imported goods that are sold at too low prices.
• Regulation and procedures concerning import (for example, registration).
• Rules and standards: Competition issues as legal competition rules to restrict imports.

Export Restrictions

• Export prohibitions and other quantitative restrictions: To incentivize not to export from a country.
• Export taxes: Direct or indirect taxes or duties levied in connection with exports of a product.
• Discriminating export licensing.
• Export subsidies: State aid that is granted to a producer on condition that the goods produced are exported.

GATT: Objectives

The GATT (General Agreement on Tariffs and Trade) is a multilateral agreement on trade with duties and rights. Its main objectives are:

• Elimination of barriers in international trade and promotion of free trade: Trade should be based on principles like free trade, non-discrimination, and reciprocity.
• Suspension of tariffs and non-tariffs.
• Abolish practices that distort competition in international trade, like subventions to exports, dumping, and quantitative restrictions.
• To develop negotiations between parties of the agreement: This is a framework of negotiation to reduce barriers to trade.