Non-tariff barriers to trade

One of the reasons why industrialized countries have moved from tariffs to NTBs is the fact that developed countries have sources of income other than tariffs. Historically, in the formation of nation-states, governments had to get funding. They received it through the introduction of tariffs. This explains the fact that most developing countries still rely on tariffs as a way to finance their spending. Developed countries can afford not to depend on tariffs, at the same time developing NTBs as a possible way of international trade regulation. The second reason for the transition to NTBs is that these barriers can be used to support weak industries or compensation of industries which have been affected negatively by the reduction of tariffs. The third reason for the popularity of NTBs is the ability of interest groups to influence the process in the absence of opportunities to obtain government support for the tariffs.

Administrative and bureaucratic delays at the border increase uncertainty and the cost of maintaining inventory. For example, even though Turkey is in a (partial) customs union with the EU, transport of Turkish goods to the European Union is subject to extensive administrative overheads that Turkey estimates costs the Turkish economy three billion euros per year.[6]

Testifying before the United States Senate Committee on Finance, Subcommittee on International Trade, Customs, and Global Competitiveness on "censorship as a non-tariff barrier" in 2020, Richard Gere stated that economic interest compel studios to avoid social and political issues Hollywood once addressed, "Imagine Marty Scorsese's Kundun, about the life of the Dalai Lama, or my own film Red Corner, which is highly critical of the Chinese legal system. Imagine them being made today. It wouldn't happen."[7][8][9]

Embargoes are outright prohibition of trade in certain commodities.[10] As well as quotas, embargoes may be imposed on imports or exports of particular goods in respect of certain goods supplied to or from specific countries, or in respect of all goods shipped to certain countries. Although an embargo may be imposed for biosecurity reasons, more often the reasons are political (see economic sanctions and international sanctions). Embargoes are generally considered legal barriers to trade, not to be confused with blockades, which are often considered to be acts of war.[11]

Foreign exchange restrictions and foreign exchange controls occupy an important place among the non-tariff regulatory instruments of foreign economic activity. Foreign exchange restrictions constitute the management of transactions between national and foreign operators, either by limiting the supply of foreign currency (to restrict imports) or by state manipulation of exchange rates (to boost exports and limit imports).

Another example of foreign trade regulations is import deposits. Import deposits is a form of deposit, which the importer must pay the central bank for a definite period of time (non-interest bearing deposit) in an amount equal to all or part of the cost of imported goods.

At the national level, administrative regulation of capital movements between states is carried out mainly within a framework of bilateral agreements, which include a clear definition of the legal regime, the procedure for the admission of investments and investors. It is determined by mode (fair and equitable, national, 'most favoured nation'), order of nationalization and compensation, transfer profits and capital repatriation and dispute resolution.

The most common instruments of direct regulation of imports (and sometimes export) are licenses and quotas. Almost all industrialized countries apply these non-tariff methods. The license system requires that a state (through specially authorized office) issues permits for foreign trade transactions of import and export commodities included in the lists of licensed merchandises. Product licensing can take many forms and procedures. The main types of licenses are general license that permits unrestricted importation or exportation of goods included in the lists for a certain period of time; and one-time license for a certain product importer (exporter) to import (or export). One-time license indicates a quantity of goods, its cost, its country of origin (or destination), and in some cases also customs point through which import (or export) of goods should be carried out. The use of licensing systems as an instrument for foreign trade regulation is based on a number of international level standards agreements. In particular, these agreements include some provisions of the General Agreement on Tariffs and Trade (GATT) / World Trade Organization (WTO) such as the Agreement on Import Licensing Procedures.

An importing country may require the prospective exporter to include a degree of local participation in the product or service. Options include a designated importer, a joint-venture company with majority local control, requirement for complete local manufacture which may imply transfer of intellectual property. The WTO has not reached a conclusion on the legitimacy of these measures.[12]

Standards take a special place among non-tariff barriers. Countries usually impose standards on classification, labelling and testing of products to ensure that domestic products meet domestic standards, but also to restrict sales of products of foreign manufacture unless they meet or exceed these same standards. These standards are sometimes entered to protect the safety and health of local populations and the natural environment.

Licensing of foreign trade is closely related to quantitative restrictions – quotas – on imports and exports of certain goods. A quota is a limitation in value or in physical terms, imposed on import and export of certain goods for a certain period of time. This category includes global quotas with respect to specific countries, seasonal quotas, and so-called "voluntary export restraints". Quantitative controls on foreign trade transactions are carried out through one-time license.

Quantitative restrictions on imports and exports are direct administrative forms of government regulation of foreign trade. Licenses and quotas limit the independence of enterprises with a regard to entering foreign markets, narrowing the range of countries in which firms can conduct trade for certain commodities. They regulate the range and number of goods permitted for import and export.

However, the system of licensing and quota imports and exports, establishing firm control over foreign trade in certain goods, in many cases turns out to be more flexible and effective than economic instruments of foreign trade regulation. This can be explained by the fact that licensing and quota systems are an important instrument of trade regulation of the vast majority of the world.

This type of trade barrier normally leads to increased costs and limited selection of goods for consumers and higher import prices for companies. Import quotas can be unilateral, levied by the country without negotiations with exporting country; or bilateral or multilateral, when they are imposed after negotiations and agreements.

An export quota is a limit on the amount of goods that can be exported from a country. There are different reasons for imposing export quotas from a country. These reasons include guaranteeing of the supply of the products that are in shortage in the domestic market, manipulation of the prices on the international level, and the control of goods strategically important for the country. In some cases, the importing countries request exporting countries to impose voluntary export restraints.

In the past decade, a widespread practice of concluding agreements on the "voluntary" export restrictions and the establishment of import minimum prices imposed by leading Western nations upon exporters that are weaker in an economical or political sense. These types of restrictions involve the establishment of unconventional techniques when trade barriers are introduced at the border of the exporting country instead of the importing country.

Thus, the agreement on "voluntary" export restraints is imposed by the exporter under the threat of sanctions to limit the export of certain goods to the importing country. Similarly, the establishment of minimum import prices should be strictly observed by the exporting firms in contracts with the importers of the country that has set such prices. In the case of reduction of export prices below the minimum level, the importing country imposes anti-dumping duty, which could lead to withdrawal from the market. “Voluntary" export agreements affect trade in textiles, footwear, dairy products, consumer electronics, cars, machine tools, etc.

Problems arise when the quotas are distributed between countries because it is necessary to ensure that products from one country are not diverted in violation of quotas set out in second country. Import quotas are not necessarily designed to protect domestic producers. For example, Japan maintains quotas on many agricultural products it does not produce. Quotas on imports are used as leverage when negotiating the sales of Japanese exports, as well as avoiding excessive dependence on any other country with respect to necessary food; the supplies of which could decrease in case of bad weather or political conditions.

Export quotas can be set in order to provide domestic consumers with sufficient stocks of goods at low prices, to prevent the depletion of natural resources, as well as to increase export prices by restricting supply to foreign markets. Such restrictions (through agreements on various types of goods) allow producing countries to use quotas for such commodities as coffee and oil; as the result, prices for these products increased in importing countries.

A quota can be a tariff rate quota, global quota, discriminating quota, and export quota.