Term Paper on "Non-Tariff Barrier"

Term Paper 6 pages (2516 words) Sources: 1+

[EXCERPT] . . . .

Barrier

The Non-Tariff Barrier

It is a well-known fact and it is also widely recognized that a Non-Tariff Barrier completely and entirely dominate tariffs as they contribute, directly, to the primary factor income which in turn is an important and significant determinant in the allocation of various resources among different industries. The indirect input and output effects caused by the Non-Tariff Barrier also plays an important role in the general scheme of things. (Non-Tariff Barriers -- the Achilles Heel of Trade Policy Analyses) it is a fact that most of the literature that is available on the subject of Non-Tariff Barriers, like for example, standards and technical barriers, on the issue of international trade generally attempt to analyze these barriers in relation to the equilibrium pattern of output, as well as welfare across several different countries. However, over a period of time, the so-called multilateral system, and also numerous trading arrangements have managed to create and establish certain legal norms with respect to the different Non-Tariff Barriers to trade.

In principle, however, the results of the liberalization associated with these rules can be evaluated ex-post. In the context of the European internal market, quite a few studies have been made on the Non-Tariff Barriers that have been imposed, and their consequences. It must be kept in mind that, within any type of legal framework, norms generally will give rise to litigation and also to various disputes, and one has to accept this norm for what it is. The issue of whether a Non-Tariff Barriers or any other technical standard is actually lawful and within the legal framework or not is an issue that can be decided upon be mere legal reasoning. A legal norm will never be solely based on forms, and it generally relies on a study and an assessment of the various effects and the impact of any one particular measure, and a thorough economic analysis will be an important part in its implementation. Therefore, is can be said that like anti-trust, trade is an area in which legal reasoning and economic analysis will interact favorably. (Evaluating the Effects of Non-Tariff Barriers: The economic analysis of protection in WTO disputes)

The Article III of the GATT is the norm that serves to establish the principle of national treatment wherein member countries commit themselves to not introduce the various internal measures that show discrimination in favor of domestic and home grown products. This norm is the main principle on which the Non-Tariff Barriers are to be adjudged and assessed. However, the fact must be remembered that the Article III does not attempt to clarify how effect must actually be assessed; it only expresses concern about the protection of domestic firms and their various products, but it does not explain clearly how the protection must be assessed or measured, and it also does not state whether the effects of any disputed instrument must be assessed in terms or price or in terms of trade flows, or evening terms of rent for the different domestic firms. There is therefore a need to find a particular market as a reference point on which to make the measurements and analyses. The investigation also has to decide what domestic products are actually 'like', or whether they are 'directly competitive and substitutable' with the particular foreign or imported item against which the discrimination is being carried out.

Protection has also not been given importance, as there is no reference to the issue of protection anywhere within the Article II and the principles behind it. However, it must be remembered that protection is only a matter of degree, and there can be no definite definition of the matter of protection and also on what can be actually considered as an acceptable means and degree of protection. This shows an extreme contrast between this principle and the various anti-trust investigations where all the objectives are made very clear at the very outset and the experienced agencies follow a certain structured set of principles in their analyses. Generally, anti-trust investigations proceed by initially delineating the market and then going about the investigation. The Article III of the GATT therefore is primarily concerned with the situations in which the various domestic regulations, including taxes, are always applied in such a way that domestic firms, rather than foreign, would gain the maximum amount of benefit. This provision would apply in a large range of circumstances, and nay discrimination can be addressed by appealing to the provisions provided within the Article XX. (Evaluating the Effects of Non-Tariff Barriers: The economic analysis of protection in WTO disputes)

The ongoing debate by the economists of the world today is the real extent, to which the World Trade Organization law, or the WTO as it is better known, restricts the various policy options that are available to the various member governments, and in the midst of this is the ever present fear that the limiting of policy instruments by nature would inevitably and automatically limit a government's ability to maximize the economic welfare of the nation. This sort of fear is not always justified; because of the main reason that the rationale of using tariff as against using non-tariff measures in trade policy is very important and it in fact forms the central basis of the World Trade Organization and its various principles on trade. The opening line of the Article II of the GATT of 1994 entitled 'General Elimination of Quantitative Restrictions' states that no restrictions and prohibitions that may be made under the principles of quota, and under import and export licenses, and under other similar measures, other than duties and taxes and other similar charges may be levied or implemented by any contacting party on importing nay product at all, or by the export for the purpose of the sale of any product with export in mind. (Non-tariff Barriers: The Reward of Curtailed Freedom)

The natural reaction of a skeptic would be to assume that a sovereign nation's array of various policy instruments has in fact been curtailed to a certain extent. The various contracting parties however join in the WTO in the hope of increasing domestic welfare by acquiring the proper gains from the trade that they had been conducting. In other words, these are all the so-called 'synergistic effects' of exchanging goods and services between different parties, and the gains would be more if the entire market mechanism and the various processes that do govern it are left alone in their entirety. The right to acquiring gains from trade has to be therefore accompanied with a certain amount of member responsibility by a form of a disciplined abstinence of applying that particular policy that would inevitably reduce the world welfare to significant levels. If there were to be a direct intervention, then there would most definitely be a significant loss in efficiency levels, as for example, the dead weight losses that were evident in the 'Harberger Triangle' of Consumer and Producer Surplus Modeling. Therefore, it must be said that the Non-Tariff Barriers give rise to quite a few advantages. Some of these are as follows: the first advantage is that the Non-Tariff Barrier gives rise to a price transparency that can turn out to be a major advantage. This is because, in general, quantitative restrictions or so-called 'quotas' are instruments that utilize volume restrictions instead of price restrictions as far as tariffs are concerned.

Therefore, it is obvious that the price of a commodity would be affected, albeit indirectly, by curtailing the volume, as opposed to curtailing of the price directly with price measures. Therefore, a quota will have an inherent price transparency disadvantage. Since the dynamics of the market demand and the supply are rarely, if ever, static, and because of the fact that these do tend to vary over time, it becomes extremely difficult to make out and discern exactly which particular element of a raised or even a simple changed price of a commodity can be attributed to the presence of a quota. When taken in a political sense, this factor aids in obtaining the acquiescence of the consumers, or the 'losers' as they are referred to within this particular context, because of the fact that it is more difficult for them to make sure of the impact of the quota on their welfare. However, a tariff is easily understood by the various participants in the market as being a 'direct' price, and not a 'deduced' price effect. This also means that for any given demand / supply pattern, the'd valorem' or what is also known as the 'specific duty element' would be made extremely clear and evident, and can also be easily deduced. The second major advantage of the use of a tariff as against a quota or any other policy would be the fact that the use of a volume instrument as against that of using a price instrument would lead to the creation of a rent to the individual who is in possession… READ MORE

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