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- Non-tariff barriers to trade
Most trade barriers work on the same principle: the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results.
Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, this can be explained by the theory of comparative advantage. In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel.
Impacts of trade barriers on Business
Trade barriers are often criticized for the effect they have on the developing world. Because rich-country players call most of the shots and set trade policies, goods such as crops that developing countries are best at producing still face high barriers. Trade barriers such as taxes on food imports or subsidies for farmers in developed economies lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers. Tariffs also tend to be anti-poor, with low rates for raw commodities and high rates for labor-intensive processed goods. The Commitment to Development Index measures the effect that rich country trade policies actually have on the developing world.
Another negative aspect of trade barriers is that it would cause a limited choice of products and would therefore force customers to pay higher prices and accept inferior quality.
Trade barrier obstructs free trade. Before exporting or importing to other countries, firstly, they must be aware of restrictions that the government imposes on the trade. Subsequently they need to make sure that they are not violating the restrictions by checking those related regulation on tax or duty, and finally they probably need a license in order to ensure a smooth export or import business and reduce the risk of penalty of violation. Sometimes the situation becomes even more complicated with the changing of policy and restrictions of a country.
In the past, many companies relied on spreadsheets and manual process to keep track of compliance issues related to incoming and outgoing shipments, which takes risks of potential errors.
Examples of free trade areas
- North American Free Trade Agreement (NAFTA)
- South Asia Free Trade Agreement (SAFTA)
- European Free Trade Association
- European Union (EU)
- Union of South American Nations
- New West Partnership (An internal free-trade zone in Canada between Alberta, British Columbia, and Saskatchewan)
- Gulf Cooperation Council common market
- "What is trade barrier? definition and meaning". BusinessDictionary.com. Retrieved May 22, 2011.
- The Wall Street Journal of Europe, October. 11, 2011 page 6
- Muhlbacher Hans; Lee Dahringer; Helmuth Leihs, International Marketing: A Global Perspective, 1999: page 7