A non-tariff barrier may be defined as any regulation other than a tariff or other discretionary policy that restrict international trade. This includes measures taken at the border such as quantitative restrictions on access and procedures that favour domestic products over imports, for instance, subsidies'1
With the success of trade liberisation in manufacturing products, the major remaining barriers to trade are non-tariff barriers (NTB), such as government procedurement policies, customs procedures, health & sanitary regulations, national standards and a broad range of other laws and regulations that discriminate against imports or other assistance to exports.
Other examples of non-tariff measures are regional policy, agricultural policy, consumer & environmental protection. Governments have tried to insulate the domestic economy from international competition through various national policies. As can be seen, many mechanisms are used to restrict imports, which of course can be implemented in various ways. All forms of protectionism are intended to improve the position of a domestic relative to foreign producers.
The control of NTB's was far more difficult than the regulation and removal of tariffs and quotas, during the 1990's because such policies were usually a fundamental part of national economic and social policies. NTB's can be:A quota is the alternative to a tariff when the intention is to restrict foreign producers' access to the domestic market. There is a maximum limit imposed on importers, they can only sell a limited amount of products in the home market over a specific period of time.
A quota causes prices to increase in the home market, thus inducing domestic producers to increase production and consumers to reduce consumption. The diagram below shows the effect of a quota2: VER's were developed as a response to pressure for protection from import sensitive industries. Under agreements as such, sometimes, low cost exporters 'voluntarily' restrict sales to countries where their goods were threatening industry and employment.
VER's became an accepted mode of trade regulation in the 1970-80's, and intensified in various sectors, textile, steel, automobiles, electronics etc and covered trade among the industrial nations. A managed regime was necessary as such regime would recognise the reality, of government intervention in national economies to decide comparative advantage and intergovernmental agreements to shape international free flows.
However, VER's pose a particular problem for international trade regulations. Although, GATT (General Agreement on Tariffs Trade) explicitly concerns the use of quantitative trade restrictions, (and allows for retaliatory sanctions by injured parties), VER's effectively bribe foreign governments and producers with tariff equivalent revenue if they agree to limit exports.
Open confrontations that ordinary quotas invite are avoided when using this system, e.g. as in the case of Japanese restrictions on automobile exports to the US, can be worth billions of dollars to exporters and to the government of the exporting country. Since VER's produce transfers of wealth to the exporting country, these exporters are unlikely to complain to the GATT council. This inevitably suggests that VER's are likely to become trade restriction of choice for all the poorest nations.
Import licences have proved to be very effective mechanisms for restricting imports. Under this scheme importers of a commodity are required to obtain a license for each shipment they bring into the country. Without explicitly utilizing a quota mechanism, a country can simply restrict on a basis it chooses through its allocation of import licenses. For instance, prior to the implementation of NAFTA (North American Free Trade Agreement), for example Mexico required that wheat & other agricultural commodity imports be permitted only under license.
The EU and Japan broadly support this position, however, most developing countries view it as a form of protectionism by the advanced industrialised countries and reject the idea. Protectionist laws raise taxes (tariffs) on imported goods/ and or impose limits (quotas) on the amount of goods government permit to into a country. The laws not only restrict the choice of consumer goods, but also contribute greatly both to the cost of goods and to the cost of doing business. The US is currently proposing a working party to look at the relationship between trade and labour rights; with the objective trying to prevent trade liberisation leading to job loses or lower wages.