Tariff in its simplest definition, is an imposed tax on imported goods and services, making these more expensive to consumers. This in turn will somehow regulate trade. Non tariff Barriers (NTB) on the other hand are also a form of restrictive trade where barriers which include quotas, embargoes, sanctions, levies and other restrictions that are not in the form of a Tariff. The amount of trade that occurs in an economy can be regulated through these Non tariff barriers in trading with other countries.
How Non tariff Barriers Work
Non tariff Barriers are commonly utilized in an economy when trading internationally, these barriers depend on the availability of goods and services and political alliances between the trading countries. Countries can set different types of barriers, may it by standard tariffs or alternative ones, as long as both parties come to an agreement with the barrier.
Examples of Non tariff Barriers (NTB)
Licenses – some countries use these limit imported goods to specific businesses.
Quotas – Countries would agree on a quota or a certain amount of goods and services that can be imported to a country, this would that there would be no restriction to the certain good but there is only a specified limit.
Sanctions – Countries agree upon a certain sanction in order to limit their trade activity. Sanctions may differ from additional customs to trade procedures that could regulate or slow a country’s ability to trade.
Why Countries Use Non Tariff Barriers
There are many reasons why different countries turn to Non tariff Barriers in trading with other countries. The first and considerable reason has little to with economics, institutions have been erected that constrain the use of tariffs, which lead policy makers to search for alternatives to achieve their desired goods thus the use of Non tariff.
Another reason why countries use Non tariff barriers is that is acts as the imperfect competition of Tariffs. In a trade a tariff only raises the price of a product or service, while a quota on the other, allows to both raise the price of a product and limits the amount of the product or services that will be imported by the country.