PROJECT REPORT ON TARRIFS AND NONTARRIFFS BARIERS BACHELOR OF MANAGEMENT STUDIES SEMESTER V

SUBMITTED TO UNIVERSITY OF MUMBAI PREPARED BY: RAHEJA MONICA M.COM SEM 1 R0LL NO. 44 UNDER GUIDANCE OF PROF. TALREJA ANITA

J. WATUMULL SADHUBELLA GIRLS COLLEGE ULHASNAGAR - 421001

ACADEMIC YEAR 2013 - 2014

DECLARATION

I, Miss RAHEJA MONICA Student of J. WATUMULL SADHUBELLA GIRLS COLLEGE, M.COM (1 - SEMESTER) hereby declare that I have completed the project on TARRIFFS AND NONTARRIFFS BARIERS in the academic year 2013 2014.

Signature of Student (T.Y.B.M.S.)

J.W SADHUBELLA GIRLS COLLEGE ULHASNAGAR 421001

UNIVERSITY OF MUMBAI

CERTIFICATE

I, Prof. TALREJA ANITA hereby certify that SAWLANI TANYA of Third Year of B.M.S. Bachelor of Management Studies of J. WATUMULL SADHUBELLA GIRLS COLLEGE, Ulhasnagar-421001 has completed the project entitled HOTELS AND MARKETING In the Academic Year 2012 2013.

Signature Prof. Talreja Anita

(Project Guide)

Signature Prof. Mrs. Smita Chawak

(Co-Ordinator)

Signature Dr. M. M. Hosalkar

(Principal Sir)

J.W SADHUBELLA GIRLS COLLEGE ULHASNAGAR 421001

UNIVERSITY OF MUMBAI

CERTIFICATE

This is to certify that SAWLANI TANYA from third year Bachelor of Management Studies (B.M.S.) of Semester V for the Academic year 2012 2013 has completed project entitled HOTELS AND MARKETING under the guidance of TALREJA ANITA.

Signature Prof. Talreja Anita

(Project Guide)

Signature Prof .Mrs. Smita Chawak

(Co-Ordinator)

Signature Dr. M. M. Hosalkar

(Principal Sir)

Signature(External Examiner)

ACKNOWLEDGEMENT

A great teacher is not simple one who imparts knowledge to his student, but one who awakens their interest in it and makes them eager to pursue for themselves.

This idiom without doubt, fit with Prof. TALREJA ANITA who has been my teacher guide. She guide me and gave knowledge in detail & help me to make a very effective project .So this project work from bottom of my heart; I thank her for her precious time that she spent for me for my project work.

It is a matter of utmost pleasure to express my ineptness & deep sense of gratitude, to various persons who extend their maximum help to supply the necessary information for present these that became available account of most selfless co-operation. I am grateful to my parents & friends who encouraged & inspired me at every stage of present work by providing immeasurable love affection care & moral support.

METHODOLOGY

This project is mixture of theoretical as well as practical knowledge. Also, it contains ideas and information imparted by the project guide.

SECONDARY DATA:The secondary data include details from books, newspapers, websites etc.

Tariff Barrier

Introduction of tariff barriers:

Tariff barriers are duties imposed on goods which effectively create an obstacle to trade, although this is not necessarily the purpose of putting tariffs in place. Tariff barriers are also sometimes known as import restraints, because they limit the amount of goods which can be imported into a country. Many organizations which promote trade are concerned about both tariff and non-tariff barriers to free trade, and a number of nations have agreed to radically reduce their trade barriers to promote the exchange of goods across their borders. A number of different types of duties can be levied when goods cross international boundaries. With an ad valorem duty, for example, the importer must pay a fee which is calculated as a percentage of the value of the goods being imported. Specific tariffs are set amounts which are levied on products which are imported, regardless of values, while environmental tariffs penalize nations with poor environmental records. For importers, tariff barriers can make it difficult to bring goods into a country. The importer may be forced to import less because the tariff barriers cannot be afforded otherwise, and it may need to charge more for the goods to make importing worthwhile. Tariffs are designed to force importers to do this to level the field between domestic producers and importers, allowing costly domestic producers to compete with importers who may be able to bring in goods at lower cost.

Meaning of tariff barriers:

A tariff designed to make imports more expensive than domestically produced products. That is, a tariff barrier is a tax imposed upon imports to protect local industries and companies. Critics, notably the WTO, have criticized tariff barriers because they believe they discourage international trade and because they may have net negative effects on the economy in the long run. However, proponents of tariff barriers argue that they can force countries to develop their own domestic industries. See also: Import substitution industrialization, Free trade.

Definition of tarriff barriers:

(Economics) a barrier to trade between certain countries or geographical areas which takes the form of abnormally high taxes levied by a government on imports or occasionally

exports for purposes of protection, support of the balance of payments, or the raising of revenue.

TYPES OF TARRIFF BARIERS:

1. Export Duties:
An export duty is a tax imposed on a commodity originating from the duty levying country designed for use in some other country. Such duties are normally levied for revenue. They are used extensively in countries which are exporting primary products.

2. Import duties:
It is a tax imposed on a commodity originated in a foreign country and designed for the duty levying country. In some countries, import duties are used to restrict imports with a view to correcting disequilibrium in the balance of trade and paymenmts.

3. Transit duties:
It is a tax imposed on a commodity while crossing national frontier originating from and designed for, other countries.

4. Specific duties:
It is a flat sum per physical unit of the commodity imported. Here, the rate of duties is fixed and is collected on each unit of the commodity imported.

5. Ad-valorem duties:
They are imposed as the fixed % of the value of a commodity imported. For e.g 5% ad-valorem duties on watches imported from abroad. 6. Compound duties: The tariff is reffered to compound duties, when a commodity is a subject

Tariffs and Tariff Rate Quotas

Tariffs, which are taxes on imports of commodities into a country or region, are among the oldest forms of government intervention in economic activity. They are implemented for two clear economic purposes. First, they provide revenue for the government. Second, they improve economic returns to firms and suppliers of resources to domestic industry that face competition from foreign imports. Tariffs are widely used to protect domestic producers incomes from foreign competition. This protection comes at an economic cost to domestic consumers who pay higher prices for import competing goods, and to the economy as a whole through the inefficient allocation of resources to the import competing domestic industry. Therefore, since 1948, when average tariffs on manufactured goods exceeded 30 percent in most developed economies, those economies have sought to reduce tariffs on manufactured goods through several rounds of negotiations under the General Agreement on Tariffs Trade (GATT). Only in the most recent Uruguay Round of negotiations were trade and tariff restrictions in agriculture addressed. In the past, and even under GATT, tariffs levied on some agricultural commodities by some countries have been very large. When coupled with other barriers to trade they have often constituted formidable barriers to market access from foreign producers. In fact, tariffs that are set high enough can block all trade and act just like import bans. A tariff-rate quota (TRQ) combines the idea of a tariff with that of a quota. The typical TRQ will set a low tariff for imports of a fixed quantity and a higher tariff for any imports that exceed that initial quantity. In a legal sense and at the WTO, countries are allowed to combine the use of two tariffs in the form of a TRQ, even when they have agreed not to use strict import quotas. In the United States, important TRQ schedules are set for beef, sugar, peanuts, and many dairy products. In each case, the initial tariff rate is quite low, but the over-quota tariff is prohibitive or close to prohibitive for most normal trade. Explicit import quotas used to be quite common in agricultural trade. They allowed governments to strictly limit the amount of imports of a commodity and thus to plan on a particular import quantity in setting domestic commodity programs. Another common non-

tariff barrier (NTB) was the so-called voluntary export restraint (VER) under which exporting countries would agree to limit shipments of a commodity to the importing country, although often only under threat of some even more restrictive or onerous activity. In some cases, exporters were willing to comply with a VER because they were able to capture economic benefits through higher prices for their exports in the importing countrys market.

Issues
In the Uruguay round of the GATT/WTO negotiations, members agreed to drop the use of import quotas and other non-tariff barriers in favor of tariff-rate quotas. Countries also agreed to gradually lower each tariff rate and raise the quantity to which the low tariff applied. Thus, over time, trade would be taxed at a lower rate and trade flows would increase. Given current U.S. commitments under the WTO on market access, options are limited for U.S. policy innovations in the 2002 Farm Bill vis a vis tariffs on agricultural imports from other countries. Providing higher prices to domestic producers by increasing tariffs on agricultural imports is not permitted. In addition, particularly because the U.S. is a net exporter of many agricultural commodities, successive U.S. governments have generally taken a strong position within the WTO that tariff and TRQ barriers need to be reduced.
Domestic Content Requirements

Governments have used domestic content regulations to restrict imports. The intent is usually to stimulate the development of domestic industries. Domestic content regulations typically specify the percentage of a products total value that must be produced domestically in order for the product to be sold in the domestic market (Carbaugh). Several developing countries have imposed domestic content requirements to foster agricultural, automobile, and textile production. They are normally used in conjunction with a policy of import substitution in which domestic production replaces imports. Domestic content requirements have not been as prevalent in agriculture as in some other industries, such as automobiles, but some agricultural examples illustrate their effects. Australia used domestic content requirements to support leaf tobacco production. In order to pay a relatively low import duty on imported tobacco, Australian cigarette manufacturers were required to use

57 percent domestic leaf tobacco. Member countries of trade agreements also use domestic content rules to ensure that nonmembers do not manipulate the agreements to circumvent tariffs. For example, North American Free Trade Agreement (NAFTA) rules of origin provisions stipulate that all single-strength citrus juice must be made from 100 percent NAFTA origin fresh citrus fruit. Again, as is the case with other trade barriers, it seems unlikely that introducing domestic content rules to enhance domestic demand for U.S. agricultural commodities is a viable option for the 2002 Farm Bill.
Import Licenses

Import licenses have proved to be effective mechanisms for restricting imports. Under an import licensing 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 imports on any basis it chooses through its allocation of import licenses. Prior to the implementation of NAFTA, for example, Mexico required that wheat and other agricultural commodity imports be permitted only under license. Elimination of import licenses for agricultural commodities was a critical objective of the Uruguay Round of GATT negotiations and thus the use of this mechanism to protect U.S. agricultural producers is unlikely an option for the 2002 Farm Bill.
Import State Trading Enterprises

Import State Trading Enterprises (STEs) are government owned or sanctioned agencies that act as partial or pure single buyer importers of a commodity or set of commodities in world markets. They also often enjoy a partial or pure domestic monopoly over the sale of those commodities. Current important examples of import STEs in world agricultural commodity markets include the Japanese Food Agency (barley, rice, and wheat), South Koreas Livestock Products Marketing Organization, and Chinas National Cereals, Oil and Foodstuffs Import and Export Commission (COFCO).

STEs can restrict imports in several ways. First, they can impose a set of implicit import tariffs by purchasing imports at world prices and offering them for sale at much higher domestic prices. The difference between the purchase price and the domestic sales price simply represents a hidden tariff. Import STEs may also implement implicit general and targeted import quotas, or utilize complex and costly implicit import rules that make importing into the market unprofitable. Recently, in a submission to the current WTO negotiations, the United States targeted the trade restricting operations of import and export STEs as a primary concern. A major problem with import STEs is that it is quite difficult to estimate the impacts of their operations on trade, because those operations lack transparency. STEs often refuse to provide the information needed to make such assessments, claiming that such disclosure is not required because they are quasi-private companies. In spite of these difficulties, the challenges provided by STEs will almost certainly continue to be addressed through bilateral and multilateral trade negotiations rather than in the context of domestic legislation through the 2002 Farm Bill.
Technical Barriers to Trade

All countries impose technical rules about packaging, product definitions, labeling, etc. In the context of international trade, such rules may also be used as non-tariff trade barriers. For example, imagine if Korea were to require that oranges sold in the country be less than two inches in diameter. Oranges grown in Korea happen to be much smaller than Navel oranges grown in California, so this type of technical rule would effectively ban the sales of California oranges and protect the market for Korean oranges. Such rules violate WTO provisions that require countries to treat imports a nd domestic products equivalently and not to advantage products from one source over another, even in indirect ways. Again, however, these issues will likely be dealt with through bilateral and multilateral trade negotiations rather than through domestic Farm Bill policy initiatives.
Exchange Rate Management Policies

Some countries may restrict agricultural imports through managing their exchange rates. To some degree, countries can and have used exchange rate policies to discourage imports and encourage exports of all commodities. The exchange rate between t wo countries currencies is simply the price at which one currency trades for the other. For example, if one U.S. dollar can be used to purchase 100 Japanese en (and vice versa), the exchange rate between the U.S. dollar and the Japanese yen is 100 yen per dollar. If the yen depreciates in value relative to the U.S. dollar, then a dollar is able to purchase more yen. A 10 percent depreciation or devaluation of the yen, for example, would mean that the price of one U.S. dollar increased to 110 yen. One effect of currency depreciation is to make all imports more expensive in the country itself. If, for example, the yen depreciates by 10 percent from an initial value of 100 yen per dollar, and the price of a ton of U.S. beef on world markets is $2,000, then the price of that ton of beef in Japan would increase from 200,000 yen to 220,000 yen. A policy that deliberately lowers the exchange rate of a countrys currency will, therefore, inhibit imports of agricultural commodities, as well as imports of all other commodities. Thus, countries that pursue deliberate policies of undervaluing their currency in international financial markets are not usually targeting agricultural imports. Some countries have targeted specific types of imports through implementing multiple exchange rate policy under which importers were required to pay different exchange rates for foreign currency depending on the commodities they were importing. The objectives of such programs have been to reduce balance of payments problems and to raise revenues for the government. Multiple exchange rate programs were rare in the 1990s, and generally have not been utilized by developed economies. Finally, exchange rate policies are usually not sector-specific. In the United States, they are clearly under the purview of the Federal Reserve Board and, as such, will not likely be a major issue for the 2002 Farm Bill. There have been many calls in recent congressional testimony, however, to offset the negative impacts caused by a strengthening US dollar with counter-cyclical payments to export dependent agricultural products.
The Precautionary Principle and Sanitary and Phytosanitary Barriers to Trade

The precautionary principle, or foresight planning, has recently been frequently proposed as a justification for government restrictions on trade in the context of environmental and

health concerns, often regardless of cost or scientific evidence. It was first proposed as a household management technique in the 1930s in Germany, and included elements of prevention, cost effectiveness, and ethical responsibility to maintain natural systems (ORiordan and Cameron). In the context of managing environmental uncertainty, the principle enjoyed a resurgence of popularity during a meeting of the U.N. World Charter for Nature (of which the U.S. is only an observer) in 1982. Its use was re-endorsed by the U.N. Convention on Bio-diversity in 1992, and again in Montreal, Canada in January 2000. The precautionary principle has been interpreted by some to mean that new chemicals and technologies should be considered dangerous until proven otherwise. It therefore requires those responsible for an activity or process to establish its harmlessness and to be liable if damage occurs. Most recent attempts to invoke the principle have cited the use of toxic substances, exploitation of natural resources, and environmental degradation. Concerns about species extinction, high rates of birth defects, learning deficiencies, cancer, climate change, ozone depletion, and contamination with toxic chemicals and nuclear materials have also been used to justify trade and other government restrictions on the basis of the precautionary principle. Thus, countries seeking more open trading regimes have been concerned that the precautionary principle will simply be used to justify nontariff trade barriers. For example, rigid adherence to the precautionary principle could lead to trade embargoes on products such as genetically modified oil seeds with little or no reliance on scientific analysis to justify market closure. Sometimes, restrictions on imports from certain places are fully consistent with protecting consumers, the environment, or agriculture from harmful diseases or pests that may accompany the imported product. The WTO Sanitary and Phytosanitary (SPS) provisions on technical trade rules specifically recognize that all countries feel a responsibility to secure their borders against the importation of unsafe products. Prior to 1994, however, such barriers were often simply used as excuses to keep out a product for which there was no real evidence of any problem. These phony technical barriers were just an excuse to keep out competitive products. The current WTO agreement requires that whenever a technical barrier is challenged, a member country must show that the barrier has solid scientific justification and restricts trade as

little as possible to achieve its scientific objectives. This requirement has resulted in a number of barriers being relaxed around the world. It should be emphasized that WTO rules do not require member countries to harmonize rules or adopt international standards only that there must be some scientific basis for the rules that are adopted. Thus, any options for sanitary and phytosanitary initiatives considered in the 2002 Farm Bill must be based on sound science and they do not have to be harmonized with the initiatives of other countries. In the Uruguay round of the GATT/WTO negotiations, members agreed to drop the use of import quotas and other non-tariff barriers in favor of tariff-rate quotas. Countries also agreed to gradually lower each tariff rate and raise the quantity to which the low tariff applied. Thus, over time, trade would be taxed at a lower rate and trade flows would increase. Given current U.S. commitments under the WTO on market access, options are limited for U.S. policy innovations in the 2002 Farm Bill vis a vis tariffs on agricultural imports from other countries. Providing higher prices to domestic producers by increasing tariffs on agricultural imports is not permitted. In addition, particularly because the U.S. is a net exporter of many agricultural commodities, successive U.S. governments have generally taken a strong position within the WTO that tariff and TRQ barriers need to be reduced.

Economic analysis
Neoclassical economic theorists tend to view tariffs as distortions to the free market. Typical analyses find that tariffs tend to benefit domestic producers and government at the expense of consumers, and that the net welfare effects of a tariff on the importing country are negative. Normative judgements often follow from these findings, namely that it may be disadvantageous for a country to artificially shield an industry from world markets and that it might be better to allow a collapse to take place. Opposition to all tariff Organization aims to reduce tariffs and to avoid countries discriminating between differing countries when applying tariffs.

The diagram to the right shows the costs and benefits of imposing a tariff on a good in the domestic economy, Home. When incorporating free international trade into the model we use a supply curve denoted as Pw. This curve makes the assumption that the international supply of the good or service is perfectly elastic and that the world can produce at a near infinite q Samount of the good, but had a demand of D. The difference between S and D, SD was filled by importing from abroad. After the imposition of tariff, domestic price rises from Pw to Pt but foreign export prices fall from Pw to Pt* due to the difference in tax incidence on the consumers (at home) and producers (abroad). At the new price level at Home, Pt, which is higher than the previous Pu, more of the good is produced at Home it now makes S* of the good. Due to the higher price, only D* of the good is demanded by Home. The difference between S* and D*, StD* is filled by importing from abroad. Thus, imposition of tariffs reduce the quantity of imports from SD to S*D*. Domestic producers enjoy a gain in their surplus. Producer surplus, defined as the difference between what the producers were willing to receive by selling a good and the actual price of the good, expands from the region belowPw to the region below Pt. Therefore, the domestic producers gain an amount shown by the area A.

Domestic consumers face a higher price, reducing their welfare. Consumer surplus is the area between the price line and the demand curve. Therefore, the consumer surplus shrinks from the area above Pw to the area above Pt, i.e. it shrinks by the areas A, B, C and D. The government gains from the taxes. It charges an amount PtPt* of tariff for every good imported. Since S*D*goods are imported, the government gains an area of C and E. The net loss to the society due to the tariff would be given by the total costs of the tariff minus its benefits to the society. Therefore, the net welfare loss due to the tariff is equal to: Consumer Loss Government revenue Producer gain or graphically, this gain is given by the areas shown by: (A + B + C + D) (C + E) A =B+DE that is, tariffs are beneficial to the society if the area given by the rectangle E more than offsets the losses shown by triangles B and D. Rectangle E is called the terms of trade gain whereas the two triangles B and D are also calledefficiency loss, as this cost is incurred because tariffs reduce the incentives for the society to consume and produce. The model above is completely accurate only in the extreme case where no consumer belongs to the producers group and the cost of the product is a fraction of their wages. If instead, the opposite extreme is taken by assuming that all consumers come from the producers' group and that their only purchasing power comes from the wages earned in production and the product costs their whole wage, the graph looks radically different. Without tariffs, only those producers/consumers able to produce the product at the world price will have the money to purchase it at that price.

Non-Tariff Trade Barriers

Non-Tariff Trade Barriers

Countries use many mechanisms to restrict imports. A critical objective of the Uruguay Round of GATT negotiations, shared by the U.S., was the elimination of non-tariff barriers to trade in agricultural commodities (including quotas) and, where necessary, to replace them with tariffs a process called tarrification. Tarrification of agricultural commodities was largely achieved and viewed as a major success of the 1994 GATT agreement. Thus, if the U.S. honors its GATT commitments, the utilization of new non-tariff barriers to trade is not really an option for the 2002 Farm Bill.

Definition of 'Nontariff Barrier'

A form of restrictive trade where barriers to trade are set up and take a form other than a tariff. Nontariff barriers include quotas, levies, embargoes, sanctions and other restrictions, and are frequently used by large and developed economies.

Meaning of nontariff barriers:

Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although called non-tariff barriers, have the effect of tariffs once they are enacted. Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. Some non-tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed necessary to protect health, safety, sanitation, or depletable natural resources. In other forms, they are criticized as a means to evade free trade rules such as those of the World Trade Organization (WTO), the European Union (EU), or North American Free Trade Agreement (NAFTA) that restrict the use of tariffs.

Some of non-tariff barriers are not directly related to foreign economic regulations but nevertheless have a significant impact on foreign-economic activity and foreign trade between countries. Trade between countries is referred to trade in goods, services and factors of production. Non-tariff barriers to trade include import quotas, special licenses, unreasonable standards for the quality of goods, bureaucratic delays at customs, export restrictions, limiting the activities of state trading, export subsidies, countervailing duties, technical barriers to trade, sanitary and phyto-sanitary measures, rules of origin, etc. Sometimes in this list they include macroeconomic measures affecting trade.

Types of Non-Tariff Barriers:

There are several different variants of division of non-tariff barriers. Some scholars divide between internal taxes, administrative barriers, health and sanitary regulations and government procurement policies. Others divide non-tariff barriers into more categories such as specific limitations on trade, customs and administrative entry procedures, standards, government participation in trade, charges on import, and other categories. The first category includes methods to directly import restrictions for protection of certain sectors of national industries: licensing and allocation of import quotas, antidumping and countervailing duties, import deposits, so-called voluntary export restraints, countervailing duties, the system of minimum import prices, etc. Under second category follow methods that are not directly aimed at restricting foreign trade and more related to the administrative bureaucracy, whose actions, however, restrict trade, for example: customs procedures, technical standards and norms, sanitary and veterinary standards, requirements for labeling and packaging, bottling, etc. The third category consists of methods that are not directly aimed at restricting the import or promoting the export, but the effects of which often lead to this result. The non-tariff barriers can include wide variety of restrictions to trade. Here are some example of the popular NTBs.

1. Licenses:
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).

2. Quotas:
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 in respect to specific countries, seasonal quotas, and so-called "voluntary" export restraints. Quantitative controls on foreign trade transactions carried out through one-time license. Quantitative restriction on imports and exports is a direct administrative form 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, which may be entered into transaction for certain commodities, regulate the number and range of goods permitted for import and export.

3. Embargo
Embargo is a specific type of quotas prohibiting the trade. As well as quotas, embargoes may be imposed on imports or exports of particular goods, regardless of destination, in respect of certain goods supplied to specific countries, or in respect of all goods shipped to certain countries. Although the embargo is usually introduced for political purposes, the consequences, in essence, could be economic.

Standards
Standards take a special place among non-tariff barriers. Countries usually impose standards on classification, labeling and testing of products in order to be able to sell domestic products, but also to block sales of products of foreign manufacture. These standards are sometimes entered under the pretext of protecting the safety and health of local populations.

Administrative and bureaucratic delays at the entrance

Among the methods of non-tariff regulation should be mentioned administrative and bureaucratic delays at the entrance, which increase uncertainty and the cost of maintaining inventory.

Import deposits
Another example of foreign trade regulations is import deposits. Import deposits is a form of deposit, which the importer must pay the 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 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-favored-nation), order of nationalization and compensation, transfer profits and capital repatriation and dispute resolution.

Foreign exchange restrictions and foreign exchange controls

Foreign exchange restrictions and foreign exchange controls occupy a special place among the non-tariff regulatory instruments of foreign economic activity. Foreign exchange restrictions constitute the regulation of transactions of residents and non residents with currency and other currency values. Also an important part of the mechanism of control of

foreign economic activity is the establishment of the national currency against foreign currencies.

The transition from tariffs to non-tariff barriers

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 tariffs 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.

Non-tariff barriers today

With the exception of export subsidies and quotas, NTBs are most similar to the tariffs. Tariffs for goods production were reduced during the eight rounds of negotiations in the WTO and the General Agreement on Tariffs and Trade (GATT). After lowering of tariffs, the principle of protectionism demanded the introduction of new NTBs such as technical barriers to trade (TBT). According to statements made at United Nations Conference on Trade and Development (UNCTAD, 2005), the use of NTBs, based on the amount and control of price levels has decreased significantly from 45% in 1994 to 15% in 2004, while use of other NTBs increased from 55% in 1994 to 85% in 2004. Increasing consumer demand for safe and environment friendly products also have had their impact on increasing popularity of TBT. Many NTBs are governed by WTO agreements, which originated in the Uruguay Round (the TBT Agreement, SPS Measures Agreement, the Agreement on Textiles and Clothing), as well as GATT articles. NTBs in the field of services have become as important as in the field of usual trade.

Most of the NTB can be defined as protectionist measures, unless they are related to difficulties in the market, such as externalities and information asymmetries between consumers and producers of goods. An example of this is safety standards and labeling requirements. The need to protect sensitive to import industries, as well as a wide range of trade restrictions, available to the governments of industrialized countries, forcing them to resort to use the NTB, and putting serious obstacles to international trade and world economic growth. Thus, NTBs can be referred as a new of protection which has replaced tariffs as an old form of protection.

The growing importance of non-tariff measures

Non-tariff measures are intended to regulate imports into a given country. In terms of agrifood products, such measures are generally technical, sanitary and quality standards such as protected designations of origin (AOCs), but also include specification of GMOs. Little is known about their impact on international trade and on exports from developing countries, yet non-tariff measures are likely to play an increasing role, since tariff measures such as customs duty are constantly being cut under multilateral and regional agreements. To regulate imports, countries are increasingly having to rely on quality standards or quotas. The main aim of the collaborative work being done under the "NTM-Impact" project is to compile and analyse data on the non-tariff measures imposed on agrifood exports from the European Union (EU) to a certain number of target markets. These data will be compared with the non-tariff measures imposed on rival exporters for these same markets, so as to analyse the relative competitiveness of the EU and rival exporting countries.

Impact of non-tariff measures on developing countries

The project is also looking at how private non-tariff measures imposed by the EU and other leading importing countries affect developing countries. For instance, what consequences might new certification requirements have on small-scale producer-exporters in developing countries? Either they abandon the market in question or they adapt to the certification requirements, which risks pushing up the price of their products and making them less

competitive. The technical and scientific results expected from the project and the political messages put across should ensure greater transparency in standards and regulations, and contribute directly to future trade talks within the World Trade Organization and the European Economic Community. Developing countries could thus benefit from trade policies and support for more appropriate marketing programmes.

The Use and Expansion of Non Tariff Barriers

In a current study, Laird and Yeats (forthcoming) measure the share of a cou ntrys imports subject to hard-core non-tariff barriers. Because countries frequently impose non-tariff barriers on the imports of a specific good from a specific country, but not on imports of the same good from another country, they disaggregated each countrys imports by both product and country of origin to permit calculation of the total value of a countrys imports subject to non-tariff barriers. Each countrys coverage ratio is simply the value of imports subject to non-tariff barriers divided by the total value of imports. Table 1 shows the trade coverage ratio for 10 European Community and six other industrial countries for 1981 and 1986. In computing this ratio, the 1981 and 1986 non-tariff measures are apphed to a constant 1981 trade base. rhus, the figures identify changes in the use, but not the intensity, of specific non-tariff measures, while holding constant the effects of trade changes.

WHY USE NON-TARIFF BARRIERS INSTEAD OF TARIFFS?

Since non-tariff barriers have been used increasingly in recent years, an obvious question is why non-tariff harriers rather than tariff barriers have become so popular.3 A review by Deardorff (1987) concludes that there currently is no definitive answer to this question; however, numerous reasons have been suggested.

The Impact of GATT: An Institutional Constraint on the Use of Tarjffs

GATT is an institution whose original mission was to restrict the use of tariffs. Given this constraint, policymakers willing to respond to protectionist demands were forced to use non-tariff devices. Thus, in this case, non-tariff barriers are simply a substitute for tariffs. In fact, research by Ray (1981) indicates that non- tariff barriers have been used to reverse the effects of multilateral tariff reductions negotiated under GATT.14

Certainty of Domestic Benefits

Deardorff (1987) suggests that non-tariff barriers are preferred to tariffs because policymakers and demanders of protection believe that the effects of tariffs are less certain. This perception could be due to various reasons, some real and some illusory. For example, it may be much easier to see that a quota of I million limits automobile imports to 1 million than to demonstrate conclusively that a tariff of, say, $300 per car would result in imports of only I million automobiles. In part, doubts that tariffs will have the desired effect is based on the possibility of actions that could be taken to offset the effects of higher tariffs. For example, the imposition of a tariff may induce the exporting country to subsidize the exporting firms in an attempt to reduce the tariffs effectiveness. The effects of quotas, on the other hand, are not altered by such subsidies.~

Difference between tariff and non-tariff barriers?

The purpose of both tariff and non tariff barriers is same that is to impose restriction on import but they differ in approach and manner.

Tariff barriers ensure revenue for a government but non tariff barriers do not bring any revenue. Import Licenses and Import quotas are some of the non tariff barriers.

Non tariff barriers are country specific and often based upon flimsy grounds that can serve to sour relations between countries whereas tariff barriers are more transparent in nature.

CONCLUSION
Non-tariff barriers have effects similar to those of tariffs: they increase domestic prices and impede trade to protect selected producers at the expense of domestic consumers. As shown in the case studies of sugar and automobiles, they also have other effects, generally adverse.Despite the adverse national consequences, the use of non-tariff barriers has increased sharply in recent years. The chances for a reversal of this trend appear to be small. The variety of non-tariff measures, the difficulties of identifying and measuring their effects and the benefits received by specific groups combine to make a significant reduction of non-tariff barriers in the ongoing Uruguay Round negotiations unlikely. The original mission of GAn, which has been largely achieved, was to reduce tariffs. The question, however, of why policymakers have preferred to use non-tariff barriers rather than tariffs in recent years remains. The more certain protective effects of non-tariff bat-riers is one plausible explanation. A second explanation, which focuses on the distribution of the benefits, is that the benefits of non-tariff barriers can be captured by foreign producers and domestic politicians. Such an allocation of benefits increases the probability that the political process generates larger amounts of non-tariff barriers relative to tariffs. A final explanation is that their adverse effects are generally less obvious to consumers than the effects of tariffs.