Non Tariff Barriers - Invisible Road Block?

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A few decades ago, high tariffs or import duties were considered to be the prime challenge to cross-border trade. But, over the years as markets opened up, tariffs have rapidly declined under the World Trade Organisation (WTO) regime. One would therefore imagine that free trade would have certainly received a thumping boost from the lowered tariffs. Not so.

Countries have now found new methods, some entirely justified while others not so, to restrict trade without increasing tariffs. Let us take the case of Algeria as an example. In FY2013, India’s exports from the automobile sector to Algeria was $437.28 million. Now compare this to FY2017 when India's exports of automobiles to the country grossed just $122.16 million, reporting a massive decline of over 72%! What brought about the fall?

While there were many changes in the world economy, a closer look reveals that during the said duration, Algeria imposed a series of regulations on imports of automobiles and components – from imposing a new regulation with regards to airbags in vehicles to a 17% VAT exemption for domestic manufacturers. Interestingly, the Algerian government is now attempting a clampdown on 'disguised' imports (where assembling and local parts are minimal). Similarly, some Indian exporters of garments to EU end up paying as much as $3 per piece to meet the labelling and packaging specifications that further eats into their already narrowing margins. There are umpteen similar cases.

This means a country or a region can effectively restrict imports without imposing higher tariffs on imports. These are called non-tariff barriers (NTBs), which are now posing a much bigger challenge to cross-border trade than tariff barriers. Reason − exporters are less aware of NTBs and in absence of ad-valorem taxes, as in the case of tariff barriers, they find it difficult to calculate the damage suffered.

NATURE OF THE BEAST