Tariff and Non-Tariff Barriers
To eliminate this from occurring or to impose a type of trade restriction on a foreign country tariffs and annotators re utilized. General Agreement on Tariffs and Trade (GATE) was succeeded by the World Trade Organization monitors tariffs and promotes free trade (Hill, 2004. ) Tariffs is a tax applied to an import and is one Of the oldest trade policies in effect (Hill, 2004. ) This tax is generally revenue for the charging country’s government. There are two types of tariffs; they are specific and ad valor tariffs.
A specific tariff applies or levies a set tax to a certain import.If a specific tax of fifty cents were applied to wine then the government would gain 50 cents from every bottle coming into the United States without regard o whether the wine was a 200-dollar bottle of the finest wine or a bottle of two-dollar wine headed for skid row. An ad valor tax is applied at a fixed percentage of the value of the import (Sarcastic, 2006. ) Now if there were a 1. 5% tax levied against the wines then three dollars would be gained in tariff revenue on each 200-dollar bottle of wine and only three cents on the two- dollar bottle.Initiation barriers are restrictions imposed upon countries such as voluntary export restrictions, antiquating and subsidies, quotas (Hill, 2004. ) The first initiation barrier is voluntary export restrictions (EVER) is when a country limits he number of product being exported to a certain country in order to gain favor or to diffuse a situation in which trade tensions are running high.
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A second type of barrier is a quota. Unlike the voluntary export restriction a quota is very direct. Quotas like EVER increase the price for the consumer on the imported product.Quotas not only increase the price of imported products but it can also affect the price of domestically manufactured products. If the product that is under the quota criteria is used to manufacture the domestic item then it too in turn will cost more to manufacture and this cost is then translated in the price to the consumer. The third type of initiation barrier is antiquating. Dumping is when a country sells a product in a foreign country for less than it would sell in its own country (Understanding the MO, 2006.
When products are introduced to a market in this manner it will do harm to the local businesses. GATE and WTFO legislation support antiquating when it can be shown that the local economy has suffered a loss. The last type of initiation is a subsidy. A subsidy is a payment to a domestic industry by their government (Marches,2006. Subsidies aide the domestic businesses by enabling them to compete against foreign markets in their home country and by helping them export so that they can compete in the global trade system as well.Agricultural businesses are the most common industries that receive subsidies. When growing up in Montana, subsidies were often a matter of topic and debate.
The amount of discussion held on subsidies made it seem too common and very prevalent. Surprisingly the united States gross farm receipts were only 22 percent subsidies, while Japan ‘s was 62 percent of their gross farm receipts at the ginning of the 21st century (Hill, 2004. ) Subsidies benefit domestic industries by making them more competitive but the cost is picked up by taxes paid into the government by the citizens of that country.If taxes are raised higher than the revenue and benefits generated, by the industry receiving the subsidy, then implementing this policy can hurt the economy. Tariffs and annotators effect global financing operations by having an impact on whether countries will build and invest in companies in the home country. If an organization wants to build a company that imports raw material that as a tariff on it, it would make the product considerably more expensive to produce and export. Tariffs do benefit the government by increasing their revenue; they also benefit home-based businesses by decreasing foreign competition.
The tariff also helps protect jobs in the industry that has eliminated the foreign competition but a negative impact is felt because they do cause the consumer to pay more for a product that is imported (Hill, 2004. ) If a country it prone to levy tariffs on items that an organization may need it would increase the risk of doing business while located in that company. By having a country manufacture or produce product that can be done for less elsewhere is not a wise utilization of resources and in turn harms global trade.Conclusion Global trade is most effective when a country utilizes its resources most efficiently. Countries that can product products at a lower price than other countries can manufacture and export that product while importing product in which it may not be as efficient in producing. When all countries participate in free trade it stimulates the global economy. When barriers are imposed upon countries it limits the amount of trade, can result in retaliation and the nonuser is left to pay higher prices.
References Hill (2004).