Exports

Non-Tariff Barriers to Free Trade

Monday August 15, 2016 Hugh Dixon

In early August New Zealand received a warning notice from China as a result of inspections in China detecting the fungus Neofabraea actinidiae in a shipment of Kiwifruit. This notice has brought about a halt to shipments of Kiwifruit to China, until Zespri can set up more stringent pre-shipment measures.

 

This is a clear example of a non-tariff barrier to free trade. Such non-tariff barriers have increased in importance to global trade over the last 20 years, as tariff barriers to trade have been removed or reduced. This reduction in tariff barriers has come about with the creation of the World Trade Organisation (WTO) in 1995, with 164 countries now part of the organisation.

 

But are such non-tariff barriers a bad thing?

 

It is widely agreed that tariff barriers were a burden on free trade and the world economy. The main purpose of tariff barriers was to discourage imports and provide protection for domestic industry from international competition. This of course lead to inefficient use of a country’s capital and labour resources, as countries continued to produce goods that others could produce more efficiently.

 

In New Zealand the reduction of tariff barriers has seen the reduction of some commodity processing, while New Zealand firms continue to manufacture products in areas of competitive advantage, such as specialised agricultural-based products, high-end niche manufacturing, and certain high-technology products. New Zealand still retains some tariffs mainly a 10 percent tariff on the importation of clothing, footwear and carpets.

 

 

New Zealand producers face two types of non-tariff barriers. One type are concerned with quality standards:

  • Sanitary and phyto-sanitary conditions
  • Packaging, labelling and product standards

 

The other types introduce unnecessary hurdles or risks:

  • Complex regulatory frameworks
  • Custom and market entry practices
  • Lack of Intellectual Property rights protection
  • Government Procurement practices
  • Export and domestic subsidies
  • “Made in” programs

 

The first group of non-tariff barriers are those concerned with ensuring that any goods imported into a country meet health and safety standards, and meet their product specifications. This is important for a country’s economy as it means that food will be safe to eat, and won’t cause issues for domestic crops, and inputs into manufacturing or other products will meet their specifications. Food that is unsafe to eat will mean higher medical bills, introduction of new pests and risks of disease for domestic crops.

 

Of course these can be still actively used by a country as a substantial barrier to trade, if domestic products are not subject to the same standards, standards are changed without warning, standards are overly high, or involve burdensome levels of paperwork.

 

The second group of non-tariff barriers are all harmful to trade and provide little or no economic benefit to the country using them. These barriers protect domestic industry from international producers. They make it more expensive for imports to enter the country, burdening those purchasing the products. They often promote domestic production in industries that cannot compete on the international stage, rather than promoting changes to domestic production to goods and services the country can produce and trade efficiently.

 

It is therefore important to understand that while some non-tariff barriers are essential, there are still a number of non-tariff barriers that restrict trade. Some of these are the consequence of government policies other than trade policy. Many are detrimental to both exporters and importing countries.

Stay Informed

Sign up for our Monthly Monitor and Bird's Eye View.

Sign up today