TRADE BARRIERS TPR MFN

TRADE BARRIERS, TPR , MFN

Subject : Economy

Context : The US, China and the European Union (EU) have come down heavily on India for its “rising trade barriers and restrictive investment policies” at the Geneva-based World Trade Organization (WTO).

Concept :

• According to the official, the US has said that since India’s last TPR, which took place in 2015, New Delhi has increased the country’s average ‘Most Favoured Nation’ (MFN) tariff rate to 17.6 per cent in 2019 from 13.5 per cent in 2015.

Trade Policy Review :

• The TPR is an important mechanism under the WTO’s monitoring function and involves a comprehensive peer-review of a member country’s trade and economic policies.
• It is being carried out under the aegis of WTO’s General Council, its highest decision-making body.

Most Favoured Nation (MFN) tariff

• MFN tariffs are what countries promise to impose on imports from other members of the WTO, unless the country is part of a preferential trade agreement. In other words, MFN rates are the highest rates that WTO members charge one another.

Non – Tariff Trade Barriers

• A nontariff barrier is a way to restrict trade using trade barriers in a form other than a tariff.
• Nontariff barriers include quotas, embargoes, sanctions, and levies.
• As part of their political or economic strategy, some countries frequently use nontariff barriers to restrict the amount of trade they conduct with other countries.

Types of Nontariff Barriers

• Licenses : Countries may use licenses to limit imported goods to specific businesses. If a business is granted a trade license, it is permitted to import goods that would otherwise be restricted for trade in the country.
• Example : Sanitary and Phytosanitary measures and other technical barriers etc
• Quotas : Countries often issue quotas for importing and exporting both goods and services. With quotas, countries agree on specified limits for products and services allowed for importation to a country.
• Embargoes : Embargoes are when a country–or several countries–officially ban the trade of specified goods and services with another country.
• Sanctions : Countries impose sanctions on other countries to limit their trade activity. Sanctions can include increased administrative actions–or additional customs and trade procedures–that slow or limit a country’s ability to trade.
• Voluntary Export Restraints : Exporting countries sometimes use voluntary export restraints. Voluntary export restraints set limits on the number of goods and services a country can export to specified countries.

Tariff Barriers

• Tariffs are a type of protectionist trade barrier that can come in several forms.
• Tariff barriers can include a customs levy or tariff on goods entering a country and are imposed by a government. Free trade agreements seek to reduce tariff barriers.
• While tariffs may benefit a few domestic sectors, economists agree that free trade policies in a global market are ideal.
• Tariffs are paid by domestic consumers and not the exporting country, but they have the effect of raising the relative prices of imported products.
• Specific Tariffs :A fixed fee levied on one unit of an imported good is referred to as a specific tariff. This tariff can vary according to the type of good imported.
• For example, a country could levy a $15 tariff on each pair of shoes imported, but levy a $300 tariff on each computer imported.
• Ad Valorem Tariffs : This type of tariff is levied on a good based on a percentage of that good’s value. An example of an ad valorem tariff would be a 15% tariff levied by Japan on U.S. automobiles.
• Anti – Dumping Duty : An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
• Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges in its home (or its domestic) market.
• Countervailing Duties : They are applicable when a foreign government provides subsidies or assistance to a local industry. This can be in the form of low-rate loans, tax exemptions, or indirect payments.
• The assistance provided enables these suppliers and manufacturers to potentially export and sell the goods for less than domestic companies.