BARRIERS TO FOREIGN TRADE

BARRIERS TO FOREIGN TRADE

     In order to shelter home industries, foreign trade had been obstructed in various forms.

They in brief are:

1. Prohibition of imports or exports.

2. Custom duties.

3. Quotas.

4. Exchange control.

5. Preferential treatment.

6. Import monopolies.

7. Import levies.

1.      Import and export prohibition: The government of a country by law may totally ban the import or export of certain commodities for reasons of health or for promoting the growth of certain industries in the country for instance; when foot and mouth disease attacks cattle, the government totally prohibits the import of beef from that country.

2.      Custom duties or tariffs: Tariffs are the oldest form of protection. They are imposed on the import and export of commodities, when tariffs are imposed on the import of commodities, they are imposed on the export of commodities, they discourage exports and make the goods available for home producers. Tariffs or custom duties may be specific or ad-valoram. When tariff is based on weight, quantity or other physical characteristic of imported goods, they are called specific the duty is called ad-valoram when it based on value of the goods. Such a duty is fixed as percentage of the foreign or domestic valuation of imported goods.

3.      Exchange control: Exchange control implies the government regulations relating to buying and selling of foreign exchange. Under the system of exchange control, all exporters are required to surrender their claims on foreign exchange to the central bank of the country in exchange for domestic currency at the rate fixed by government. The government then allots the foreign exchange among the licensed importers. Exchange control may be resorted for correcting an adverse balance of payments or for protection home industry or foe conserving foreign resources or foe maintaining the exchange rate at a predetermined parity.

4.      Quotas: In order to reduce imports, the government of a country may restrict the total imports of a given commodity to a specified amount or specify the maximum amount of a commodity which can be imported from each producing country. When the total amount of goods to be imported is determined, the government then issues licenses for their import. This device of restricting imports is applied as an alternative to custom duties.

5.      Preferential Treatment: The government of country may give preferential treatment  in the rate of taxes to some of the countries. For instance, under the commonwealth preferential system exports have had, preferential treatment in U.K over goods from non-commonwealth countries. The granting of preferential treatment result in formation of trade blocks. The countries which are not giving preferential treatment impose high tariffs in relation to the goods of the discriminating countries. the international trade is thus hindered.

6.       Import monopolies: When the government of a country takes responsibility of importing all the commodities herself, we say the government has import monopolies.

Import licenses: Another barrier which restrict the import of goods from abroad is the import licenses. If the government of a country allows the import of foreign commodities to the licensed imports, the trade is very much brought under control. This method is adopted for curtailing imports and for the use of discrimination between goods and countries.