Quick Guide to Governmental Trade Control

The two main forms of governmental trade control are tariff and non-tariff. Tariffs affect prices; non-tariffs affect either price or quantity. The most common form of trade control is the tariff (also known as duty), and is a tax that governments place on a good shipped internationally, as it crosses an official border/boundary, be it an individual country or group of countries (in the case of the EU). Tariffs collected by an exporting country are called an export tariff. These are very seldom applied, and used only in the case of wanting to keep goods in a country. If collected by a country through which the goods have passed, it is known as a transit tariff. This is no longer in existence in the EU, which would have been the most common area for such a tariff. If collected by the importing country, it is called an import tariff. This is employed by governments in order to defend their own economy, and is the most common of all tariffs. Tariffs can take on the form of either a specific duty, a fixed price, or an ad valorem duty. The more common of the two, an ad valorem duty is a percentage of the sum value of the goods.

The two aims of a non-tariff instrument of trade control are to either influence price or influence quantity. In order to influence price, governments may grant subsidies in order to increase production. Generally granted to local businesses, subsidies may also be given to foreign investors as an incentive. Countries can also provide aid or financial support either with or without reimbursement, or apply a customs valuation (an ad valorem tariff that evaluates the goods passing through the border at will). Customs Valuations, once again, are not applicable to the EU.

Trade control can also be used to influence quantity. This takes on the form of quotas, buy local legislation, standards, permissions, delays, and reciprocal requirements. Quotas restrict the selling of goods abroad either to certain countries or over certain amounts. This is usually employed to satisfy a political agenda. The extreme version of a quota is an embargo, which is a cease and desist of all trade (as was the case with the USSR and is the current case with Cuba). Buy Local Legislation is an influence, though not a requirement, imposed on a country to buy domestically produced products. Standards can also be employed to restrict and regulate the qualities of goods passing over the borders. The higher the standard, the more restricted the trade becomes. It may be necessary for foreign countries to obtain permission requirements In the form of an import license, allowing them to operate in a country, or a government may employ delays which create administrative uncertainty and raise the cost of carrying inventory. Finally, a government may request reciprocal requirements, which would require Country A to buy the same amount of goods from Country B as Country B buys from Country A. The introduction of GATT, and subsequently WTO, has increased trade and decreased tariffs as a means of encouraging fair trade.