Non‐tariff measures as means of trade regulation

Author: Kalpesh Gupta, Senior Consultant

Across the globe, the use of non-tariff measures has been steadily increasing. Other economies such as USA, China and European Union have long since used non-tariff measures as means to regulate international trade. While India has been a relatively late entrant in the field, the use of non-tariff measures in India has increasingly gained popularity as a way to reduce dependency on excessive imports into the country. The increasing importance of non-tariff measures was also evident from the speech of Hon’ble Commerce Minister, Sh. Piyush Goyal, at the 92nd FICCI Annual Convention, which clearly communicated that the Indian government is willing to impose non-tariff measures, to help check dependency on excessive imports into the country. However, owing to the low level of awareness regarding such measures, their use has been limited predominantly to only certain segments of the industry.

What are non-tariff measures?

The United Nations Conference on Trade and Development (UNCTAD) defines non-tariff measures as “as policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both”. In simple words, while tariff measures relate to imposition of taxes or duties, non-tariff measures or non-tariff barriers can be understood as trade barriers that are used to restrict imports or exports of goods or services through ways, other than by imposition of taxes/ duties.

Types of non-tariff measures commonly used

On an analysis of the applied measures, it can be seen that technical measures such as sanitary and phytosanitary measures, licenses, standards and certification, are the most commonly applied measures, followed by quantity control measures like quotas and then the price measures such as minimum import price. In general, the following types of non-tariff measures are seen to be commonly used by countries to regulate trade.

Import licensing – Licensing is one of the most common type of non-tariff measures, wherein the government grants and allows a business to import a certain type of goods into the country. The WTO Agreement on import licensing procedure defines it as administrative procedures used for the operation of import licensing regimes requiring the submission of an application or other documentation (other than that required for customs purposes) to the relevant administrative body as a prior condition for importation into the customs territory of the importing member. In simpler words, under such measures, imports are not allowed unless the importer has the license to imports. One such instance of introduction of licensing requirements in India was that in the case of ammonium nitrate in 2012, wherein imports of the product were subject to licensing requirements.

Standards and certifications – The standards and certifications are to discourage supply of sub- standard material which can pose as a health hazard, security threat, and safety concerns in a market. While the same are to be typically followed by both domestic industry as well exporters (supplying material) in that market, it may restrict imports unless foreign producers and

exporters meet the laid down standards. The Indian government has imposed various standards & certification requirements. Recently the Government has been quite aggressive in controlling supply of sub- standard material by the way of imposing mandatory BIS certification/ registration for a number of products including Acetic Acid, Aniline, Boric Acid, Methanol, Poly Aluminium Carbonate and Caustic Soda. It is often noted that imports show a visible decline when BIS Standards are mandated.

Quotas – A quota is a limit in quantitative or value terms that is imposed on the import of a product for a specified period of time. Quotas may be global quotas or with respect to specific countries. Quotas can be imposed unilaterally without negotiations with the exporting country or bilaterally with having negotiations and agreements. They can further be combined with the licensing requirements in order to regulate their flow. The Government may impose quotas, if the same are warranted in public interest. For instance, the Department of Commerce introduced quota restrictions for Urad and Peas.

Sanitary and Phytosanitary Measures – The WTO Agreement on sanitary and phytosanitary measures provides that the member countries have the right to take sanitary and phytosanitary measures necessary for the protection of human, animal or plant life or health. The imposition of SPS acts as a check on the imports by ensuring that they meet the international standards and regulations. For instance, the Ministry of Health and Family Welfare has made it mandatory for every package having a mixture of edible oils to have a label immediately below its brand name/trade name on front of pack declaring the name and content of eligible vegetable oil.

Government procurement restrictions – The Government Procurement Restrictions act as barrier to trade by exercising control over purchase of goods by government agencies. If imposed, the government agencies are then mandatorily required to prefer purchasing from national suppliers over imports. A well-known instance of such a non-tariff measure is that in the case

of iron and steel products where the government has made it mandatory for government undertakings to source a prescribed percentage of their requirement from entities that are registered and established in India.

Minimum import price –Minimum import price is a temporary measure which acts as check on the imports of goods at low prices. It sets a minimum price below which imports cannot take place. For instance, the Government has, in the past, prescribed minimum import price for products such as peas, granite, certain iron and steel products, etc.

It can be argued that the recent developments on climate change, financial and economic crisis, growing concerns over food safety, have also aided in the increase of non-tariff measures. Along with the tariff measures, the, governments have now started using non-tariff measures as a measure for restricting the imports. Even in India, non-tariff measures gained limelight. It would be seen that recently, BIS Standards have been made mandatory on many products to ensure quality, safety and security. However, while these may have been the primary objectives of such standards, they have no doubt acted as barriers to trade and helped in curbing the flow of imports. It cannot be denied that the global economies have found non-tariff measures as an effective tool to achieve their goals of trade regulation. As a result, the use of non-tariff measures has continued to grow. It can, thus, be expected that nontariff measures are likely to play a key role in the foreseeable future of international trade.