While free trade is often an aspiration, in reality, a range of barriers can exist to impede and limit trade between countries.
In some cases, a barrier to free international trade may effectively wipe out a particular trading partnership altogether. While some barriers to free trade are historical or accidental, others are deliberately introduced to protect domestic markets and particular industries.
While governments work to reduce and remove trade barriers, many still exist. They can be frustrating for businesses that are looking to import or export goods, develop new markets and grow their business.
What are trade barriers, what are some of the most common trade barriers and what is being done to reduce their impact?
Trade barriers
Trade barriers refer to any measures or policies that restrict or impede the free flow of goods and services between countries. These barriers can take various forms, including tariffs, quotas, subsidies, technical barriers, and administrative procedures.
The primary objective of trade barriers is to protect domestic industries, regulate imports and exports, and maintain a certain level of control over international trade.
By increasing the cost of imported goods, tariffs reduce the competitiveness of foreign products in the domestic market. This can lead to a shift in consumer preferences towards domestically produced goods, supporting local industries and preserving jobs. However, tariffs also have drawbacks. They raise prices for consumers, limit choices, and can lead to retaliation from trading partners, triggering trade disputes and hindering global cooperation.
What are some examples of trade barriers?
There are a range of different trade barriers that can impact the ease of trading internationally. These include:
- Tariffs
Tariffs are taxes imposed on imported goods, making them more expensive and less competitive than domestically produced goods. They serve as a direct barrier to trade by increasing the cost of imported products, protecting domestic industries and encouraging consumers to choose locally produced alternatives.
- Quotas
Quotas limit the quantity or value of specific goods that can be imported or exported, restricting market access for foreign producers. Quotas can be administered through absolute restrictions or by imposing additional fees or licenses beyond a certain limit.
- Subsidies
Subsidies are financial incentives provided by governments to domestic industries, distorting market conditions by lowering production costs and favouring local producers. While subsidies aim to support domestic industries, they distort market conditions by artificially lowering production costs and giving domestic producers an advantage over their foreign competitors.
- Technical barriers
Technical barriers involve regulations and standards based on health, safety, or technical requirements, which can be legitimate in protecting consumer safety. However, they can also be misused as trade barriers if they are applied selectively or excessively.
- Administrative procedures
Administrative processes such as complex customs documentation and licensing requirements increase costs and delays, acting as obstacles to trade. Cumbersome administrative procedures increase transaction costs and time delays, making trade more difficult and costly. Simplifying administrative processes can enhance efficiency and reduce trade barriers.
What is the most common trade barrier?
Among the various barriers to free international trade, tariffs are the most common and widely used form of trade barrier. Tariff rates can fluctuate depending on government policies, trade agreements, and other geopolitical factors.
Tariffs are implemented for several reasons. They provide protection to domestic industries by making imported goods more expensive, thereby creating a competitive advantage for domestic producers. Tariffs can also generate revenue for the government and can serve as a tool for regulating imports and controlling the balance of trade.
Over time, countries have engaged in negotiations and entered into free trade agreements to reduce tariff barriers and promote open markets.
Overcoming barriers to trade at Freeport Liverpool
Freeports create economic zones where barriers to free international trade are reduced or eliminated.
They provide customs benefits, allowing goods to be imported and exported without incurring customs duties or extensive procedures. Tax incentives such as exemptions or reductions make it financially attractive for businesses to operate within freeports. Streamlined customs procedures make it easier to do business.
SSO International Forwarding will play a key role at Freeport Liverpool. We’ll be operating a designated customs site comprising our new 50,000 sq ft secure warehouse in Haydock.
Contact us to find out more about our role at the Freeport and how we’ll be making it easier and more cost-effective for businesses to trade internationally.
