What Are Tariffs?
A tariff is a tax imposed by a government on imported goods. It is the most transparent and traditional tool of trade policy. Tariffs serve multiple purposes: they generate government revenue, protect domestic industries from foreign competition, and can be used as leverage in trade negotiations.
Under WTO rules, member countries negotiate and "bind" their tariff rates — committing not to raise tariffs above agreed ceilings (called bound rates). Applied rates (what countries actually charge) are often lower than bound rates, giving governments some flexibility.
Types of Tariffs
- Ad valorem tariffs: Calculated as a percentage of the imported good's value (e.g., 10% of the invoice price).
- Specific tariffs: A fixed fee per unit of goods (e.g., $2 per kilogram).
- Compound tariffs: A combination of both ad valorem and specific tariffs.
- Tariff rate quotas (TRQs): A lower tariff rate applies up to a certain import volume; a higher rate kicks in above that quota.
What Are Non-Tariff Barriers?
Non-tariff barriers (NTBs) are policy measures other than tariffs that restrict or distort trade. As global tariffs have fallen substantially since the GATT era began, NTBs have become proportionally more significant — and more contested in WTO disputes.
Common Types of Non-Tariff Barriers
| Type | Description | Example |
|---|---|---|
| Import quotas | Limits on the quantity of a good that can be imported | Annual caps on steel imports |
| Sanitary & phytosanitary (SPS) measures | Food safety and animal/plant health standards | Bans on hormone-treated beef |
| Technical barriers to trade (TBT) | Product standards, labeling, and testing requirements | Specific packaging regulations |
| Subsidies | Government support that gives domestic producers an advantage | Agricultural support payments |
| Import licensing | Requirements to obtain permits before importing | Discretionary licensing schemes |
| Customs procedures | Slow, complex, or costly administrative requirements | Lengthy documentation requirements |
How the WTO Regulates These Measures
The WTO does not prohibit all trade restrictions — it disciplines them. Key WTO agreements dealing with NTBs include:
- The SPS Agreement: Allows health and safety measures but requires they be based on scientific evidence and international standards.
- The TBT Agreement: Encourages use of international standards and requires that technical regulations not be more trade-restrictive than necessary.
- The SCM Agreement: Disciplines subsidies and countervailing measures, distinguishing between prohibited and actionable subsidies.
- The Trade Facilitation Agreement (TFA): Aims to cut customs red tape and speed up border procedures.
The Policy Trade-Off
Governments face a genuine tension: many NTBs serve legitimate public policy goals (food safety, environmental protection, consumer information) while also functioning as de facto trade barriers. Determining where legitimate regulation ends and protectionism begins is one of the most difficult and recurring questions in WTO dispute settlement.
For businesses operating internationally, understanding both tariff schedules and the NTB landscape of target markets is essential for assessing market entry costs and risks.