aving signed the Tripartite Free Trade Area (TFTA) protocol, let us not assume that our exports will enter all member countries without hindrance. In international trade, there are non-tariff barriers which some countries adopt to protect domestic industries. Rarely do free trade agreements take into account non-tariff agreements because they are disguised as something other than a prohibition of imports. Let us look at the various non-tariff barriers.
If there is to be true competition between the companies of the free trade area, governments should not subsidise their exports. But what amount to subsidising an export can be very difficult to discern. Most countries offer new potential exports an array of services. A company that manufactures and exports textiles may be exempted from taxes on the raw materials it buys so as to make exports cheaper. Government through commercial attaches’ provides information to their exporting companies, hold trade exhibitions funded by governments. This serves the companies expenses that it could have incurred.
Aid and loans Government often gives tied aid or loans to other governments. The recipient government is required to use the aid or loan by buying goods in the donor country. Tied aid is particularly common in contracts for infrastructures such as telecommunications, railways and electric power project. Companies manufacturing these products enjoy preferential business in the recipient countries against companies from other countries which might provide the equipment more cheaply.
Customs valuation Exporters sometimes declare an arbitrary low price on an invoice to pay a lower ad valorem tariff and thereby penetrated the foreign market. To overcome this trick, customs officials evaluate the imports comparing them with products manufactured locally or imported from other countries. When goods enter for lease rather than purchases there is no invoice and customs officials base duty on the value of identical or similar goods.
Other direct price influences. Countries frequently use other means to influence prices. They may impose special fees (such as for consular and customs clearance and documentation) requirement that customs deposits be placed in advance shipment. They may insist that once the imports have been cleared they should be sold at not less than such and such a price to prevent the imports undercutting local products.
Annually, a market can absorb so much of a product. For example, there is a market for a billion tonnes of sugar. To make sure that three quarter of this market is reserved for local producers, a government may issue a licence to importers to import no more than a quarter of the quantity needed, thereby making sure that local buyers will turn to local suppliers for most of their requirements.
Problems arise when governments allocate quota among countries because goods from one country might be transshipped to another.
Buy local legislation. Another form of quantitative restriction is ‘buy local’ legislation which a government imposes. If a local firm manufactures cars, government may buy only from the local company for its own ministries and parastatals.
Often countries have set classification labelling and testing standards in a manner that allows the sale of domestic products but prevents the sale of foreign made products.
Ostensibly, the purpose of testing standards is to protect the safety of health of the domestic populations. In effect such legislation is designed to protect domestic manufacturers.
Specific permission requirements
For certain imports, a government may legislate that an importer must obtain a special licence to import it. Foreign exchange for certain imports may only be granted with the approval of government ministry or agent.
Some customs departments may take a month to clear goods which can be cleared in less time just to give chance to the local suppliers to service the market without foreign competition.
Some companies tell foreign exports. “We will buy your goods if you use the money we pay to buy from us or if you spend the money on market.” This kind of trade is called counter trade or offsets. It is barter.