This paper seeks
to make a comparative research analysis of trade restrictions in various
countries. Such trade restrictions are concerned with barriers to trade, that
certain governments promote in order to safeguard their domestic producers (and
sometimes consumers too) against international competitors or trade practices,
which the government deems unfit for the internal environment of the economy.
For the purpose
of this study, we will consider the case of the Indian subcontinent, which
majorly harbours the nation of India, Pakistan, Sri Lanka, Nepal and Bhutan.
The paper will study the restrictions to international trade in these countries
with a special focus on emphasising the key issues in developing nations; and
the relation between these countries with each other, in context of
international trade.
Some of the
major points, on basis of which this study will analyse the trade restrictions
in these economies, are tariffs,
import quotas, voluntary export restraints, health and safety regulations and
subsidies, among others.
India
India is
one of the fastest growing economies in the world; it is the leading among its
neighbours and closely competes with China. However, this was not the case in
the pre 1990 era when India was viewed as a strict ‘protectionist’ economy;
closed in a lot of aspects to the outside world. Post 1990 India had to
liberalise more due to necessity however, it showed an immediate change in the
country’s growth statistics, such as trade to GDP ratio increased from 15 to 35
percent between 1990 and 2005. This gave the country a status of ‘rapid
globaliser’ in the international community. But even as a global approach the
country still promotes certain trade restrictions enumerated below:
1.
Agricultural tariffs- India has been an
agrarian economy for long (although recent focus is shifting on the expanding
service sector). Agricultural tariffs average between 30-40 percent still. This
is in place to protect the domestic producers of primary and agrarian goods.
Since, a large Indian population of low or moderate means is involved in
agriculture it is of importance to protect the livelihood of a major segment of
the population. Also, it is a national ideology to be self sufficient at least
in the case of food since, the country had faced a disastrous food shortage in
recent past.
2.
Retail trade- India is among the few
countries which continue to ban foreign investment in retail trade.
Considering, for a major chunk of Indian population retail is the means of
income after agricultural activities, the government strives to protect the
interest of this mass in addition to guard the markets against the monopolistic
competition produced by International trade giants. The recent protests regarding
the entry of Wal Mart in India bear evidence to the climate for foreign
investment in retail sector, in India. (http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/EXTSARREGTOPINTECOTRA/0,,contentMDK:20592520~menuPK:579454~pagePK:34004173~piPK:34003707~theSitePK:579448,00.html)
3.
In relation to Pakistan- India’s
foreign trade policies are the most restrictive. The two countries have always
been in conflict since the division of India into two nations in 1947. The
neighbours share a mutual feeling of distrust and this show in their diplomatic
ties and foreign trade policies. For example, India has placed certain quotas
on import of certain goods from Pakistan, there are no proper communication
facilities between the countries, road, rail and air routes are usually
disrupted, visa grants are hard to get for intra country travel, consignments
from either country are subjects to stringent checks on their ports among other
barriers to free trade.
4.
Subsidies- Indian government also
provides subsidies to some of its sectors, in order to protect them from
international competition and encourage them to grow to a level where they
become self sufficient. Examples of such sectors can be service and
handicrafts.
Bhutan
Bhutan is
a landlocked country, surrounded with India on three sides and China on the
remaining one. Post India’s independence the country, has maintained strong
bilateral relations with India. It has entered into various preferential trade
agreements with India which go on to reflect in its preference to Indian goods
over other countries’.
Some of
the major trade restrictions advocated by Bhutan are listed below:
1.
Third country imports- Since May 2012,
Bhutan has placed certain restrictions on import of non essential items from
third countries such as Thailand, Hong Kong, Nepal and Japan. This is in wake
of protecting its still developing industries which aren’t strong enough to
compete with those of developing/developed nations such as China and Japan.
2.
Exclude India- in most trade
restrictions. Providing this neighbour preferential treatment. Excepting India
in its third country imports ban could also be a necessity due to Bhutan’s lack
of a position of dominance against a big and powerful neighbour. Currently
Bhutanese traders also do not require an import license to transact with India.
3.
Checking imports- Bhutan has taken to
various extreme measures in order to check its foreign trade. Such measures
have ranged from cancelling import licenses in order to disable traders from
transacting with the outside world, to restrictions on holding foreign currency
accounts outside the country and even increasing freight charges on containers
to make imported goods unattractive to Bhutanese population. (http://www.asianewsnet.net/news-30182.html)
Sri Lanka
Sri Lanka
was one of the first countries to embrace a liberalised economy in 1977-78.
This spurred growth and was evidenced by Sri Lanka’s leading exports to the
world in terms of primary goods such as tea and rubber, and its increased
reliance on its domestic industries for manufactured goods (as these industries
became increasingly efficient when subjected to international competition in a
moderated way). However, the continuous civil war for a long time and the
change in government in 2004, brought about a change in ideology and Sri Lanka
went on becoming a ‘protectionist’ economy from a liberal one. The change in
ideology encompassed the following changes in policy making:
1.
Increase In tariffs- In February 2001
a 40% surcharge on custom duties was levied as opposed to a previous general
reduction of scheduled duties in 2000. This was in wake of protests against
liberal trade policies strengthened by a crisis economic condition; followed by
an attack by LTTE on Colombo airport in July 2001.
From
late 2004 a deliberate move to promote import substitution is being followed
for both agriculture and manufacturing industries.
2.
Complex tax structures- Sri Lanka can
be cited as an example for having one of the most complex tax structures for
imports. Usually a country will have three sorts of taxes levied on imports
which are Custom duties, indirect taxes (as VAT) and excise duties. However,
Sri Lanka has as many as nine taxes on imports, which makes it increasingly
difficult, complex and expensive for importers to transact with other nations.
Most of Sri Lanka’s moves in context
of discouraging trade with the outside world are due to the prolonged civil war
in the nation. Factions of society have opposed free trade and other more
progressive ones have supported it. There’s no clear opinion in the country
about an ideal stand on the issue; as the government is looking towards taxes
on trade as fuel to finance its ever growing war expenditure. (http://www.crawfordev.anu.edu.au/acde/asarc/pdf/papers/2011/WP2011_03.pdf)
Nepal
Nepal is a
landlocked country in South Asia; surrounded by India on three sides, and People’s
Republic of China on the remaining one. Despite its rugged geography, less
number of tangible resources, an ineffective post 1950 government and a
prolonged civil war, Nepal has shown great promise in the arena of
international trade by reducing the number of trade barriers drastically. This
has resulted in a trade to GDP ratio of 38 per cent.
1.
Tariff rates- Nepal follows a low
tariff rate of an average 11 per cent, encouraging foreign trade, contributing
to its economic development.
2.
Accession
to WTO- Nepal has recently become a full member of WTO opening up the following
prospects for the country:
a)
Agreement
to bind most duties and charges at zero and phase them out within 10 years;
b)
Agreement
to bind average tariff at 42 percent for the agricultural products and 24
percent for all other products
c)
Agreement
to allow up to 80 percent foreign equity participation in 70 services
sub-sectors spanning distribution, retail and wholesale services and
audio-visual.
3.
Quotas- However the abolition of Multi-Fiber Agreement quotas has already
resulted a 40% fall in exports of the garment industry. (http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/EXTSARREGTOPINTECOTRA/0,,contentMDK:20592522~menuPK:579454~pagePK:34004173~piPK:34003707~theSitePK:579448,00.html)
Bangladesh
Bangladesh is rated as one of the most inferior nations in
terms of trade restrictions however, recent liberalisation (post 1990) in
tariff structure and easing of quotas has lead to an increase of trade-GDP
ratio from 18% (1993) to 43% (2008).
1.
Tariff and Quotas- Bangladesh relied
heavily on quotas and quantitative restrictions to protect its domestic
industries. Approximately 40% of its total tax revenue comes from import taxes. Protective tariffs are currently at 20.1%.
A key point of the present tariff structure is the significant application of
para-tariff called supplementary duties, which account for about 31% of the
average protection.
Some consumer goods, mainly the non-food luxury
items, have high protective rates even up to 463% - well beyond the top custom
duty rate.
2.
Accession to WTO- Being granted LDC
status has opened new vistas for Bangladesh. It has led to rationalisation of
tariffs, abolition of quantitative restrictions, moving from a multiple to
unified exchange rate determination system, convertible current account and a
focus which emphasizes on promoting a rather free trade for the nation.
(http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/EXTSARREGTOPINTECOTRA/0,,contentMDK:20592516~menuPK:579454~pagePK:34004173~piPK:34003707~theSitePK:579448,00.html)
Pakistan
Pakistan’s
position in terms of trade restrictions is no different when compared to other
countries mentioned in this paper. Its foreign trade relations with India have
already been highlighted in this paper (in a sub point under the heading
India). However, Pakistan exhibits the following trade barriers in its
policies:
1.
Tariff- As all developing nations,
Pakistan follows a high tariff rate structure to protect its domestic
industries. However, tariff on agriculture are low, due to a perpetual food
shortage in the country. This is unusual when compared with other countries of
the sub continent which have high agricultural tariffs to protect their primary
goods markets.
2.
International Hostility- Pakistan
exhibits a hostile behaviour towards a lot of major nations in the world
including its neighbours like India, Nepal, Bhutan and Sri Lanka. This is more
due to an instable political regime and a conflict of ideologies among powerful
factions of the Pakistani society; it has led to disruption of trade with the
world for Pakistan.
To
conclude, the paper has drawn attention to some of the major issues in
developing world (especially those concerning the countries of the Indian
subcontinent), which are impeding free trade by the way of trade restrictions
initiated by various governments.
Some key
issues that have come to light are:
1.
Developing nations in general, use
Tariffs and Quotas as a means to protect their domestic industries.
2.
Usual restrictions to free trade have
been initiated due to the case of internal turmoil within a nation. Just as in
the case of Pakistan or Sri Lanka; where import taxes are viewed as a means to
finance war expenditure.
3.
Countries of the subcontinent have
bound themselves in various preferential trade agreements with each other; this
has been a barrier to entry for rest of the world, into the markets of these
nations.
4.
Trade restrictions in the developing
world are rarely concerned with health and safety concerns (which are an issue
in most western economies). However, exceptions can be seen, just as in the
case of Indo-Pak relations where safety issues are prominent to protect both
the nations from their hostility towards each other.
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