# Nontariff Barrier: Definition, How It Works, Types, and Examples

![Nontariff Barrier: Any measure, other than a tariff, used by countries to restrict international trade.](https://www.investopedia.com/thmb/EVQT_EEBVE88lgSVyLMBqBp8sTE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Nontariff-barrier_final-909a93b5dcc14e67beb2b08a85a8ff61.png)

*— Investopedia / Michela Buttignol*

## What Is a Nontariff Barrier?

A nontariff barrier is a trade restriction that doesn't involve [tariffs](https://www.investopedia.com/terms/t/tariff.asp). Instead of applying taxes on imports, countries use various methods—such as quotas, embargoes, [sanctions](https://www.investopedia.com/articles/economics/10/economic-sanctions.asp), and [levies](https://www.investopedia.com/terms/l/levy.asp)—to limit or regulate trade. These barriers are often used for political, economic, or strategic reasons and can be used alongside or in place of traditional tariffs.

### Key Takeaways

*   A nontariff barrier is a trade restriction other than a tariff, such as a quota, embargo, sanction, or levy.
*   Countries use nontariff barriers to further their political and economic goals.
*   They usually opt for nontariff barriers rather than traditional tariffs in international trade.
*   Countries can use nontariff barriers in place of or in conjunction with conventional tariff barriers.

## How Nontariff Barriers Work

Countries commonly use nontariff barriers in [international trade](https://www.investopedia.com/insights/what-is-international-trade/). Decisions about when to impose nontariff barriers are influenced by a country's political alliances and the overall availability of goods and services.

Any barrier to international trade, including tariffs and nontariff barriers, generally influences the global economy because it limits the functions of the free market. The lost revenue that some companies may experience from these barriers can be considered an [economic loss](https://www.investopedia.com/terms/e/economicprofit.asp), especially for proponents of laissez-faire capitalism. They believe that governments should abstain from interfering in the workings of the free market.

Countries use nontariff barriers in place of or in conjunction with conventional tariff barriers. These are taxes that an exporting country pays to an importing country for goods or services. Tariffs are the most common [trade barrier](https://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp), increasing the cost of products and services in an importing country.

Countries often pursue alternatives to standard tariffs because they release countries from paying added taxes on imported goods. Alternatives to standard tariffs can have a meaningful impact on the level of trade while creating a different monetary impact than standard tariffs.

## Types of Nontariff Barriers

Nontariff barriers exist in several forms. Here are the most common types:

### Licenses

Countries may use licenses to limit [imported goods](https://www.investopedia.com/terms/i/import.asp) to specific businesses. A business can import goods that would otherwise be restricted for trade in the country when granted a trade license.

### Quotas

Countries often issue [quotas](https://www.investopedia.com/terms/q/quota.asp) for importing and exporting goods and services. They agree on specified limits for products and services allowed for importation to a country. In most cases, importing these goods and services is not restricted until a country reaches its quota, which it can set for a specific time. Quotas are also often used in international trade licensing agreements.

### Embargoes

[Embargoes](https://www.investopedia.com/terms/e/embargo.asp) are the result of a country or several countries officially banning the trade of specified goods and services with another. Governments may take this measure to support their specific political or economic goals.

### Sanctions

Countries impose [sanctions](https://www.investopedia.com/terms/t/tradesanction.asp) on other countries to limit their trade activity. Sanctions can include increased administrative actions or additional customs and trade procedures that slow or limit a country’s ability to trade.

### Voluntary Export Restraints

Exporting countries sometimes use voluntary export restraints to limit the number of goods and services they can export to specified countries. These restraints are typically based on availability and political alliances.  

> **Important**
>
> Nontariff barriers may encourage a local economy to self-manufacture in a way similar to that of a manufacturing country. The target outcome is largely the same, though the mechanism changes.

## Advantages and Disadvantages of Nontariff Barriers

### Pros of Nontariff Barriers

The primary advantage of nontariff barriers is the protection of domestic industries from foreign competition. Governments can shield their industries from low-cost imports, supporting local businesses and preserving jobs, by imposing regulations and standards,

Nontariff barriers related to product standards and regulations help ensure that imported goods meet specific quality and safety standards. This can be advantageous for consumers by reducing the risk of substandard or unsafe products entering the market.

Nontariff barriers are also implemented to safeguard national security interests. These measures can include export controls on sensitive technologies or restrictions on imports of certain strategic goods to prevent them from falling into the wrong hands. They're used to counteract the practice of dumping where foreign producers sell goods in a foreign market at prices below their cost of production to seize the competitive market.

### Cons of Nontariff Barriers

One of the most significant disadvantages of nontariff barriers is their potential to distort international trade.

Nontariff barriers can disrupt the natural flow of goods by creating obstacles to imports, leading to trade imbalances, inefficiencies, and market distortions. This is obviously intentional because nontariff barriers often limit the variety of goods available to consumers but it impacts consumers who then have fewer options. They may be denied access to potentially superior or more affordable products.

Compliance with nontariff barriers can be costly for both producers and consumers. Manufacturers may have to adjust their production processes to meet specific standards. Importers can incur additional expenses related to documentation, inspections, and compliance checks. Nontariff barriers are often more complex than tariffs with sometimes uncertain implications.

Nontariff barriers can sometimes discriminate against foreign goods in favor of domestic products. This violates the principles of non-discrimination and fair trade enshrined in international trade agreements. Overly restrictive nontariff barriers can also hinder economic growth by limiting access to global markets and [stifling competition](https://www.investopedia.com/terms/p/perfectcompetition.asp). This can slow down innovation and productivity globally.

Nontariff barriers can promote activities that don't encourage the best resource allocation. Resources may be misallocated when nontariff barriers protect inefficient domestic industries. Capital and labor may be directed toward industries that might not be globally competitive without trade restrictions, putting an overall efficiency strain on the global economy.

Pros

*   May protect domestic industries
    
*   Ensures product quality and safety
    
*   May preserve national security
    
*   May prevent product dumping from other countries
    

Cons

*   May distort international trade leading to trade imbalances
    
*   May restrict consumer choices
    
*   May be more complex and difficult to understand
    
*   May not yield the most efficient economic policy
    

## Nontariff vs. Tariff

Tariffs and nontariff barriers are two distinct mechanisms that countries employ to regulate international trade. Tariffs are monetary barriers in the form of [taxes](https://www.investopedia.com/terms/t/taxes.asp) imposed on imported or exported goods. Nontariff barriers encompass a diverse range of non-monetary measures.

Tariffs target specific products or industries but nontariff barriers can have a broader and often less transparent impact on trade. Tariffs are typically a subject of negotiation in trade deals and offer some flexibility in adjusting rates. Nontariff barriers can be more challenging to quantify and may require complex compliance measures, making them a critical focus in international trade negotiations.

Tariffs directly affect the prices of imported goods in many cases. and can be used strategically to influence trade volumes and generate government revenue. Nontariff barriers, although they can indirectly impact prices, are often employed to achieve various policy objectives beyond revenue generation. They may be put in place to safeguard domestic industries or to ensure product quality and safety. Incidental pricing impacts can occur as part of this barrier.

Trade agreements often involve negotiations regarding both tariffs and nontariff barriers, as their distinct characteristics require nuanced approaches for trade facilitation. In some contexts, both are used in tandem, as it may be easier to manipulate one (i.e. tariffs) based on agreed-upon nontariff barriers.

## Example of Nontariff Barriers

The United Nations adopted a round of nontariff barriers against North Korea and the Kim Jong Un regime in December 2017. The nontariff barriers included sanctions that cut exports of gasoline, diesel, and other refined oil products to the nation.

Nontariff barriers can be significant roadblocks for businesses looking to expand their markets in international trade. The United States is actively committed to addressing this issue on multiple fronts.  The United States is actively committed to addressing this issue on multiple fronts. The U.S. is pushing to reduce or eliminate nontariff barriers in various regional contexts, including the Asia Pacific Economic Cooperation, and to contribute to analysis at the Organization for Economic Co-operation and Development.

The United Nations has also prohibited the export of industrial equipment, machinery, transport vehicles, and industrial metals to North Korea. The intention of these nontariff barriers was to put economic pressure on the nation to stop its nuclear arms and military exercises.

## Are Nontariff Barriers Legal in International Trade?

Nontariff barriers can be legal or illegal, depending on their nature and adherence to international trade agreements. Many nontariff barriers are considered legal, especially when they are employed for legitimate reasons such as ensuring product safety, protecting national security, or preserving public health. These measures are generally permitted as long as they align with the rules set by international bodies like the [World Trade Organization (WTO)](https://www.investopedia.com/terms/w/wto.asp).  

## How Can Companies Overcome Nontariff Barriers?

Companies can employ several strategies to overcome nontariff barriers in international trade. They can adapt their products and operations to meet the required standards and regulations. Collaboration with local partners or trade associations can provide valuable insights and support in navigating nontariff pay. Companies can also engage in dialogue with government authorities to advocate for trade facilitation measures and compliance support.  

## How Are Nontariff Barriers Enforced?

Nontariff barriers are enforced through regulatory and administrative measures by the importing country's government authorities.

These enforcement processes typically involve rigorous documentation and [customs](https://www.investopedia.com/terms/i/import-duty.asp) procedures, including inspections, testing, and compliance checks to ensure adherence to specific requirements. Licensing and permits may be required for certain goods and import quotas are monitored to ensure that limits are not exceeded.

## The Bottom Line

Nontariff barriers are significant obstacles in international trade, impacting businesses by imposing additional costs, compliance requirements, and restrictions. While nontariff barriers can be effective for achieving political and economic goals, they can also distort the natural flow of goods, create inefficiencies, and limit consumer choice. Companies looking to expand in international markets must carefully navigate these barriers and adapt to local regulations to ensure continued trade success.

> **Article Sources**
>
> 1.  CFI Education. "[Non-Tariff Barriers](https://corporatefinanceinstitute.com/resources/economics/non-tariff-barriers/)."
>     
> 2.  Office of the United States Trade Representative. "[Non-Tariff Barriers](https://ustr.gov/issue-areas/industry-manufacturing/non-tariff-barriers)."
>     
> 3.  United Nations Security Council. "[Resolution 2397 (2017)](https://www.undocs.org/S/RES/2397%20%282017%29)."