Tariff Barriers: Characteristics, Types and Examples in Mexico

The customs barriers they are defined as all the provisions established to limit international trade. A tariff barrier seeks to restrict the commercial scope between international borders, since different taxes are imposed on the import and export of products by an economic zone or a country.

These taxes are also known as tariffs. Tariff barriers are intended to put an obstacle to many global transactions, since they increase the price of the product to buy or sell, depending on their volume of purchase and their characteristics.

With exports, the State seeks to create income through the collection of taxes. As long as a country is more internationalized and open, it will export more and, therefore, the country will have more profits. In addition, it allows to regulate its activity and limits the export of goods that are considered transcendental for the health of a nation's economy.

With imports the government tries to defend its national industries from foreign competition, considerably increasing the price of goods coming from abroad in order to favor national manufacturing.

characteristics

Tariff barriers are an instrument for budgetary and fiscal control and, at the same time, generate international regulations. They make it possible to know if a service or product is being inspected and, therefore, verify whether or not it is legal.

However, in many countries these barriers become a brake on the entry of foreign investment and, therefore, for the arrival in the country of new capital for its economic development.

When Adam Smith published his book The Wealth of Nations In 1776, international trade was dominated by extremely restrictive import tariffs.

Their influence has helped to generate a consensus among economists that reducing trade barriers fosters economic growth; That consensus was particularly strong among Western economists in the second half of the 20th century, which led to a general decrease in tariffs worldwide.

Data on import tariffs

These data are compiled by the World Bank and the World Trade Organization. The analysis of tariffs can be complicated, since different rates can be applied for different products from different trading partners.

The countries with the highest import tariffs are Bahamas, Gabon, Chad and Bermuda. Their rates applied on average range from 15.4% to 18.6%. Less developed nations tend to have the highest trade barriers.

Developed countries are generally less restrictive: for example, 27 of the 28 members of the European Union apply a tariff rate of 1.6% (Iceland's rate is even lower, 0.7%).

However, there are still many tariffs, even among the countries with greater market freedom. For example, Japan favors its rice producers with high import tariffs, and EE. UU It does the same with its peanut producers.

Tariff war

A tariff war is an economic battle between two countries in which country A increases the tax rates on exports from country B, and then country B - in retaliation - increases taxes on exports from country A.

The increase in the tax rate is designed to economically harm the other country, since tariffs discourage people from buying products from those external sources as they increase the total cost of those products.

One reason why a country can incite a tariff war is because it is not happy with any of the political decisions of its trading partners. He hopes that, by exercising sufficient economic pressure on the country, he can force a change in the behavior of the opposing government.

Types

While most economists agree that tariff barriers ultimately create unbearable economic conditions, governments often require them for a variety of reasons, ranging from protecting an infant industry to participating in a war. commercial with another country.

There are three types of tariffs, also called import payments, that can be implemented as protection measures. Governments charge all these forms of tariffs to increase the price of imported products and thus exceed or equalize the prices of domestic suppliers.

Scientific tariffs

They are taxes to increase the price of products to final consumers.

Tariffs of risk

They are implanted when less efficient industries are in danger of closing due to their inability to compete on prices.

Retaliation fees

Used to replicate the collection of excessive tariffs by business partners.

Examples in Mexico

In recent years Mexico has distinguished itself by having a tendency to eliminate and reduce tariff barriers. It only keeps them in some specific cases, as it is one of the countries with the most free trade agreements (including with the European Union), as well as being a member of the World Trade Organization.

For example, there are no tariff barriers for products manufactured in the United States that meet the requirements of the rules of origin of the North American Free Trade Agreement.

General Import Tax

Imported products must pay the General Import Tax. This tax corresponds to a tariff portion and can be of different types, according to the product:

Ad-valorem

Expressed as a percentage of the value of the goods in customs.

Specific

Expressed monetarily by the unit of measure.

Mixed

When it comes to a mixture of the previous two.

Sector Promotion Programs

Mexico has implemented Sector Promotion Programs, which reduce tariffs from zero to five percent in a wide range of important inputs needed by the export manufacturing sector of this country.

Twenty different sectors of the industry are included in this program and affect some 16,000 articles. In order to participate, Mexican companies must be registered in this program.

Exemption on electric vehicles

In order to reduce the emission of greenhouse gases, since 2017 the Mexican government has exempted from paying tariffs on imported electric vehicles. Previously a tariff of 15% was paid for trucks and cars with electric motor

Tax on harmful foods

A Special Tax on Production and Services (IEPS) is applied on the importation of alcoholic beverages and cigarettes. In 2013, the IEPS was extended to include a tax on soft drinks, high-calorie foods and junk food. This tax can vary from 25 to 160%, depending on the product.

References

1. Investopedia (2018). Which countries have the highest tariffs? Taken from: investopedia.com.
2. Investopedia (2018). Tariff war. Taken from: investopedia.com.
3. S. Commercial Service (2017). Mexico - Trade Barriers. U.S. Department of Commerce. Taken from: export.gov.
4. S. Commercial Service (2017). Mexico - Prohibited and Restricted Imports. U.S. Department of Commerce. Taken from: export.gov.
5. S. Commercial Service (2017). Mexico - Import Tariffs. U.S. Department of Commerce. Taken from: export.gov.
6. Roberto Vázquez Burguillo (2018). Customs barriers. Economipedia. Taken from: economipedia.com.