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Barriers to International Trade- Non-Tariff Barriers and Infrastructure on Freight Transportation

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Barriers to International Trade- Non-Tariff Barriers and Infrastructure on freight transportation

Intro

Average applied tariffs on industrial products have declined from 15.5 per cent in 1990 to 7.9 per cent in 2003.[1] Yet, the volume of international trade is still less than one would expect from observed differences in factor endowments, tastes and technology between countries (Trefler, 1995). A possible explanation of the missing trade is non-tariff barriers to trade, including transport costs and other costs related to searching for international suppliers or customers, entering into contracts and shipping the goods or services from the domestic producer to the foreign customer. These transaction costs have several dimensions. First, there are the direct monetary outlays on communication, business travel, freight, insurance and legal advice. These are partly determined by the physical and cultural distance between the trading partners, but also the quality of infrastructure and the cost and quality of related services. EXAMPLE

A second dimension of transaction costs is time. The proverbial "time is money" suggests a linkage between monetary outlays and the time dimension, but time also plays a role in its own right. This is particularly the case in industries that have adopted just-in-time business practices and have an international supply network. Just-in-time business practices imply that producers have small inventories of intermediate goods and the entire production process would come to a halt if one input was missing. Under such circumstances delays in delivery of intermediate inputs would have a disproportionate impact on the importing firms' total costs.[2] In fact, if the production plant has to stop production due to a missing part, emergency transport at a cost that by far exceeds the price of the good transported is not...

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