In addition to direct taxes on imported products, governments may erect a number of other barriers ranging from special permits and detailed inspection requirements to quotas on foreign-made items to stem the flow of imported goods—or halt them altogether. Consider the case of bananas, a fruit for which European shoppers pay about twice the prices paid by their North American cousins. The reason for these high prices: Through a series of import license controls, Europe allows fewer bananas to be imported than people want to buy. Even worse, the European countries set up a system of quotas designed to support banana growing in former colonies in Africa and Asia. Imports from Latin American countries were highly restricted—to the detriment of the world’s three largest banana companies, Chiquita, Dole, and Del Monte. All three firms are based in the United States and they all want a share of the lucrative European market. After years of trade tensions and threats of retaliatory tariffs against French cheeses, cashmere sweaters, and other European imports, the World Trade Organization outlawed these restrictions as violations of global trade laws.
Other forms of trade restrictions include import quotas and embargoes. Import quotas limit the number of units of products in certain categories that can cross a country’s border. The quota acts to protect domestic industry and employment and to preserve foreign exchange. For example, the United States puts limits on imports of sugar, peanuts, and dairy products. As another example, once foreign tobacco producers earn their quotas, additional shipments face 350 percent tariffs.38
The ultimate quota is the embargo—a complete ban on the import of a product. Since 1960, the United States has maintained an embargo against Cuba in protest of Fidel Castro’s dictatorship and policies such as expropriation of property and disregard for human rights. Not only do the sanctions prohibit Cuban exports (cigars and sugar are the island’s best-known products) to enter the country, but also apply to companies that profit from property that Cuba’s communist government expropriated from Americans following the Cuban revolution.39 However, many leading U.S. executives oppose the embargo. They are losing the opportunity to develop the Cuban market while foreign rivals establish production and marketing facilities there.
Other administrative barriers include subsidies. Airbus, the French, German, British, and Spanish aircraft consortium, often comes under attack from U.S. trade officials because it is so heavily subsidized. The Europeans, on the other hand, argue that Boeing and Lockheed Martin benefit from research done by NASA, the Pentagon, and other U.S. agencies. And still another way to block international trade is to simply create so many regulatory barriers that it is almost impossible to reach target markets. The European Union, for example, enforces more than 2,700 different sets of trade requirements by states, counties, cities, and insurance providers. Indian law contains even more complex requirements.
Foreign trade can also be regulated by exchange control through a central bank or government agency. Exchange control means that firms that gain foreign exchange by exporting must sell foreign currencies to the central bank or other foreign agency and importers must buy foreign currencies from the same organization. The exchange control authority can then allocate, expand, or restrict foreign exchange according to existing national policy.