THE QUANTIFICATION AND IMPACT OF NON-TARIFF MEASURES
Introduction
The argument is that non-tariff measures shall be addressed because they have become relatively more important as trade policy issues. Such an approach necessarily diminishes the absolute importance of NTMs as an impediment to world trade. National governments have always been able to discover and implement new and sometimes ingenious ways to reduce the volume and value of trade. Not surprisingly, the result is a vast array of measures that fit even the narrowest definition of an NTM. Recognising the need to address NTMs is not the issue. The problem is identifying them and developing a tractable taxonomy that allows for a coherent and robust analysis of their effects. Even if these two tasks are accomplished the difficult policy issue of the appropriate forum and framework within which to address NTMs still remains.
Identifying a Non-Tariff Measure
Before negotiations on NTMs can proceed it would be useful to at least have a working definition of an NTM. Baldwin (1970), in his seminal work on NTMs, defines "non-tariff distortion" as "any measure (public or private) that causes internationally traded goods and services, or resources devoted to the production of these goods and services, to be allocated in such a way as to reduce potential real world income." This is a useful definition, but is problematic in the context of defining 'potential' real world income.
If tariffs were then to be eliminated all trading nations would be part of a 'single market'. Lloyd (1996), when writing on regional trade agreements, defines a single market as one in which the law of one price prevails. He further clarifies by stating that:
"This means that in a competitive market, for either a produced commodity or a factor, there is only one price, allowing for transport and other transfer costs which prevent perfect arbitrage. It implies the removal of all border and non-border restrictions on commodity trade, and the harmonisation of commodity taxes and other measures which affect access to markets" (page 44).
Lloyd's insights are used to distinguish between the concepts of regional free trade and regional integration. The removal of border measures will liberalise trade, but may not necessarily result in integration. Hence, he defines the new regional trade agreements which include competition policy and investment as those moving towards regional integration. International integration is, hence, more than just the removal of tariffs. Both the Baldwin and Lloyd approaches point to a broad definition of a non-tariff measure. Indeed, the only tangible aspect of both definitions is that an NTM can be defined by what it is not, not by what it is. This means the set of NTMs is very large and encompasses a significant range of measures - both public and private.
Baldwin (1970) developed the first taxonomy of NTMs. They include:
Quotas and restrictive state-trading policies
Export subsidies and taxes
Discriminatory government and private procurement policies
Selective indirect taxes
Selective domestic subsidies
Restrictive customs procedures
Antidumping regulations
Restrictive administrative and technical regulations
Restrictive business practices
Controls over foreign investment
Restrictive immigration policies
Selective monetary controls and discriminatory exchange-rate policies
Five such categories are identified, of which (iv) has been adapted to cover restrictions as well as subsidies:
i) Measures to control the volume of imports. For example, prohibitions and quantitative restrictions (QRs) on imports as well as export restraint agreements (ERAs). Licenses are often used to administer QRs. ERAs consist of voluntary export restraints (VERs) (covering, inter alia, measures employed for the administration of bilateral agreements under the Multi-Fibre Arrangement) and Orderly Marketing Agreements (OMAs).
ii) Measures to control the price of imported goods. These include the use of reference or trigger price mechanisms, variable levies, anti-dumping duties, countervailing measures, etc. Tariff-type measures such as tariff quotas and seasonal tariffs also are usually intended to increase import prices under given circumstances. Voluntary export price restraints fall under this broad category of intent.
iii) Monitoring measures include price and volume investigations and surveillance. Such practices are often associated with charges by domestic interests of unfair trading practices by exporters, e.g., dumping and subsidization. Licenses are sometimes used as a monitoring instrument. Monitoring measures may be a prelude to other actions, and, if seen as such, may lead to export restraints. They may have a harassment effect.
iv) Production and export measures. Subsidies may be directly applied to output or value added, or they may be indirectly applied, i.e., paid to material or other inputs to the production process. They may arise from payments or the non-collection of taxes that would otherwise be due. Restrictions by mean of taxes or prohibitions may also be imposed on production or exports.
v) Technical barriers imposed at the frontier are used to apply various standards for health and safety reasons to imported products to ensure that imported products conform to the same standards as those required by law for domestically produced goods. They may lead to the prohibition of non-complying imports or oblige cost-increasing production improvements.
Their study covers the various elements of NTMs including their measurement. An interesting aspect of their study is to approach the issue of defining an NTM by using stylised characteristics. The characteristics are:
i) Reduction in quantity of imports. NTMs are most often imposed with the intent of reducing the quantity of imports.
ii) Uncertainty of NTMs. All government policies are uncertain in their implementation, but this seems to be especially true of some NTMs. Indeed, some practices such as antidumping and countervailing duty investigations have been identified as NTMs almost entirely because of the uncertainties that they impose on international traders. Even those barriers that are clearly restrictive, however, can become more so if their implementation is uncertain.
iii) Resource Costs of NTMs. In addition to the traditional welfare costs just noted, there are also certain costs that are associated with the manner in which the NTM is administered. First are the direct administrative costs themselves, that is, the resources used directly in enforcing whatever rules an NTM imposes. It is essential that more careful measurements of them be attempted. Second, and perhaps of much greater importance, are the resources lost to rent seeking and related phenomena. These are the time and other resources that are wasted by individuals and firms in their efforts to secure profit opportunities and other benefits that are created by an NTM.
Finally, the WTO has an Inventory of Non-Tariff Measures that was first established in 1968 in the context of the work done in the Committee on Trade in Industrial Products. It was based on some 800 notifications which, in the view, of the notifying Contracting Parties constituted non-tariff barriers. Following the Tokyo Round, the Inventory was kept up to date by first the Group on Quantitative Restrictions and Other Non-Tariff Measures (created in 1982) and subsequently the Technical Group on Quantitative Restrictions and Other Non-Tariff Measures (created in 1986).
Incidence of NTMs
As indicated in the previous section there is no agreed definition as to what constitutes an NTM. Furthermore, UNCTAD hosts the only database on NTMs for public use. UNCTAD's NTM data is frequency data and not measures of impact. They show for the cross-market and cross-product analysis the extent to which national tariff lines within a Harmonized System 6-digit classification are affected by certain NTMs. A core NTM includes three major categories of non-tariff measures:
+ Quantity control measures, excluding tariff quotas and enterprise-specific restrictions;
+ Finance measures, excluding regulations concerns of payment and transfer delays;
+ Price control measures.
By way of illustration, consider the hypothetical example to better understand the frequency approach to estimation. Assume an imaginary HS089876 tariff line with four sub-headings that include separate lines for apples and bananas, grapes and melons, oranges and pineapples. An import licence applies to apples and oranges, while an advance import deposit applies to grapes and melons. An frequency of 100 percent for an NTM in this case could either be meaningless, due to demand conditions, or significant in the sense that it maybe prohibitive. This would typically bias the assessment of protection downwards. Protection, after all, is implemented to reduce competition in a particular sector. In order to account for this, and bearing in mind that any weighting scheme introduces biases, a weighting vector can be applied to the vector of NTMs.
An alternative to data collected from national sources is the use of business surveys. Such surveys allow the possibility of prioritising the importance of different types of instruments. For example, under the frequency approach the application of a quota would be counted as an NTM. However, through business surveys the fact that the quota maybe under-filled would imply that it is not important to the exporter. A number of such surveys exist. The OECD (2002a) in a very useful document has collated the results from a number of different surveys and summarised the results. Not surprisingly, due to the large variance in sampling techniques their conclusions are heavily qualified. There appears to be strong evidence that technical measures and customs rules and procedures are both frequent and also rank as important. Where internal taxes or charges and competition-related restrictions on market access are reported they are also ranked quite highly.
With respect to customs rules and procedures some of the measures and problems are:
• Excessive documentation
• Slow customs clearance
• Lack of predictability
• Arbitrary enforcement of rules
• Lack of harmonization and simplification of clearance procedures
Impact of NTMs
Studies on the impact of NTMs yields a number of diverse results, which reflect the difficulties in measuring and quantifying NTMs. Not surprisingly the work is more advanced in areas driven by the policy debate. For example, the use of domestic support and export subsidies in agriculture, or trade facilitation measures. This section selectively lists some of the studies that have tried to quantify some NTMs. While tempting, no attempt has been made to sum these estimates and compare them against estimate of tariff liberalisation.
A common theme of all the studies of the gains from agricultural trade liberalisation is the importance of tariff liberalisation. Nevertheless, domestic support and export subsidies are important, not only for their pernicious effects on trade, but also because of the nature of their impact. Tariffs raise the prices of imported products in a market. The Uruguay Round achievements did much to eliminate quantitative restrictions. The Agreement on Agriculture mandated the conversion of quantitative restrictions into tariffs, albeit with tariff rate quotas. The Agreement on Textiles and Clothing is a ten-year transition process which was divided into four distinct phases to eliminate quotas in those sectors. To date approximately 80 percent of quotas remain, although they must be eliminated by end December 2004. These include a total of 239 quotas maintained by Canada, 167 quotas maintained by the European Union and 701 quotas maintained by the United States. Estimates of the gains from moving to a tariff-only environment in textiles and clothing range from $6.5-$324 billion per annum. Furthermore, the provisions of Agreement on Trade Related Investment Measures prohibit the use of local content schemes.
The trade decorative element of standards does not arise from the standards themselves, since it can be shown that they can benefit producers and consumers. What is of concern is their discriminatory application to imported products. Discriminatory regulations could be designed to provide a strategic advantage for domestic firms. Or, in some cases, their application could in a non-transparent manner that increases the costs of compliance for foreign firms. In both cases the overall result is a prejudice against imported products.
The WTO defines trade facilitation as the "simplification and harmonisation of international trade procedures with trade procedures being the activities, the practices and the formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade. This definition is narrower than that used by other agencies such as APEC. Nevertheless, there is little doubt that it still provides the opportunity to increase the benefits to developing economies from the multilateral trading system. Estimates of the gains from trade facilitation initiatives vary depending upon the model and the approach used to quantify the costs of inefficient practices. In some cases, estimates are based on the costs of the value of savings. The overall gains are modelled by applying a cost saving value to the costs of transport (Dee, Geisler and Watts, 1997). In these cases, the relative magnitude of gains is estimated to be as high as a third of the gains from total tariff liberalisation.
Doha Development Agenda and NTMs
Given the premature nature of discussions on NTMs and the need to try to look forward, the rest of this section lays down some basic, hopefully common sense, principles with which to focus the discussions. The previous sections highlighted the complexity and diversity of NTMs and the absence of any workable definition. Therefore, the first principle is to focus on what is known.
While the universe of NTMs cannot be defined concrete evidence exists on specific NTMs and problems that they cause. For example, in the case of quantitative restrictions there is ample evidence of the incidence and impact of quotas in the textile industry and local content schemes in the automotive industries. Evidence was presented in the previous section on the importance of customs procedures and the difficulties in transporting goods.
The negotiations and work on trade facilitation in the WTO focuses on the following areas:
• Excessive documentation
• Lack of automation and inadequate use of information technology;
• Lack of transparency, with unclear and unspecified import and export requirements;
• Inadequate procedures, especially a lack of audit based controls and risk-assess techniques;
• lack of cooperation among customs and other government agencies, which thwarts efforts to deal effectively with increased trade flows.
Practical guidelines to foster transparency, predictability and uniformity that would be consistent with GATT Articles V (freedom of transit), VIII (fees and formalities connected with importations and exportation) and X (publication and administration of trade regulations) would include:
• Harmonisation of laws and regulations;
• Simplification of administrative and commercial formalities, procedures and documents; and
• Standardization of transport means: modal infrastructure (related to sea, road, rail and air) including interfaces between different modes of transport loads and handling equipment commercial practices and services and information technology.
Two of the most frequently cited NTMs that are also part of the Deardorff and Stern (1997) taxonomy are competition related issues and investment restrictions. Both of these have been under consideration since 1996 when Working Groups12 were established at the First WTO Ministerial. Both are also due for further consideration at the Fifth Ministerial in Mexico. It should be pointed, however, the importance of the use of the term trade in this context. Any initiative in these two areas that would be supported under the umbrella of an NTM work programme will have to focus on the specific link between those issues and trade flows.
Similarly, the work programme mandated under the Doha Ministerial Declaration on competition policy, investment, trade facilitation and transparency in government procurement foresees the possibility of negotiations. Each of these four issues has their own strong supporters and some notable developing economies as detractors. Furthermore, the case for their inclusion as part of the set of multilateral trade rules relies to a certain extent on a number of issues beyond those that would be considered as trade restrictions. Therefore, one issue for careful consideration is the appropriate response. Should the response be one of laying down principles that encourage transparency and predictability? Or, is there a case for a higher level of obligation?
The diversity of NTMs requires a flexible response in terms of the level of discipline and correspondingly a flexible response as to the appropriate forum. The policy response to NTMs can be at a number of different levels, of which the multilateral level is one. Lessons that have been learned regarding the costs and difficulties associated with implementing some of the agreements should not be lost. Conversely, a related issue is whether or not addressing NTMs at the regional or bilateral level through RTAs is the optimal response. The value in multilateral cooperation, just as it is in the gains from trade, can be eroded if the set of participants is limited or restricted. This is especially the case with issues where the benefits arise from coordination and cooperation.
