Nontariff Measures and International Trade

John Christopher Beghin

• Publisher: WSPC
• Year: 2017
• eBook ISBN: 9789813144422
• Topic: Economía
• Subtopic: Negocios internacionales

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Nontariff Measures and International Trade includes 20 chapters authored by John Beghin and co-authors over the last 20 years on the economics of quality-standard like nontariff measures in the context of international trade. This book provides a coherent and comprehensive treatment of these nontariff measures, from their measurement to their effects on trade and welfare. In Part I, the authors use different perspectives to make the case that, unlike tariffs, quality-standard like nontariff measures are complex to measure and analyze and do not easily lead to general policy prescriptions. Then, Part II contains contributions on measurements of welfare and trade effects of nontariff measures, accounting for potential market imperfections. Part III presents chapters on the potential protectionism of nontariff measures when they are used to favor some economic agents over society. The last part presents cases studies of nontariff measures in different industries, markets, and countries.

--> Editor John Christopher Beghin

John Beghin is the Marlin Cole Professor of International Agricultural Economics in the Economic Department and the Center for Agricultural and Rural Development at Iowa State University (ISU). He is the former director of the Food and Agricultural Policy Research Institute at ISU, which he led from 1999 to 2007. He is a leading scholar on agricultural trade policy analysis, with a long-term interest in non-tariff measures. He has held positions at North Carolina State University, the OECD Development Centre, the Institut National de Recherche Agronomique, the International Labor Office, and the University of Sydney. He has consulted for and received funding from various international and governmental agencies and private clients including the American Farm Bureau Federation, FAO, OECD, US Army Corps of Engineers, USAID, USDA National Institute for Food and Agriculture, USDA Economic Research Service, US General Accountability Office, the US Grains Council, and the World Bank among others. He holds a PhD in agricultural and resource economics from the University of California, Berkeley. His research work has appeared in the American Journal of Agricultural Economics, Canadian Journal of Economics, Ecological Economics, Economic Enquiry, Economics Letters, Environment and Development Economics, European Review of Agricultural Economics, Food Policy, Health Economics, Journal of Comparative Economics, Journal of Development Economics, Land Economics, Oxford Economic papers, Review of Economics and Statistics, World Development, and The World Economy among other journals. He has also edited a number of books and special issues for academic journals.

Nontariff Measures, Standards, Barrier, NTM, NTB, Technical Barrier, TBT, International Trade, Phytosanitary, SPS, Maximum Residue Limits, MRL, Food Trade

• Provides a comprehensive treatment of standard-like nontariff measures from their potential protectionism, to their trade and welfare effects
• Discusses market imperfections and welfare-enhancing effects of these nontariff measures
• Draws policy implications and recommendations to improve market interventions with Nontariff Measuress and reduce their inherent cost

PART I

Complex Economic Analysis

Chapter 1

Nontariff Barriers

Nontariff barriers (NTBs) refer to the wide and heterogeneous range of policy interventions other than border tariffs that affect and distort trade of goods, services and factors of production. Common taxonomies of NTBs include market-specific trade and domestic policies such as import quotas, voluntary export restraints, restrictive state-trading interventions, export subsidies, countervailing duties, technical barriers to trade (TBT), sanitary and phytosanitary (SPS) policies, rules of origin and domestic content requirements schemes. Extended taxonomies also include macro-policies affecting trade. No taxonomy can be complete since NTBs are defined as what they are not (Deardorff and Stern, 1998). This article is complemented by related articles on ANTIDUMPING, BORDER EFFECTS, COUNTERTRADE, GRAVITY EQUATION, TARIFF VERSUS QUOTA, and TRADE COSTS. Deardorff and Stern (1998) suggest the following taxonomy with five categories.

A first broad category covers quantitative NTBs and similar restrictions. It includes import quotas and their administration methods (licensing, auctions, and other); export limitations and bans; voluntary export restraints, a limit on imports but managed by exporters; foreign exchange controls often based on licensing; prohibitions such as embargoes; domestic content and mixing requirements forcing the use of local components in a final product; discriminatory preferential trading agreements and rules of origin; and countertrade such as barter and payments in kind.

A second category covers fees other than tariffs, and associated policies affecting imports. This category includes variable levies triggered once prices reach a threshold or target level; advanced deposit requirements on imports, antidumping and countervailing duties imposed on landing goods allegedly exported ‘below cost’ or with the help of export subsidies provided by foreign governments; and border tax adjustment such as value-added taxes potentially imposed asymmetrically on imported and domestic competing goods.

A third category is extensive. It collects various forms of government policies including a wide set of macroeconomic policies. This category covers direct governmental participation and restrictive practices in trade, such as state-trading and state-sponsored monopoly and monopsony; government procurement polices with domestic preferences; and industrial policy favoring domestic firms with associated subsidies and aids. In addition, the category extends to macroeconomic and foreign exchange policies, competition policies, foreign direct investment policies, national taxation and social security policies, and immigration policies. Where to draw on the NTB definition is context-dependent.

Two better-targeted categories deal with customs procedure and administrative practices, and technical barriers to trade, which are central to NTBs. The former covers custom valuation methods that may depart from the actual import valuation; customs classification procedures other than the international harmonized system of classification to levy further fees; and customs clearance procedures such as inspections and documentation creating trading cost. Technical barriers to trade relate to health, sanitary, animal welfare and environmental regulations; quality standards; safety and industrial standards; packaging and labelling regulations and other media/advertising regulations. With the exception of export subsidies and quotas, NTBs have become more prominent than tariffs. Tariffs on manufacturing goods have been reduced to low levels through eight successive rounds of the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT). As of 2005, the unweighted average tariff is roughly 3 per cent in high-income countries, and 11 per cent in developing countries according to the World Bank, from respective levels at least three times as high in 1980. Exports subsidies have almost disappeared except in a few agri-food markets. Quotas have become less important since they have been converted into two-tier tariff schemes, the so-called tariff-rate quotas. As tariffs have been lowered, demands for protectionism have induced new NTBs, such as TBT interventions. The United Nations Conference on Trade and Development (UNCTAD, 2005) estimates that the use of NTBs based on quantity and price controls and finance measures has decreased dramatically from slightly less than 45 per cent of tariff lines faced by NTBs in 1994 to 15 per cent in 2004, reflecting commitments made during the last round of WTO negotiations, the Uruguay Round. However, the use of NTBs other than quantity and price controls and finance measures increased from 55 per cent of all NTB measures in 1994 to 85 per cent in 2004. The use of TBTs almost doubled, from 32 to 59 per cent of affected tariff lines during the same period. The use of quantity control measures associated with TBTs showed a small increase, from 21 to 24 per cent of affected tariff lines, suggesting that trade impediments within TBTs are rising. Kee, Nicita and Olarreaga (2006) compute a 9 per cent tariff equivalent of NTBs including price and quantity controls, finance measures, and TBTs, on average for all goods. The average tariff equivalent is about 40 per cent for the goods affected by these NTBs.

Increased consumer demand for safety and environment-friendly attributes have also translated into an increase in the number of TBTs. Many NTBs are regulated by the WTO agreements that came out of the Uruguay Round (the TBT Agreement, SPS Measures Agreement, the Agreement on Textiles and Clothing), and articles of the original GATT among others. NTBs in service industries have recently become more important as trade in services has been expanding (Dee and Ferrantino, 2005).

Most NTBs are intrinsically protectionist whenever they do not address market failures such as externalities and information asymmetries between consumers and producers of goods being traded. Safety standards and labeling requirements are examples of the latter case. Some NTBs may restrict trade but improve welfare in the presence of negative externalities or informational asymmetries. Other NTBs can expand trade as they enhance demand and trade of a good through better information about the good or by enhancing the good’s characteristics. Whether an NTB is protectionist is sometimes difficult to identify in the presence of market failure. If an NTB is equal to the measure that a social planner would implement for domestic purposes (that is, all firms are domestic firms or all agents belong to a single economy), that NTB is presumably non-protectionist (Fisher and Serra, 2000).

Measuring NTBs and their effects is a challenge, because of the heterogeneity of policy instruments and lack of systematic data. A unified approach to the measuring of NTBs does not exist. Most measurement methods start from a simple partial equilibrium approach looking at a single commodity, and attempt to develop a producer, consumer or trade tax equivalent to the NTBs, that explains by how much supply, and/or demand, or trade are affected by the policy intervention. Most NTB analyses implicitly rely on a framework that accounts for three economic effects: the regulatory protection effect providing rents to the domestic sector; the ‘supply shift’ effect, that reflects the increased costs of enforcing compliance of the NTBs on foreign and sometime domestic suppliers; and the ‘demand-shift’ effect, that takes into account the fact that a regulation may enhance demand with new information or by reducing an externality.

The measurement of an NTB is hard to disentangle from the measurements of its effects on market equilibrium and trade. Most NTB measures and analyses focus on the increase in the price of imports resulting from the NTB, the resulting import reduction, the change in the price responsiveness of the demand for imports, the variability of the effects of the NTB, and the welfare cost of the NTB (Deardorff and Stern, 1998; Dee and Ferrantino, 2005).

Several NTBs based on a price intervention (for example, export subsidies, countervailing duties), are a tax instrument. More complex NTBs can sometimes be represented by a set of taxes, such as in the case of a domestic content requirement (Vousden, 1990). These NTBs can be analyzed as such taxes. To develop a tax equivalent, a basis of equivalence has to be chosen (Vousden, 1990). The tax equivalent has to lead to either an equivalent protection level (same profit under the tax equivalent or the NTB), or to a price increase equivalence (a price wedge), or to consumption, production or trade equivalent. This choice of basis depends on the intended policy analysis.

However, many NTBs do not easily translate into a tax-equivalent instrument. They require more sophisticated and indirect approaches to be measured and to quantify their effects on import volume, price, and welfare. Roundabout approaches are also used because of lack of data on the direct implications of an NTB on cost of production and consumer decisions (Beghin and Bureau, 2001).

Common Measurement Approaches of NTBs

The price-wedge method measures the impact of an NTB on the domestic price of a good in comparison to a reference price, often the border price of a comparable good. The aim of this method is to derive a tariff/tax equivalent to the NTB as discussed above, and use the tariff/tax equivalent in further analysis that measures implications of the NTB on resource allocation in the given markets affected by the NTB. Deardorff and Stern (1998) provide price-wedge equivalent formulas for an extended coverage of NTBs.

Conceptually, the measure compares the domestic price that would prevail without the NTB to the domestic price prevailing in the presence of the NTB, on the assumption that the price paid to suppliers remains unchanged. However, these prices are practically unobservable. Implementations of the price-wedge measure of an NTB compare the domestic and foreign prices of comparable goods in the presence of the NTB accounting for tariffs, transportation costs, and other known and observed trading costs. Adjustments can be made to recover a price estimate that would prevail in the absence of the NTB, using observed levels of quantities and prices, and own-price elasticities of demand and supply and imported goods.

The price-wedge method has several drawbacks. First, if several NTBs are jointly in place, the price-wedge measures the price effect of these policies without being informative about their respective contributions or even their nature. Second, quality differences are hard to account for precisely although they are a pivotal element of the pricewedge computation. The price-wedge estimate of an NTB is usually sensitive to the assumptions made on the substitution between the imported and domestic goods. This method has also some limitations in large empirical studies for which data are aggregated, resulting in loss of information on quality differences between import and domestic comparable goods. Finally, trading costs may be present but not accounted for and the price-wedge method may falsely attribute these trading costs to a NTB.

Inventory-based frequency measures count the number or frequency of regulations and barriers present in a given market. They are used in both quantitative and qualitative assessments of the incidence of the NTBs. Common measures include the number of regulations and policies, which can be further elaborated to indicators such as the number of pages of national regulations. Frequency of trade detentions at borders is also used, and so are survey-based frequency and number of complaints reported by exporters for perceived discriminatory regulatory practices.

When implemented, quantitative estimates often rely on catalogues of technical barriers (identification and description) using datasets such as UNCTAD’s TRAINS data-set. Measures include simple frequency of occurrence of NTBs, frequency ratios for product categories subject to an NTB, and coverage ratio based on the value of imports of products within a category subject to the NTB, expressed as a share of import value of the corresponding category. Relative measures can also be developed comparing the latter frequency measures in a given country with respect to accepted international norms or best practice, for example, for the SPS or food safety regulations. Alternatively, frequency measures can be compared across commodities or across countries to identify large deviations from average frequencies, flagging potential protectionist issues.

NTBs vary in importance across sectors and products. Even for a given NTB type, its effects may vary across products. A major drawback of the frequency measures is that a correlation between the number of NTBs and their effect on trade and welfare may be low in absolute value. International data-sets on NTBs inventories may also suffer from uneven reporting by countries and heterogeneous coverage of measures across countries and commodities. Survey-based measures focus on effective barriers rather than just an NTBs count. However, they may suffer from various reporting biases as surveys and respondents are often motivated by mercantilism to facilitate exports by the responding exporters.

Frequency measures do not identify the trade restrictiveness of NTBs but can be used in gravity equations to identify the effects of NTBs on trade flows. When trying to quantify NTBs, an obvious technique is to consider the forgone trade that cannot be explained by tariffs and known trading costs. The NTB frequency measures, or in certain cases the level of standards themselves, can help identify the trade effects of these NTBs. Provided there is enough variability across countries or over time in the measure (for example, the level of toxic residues) they can explain the variation in trade flow not explained by other explanatory variables included in the gravity equation (respective incomes of trading countries, distance, tariff, and other variables measuring...

Table of contents

• Cover
• Halftitle
• Series Editors
• Title
• Copyright
• About the Editor
• Acknowledgments
• List of Contributors
• Introduction
• Table of Contents
• Part I. Complex Economic Analysis
• Part II. Welfare and Trade Effects of NTMs
• Part III. Protectionism and Political Economy of NTMs
• Part IV. NTM Case Studies