The implications of non-tariff measures for developing countries’ exports

Jaime de Melo, Alessandro Nicita 04 May 2019

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Although economic integration has been an important part of the development agenda for the last five decades, developing countries still struggle to access global markets. One reason is that contemporary economic integration strategies need to confront with policy measures that go well beyond the scope of traditional trade policy. All these policies measures, generally referred as non-tariff measures (NTMs) (Cadot and Mallouche 2012), have a profound impact on the structure of global trade and participation of countries therein. 

During the last few decades the use of NTMs has increased to support a wide range of development strategies, domestic priorities and public policy objectives, including those related to the achievement of the Sustainable Development Goals (SDGs). While legitimate, many forms of NTMs have become formidable obstacles to trade as they are not always transparent and because they raise various costs, especially for suppliers in developing countries. Developing countries' effective participation in world markets ultimately depends on their capacity to efficiently comply with the requirements of such measures.

A recently released publication by UNCTAD discusses policy options for integrating NTMs into developing countries' strategies (de Melo and Nicita 2018a). Part I deals with data, methods and policies. Part II provides case studies covering Asia, Africa and South America.1

Assessing the implications of NTMs for developing countries exports

The first part of the publication deals with the methods of analysis of NTMs, highlighting some policy options for integrating NTMs into economic development strategies. One argument put forward is that the SDGs are the primary focal point for international efforts to promote global welfare for the next decade, with many NTMs relevant for attaining the SDGs. In Chapter 2, Hoekman and Nicita provide a discussion on the purpose and political economy of NTMs in the context of trade agreements. The chapter also discusses what types of trade policies can help realize the SDGs and whether governments are constrained from adopting optimal policies by the WTO rules. The authors conclude that the WTO leaves substantial policy space for governments to put in place domestic policies that promote socio-economic development. 

Part I of the publication then illustrates concepts, data, indices, economic models and econometric methods related to the analysis of NTMs. In our chapter, we discuss NTMs’ data limitations (e.g. comprehensiveness, diversification, lack of precision, dimensionality, and time dimension), and how to use and interpret indexes of NTMs for informative statistics and help detect regulatory patterns across sectors and countries. For example, Figure 1 depicts prevalence scores (the average number of NTMs applied on a product) for technical measures – sanitary and phytosanitary measures (SPS) and technical barriers to trade (TBT) – and non-technical measures. Figure 2 presents an index of regulatory intensity (number of NTMs standardised to control for product differences and trade importance).  The figures show substantial variance across countries, a greater prevalence of technical measures for agriculture, and differences in the measures of regulatory burden depending on the choice of indicator. We conclude that despite progress, a knowledge gap persists because of the difficulties in collecting and interpreting data on NTMs, and because the methods of analysis are not always sufficiently developed.

Figure 1 Prevalence scores for agriculture and manufacturing products

a) Technical measures

b) Non-technical measures

Source: Figure 3 in de Melo and Nicita (2018b).

Figure 2 Regulatory intensity index and prevalence scores for technical measures    

a) Regulatory intensity versus prevalence scores

b) Regulatory intensity: Agriculture versus manufacturing

Source: Figure 4 in de Melo and Nicita (2018b).

Two other chapters in Part I conceptualise the economic effects of NTMs along with examples and mostly at an intuitive level through graphical analysis. In Chapter 4, de Melo and Shepherd present a primer on the economic analysis of different NTMs (tariff-like measures, quantitative restrictions, frictional barriers to trade, and rules of origin) discussing the specific methods for assessing their impact. In Chapter 5, Beghin and Xiong focus on standard-like measures (SPS and TBT), presenting approaches that help minimize the entanglement of effects of NTMs (e.g. cost-raising versus demand shifting). 

Evidence from case studies

The second part of the publication reports on seven case studies. Three case studies investigate the impact of NTMs on Latin American countries. Porto explores the effects of NTMs, both at home and abroad, on labour markets under competing assumptions about labour mobility between protected and unprotected markets for sixteen countries in Latin America. As expected, the removal of NTMs abroad always creates a gain for the average worker while the removal of NTMs at home gives contrasted results depending on the effect on prices and on nominal wages. Ferraz et al. show that, depending on the income level of partners, TBT and SPS measures have an uneven effect on bilateral trade flows. Their estimates show that Least Developed Countries (LDCs) are negatively affected by both types of measures but that the results are mixed for other country groupings. The authors conclude that NTMs tend to exacerbate pre-existing specialization patterns in international trade and may harm prospects for industrialisation in LDCs. 

In another case study, Boza et al. investigate the evolution of the cases of export refusals by the US Food and Drug Administration over the period of 2002-2015. The authors estimate that compared with other countries in Latin America, only a minimal part of the shipments of Chilean fruits and vegetables were refused at the US border. The authors suggest that this lower rate of refusals compared with other countries in the region could be attributable to the harmonisation between the Chilean and US technical requirements and to the cooperation between food authorities in the two countries. Figure 3 shows the evolution of shipments of Chilean fruits and vegetables by type of violation.

Figure 3 Shares of the estimated value of shipments of Chilean fruit and vegetables refused at the US border, by type of violation

Source: Figure 4 in Boza et al. (2018).

Official SPS and TBT measures have risen across the world, particularly in the EU where the precautionary motive has resulted in a sharp rise in the number of SPS measures on agricultural products (Figure 4). Two case studies examine the impact of such measures on Africa exports. Using product relatedness measures, Idsardi and Viviers study the diversification patterns of exports from South Africa, Cameroon, Kenya, and the Democratic Republic of the Congo. Their findings indicate that while the regulatory framework of the EU is important, supply capacity and overall trade costs represent the main constraints for African export and export diversification. In the other case study, Kareem and Rau estimate the impact of SPS measures of the EU on African exports of fruits and vegetables. Their results suggest that the SPS regulations act as a barrier to entry by limiting new entrants to markets, while having limited effects on established trade flows. Overall, the results indicate the need for more effective domestic institutions among African exporters to meet compliance with the SPS measures of the EU.

Figure 4 Number of SPS measures imposed by the EU, 1995-2014

Source: Figure 3 in Kareem and Rau (2018).

Two case studies of Asian countries close the compendium. Nakhoda explores how SPS and TBT measures affect Pakistan’s exports. His results indicate that while both SPS and TBT measures matter for Pakistan’s exports, exporting firms are more likely to comply with the SPS measures of their main trading partners. This leads to specialisation and market segmentation. This is not the case for TBT, which pose more homogeneous constraints. In the final chapter, Niu explores two issues: how the use of NTMs has evolved in China during the last 20 years, and whether NTMs have been substituting for tariffs in limiting access to the Chinese market. Her results show that the restrictiveness of NTMs was generally increasing from 1997 to 2015, and then NTMs have often substituted for tariffs. The author estimates that the substitution relationship is especially significant for products with an above-average tariff cut.

References

Beghin, J and B Xiong (2018), “Trade and welfare effects of technical regulations and standards”, Chapter 5 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

Boza, S, R Rivers, J Rozas and J Munoz (2018), “Implications of non-compliance with technical non-tariff measures: the case of Chilean Food-related exports refusal at the United States Border”, Chapter 7 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

Cadot, O and M Mallouche (eds) (2012), Non-Tariff Measures: A fresh look at Trade Policy’s New Frontier, CEPR and World Bank 

Cadot, O, M Mallouche and S Saez (2012) Streamlining Non-tariff Measures: A toolkit for Policy Makers, The World Bank

Cadot, O, M Ferrantino, J Gourdon, J D Reyes (2018) Reforming Non-tariff Measures : From Evidence to Policy Advice, The World Bank.

de Melo, J de and A Nicita (eds) (2018a), Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

de Melo, J and A Nicita (2018b) “Non-Tariff Measures: Data and Quantitative Tools of Analysis”, Chapter 3 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

de Melo, J and B Shepherd (2018), “The Economics of Non-Tariff Measures: A Primer”, Chapter 4 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

Ferraz, L, M Ribeiro, and M Ritel (2018), “Comparative Advantage and the uneven effects of non-tariff measures”, Chapter 8 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

Hoekman, B and A Nicita (2018), “Non-tariff measures and trade facilitation: WTO disciplines and policy space for development”, Chapter 2 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

Idsardi, E, and W Viviers (2018), “Agricultural Export Patterns from Africa to the European Union: Exploring non-tariff measures Product Relatedness, and Market Size”, Chapter 9 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

Kareem, O and M-L Rau (2018), “Market Access for Africa’s fruits and Vegetables exports in the European Union: Evidence from Sanitary and phyto-sanitary measures”, Chapter 10 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

Nakhoda, A (2018), “Do non-tariff measures matter? Assessing the impact of technical measures to trade on the exports of Pakistan”, Chapter 11 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

Niu, Z (2018), “The Rising Importance of Non-tariff measures in China’s trade policy”, Chapter 12 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

Porto, G (2018), “Labor market effects of Non-Tariff Measures in Latin America”, Chapter 6 in Non-Tariff Measures: Economic Assessment and Policy Options for Development, UNCTAD.

Endnotes

[1] Cadot and Mallouche (2012) also cover case studies for developing countries; Cadot et al. (2012) discuss approaches to streamlining NTMs; Cadot et al. (2018) present complementary approaches.

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Topics:  Development International trade

Tags:  trade policy, non-tariff measures, protectionism

Senior Fellow, FERDI; Emeritus professor, University of Geneva; CEPR Research Fellow

Economist, UNCTAD

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