Non‐Tariff Measures, Specific Trade Concerns and Tariff Reduction

• Date: 01 September 2017
• Author: Gianluca Orefice
• Published date: 01 September 2017
• DOI: http://doi.org/10.1111/twec.12447

Non-Tariff Measures, Specific Trade

Concerns and Tariff Reduction

Gianluca Orefice

CEPII, Paris, France

1. INTRODUCTION

The issue today is with the difficulties involved in trade opening. Domestic trade politics have become

more difficult and trade deals have become more complex because the nature of obstacles to trade has

evolved. We are no longer negotiating just the reduction of tariffs, but also of non-tariff barriers,

which have gained enormous importance. (Pascal Lamy, former DG of the WTO 24 July 2013)

IN the farewell statement to the General Council of the WTO on 24 July 2013, Pascal Lamy high-

lighted the changing nature of barriers to trade: from tariff to non-tariff measures.

1

In this respect,

the World Trade Report 2012 depicted a clear positive trend in the proliferation of non-tariff measures

(NTMs) as revealed by WTO data on notifications showing increasing use of technical barriers to trade

(TBT)/sanitary and phytosanitary (SPS) measures since the mid-1990s (see World Trade Report 2012

section C). In the same period, the worldwide tariff protection reduced thanks to the proliferation of

preferential trade agreements (PTAs): from 70 PTAs in 1990 to 300 PTAs in 2010 (see figure B1 of

the World Trade Report 2011). The raise of NTMs and the contemporaneous reduction in tariff protec-

tion suggest the potential role of NTMs in affecting trade: even though the average tariff level is now

quite low (4.4 per cent in manufacturing in 2010),

2

the level of the overall protection revealed by

cross-border ad valorem equivalent tariff is still very high (more than 100 per cent according to De

Sousa et al., 2012). This confirms the increasing role of non-tariff measures in affecting market access.

Non-tariff measures are imposed de jure to protect consumers for unhealthy or low-quality

products,

3

but de facto they represent an increase in trade costs.

4

When tariff protection is

The author is grateful to Agnes Chevallier, Houssein Guimbard, Lionel Fontagn

e, Sebastien Jean, Sophie Piton,

participants to CEPII seminar and an anonymous referee for useful comments and suggestions. The views

expressed in this paper are those of the author and do not reflect the institution. The usual disclaimers apply.

1

According to the UNCTAD definition, ‘Non-tariff measures (NTMs) are policy measures, other than

ordinary customs tariffs, that can potentially have economic effect on international trade in goods,

changing quantities traded, or prices or both’.

2

TRAINS data.

3

Non-tariff measures are often the first-best instruments to achieve public policy objectives and con-

sumer protection (as correcting market failures from information asymmetries and imperfect competi-

tion). NTMs may also stimulate trade by providing more information about a given good or by

improving the characteristics of the good itself (Maertens et al., 2007; Maertens and Swinnen, 2009).

Crivelli and Gr€

oschl (2016) show that conformity assessment SPS measures constitute a barrier to trade

(extensive margins), while STCs related to product characteristics increase trade flows after that expor-

ters (in the exporting country) meet the new standard (intensive margin).

4

NTMs may increase both variable and/or fixed trade costs. On the one hand, this might act as entry

barrier affecting only the export participation of firms (leaving unchanged the intensive margin of

incumbent firms). On the other hand, NTMs might affect the variable trade cost also for incumbent firms

and reduce accordingly the aggregated trade flows. In a recent paper, Fontagn

e et al. (2015) show that

the presence of SPS measure reduces the value of export by 21 per cent. Similarly, using data on 619

firms in 17 developing countries, Chen et al. (2006) find that testing procedures imposed by potential

destination countries reduce export shares by 19 per cent.

©2016 John Wiley & Sons Ltd 1807

The World Economy (2017)

doi: 10.1111/twec.12447

The World Economy

high, non-tariff measures are ‘latent’ barriers to trade, but when tariff protection lowers, such

measures become effective barriers to trade and the exporter country can raise a concern at the

dedicated SPS and TBT committees of the WTO. Then, a Specific Trade Concern (STC) at the

WTO is activated. We use STC data set to test whether STCs are raised by exporting countries

when the non-tariff measure becomes a barrier to trade, that is when tariff protection becomes

lower (tariff reduction). Indeed, a pre-existing measure (initially ‘innocuous’ because of high

tariff protection) becomes trade-constraining only after a reduction in the applied bilateral tar-

iff. In this case, the exporter country will likely raise a concern at the WTO (activating a STC).

Alternatively, when tariff protection is already low and further tariff reduction is experienced,

the government can impose a new non-tariff measure to compensate for the tariff cut.

5

Also in

this last circumstance, the exporting country is likely to raise a STC. Using STC data, we can-

not directly isolate these two channels; that is, we cannot differentiate between pre-existing or

new NTM (nevertheless, in Section 4 we propose an indirect way to isolate the two channels).

However, the main purpose of this paper is documenting the determinants of STCs on new or

pre-existing NTMs with a particular focus on tariff protection and tariff cuts. Moreover, disen-

tangling the real motivations behind the imposition of a NTM is beyond the ambition of the

paper. We leave aside any interpretation of the welfare effect of NTMs.

6

The idea that STCs are raised when non-tariff measures are effective barriers to trade

(when tariff cut reveals ‘latent’ NTMs or when measures are imposed to compensate tariff

cut) is motivated by the timing of some STCs raised at the SPS and TBT committees of the

WTO.

7

As an example, China in 2003 raised a concern at the WTO (SPS committee) com-

plaining about a non-tariff measure imposed by the European Union on natural honey (HS

code 0409): the EU restricted the imports of natural honey from China as a food safety mea-

sure due to the presence of a toxic antibiotic (chloramphenicol) in Chinese honey.

8

The con-

sumers’ protection aim of this measure is clear, but the timing of such NTM imposition is

important and evoking. This concern was indeed raised the year before the EU enlargement

towards the Eastern European countries in 2004. Interestingly, among the new EU Member

States, Poland and Slovenia had in 2003 a high tariff protection on Chinese honey (applied

tariff on natural honey respectively 89 and 45 per cent)

9

–to be necessarily reduced the year

after the accession to the EU at 17.3 per cent (EU tariff protection on honey).

10

Identifying

the causal relationship between the EU enlargement and the imposition of NTM on Chinese

5

Low tariff protection, by allowing foreign low-efficient producers to enter the market with low-quality

goods, pushes the domestic government to impose NTMs. See Beverelli et al. (2014) on the trade policy

substitution argument.

6

NTMs may not imply economic inefficiencies, and their welfare effect strongly depends on the specific

type of the measure (i.e. standards, border inspection policies, labelling, etc.) and on the type of market

imperfection they correct.

7

Specific Trade Concerns are cases raised by a complaining country against an NTM-imposing country

at the SPS/TBT committees of the WTO. Data on STCs are provided by the WTO. See Section 2 for

further details.

8

See the document G/SPS/R/30 available here: http://spsims.wto.org/web/pages/search/notification/

Search.aspx.

9

TRAINS data on effectively applied tariff (defined as the lowest available tariff between preferential

and MFN). Notice that TRAINS provides the ad valorem equivalents of non-ad valorem tariff. See Sec-

tion 2 for details.

10

Poland is one of the top destinations for Chinese exports of honey. Over the period 1998–2009,

Poland experienced an average annual growth of honey imports from China by 140 per cent (see Wei

et al., 2012; table 3).

©2016 John Wiley & Sons Ltd

1808 G. OREFICE