Mar 9, 1985
NEED FOR FURTHER RESEARCH ON NTBS BEFORE NEGOTIATIONS.
GENEVA, MARCH (IFDA/CHAKRAVARTHI RAGHAVAN)— The need for further research on non-tariff barriers (NTB) and their impact on trade, before the launch of any multilateral negotiations, is brought out in a report published by the UN conference on trade and development.The report (UNCTAD/ST/MD/28) was prepared for a joint World Bank/UNCTAD expert meeting last year on NTBs.- Reports and statements from the GATT, UNCTAD and other organisations have been underlining the rise of NTBs as a trade barrier, specially since the conclusion of the Tokyo Round multilateral trade negotiations and their tariff cuts, which has generally reduced to low levels tariffs in industrial markets for most non-agricultural goods traded amongst them. Tariff levels in many industrial country markets against imports from the third world are however still high, and the tariff escalation against imports from third world in respect of semi-processed and processed commodities are very high. Tariffs in Third World countries too are high, even much higher. Partly, this is for protection, but tariffs are also used to raise revenues in countries where incomes are low and there is not much scope for large revenues through direct taxation. One of the arguments used by some of the industrial countries now to promote a new round of trade negotiations in GATT is the need to "liberalise" world trade against protectionism, with special focus on NTBs and "grey area" measures. A multilateral round, covering agricultural and manufactured products, it is suggested, would enable countries to trade off gains in one against losses in another, at least to justify concessions at home. The U.S., in addition, has been trying to use these moves to force Third World countries to open up their economies to imports of "services" from the U.S., and also secure a freer hand for its transnational corporations to operate in the Third World. The U.S. seeks liberalisation of "trade in services" to cover such traditional commercial activities like banking, insurance, advertising, accountancy, shipping, and also newer ones like data processing and informatics. Through relaxation of investment regulations, it wants to reduce or do away with requirements about use of domestic resources, export performance requirements, technology packaging, and profit remittances and other restrictions on U.S. TNCs. Third world countries generally have been opposed to bring in new issues like services and investments into GATT, and have been insisting that GATT should first tackle the existing and accumulated problems of the trading system in respect of trade in goods. The study prepared for the World Bank/UNCTAD consultations, highlights the complexities of even multilateral trade negotiations on goods, in relation to reduction of NTBs. The study says that any future international trade negotiations to reduce NTBs would have only limited success if they were conducted as during the Tokyo-Round on an NTB-specific basis. The study however highlights problems for such multi-NTB negotiations too. Since there is "too much asymmetry" among countries in terms of NTBs used, it would be difficult for participants in negotiations to be able to "give and take", it says. Hence it would be preferable if negotiators could bargain on several NTBs simultaneously - one country, for example, exchanging relaxation of its own voluntary export restraints (VERs) for relaxation of variable levies by another. Just as tariff negotiations in earlier GATT rounds were facilitated on a multi-country and multi-industry basis, future negotiations would work best on a multi-NTB basis, it argues. In any negotiations, it would obviously be possible to negotiate removal of only known NTBs. But negotiators would also need assurances against unknown NTBs remaining in place in their trading partners. To provide such an assurance, general methods such as trade flow regression models would be needed. Negotiators would also need to know the actual impact of NTBs on trade. Current approaches to measure the effect of NTBs range from the broad but qualitative frequency-type measures to narrowly focussed econometric studies of particular NTBs and industries. Frequency-type measures, while useful to identify NTBs, have limited use. They provide no guide as to their economic effects, and efforts to quantify them by calculating the trade coverage could be "biased and often misleading". For example, in the case of procurement regulations and subsidies, the formal known percentages of preference or subsidy may overstate the size of their price effects on trade. Efforts to observe the presence and size of NTBs, through observed price differentials between domestic and world or foreign markets, are likely to miss or underestimate many NTBs. Various types of price-impact measures of NTBs have often been used to quantify NTBs across industries or in NTB-specific studies. But these have been found to have a number of flaws, especially in quantifying NTBs across industries. This is because actual market prices are the result of interactions of supply and demand, and thus include extraneous information than just the NTB itself. Also, the domestic prices of goods do not fully reflect the effect of an NTB on import prices alone. There are also a number of other reasons why price effects a number of other reasons why prices effects fail to show up in respect of specific NTBs. "Great caution should be followed in using price-impact measures to indicate the general levels of NTBs", the study adds. But such measures could be used for NTB-specific studies, provided the problems are handled with additional information. On the other hand, quantity-impact measures based on cross-commodity and/or cross-country regression analysis of trade flows, do not give rise to these difficulties, according to the study. However regression models currently available for this are "still very imprecise", and it would be "too dangerous" to put too much weight on any single residual from such a regression as implying an NTB. The study has suggested several alternative methods to elucidate the various additional characteristics of NTBs. These include: * Direct estimation of the price responsiveness of import demand in the presence of NTBs, * The possible explanation of variations in available elasticity estimates in terms of country and industry characteristics, * Estimates of effects of NTBs over time, * Analysis of effects of binding of NTBs (to ensure they cannot be increased without agreement of others), * Assessment of the risk characteristics of NTBs, or the costs that enterprises have to bear because of uncertainty over contingent or administered protection, * The costs of rent-seeking due to import licensing, when the license-holder does not import and sell the product but sells the license at a premium. The study suggests that there is no single best method of quantifying the NTBs, and different methods, or more than one method, may have to be used for different purposes. For any future negotiating effort, more and better NTB-specific studies would have to be undertaken of any NTB that might be the subject of such negotiations. For this, apart from other specifics, time-series regression models of the trade, using available information on the timing of the NTB and other NTB-specific information, would be needed. Also, it would be necessary to develop trade-flow regression models. But a major constraint for such studies is the lack of data. There is a need to improve the data base on trade explanatory variables, as also more research on the determinants of trade. There is also need to incorporate alternative theories of trade patterns into trade-flow regression models. It would also be necessary to combine the NTB-specific and trade-flow methods of research, the study says. Otherwise, it points out, negotiators would be left with two or more separate sets of estimates of NTBs that may differ in essential respects, and would find it difficult to know how to proceed. The study adds that at this point, while some tentative suggestions could be put forward for further work, it is not possible to say with any certainty how this should be done.