Mar 17, 1984
CONSUMERS BEAR MAJOR COST OF PROTECTION.
GENEVA, MARCH 16 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Consumers in the protected markets often bear "major costs" owing to trade restrictions, and these "outweigh any potential benefits that may be incurred on the producer's side" says the UN Conference on Trade and Development.-In a report on "protectionism and structural adjustment" the UNCTAD secretariat, analysing various studies, says that major losses are also borne by the exporters because of the imposition of trade restrictions.- Also, a major aspect of the effects of the trade barriers in the Industrial country markets is their influence on the processing activity in the developing countries and other raw material exporters.- The fact that tariffs and other forms of trade barriers have been found to increase or "escalate" with fabrication, constitute a bias against the importation of semi-finished or manufactured goods.- This bias, UNCTAD adds, may be even more serious than indicated in the studies.- UNCTAD notes that traditional analysis of tariff escalation fail to distinguish between two different phenomenon: tariff escalation, or the tendency of ad valorem (in proportion to value of goods) import duties to increase with degree of fabrication, and the influence of the tariffs on the structure of imports.- Taking as an example the case of hides and skins, leather, and leather manufactures, even without escalation of tariff rates, the same nominal tariff applied to each processing stage, reduces import demand for the processed products to a far greater extent than for primary products.- This is because of their different import demand elasticities: -0.62 for hides and skins, -1.28 for leather, and -2.11 for leather manufactures.- If the value of imports of each of these is assumed to be 20 million dollars, a 50 percent cut in a nominal tariff of ten percent, would increase the import of hides and skins by 558.000 dollars, of leather by 1.152 million, and of leather manufactures by 1.899 millions.- In assessing the influence of tariffs or other forms of trade barriers on exports of developing countries, meaningful comments on the influence of barriers on trade structures would only be possible if consideration is given to changes in underlying demand conditions, UNCTAD argues.- Casual observations as to whether the tariff rates rise or fall or remain constant, in the movement from primary to processed products tell nothing on this basic issue, it adds.- Analysing the nominal tariffs (Tokyo-Round most-favoured-nation or general system of preferences rates, as applicable) and other obstacles for products at different stages of processing, UNCTAD says there is "clear evidence of escalation, as in all cases the nominal tariff for the final stages exceeds that of the primary nominal tariff for the final stages exceeds that of the primary good".- Escalation indicators, it adds, also show some tendency to increase as a result of the Tokyo Round changes.- Also, with one exception (fish and fish products), the frequency of volume-restraining measures applied by the OECD countries is lower, often considerably lower, for primary imports than for semi-processed or finished goods.- The overwhelming evidence of numerous studies about the import demands elasticities of developed countries, also show that the escalation in fact increases with fabrication.- For crude materials, semi-finished goods, and manufactures imported into the major industrial markets, the demand elasticities rise by a factor of more than ten, thus strongly reinforcing the bias already present due to escalation.- "Consequently", says UNCTAD, "a significant de-escalation of tariffs or other forms of trade barriers is required in order that there not be a bias against trade in processed goods".- The nature of the tariffs applied by the Industrial countries (specific duties per unit of imported product or ad valorem) also have a bias against Third World exports.- This is because, for various reasons, the processed products of developing countries tend to have lower export unit values than those of Industrial countries.- A specific tariff will thus have a higher ad valorem equivalent on developing country products.- On a common basket of goods, according to one study, the duty was roughly twice as high on imports from developing countries.- And such specific duties were employed with a frequency sufficient to influence both the level and structure of the third World trade.- "The implications of these are of considerable importance for developing countries", says UNCTAD.- "In analyses of issues relating to tariff escalation, the key consideration should be the influence of trade barriers on the structure of developing country exporters. However, the traditionally adopted is merely to observe the behaviour of nominal or effective tariffs over given processing chains".-