Tackling Non Tariff measures

The WTO in its annual World Trade Report for 2012, in addition to analysing world trade, has dealt in detail on Non Tariff Measures (NTMs), which has gained an important place in international trade today.

In a world of trade liberalisation and free trade agreements which deal mainly with tariff reductions, which are clearly spelt out in such agreements, NTMs cannot be clearly identified or spelt out, but has the ability to reduce the effectiveness of tariff reductions obtained through various agreements.

NTMs are measures which are not related to tariff reductions but other measures which can reduce the impact of tariff reductions in various ways in the domestic market. NTMs are classified according to whether they are applied to exports at the border of a country, e.g. export taxes, quotas, bans, imports (import quotas, import bans) or behind the border which can apply to local and foreign goods by way of domestic taxes, other charges and subsidies.

The report notes that the range of NTMs is vast, complex, driven by multiple policy motives and is ever changing. Public policy objectives underlying NTMs have also evolved through the years as countries became interlinked and interdependent through globalisation.

NTMs have become necessary in a globalised world not only to protect domestic industries which was a predominant concern in particular in the early stages of tariff liberalisation. Today, many other reasons have evolved for the increase in NTMS. The report lists increased social awareness, growing concerns regarding health, safety and environmental quality as some of the reasons.

Regulatory measures such as Technical Barriers to Trade (TBT) and Sanitary and Phyto-Sanitary (SPS) measures in goods and domestic regulations in services are new challenges which have come up in the world. Some of these may be necessary for public policy such as ensuring health, safety and well being of consumers, and may not have direct impact on trade, but can be applied in a manner to unnecessarily frustrate trade as we have experienced in some of our agreements.

Trade in services which has gained prominence in recent years is also a part of this new development, which is different from the traditional trade in goods and new policies have to be evolved to handle such trade. Noting that trade in services play an important role in international production networks, the WTO notes that measures to restrict trade and competition in the services market could affect more than the sector directly concerned, particularly in the case of infrastructural services, spill-over effects on other services and goods could be significant.

The WTO also notes that unlike in the past when NTMS were introduced to protect domestic producers from foreign competition, present NTMs are more to do with public policy objectives which is referred to as moving from protectionism to precaution. As concerns over health, food safety, environmental quality increase, NTMs are also expected to increase.

Unlike in the case of tariffs which can be easily observed and quantified, the problem with NTMs is that they cannot be easily measured due to the nature of such measures. But the WTO observes that NTMs are here to stay, particularly as international agreements grow resulting in tariff reductions. In effect, the NTMs can result in giving with one hand and taking away with the other hand as they result in taking away the benefits which can accrue from tariff reductions. Non-tariff measures are diverse and cannot easily be identified or quantified and vary across countries and sectors, but they are considered to distort trade even more than tariffs.

As public policy agendas expand, NTMs will continue to expand. As such, NTMs are not expected to follow a path of diminishing relevance which is the case with regard to tariffs.

In the words of the WTO Director General: “Regulatory interventions addressing market failures and international spillovers, with inevitable consequences for trade flows and investments are here to stay.”As globalisation intensifies interdependency among nations, the role of public policy will also increase which will result in more and more NTMs which could be designed or administered in ways that intentionally restrict trade.

NTMs related to TBT and SPS measures have the worst impact on developing countries as they can be structured so as to make it difficult for developing country importers to meet them. Harmonising standards and coming into agreements for mutual recognition of standards may reduce the adverse effects of such measures to some extent.

Since NTMs are here to stay and not easily identifiable, sharing of experiences will help our exporters to be aware of such measures in different countries. Chambers, product associations, trade officers in Sri Lanka missions abroad can play an important role in identifying some such measures.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)