South losing $23 billion a year due to G20 NTMs

Non-tariff measures, which are becoming increasingly prevalent, are raising trade costs for developing countries and restricting their access to export markets, according to UNCTAD.

by Kanaga Raja

NAIROBI: The failure to comply with non-tariff measures (NTMs) imposed by the G20 major world economies has resulted in developing countries losing an estimated $23 billion per year, about 10% of their exports to the G20, UNCTAD has said.

As tariffs have fallen to historic lows, UNCTAD said, NTMs have replaced them as a key brake on faster global trade growth. And the expansion of the middle classes in many countries is expected to increase demand for safer, cleaner products. This in turn may require governments to introduce more non-tariff measures.

At a media briefing on 20 July, Amina Mohamed, president of the UNCTAD 14 conference, said that during the past decade, tariff barriers in international trade have fallen significantly. The tariffs on trade in both agricultural goods and industrial products have declined on average from about 19.9% to 6.7%, she said. This decline has been due mostly to multilateral trade negotiations under the auspices of different organizations including UNCTAD, the WTO, as well as bilateral, regional and mega-regional arrangements.

She said that an UNCTAD 14 event on the issue the previous day raised the relative importance of NTMs as both protectionist and regulatory trade instruments. The common understanding from the discussion was that tariff liberalization alone has generally proven unsuccessful in providing genuine market access, drawing further attention to the role that NTMs play as major determinants in restricting market access.

UNCTAD database

Mohamed underlined that UNCTAD has been actively involved in research and programmatic activities on NTM-related issues since the 1990s, when the UNCTAD secretariat began to document and classify NTMs according to a customized coding system. UNCTAD has now launched a single database on NTMs that is expected to enhance transparency on how countries actually trade. “It will help advance the agenda of eliminating trade barriers,” she said.

She was referring to a database launched by UNCTAD on 19 July that aims to list the NTMs of some 56 countries covering 80% of world trade. According to an UNCTAD press release, this database will enable policymakers to search by country and product to find out quickly the relevant non-tariff requirements.

The press release quoted UNCTAD Deputy Secretary-General Joakim Reiter as saying: “These kinds of measures are becoming increasingly widespread. For example, measures on the cleanliness and pathogen-free status of food – known as sanitary and phytosanitary measures – cover more than 60% of agricultural trade.”

“Such regulatory measures disproportionately increase trade costs for small and medium-sized enterprises and developing countries, particularly the least developed. We estimate, for example, that the impact of the European Union’s sanitary and phytosanitary measures comes to a loss of about $3 billion for low-income country exports. That’s equal to 14% of their agricultural trade with the European Union.”

“We certainly don’t expect G20 countries to drop all their non-tariff measures, which serve important policy objectives such as health and safety, but we do need to manage this issue better,” said Reiter. “Non-tariff measures are the new frontier in our quest for greater global trade.”

He added that better information would reduce the costs of NTMs. “It’s all about transparency and harmonizing regulations.”

According to the press release, policymakers can use the database to harmonize their regulations and accelerate the growth of regional trade. For example, the African Union has already requested UNCTAD to support them with the Continental Free Trade Area by setting up a similar database.

“The use of non-tariff measures in the world will increase but this should be done in a smart way, for example, by using international standards to a maximum extent,” said Ralf Peters, Chief ad interim of UNCTAD’s Trade Analysis Branch.

“Use non-tariff measures to protect your citizens, but don’t let them compromise trade because that will block economic growth and job creation,” he added.

Challenge for developing countries

Speaking to the South-North Development Monitor (SUNS) on 20 July, Peters said that there are two broad categories of NTMs. One comprises traditional trade policies like quotas, price measures and anti-dumping measures. The other category consists of technical requirements such as product requirements, sanitary and phytosanitary requirements, and TBT (technical barriers to trade) requirements, “which we all want to have because they regulate and they protect consumers, health and the environment.”

Peters said that it is a challenge for developing countries to meet those requirements in all countries, particularly in developed countries that have very high standards. For example, mineral water is required to be free from pesticides and to comply with labelling standards, and meeting the requirements often entails a fixed cost.

“If you are a large producer from a large country that has all the accredited laboratories, it is relatively easy for you to export to the other markets, but when you come from an LDC [least developed country], there is no accredited laboratory to certify that you meet all the requirements and it is immensely costly to comply with the requirements in the other markets.”

Peters said that such requirements present a particular challenge for the LDCs though the requirements are the same for all.

Speaking about the UNCTAD database, Peters said it gives a comprehensive overview of all the NTMs in one particular country.

Citing the US as an example, Peters said that there are around 10,000 measures in the country – “we read hundreds of thousands of pages of legal texts in the US.”

“And you can go by product. For example, [if] you are an exporter of … cut flowers, you can then look for all the regulations that you have to comply with in the US market for cut flowers. We have this now for 56 countries in the world that account for around 80% of world trade.”

“The database uses the same approach worldwide so you can also compare what are the regulations in the US, the EU, Kenya and Cambodia and so on. We can also look into how different the regulations are in these markets,” said Peters. (SUNS8288)                               

Third World Economics, Issue No. 621/622, 16 July – 15 August 2016, pp15-16, 28