Non-Tariff Measures in East Asia

Ms Chandni Dawani

Research Assistant, RIS

In current challenging economic situation posed by COVID-19 pandemic and increasing uncertainties of trade policies, it needs to be emphasized more than ever on the importance of strengthening economic integration by removing unnecessary barrier to trade. Tariffs (taxes on imported goods) have declined in number and in magnitude as FTA’s have proliferated around the world. However, while tariffs have been declining, NTMs have increased. NTMs are policy measures other than ordinary tariffs that can have economic effect on international trade affecting the quantities traded or prices or both [1].

 

Considering the phenomenal rise in NTMs and their impact on international trade, they have received much attention particularly by the academicians and trade policymakers. Recently, an online policy dialogue was conducted by the Economic Research Institute for ASEAN and East Asia (ERIA) and UNCTAD on 8^th December to discuss issues related to Non-Tariff Measures across East Asia. This small piece focusses on the key highlights of the discussions around the uses and implications of NTMs. It further shares the RIS perspective on NTMs for better understanding of NTM implications on India’s export to two important regions, LAC and ASEAN.

 

NTMs are introduced for variety of reasons. They often have non-trade objectives such as protecting public health or environment or ensuring food quality. Unlike tariffs, NTMs can play a role of checks and balances to ensure the quality of goods. However, they can also have restrictive and distorting effects on international trade. According to UNCTAD, NTMs are three times more restrictive than existing tariffs. It is important to note here that NTMs disproportionately affect smaller enterprises and poorer countries because of their implications on market access and the higher compliance and the procedural costs involved.

 

It is believed that the substantive part of future regional trade negotiations would include commitments pertaining to NTMs like anti-dumping measures (ADP), sanitary and Phyto-sanitary (SPS) measures, technical barriers to trade (TBT), safeguard measures (SG), countervailing duties (CV), import licensing, and so on. Since most of these NTMs are country-specific and qualitative, the exact impact of these barriers on trade at a global scale is unknown [2]. Access to information is a significant challenge and a reason why there is little understanding about NTMs. NTMs are complex in nature, their effects are often indirect and case specific. Gathering of relevant data is often difficult and costly. For this reason, the initiative was taken by ERIA and UNCTAD to create a standardized high-quality NTM dataset for ASEAN+6 countries [Australia, China, India, Japan, New Zealand, Republic of Korea] for the better implementation of NTMs and better trade and investment policy regulations across the region.

 

The NTMs include both technical regulations that set characteristics on the product itself or on the production processes, such as SPS or TBT, but also non-technical measures such as licenses and quotas, or price affecting measures, as well as financial or exchange rate regulations. Hence, measures are organised in various chapters according to their type and these chapters are labelled with letters A to P. The chapters from A to O reflect the requirements of the importing country on its imports. Only chapter P comprises export measures, which refer to requirements imposed solely by the exporting country on its own exports. [3]

 

The analysis of the impact of NTMs on trade conducted recently by ERIA-UNCTAD presents interesting insights for the ASEAN+6 countries. It is important to highlight that restrictiveness and stringency of the NTM cannot be known/judged by just simply looking at the number of measures (regulatory requirements) each country imposes. For instance, country A may have 2 measures on products X and Y, while country B may have only one measure that affects jointly the same products X and Y. Hence, the result is that businesses will have to face that NTM when trading products X or Y. Also, it would not be right to say that country A is more protectionist than B by looking merely at the large number (count) of measures.

 

Therefore, the economic impact on trade is better assessed using the three proposed statistical indicators namely Frequency Index, Coverage Ratio, and Prevalence Score to study the incidence and prevalence of NTMs on products traded. Frequency index shows the number of traded products affected by at least one NTM. For example, if the country imports 100 products and 95 products are at least subject to one NTM then the frequency index would be 95 per cent or 0.95. Since this index does not take into account trade value, coverage ratio overcomes this weakness by measuring the trade value affected by at least one NTM. Using the above same example, if these 95 products accounts for 80 per cent of the trade value, then coverage ratio would be 0.80. The average number of NTMs applied on one product is reflected in Prevalence Score.

 

The incidence and prevalence of regulatory measures (both import and export measures) on the traded products in case of ASEAN+6 countries indicate that NTMs are quite prevalent. The recent study [4] highlighted that the incidence on imported products is above 60 per cent for all the 16 countries and it is close to 100 per cent for some countries meaning that almost every traded product in this region is subject to NTMs. The coverage ratio is even higher (around 80 per cent) suggesting that NTMs are more likely to be imposed on trade intensive products. It is also observed that export measures are more prevalent in China, Japan and Republic of Korea where in 80 per cent of their exports have to comply with local regulations.

 

However, it is worth mentioning that about 70 per cent of technical measures in ASEAN+6 countries serve legitimate purposes to protect consumers health, ensure safe consumption, environment protection, therefore elimination of NTM is not always an option. This result could also imply that a particular country that aims to liberalize its regulatory framework does not necessarily need to cut down the number of regulations because the valuable regulations necessary to protect the population and/or the environment may be lost.

 

Considering the incidence and actual impact of NTM on the international trade is an important part of the NTM analysis. RIS (2019) assessed the sectoral level impact of NTMs between ASEAN and India which showed that sector-wise average number of NTMs imposed by ASEAN on imports from India at HS 6-digit level were relatively higher for agricultural and food processing products, chemical products, textiles, base metals, machinery and electrical equipment. It was observed that almost more than 60 per cent of India’s export was affected by NTMs imposed by ASEAN on India. [5]

 

Undoubtedly, imposition of NTMs lead to denial of market access and could add significant burden in terms of trade costs and time costs for the exporters and importers if they are not well-designed or well-implemented. RIS (2019) assessed the trade policies of the Latin America and the Caribbean with respect to India and found out that NTBs are widespread across the region. Indian exports suffered enormously which was reflected in the fact that nearly 46,000 products lines at the sub-heading level were subjected to different forms of NTBs by 29 regional countries during 2007-16. [6]

 

End Notes:

[1] UNCTAD. (2010). Non-Tariff Measures: Evidence from Selected Developing Countries and Future Research Agenda. New York and Geneva.

[2] RIS. (2015). World Trade and Development Report Non-Tariff Measures and Standards. Research and Information System for Developing Countries (RIS). New Delhi, pp.39-55.

[3] UNCTAD. (2016). Guidelines to collect data on Official Non-Tariff Measures. Available at https://unctad.org/system/files/official-document/ditctab2014d4_en.pdf

 

[4] UNCTAD & ERIA. (2020). Non-Tariff Measures in Australia, China, India, Japan, New Zealand, and the Republic of Korea: Preliminary findings. Available at https://www.eria.org/uploads/media/co-publications/2020-September-ERIA-UNCTAD-Non-Tariff-Measures-In-Australia-China-India-Japan-New-Zealand-And-The-Republic-Of-Korea-Preliminary-Findings.pdf

 

[5] AIC-RIS. (2019). Non-Tariff Measures (NTMs): Evidence from ASEAN-India Trade. Research and Information System for Developing Countries (RIS). New Delhi

 

[6] RIS. (2019). India’s Economic Engagement with LAC: Strategy for Trade and Investment. Research and Information System for Developing Countries (RIS). New Delhi