Non-Agricultural Market Access

Pakistan Institute of Development Economics

Background

• Reduction in tariffs and non-tariff barriers on industrial goods was at the core of multilateral trade negotiations under the GATT.

• Over the past decades, multilateral trade negotiations have achieved significant reductions in tariffs. The process of liberalization has led to:– A substantial reduction in overall tariff barriers– A commitment to keep tariffs below a given level (binding tariff

lines)– Greater transparency of trade impediments through conversion

of quantitative restriction to tariff barriers.– A legal framework to minimize the use of policies and measures

to unfairly distort trade, and – A set of measures and safeguards to provide flexibility to

developing countries and least developed countries.

Background (cont.)

• Given the current extent of protectionism still prevalent in both developed and developing countries, there is still a great deal of room for further trade liberalization.

• Therefore, the issue continues to remain central to the negotiations agreed in Doha.

• Most countries support this mandate, though many LDCs are concerned about– Loss of government revenue– Potential weakening of their competitiveness– Expected erosion of preferential access margins.

Background (cont.)• From Doha to the “July Package”• Modalities

– Formula approach based on bound tariffs• Binding

– Unbound tariffs to be bound at twice the average rate in each country• Sectoral Elimination

– Complete elimination of tariffs in seven sectors• Electronics and electrical goods; fish and fish products; footwear; leather

goods; motor vehicle parts and components; stones, gems and precious metals.

• Special and Differential Treatment– Longer implementation periods.

• Non-tariff Barriers– Proposals to identify, categorize and select NTBs that fall within the

NAMA negotiating mandate.• Credit for autonomous liberalization

NAMA Negotiations

• The objectives of NAMA negotiations include:– Reduction or elimination of:

• Tariff peaks and high tariffs• Tariff escalation• Non-tariff barriers

• Increased market access on products of export interest for developing countries.

Major Issues of NAMA

• Tariff Peaks

• Tariff Escalation

• Non-Tariff Barriers

• Binding Coverage

Figure: Trade Weighted Bound and Applied Average Industrial Tariffs

3.4 3

12.5

8

12.413.5

0

2

4

6

8

10

12

14

Developed Countries Developing Countries Least DevelopedCountries

Weighted Average Bound RatesWeighted Average Applied Rates

Source: UNCTAD and WTO database.

Figure: Simple Bound and Applied Average Industrial Tariffs

12.3

5.5

29.4

11.6

45.2

12.6

05

101520253035404550

Developed Countries Developing Countries Least Developed Countries

Simple Average Bound Rate Simple Average Applied Rate

Source: UNCTAD and WTO database.

Tariff Peaks

• Tariff peaks are high tariffs usually defined as tariffs that are three times the national weighted average.

• The Problem of tariff peaks occurs largely in the following sectors– Food industry– Textiles and clothing– Footwear, leather and travel goods– Automotive sector and a few other transport and high

technology goods.

Tariff Peaks (cont.)

• Food Industry• The food industry is a major area where tariff peaks are

widespread and high in major developed countries even after the implementation of Uruguay Round concessions.

• Tariff peaks and a range of additional measures extend far beyond the initial processing stages in a large variety of industries.– The EUs food industry accounts for 30% of all tariff peaks

ranging (with some exceptions) from 12% to 100%.– In the US, the food industry accounts for one-sixth of all tariff

peaks and these also fall mainly into 12%-100% range.

Tariff Peaks (cont.)

• Textiles and Clothing

• In the major textile importing countries like the US, EU and Canada, large proportions of clothing and textiles imports are subject to high tariffs.

• Most tariff peaks are in 12-32% range.

• These high tariffs are also combined with quantitative restrictions.

Tariff Peaks (cont.)

• Footwear, Leather, and Travel Goods.• Footwear of various types is still protected

by high tariffs in most developed countries.• Post Uruguay Round MFN rates are close

to 160% in Japan, 37.5-58% in the US and 18% in Canada.

• MFN duties remain relevant, as General System of Preferences (GSP) benefits are limited in this sector.

Tariff Peaks (cont.)

• Automotive, Transport and Electronics• With the exception of Japan and the Republic of South

Korea, level of protection for one or the other branch of the transport industry is rather high.

• In the developed countries, MFN tariff protection is more selectively applied in the automotive and transport sector.

• In addition, various developed countries apply high tariffs on TV receivers, TV picture tubes and some other high technology products.

• It is important for developing countries to ensure that a tariff reduction approach addresses not only average tariff rates but also tariff peaks on key sectors of export interest to them.

Figure: Distribution of Tariff Peaks in Applied Tariff Rates

7%

28%

65%

Developed Developing Least Developed

Source: UNCTAD and WTO database.

Tariff Escalation

• Tariff escalation occurs when tariff levels increase with the degree of processing

• Tariff escalation is clearly observed in all groups of countries as tariffs are higher for intermediate and final products

• Among developing countries there is an escalation between raw materials/low technology products and intermediate technology goods, tariff rates diminish between intermediate goods and final products.

• Tariff escalation in developed countries may prevent the development of value-added industries in developing countries where they might more suitably be located.

Figure: Tariff Escalation of Weighted Applied Tariff on Industrial Products

0.5

3.3 3.6 3.2

9.48

1.2

17.2

12.3

02

4

6

8

1012

14

16

18

Developed Countries Developing Countries Least Developed Countries

Low Intermediate High

Source: UNCTAD database.

Non-Tariff Barriers

• Non-tariff barriers are the set of trade distorting measures and policies other than tariffs. These include:– Quantitative restrictions– Administrative procedures and unpublished government

regulations and policies– Market structure and– Political, social, and cultural institutions

• There are committees in WTO on technical barriers to trade, sanitary and phyto-sanitary measures and trade facilitation, whose objective is to ensure that the various non-tariff barriers are reduced.

Non-Tariff Barriers (cont.)

• The Doha Ministerial Conference rightly calls for removal of all the non-tariff barriers on industrial products as they are least transparent and have major distortionary impact.

• Important non-tariff barriers on the export interest to developing countries are:– Use of licensing procedures particularly automatic licensing

procedures– Technical regulations applicable to such products as electric

machinery, chemicals, and pharmaceutical products– Contingency protection measures such as safeguards and anti-

dumping countervailing measures, and – Quantitative restrictions on imports particularly those which

apply to Textiles and Clothing sector.

Binding Coverage• Bound tariff lines are lines on which there is a commitment not to

increase tariffs above a specified level.• Tariff bindings make trade more predictable• The binding coverage (% of tariff lines that are bound) among

developed countries is almost complete• However it is much lower in developing countries, and for some

LDCS it is as low as 10%.• Proposals within multilateral trade negotiations have called for

increased binding coverage, especially among developing and least developed members.

• LDCs are concerned that increasing binding coverage can lead to less flexibility and higher level of obligations in future rounds of tariff reductions.

Guidelines for NAMA Negotiations

• Tariff reduction modalities in NAMA negotiations should at least have the following features:– Effectiveness– Equity– Flexibility– Simplicity– Transparency