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Nontariff Barriers of Developed Countries, 1966–86

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 1989
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The steady growth of NTBs may have offset some of the gains from removal of tariffs through multilateral negotiations. A quantitative analysis.

A major accomplishment of the first seven rounds of multilateral trade negotiations (MTNs), beginning with the first Geneva Round in 1947 and continuing through the Tokyo Round of 1979, has been the reduction in the use of developed countries’ tariffs as trade barriers. A further reduction of tariffs will undoubtedly occur in the current Uruguay Round negotiations, scheduled for completion in 1990.

Data on NTBs

Various international and national agencies launched initiatives in the early 1980s to establish comprehensive NTB inventories for developed and developing countries. The most extensive project produced the Data Base on Trade Measures for UNCTAD. This covers most developed market economies and about 80 developing countries. The Data Base identifies each NTB, briefly describes its nature, identifies the country imposing the restriction, indicates the official source of information on the measure, and countries affected by it.

Several technical points should be noted about the Data Base. First, it does not provide any indication of change in the intensity of application of a measure. Second, entries in the Data Base are taken from national sources, according to the tariff classification used at the time the NTB went into effect; any subsequent change in classification is not captured. There is little information on nontariff “distortions”, such as export subsidies and or export rebate schemes, in the Data Base.

Information in the Data Base is linked to earlier data collected by UNCTAD, GATT the US Department of Commerce, and the International Chamber of Commerce. Our study used summary statistics on nontariff barrier inventories prepared from all these sources by Ingo Walter.

While tariffs have been steadily reduced, there is a growing concern that protection via nontariff barriers (NTBs) has been assuming increased importance. Aside from their growing incidence, the changing nature of NTBs has provoked concerns; increasingly, nondiscriminatory trading policies are being replaced by bilateral or other discriminatory arrangements. Many empirical studies have documented the fact that nontariff barriers involve major trade, employment, and welfare costs for both developed and developing countries.

A major problem encountered by previous research and policy studies on the importance of NTBs and changes in their use was the lack of sufficient information. To some degree, these data problems have been resolved by recent initiatives of international organizations. This article uses these new data sources (see box) to address, among other things, two basic questions concerning the spread of nontariff protection over 1966–86:

  • has there been a major change in the share of trade subject to NTBs?

  • have there been major differences in the application over time of nontariff measures in different industries or on different products?

Over the 1970s and 1980s, pressures for protection were heightened in developed countries by a rapid flow of labor-intensive imports from developing countries, as well as by a series of oil price shocks (beginning in 1973) that caused extensive structural adjustment problems. Exchange rate changes in the 1970s and 1980s also heightened pressures for NTB protection because they often greatly changed the competitive position of foreign and domestic producers. New forms of protection emerged. While “negotiated” trade barriers were used in the Long-Term Textile Agreement (LTA) and its successor, the Multifiber Arrangement of 1974, restrictions such as “voluntary” export restraints (VERs) and other NTBs were extended to sectors such as consumer electronics, footwear, automobiles, metals, and some chemical products.

As the European Community expanded its membership, from six members in the 1960s to 12 in 1986, its Common Agricultural Policy was expanded in scope and national coverage. New forms of protection, such as import levies on major agricultural products (e.g., sugar and meat) were adopted in the United States and Japan. Many industrial countries also greatly expanded their use of antidumping and countervailing duties (to counter subsidies in exporting countries) against both agricultural and manufactured imports.

Increase in NTBs

For an initial assessment of trends in the use of nontariff barriers, NTB frequency indices were derived for the major developed countries for 1966 and 1986. These indices show the percentage of four-digit SITC products (i.e., detailed categories of products as identified under the Standard International Trade Classification scheme of the United Nations) affected by nontariff barriers.

With the exception of fuel imports, there were major increases in the frequency of use of NTBs over this period. For all developed countries, approximately 17 percent of all four-digit SITC products were affected by NTBs in 1966; this ratio more than doubled by 1986. Food products recorded the highest overall increase in use of NTBs over 1966–86.

The increase in the use of NTBs for agricultural raw materials was among the largest over 1966–86. But this increase was largely concentrated in one or two areas, primarily textile fibers and crude animal and vegetable materials. The extension of the MFA and other quotas was an important factor in the increase of NTBs on textiles, while quotas and import licensing requirements were introduced against crude animal and vegetable products in Japan, the United States, and the EC.

Overall, the percentage of manufactured products affected by nontariff barriers rose from 5 percent in 1966 to 51 percent in 1986. Textiles and clothing, ferrous metals, machinery, and transport equipment played an important role in this increase.

Effects

Our research examined the major product groups affected by the NTBs to evaluate the 1966–86 spread of these barriers in value terms. (This approach—consistent with recent research—assumes that all closely related products from all exporters of products subject to NTBs were, in fact, affected. A different approach, mentioned below, measures actual coverage. The ratio of imports “affected” is therefore normally higher than imports “covered” by NTBs.) Overall, the share of developed country imports affected by NTBs nearly doubled over the 20-year period from about 25 percent in 1966 to 48 percent in 1986. The increases were generally highest for the EC countries (see Table 1). The ratio for fuels affected by NTBs remained stable for the period, although there was considerable variation in individual country experiences. As mentioned earlier, among major groups of manufactured products, there was a marked increase in the importance of NTBs against textiles and clothing, ferrous metals, and machinery.

Table 1Trade indices for major product groups “affected” by developed countries’ NTBs(1966 index expressed as percent of imports affected by NTBs, 1966–86 change in percentage points)
All foodsAgricultural raw materialsFuelsOres & metalsManufacturesAll commodities
19661966–86 change19661966–86 change19661966–86 change19661966–86 change19661966–86 change19661966–86 change
All countries5613643727012819392523
European Community612393241126.204010462133
Finlandna(70)305567284−18201536
Japan732605933−52294823112
Norway43523130001538−1631−8
Switzerland53374510990915241931
United States3242143192−920163932369
Source: Adapted from Ingo Walter. See box on “Data on NTBs”.na—data not available

In order to evaluate the overall implications of the 1966 and 1986 statistics on trade affected by NTBs, we calculated aggregate NTB ratios for individual countries as well as the value of trade affected by NTBs. To ensure comparability, a common group of nontariff restrictions was examined. As Table 2 shows, there were major differences in the share of imports affected by NTBs in individual countries. The value of imports actually covered (as opposed to those that were theoretically affected) by NTBs in 1986 was also calculated and analyzed (see Table 2, first four columns).

Table 2Changes In developed country Imports facing nontariff barriers: 1966–86
198619661986
Imports covered byImports affected by Type I and II NTBs1
Type I NTBs1Type I + II NTBs11966 NTBs1986 NTBs
Imports coveredValueImports coveredValueImports affectedValueImports affectedValue
Importer(In percent)(In millions of US dollars)(In percent)(In millions of US dollars)(In percent)(In millions of US dollars)(In percent)(In millions of US dollars)
All countries15.9118,74027.2204,71625.329,510248.0355,532
European Community18.660,79729.897,17320.814,69554.1169,153
Finland32.44,46943.26,03715.222751.37,076
Japan14.419,04336.948,79831.43,64843.557,525
Norway12.51,90812.51,90931.077823.23,543
Switzerland17.45,26740.712,32019.278350.115,166
United States11.927,25616.838,47936.49,37945.0103,069
Source: See Table 1.na—data not available

Implications of findings

The longer-term evidence developed in our study appears to have important implications for the functioning of the GATT and for the current multilateral trade negotiations. In addition to documenting the spread of NTBs over 1966–88, our research indicates that they have been applied unevenly across countries and industrial sectors. Finally, our study found an increasing use of discriminatory NTBs such as VERs (particularly in the United States), leading to a higher share of trade being “affected” by NTBs than is suggested by commonly used ratios of trade “covered” by NTBs. These findings further emphasize the need for establishment of effective institutional procedures for dealing with nontariff barriers in the Uruguay Round.

Further details of the study reported in this article are available from the authors.

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