CHAPTER 1: INTRODUCTION

This report examines tariff and non-tariff policies that restrict trade between countries in agricultural commodities. Many of these policies are now subject to important disciplines under the 1994 G TT agreement that is administered by the !orld Trade "rgani#ation $!T"%. The paper is organi#ed as follows. &irst' tariffs' import (uotas' and tariff rate (uotas are discussed. Then' a series of non-tariff barriers to trade are examined' including )oluntary export restraints' technical barriers to trade' domestic content regulations' import licensing' the operations of import *tate Trading +nterprises $*T+s%' and exchange rate management policies. &inally' the precautionary principle' an en)ironment-related rationale for trade restrictions' and sanitary and phytosanitary barriers to trade are discussed.

1.1 BACKGROUND
Tariffs and Tariff Rate Quotas Tariffs' which are taxes on imports of commodities into a country or region' are among the oldest forms of go)ernment inter)ention in economic acti)ity. They are implemented for two clear economic purposes. &irst' they pro)ide re)enue for the go)ernment. *econd' they impro)e economic returns to firms and suppliers of resources to domestic industry that face competition from foreign imports. Tariffs are widely used to protect domestic producers, incomes from foreign competition. This protection comes at an economic cost to domestic consumers who pay higher prices for importcompeting goods' and to the economy as a whole through the inefficient allocation of resources to the import competing domestic industry. Therefore' since

194-' when a)erage tariffs on manufactured goods exceeded ./ percent in most de)eloped economies' those economies ha)e sought to reduce tariffs on manufactured goods through se)eral rounds of negotiations under the General greement on Tariffs

Trade $G TT%. "nly in the most recent 0ruguay 1ound of negotiations were trade and tariff restrictions in agriculture addressed. 2n the past' and e)en under G TT' tariffs le)ied on some agricultural commodities by some countries ha)e been )ery large. !hen coupled with other barriers to trade they ha)e often constituted formidable barriers to mar3et access from foreign producers. 2n fact' tariffs that are set high enough can bloc3 all trade and act just li3e import bans. tariff-rate (uota $T14% combines the idea of a tariff with that of a (uota. The typical T14 will set a low tariff for imports of a fixed (uantity and a higher tariff for any imports that exceed that initial (uantity. 2n a legal sense and at the !T"' countries are allowed to combine the use of two tariffs in the form of a T14' e)en when they ha)e agreed not to use strict import (uotas. 2n the 0nited *tates' important T14 schedules are set for beef' sugar' peanuts' and many dairy products. 2n each case' the initial tariff rate is (uite low' but the o)er-(uota tariff is prohibiti)e or close to prohibiti)e for most normal trade. +xplicit import (uotas used to be (uite common in agricultural trade. They allowed go)ernments to strictly limit the amount of imports of a commodity and thus to plan on a particular import (uantity in setting domestic commodity programs. nother common

non-tariff barrier $5T6% was the so-called 7)oluntary export restraint8 $9+1% under which exporting countries would agree to limit shipments of a commodity to the importing country' although often only under threat of some e)en more restricti)e or onerous acti)ity. 2n some cases' exporters were willing to comply with a 9+1 because

they were able to capture economic benefits through higher prices for their exports in the importing country,s mar3et.

1. I!!UE!
2n the 0ruguay round of the G TT;!T" negotiations' members agreed to drop the use of import (uotas and other non-tariff barriers in fa)or of tariff-rate (uotas. <ountries also agreed to gradually lower each tariff rate and raise the (uantity to which the low tariff applied. Thus' o)er time' trade would be taxed at a lower rate and trade flows would increase. Gi)en current 0.*. commitments under the !T" on mar3et access' options are limited for 0.*. policy inno)ations in the ://: &arm 6ill )is a )is tariffs on agricultural imports from other countries. =ro)iding higher prices to domestic producers by increasing tariffs on agricultural imports is not permitted. 2n addition' particularly because the 0.*. is a net exporter of many agricultural commodities' successi)e 0.*. go)ernments ha)e generally ta3en a strong position within the !T" that tariff and T14 barriers need to be reduced.

Non"Tariff Trade Barriers <ountries use many mechanisms to restrict imports. critical objecti)e of the 0ruguay

1ound of G TT negotiations' shared by the 0.*.' was the elimination of non-tariff barriers to trade in agricultural commodities $including (uotas% and' where necessary' to replace them with tariffs > a process called tarrification. Tarrification of agricultural commodities was largely achie)ed and )iewed as a major success of the 1994 G TT

agreement. Thus' if the 0.*. honors its G TT commitments' the utili#ation of new nontariff barriers to trade is not really an option for the ://: &arm 6ill.

Do#esti$ Content Re%uire#ents Go)ernments ha)e used domestic content regulations to restrict imports. The intent is usually to stimulate the de)elopment of domestic industries. ?omestic content regulations typically specify the percentage of a product,s total )alue that must be produced domestically in order for the product to be sold in the domestic mar3et $<arbaugh%. *e)eral de)eloping countries ha)e imposed domestic content re(uirements to foster agricultural' automobile' and textile production. They are normally used in conjunction with a policy of import substitution in which domestic production replaces imports. ?omestic content re(uirements ha)e not been as pre)alent in agriculture as in some other industries' such as automobiles' but some agricultural examples illustrate their effects. ustralia used domestic content re(uirements to support leaf tobacco production. 2n order to pay a relati)ely low import duty on imported tobacco' ustralian cigarette

manufacturers were re(uired to use @A percent domestic leaf tobacco. Member countries of trade agreements also use domestic content rules to ensure that nonmembers do not manipulate the agreements to circum)ent tariffs. &or example' 5orth Trade merican &ree

greement $5 &T % rules of origin pro)isions stipulate that all single-strength

citrus juice must be made from 1// percent 5 &T origin fresh citrus fruit.

gain' as is the case with other trade barriers' it seems unli3ely that introducing domestic content rules to enhance domestic demand for 0.*. agricultural commodities is a )iable option for the ://: &arm 6ill.

1.& I'PORT (ICEN!E!

2mport licenses ha)e pro)ed to be effecti)e mechanisms for restricting imports. 0nder an importlicensing scheme' importers of a commodity are re(uired to obtain a license for each shipment they bring into the country. !ithout explicitly utili#ing a (uota mechanism' a country can simply restrict imports on any basis it chooses through its allocation of import licenses. =rior to the implementation of 5 &T ' for example' Mexico re(uired that wheat and other agricultural commodity imports be permitted only under license. +limination of import licenses for agricultural commodities was a critical objecti)e of the 0ruguay 1ound of G TT negotiations and thus the use of this mechanism to protect 0.*. agricultural producers is unli3ely an option for the ://: &arm 6ill.

I#)ort !tate Tradin* Enter)rises 2mport *tate Trading +nterprises $*T+s% are go)ernment owned or sanctioned agencies that act as partial or pure single buyer importers of a commodity or set of commodities in world mar3ets. They also often enjoy a partial or pure domestic monopoly o)er the sale of those commodities. <urrent important examples of import *T+s in world agricultural commodity mar3ets include the Bapanese &ood gency $barley' rice' and wheat%' *outh

Corea,s Di)estoc3 =roducts Mar3eting "rgani#ation' and <hina,s 5ational <ereals' "il

and &oodstuffs 2mport and +xport <ommission $<"&<"%. *T+s can restrict imports in se)eral ways. &irst' they can impose a set of implicit import tariffs by purchasing imports at world prices and offering them for sale at much higher domestic prices. The difference between the purchase price and the domestic sales price simply represents a hidden tariff. 2mport *T+s may also implement implicit general and targeted import (uotas' or utili#e complex and costly implicit import rules that ma3e importing into the mar3et unprofitable. 1ecently' in a submission to the current !T" negotiations' the 0nited *tates targeted the trade restricting operations of import and export *T+s as a primary concern. major problem with import *T+s is that it is (uite difficult to estimate the

impacts of their operations on trade' because those operations lac3 transparency. *T+s often refuse to pro)ide the information needed to ma3e such assessments' claiming that such disclosure is not re(uired because they are (uasi-pri)ate companies. 2n spite of these difficulties' the challenges pro)ided by *T+s will almost certainly continue to be addressed through bilateral and multilateral trade negotiations rather than in the context of domestic legislation through the ://: &arm 6ill.

1.+ TECHNICA( BARRIER! TO TRADE

ll countries impose technical rules about pac3aging' product definitions' labeling' etc. 2n the context of international trade' such rules may also be used as non-tariff trade barriers. &or example' imagine if Corea were to re(uire that oranges sold in the country be less than two inches in diameter. "ranges grown in Corea happen to be much smaller than 5a)el oranges grown in <alifornia' so this type of 7technical8 rule would effecti)ely ban the sales of <alifornia oranges and protect the mar3et for Corean oranges. *uch rules

)iolate !T" pro)isions that re(uire countries to treat imports a nd domestic products e(ui)alently and not to ad)antage products from one source o)er another' e)en in indirect ways. gain' howe)er' these issues will li3ely be dealt with through bilateral and multilateral trade negotiations rather than through domestic &arm 6ill policy initiati)es.

1., E-CHANGE RATE 'ANAGE'ENT PO(ICIE!

*ome countries may restrict agricultural imports through managing their exchange rates. To some degree' countries can and ha)e used exchange rate policies to discourage imports and encourage exports of all commodities. The exchange rate between two countries, currencies is simply the price at which one currency trades for the other. &or example' if one 0.*. dollar can be used to purchase 1// Bapanese yen $and )ice )ersa%' the exchange rate between the 0.*. dollar and the Bapanese yen is 1// yen per dollar. 2f the yen depreciates in )alue relati)e to the 0.*. dollar' then a dollar is able to purchase more yen. 1/ percent depreciation or de)aluation of the yen' for example' would mean

that the price of one 0.*. dollar increased to 11/ yen. "ne effect of currency depreciation is to ma3e all imports more expensi)e in the country itself. 2f' for example' the yen depreciates by 1/ percent from an initial )alue of 1// yen per dollar' and the price of a ton of 0.*. beef on world mar3ets is F:'///' then the price of that ton of beef in Bapan would increase from ://'/// yen to ::/'/// yen. policy that deliberately lowers the

exchange rate of a country,s currency will' therefore' inhibit imports of agricultural commodities' as well as imports of all other commodities. Thus' countries that pursue

deliberate policies of under)aluing their currency in international financial mar3ets are not usually targeting agricultural imports. *ome countries ha)e targeted specific types of imports through implementing multiple exchange rate policy under which importers were re(uired to pay different exchange rates for foreign currency depending on the commodities they were importing. The objecti)es of such programs ha)e been to reduce balance of payments problems and to raise re)enues for the go)ernment. Multiple exchange rate programs were rare in the 199/s' and generally ha)e not been utili#ed by de)eloped economies. &inally' exchange rate policies are usually not sector-specific. 2n the 0nited *tates' they are clearly under the pur)iew of the &ederal 1eser)e 6oard and' as such' will not li3ely be a major issue for the ://: &arm 6ill. There ha)e been many calls in recent congressional testimony' howe)er' to offset the negati)e impacts caused by a strengthening 0* dollar with counter-cyclical payments to export dependent agricultural products.

T.e Pre$autionar/ Prin$i)0e and !anitar/ and P./tosanitar/ Barriers to Trade The precautionary principle' or foresight planning' has recently been fre(uently proposed as a justification for go)ernment restrictions on trade in the context of en)ironmental and health concerns' often regardless of cost or scientific e)idence. 2t was first proposed as a household management techni(ue in the 19./s in Germany' and included elements of pre)ention' cost effecti)eness' and ethical responsibility to maintain natural systems $",1iordan and <ameron%. 2n the context of managing en)ironmental uncertainty' the principle enjoyed a resurgence of popularity during a meeting of the 0.5. !orld <harter for 5ature $of which the 0.*. is only an obser)er% in 19-:. 2ts use was re-endorsed by the

0.5. <on)ention on 6io-di)ersity in 199:' and again in Montreal' <anada in Banuary :///. The precautionary principle has been interpreted by some to mean that new chemicals and technologies should be considered dangerous until pro)en otherwise. 2t therefore re(uires those responsible for an acti)ity or process to establish its harmlessness and to be liable if damage occurs. Most recent attempts to in)o3e the principle ha)e cited the use of toxic substances' exploitation of natural resources' and en)ironmental degradation. <oncerns about species extinction' high rates of birth defects' learning deficiencies' cancer' climate change' o#one depletion' and contamination with toxic chemicals and nuclear materials ha)e also been used to justify trade and other go)ernment restrictions on the basis of the precautionary principle. Thus' countries see3ing more open trading regimes ha)e been concerned that the precautionary principle will simply be used to justify nontariff trade barriers. &or example' rigid adherence to the precautionary principle could lead to trade embargoes on products such as genetically modified oil seeds with little or no reliance on scientific analysis to justify mar3et closure. *ometimes' restrictions on imports from certain places are fully consistent with protecting consumers' the en)ironment' or agriculture from harmful diseases or pests that may accompany the imported product. The !T" *anitary and =hytosanitary $*=*% pro)isions on technical trade rules specifically recogni#e that all countries feel a responsibility to secure their borders against the importation of unsafe products. =rior to 1994' howe)er' such barriers were often simply used as excuses to 3eep out a product for which there was no real e)idence of any problem.

These phony technical barriers were just an excuse to 3eep out competiti)e products. The current !T" agreement re(uires that whene)er a technical barrier is challenged' a member country must show that the barrier has solid scientific justification and restricts trade as little as possible to achie)e its scientific objecti)es. This re(uirement has resulted in a number of barriers being relaxed around the world.

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CHAPTER : NON TARI11 TRADE BARRIER! AND NE2 PROTECTIONI!' (EARNING OUTCO'E!
.1 ARGU'ENT! 1OR 1REE TRADE
The important arguments in fa)our of free trade are as followsG $i% &ree trade leads to the most economic utilisation of the producti)e resources of the world because under free trade each country will specialise in the production of those goods for which it is best suited and will import from other countries those goods which can be produced domestically only at a comparati)e disad)antage. $2ii% s there will be intense competition under free trade' the inefficient producers are

compelled either to impro)e their efficiency or to (uit. $2)% &ree trade helps to brea3 domestic monopolies and free the consumers from exploitation. $)% &ree trade benefits the consumers.in different ways. 2t enables them to obtain goods from the cheapest source. &ree trade also ma3es a)ailable large )arieties of goods. $) i% &urther' under free trade there is no much scope for corruption which is rampant under protection. H Cnow 5on tariff Trade 6arriers and =rotectionism H 2dentify the fall and rise of protectionism 1ree Trade 3ersus Prote$tion &ree trade refers to the trade that is free from all artificial barriers to trade li3e tariffs' (uantitati)e restrictions' exchange controls' etc. =rotection' on the other hand' refers to the go)ernment policy of according protection to the domestic industries from foreign competition. There are a number of arguments for and against both free trade and protection. $ii% 0nder free trade' di)ision of labour occurs on an international scale leading to greater specialisation' efficiency and economy in production. 11

. ARGU'ENT! 1OR PROTECTION

Theoretically spea3ing' free trade has certain )irtues' as we ha)e seen abo)e. 6ut' in reality' go)ernment are encouraged to resort to some manner of protecti)e measures of safeguard the national interest. There are a number of arguments put forward in fa)our of protection. *ome of these arguments are )ery )alid while some others are not. !e pro)ide below the gist of the popular arguments for protection. $i% 2nfant 2ndustry rgument The infant industry argument ad)anced by lexander

Iamilton' &rederic3 Dist and others asserts that a new industry ha)ing a potential comparati)e ad)antage may noJ get started in a country unless it is gi)en temporary protection against foreign competition. n established industry is normally much more

stronger than an infant one because of the ad)antageous position of the established industry li3e its longstanding experience' internal and external economies' resource position' mar3et power' etc. Ience' if the infant is to compete with such a powerful foreign competitor' it will be a competition between une(uals and this would result in the ruin of the infant industry. Therefore' if a new industry ha)ing a potential comparati)e ad)antage is not protected against the competition of an une(ually powerful foreign industry' it will be denying the country the chance to de)elop the industry for which it has sufficient potential. The intention is not to gi)e protection for e)er but only for a period to enable the new industry to o)ercome its teething troubles. The policy of protection has been well expressed in the following wordsG K5urse the baby' =rotect the child and &ree the adultK. The infant industry argument' howe)er' has not been recei)ed fa)ourably by some economists. They argue that an infant will always be an infant if it is gi)en protection.

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&urther' it is )ery difficult for a go)ernment to identify an industry that deser)es infant industry protection. KThe infant industry argument. boils down to a case for the remo)al of obstacles to the growth of the infants. 2t does not demonstrate that a tariff is the most efficient means of attaining the objecti)e.K B $ii% ?i)ersification rgument 2t is necessary to ha)e a di)ersified industrial structure for n economy that depends on a depression or recession in

an economy to be strong and reasonably self-sufficient.

)ery limited number of industries is subject to many ris3s. these industries will seriously affect the economy.

country relying too much. on

foreign countries runs a number of ris3s. <hanges in political relations and international economic conditions may put the country into difficulties. Ience' a di)ersified industrial structure is necessary to maintain stability and ac(uire strength. 2t is' therefore' ad)ised to de)elop a range of industries by according protection to those which re(uire it. $iii% 2mpro)ing the Terms of Trade 2t is argued that the terms of trade can be impro)ed by imposing import duty or (uota. 6y imposing tariff the country expects to obtain larger (uantity of imports for a gi)en amount of exports' or con)ersely' to part with a lesser (uantity of exports for a gi)en amount ofim-ports. 6ut the terms of trade could be expected to impro)e only if the foreign supply is inelastic. 2f the foreign supply is )ery much elastic a tariff or a (uota is unli3ely to impro)e the terms of trade' there is also the possibility that the foreign countries will retaliate by imposing counter tariffs und (uotas. The )alidity of this argument' is therefore' (uestionable. $)% nti-?umping =rotection is also resorted to as an anti-dumping measure. ?umping'

certainly' can do harm to the domestic industryL the relief the consumers get will only be temporary. 2t is possible that after ruining the domestic industry by dumping' the foreign

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firms will obtain monopoly powers and exploit the home mar3et. *ometimes' dumping represents a transmission of the recession abroad to the home country. These factors point out the need to protect domestic industries against dumping. $)i% 6argaining 2t is argued that a country which already has a tariff can use it as a means of bargaining to obtain from other countries lower duties on its . exports. 2t has been pointed out' howe)er' that the bargaining le)er' instead of being used to gain tariff concessions from foreign powers' may be employed by others to extract additional protection from the home go)ernment. $)ii% +mployment rgument =rotection has been ad)ocated also as a measure to stimulate domestic economy and expand employment opportunities. 1estric-tion of imports will stimulate import competing industries and its spread effects will help the growth of other industries. These' naturally' create more employment opportunities. This method of employment generation' howe)er' has some problems. &irst' when we reduce imports from foreign countries employment and income will shrin3 abroad and this is li3ely to lead to a fall in the demand for our exports. *econdly' the foreign countries will be tempted to retaliate in order to protect their employment. $)iii% 5ational ?efense +)en if purely economic factors do not justify such a course of action' certain industries will ha)e to be de)eloped domestically due to strategic reasons. ?epending on foreign countries for our defense re(uirements is rather foolish because factors li3e change in political relations can do serious damage to a countryMs defense interest. Ience' it is ad)isable to de)elop defense and other industries of strategic importance by pro)iding protection if they cannot sur)i)e without protection.

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$ix% Cey 2ndustry

rgument 2t is also argued that a country should de)elop its own 3ey

industries because the de)elopment of other industries and the economy depends a lot on the output of the 3ey industries. Ience' if we 4/ not ha)e our own source of supply of 3ey inputs' we will be placing oursel)es at the mercy of the foreign suppliers. The 3ey industries should therefore be gi)en protection if that is necessary for their growth and sur)i)al. $i)% 2mpro)ing 6alance of =ayments This is a )ery common ground for protection. 6y restricting imports' a country may try to impro)e its balance of payments position. The de)eloping countries' especially' may ha)e the problem of foreign exchange shortage. Ience' it is necessary to control imports so that the limited foreign exchange will be a)ailable for importing the necessary items. 2n de)eloping countries' generally' there is a preference for foreign goods. 0nder such circumstances it is necessary to control unnecessary imports lest the balance ofi payments position become critical. The arguments mentioned abo)e ha)e been generally regarded as MseriousM. There are' howe)er' a number of other arguments also which ha)e been branded as MnonsenseM' MfallaciousM' Mspecial interestM' etc. <ommon among them are the followingG $xi% The =auper Dabour rgument The essence of this argument is that if in the home country the

wage le)el is substantially high compared to foreign countries' the foreign producers will dominate the home mar3et because the cheap labour will allow them to sell goods cheaper than the domestic goods and this will affect the interests of the domestic labour. This argument does not recogni#e the fact that high wages are usually associated with high producti)ity. &urther' labour cost differences may not be a determining factor.

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$x% Ceeping Money at Iome This argument is well expressed in the form of a remar3 falsely attributed to braham DincolnG K2 do not 3now much about the tariff' but 2 3now

this muchG !hen we buy manufactured goods abroad we get the goods and the foreigner gets money. !hen we buy the manufactured goods at home we get both the goods and the moneyK. s 6e)eridge rightly reacted' this K...argument has no meritsL the only

sensible words in it are the firsteight word.K The fact that imports are ultimately paid for by exports clearly shows that the M3eeping money at homeM argument for protection has no sense in it. $xii% *i#e of the Iome Mar3et 2t is argued that protection will enlarge the mar3et for agricultural products because agriculture deri)es large benefits not only directly from the protecti)e duties le)ied on competiti)e farn1 products of foreign origin but also' indirectly from the increase in the purchasing power of the wor3ers employed in industries similarly protected. 2t may be pointed out against this that protection of agriculture will harm the non-agriculturists due to the high prices of agricultural products and the protection of industries will harm agriculturists and other consumers due to high prices encouraged by protection. $xiii% +(ualisation of <osts of =roduction *ome protectionists ha)e ad)ocated import duties to e(ualise the costs of production between foreign and domestic producers and to neutralise any ad)antage the foreigner may ha)e o)er the domestic producers in terms of lower taxes' cheaper labour' or other costs. KThis argument allegedly implies a spirit of Mfair competitionM' not the exclusion of imports. !hen' howe)er' by reason of actual cost structure or artificial measures' costs of production become identical' the )ery basis of international trade disappears. The logical conse(uence of this pseudo-scientific method

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is the elimination of trade between nations. Thus' the e(ualisation of costs of production argument for protection is utterly fallacious and is one of the most deceitful e)er ad)anced in support of protection. $xi)% *trategic Trade =olicy *trategic trade policy which ad)ocates protection and go)ernment cooperation to certain high-tech industries in the de)eloped countries is somewhat similar to the infant industry argument applied to the de)eloping countries. The argument is that go)ernment support should be ac-corded to gain comparati)e ad)antage in the high technology industries which are crucial to the future of the nation such as semiconductors' computers' telecommunications' etc. 2t is also argued that *tate support to certain industries become essential to pre)ent mar3et monopolisation. &or example' outside the former *o)iet 0nion' only three firms build large passenger jets. 2f +uropean go)ernments do not subsidise the irbus 2ndustries' only the two merican

companies' 6oeing <ompany and Mc-?onnell-?ouglas <orporation' will remain. The oft cited examples of industries de)eloped with the support of the strategic trade policy include the steel industry in Bapan in the 19@/s' semiconductors in the 19A/s Jnd 19-/s' and the de)elopment of the supersonic aircraft' <oncorde' in +urope in the 19A/s and the de)elopment of the irbus aircraft in the 19-/s. s *al)atore obser)es' while strategic trade policy can theoretically impro)e the mar3et outcome in oligopolistic mar3ets subject to extensi)e economies and increase the nationMs growth and welfare' e)en the originators and popularisers of this theory recognise the serious difficulties in carryingl it out. The following difficultNes are pointed out; in particular. &irst' it is extremely difficult to choose the wimiers $i.e. choose the industries that will pro)ide large externaly economies in the future% and de)ise appropriate policies

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to successfully nNlrture them. *econdly' since most leading nations underta3e strategic trade policies at the same time' their efforts are largely neutralised so that the potential benefits to each may be small. Thirdly' when a country does achie)e substantial success with strategic trade policy' this comes at the expense of other countries $i.e.' it is a Mbeggar-thy-neighbourM policy% and so' other countries are li3ely to retaliate. The following defects are generally attributed to protectionG $i% =rotection is against the interest of consumers as it increases price and reduces )ariety and choice. $ii% =rotection ma3es producers and sellers less (uality conscious. $iii% 2t encourages domestic monopolies. $i)% +)en inefficient firms may feel secure under protection and it discouragesM inno)ation. $)% =rotection lea)es the arena open to corruption. $)i% 2t reduces the )olume of foreign trade.

.& 1A(( AND RI!E O1 PROTECTIONI!'

The period of o)er two-and-a-half decades until the early 19A/s witnessed rapid expansion of the world output and trade. !orld trade' in fact' grew much faster than the output. fter the *econd !orld !ar' there was a progressi)e trade liberalisation until the early se)enties. Than3s to the efforts of G TT' the Ktariff reductions in the industrial countries continued e)en after this. The a)erage le)els of tariff on manufactures in industrial countries is now about . per cent compared to 4/ per cent in 194A.

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.+ DE'ERIT! O1 PROTECTION
$)ii% =rotection leads to uneconomic utilisation of worldMs resources' lthough the period

until the early 19A/s was characterised by trade liberalisation in general' there were se)eral exceptions. 2n the de)eloped countries' hea)y protection was gi)en to the agricultural sector through import restrictions and domestic subsidies. &urther' in manufactured goods' textiles and clothe ing were subject to hea)y protection. There was also protection associated with regional trade agreements li3e the ++<. 2mports to de)eloping countries were in general highly restricti)e due to reasons such as balance of payments problems and the need to protect infant industries. 2n the industrial countries' anti dumping and counter)eiling duties began to assume more importance since the midsixties. The o)erall trend in the industrial countries' howe)er' was one of liberalisation. This trend was re)ersed in the se)enties. *ince about the mid-se)enties' protectionism has grown alanllingly in the de)eloped countries. This has ta3en mainly the fonn of non-tariff barriers $5T6s%. The main reason for the growing protectionism in industrialised countries is the increasing competition they face from Bapan and de)eloping countries li3e' for example' the *outh-+ast sian countries. ?ue to the fact that the competition has been )ery se)ere

in the case of labour intensi)e products' the import competing industries in the ad)anced countries ha)e been facing the threat of large retrenchments. *e)eral other industries' li3e the automobile industry in the 0*' ha)e also been facing similar problems. The demand for protection has' therefore' grown in the industrial countries in order to protect employment. =rotecti)e measures ha)e also been employed to pressurise Bapan and the

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de)eloping countries to open up their mar3ets for goods' ser)ices and in)estments of the industrial countries. s mentioned earlier' the 5T6s affect the exports of de)eloping countries much more than those of the de)eloped ones. 2n other words' the main target of the de)eloped country import restrictions in the last two decades' or so' has been the de)eloping countries. 6y 19-A' 5T6s were estimated to ha)e affected almost a third of "+<? imports from de)eloping countries.4 !hile de)eloping countries as a group now face tariffs .1/ per cent higher than the global a)erage' the least de)eloped countries face tariffs ./ per cent higher-because tariffs remain higher on the goods with greatest potential for the poorest countries' such as textiles' leather and agricultural commodities. Dabour intensi)e products li3e textiles' clothing and footwear are among the most highly protected imports. The restriction on the textiles and clothing' which account for nearly one-fourth of the de)eloping country exports' has beenM exercised mainly by the Multi&ibre rrangement $M& % which denies the de)eloping countries an estimated F :4

billion a year in terms of export earnings. Tariff escalation $i.e. increase in tariffs with the le)el of processing% is yet another important factor which discourages de)eloping countriesM manufactured goods. &or example' while the tariff on raw sugar is less than : per cent' it is around :/ per cent for processed sugar products. The tariff escalation discourages the de)eloping countriesM graduation as exporters of manufactured goods from commodity exporters. Tariff escalation affects a wide )ariety of products such as jute' spices' )egetables' )egetable oils' tropical fruits be)erages' etc.

:/

s the industrial countries face more competition' they increase protectionism. This encourages one to thin3 that they wanted free trade only as long as they enjoyed a dominant positionL when their dominance is challenged they increase the trade barriers gi)ing one or another reason. "ne should not be surprised if tomorrow they restrict the imports from de)eloping countries arguing that the cost ad)antage of the de)eloping countries is because of the MinjusticeM done to the labour by paying wages lower than that in the 0* or other industrial countriesO 2ronically' industrial countries are increasing trade restrictions while the de)eloping countries are liberalising trade. Trade restrictions pro)e costly not only for the affected exporting country but also for the importing country restricting the trade. The consumers often pay a hea)y price for protection. 2t is estimated that o)erall the merican consumers pay as much as F A@

billion a year more for goods on account of import fees and restrictions-a sum roughly e(ui)alent to about a sixth of the 0* import bill. 2n <anada e)ery dollar earned by wor3ers who continue to hold their jobs because of protection of the textile and clothing industries costs society an estimated F A/. 2n the 0nited *tates' consumers paid F 1'14'/// a year for each job sa)ed in thc steel industry.

:1

CHAPTER &: DOHA ROUND O1 NEGOTIATION!

The ?oha ?e)elopment genda $?? % of the !orld Trade "rganisation $!T"% was

launched in ://1 at ?oha' 4atar to be completed by ?ecember ://4. 6ut' the ?e)elopment 1ound could not be completed by the targetted date as member countries failed to arri)e at a consensus on core issues in the 1ound. The Iong Cong Ministerial meeting of the !T" in ?ecember ://@ ended with a new deadline of completing the ?oha 1ound by ?ecember ://E. The negotiations were' howe)er' deadloc3ed in Buly ://E. 2n Banuary ://A at ?a)os' *wit#erland ./ trade ministers including 2ndia met and decided to ta3e the ?oha genda forward and get bac3 to the negotiating table. 5egotiations then began from &ebruary ://A and major players commenced intense discussions in the core areas of agriculture' industrial goods and ser)ices besides discussions on rules and trade facilitation. *ince Banuary ://- there has been a sense of urgency among the negotiators to conclude the 1ound this year since they belie)e that this is the last window of opportunity a)ailable if they want the ?oha 1ound to succeed. ny delay now may lead to the 1ound being suspended for atleast a couple of years. *ince March- pril ://- there has been significant progress in the negotiations and countries seem to be interested in stri3ing a deal. The ?irector General of !T"' Mr =ascal Damy has used all platforms a)ailable to him to push the 3ey member countries towards a consensus. There are indications that Mr Damy may con)ene a Ministerial meeting in end-May ://- to finali#e a deal.

::

&.1 CII AND THE DOHA ROUND

<22 supports the negotiations for liberali#ing trade under the ?? to complete the 1ound at the earliest. The ?? and urges negotiators

is a ?e)elopment 1ound. <22 endorses

the )iew that success and ambition in the ?oha 1ound will be measured by real mar3et access pro)ided to de)eloping and least de)eloped countries by the ad)anced countries. 5egotiators will ha)e to ta3e care that the main pillars of the ?e)elopment 1ound namely 7*pecial and ?ifferential Treatment8 and 7Dess than &ull 1eciprocity8 a)ailable to de)eloping countries are fully reflected in the modalities in all the pillars of the ?? ..

&. NON"AGRICU(TURA( 'ARKET ACCE!! 4NA'A5

1educing tariffs and non-tariff barriers $5T6s% on industrial goods was at the core of multilateral trade negotiations under the G TT' and remains central to the objecti)es agreed in ?oha. The ?? focuses on two main issues under 5 M negotiations. 1. Tariff reduction commitments :. +limination of 5on-Tariff barriers ccording to ?oha genda tariff reductions will ta3e place according to a general

formula' but sectoral agreements to further harmonise or eliminate tariffs could also be reached. =ractically all products should be co)ered by these reductions' which will be made from existing bound tariffs rates $&urthermore' de)eloped countries are encouraged to eliminate low duties $so called nuisance duties%. 5on ad )alorem duties are to be con)erted to ad )alorem e(ui)alents. The final duties should be based on the Iarmoni#ed *ystem $://:%. The reference period for import data will be 1999-://1.

:.

The ?? is )ery explicit on the principle of 7less than full reciprocity8 commitments and 7*pecial and ?ifferential Treatment8 that is a)ailable to de)eloping countries and it is an important component of the negotiations on 5 M . They may exempt up to 1/ percent of their tariff lines from the agreed reductions or 3eep up to fi)e percent of their tariff lines unbound. The least de)eloped countries do not ha)e to ma3e any tariff reductions at all' but are expected to substantially increase their le)el of binding. 2ndustrial countries are in return to remo)e tariffs and (uotas for all industrial goods from the least de)eloped countries. *ince the Iong Cong Ministerial meeting in ?ecember ://@' member countries of !T" ha)e agreed on the following main areas in 5 M G ll member countries would adopt a *wiss &ormula with different coefficients for s per the formula the coefficient adopted for a

de)eloped and de)eloping countries.

country will be the tariff le)el of that country. The coefficients that ha)e been discussed as per the last paper in &ebruary ://- from the chairperson of the negotiating group' Mr ?on *tephenson' the de)eloped countries would ha)e a coefficient of --9 and de)eloping countries would ha)e a coefficient of 19-:.. Members agreed that P*pecial and ?ifferential, treatment for de)eloping countries including flexibilities and Pless than full reciprocity, in tariff reductions will be an integral part of the modalities. 2t was decided to extend duty and (uota free access for at least 9A percent of products for the least de)eloped countries $D?<s% by ://-. Members also agreed to declare sectoral initiati)es as non- > mandatory.

:4

This means that the countries decided that any initiati)e to eliminate customs duties on specific sectors should not be binding on countries. Iowe)er' it was also decided that sectorals would be decided on the basis of a critical mass of countries joining these negotiations. <ritical mass would mean that all countries' which constitute about 9/Q of global trade in that sector would be part of the negotiations. The efforts to eliminate non-tariff barriers $5T6s% are to be accelerated. t the Iong

Cong ministerial' all member states were as3ed to submit negotiating proposals as soon as possible. 5egotiations will include re(uest;offer and hori#ontal or )ertical $sectoral% approaches. 0* paper was tabled in early ://- re(uesting of negotiations on remanufactured

goods. There ha)e been se)eral rounds of discussions on this issue and most countries do not

CII PO!ITION <22 strongly belie)es that flexibilities and * and ? treatment for de)eloping countries should be reflected in the final outcome of the 5 M negotiation. This means

de)eloping countries li3e 2ndia should ha)e longer implementation periods for cutting tariffs and should be subjected to lower percentage cuts in tariffs when compared to de)eloped country members. <22 is of the )iew that de)eloping country members should ha)e the flexibility of 3eeping at least fi)e to se)en per cent of their sensiti)e tariff lines unbound. <22 supports ha)ing a coefficient in the *wiss formula for cutting industrial tariffs' which respects the 7less than full reciprocity8 principle in ?oha ?e)elopment genda for

:@

de)eloping countries. <22 is of the )iew that there should be a :@-point difference between the coefficients of de)eloped and de)eloping countries. <22 will li3e to see some real mar3et access commitments from de)eloped country members in areas of interest to de)eloping countries with a )iew to remo)e tariff escalation and tariff pea3s. Textiles and <lothing is one important sector for 2ndian industry. ?e)eloped countries should consider abolishing 5uisance tariffs8 of less than . percent. <22 supports elimination of all non-tariff barriers to trade in goods around the world. mechanism of national contact points for consultation and mediation should be set up to sol)e 5T6 implementation problems. <22 does not support sectoral negotiations and is of the )iew that any discussion on this issue should be after the coefficients are decided. <22 does not support the 0* paper on re-manufactured goods' which calls for e(uating remanufactured goods with new goods.

&.& !ER3ICE!
The General greement on Trade in *er)ices $G T*% contains a 7built-in agenda8

$ rticle 19% mandating Members to initiate mar3et access liberali#ation negotiations on ser)ices. The ?oha Ministerial ?eclaration refers to these guidelines as 7the basis for continuing the negotiations8. Members ha)e followed a re(uest-offer approach to these negotiations for mar3et access.

:E

Iowe)er' the offers on the table for liberali#ing the ser)ices regime in most countries' especially the de)eloped ones' ha)e been mainly below expectations. This is one area of negotiations that has not witnessed progress despite se)eral reminders and statements by ministers and senior negotiating officials. ?uring the negotiations it has been decided that G =rogressi)e liberalisation will be achie)ed through negotiation with appropriate flexibility for members. There will be plurilateral re(uests in addition to the bilateral re(uest-offer approach. Groups of Members presenting plurilateral re(uests to other Members should submit such re(uests by :- &ebruary ://E or as soon as possible thereafter.

CII Position Mode 4 $mo)ement of professionals% and Mode 1 $trans-border supply% is of particular interest to <22 and it will li3e higher commitments from de)eloped country members in these modes of supply of ser)ices. Member countries of !T" need to address mar3et access issues related to domestic regulation and address issues such as economic need tests for granting wor3 permits under Mode 4 i.e. for temporary mo)ement of persons. Mode 4 should not be related to immigration issues and should be loo3ed upon as short-term )isas for deli)ering contractual ser)ices. <22 feels that wage parity should not be a pre-condition of entry for contractual ser)ice pro)iders and independent professionals.

:A

 Greater emphasis needs to be laid on mutual recognition of professional degrees by countries *implification and harmonisation of national regulations should be targeted. <22 will li3e to see more access for independent professionals and not just intercompany transfers. +lectronic commerce should remain duty-free and should not be discriminated against as compared to other modes of deli)ery.

&.+ AGRICU(TURE
griculture is the main dri)er of the negotiations under the ?? . These negotiations assume tremendous importance since it in)ol)es the two critical issues for de)elopment > food security and li)elihood concerns in de)eloping and least de)eloped countries. The ?? focuses on three important areas for liberali#ing trade in agriculture goods and

commodities across the globe. Tariff reductions *ubstantial reductions in domestic support +limination of exports subsidy CII Position <22 calls for elimination of all distortions in trade in agricultural goods and commodities <22 urges de)eloped country members to remo)e all high tariffs in agricultural products

:-

 <22 will li3e to see substantial reduction in all domestic support $regardless of box classification% pro)ided by de)eloped country members by :/1/. <22 belie)es that support in any form or colour is not entirely free from ha)ing some element of trade distortion. <22 urges de)eloped countries to offer deeper cuts to its farm tariff and designate only 1Q of tariff lines as sensiti)e. <22 urges member countries to protect the food security and li)elihood concerns of farmers in de)eloping and least de)eloped countries. <22 will li3e to see the components of sensiti)e and special products strengthened for de)eloping country members to address the problems of small and subsistence farmers. <22 belie)es that the designation of special products by de)eloping countries would re(uire maximum flexibility. ?e)eloping countries may be gi)en special and differential treatment for border protection and internal support measures in order to secure domestic food supply.

&., TRADE 1ACI(ITATION

The Trade &acilitation greement is the only *ingapore issue that has sur)i)ed in the

?oha 1ound. 2n the !T" agreement of Buly ://4 it was decided that trade facilitation will be a new item of negotiations on the ?oha agenda. The objecti)es of the negotiations are 7to clarify and impro)e rele)ant aspects of rticles 9' 9222 and R of the G TT 1994' with a )iew to further expediting the mo)ement' release and clearance of goods' including goods in transit8.

:9

The negotiations are to ensure special efforts to support capacity building in de)eloping countries' and to promote cooperation between customs and other authorities. ?e)eloping countries are expected to ma3e reasonable contributions and the least de)eloped countries are only to be re(uired to ma3e contributions consistent with their own needs and capabilities. The negotiations ha)e come off to a good start' and there is good hope of ha)ing a substantial agreement on trade facilitations as a substantial part of the ?oha 1ound pac3age. The trade facilitation agreement is important to the establishment of an impro)ed and more efficient management process for international trade in goods on a global basis.

CII Position <22 supports the on-going negotiations on Trade &acilitation and urges negotiators to (uic3ly identify ways and means to simplify procedures for easier mo)ement of goods through customs and border controls. 2nformation submitted in one system' including appro)ed internal company systems' should automatically be used also for other systems' and so-called *ingle !indow systems should be introduced. !T" greement on Trade &acilitation should include pro)isions to achie)e the

objecti)es of increased transparency' predictability and speed. 2nternet-based information and clearance procedures should be promoted. !T" agreement must also allow for efficient payment systems to be used' and

customs )aluation should be based on the in)oice price.

./

CHAPTER +: TARI11 AND NON"TARI11 BARRIER! BENE1IT DE3E(OPING COUNTRIE! " NE2 !TUD6
There is considerable e)idence for the hypothesis that under certain conditions' restrictions on trade can promote growth' especially of de)eloping countries' according to a study published in the Bournal of ?e)elopment +conomics. The study by Ialit Sani33aya' an academic at the <ollege of 6usiness and dministrati)e *er)ices' <elal 6ayar 0ni)ersity $Tur3ey%' has examined the growth effects on 1/- economies of a large number of measures of trade openness' using the same yardstic3s or measures of openness and o)er the same periods' and applying econometric models and regressions. The study has used two broad categoriesG measures of trade )olumes and measures of trade restrictions and measures their effects on growth in the 1/- economies. The study and the results of the data analysed challenges what the author calls 7the unconditional optimism in fa)our of trade openness among the economic profession and policy circles.8 2t finds that on the basis of trade )olumes' there is a positi)e and significant association between trade openness and growth. ccording to the con)entional )iew and studies on the growth and trade restrictions' trade restrictions ha)e an 7ad)erse association between trade barriers and growth.8

.1

The study finds a contrary e)idence and saysG 7our estimation results from most specifications $of tariff and trade barriers% show a positi)e and significant relationship between trade barriers and growth8. 7+(ually important'8 the study adds' 7these results are essentially dri)en by de)eloping countries' and thus consistent with the predictions of the theoretical growth literature that certain conditions' de)eloping countries can actually benefit from trade restrictions.8 *e)eral empirical studies of the P-/s and P9/s pro)ided an affirmati)e answer for the )iew that 7open economies8 grew faster than closed ones' and that 7outward-oriented8 economies ha)e consistently higher growth rates than 7inward-oriented8 ones. These led to a strong bias in fa)our of trade liberalisation and under-pinned the !orld 6an3;2M& policy conditionalities and ad)ice to de)eloping countries and the !ashington <onsensus of the 199/s. Sani33aya says that this strong bias in fa)our of trade liberali#ation was partly due to the tragic failures of the import substitution strategies especially in the 19-/s' and the o)erstated expectations from trade liberali#ation. The !orld 6an3- sponsored studies' by ?ollar and others' said they had found positi)e correlations between open economies and faster growth across countries. The first major challenge from academia came from ?ani 1odri3' and followed by a cross-country empirical analysis' using the same measures of Popenness, across a range of countries' which brought out that these studies had reached the conclusion of open economies growing faster because they used different yardstic3s for countries and o)er

.:

different time-periodsG 6ut when the same yardstic3s were used and o)er the same timeperiods' the results showed that fast growth had ta3en place in some of the countries with higher trade restrictions $2ndia and <hina%' but which had adopted a measured approach to trade liberali#ation $after creating capacity domestically' and calibrating liberali#ation measures%. *ince then a number of studies ha)e come out challenging the )iew that liberali#ation of trade and in)estments is always a plus and there is growth in the long-run. These studies ha)e brought out that openness to external trade and trade liberali#ation are two different concepts' and that the latter promoted growth $and brought in foreign direct in)estment and associated technology% only under certain conditions' and when the host-country *tate played an acti)e role. The Sani33aya study notes that while there is a near consensus about the positi)e correlation between trade flows and growth' the theoretical growth literature $which studied growth effects of trade restrictions% came to the )iew that the effects were )ery complicated in the most general case' and mixed in how trade policies play a special role in economic growth. This' the author attributes to the way Popenness, is described )ery differently in )arious studies' ma3ing classification of countries on basis of Popenness, a formidable tas3. Ience' using different measures of openness produces differing results. The Sani33aya study loo3s at the growth effects on a large number of measures of trade openness. Two broad measures of trade openness are used and studiedG one is on effect of

..

)arious measures on trade )olumes' which indicate a positi)e and significant association between openness and growth' and is in line with conclusions of empirical and theoretical growth literature. Iowe)er' the estimation results for )arious measures for trade barriers' contradicts the con)entional )iew on the growth effects of restrictions' and suggests 7an ad)erse association between trade barriers and growth. The estimation results from most measures of trade restrictions show a positi)e relationship between trade barriers and growth' a result dri)en by de)eloping countries. These results are consistent with the predictions of theoretical growth literature' namely' that under certain conditions' de)eloping countries can actually benefit from trade restrictions. 2n a sur)ey of the literature' the study finds that international trade theory $based on static trade gains% pro)ides little guidance to the effects of international trade on growth and technical progress' the new trade theory argues that gains from trade can arise from se)eral fundamental sources differences in comparati)e ad)antage and economy-wide increasing returns. !hile there are many studies about the effects of trade policies on growth - during the failed import substitution strategies of the 19-/s and the export-promotion policies - there is a lac3 of clear definition of Ptrade liberali#ation, or Popenness,. The most difficult has been measuring Popenness,. n ideal one would be an index that

includes all trade barriers distorting international trade' such as a)erage tariff rates and

.4

indices of non-trade barriers. *uch an index' incorporating effects of both tariff and nontariff measures has been de)eloped by B.+. nderson and B.=.5eary. 6ut it is not a)ailable for a large number of economies. "ther studies' li3e those by ?ollar and' *achs and !arner used a)ailable data. 2f the growth engine is dri)en by inno)ation and introduction of new products' then de)eloping countries should benefit more by trading with de)eloped countries than with other de)eloping countries. Iowe)er' the Sani33aya study results do not support this' both pro)iding growth regressions positi)ely and significantly. The study finds that a de)eloping country benefits through technology diffusion by trading with a de)eloped country' and since the 0* is the leader in technology' de)eloping countries benefit through this bilateral trade. lso' countries with higher

population densities tend to grow faster than those with lower densities. 2n using measures of trade restrictions - se)eral of whom it ac3nowledges are not free from measurement errors - the study reaches some )ery different conclusions than con)entional trade theory suggests. Thus' it finds that trade barriers in the form of tariffs can actually be beneficial for economic growth. 2n the current context $of the ?oha 1ound and the dri)e of +urope and the 0* to tear down and harmonise de)eloping country tariffs%' this is a significant and telling result' pro)iding support for the )iewpoint of de)eloping countries in these tal3s. The framewor3 for modalities for tariff liberalisation in industrial products in the 5 M negotiations put forward by the chairman $and !T" secretariat% is misguided and needs

.@

to be opposed and jettisoned. !hen export taxes and total taxes on international trade are used as a measure of trade restrictions' the study finds that sa)e for fixed effect estimates' there is a 7significant and positi)e association8 between trade barriers and growth. This is similar to the results for a)erage tariffs. "n non-tariff barriers' there are difficulties of estimation because of data limitationsL hence these are excluded in most empirical studies. 6ut studies by B.+dwards $cited in the Sani33aya study% found such restrictions ha)ing an insignificant relationship with growth' and came to the )iew that 5T6s are poor indicators of trade orientation' since a broad co)erage of 5T6s did not necessarily mean a higher distortion le)el. 0sing se)eral new measures of trade openness and restrictions now a)ailable' and applying them on a framewor3 model explained in details $but needs econometric 3nowledge for the lay trade person to test and see%' the Sani33aya study' says that there is 7considerable e)idence for the hypothesis that trade restrictions can promote growth' especially in de)eloping countries' under certain conditions.8 The study ma3es clear that it has no intention of establishing a simple and straightforward positi)e association between trade barriers and growth' but rather to show that 7there is no such relationship between trade restrictions and growth.8 *uch a relationship depends mostly on the characteristics of a country. 1estrictions can benefit a country depending on whether it is de)eloped or de)eloping $a de)eloped one seems to lose%' whether it is a big or small country' and whether it has comparati)e ad)antage in sectors recei)ing protection

.E

CHAPTER ,: CA!E !TUD6

NON"TARI11 BARRIER! !TU'P PHAR'A E-PORT! TO CHINA: 1ICCI
2ndia,s exports of pharmaceuticals could ma3e a significant dent in the <hinese mar3et and help meet o)erall trade expectations of 0*F ./ billion by ://9' pro)ided 5on Tariff 6arriers in the shape of procedural' legal and cultural barriers that hinder mar3et access are remo)ed' according to &2<<2. 6ased on feedbac3 recei)ed from pharma exporting companies' &2<<2 has called for urgent steps to streamline customs procedures as well as efficient and effecti)e use of technology for electronic data interface in customs administration and information exchange. countries. &2<<2 has suggested that recognition agreements on standards should be arri)ed at and full details of standards should be made easily a)ailable. 2t has recommended that the )arious non-tariff barriers be identified and addressed and both countries act to remo)e them in a time bound framewor3. +asier trade financing and greater cooperation between the +R2M ban3s of the two countries would also wor3 to the benefit trade between the two countries. 2n this context' it is important to note that 2ndian exports of drug' pharmaceuticals and fine chemicals to mar3ets such as the 0*' +urope' frica and *outh merica ha)e grown by 19Q year-on-year in the last three years while the world a)erage growth rate for this bilateral pre-shipment inspection agreement would also benefit both

.A

sector is about EQ. 2n contrast' in the last three years 2ndia,s exports to <hina ha)e grown at just .Q. &rom 0*F 94 million in ://:-/.' <hinese imports from 2ndia ha)e grown to 0*F 1/E million in ://.-/4 to 0*F 1/9 million in ://4-/@. This accounts for barely :Q.Q of 2ndian exports of drugs and pharmaceuticals to the world. This indicates that the high-performing 2ndian pharma sector has not found the en)ironment conduci)e for achie)ing similar growth with <hina.

The 5on-Tariff 6arriers identified by &2<<2 in pushing pharma exports to <hina includeG

=rocedures for product and company registration and for procuring 2mport ?rug Dicense are expensi)e and time consuming. ")er and abo)e the official cost of 0* A/// per product' they can cost anywhere between 0*F :/'/// to F4/'/// per product. 6esides' it may ta3e 1- months to three years to procure an 2mport ?rug Dicence. These licences and registration are essential for beginning to export or ship goods e)en to factories owned by the companies that are situated in <hina. This is a considerable deterrent for 2ndian entrepreneurs to initiate exports to <hina.

Dong customs procedures' re-inspections and discriminatory pac3aging T labelling regulations that e)en specify the colour used for pac3aging' result in delays and higher costs and most of all consume energy and patience.

The ban3ing procedures for foreign players' particularly for remittance of foreign exchange' are tough and tedious. +)en the sight payments are remitted after a

.-

minimum of ./ to 4@ days due to the foreign exchange declaration system of <hinese ban3s.

"nce in the <hinese mar3et' the drug distribution is mostly through hospitals. 2n practice' locally produced drugs are preferred and this manifests in the form of red tape for 2ndian pharma products.

2ntellectual =roperty 1ights acts as another restricti)e non-tariff trade barrier. <hina surpassed the 0* as the world,s most litigious country for 2= disputes in ://@' with 1.'4:4 cases filed with <hinese courts compared to 1/'9/@ cases filed in the 0* during the same period. 2nternational companies were in)ol)ed in only :E- of the 2= cases filed in <hina last year' which represents an increase of AEQ o)er the number in ://4. This o)erly cautious approach in see3ing 2= enforcement by international companies in <hina is partly due to their unfamiliarity with <hinese ci)il litigation.

Dac3 of transparency in information about local mar3ets and trade statistics add to the low awareness of foreign businesses in <hina. This lac3 of transparency clouds insight into the <hinese mar3et and hampers mar3eting strategies of 2ndian pharma companies in <hina.

2n all of the abo)e' language is a major barrier to trade. There are )ery few <hinese-spea3ing people in 2ndia that can be resourced as interpreters. lthough

the number of <hinese who are learning +nglish is growing' communication remains a major impediment to trade. !hile <hina has consistently complained about anti-dumping cases in 2ndia. 2ndia has responded by deli)ering on its words and this is no longer a bone of contention between

.9

the two nations. 2t is for the <hinese now to set the ground rules right and ensure that all non-tariff barriers are remo)ed. t the same time' <hina needs to ensure that the (uality

standards are maintained in pharmaceutical products. 2ndia has the largest number of 0*&? appro)ed plants outside the 0*. There more than A@ plants which are also !I" GM= $Good Manufacturing =ractices% certified and could easily cater to the demand for high (uality pharma products.

4/

CONC(U!ION
!hen export taxes and total taxes on international trade are used as a measure of trade restrictions' the study finds that sa)e for fixed effect estimates' there is a 7significant and positi)e association8 between trade barriers and growth. This is similar to the results for a)erage tariffs. "n non-tariff barriers' there are difficulties of estimation because of data limitationsL hence these are excluded in most empirical studies. *uch restrictions ha)ing an insignificant relationship with growth' and came to the )iew that 5T6s are poor indicators of trade orientation' since a broad co)erage of 5T6s did not necessarily mean a higher distortion le)el. 0sing se)eral new measures of trade openness and restrictions now a)ailable' and applying them on a framewor3 model explained in details $but needs econometric 3nowledge for the lay trade person to test and see%' the Sani33aya study' says that there is 7considerable e)idence for the hypothesis that trade restrictions can promote growth' especially in de)eloping countries' under certain conditions.8 The study ma3es clear that it has no intention of establishing a simple and straightforward positi)e association between trade barriers and growth' but rather to show that 7there is no such relationship between trade restrictions and growth.8 *uch a relationship depends mostly on the characteristics of a country. 1estrictions can benefit a country depending on whether it is de)eloped or de)eloping $a de)eloped one seems to lose%' whether it is a big or small country' and whether it has comparati)e ad)antage in sectors recei)ing protection.

41

RE1ERENCE! AND !UGGE!TED READING!

BOOK! AND 7OURNA(! Carbaugh, Robert J. International Economics, South-Western, 1995. Cross, Fran !. "ara#o$ical "erils o% the "recautionar& "rinci'le,( Re)ision *51, Washington an# +ee ,ome "age, -olume 5./., 1990. 1e2 "rinci'le to "rotect ,uman ,ealth an# the En)ironment,( ,ealth 3lert, Earth 4uar#ian, C5S, 1999. 67Rior#an, 8im an# James Cameron. Inter'reting the "recautionar& "rinci'le,( Earthscan "ublications, +t#., Islan# "ress, 1999.

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