Non-Agricultural Market

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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

13.5
14 12.5 12.4
12
10
8
8
6
3.4 3
4
2
0
Developed Countries Developing Countries Least Developed
Countries

Weighted Average Bound Rates

Weighted Average Applied Rates

Source: UNCTAD and WTO database.

Figure: Simple Bound and Applied Average Industrial
Tariffs

50 45.2
45
40
35 29.4
30
25
20
12.3 12.6
15 11.6
10 5.5
5
0
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

17.2
18
16
14 12.3
12
10 9.4
8
8
6
3.3 3.6 3.2
4
1.2
2 0.5
0
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