Non-Agricultural Market Access

1. Non-Agricultural Market Access Pakistan Institute of Development Economics

2. 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.

3. 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.

4. 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

5. 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.

6. Major Issues of NAMA • Tariff Peaks • Tariff Escalation • Non-Tariff Barriers • Binding Coverage

7. Figure: Trade Weighted Bound and Applied Average Industrial Tariffs Source: UNCTAD and WTO database.

8. Figure: Simple Bound and Applied Average Industrial Tariffs Source: UNCTAD and WTO database.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. Figure: Distribution of Tariff Peaks in Applied Tariff Rates Source: UNCTAD and WTO database.

15. 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.

16. Figure: Tariff Escalation of Weighted Applied Tariff on Industrial Products Source: UNCTAD database.

17. 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.

18. 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.

19. 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.

20. Guidelines for NAMA Negotiations • Tariff reduction modalities in NAMA negotiations should at least have the following features: • Effectiveness • Equity • Flexibility • Simplicity • Transparency