The General Agreement On Trade In Services

Published Date: 02 Nov 2017

Currently, the WTO has 137 members, accounting for more than 90 percent of the world trade. More than three fourths of these members are developing or least developed countries. They play an increasingly important and active role in the WTO because of their numbers as the developing countries are becoming more important in the global economy and they progressively look to trade as a vital tool in their development efforts.

The organization has four prime functions: administering trade agreements, settling trade disputes, conducting trade policy reviews of its members, and acting as a forum for trade negotiations. In addition, it provides technical assistance to developing countries in the area of trade policy and also cooperates with other multilateral agencies.

The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They include commitments of individual countries to lower customs tariffs and other trade barriers, and to open and keep open services markets. They set procedures for settling disputes. They prescribe special treatment for developing countries. They require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted, and through regular reports by the secretariat on trade policies of countries.

TARIFFS:

Tariffs are customs duties on merchandise imports. Tariffs give a price advantage to locally produced goods over same goods that are imported. Tariffs are usually associated with protectionism, which is a government’s policy of controlling trade between nations in order to support the interest of its own citizens.

Tariffs have three primary functions, namely:

To serve as a source of revenue

Income from tariffs provides governments with a source of funding. This function was one of the main reasons for applying tariffs, but due to economic development and the creation of systematic domestic tax codes, its importance has diminished in developed countries.

To protect domestic industries

Tariffs is a policy tool to protect domestic industries by changing the conditions under which goods compete in such a way that competitive imports are placed at a disadvantage.

To remedy trade distortions

Punitive tariffs may be used to remedy trade distortions resulting from measures adopted by other countries.

TYPES OF TARIFFS:

There are two basic types of tariffs imposed by governments on imported goods. First is the ad valorem tax, which is a percentage of the value of the item. An example of an ad valorem tariff would be a 15% tariff levied by Japan on U.S. automobiles. The 15% is a price increase on the value of the automobile. Thus, a $10,000 vehicle now costs $11,500 to Japanese consumers. This price increase protects domestic producers from being undercut, but also keeps prices artificially high for Japanese car shoppers.

The second is a specific tariff which is a tax levied based on a set fee per number of items or by weight. For example, a country could levy a $15 tariff on each pair of shoes imported, but levy a $300 tariff on each computer imported.

BENEFITS OF TARIFFS:

Tariffs provide an array of benefits, especially to domestic producers in terms of reduced competition locally. A reduction in competition on the local market in turn causes price fluctuations, which increases job opportunities creating employment for local residents. Tariffs also help government profit which boosts the economy as a whole.

Prevents job loss


In any type of business, businesses are expected to avoid paying taxes. For instance, when British consumers decide to buy low-priced products domestically, overseas producers definitely become disadvantaged, and this in turn leads to minimal trade with US companies. As a result, overseas companies can decide to import their goods to countries where there are no tariffs. In other words, high tariffs impose on imported goods discourage trade and lead to job loss.

Restricts competition

Tariffs are often imposed to discourage foreign competition, providing more opportunities for local based companies. Although tariffs typically lead to retaliation, they allow job retention when local producers hire more people to sell their products. Imposing tariffs can however encourage the growth of inefficient firms, while\e other countries place high tariffs on exports.

Protects consumers from exploitation


Although the purported benefits of tariffs are still under scrutiny, consumers can benefit from a rise in prices as a result of stiff competition from foreign companies. For example, domestic producers can benefit from agricultural tariffs. As a result of cheaper competition, domestic producers can sell their products to the local market.

Increases government revenues


The government collects tariffs to support its many functions. In fact, customs provide about 2 percent of total government revenue. Therefore, the government directly and indirectly benefit from imposing tariffs on exports.

Because tariffs eliminate foreign competition, prices of goods are likely to increase leaving employees with minimal purchasing power.

TARIFFS REDUCTIONS:

While the WTO Agreement permits tariffs as a means of industrial protection, it also seeks to gradually reduce those tariffs through negotiations among Member countries.

Reducing tariffs mitigates the "loss of efficiency" costs generated by the distortions to the price system that the tariff causes. Reducing the degree of market protection also expands the market, allowing producers in exporting countries to enjoy economies of scale and bringing benefits to the economy as a whole.

In the agricultural sector of Canada, the Government continues to press for a more level international playing field, so that Canada’s producers and processors can compete more effectively in global markets. In particular, Canada seeks the elimination of all forms of export subsidies as quickly as possible, substantial reductions in trade-distorting domestic support, and real and significant market access improvements. In the development of common rules of origin for non-preferential trade, the Government’s objectives are to achieve common rules that provide transparency and certainty for traders and that reflect the global nature of the production and sourcing of goods and materials.

In addition, there was a situation where WTO had reduced tariffs in different ways. A major example is the Uruguay Round. The Uruguay Round of multilateral trade negotiations under the auspices of GATT established the World Trade Organization. Upon ratification of the Round's Final Act by members, the WTO replaced GATT as the global multilateral trade organization, and a series of agreements associated with but legally distinct from GATT were also placed under the WTO umbrella (such as the GATS, the Agreement on Agriculture).

The 1947 GATT emerged from wartime and post-war negotiations to establish a stable, multilateral economic order. The lengthy negotiating process (1944-7) reflected the controversial nature of the politics of international trade at domestic and international levels of bargaining: changing patterns of international trade could have dramatic and fairly immediate effects on domestic employment and income levels within and among national economies. While it has never proved possible to gain broad agreement on the extent of liberalization in most domains of international trade, it was accepted that the unilateralist and discriminatory practices of the inter-war period had had particularly negative consequences for all concerned.

Next, the USSR and its allies remained outside GATT, only considering membership at the end of the Cold War in 1989. Following the signature of the Havana Charter in 1948, the GATT was supposed to form the ‘rule book’ of the newly established International Trade Organization. The ITO charter prescribed a far more ambitious multilateral institution than the eventual WTO, but this was in part it’s eventually downfall. When the US failed to ratify the ITO charter, the institution was dead and only the ‘interim’ GATT survived.

The GATT agreement enunciated the principles of reciprocity and non-discrimination, encapsulated in the Most Favoured Nation and National Treatment concepts. National Treatment implies that governments cannot treat foreign exporting firms any less favorably than domestic producers. Reciprocity meant that any negotiations among trading partners were to yield roughly reciprocal concessions and/or benefits in the eyes of the parties. Non-discrimination meant that any trade concession advanced by a country to one GATT trading partner had to be extended to all others simultaneously. In this way, bilateral negotiations among trading parties would be ‘multilateralized’, leading to the establishment of a Liberal trading order.

GATT negotiating ‘Rounds’ were difficult due to the weak state of most post-war economies, and the extraordinary competitive edge of American industry at the time. Most economies would have experienced severe balance-of-payments difficulties had they removed barriers to imports, and domestic employment would have been adversely affected as well. As post-war recovery rendered more liberal trading policies acceptable, the American government sought to replace the piecemeal approach with reciprocal across-the-board tariff cuts by all participating parties on a wide range of traded products. This initiative developed into the ‘Kennedy Round’ agreements of June 1967, which stands as a watershed in post-war trade liberalization. Tariffs on manufactured goods were reduced by 36 per cent on average, and this progress was continued in the later Tokyo Round (1974-9).

As tariffs were lowered, non-tariff measures became the remaining instruments of trade policy. Examples were voluntary export restraint agreements and Orderly Marketing Arrangements, running against the spirit of GATT non-discrimination. As these were ‘voluntary’, GATT rules theoretically did not apply. Furthermore, the principles of liberalization called into question many economic policy measures associated with successful national economic development strategies in the post-war period, particularly in Japan, Europe, and the developing world.

The new WTO is not without tensions among its members and their societies, as its history would suggest is likely to be the case. Developing countries argue strongly that the WTO as constituted does not adequately take into account the difficulties and asymmetries of economic development under conditions of liberalization. Developed countries and the international organizations they control such as the IMF have put strong pressure on developing countries to liberalize their trade laws despite uncertain consequences for long-run development prospects. Developed countries are often less than generous in opening their markets to developing country exports, especially in the domain of agriculture and garment production.

Perhaps the biggest challenge to the WTO comes not from member states but from civil society groups such as non- governmental organizations. Many social activists in the anti- globalization movement draw attention to the difficulties of liberalization in both developed and developing countries, especially for the weaker members of society and less market-competitive forms of economic organization which may none the less be crucial to local identities and cultures.

Furthermore, organized labor maintains an uneasy relationship with the liberalization process, for fear of job losses. Finally, the emergence of the European Union (EU), the NAFTA, and other nascent regional arrangements such as MERCOSUR or the Asia Pacific Economic Co-operation Forum (APEC), are also potential challenges to young WTO. So far these regional arrangements have not emerged as discriminatory trading blocs, and the WTO expressly permits regional economic integration if compatible with its rules.

In short, Uruguay Round was the 8th round of Multilateral trade negotiations (MTN) conducted within the framework of the GATT, spanning from 1986-1994 and embracing 123 countries as "contracting parties". The Round transformed the GATT into the WTO The Round came into effect in 1995 and has been implemented over the period to 2000 (2004 in the case of developing country contracting parties) under the administrative direction of the newly created WTO. The Uruguay Round Agreement on Agriculture, administered by the WTO, brought agricultural trade more fully under the GATT. It provided the converting of quantitative restrictions to tariffs and for a phased reduction of tariffs. The agreement also imposed rules and disciplines on agricultural export subsidies, domestic subsidies, and sanitary and phytosanitary measures.

The 1982 Ministerial Declaration identified problems including structural deficiencies, spill-over impacts of certain countries' policies on world trade GATT could not manage. To address these issues, the eighth GATT round (known as the Uruguay Round) was launched in September 1986, in Uruguay. It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend the trading system into several new areas, notably trade in services and intellectual property, and to reform trade in the sensitive sectors of agriculture and textiles; all the original GATT articles were up for review.

The round was supposed to end in December 1990, but the US and EU disagreed on how to reform agricultural trade and decided to extend the talks. Finally, In November 1992, the US and EU settled most of their differences in a deal known informally as "the Blair House accord", and on April 15, 1994, the deal was signed by ministers from most of the 123 participating governments at a meeting in Marrakesh, Morocco. The agreement established the World Trade Organization, which came into being upon its entry into force on January 1, 1995, to replace the GATT system. It is widely regarded as the most profound institutional reform of the world trading system since the GATT's establishment.

Furthermore, the aim of World Trade Organization was to reduce agricultural subsidies to put restrictions on foreign investment, and to begin the process of opening trade in services like banking and insurance for Uruguay Round.

Next, there is the Doha Development Round or Doha Development Agenda (DDA). Began in November 2001, committing all countries to negotiations opening agricultural and manufacturing markets, as well as trade-in-services (GATS) negotiations and expanded intellectual property regulation (TRIPS). The intent of the round, according to its proponents, was to make trade rules fairer for developing countries. However, by 2008, critics were charging that the round would expand a system of trade rules that were bad for development and interfered excessively with countries' domestic "policy space".

Consequently, there is considerable contention against and between the EU and the USA over their maintenance of agricultural subsidies-seen to operate effectively as trade barriers. The Doha Round began with a ministerial-level meeting in Doha, Qatar in 2001. Subsequent ministerial meetings took place in Cancún, Mexico (2003), and Hong Kong (2005). Related negotiations took place in Geneva, Switzerland (2004, 2006, and 2008); Paris, France (2005); and Potsdam, Germany (2007).

Furthermore, the most recent round of negotiations, 23–29 July 2008, broke down after failing to reach a compromise on agricultural import rules. After the breakdown, major negotiations were not expected to resume until 2009. Nevertheless, intense negotiations, mostly between the USA, China, and India, were held in the end of 2008 in order to agree on negotiation modalities.

However, these negotiations did not result in any progress. Doha Round talks are overseen by the Trade Negotiations Committee (TNC), whose chair is the WTO’s director-general, currently Pascal Lamy. The negotiations are being held in five working groups and in other existing bodies of the WTO. Selected topics under negotiation are discussed below in five groups: market access, development issues, WTO rules, trade facilitation and other issues.

After intense negotiations in late July 2004, WTO members reached what has become known as the Framework Agreement (sometimes called the July Package), which provides broad guidelines for completing the Doha round negotiations. The agreement contains a 4-page declaration, with four annexes (A-D) covering agriculture, non-agricultural market access, services, and trade facilitation, respectively. In addition, the agreement acknowledges the activities of other negotiating groups (such as those on rules, dispute settlement, and intellectual property) and exhorts them to fulfill their Doha round negotiating objectives. The agreement also abandoned the 1 January 2005 deadline for the negotiations and set December 2005 as the date for the 6th ministerial to be held in Hong Kong.

The first WTO ministerial conference, which was held in Singapore in 1996, established permanent working groups on four issues: transparency in government procurement, trade facilitation (customs issues), trade and investment, and trade and competition. These became known as the Singapore issues. These issues were pushed at successive ministerial by the European Union, Japan and Korea, and opposed by most developing countries. Since no agreement was reached, the developed nations pushed that any new trade negotiations must include these issues.

Moreover, the negotiations were intended to start at the ministerial conference of 1999 in Seattle, USA, and be called the Millennium Round but, due to several different events including protest activity outside the conference (the so-called "Battle of Seattle"), the negotiations were never started. Due to the failure of the Millennium Round, it was decided that negotiations would not start again until the next ministerial conference in 2001 in Doha, Qatar. Before the Doha ministerial, terrorists had attacked the United States on 11 September 2001. Some government officials called for greater political cohesion and saw the trade negotiations as a means toward that end. Some officials thought that a new round of multilateral trade negotiations could help a world economy weakened by recession and terrorism-related uncertainty. According to the WTO, the year 2001 showed "...the lowest growth in output in more than two decades," and world trade contracted that year.

Next, the GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the Uruguay Round. The GATT 1994 is not, however, the only legally binding agreement included in the Final Act; a long list of about 60 agreements, annexes, decisions and understandings was adopted. In fact, the agreements fall into a simple structure with six main parts namely; an umbrella agreement, agreements for each of the three broad areas of trade that the WTO covers: goods and investment, General Agreement on Trade in Services, and Agreement on Trade-Related Aspects of Intellectual Property Rights, dispute settlements, agreement on Customs Valuation and reviews of governments’ trade policies.

Furthermore, there was another case where the WTO has reduced significantly the level of tariffs was in 2001 where the WTO invited member countries to negotiate the reduction or elimination of tariffs barriers applied on Environmental Goods and Services (EGS). EGS range from products good for the environment such as biodegradable material, to goods produced in an environmentally friendly way such as organic food, to goods that go into the making of environmentally friendly products, e.g. components that go into the manufacturing of a windmill. The objective was a "triple‐win"– notching up trade, aiding the environment and buoying development. If countries could coordinate on lower tariff and non‐tariff barriers applied to environmental goods, the decrease in costs would encourage the production, trade and use of environment‐friendly technologies and stimulate innovation and technology transfer. With the lowering of barriers in high‐income countries, developing countries could more easily produce and sell EGS products in the markets of high-income countries, and also buy high quality EGS products from global markets. Making environmental goods cheaper and more accessible to everyone would, in turn, raise global energy efficiency, improve water and sanitation in developing countries, and reduce emissions. As long as the definition of what an environmental good or service was kept broad – to encompass a wide range of products and services that avoided damaging the environment, and as long as countries participated wholeheartedly, the scheme could work.

Notwithstanding these real successes, international agreement on a coordinated scheme for EGS tariff reduction has proved elusive. While the WTO provided impetus and a talking space for negotiations, the motives moving individual countries were not always aligned with the inherent value of freeing up trade on environmental goods. Partly, this was a coordination problem. For instance, countries have yet to agree not even on which goods should be singled out for liberalization, but even on how one should think about selecting them. Some have proposed a list approach whereby a list of products was to be unanimously agreed upon. To date, four lists have been proposed with little overlap or common logic.

For instance, of the 44 products proposed by Saudi Arabia under the "Environmental Technology" heading, other countries classified only 3 as belonging to this category. Developing countries like the Philippines argue that many products on the lists that are currently on the negotiating table are of export interest primarily to industrialized nations.

India and Argentina have proposed a different approach based on ‘define‐by‐doing’, where national authorities would select projects that would temporarily benefit from increased market access. Brazil, pulling in another direction, proposed a ‘request‐offer’ approach that might better reflects the interests of developing countries. Countries would request specific tariff cut commitments on products of interest, and all WTO members would then undertake these tariff cuts. The list approach has been gaining increasing traction in spite of the difficulties of agreeing on a common list.

In addition there was another case which show that WTO has significantly reduces the level of tariffs where the agreement of agriculture (AOA) in the WTO implies that country members should cut their high agricultural tariffs by specific percentages to achieve the so-called "market access". This terminology is newly invented, and it became known after Uruguay Round. Market access means the accession of foreign commodities to the national market, as well as accession of national commodities to the foreign market. National and foreign commodities should be treated equally in member countries’ markets, without any discrimination. According to the AOA, tariff cut percentages are as follows:

Developed countries were required to reduce their tariffs by an average of 36%, with a minimum per tariff line reduction of 15%, over 5 years.

Developing countries were required to reduce their tariffs by 24% overall, with a 10% per tariff line minimum, over 9 years.

Least Developed Countries (LDCs) were exempted from tariff reductions, but either had to convert non-tariff barriers to tariffs or bind their tariffs so that they could not be raised in the future.

There was another case where Developing countries do rely on trade taxes (primarily tariffs) more heavily than developed countries, but this reliance has diminished in recent years. Importantly, 2000-2001 IMF data indicate that across all developing countries, import duties have on average accounted for approximately 15% of total government revenue, down from 18% in 1991-1992.

Another study finds that during the 1990’s, 49 of the 108 developing countries reduced their dependence on import duties by more than 30%. Pakistan, for example, relies on import duties for only 8% of its total government revenues in 2002, compared to 29% in 1992. For Malaysia, the 2001 figure is just 6%.

Ample evidence exists that the reduction and gradual elimination of tariffs will stimulate, rather than reduce, tariff and other revenue sources. Reasons include:

● lowering tariffs stimulates imports via price reductions. Because lower tariff rates almost always translate into lower prices, the quantity and value of imports is likely to rise. Sufficient increases in import demand can completely offset tariff cuts such that total tariff revenue actually rises: a "Laffer-Curve"- type impact. Researchers have documented many examples in which a country’s trade liberalization was followed by steady or even rising tariff revenue; e.g., Ghana, Malawi, Senegal, the Philippines, Mexico, and many Caribbean nations.

● reducing high tariffs increases trade law compliance by removing incentives to avoid taxes through smuggling, bribery, underreporting import values, and misclassifying products for duty purposes. One study, for example, found that a 1% increase in Chinese tariffs resulted in a 3% increase in tariff evasion—with even larger magnitudes at higher tariff rates. Evasion occurs both via value underreporting and product misclassification.

● eliminating tariffs creates dynamic economic gains. However, there are Non-tariff measures, which are seriously hampering trade between nations. They are non-tax measures imposed by the Government to favor domestic over foreign suppliers. They are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are enacted.

DEFINITION OF NON- TARIFF BARRIERS:

Non-tariff barriers (NTBs) refer to the wide range of policy interventions other than border tariffs that affect trade of goods, services, and factors of production. Most taxonomies of NTBs include market-specific trade and domestic policies affecting trade in that market. Extended taxonomies include macro-economic policies affecting trade. NTBs have gained importance as tariff levels have been reduced worldwide. Common measures of NTBs include tariff-equivalents of the NTB policy or policies and count and frequency measures of NTBs. These NTB measures are subsequently used in various trade models, including gravity equations, to assess trade and/or welfare effects of the measured NTBs.

TYPES OF NON- TARIFFS MEASURES:

1. Specific Limitations on Trade:

Quotas

Import Licensing requirements

Proportion restrictions of foreign to domestic goods (local content requirements)

2. Customs and Administrative Entry Procedures:

Valuation systems

Antidumping practices

Documentation requirements

Fees

3. Government Participation in Trade:

Government procurement policies

Export subsidies

Countervailing duties

Domestic assistance programs

4. Charges on imports:

Prior import deposit subsidies

Administrative fees

Special supplementary duties

Import credit discriminations

Border taxes

5. Others:

Voluntary export restraints

Monetary Barriers

USE OF NON- TARIFF BARRIERS:

Governments can also use non-tariff barriers to accomplish the same objective of protecting domestic industries and/or raising additional revenues.

The first non-tariff barrier is the use of license. A license is granted to a business by the government, which allows the business to import a certain type of good into the country. For example, there could be a restriction on imported meat, and licenses would be granted to certain companies allowing them to act as importers. This creates a restriction on competition and increases prices faced by consumers.

Second non-tariff barrier is an import quota. An import quota is a restriction placed on the amount of a particular good that can be imported. This sort of barrier is often associated with the issuance of licenses. For example, a country may place a quota on the volume of imported fish that is allowed.

Third is Voluntary Export Restraint (VER). This type of trade barrier is "voluntary" in that the exporting country rather than the importing country creates it. A voluntary export restraint is usually levied at the behest of the importing country and could be accompanied by a reciprocal VER. For example, Brazil could place a VER on the exportation of sugar to Canada based on a request by Canada. Canada could then place a VER on the exportation of coal to Brazil. This increases price of both coal and sugar but protects the domestic industries.

Fourth, local content requirement is a clever way by which governments boost their local industry, stimulate growth in specific sectors and encourage technology transfer. Instead of placing a quota on the number of goods that can be imported, the government can require that a certain percentage of a good be made domestically.

BENEFITS OF NON- TARIFF MEASURES:

In reality, the benefits of tariffs are uneven. Because a tariff is a tax, the government’s revenue will increase as imports enter the domestic market. Domestic industries also benefit from a reduction in competition since import prices are artificially inflated.

Unfortunately, for consumers – both individual consumers and businesses –higher import prices mean higher prices for goods.

A point to note is that the effect of tariffs and trade barriers on businesses, consumers and the government shifts over time. In the short run, higher prices for goods can reduce consumption by individual consumers and by businesses. During this period, businesses will profit and the government will see an increase in revenue from duties.

In the long run, businesses may see a decline in efficiency due to a lack of competition and may also see a reduction in profits due to the emergence of substitutes for their products. For the government, the long-term effect of subsidies is an increase in the demand for public service, increased prices, especially in foodstuffs, and this leaves less disposable income.

Tariffs increase the prices of imported goods. Because of this, domestic producers are not forced to reduce their prices from increased competition and domestic consumers are left paying higher prices as a result. Tariffs also reduce efficiencies by allowing companies that would not exist in a more competitive market to remain open.

In reality, the role tariffs play in international trade has declined in recent times. One of the primary reasons for the decline is the introduction of international organisation designed to improve free trade, such as the World Trade Organisation (WTO). Such organisations make it more difficult for a country to levy tariffs and taxes on imported goods and can reduce the likelihood of retaliatory taxes.

Because of this, countries have shifted to non-tariff barriers, such as quotas and export restraints. Organisations like the WTO attempt to reduce production and consumption distortions created by tariffs. These distortions are the result of domestic producers making goods due to inflated prices, and consumers purchasing fewer goods because prices have increased.

Some common benefits of non- tariff measures include:

– Lower transaction costs for businesses (e.g. bureaucracy, exchange rate fluctuation);

– Larger market size, economies of scale;

– Improved competitiveness, lower cost, higher profitability;

– Cheaper, better goods and services, more choice and innovation, price convergence;

– Rising sales and profits for the most cost-effective producers;

– Reduction in consumer prices;

– Increase in GDP and employment;

– From a landlocked country to a land linked economy;

– Bring down the cost of transportation;

– Wider market to attract investors;

– Best practices in developing business environment;

– Wider skill base in the region;

– Expansion of investments through joint ventures;

– Increasing specialization, need for cross-border markets;

– Increased pressure from competition;

– Protection of IPR;

– Strong voice in global trade negotiations such as WTO, EPAS, TIFA’s, AGOA, etc.;

– Removal of internal tariffs and non tariff barriers to trade, such as multiple charges and levies at intra-EAC border crossing points, cumbersome customs administration procedures, restrictive licensing practices, road blocks, weigh bridges, new NTBs implemented to compensate for the elimination of tariffs under the Customs Union etc. . .

In conclusion, free trade benefits all stakeholders even though it may not be mutually beneficial. Because of the benefits, multilateral agencies have been put in place to ensure fair trade.

That notwithstanding, there is a delicate balance between the pursuit of efficiencies and the government’s need to ensure low unemployment, and therefore, impediments to free trade still prevails to the disadvantage of developing countries and global growth.

HOW TO MEASURE NON- TARIFF BARRIERS?

One of the main questions in study of the NTB is a methodology of their measurement. The problems exist because of non-transparency of the NTB, their variety, and disparity in influences. There are several types of non-tariff barriers measurement: frequency measures, price-change measures, quantity measures, rates of assistance and indices deflators.

Frequency measures

There are two types of frequency measures: frequency ratio and import coverage ratio (Laird & Yeats, 1990). Both of them are based on calculation of ratio of commodity lines subject to at least one NTB in total number of lines for the respective group of trade nomenclature.

Frequency method is extensively used by the UNCTAD as the most easily available, transparent and universal measurement technique. They measure the existence of NTB across products. The frequency ratio indicates the proportion of tariff lines that are affected by NTB, irrespective of whether the products are actually imported.

For import coverage ratio, the value of imports of commodities subject to at least one NTB is used as a weight instead of number of categories. That allows introduce time factor in the measurement of NTBs, as well as better evaluate importance of particular NTBs for the trade as a whole. This ratio indicates the share of imports that are subject to NTBs.

Price-change measures

Measures based on evaluation of changes in price due to introduction of the NTBs are the most useful. Alternative to other measures, they allow direct comparison between influence of tariff and non-tariff trade barriers. Moreover, these measures are deeply rooted in international trade theory that formulates an influence of trade restrictions in terms of price and quantity changes.

There are generally two methods for quantifying the price-effects of NTBs, which are price comparisons and quota-auction price measures.

Price comparisons

It involves comparing the observed domestic price of the imported product covered by the NTBs with its world price. To be reliable, such comparisons must be made between the same products.

Quota-auction price measures

Auctioning import quota entitlements not only increases the transparency of the NTBs, but is also itself the most efficient means of allocating the quota. In a competitive market, those who value the quota the most and are prepared to pay the highest bid would be the most efficient users.

Quantity-impact measures

Instead of measuring price effects, the quantity-effects of NTBs could also be estimated. These would directly measure the impact of NTBs on trade. At the very least, they require a robust model for attempting to measure what the volume of trade would be possible without the NTBs. Such measures normally use a gravity-type model to predict what trade flows would have been without the NTBs and use statistical techniques to attribute the difference to the effects of NTBs.

Rates of assistance

It is distinguished that there are two types of rates of assistance: nominal rate of assistance (NRA) and effective rate of assistance (ERA). NRA is based on calculation of an increase in the gross returns from production due to existence of protective measures including the NTBs. However, the most widespread is the ERA, initially introduced for tariffs by Max Corden (1966). Although theoretically correct, these measures require a lot of information that is not always readily available. Moreover, in the case of the ERA, it is very difficult to differentiate between different NTBs.

Indices - deflators

Anderson and Neary proposed this method of trade barriers estimation that could be applied both to tariff and non-tariffs in 90th. The authors constructed two indices – mercantilist trade restrictiveness index and trade restrictiveness index – that are defined as deflators that if applied to undistorted prices produce the same trade volume (for mercantilist index) or same real income (for trade restrictiveness index) as the initial set of trade distortions. These indices are very reliable in terms of their theoretical background.

To summarize, frequency measures appear to be the most applicable technique for the measurement of the general NTBs level in the country with quite high disaggregation in terms of commodity categories. Nevertheless, it still lacks comprehensiveness in identifying the role of separate NTBs as well as the severity of restrictions.

WHAT ARE COUNTRIES DOING TO REMOVE NON- TARIFF MEASURES?

It has been observed that as we enter 2013, the global economy remains steeped in uncertainty and very much in a state of low growth. Importing countries can be partners with poor exporting countries to raise quality standards through education, extension, and aid. This would increase investments in new agricultural markets in developing countries and support rural development.

CUTS International, in partnership with the Islamabad-based Sustainable Development Policy Institute and London-based Market Access Portal Limited, has initiated a project on potential benefits of reduction in non-tariff barriers in Indo-Pak trade. It intends to provide policy prescriptions on how non-tariff barriers in some selected sectors can be removed or replaced with less time-consuming measures.

Regional integration efforts in Southern Africa have made significant progress in lowering tariff barriers to regional trade. For example, SADC has been trading on preferential terms since 2000 and based on the implementation of tariff phase down commitments under the SADC Trade Protocol launched a free trade area (FTA) in August 2008.

In the Southern African context, borders remain thick as major obstacles to regional trade remain. A mapping of the various NTBs reported by firms in SADC countries to trade flows in the affected sectors shows that these barriers impacted US$3.3 billion of regional trade in 2008, or one-fifth of regional exports. In other words, even those barriers, which have been reported, are affecting products in which there is already significant regional trade. This is also a least cost estimate of the impact of NTBs on trade in the region since some barriers are so restrictive that preferential trade is effectively prohibited e.g. wheat flour. So NTBs are widespread in their effect on regional trade.

Mechanism for the monitoring the elimination of NTBs and launching it in all Partner States; establishing the institutions for removal of NTBs including national and regional monitoring mechanism; developing a time bound NTBs programme which is constantly being updated; and developing an online reporting mechanism for NTBs are being initiated. In addition NTBs are being discussed within the customs, infrastructure, standards, immigration and private sector in the efforts to tackle the problem within relevant authorities.

Tariffs for goods production were lowered during the eight rounds of negotiations in the WTO and GATT. After reduction of tariffs, the principle of protectionism demanded the introduction of new NTBs such as technical barriers to trade. According to statements made at United Nations Conference on Trade and Development (UNCTAD, 2005), the use of NTBs based on the amount and control of price levels has decreased significantly from 45% in 1994 to 15% in 2004.

There is no presumption regarding the legitimacy of NTMs that have not been subject to challenge at the WTO.

New Zealand suggested that the following issues be taken into consideration:

Issues that might be addressed in negotiations elsewhere under the Doha mandate

Proposals involving substantial change to existing WTO agreements

Proposals including clarification of existing rules

Issues concerning disputed interpretation of rules

Issues open to bilateral resolution

India suggested that the following issues be considered:

Legitimate instruments used by developing countries under the WTO agreements for development of their industries should not be included as NTBs

Several Members felt that the following NTBs should be excluded:

NTBs relating to existing WTO Agreements e.g. Customs Valuation, Import Licensing that are not subject to a specific negotiating mandate

NTBs relating to other WTO Agreements which are also the subject of a negotiating mandate e.g. AD, CVD

NTBs that are already part of the Doha Declaration e.g. Trade Facilitation, Transparency in Government Procurement

In a recent incident, China announced a ban on imports of Argentine soya oil worth US$2 billion stating that Argentine oil failed to meet China’s quality standards but it also acknowledged that the move was a reprisal for Argentine anti-dumping measures in textile and other sectors (Financial Times, April 5, 2010). Firm surveys on the impact of NTMs like those conducted by the International Trade Centre, have shown that even without protectionist intent, NTMs can raise trade costs, divert managerial attention, and penalize small exporters and those located in low-income countries where access to legal and regulatory information is difficult. Countries imposing NTMs may end up hurting their own competitiveness by making it difficult for domestic producers and exporters to access critical inputs in a timely fashion.

NTBs are increasingly significant and varied which can be more difficult to overcome. Some NTBs have sensitive cultural and social issues or appeal to legitimate concerns, which must be considered. Other NTBs can create unjustified obstacles to fair trade and can come in many forms such as technical regulations, standards and conformity assessment procedures and barriers to trade in services and investment.

Trade barriers can also be created if countries breach the rules and commitments they have legally entered into - mainly WTO or bilateral trade agreements. This may be as a result of poor interpretation, misunderstanding of agreements, or may be intentional.

Finally NTM reviews should be seen as part of national competitiveness agendas rather than as concessions to trading partners. When NTMs are perceived by the domestic private sector as hampering access to key inputs, business regulatory reviews should naturally lead to NTM reviews. Joint use of the triangle of products would facilitate the coherent national competitiveness strategies centered on the reduction of trade costs.

CONCLUSION :

The World Trade Organisation has contributed to a great extent for the reduction of tariffs. Both tariffs and non- tariffs barriers are important. The fact that non- tariffs measures encourage competition among countries, which is today in this globalized world an important factor, governments in most countries are working in order to minimize the level of tariffs. However, by reducing trade barriers, importing and exporting of goods and services have been easier, therefore making cost of those extremely low because of the increased availability of products in the market. Producers are not satisfied with the cash- inflow in their respective companies. Thus, since several years now, countries are finding ways in which non- tariff measures can be eliminated.