Impact of NTBs on exporting countries

The NTBs (Non tariff barriers) are less transparent, difficult to identify and their impact on exporting countries is almost impossible to quantify. It contravenes widely accepted principles of non-discrimination and transparency in measures to restrict trade principles which remain sound. NTBs usually discriminate against the lowest cost sources of imports. Over the years, the NTBs have been becoming more and more extensive and intensive. Today they are not confined to the labor intensive products where the developing countries have an advantage but also cover sophisticated products. Japan and the newly industrializing countries (NICs) like S. Korea are among the most affected countries by NTBs. Developing country exports are also significantly affected by them. However, the NTBs have become to affect the intra-OECD (i.e. trade between developed economies) also. The NTBs tend to offset favorable of the GATT/WHO negotiations on trade liberalizations like the reductions in the average levels of tariffs.

As a matter of fact, several advanced countries like USA who were high priest of free trade increasingly resort to several NTBs particularly against the developing countries and certain countries like Japan.

NTBs seriously affect many exporting countries. As pointed out earlier, developing country exports to developed countries face considerable NTBs. In several cases, the impact is very severe. For example, the VER covering the tapioca exports of Thailand to the European Community, established in 1982, caused its tapioca exports to decline by 40% and its export earnings to fall by about $300 million (representing somewhat over 10% of Thailand’s total export earnings from the EC). However, such draconic VERs which not only reduce the growth rate but also the level of exports has not been widely applied to non-apparel exports of developing Asian countries other than Korea.

As the Asian Development Bank study points out, with the reduction of the average tariff levels in the industrial countries, non-tariff barriers to imports of manufactures have increased in relative importance in these countries, including in categories of labor intensive and other products for which less developed countries have a strong comparative advantage. Moreover, through the exercise of various forms of administrative protection, non-tariff have increased kin importance in absolute terms and have been applied with increasing discrimination, causing bilateral trade arrangement in many cases to reign over more globally efficient multilateral trade arrangements and threatening the gains, especially to less developed countries, of negotiated tariff reductions.

Apparel exports are the most affected of the developing countries because of such barriers. This has been done mostly by the Multi-Fiber Arrangement (MFA) which constitutes a restrictive system, imposing economic costs on the economies of developing as well as industrial countries. Several of the country studies cite instances of lost apparel exports, production and employment due to reporting, certification and other problems involved in administering bilateral MFA agreements, whereby the system of administrative controls creates such uncertainties, especially for new exporters or financially weak firms, that export production must be curtailed or abandoned by many firms. Another important cost of the MFA is rent seeking i.e. established exporters tend to enjoy greater than perfectly competitive returns from their export sales since quota rights enable them to sell in protected markets.

NTBs also cause diversion of production and exports. For example, some Indian textile and apparel firms decided to set up manufacturing facilities in Nepal in order to circumvent MFA quota controls on their exports from India and to avoid the local costs of purchasing added quota rights. Similarly, exporters have attempted to diversify their exports to non-quota countries.