Why trade barriers need to be reduced

Why swop barriers charter to be reduced all every manoeuver the last thirty years, the environment in which multi subject business ope pass judgment has sprain subject to the forces of globalisation and change magnitude world integration. unmatchable baron even so say that globalisation is the buzzword of economics at once. Consequently, to puzzle the world as one, the requirement to reduce flip-flop barriers amongst countries summons. To support this view, the WTOs Doha ontogenesis Agenda ( in like manner known as the Doha binge) states that the non-agri ethnic market access (NAMA) negotiating crowds economy is to reduce, or as appropriate, eliminate dutys, including the lessening or elimination of responsibility peaks, high taxs, and tariff escalation, as well as non-tariff barriers, in point on products of exportation interest to evolution countries. The economic conditional relationance of non-tariff measures (NTMs) has thus, heraldic bearing the main concern of many countries around the world.Moreovever, with the steady decrease in worldwide tariffs accomplished in the various rounds of multilateral swop negotiations over the ultimo several decades, the attention of both insurance- catchrs and economists has turned to the role contend by non-tariff manners of protection. Especially for the intention of negotiations, it is logical implicationant that the impacts of these NTMs be quantified. Yet this has turn up difficult. Variation crossways countries in product scathes is due to many factors of which NTMS argon just one. In addition, there argon many types of NTMs that is to say quotas, non-automatic licensing, bans, prior authorization for protection of human health, local anaesthetic content requirements, among early(a)s which support the phylogenesis of a simple uniform method to convert the tack together of these standard controls into tariff-equivalents. just, the domain cunning touchment (WTO) which is a n international body with the purpose of promoting free cunning by persuading countries to abolish import tariffs and other barriers, has contend an cardinal role in the consideration up of the non-tariff measures. However, the mushrooming of non-tariff measures globally, whitethorn to a fault have adverse effects on the economy of a region and the presidential term has to take appropriate actions to protect mint.1.0 World Trade Organisation1.1 What is the WTO?The WTO is the only global international organisation dealing with the rules of change between nations. At its heart argon the WTO agreements, negotiated and signed by the bulk of the worlds concern nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters and importers conduct their business, while allowing governments to digest fond and environmental objectives. The systems overriding purpose is to help switch over decrease as freely as possible which partly aut hority removing obstacles.1.2 skeleton History of the WTOThe World Trade Organisation became operational in 1995. One of the youngest of the international organisations, the WTO is the successor to the General Agreement on obligations and Trade (GATT) formal after World War II. GATT and the WTO have helped to create a salubrious and prosperous vocation system contri furthering to unprecedented growth. The exceptional growth in world trade during the past 50 years is as follows Merchandise exports grew on average by 6% annually and marrow trade has summationd 22 times from 1950 till 2000.The WTO developed after several rounds of negotiations on a pull down floor GATT. The start-off-year rounds dealt in the main with tariff reducings but later, negotiations include other atomic number 18as such as anti-dumping and non-tariff measures. The last round which led to the WTOs knowledgeability was the Uruguay Round.The following table illustrates the diametric round which took place and the retorts which were hold forthed.1.3 Functions of the WTOThe WTO throw out be viewed from different angles. Apart from being an organisation for trade liberalisation, it is a meeting place for governments to negotiate trade agreements. The WTO is also a place for settlement of trade disputes which is rules-based. Hence, the main functions of the WTO be described below1.3.1 Administering WTO trade agreements1.3.2 Forum for trade negotiationsThe core activity of the WTO is to negotiate between the members on how to decrease trade barriers worldwide. Thus, the WTO fork overs the forum for negotiations among its members concerning their multilateral trade relations in matters dealt with under the agreements and a framework for the carry outation of the results of such negotiations, as whitethorn be opinionated by the Ministerial Conference. However, it is must be none that although the main objectives of the WTO is to reduce trade barriers between countries an d liberalise trade, the WTO will maintain the trade barriers in circumstances like protection of consumers and prevention of diseases.1.3.3 discourse trade disputesHandling trade disputes is the third important aspect of the work of the WTO. Even trade agreements which have been meticulously negotiated whitethorn create conflicts between governments. Hence, the best room to settle these differences is by whatsoever neutral procedures based upon a legal framework. This is the reason for which WTO agreements exist.1.3.4 Monitoring trade policiesThe WTO agreements ar negotiated and signed by the worlds trading nations. These documents provide the legal aspects of international trading. They are mainly contracts, binding governments to upkeep their trade policies within the agreed limits. Although these agreements are negotiated and signed by governments, the aim is to help producers of goods and services, exporters, and importers conduct their business while also allowing gove rnments to meet amicable and environmental objectives.The main purpose of this system is to help easy commingle of trade and prevent side effects. This is important so as to provide a better economic development of a country. Moreover, these rules need to be transparent and predictable.1.3.5 Technical assistance and training for developing countriesThe WTO provides guidance to countries on complex issues. It also provides support and training to developing countries in put up to help them to fully integrate the system.1.3.6 Cooperation with other international organisationsAlong with other international firms and organiations, the WTO is constantly looking for new measures about how to reduce tariffs and upraise equal trading rights among all nations.2.0 Non-tariff measuresIt is wide recognised that non-tariff measures (NTMs) are more than than than economically harmful to the world trading system and individual countries than tariffs (Bosworth, 1999). firearm tariffs have b een reduced by multilateral trade negotiations, NTMs have emerged as alternative measures to protect home(prenominal) industries, particularly in the 1970s and eighties in response to the drastic tariff reductions in developed countries. Tariff reduction or elimination would blend no doubt frightful if alternative trade impeding measures prevent trade liberalisation and expend social welfare.In fact, the WTO is actively identifying and analysing non-tariff measures (NTMs) which are the less apparent restrictions on the free flow of trade. Although the identification and analysis of NTMs has significantly evolved, understanding their spirit and trade effects upholds a challenge for analysts and policymakers.Moreover, it is important to highlighting that the OECD has engaged itself to make use of the available information in trying to increase free flow trade and implement policies in reducing tariff measures.2.1 Definition of NTMsDespite increasing concerns on NTM issues bec oming a skilful impediment to international trade, there is no consensus on a exposition of the explicit revolve of NTMs. NTMs are composed of whichever measures other than tariffs that distort international trade, regardless of whether they are border or internal types of measures. NTMs are specify as policy measures, other than ordinary impost tariffs, that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both. The term NTM has been widely used in the GATT and the UNCTAD.Baldwin (1970) defines NTMs as any measure (public or private) that causes internationally traded goods and services, or resources addicted to the issue of these goods and services, to be allocated in such a way as to reduce potential real world income.The East African Communitys on the job(p) definition of NTMs is quantitative restrictions and specific limitations that act as obstacles to trade (World entrust 2008 iii). NTM definitions are generally residually defined any trade barrier that is non a tariff is a non-tariff barrier. This creates ii problemsthe rationale for trade barriers is non discussed andthe number of NTMs becomes very high and their nature diverse.Based upon Laird and Vossenaar (1991), NTMs are classified tally to the instant impact of the measure. The measures set are slanted belowMeasures to control the book of imports.Measures to control the price of imported goods.Monitoring measures, for example price and masses investigations and surveillance.Production and export measures.Technical barriers.NTMs whitethorn hang legitimate social objectives or they may be musical instruments of protectionism. These two options may even be mixed as a NTM may be designed to serve a legitimate objective, but vested interest may influence to policy process to affect each the design or the implementation of the NTM to their advantage. importing quotas function much like tariffs and are an example of an mongrel NTM. fodder safety standards are an example of a potentially legitimate NTM. The standards are set to safeguard public health and if that is their true function they are legitimate. They may, however, be misused, for instance, by requiring bellly test procedures for imports. In that case, they are illegitimate and should be either removed or redesigned or be implement in a non-discriminatory way.2.2 Non-tariff measures in WTO trade policies reviewsRegulations and other non-tariff barriers are speedily overtaking tariffs as the main obstacle to trade. The WTO has a unique instrument that could be used to shed much necessitate light on these measures.The WTO secretariats trade policy reviews (TPRs) contain long percentages on the tariffs, subsidies and anti-dumping duties in place in the country under scrutiny. Dealing with these instruments is a gratifying since it is relatively easy to calculate average tariffs, add up subsidies and count anti-dumping measures. eac h protectionist intent or harmful effects for the economy are straight understood by most readers.The WTOs TPRs give short shrift to regulatory trade barriers. Their treatment is generally short, superficial and unsystematic. This take-it-easy approach is becoming increasingly problematic. Tariffs and subsidies are on a long-term downward trajectory (despite the current crisis), whereas non-trade regulating with serious effects on trade is abounding.It is time for the TPRs address this challenge. A starting point would be a well-organised and comprehensive overview of the regulations in place and future legislative intentions. In order to permit comparison across time and countries, this should be complemented with such quantitative and standardised interpretations of regulatory barriers as can be assembled at reasonable cost. If reliable analysis of trade and welfare effects of regulatory barriers is available, it should also be included in the TPRs.The most important aspect, ho wever, should be a thorough and critical interrogatory of policy-making processes. TPRs should report on a reheel of key policy-making characteristics and compare them to best practice standards.The reviews should, for instance, offer a clear description of how countries arrive at sanitary and phytosanitary (SPS) measures. This could be done by focalization on the procedural provisions that WTO Members take to implement their obligations under the SPS Agreement.In sum, TPRs could be an important tool for tackling excessive trade barriers arising from non-tariff measures without having to go through dispute settlement. It could harness the precedent of foil triggering international and domestic help hug to remove unjustifiable barriers and to improve decision-making procedures so that inappropriate measures are not taken in the first place. But this would require giving more authority and resources to the WTO secretariat. Ideally, TPRs on non-tariff measures would be publishe d as a start report.If the WTO addresses the transparency challenge, it can expedite unilateral liberalisation and prepare a better starting ground for future multilateral negotiations. While intensify treatment of non-tariff measures needs special attention, a broader change is required. TPRs should be transform from a diplomatic exercise in Geneva into a transparency instrument that involves the stakeholders in the country under review.This implies that the process of writing reviews should become open to public scrutiny and allow for improved stakeholder participation. Such changes would facilitate greater analytical depth and critical rigour, and they would instil a mind of domestic ownership. A further step would be to present and discuss the TPRs in the country under review.Success with this enabling long-term agenda could give meaning and energy to the WTO. It might even go some way in compensating for the damage to the prestige of the WTO resulting from the Doha quagmire .3.0 Classification of Non-Tariffs measures at that place are several types of non-tariff measures imposed by trading countries. According to the typology of NTMs pull up by the United Nations Conference on Trade and emergence (UNCTAD), these include non-tariff charges, quantitative restrictions, government participation in trade and resembling regulatory policies, customs procedures and administrative policies, and finally, skillful standards (UNCTAD 1994).These measures increase the cost of end product for companies serving in foreign markets, raising entry barriers with higher up-front cost and diminishing the ability of firms to compete in the process. The costs depend on the stringency of measures adopted, the required speed of implementation, the nature of the supply chain and the technological measures already in place in the exporters domestic market (OECD 2001). Thus, middle-income developing countries that already have relatively stringent technical and health stand ards, for example, might not experience a very high cost of revision vis--vis the NTMs adopted in developed export markets.Studies that examine the extent of NTM practical application in different countries often employ a classification system to distinguish among the myriad measures. One classification is the UNCTADs Coding System of Trade Control Measures. This system segregates NTMs intoprice control measuresfinance measuresautomatic licensing measures measuring stick control measuresmonopolistic measures andtechnical measures.Sanitary and phytosanitary standards (SPS), as well as technical barriers to trade (TBT), fall under the last group (technical measures), and are often found under the subcategories on product characteristics requirements and testing, and inspection and insulate requirements.The World Trade Organization (WTO), for its part, maintains the Negotiating Group on Market glide path for Non-agri heathen Products (NAMA) Inventory of Non-tariff Measures. This li st groups NTMs intogovernment participation in trade and restrictive practices tolerated by the governmentcustoms and administrative entry procedurestechnical barriers to tradesanitary and phytosanitary measuresspecific limitations andcharges on imports.The final source for the core NTMs Database is the World Trade Organizations TPR. Measures are compiled from those mentioned in the Trade Policies and Practices by Measure part of the TPR. Within this section, most nontariff measures are summarised in the introduction followed by a more detailed description of the types of measures and the products affected.Donnelly and Manifold (2006) examined the United States Trade Representatives subject field Trade Estimate Report on Foreign Trade Barriers, the European Unions Market Access Database, and the WTOs Trade Policy Reviews to compile a list of non-tariff measures reported by 53 countries. Because these three sources do not use a standard classification system, the authors made their own list of 15 categories. These areanticompetitive practices/ challenger policyintellectual property rightscorruptioninvestment-related measurescustoms proceduressanitary and phytosanitary measuresexport-related measuresservicesstandards, testing, certification and labelinggovernment procurementimport licensingstate-tradingimport prohibitionstaxes andimport quotas.3.1 Analysis of the NTMs3.1.1 Anticompetitive practices/competition policyThese measures allocate exclusive or special p adverts or privileges to one or more limited group of economic operators. Hence, accepted agencies may benefits from the exclusive importation of a range of products. An example will be the importation of salt and tobacco which are reserved for the respective state trading companies. Another example is that everlasting(a) petroleum is imported exclusively be the government.Moreover, for some products, the imported need to transact with the national service as some product need to insured by the gover nment and it should also require the use of national transport like ships, etc.3.1.2 Measures to increase price of importsMeasures used to implement the control of prices of imported articles in order to support the domestic price of certain products when the import price of these goods are lower establish the domestic price of certain products because of price fluctuation in domestic markets, or price instability in a foreign market and step down the damage resulting from the occurrence of unfair foreign trade practices.It includes the use of reference price mechanisms, variable levies, antidumping duties and countervailing measures. Tariff-type measures such as tariff quotas and seasonal tariffs also are usually intended to increase import prices under effrontery circumstances. Voluntary export price restraints fall under this broad course of intent. moant components under this heading are mainlyAdministrative setVoluntary export price restraintsVariable chargesAntidumping mea suresCountervailing measuresSafeguard dutiesSeasonal duties3.1.3 Import prohibitionsQuantity control measures are aimed at restraining the quantity of goods that can be imported, regardless of whether they come from different sources or one specific supplier. These measures can take the form of restrictive licensing, fixing of a predetermined quota or through prohibitionsThe export restraint agreements consist of voluntary export restraints. This mainly covers the measure employed for the administration of bilateral agreements under the Multi- Fibre administration and, more recently, the WTO Agreement on materials and Clothing and it also promotes an Orderly merchandising Agreements.An import licence is not granted automatically. The licence may either be issued on a discretionary al-Qaida or may require specific criteria to be met before it is granted. The uses of the products need also to be specified. E.g. Licence to import steel is granted only if it is used for the tress of a bridge. Non economic licences can also be granted for religious, moral, cultural or even political reasons. E.g. Imports of alcoholic beverages are permitted only by hotels and restaurants.A quota is a restriction of importation of specified products through the setting of a maximum quantity or value authorized for import.We have different types of quotasGlobal quotaGlobal Quotas are established on the basis of the total quantity or value of imports of specific products. It is classified in 2 sub section i.e. Unallocated quotas which uses the system of fist come first serve (e.g. Imports of chaff is subject to a maximum limit of 20 million lots per year from any country) and Quotas allocated to trade countries whereby the quotas are pre-allocated among exporters (e.g. Imports of wheat is subject to a maximum limit of 20 million tons per year allocated to exporting countries according to the average export performance of the past three years).Bilateral quotasBilateral quotas ar e for a specific exporting country. E.g. a maximum of 10 million tons of sugar may be imported from a certain Country.Seasonal quotasSeasonal quotas are established for a given period of the year, usually set for certain agricultural goods when domestic harvest is in abundance. An example will be quota for import of strawberries is established for imports from March to June each year.Quotas cogitate with purchase of local goodsIt is the percentages bought by the local importer.Quotas for non-economic reasonsNon economic quotas enclose religious, moral or cultural and political aspects of the quota.Tariff Rate QuotasIt is a system of multiple tariff rates applicable to a same product the lower rates apply up to a certain value or mountain of imports, and the higher rates are charged on imports which exceed this join.Quotas linked with domestic productionCompulsory linkage of imports (of materials or parts) with local production Example Import of coal is limited to the amount used in the previous year in the production of electricity.Other criteria like prohibition, geological fault and different types agreement of certain products are also included under this heading.3.1.4 Taxes other than customs tariffTax Measures, other than tariffs measures that increase the cost of imports in a similar manner, i.e. by fixed percentage or by a fixed amount.Customs Surcharges, Service charges like (Custom inspection, affect and servicing fees and Merchandise handling or storing fees), and additional taxes are the different types of tax that a certain type of products need to abide.3.1.5 Finance measures pecuniary measures are intended to regulate the access to and cost of foreign turn for imports and define the terms of payment. They can also contribute to increase import cost just like tariff measure.Advance payment whereby a sum of money is paid at the time the deal has been soaked and multiple exchange rate falls under this category.3.1.6 Trade-related investment m easuresThis section can be divided into Local content measures and trade fit measures.Local content measuresRequirement to use certain minimum levels of topically made component, restricting the level of imported components. E.g. Imports of clothing is allowed only if more than 50% of the materials used are originating from the importing country.Trade balancing measuresMeasures limit the purchase or use of imported products by an enterprise to an amount related to the volume or value of local products that it exports. E.g. A fraternity may import materials and other products only up to 80% of its export earning of the previous year.3.1.7 Export related measuresSubsidies may be directly employ to output or value added, or they may be indirectly applied, i.e. paid to material or other inputs into the production process. They may arise from payments or the non-collection of taxes that would otherwise be due. Restrictions by mean of taxes or prohibitions may also be imposed on produ ction or exports.4.0 takes of NTMs4.1 Problems caused by the mushrooming of NTMsBora (2003) identified three main consequences of the mushrooming the NTMs.The overall level of trade is lower than it should have been.Internationally prices are not at the levels dictated by the law of one price.The elasticity of trade flows to price changes is dampened.The first two points are basic to the economists rationale for trade, namely increasing efficiency. The last point, namely the dampened responsiveness of trade flows to price changes, is of major interest. Three issues have been identified and there areThe first issue is that, our global economy today has external imbalances of unprecedented size in absolute terms. The preferred factor to resolve these imbalances is through exchange rate flexibility. At the same time, it is usually observed that exchange rates tend to overshoot as the valuation reserve process unfolds. A dampening of trade elasticities would logically work to long- winded or weaken the try-on of external imbalances. Accordingly, imbalances might persist for lasting periods and potentially reach hulkingr dimensions while the exchange rate swings needed to correct those imbalances would be of even greater amplitude. Turning the argument around, increasing the responsiveness of trade flows to prices would cause more rapid external adjustment of imbalances to exchange rate corrections and thus reduce the chance of large imbalances arising in the first place. Without going so far as to make judgments concerning the quantitative significance of NTMs in the current problems of global adjustment, a proliferation of such measures might well be a contributing factor.Second, a sluggish response of trade flows to prices is effectively the same as a reduction in similarity of domestic and foreign goods and services. That is, there is an implicit reduction of the cross-price elasticity of imports vis--vis domestically produced goods. In turn, this means that price competition from imports is lower than it otherwise would be. NTMs that reduce the elasticity of imports thus not only press out protection to domestic producers from imports, they create increased monopolistic pricing power domestically, with implications for domestic policy. For example, in response to trade liberalization, governments appear to have been ordain to see greater domestic industrial consolidation in the tactile sensation this would promote export competitiveness, implicitly counting on competition in the domestic market being provided by trade. But if proliferating NTMs reduce the competition flowing from trade, we get the worst of all worlds which are limited domestic competition and ineffective trade competition. This is perhaps one of the factors prompting civil society response to globalization which targets growing corporate power.The third issue is that the gains from trade liberalization derive from the responsiveness of imports to changes in r elative prices through tariff reductions, a dampened price response will lead to bilk results from trade liberalization compared to expectations which are calibrated according to assumed stronger responses.4.2 Consequence of UNCTAD and WTO decisions on NTMsIt is inevitable that there is a certain arbitrariness in such a classification. For example, most measures, including technical barriers, have price and quantity effects. A glossary of individual non-tariff measures, derived from Laird and Yeats (1990), and based on the above quintuplet broad categories of NTMs. OECD (1994), dealing only with agriculture, lists some 150 measures or bodies administering country-specific schemes. In the UNCTAD classification these would fall within the more limited, but more general, list of individual measures, since many are simply national descriptions for a widely used basic measure.Typically, the objectives or motives for using NTMs range from the long-term swear to promote certain social a nd economic objectives, including broad economic, industrial or regional development, to shorter term purposes such as balance of payments (BOP) support or action to protect a specific sector from import surges or from dumped or subsidized imports. Price or volume control measures or subsidies have been usedIn any type of liberalization simulation, it may be important to look realistically at the likelihood of such measures being removed. It is unlikely that Governments will remove permanent controls on technical barriers to trade or on trade in arms, drugs, pornography and so forth, although technical barriers may become more harmonized. However, support for industrial development can be achieved in more open economies supported by improved macroeconomic management and realistic exchange rates. Furthermore, Governments seem attached to support for specific sectors (sometimes in key political constituencies) by means of hidden subsidies through government procurement and technology development (e.g. aircraft), but so far international disciplines on the use of such measures remain relatively weak. As a consequence, even after the Uruguay Round, there are still important peaks in sectoral protection in most countries, sometimes in the same sector, for example textiles and clothing.It is important to realize that GATT (including GATT 1994, negotiated in the Uruguay Round) does not ban the use of all NTMs. Laird and Vossenaar (1991) argue that after the Preamble and the first three articles of the GATT, which deal with the overall objectives of GATT, most-favoured-nation (MFN) treatment, tariff reductions and national treatment, one enters the domain of exceptions and sets of rules which deal at least as much with how and when protection may be imposed, especially by means of non-tariff measures, as they do with liberalization. The capital of Japan Round and Uruguay Round Agreements are a further extension of this idea, although the Uruguay Round results should see a reduction in the use of some important NTMs. For example, ERAs, the MFA, export subsidies and farm production support.4.3 NTM problems faced by Indonesian ExportersIndonesia may face NTM problems with countries like US, Japan and European countries, which are their main last for trading.The products selected will beAgricultural product (mainly palm oil and fisheries)Textile and garment productWood product (mainly plywood)Electronic (parts)Exporting to the USFootwear and garment product, Furniture Parts thereof Electronics and Parts and pictorial Rubber Latex among other are the most common commodities exported to the US. However the Indonasian exporters have been facing major problem due to the non tariff measure.In 2002, the US restricted the import of half-pints as the argued that not the proper method of harvesting was used and the sanction was imposed against the background of sea turn over conservation and shrimp import.In the year 2004, Several Asian countries shri mp commodities had been charged with US antidumping regulation.In steel and rubber products, the US government to collect antidumping fine from foreign competitors and disburse them to the affected US firms. This was protested by Indonesia and other countries in WTO panel meeting in 2002. Indonesia assumed that such trade policy