Non-tariff Barriers
Mercantilism's last refuge?

Non-tariff barriers (NTBs) are the greatest single threat to a liberal world trading system, argued Research Fellow L Alan Winters at a lunchtime meeting held on 10 March. NTBs are becoming more widespread: the percentage of industrial countries' total imports subject to NTBs rose from 25% in 1981 to 27% in 1983 and is probably even higher today. NTBs are therefore one of the most important issues in the new round of international trade negotiations.

Winters noted that in the early rounds of the GATT negotiations pairs of countries had negotiated tariff reductions on pairs of goods for which each was the other's principal supplier; the 'most-favoured nation' clause made these concessions available to other GATT members. This 'principal supplier' bargaining had proved successful in securing tariff reductions, and Winters argued that it offered a promising approach to the reduction of NTBs today. Negotiating procedures, however well designed, would not guarantee success: governments needed to summon the political will to reduce NTBs. The objectives of policy-makers are often mercantilist: production, particularly for export, is to be encouraged; consumption, particularly of imports, is a necessary evil. Winters argued that even on this mercantilist criterion, there was clear evidence that NTB negotiations could bring significant benefits to both industrial and developing countries. Moreover, those developing countries which had entered the earlier Kennedy round negotiations had benefitted. It was in their own interests, Winters argued, to enter the forthcoming NTB negotiations as willing and even eager participants.

L Alan Winters lectures in economics at Bristol University and is a Research Fellow in the Centre's International Trade programme. For the past two years he has been working at the World Bank on non-tariff barriers, and he is now writing on agricultural trade for the 1986 World Development Report. He spoke at a lunchtime meeting organized by the Centre, one of a regular series at which Research Fellows discuss policy-relevant research. They may also express specific views on policy at these meetings, but these views are their own and not those of CEPR, which takes no institutional policy positions.

Non-tariff barriers to international trade are widespread. Winters noted that in 1983, among sixteen major industrial countries, 27% of total imports were subject to at least one official, commodity-specific barrier. Imports 'managed' in this way covered some $225 billion of trade (at 1981 values), exceeding by nearly 50% the total imports of the planned economies of Eastern Europe and the USSR. Furthermore, NTBs have been spreading: in 1983 there were 2,500 more barriers than in 1981, covering $13 billion of imports.

These barriers create particularly serious problems for the developing countries: 34% of their exports to industrial countries face NTBs. Non-tariff barriers are most common in textiles, agricultural goods, fuels and iron and steel. The NTBs which most severely affect developing countries' exports are quantitative restrictions and 'voluntary' export restraints.

Developing countries themselves maintain a wide variety of NTBs on their own imports, Winters noted. Figures comparable to those for the industrial countries are not available, but Winters conjectured that the proportion of 'managed' to total trade is even greater for developing than for industrial countries.

Non-tariff barriers have figured large in the preliminary skirmishing over the forthcoming round of international trade talks. Unlike tariffs, however, there are no established negotiating procedures for NTBs, nor is there any accepted method of assessing the outcome of negotiations. Winters argued that NTB negotiators should apply the lessons learned and techniques developed during the early rounds of the GATT tariff reductions.

Winters noted that tariff reductions were not assessed according to their effects on economic welfare, as economists would recommend. Instead, policy-makers used a mercantilist criterion: how many foreign markets would be opened up to domestic exporters relative to how many domestic markets would be opened up to foreign producers. The effect of liberalization on the pattern of trade flows was difficult to forecast; policy-makers therefore tended to assess the possible benefits of tariff reductions according to the existing patterns of trade in the categories subject to negotiation. Winters noted that, as a result, negotiations followed a 'principal supplier' pattern. There was a natural incentive for pairs of countries to negotiate mutual concessions on pairs of goods for which each was the other's principal supplier. The greater the principal supplier's share of the market, the greater its share of the benefit from the negotiating partner's concession, and the lower the share of the concession which would be 'lost' to other countries through the 'most-favoured nation' clause, the article which extended such concessions to all other members of GATT. In these early negotiations bargaining therefore tended to be bilateral, between principal suppliers; tariff reductions were then extended to other GATT members.

Winters showed that industrial and developing countries could use this negotiating procedure to strike mercantilist bargains which would significantly reduce the levels of NTBs. In 1981, for example, Japan, the EEC and the United States imposed quantitative restrictions on some $10 billion of imports (excluding textiles) for which a developing country was the principal supplier. On the policy-makers' own mercantilist calculus, 84% of the benefit of liberalizing these flows would accrue to developing countries, 27% of which would go to the principal suppliers themselves (see table). On the other side of the negotiating table, a set of eight major developing countries imposed quantitative restrictions on $15 billion of imports for which Japan, the EEC or the United States was the principal supplier. Under liberalization, 83% of the benefit would accrue to the industrial world, of which 54% would go to the principal suppliers.

Winters argued that these figures illustrated the significant gains available through negotiation. In fact they underestimated the extent of possible gains from trade liberalization, because they were based on a very limited subset of NTBs and negotiating countries. He maintained that the figures showed that developing countries had enough negotiating power to obtain significant benefits from reductions in NTBs. Since they could not gain improved access to industrial country markets without offering concessions themselves, developing countries should enter any forthcoming negotiations as willing and even eager participants.

The discussion which followed the talk focussed on the practical difficulties involved in negotiating NTB reductions. One problem was the illegality of some NTBs under the GATT regulations: Winters argued that this should simply be ignored for the purposes of negotiation. In addition, the problems for LDCs trying to lower import restrictions while facing large external debts might necessitate some assistance to ease the transitional period. NTBs take many forms and are harder to define and negotiate away than tariffs. Moreover, some participants suggested that the growth of NTBs had been a response by mercantilist policy-makers to earlier rounds of tariff reductions. Removing these non-tariff barriers while mercantilism was still present might prove very difficult, they argued.