The Doha Development Agenda

Published Date: 02 Nov 2017

Indeed in recent decades, trade negotiations have addressed measures that restrict or distort international trade in goods. Tariffs are the more commonly known obstacle to trade flows, but the non-tariff measures (NTMs) - less apparent restrictions on the free flow of trade are becoming more not more popular.

As a consequence of successive multilateral along with bilateral trade negotiations, tariff on imports have progressively declined to a relatively low level during the past few decades. Concurrently, with agreements such as NAFTA, the Canada US Free trade area and others, the major remaining barriers such as non-tariff measures which limit international trade have become more perceptible and important. The use of non-tariff measures has risen sharply after the WTO rules which led to a significantly drop of tariff use. The core distinction between tariff and non-tariff measures can be drawn out from General Agreement on Tariffs and Trade (GATT).

2. Origins of Tariff and Non – Tariff Measures

• General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Trade (GATT) is a treaty created following the conclusion of World War II. It was implemented to further regulate world trade to assist in the economic recovery following the war. GATT's main objective was to reduce the barriers of international trade through the reduction of tariffs, quotas and subsidies.

The General Agreement on Tariffs and Trade (GATT) was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was formed in 1949 and lasted until 1993, when it was replaced by the World Trade Organization in 1995. The original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.

The agreement was designed to provide an international forum that encouraged free trade between member states by regulating and reducing tariffs on traded goods and by providing a common mechanism for resolving trade disputes.

• The World Trade Organisation (WTO)

The World Trade Organisation (WTO) is an organisation that intends to supervise and liberalize international trade. The WTO began life on 1 January 1995, but its trading system is half a century older. Since 1948, the General Agreement on Tariffs and Trade had provided the rules for the system.

WTO officially started on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. WTO deals with regulation of trade between participating countries; it provides a framework for negotiating and formalising trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986-1994).

The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and much more.

But the WTO is not just about liberalising trade, and in some circumstances its rules support maintaining trade barriers, for examplewhen they are deemed necessary to protect consumers, prevent the spread of disease, to protect the environment or to protect depletable natural resources.

• Most-favoured-nation (MFN): treating other people equally

Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.

This principle is known as most-favoured-nation (MFN) treatment. It is so important that it is the first article of the General Agreements on Tariffs and Trades (GATT), which governs trade in goods. MFN is also a priority in the General Agreements on Tariffs and Trades (GATT) (Article 2) and the Agreement on Trade-Related Aspect of Intellectual Property Rights (TRIPS)(Article 4), although in each agreement the principle is handled slightly differently. Together, those three agreements cover all three main areas of trade handled by the WTO.

Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group (discriminating against goods from outside). Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be trade unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners whether rich or poor and weak or strong.

• National treatment: Treating foreigners and locals equally

Imported and locally produced goods should be treated equally at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of "national treatment" (giving others the same treatment as one’s own nationals) is also found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS), although once again the principle is handled slightly differently in each of these.

National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally produced products are not charged an equivalent tax.

3. Barriers to International Trade

Free trade refers to the elimination of barriers to international trade. The most common barriers to trade are tariffs and non tariff barriers.

3.1 Definition of Tariff

A tariff is a tax on imports, which is collected by the federal government and which raises the price of the good to the consumer. Also known as duties or import duties, tariffs usually aim first to limit imports and second to raise revenue.

The effect of tariffs is to limit imports and protect domestic producers from foreign competition. A tariff raises the price of the foreign good beyond the market equilibrium price, which decreases the demand for and, eventually, the supply of the foreign goods.

Tariffs come in different forms, mostly depending on the motivation, or rather the stated motivation. (The actual motivation is always to limit imports.) For instance, a tariff may be levied in order to bring the price of the imported goods up to the level of the domestically produced goods. This is called scientific tariff, which to an economist is anything but has the stated goal of equalizing the price and, therefore, "levelling the playing field," between foreign and domestic producers. In this game, the consumer loses.

International trade increases the number of goods that domestic consumers can choose from, decreases the cost of those goods through increased competition, and allows domestic industries to ship their products abroad. While all of these seem beneficial, free trade isn't widely accepted as completely beneficial to all parties.

3.2 Definition of Non-Tariff Barriers (NTBs) / Non-Tariff Measures (NTMs)

The term non-tariff measures is defined to include export restraints and production and export subsidies, or measures with similar effect, not just import restraints. Two main types of measures are

1. Direct Price Influencers: Export subsidies or drawbacks, exchange rate manipulations, methods of imports valuation, customs surcharges, lengthy customs procedures, establishment of minimum import prices, unreasonable standards and inspection procedures, and;

2. Indirect Price Influencers: Import licensing.

NTBs, with certain exceptions, are breach of GATT (now WTO) rules; nevertheless, their overall use has been on the increase since the Tokyo round of multilateral trade negotiations (September 1973 to April 1979) where they were first discussed. No specific definition of NTBs exists. However, there have been attempts at defining them – for instance that of Baldwin (1970a), who defines non-tariff barriers as any measure (public or private) that causes internationally traded goods and services, or resources devoted to the production of these goods and services, to be allocated in such a way as to reduce potential real world income.Practically, the introduction of the concept of potential real world income means that very often it is difficult to be sure what a distortion is without undertaking complex, even impossible, calculations. However, it sets the correct framework in which to judge the relative importance of NTMs.

4. Categories of Non-Tariff Measures

There are a wide variety of non-tariff measures. UNCTAD (1994) uses a classification of over 100 trade measures, including tariffs with a discretionary or variable component. This classification does not include any measures applied to production or to exports. Following Laird and Vossenaar (1991), NTMs may be broadly classified according to the intent or immediate impact of the measures. They identify five such categories, of which (iv) has been adapted to cover restrictions as well as subsidies:

I. Measures to control the volume of imports

The different measures used to control the volume of imports consist of prohibitions, non-automatic licensing, various types of quotas or quantitative restrictions, import authorizations, voluntary export restraints, orderly marketing arrangements and State trading or sole import monopolies.

II. Measures to control the price of imported goods

Measures to control the price of imported goods can be divided into tariff-type or para-tariff measures and price non-tariff measures. These include variable levies, anti-dumping duties, voluntary export price restraints and countervailing measures.

III. Monitoring measures, including price and volume investigations

Such practices are oftenassociated with charges by domestic interests of unfair trading practices by exporters, e.g. dumping and subsidization. Licenses are sometimes used as a monitoring instrument. Monitoring measures may be a prelude to other actions, and, if seen as such, may lead to export restraints. They may have a harassment effect.

IV. Production and export measures

Subsidies may be directly applied 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 production or exports.

V. Technical Barriers

Imposed at thefrontier, these are used to apply various standards for health and safety reasons to imported products to ensure that imported products conform to the same standards as those required by law for domestically produced goods. They may lead to the prohibition of noncomplying imports or necessitate cost increasing production improvements.

5. Types of Non-Tariff Barriers

Since there are five broad categories in which Non-Tariff Barriers (NTB) may be distributed across (Laird and Vossenaar, 1991), each category have numerous types of NTBs.UNCTAD (1994) makes use of a classification of over 100 trade measures. Some NTBs have insignificant effects, for example packaging and labeling can impede trade but very slightly. However other NTBs such as quotas, trade restraints under the multifiber arrangement, non-automatic import authorizations and variable import levies have much more significant effects (Laird and Yeats, 1990).

The Non-Tariff Barriers are classified in many categories. Following Deardorff and Stern (1985), those NTBs are classified as per Quantitative restrictions and similar specific limitations, Non-tariff charges and related policies affecting imports, Government participation in trade, restrictive practices, and more general government policies, Customs procedures and administrative practices and finally Technical Barriers.

Most of the types of NTBs fall under the major kinds of NTBs such as quotas, Variable Levies, Voluntary Export Restraints, Government Procurement Regulations, Domestic Subsidies, Antidumping and Countervailing Duty Measures, Customs Valuation Procedures, Technical Barriers to Trade.

As per Deardorff and Stern (1985) the NTBs are described below:

I. Quantitative restrictions and similar specific limitations

Import quotas

A quota is a very straightforward king of NTB. An import quota is a numerical restriction on imports. That is, a country wants to import less amount of a specific product, and thus it might choose the amount of that product that it would want to allow crossing its borders into the country.

Export limitation

An export limitation has the same structure as an import quota, however for this NTB the restricted amount is on exports. Thus, a country might impose a limit as to the amount of a specific product to be exported.

Licensing

Licensing is a system set up to look after the restrictions already present. Licensingmay be discretionary and also used for statisticalpurposes.

Voluntary export restraints (VER)

This is a trade restriction imposed by an exporting country itself showing the restricted amount of a good that a country is allowed to export abroad. Thus, VER might be an NTB set up as a result of requests from importers in order to provide protection for its local market of substitute products.

Exchange controls

This is a restriction imposed by a country on the receipts and/or payments of foreign exchange with the aim to control international trade and/or capital movements. Exchange controls same as quotas, might be requiring the use of licensing and also involve numerous exchange rates for diverse transactions.

Prohibitions

Prohibition is selective of products and countries of production or country to which it is imported. One kind of prohibition is an embargo. It is the partial or complete prohibition of trade of a product or with a country and is regarded by the imposing country, to elicit a given national-interest result from the country on which it is imposed. It may also carry legal sanctions.

Domestic content and mixing requirements

This kind of NTB requires that for the production of a good in an industry a certain amount of locally produced components or materials and labour be used in the production of the final good.

Discriminatory bilateral agreements

It is a preferential trading agreement that may be selective by commodity and country. A Preferential trade agreement (PTA) is a trading bloc giving favored access to certain merchandises from the countries in the bloc. This is done with reduction of normal tariffs, however, not by abolishing those tariffs. Discriminatory bilateral agreements include preferential sourcing arrangement.

Countertrade

It is an export or import link between countries in which products or services are exchanged instead of monetary payment being made. However, for accounting purposes the monetary evaluations of those exchanges may be calculated. Some kinds of countertrade are barter, switch trading, counter purchase and buy backs.

Non-tariff charges and related policies affecting imports

Variable Levies

Variable charges bring the prices of imported agricultural and food products as near as possible to the domestic market price, in advance for a given time period and at an already determined price. Those prices are also known as reference prices, threshold prices or trigger prices. For the EU, the charges set to primary products (charged per total weight) as such are called variable levies.

Advance deposit requirement

An advance deposit requirement is when a proportion of the imports value is to be deposited in advance of the full payment. This with no allowance for any interest accrued on the deposit amount.

Antidumping duties

Antidumping (AD) duties are projected to counterbalance actions by firms abroad that export for a price that is less than the price in their domestic market or below costs of production itself. Thus, minimum foreign prices may be established to "trigger" antidumping actions.

Countervailing duties

Countervailing duties (CVD) are supposed to offset foreign government subsidies for exports or local production. It is the imposition of a special import duty and normally requires that domestic injury be shown.

Border tax adjustments

A tax to which locally produced goods and imports are imposed but from which exports are relieved from. Border tax adjustments are intended to encourage exports while dampening imports competitiveness a little against domestic goods.

Government participation in trade, restrictive practices, and more general government policies

Subsidies and other aids

Subsidies are sometimes a main source of complaint in international trade. It is the subsidization of domestic industries or companies that puts foreign competitors at a disadvantage. Domestic subsidies can take a numerous forms, from credit guarantees to tax breaks on investments. Those direct and indirect subsidies include tax benefits, credit concessions, and bilateral tied aid programs.

Government procurement policies

Government procurement policies are whereby preferences are given to domestic over foreign firms in bidding on public-procurement contracts. Such a preference is government procurement regulations, which typically would require for government agencies purchasers to show a preference for domestically produced goods. For example,there may be a clear that imports be avoided unless they fall below the price of local goods by a certain percentage. Those policies might include explicit cost differentials and informalprocedures favoring procurement from domesticfirms.

State trading, government monopolies, and exclusive franchises

Those are government’s actions which may lead to trade distortions. This may include government-sanctioned, biased international transport agreements.

Government industrial policy and regional development measures

The government actions whereby the aim is to help specific firms, industries or/and regions to adjust to changes in market conditions.

Government financed research and development and other technology policies

These policies are government actions in order to correct market biasedness and to help private businesses. These include intellectual property (patents, copyrights and trademarks) and technological spillovers from government programs as public health, defense and education.

National systems of taxation and social insurance

These referred to are taxation structure (personal & corporate), unemployment insurance, social security and similar policies which may have an impact on trade.

Competition policies

This refers to antitrust policies and related policies (for example the intellectual property regulations). Those policies areintended to upset competition. The broad aimfor such a policy is to keep markets open and competitive. This will have an impact on foreign trade and investment.

Foreign investment policies

An investment policy may be considered as a government regulation that encourages or discourages foreign investment in the local economy. It is the screening and monitoring of inward and outward FDI which includes performance requirements.

Foreign corruption policies

Those are policies designed especially for the prohibition or restriction of bribes and comparable practices linked to foreign trade and investment. Such policies may be in legal forms such as Foreign Corrupt Practices Act in the US.

Immigration policies

Those are designed policies to deal with the transit of people into its jurisdiction. Immigration policies ranges from allowing no migration to free migration with an aim of limiting or encouraging the international movement of labor factor of production which might have an impact on foreign trade.

Macroeconomic policies

As the name itself suggests, those are policies such as monetary and fiscal policies, Balance of Payments and Exchange rates controls or actions which have an effect on the states output, trade and capital movements.

Customs procedures and administrative practices

Customs valuation procedures

As per the WTO customs valuation is "a customs procedure applied to determine the customs value of imported goods." It is the use of specific price measures instead of invoice or transactions price for levying tariffs.

Customs classification procedures

It is the use of the state methods of customs classification instead of one internationally recognized for the purpose of levying tariffs. For example every good imported into the United States must be assigned a tariff classification under the Harmonized Tariff Schedule (HTS) of the United States. [1] 

Customs clearance procedures

Here we are referring toprocedure of customs for proper examination, appraisal, assessment, evaluation and related practices about customs clearance which may hinder trade.

Technical barriers to trade

Health and sanitary regulations and quality standards

There is extensivebelief on standards systems thathave been developed to improve the accessibility of information and to reduce uncertainties about thequality characteristics of goods and services purchased by firms and households.Standards are usually willingly defined by business groups or nongovernmental standardization organizations, whereastechnical regulations are legally binding.Largest number of technical regulations and standards are adopted to aim at protecting human safety or health, for example national regulations requiremotor vehicles be equipped with seat belts to minimise injury in the event of road accidents.

Safety and industrial standards and regulations

Government regulations or industry standards for goods can impact trade in at some ways: they can facilitate exchange by clearly defining product characteristics and improving compatibility and usability; they also advance domestic social goals like public health by establishing minimum standards or prescribing safety requirements; finally, they can hide protectionist policies. [2] 

Packaging and labeling regulations, including trademarks

For the prevention of deceptive practices any of the regulations aim to protect consumers through information, mainly in the form of labeling requirements. Other regulations include classification and definition, packaging requirements, and measurements (size, weight etc). [3] 

Advertising and media regulations

These are also regulations aimed at the prevention against unreliable information to consumers about the products through advertising and media (magazines, newspapers, so on

The above Non-tariff barriers were described by following Deardorff and Stern (1985). However, below is a list of NTBs as per the UNCTAD with their respective codes:

3000 PRICE CONTROL MEASURES

3100 ADMINISTRATIVE PRICING

3110 Minimum import prices

3190 Administrative pricing n.e.s.

3200 VOLUNTARY EXPORT PRICE RESTRAINT

3300 VARIABLE CHARGES

3310 Variable levies

3320 Variable components

3330 Compensatory elements

3340 Flexible import fees

3390 Variable charges n.e.s

3400 ANTI-DUMPING MEASURES

3410 Anti-dumping investigations

3420 Anti-dumping duties

3430 Price undertakings

3500 COUNTERVAILING MEASURES

3510 Countervailing investigations

3520 Countervailing duties

3530 Price undertakings

3900 PRICE CONTROL MEASURES N.E.S.

4000 FINANCE MEASURES

4100 ADVANCE PAYMENT REQUIREMENTS

4110 Advance import deposit

4120 Cash margin requirement

4130 Advance payment of customs duties

4170 Refundable deposits for sensitive product categories

4190 Advance payment requirements n.e.s.

4200 MULTIPLE EXCHANGE RATES

4300 RESTRICTIVE OFFICIAL FOREIGN EXCHANGE ALLOCATION

4310 Prohibition of foreign exchange allocation

4320 Bank authorization

4390 Restrictive official foreign exchange allocation n.e.s.

4500 REGULATIONS CONCERNING TERMS OF PAYMENT FOR IMPORTS

4600 TRANSFER DELAYS, QUEUING

4900 FINANCE MEASURES N.E.S.

5000 AUTOMATIC LICENSING MEASURES

5100 AUTOMATIC LICENCE

5200 IMPORT MONITORING

5210 Retrospective surveillance

5220 Prior surveillance

5270 Prior surveillance for sensitive product categories

5700 SURRENDER REQUIREMENT

5900 AUTOMATIC LICENSING MEASURES N.E.S.

6000 QUANTITY CONTROL MEASURES

6100 NON-AUTOMATIC LICENSING

6110 Licence with no specific ex-ante criteria

6120 Licence for selected purchasers

6130 Licence for specified use

6131 Linked with export trade

6132 For purposes other than exports

6140 Licence linked with local production

6141 Purchase of local goods

6142 Local content requirement

6143 Barter or counter trade

6150 Licence linked with non-official foreign exchange

6151 External foreign exchange

6152 Importers own foreign exchange

6160 Licence combined with or replaced by special import authorization

6170 Prior authorization for sensitive product categories

6190 Non-automatic licensing n.e.s.

6200 QUOTAS

6210 Global quotas

6211 Unallocated

6212 Allocated to exporting countries

6220 Bilateral quotas

6230 Seasonal quotas

6240 Quotas linked with export performance

6250 Quotas linked with purchase of local goods

6270 Quotas for sensitive product categories

6290 Quotas n.e.s.

6300 PROHIBITIONS

6310 Total prohibition

6320 Suspension of issuance of licences

6330 Seasonal prohibition

6340 Temporary prohibition

6350 Import diversification

6360 Prohibition on the basis of origin (embargo)

6370 Prohibition for sensitive product categories

6390 Prohibitions n.e.s.

6600 EXPORT RESTRAINT ARRANGEMENTS

6610 Voluntary export restraint arrangements

6620 Orderly marketing arrangements

6630 Multi-fibre arrangement (MFA)

6631 Quota agreement

6632 Consultation agreement

6633 Administrative co-operation agreement

6640 Export restraint arrangements on textiles outside MFA

6641 Quota agreement

6642 Consultation agreement

6643 Administrative co-operation agreement

6690 Export restraint arrangements n.e.s.

6700 ENTERPRISE-SPECIFIC RESTRICTIONS

6710 Selective approval of importers

6720 Enterprise-specific quota

6790 Enterprise-specific restrictions n.e.s.

6900 QUANTITY CONTROL MEASURES N.E.S.

7000 MONOPOLISTIC MEASURES

7100 SINGLE CHANNEL FOR IMPORTS

7110 State trading administration

7120 Sole importing agency

7200 COMPULSORY NATIONAL SERVICES

7210 Compulsory national insurance

7220 Compulsory national transport

7900 MONOPOLISTIC MEASURES N.E.S.

8000 TECHNICAL MEASURES

8100 TECHNICAL REGULATIONS

8110 Product characteristics requirements

8120 Marking requirements

8130 Labelling requirements

8140 Packaging requirements

8150 Testing, inspection and quarantine requirements

8190 Technical regulations n.e.s.

8200 PRE-SHIPMENT INSPECTION

8300 SPECIAL CUSTOMS FORMALITIES

8900 TECHNICAL MEASURES N.E.S.

Costs and Benefits of using Non-Tariff Measures

Why governments use non- tariff measures?

Non-tariff measures are first-best tools to attain public policy goals. They arise mainly as a result of government policies aimed explicitly to correct market failures, protect local firms from international competition, or from rules within a country that successfully hinder trade and the pursuing of non-economic objectives. Imperfect and failing markets lead to inefficient outcomes and this provides an important rationale for government intervention. The market imperfections addressed by the NTMs may arise from asymmetric information or imperfect competition. At the same time political incumbents make use of non-tariff measures to protect domestic producers. A report by WTO 2012 debates on how the division of supply chains and mounting attention by consumers to quality and safety of food products have contributed to a rise in governmental and private measures related to food safety and quality.

Market failures affecting customers

Consumers in the importing countries and exporting countries may be affected in a different way. Foreign producers offer a good with specific features – environmental; safety risk or a specific method of production that some local customers do not favours or are indifferent.

Imperfection arising from asymmetric information of not knowing the specific features may derive cost to the final consumer via a health impact. Some qualities about the goods that are unsafe and harmful are unknown to the customers at the time of purchase, may decrease the value of the good. Recent examples where the risks of asymmetric information were undervalued are the outbreaks of E-coli and salmonella which were unknown to some customers in the importing countries. Consequently, NTMs measures in the importing countries may help to alleviate the problem.

Market failures affecting producers

Like customers producers may also suffer from asymmetric information in production, such as the procurement of inputs with harmful features. For example seed-borne disease passed on to a farmer may bring losses.

Global-commons issues

Non-tariff measures in the importing country may try to alleviate the global common difficulties in the sourcing country. Global commons refer to resources perceived to belong to the global community. They are common resources for which property rights are not well defined. Global common issues may consists of unsustainable resource use in forest products, over-fishing leading to reduction of fish stocks and agricultural production with adverse ecological effects.Non-tariff measures such as Eco-labels and fair trade provides perceived benefits to consumers with global-common concerns.

Trade and welfare effects of non-tariff measures

The trade and welfare effects of non-tariff measures do not necessarily move in the same direction. Many non-tariff measures may reduce trade and yet improve welfare in the country in the presence of market failures. Deardoff and Stern analyses the trade impact of a general non-tariff measures graphically and conclude that the main ways though which NTMs affects trades are as follows:

Reduction in quantity of imports- Non-tariff measures is usually imposed with the resolve to restrict the quantity of imports.

Increase in the price of imports – Non-tariff measures will succeed in decreasing the volume of imports only if they can increase the real or shadow price of imports. This rise in price has other consequences on the economic performance of other sectors in the country, essentially if the import is an intermediate material.

Changes in elasticity of demand for imports – Non-tariff measures often change the responsiveness of imports in specific sector to price changes. Most often, Quotas reduce the responsiveness, although there are certain NTMs that can increase it. Even if the quota does not reduce the import at the initial prices, the constraint being put on volume changes may be an important factor afterwards if the other conditions of demand and supply alter. A decrease in the responsiveness of imports to price changes may bring a change to the elasticity of demand facing ompeting local firms.

The variability of non-tariff measures –An important characteristic of non-tariff measures is the degree to which their effects fluctuate over time. Non-tariff measures are often defined in relation to a benchmark independent of the conditions prevailing in the market. When the conditions of demand and supply, exchange rates and other market conditions alters and the benchmark is fixed, the effectiveness of NTMs will fluctuate.

Contrary to the general features enumerated by Deardoff and Stern (1997), Maertenset al. (2007); Maertens and Swinnen (2009) states that there are other NTMs that can expand trade as they improve demand for a good through correction of market failures such as asymmetric information.There is also evidence showing that higher standards can increase trade and simultaneously and prove product quality and hence enhancing the competitiveness of the good in the market. In the presence of disease risks, good non-tariff measures may allowed limited trade instead of no trade at all in case of strict borders inspections or restriction of trade from specific country. In many existing literature, there is the implicit presumption that the management of NTMs is welfare improving. When managed, these rules can reduce cost to benefit from economies of scale and can ensure free movement of products on a unified market.

However, unjustified non-tariff measures can distort the volume and prices of goods and services traded internationally, limit international investment and decrease economic welfare in the exporting and importing countries. These unjustifiable non-tariff measures may be troublesome. An example is the pharmaceutical imports in Korea. These imports must be tested on Korean nationals, and each single batch must be tested. In china, the procedure of standards certification for IT products can be onerous and irregular. Two different Chinese regulatory agencies will look for conformity of the same set of criteria.

Industry structure and NTMs

When complying with non-tariff measures, there are additional costs, both variable and fixed that are borne by producers. This can have underlying consequences for the industry structure. If complying with norms and conventions infers that once started large investment are sunk, economies of scale become an important feature of the industry. Sunk costs associated to non-tariff measures may develop into an entry barrier and a significant factor of industry structure.

Not all businesses can meet the new norms and compliances and the organisation of an industry can change because of new requirements to satisfy the export market. This is a foremost concerns concerning market participation in low-income countries. This inequality in abilities to meet the standards often causesdualism in the industry affected by new requirements. Maertens and Swinnen (2006) came to the conclusion that a while a modern and successful segment emerges, the smaller producers are marginalised and serve informal domestic market, exit the market of become employees in larger firms.Particularly the effect of NTM on fixed and variable cost is vital as changes in variable cost causes changes in prices and if in order to meet the NTM all firms has to incur the same change in variable cost, there is no palpable competitiveness effect. However Melitz (2003) states that only firms that are adequately efficient to "jump the hurdle" of fixed market entry costs will be able to export.

Impact of non-tariff barriers on pharmaceutical products for the poorest people.

Most developing countries are net importers of pharmaceutical products and essential medicines, their prices are usually born by the families. The non-tariff measures that are imposed on the finished drugs, active pharmaceutical ingredients (APIS) make the prices burdensome for the poor people. Because of their variety and intricacy, non-tariff measures can complicate the efforts on businesses and non-economic organisations trying to import pharmaceutical products. Information on procurement processes, import regulations and drug registration is difficult to find for most developing countries as it is not electronically accessible, is not comprehensive and may be difficult to be translated. Further there are hidden costs in the procedures of importation which may be in the form of tiresome banking procedures, onerous import approval procedures, additional handling fees, inflated charges and lengthy approval by more than one regulatory body.

Arguments in favour of the imposition of Non- tariff measures

Strategic industry argument

This argument is essentially non-economic. It is that there are some industries that of strategic importance in times of crisis. Therefore a government might decide to expand or maintain the capacity of local production of such industries through the use of non-tariff measures. It can be said that industries such as agriculture, aerospace, armaments, shipbuilding and fuel industries are strategic. The choice of protecting an industry is obviously political. The economist can only highlight that protecting an industry with comparative advantage bears an economic cost.

Infant industry argument

This argument is usually used for new industries in developing countries. When an industry in a country is in its infancy, it will incapable of surviving competition of already established industries from abroad. The industries are still small to benefit from economies of scale, their workforce is inexperienced, and they lack back-up facilities such as communication networks. Without protection it is difficult for them to survive. However given the protection NTMs, the industry will and able to develop a comparative advantage and will eventually be able to survive without protection.

.Anti-dumping argument

A country may engage in dumping by selling a product in the international market at price below the price in the country of origin. A firm practicing as a price discriminating monopolist, may sell at a higher prices in home country and a lower price in overseas market. Another reason for dumping is the intent of firm to increase its market share by driving its competitors out, also known as predatory dumping. The dumping firm may decide to sell at low price incurring a temporarily loss in a specific market through cross subsidization. Local producers are forced to review their ways of production so as to be more efficient and cost effective.

To encourage learning by doing

Learning by doing means that the pattern of comparative trade can be altered. If a country which is currently at a comparative disadvantage learns enough through producing goods, it may benefit in the long run by specialising in those goods and could obtain a comparative advantage as the learning reduces their costs. Protecting a home industry from international competition may give its management time to become efficient and its workforce time to acquire the relevant skills. Some countries, using NTMs, have succeeded in developing comparative advantage in chosen industries, but others have failed. The reason of why it may fail is that protecting domestic industries from international competition may make the industries complacent. Another reason is identifying the industries that will not fail in the long run.

To prevent the importation of harmful goods and to take account of externalities

Levine and Antonio (2003) sate that with the advent of international integration, there are more external effects arising with trade and government has responded with a variety of NTMs in order to protect home country. Imports can bring in offensive products that do not meet local requirements. A country may wish to ban or severely restrict the importation of products such as drugs or pornographic literature.

Non-economic advantages of diversification

There are certain social advantages that can be encouraged by the government for a more diverse economy. The residents of the country should be given a wider range of occupations, and the social benefits of diversification would recompense for a reduction in the living standard. Hence, the government should also protect the industries in the countries not benefitting comparative advantage. There are certain objectives that a country may prefer to achieve. It may want to maintain a degree of self-sufficiency in case trade cannot occur in times of war. It may decide not to trade with countries where it is in disagreement politically. It may wish to preserve traditional ways of life.

To prevent exploitation.

On the basis of the exploitation theory, trade can never be mutually advantageous, one trading partner will benefit at the expense of another trading partner. Thus the weaker trading partner must protect itself by curtailing its trade with the stronger partner. However by the showing that both parties can gain from trade, the comparative advantage contradicts the exploitation theory. With differing opportunity cost ratios, specialization make it possible for both parties to consume more as a result of trade than they could obtain in its absence.

Exports raise living standards and imports lower them

Exports generate domestic income and employment while imports generate income and work for foreigners. Consequently it is said that exports will bring a rise in standard of living which imports will do the opposite. Exports lead to rise in national income by adding the value of total output, however they do not add to the value of domestic consumption. The standard of living depends on the products that are available for consumption and not on production.

The declining industry argument

Government very often wants to protect a declining industry as human costs of such industry closure can be high. A closure leads to unemployment and hence temporary protection with strict time limit and specific measures is given to the industry to decline more slowly. But this is inefficient and is at the expense of customers who will not be able to benefit from cheaper imports. The resources used by the declining industries should be endorsed to new expanding industries which will bring a rise in standard of living.

Arguments against Non-tariff measures

NTMs will tend to distort import prices and restrict the choice of goods available for consumption. Other that these direct costs to the customer, there areother problems.

Protection as ‘second best’.

Protections as NTMs may not be the best way of dealing with a problem, as it may have undesirable side effects. The best policy is to tackle the problem directly, unless the objective is to reduce imports rather than helping the home industry, protection will be no more than a second best solution.

World multiplier effects.

If a country makes use of NTMs, imports will decreased, but these imports are exports of other countries. A fall in their exports will bring a reduction in the level of injections in to the rest of the world, hence a bringing a multiplier falls in the world income. This in line will reduce the demand for country’s exports and hence undo the benefits from NTMs.

.Retaliation.

If Country X imposes NTMs on Country Y, Country Y will in turn impose NTMs on Country X. Any gain in country X firms competing with country Y imports is offset by a loss incurred to country X exporters. Moreover, Country x customer’s losses, since the benefits arising from comparative advantages has been lost. The increased use of NTMs can cause a trade war with each country restricting imports from other countries. In the end, both countries loses.

Protection may allow firms to remain inefficient.

Removal or reduction of foreign competition by imposing NTMs may reduce firm’s motivation to be cost effective. Hence when protection in form of NTMs is given to infant industries, the government should make sure that the lack of competition does not prevent it from ‘growing up’.

Bureaucracy.

The government should each situation well, if it wants to avoid giving to much protection for firms. As using to many NTMs may lead to more administrative costs and also corruption from officials accepting bribes from importers for favourable treatment.