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Non-tariff measures and industrial nation imports of GSP-covered products.

I. Introduction

The Generalized System of Preferences (GSP) program was proposed at the first United Nations Conference on Trade and Development (UNCTAD) held in 1964.(1) Under the GSP, most industrial nations extend tariff preferences to certain manufactured and semi-manufactured articles exported from designated beneficiary developing countries, while retaining most-favored-nation (MFN) duties on imports from non-preferred supply sources. Tariff preference margins create static price advantages intended to enhance the competitiveness of exports from beneficiaries and encourage investment in export-related activities.

Several studies have identified features of GSP schemes which limit access to preferential treatment thereby reducing the effectiveness of the schemes as trade creating instruments |9; 10; 16~. First, an initial agreement to have a non-discriminatory GSP led preference-giving countries to approve exhaustive beneficiary lists and simultaneously limit product coverage to avoid undue market disruption caused by import surges from advanced beneficiaries. Many low technology and unskilled labor intensive products of export interest to beneficiaries are statutorily excluded from eligibility under most schemes.(2) A second factor limiting utilization is the GSP's stated intention to shift production emphasis from primary products to manufactured goods. Most processed and semi-processed agricultural, forestry, and fishery products of export interest to beneficiaries are treated as falling outside the GSP. Third, ceilings on preferential imports and graduation, advanced as means of restricting trade shares for the poorer beneficiaries by limiting preferential trade shares of the more advanced suppliers, basically operate as safeguards for import-sensitive activities.(3) Finally, complex Rules of Origin and other administrative regulations unduly restrict preferential imports of assembled items.

Recently, GSP beneficiaries have expressed considerable concern over the proliferation of non-tariff measures (NTMs) in several preference-giving countries which limits their effective utilization of the GSP Complaints were voiced in a political context in UNCTAD during the seventeenth session of the Special Committee on Preferences.(4) When exports of GSP-covered products confront NTMs in markets of preference-giving countries, beneficiaries find it difficult to expand exports since NTMs erode static price incentives inherent in tariff preferences.

The present study identifies NTMs outside the GSP which are currently applied by preference-giving countries to products covered under GSP schemes. Trade coverage ratios are calculated to assess the incidence of NTM use on GSP-covered products. Major beneficiaries affected by NTMs are identified. A finding that NTMs constitute important deterrents to imports of GSP-covered products would support concerns expressed by the beneficiaries, and would suggest possible strategies to address the problem.

II. Methodology

Non-tariff measures encompass any measures (public or private) other than tariffs that can operate directly or indirectly to restrict international trade flows. NTMs raise prices of both imports and import-competing goods, and favor domestic over foreign supply sources by causing importers and foreign exporters to charge higher prices and/or restrict import volumes. Non-tariff measures include a wide variety of specific measures which differ greatly in degree of restrictiveness.(5) UNCTAD's Data Base on Trade Control Measures codes more than 100 different NTMs. A necessary step in assessing the extent of NTM application on imports is to establish meaningful NTM categories. The UNCTAD secretariat has adopted three basic working definitions: "broad" definition NTMs; "narrow" definition NTMs; and quantitative restrictions.

The broad definition of NTMs includes certain para-tariff measures, import deposits and surcharges, variable levies, anti-dumping/countervailing duty actions (including investigations, duties, and undertakings), quantitative restrictions (including quotas/prohibitions, restraints under the Multi-Fibre Arrangement (MFA), non-automatic licenses, voluntary export restraints, state monopolies), import surveillance, automatic licenses, and certain price control measures. All NTMs applied at the border for which information is available from UNCTAD's Data Base on Trade Control Measures are included in the broad definition.

The narrow definition excludes from the broad group para-tariff measures, import deposits and surcharges, anti-dumping/countervailing duty actions, automatic licensing, and import surveillance measures. The excluded NTMs are those which have a potential for restricting imports, but are viewed as being less restrictive in impact than the NTMs retained in the narrow definition group. For example, automatic licenses may be freely granted. They may be used primarily to monitor imports and to signal concern over import surges. Anti-dumping/countervailing duty actions are considered by many to have an uncertain impact on imports even though the threat of duty imposition can alter trade patterns in a manner similar to other NTMs.(6)

Quantitative restrictions reduce the quantity of imports of a particular good from all sources, or from a single supply source. Non-automatic licenses, quotas/prohibitions, restraints under the MFA, voluntary export restraints, and single channel (state monopoly) for imports are included in this NTM category. These NTMs can have a pronounced restrictive impact on imports. Quantitative restrictions, along with the variable levy, are commonly referred to as "hard-core" NTMs. Considerable importance is attached to these hard-core measures when assessing the severity of NTMs.

The ideal measure of restrictiveness associated with a specific NTM would compare actual imports entering under the NTM with what imports would have been under free trade. Since such a comparison is not possible, it is common practice to assess the incidence of NTMs on imports by using the trade coverage ratio, which measures the share of total imports (by value) subject to a given NTM |11; 14; 19~. The trade coverage ratio indicates the extent of NTM application rather than the specific effects of NTMs on prices, production, consumption, and import volumes. This ratio indicates the share of trade affected by a given measure, not the degree of restrictiveness of a given NTM.

GSP beneficiaries and GSP-covered products which actually received preferential tariff treatment were identified using GATT trade and tariff computer tapes. Products designated as GSP-eligible which enter preference-giving countries duty free on an MFN basis, and GSP-eligible products for which no trade was recorded were excluded from analysis. Since NTMs were often imposed on imports of a specific product from a specific country, it was necessary to start the analysis at the tariff-line level of product aggregation using the Harmonized System (HS) of product classification. The value of imports covered by a given NTM for each product was determined by matching imports at the tariff-line level from each supply source with information on product and country-specific NTMs applied in 1991, recorded in UNCTAD's Data Base on Trade Control Measures.(7) When a single tariff-line product was covered by more than one NTM, the trade flow was counted only once in calculating trade coverage. Trade coverage figures were aggregated, and trade coverage ratios were calculated for various product categories.(8)

Shortcomings inherent in this method of assessing the incidence of NTMs should be kept in mind when interpreting trade coverage ratios |5; 6; 21~. Certain sets of calculations will understate the extent of NTM application since many NTMs, including government procurement policies, domestic subsidies, export subsidies, and restrictive business practices are not coded in the data set.(9) Trade coverage ratios are calculated using NTM-distorted import values, and are therefore subject to the familiar "own import" bias. Protection will tend to be understated for product groups facing the most restrictive NTMs, since calculations are performed using the lower NTM-distorted import values. NTM coverage will tend to be exaggerated in cases where an NTM applies to only part of a tariff-line, since calculations must be performed at the tariff-line level of product aggregation.

III. Incidence of Non-Tariff Measures

Table I shows trade coverage ratios calculated for NTMs applied against imports of GSP-covered products by preference-giving countries in 1991. Trade coverage ratios are shown for broad and narrow definition NTMs, for quantitative restrictions, and also for major NTM subcategories.(10) Imports of GSP-covered products are found to confront a wide variety of NTMs in markets of preference-giving countries. NTMs from all of the major subcategories, including the hard-core measures, cover some part of GSP-covered imports. Overall, 21.3 percent, or more than one-fifth of GSP-covered imports are covered by one or more NTM. This amounts to approximately $122 billion in terms of 1988 import values. Narrow definition NTMs covered 16.5 percent, and quantitative restrictions covered 15.4 percent of GSP-covered imports. The subcategory with the largest overall trade coverage ratio is quotas. Restraints under the MFA, included in the quota category, account for this finding, even though this NTM is product-specific in application.(11)

Trade coverage figures reported for all items tend to obscure the importance of NTMs for certain product categories. Non-automatic licensing procedures and price actions are the major NTMs applied on imports of food items. Heavy reliance is placed on the use of anti-dumping/countervailing duty actions to regulate agricultural raw material imports. Imports of ores and metals are covered by automatic licensing procedures, quotas, and voluntary export restraints, while fuel imports face quotas and automatic licensing procedures. Major NTMs covering trade in chemicals include various import licensing procedures. Restraints under the MFA (quotas), and import licensing schemes cover textile and apparel imports. Automatic licensing procedures and anti-dumping duty actions are the major NTMs imposed against GSP-covered imports of footwear.

Table II shows trade coverage of NTMs on all items under individual GSP schemes. Trade coverage of NTMs is influenced by product coverage, which varies from scheme to scheme in accordance with each preference-giving country's trade policy orientation.(12) Intercountry comparisons of trade coverage ratios will therefore provide a misleading picture of both the relative use of NTMs across preference-giving countries, and the potential benefits available under the various GSP schemes.(13) However, within individual schemes, Australia, the European Community, New Zealand, and Switzerland are found to make extensive use of NTMs to control their imports of TABULAR DATA OMITTED TABULAR DATA OMITTED GSP-covered products. Australia relies heavily on tariff-quotas, a para-tariff measure, to control GSP-covered imports of leather products, textile and apparel products, and footwear.(14) The European Community imposes MFA quotas, and uses automatic licensing procedures on imports of many manufactured products. Price actions are imposed against imports of food items, ores and metals. Voluntary export restraints and anti-dumping duty actions restrict iron and steel imports. New Zealand has quotas on imports of textile and apparel products, and footwear.

The remaining countries rely to a lesser degree on NTMs to regulate preferential imports within their respective schemes. Austria primarily uses MFA quotas to regulate trade in textile and apparel products. Canada uses import licensing procedures and MFA quotas. Finland controls trade in agricultural products with price actions and non-automatic licensing procedures. Japan primarily uses non-automatic licensing on GSP-covered imports of leather, and textile and apparel products. Norway primarily uses non-automatic licensing procedures to control imports of food items. Sweden uses price actions and a single channel for imports of food products, and automatic licensing procedures for imports of iron and steel products. The United States relies on anti-dumping duty actions to influence imports of a wide variety of GSP-covered products. Price actions regulate sugar imports, and textile agreements (quotas) outside the MFA control imports of textile yarn and fabrics.

Major beneficiaries affected by NTMs are identified in Table III. Figures reported in the table represent the value of GSP-covered imports facing broad measure NTMs, and associated trade coverage ratios, for the "most affected" beneficiaries under each GSP scheme. These are generally the major beneficiaries under the various schemes. Most affected beneficiaries across all GSP schemes include Hong-Kong, China, Singapore, Algeria, and Romania. A number of "low-income" countries appear on various most affected lists.(15) Included here are China, Gambia, India, Indonesia, Mauritania, Niger, and Pakistan.


IV. Conclusions

One might expect imports of GSP-covered products to be relatively free of NTMs. The GSP is intended to provide preferential market access for developing country exports, and import-sensitive items are statutorily excluded from GSP-eligibility under most schemes. However, results of this study indicate

imports of GSP-covered products confront a wide variety of NTMs in markets of preference-giving countries. Heavy reliance is placed by some of these countries on the use of hard-core NTMs to limit imports eligible for preferential tariff treatment. Examples include MFA quotas in Austria, the European Community and New Zealand; non-automatic licensing procedures in Japan and Norway; and price actions in Finland.

Major beneficiaries under the various GSP schemes tend to be those most affected by NTMs. Several low-income countries appear on the lists. Percentages of GSP-covered imports facing NTMs for each of these beneficiaries are found to be extremely high. Since major beneficiaries also tend to be affected most by quantitative limitations inherent in GSP schemes, these limitations and NTMs outside the GSP are expected to exhibit similar country incidence patterns.

Based on results of this investigation, particularly those related to hard-core NTMs, it is clear that NTMs constitute an important deterrent to imports of GSP-covered products. This NTM use counters the original intent of the GSP, namely to extend preferential treatment to exports from developing countries.

Preference-giving countries should take immediate action to deal with the NTMs which limit GSP benefits by eroding incentives inherent in preferential tariff margins. An important means by which improved utilization of the GSP could be achieved would be to exempt GSP-covered products from NTMs used in markets of preference-giving countries. These countries should also refrain from imposing new NTMs which would serve to limit their imports of GSP-covered products.

1. Murray |9; 10~ and Clark |1; 2~ provide background information on the GSP.

2. Product coverage is identified in United Nations Conference on Trade and Development |17~. Protectionists enjoyed considerable success in restricting product coverage. See Clark |2~, and Ray |12; 13~.

3. MacPhee and Rosenbaum |7~ investigate competitive need limits under the U.S. GSP scheme.

4. See United Nations Conference on Trade and Development |15; 161. Waiter and Chung |20~ found product distributions of NTMs and GSP-covered items did not coincide to such a degree as to pose a serious threat to GSP utilization. Since the base period of their study, the incidence of NTMs used by industrial nations has doubled |5~. Ray |12~ found developing country exports under the U.S. GSP were biased away from products enjoying high protection levels from tariffs and non-tariff barriers.

5. NTMs and NTBs (non-tariff barriers) are often used as synonymous terms. The former is a broader concept, encompassing NTBs plus other measures which have a potential for restricting imports, but exhibit restrictive effects which depend on the way, and to what extent, the measures are applied. NTBs, such as quotas and voluntary export restraints, have pronounced restrictive effects. The present study follows the UNCTAD convention of referring to all trade distorting measures identified in the UNCTAD Data Base on Trade Control Measures as NTMs.

6. Herander and Schwartz |3~ found foreign firms do incorporate the threat of U.S. anti-dumping duties into their pricing decisions, and may act to restrict shipments. Messerlin |8~ found import volumes declined for items subject to anti-dumping duties in the European Community.

7. The UNCTAD Data Base on Trade Control Measures is described in United Nations Conference on Trade and Development |18~. Only NTMs outside the GSP were included in the present analysis. Calculations were performed using 1988 import values, the most recent year for which data were available. Petroleum products were excluded from the calculations.

8. For example, the trade coverage ratio (TC) for a particular NTM applied on a global basis would be calculated as follows: |Mathematical Expression Omitted~ where |V.sub.i~ is the value of GSP-covered imports in tariff-line item i, and |D.sub.i~ is a dummy variable, equal to one if the NTM is applied, and zero otherwise.

9. This shortcoming is particularly important in the case of Japan, where intangible barriers such as product standards, distribution systems, and government procurement policies have pronounced restrictive effects.

10. When a single tariff-line product is covered by more than one NTM, the individual trade flow is counted only once in the corresponding total. For example, the trade coverage ratio for total quantitative restrictions (QRs) would show the percentage, by value of GSP-covered import subject to one or more QR. Since NTM coverage overlap is common, figures shown above for NTM subcategories generally cannot be summed to yield corresponding totals.

11. Restraints under the MFA are viewed by UNCTAD as a web of bilateral quotas that specify amounts of affected products that each country is allowed to sell in the importing country.

12. Differences in product coverage can be attributed to the use of statutory product exclusions, ceilings on preferential imports inherent in GSP schemes, differences in beneficiary lists, and to product and country graduation from eligibility.

13. For example, the U.S. statutorily excludes from GSP eligibility textile and apparel products subject to the MFA. A designation of these products as GSP eligible would considerably inflate U.S. trade coverage ratio totals.

14. Under a tariff-quota, a primary tariff rate is applied to a specified quantity of imports, while imports in excess of this specified amount face a higher tariff rate. This para-tariff measure is not identified separately in Tables I and II.

15. Low-income countries had a per capita GDP that did not exceed $410 in 1980. See International Monetary Fund |4~.


1. Clark, Don P., "Trade Versus Aid: Distributions of Third World Development Assistance." Economic Development and Cultural Change, July 1991, 829-37.

2. -----, "Regulation of International Trade: The United States' Generalized System of Preferences Scheme." Weltwirtschaftliches Archiv, 1987, 697-704.

3. Herander Mark G. and J. Brad Schwartz, "An Empirical Test of the Impact of the Threat of U.S. Trade Policy: The Case of Antidumping Duties." Southern Economic Journal, July 1984, 59-79.

4. International Monetary Fund. World Economic Outlook. Washington, D.C. :International Monetary Fund, 1986.

5. Laird, Sam and Alexander Yeats, "Trends in Nontariff Barriers of Developed Countries, 1966-1986." Weltwirtschaftliches Archiv, 1990, 299-325.

6. -----, Quantitative Methods for Trade Barrier Analysis. New York: New York University Press, 1990.

7. MacPhee, Craig R., and David I. Rosenbaum, "The Asymmetric Effects of Reversible Tariff Changes Under the United States GSP." Southern Economic Journal, July 1989, 105-25.

8. Messerlin, Patrick A., "The EC Antidumping Regulations: A First Economic Appraisal, 1980-85." Weltwirtschaftliches Archiv, 1989, 563-87.

9. Murray, Tracy. Trade Preferences for Developing Countries. New York: Halsted Press, 1977.

10. -----, "How Helpful is the Generalized System of Preferences to Developing Countries?" Economic Journal, June 1973, 449-55.

11. Nogues, Julio, Andrzej Olechowski, and L. Alan Winters, "The Extent of Nontariff Barriers to Industrial Countries Imports." The World Bank Economic Review, 1986, 181-99.

12. Ray, Edward John, "The Impact of Rent Seeking Activity on U.S. Preferential Trade and World Debt." Weltwirtschaftliches Archiv, 1989, 619-38.

13. -----, "The Impact of Special Interests on Preferential Tariff Concessions by the United States." The Review of Economics and Statistics, May 1987, 187-93.

14. Sampson, Gary P. "Non-Tariff Barriers Facing Developing Country Exports," in Developing Countries and the Global Trading System, edited by John Whalley. Ann Arbor: The University of Michigan Press, 1989, pp. 171-88.

15. United Nations Conference on Trade and Development. Review of the Implementation, Maintenance, Improvement, and Utilization of the Generalized System of Preferences: Fourteenth General Report on the Implementation of the Generalized System of Preferences. TD/B/C.5/134, Geneva: United Nations, 1991.

16. -----. Comprehensive Review of the Generalized System of Preferences, Including Its Implementation, Maintenance, Improvement and Utilisation. TD/B/C.5/130, Geneva, United Nations, 1990.

17. -----. Generalized System of Preferences: Digest of Schemes. UNCTAD/TAP/136/Rev. 7, Geneva: United Nations, 1990.

18. -----. The UNCTAD Data Base on Trade Control Measures UNCTAD/DDM/Misc 18, Geneva, United Nations, 1990.

19. Walter, Ingo, "Non-Tariff Protection Among Industrial Countries: Some Preliminary Evidence." Economia Internazionale, May 1972, 335-54.

20. ----- and Jae W. Chung., "Non-Tariff Distortions and Trade Preferences for Developing Countries." Kyklos, 1971, 733-51.

21. Yeats, Alexander J. Trade Barriers Facing Developing Countries: Commercial Policy Measures and Shipping. London: Macmillan Press LTD, 1979.
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Title Annotation:Generalized System of Preferences
Author:Zarrilli, Simonetta
Publication:Southern Economic Journal
Date:Oct 1, 1992
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