Home
About CUTS
CITEE
CART
CHD
C-SPAC
Contact CUTS
 
 

 

 
 
 
 
No.2/1997
Non-Tariff Barriers or Disguised Protectionism
One of the most important objectives of establishing the General Agreement on Tariffs and Trade (GATT) in the year 1947 was to achieve substantial reduction of tariffs and other trade barriers i.e. the non-tariff barriers and thus to secure a freer access to the markets.  

As far as tariffs are concerned, a long distance has been travelled since then and substantial reduction in tariffs has been achieved in the successive Rounds of trade negotiations. By the end of the Tokyo Round of Trade Negotiations the tariffs in the developed countries had been brought down to 6.3% on the industrial products which would further reduce to 3.9% on a trade weighted average, by the end of the Uruguay Round implementation period i.e. 1 January 2001.  

It is, however, difficult to argue that the same success has been achieved on the front of non-tariff barriers which is also evident from the fact that the recently concluded Singapore Ministerial Conference has devoted more time and attention to the non-tariff issues rather than to tariffs. 

This Briefing Paper examines various non-tariff barriers maintained by some countries, their impact on trade and how best they can be dealt with.

MEANING OF NON-TARIFF BARRIERS

Any restriction imposed on the free flow of trade is a trade barrier. Trade barriers can either be tariff barriers, that is levy of ordinary customs duties within the binding commitments undertaken by the concerned country in accordance with Article II of GATT or non tariff barriers, that is any trade barriers other than the tariff barriers. 

The GATT Agreement envisages Most Favoured Nation (MFN) treatment to be accorded by every Member to all other Members. Article II of the GATT Agreement prohibits levy of ordinary customs duties, any other duties or charges in excess of those set forth and provided in the schedule of concessions relating to the importing country and requires such duties or charges to be levied on a non-discriminatory basis on imports originating from whatever source. Customs duties at rates within the binding commitment can always be applied, as in the case of India where the applied rates are mostly well below the binding commitments. 

But, this lower rate has also to be applied uniformly on all imports on a non-discriminatory basis. The only exception being a preferential treatment under a Regional Trading Arrangement or any similar arrangement specifically permitted under the GATT. India is also a Member of various preferential arrangements, notably the SAARC Preferential Trading Arrangement (SAPTA), the Bangkok Agreement and the Global System of Trade Preferences (GSTP) etc. and accords preferential treatment to imports from the respective Member countries. 

Any levy other than the ordinary customs duties or charges as explained above will fall in the category of non-tariff barriers. 

FORMS OF NON-TARIFF BARRIERS

Non-tariff barriers can take various forms. Broadly these can be categorised as under: 
 
 

TYPES OF NON-TARIFF BARRIERS
  • Import Policy Barriers
  • Standards, Testing, Labelling and Certification requirements 
  • Anti-dumping & Countervailing Measures
  • Export Subsidies and Domestic Support
  • Government procurement
  • Services barriers
  • Lack of adequate protection to Intellectual Property Rights 
  • Other barriers

i)   Import Policy Barriers

One of the most commonly known non-tariff barriers is the prohibition or restrictions on imports maintained through the import licensing requirements. Article XI of the GATT Agreement requires Members not to impose any prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures. Any form of import licensing (other than an automatic license) is, therefore, to be considered as an import restriction. 

Certain restrictions on imports, however, can be imposed in accordance with various provisions of the GATT. These include restrictions on grounds of safety, security, health, public morals etc. 

Article XX of the GATT Agreement provides for certain general exceptions on grounds of protection of: 

  • public morals,
  • human, animal or plant life or health,
  • national treasures of artistic, historic or archaeological value etc.
These are however subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a  disguised restriction on international trade. Similarly Article XXI of the GATT Agreement provides for certain security exceptions. 

Import restrictions on some items on grounds of safety and security are being maintained generally by all the countries, and perhaps these cannot be considered as non-tariff barriers looking to the purpose for which the restrictions are imposed. 

Article XVIII (B) of the GATT allows import restrictions to be maintained on grounds of ‘Balance of Payment’ (BOP) problems. Presently only seven countries maintain import restrictions on account of BOP problems. India is one of them. The others are: Bangladesh, Nigeria, Pakistan, the Philippines, Sri Lanka and Tunisia. 

Besides the import licensing, import charges other than the customs tariffs and quantitative restrictions are the other forms in which import restrictions can be imposed through the import policy. 

Textiles is the most important commodity on which Indian exports face quantitative restrictions in the form of MFA (Multi Fibre Arrangement) quotas in the main markets. MFA quotas have been in force for about a quarter of century (since 1972). All textile items (including clothings) under HS code 50 to 63, and some textile items falling under HS Code 68 or 93 are subjected to MFA quotas. In the USA, one of the main markets for Indian textiles exports, more and more items have been incorporated in the MFA quotas. So much so that since 1986, within six years the MFA quota coverage has expanded six times from 16% to 95% by the year 1992. 

Although quotas prima-facie may provide some satisfaction to the exporters by way of ensured markets, these operate more dangerously to prevent growth of exports beyond quotas and the importing countries conveniently use them as an effective tool to protect their domestic industry. 

Another related issue in the context of MFA quotas is the new US Rules of Origin which have resulted in some textile-visas being granted to non-originating goods. 

Some agricultural products also suffer from quota regimes. Thailand maintains quota regime on imports of Soyabean which has adversely affected India’s exports of oil meals which is a major export to Thailand. Similarly Canada also maintains quantitative restrictions and import licensing requirements for a variety of food and agricultural items. 

Recovery of excessive service charges, disproportionate to the services rendered by the port or customs authoorities also fall in this category. Notably Japan is one such case where Japanese Customs charge small packaging carriers unreasonable fees for customs clearances of high volume and low value shipments on the weekends and in the evenings. 

ii) Standards, Testing, Labelling & Certifi-cation Requirements

Primafacie Standards, Testing, Labelling and Certification requirements are insisted upon for ensuring quality of goods seeking an access into the domestic markets but many countries use them as protectionist measures. The impact of these requirements is felt more by the purpose and the way in which these are used to regulate the trade. 

Two of the covered agreements under the WTO namely the Agreement on the Application of Sanitary & Phytosanitary Measures (SPM) and the Agreement on Technical Barriers to Trade (TBT), specifically deal with the trade related measures necessary to protect human, animal or plant life or health, to protect environment and to ensure quality of goods. 

The SPM Agreement gives a right to take sanitary and phytosanitary measures necessary for the protection of human, animal or plant life or health, provided: 

  • such measures are not inconsistent with the provisions of the Agreement;
  • they are applied only to the extent necessary;
  • they are based on scientific principles and are not maintained without sufficient scientific evidence;
  • they do not arbitrarily or unjustifiably discriminate between Members where identical or similar conditions prevail including between their own territory and that of other Members, and
  • they are not applied in a manner which would constitute a restriction on international trade.
In regard to the determination of appropriate level of sanitary or phytosanitary protection, the Agreement requires the objective of minimising negative trade effects to be taken into account. Further, it permits introduction or maintenance of sanitary and phytosanitary measures resulting in higher level of sanitary and phytosanitary protection that would be achieved by measures based on the relevant international standards, guidelines or recommendations only if there is a scientific justification. However, where no such international standards, guidelines or recommendations exist or the content of a proposed sanitary or phytosanitary regulation is not substantially the same as the content of an international standard, guideline or recommendation and if the regulation may have a significant effect on trade of other Members a notice needs to be published at an early stage and a notification is required to be made of the products to be covered with an indication of the objective and rationale of the proposed regulation. 

The TBT Agreement also contains similar provisions with regard to preparation, adoption and application of technical regulations for human, animal or plant safety, protection of environment and to ensure quality of goods. 

Both the Agreements also envisage special and differential treatment to the developing country Members taking into account their special needs. However, the trade of developing country Members has often faced more restrictive treatment in the developed countries who have often raised barriers against developing countries on one pretext or the other. 

The Consumer Product Safety Commission (CPSC) and the Food and Drug Authority (FDA) in the USA are responsible for ensuring quality of goods that enter the USA. Some of the instances of restrictions imposed by them include: 

  • Recall of Indian made ghagras (skirts) on grounds of non-conformity to flammability standards. This item was ultimately brought under MFA quota regime.
  • Targetting of Indian rayon scarves on similar grounds of non-conformity to flammability standards.
  • Automatic import alert in respect of Indian fresh and frozen shrimps on grounds of filth, decomposition and presence of Samonella. This was extended even to cooked shrimps in early 1995 by the FDA.
  • Targetting of Indian mangoes on the ground of presence of fruit fly and weavils.
In the case of the European Union (EU) reducing packaging waste and its impact on environment is an important concern. The EU have issued a directive in December 1994 requiring packaging materials to meet some technical standards, designed and produced in such a way to promote their reuse, recycling and energy recovery and at the same time minimising their impact on environment. In Germany, however the existing laws are still stricter which puts the onus of disposal of waste on the wholesale distributors. All these measures definitely have a great economic impact on developing countries exports to the EU Member countries. 
 Some of the other non-tariff barriers falling in this category are ban on import of goods (textiles and leather) treated with azo-dyes and pentachlorophenol, ban on use of all hormones, natural and synthetic in livestock production for export of meat and meat products, stipulation regarding pesticides and chemicals residues in tea, rice and wheat etc., and requirement of on-board cold treatment for fruits and vegetables exported to Japan. 

iii) ANTI-DUMPING & COUNT-ERVAILING MEASURES

Anti-dumping and countervailing measures are permitted to be taken by the WTO Agreements in specified situations to protect the domestic industry from serious injury arising from dumped or subsidised imports. The way these measures are used may, however, have a great impact on the exports from the targetted countries. If used as protectionist measurs, they may act as some of the most effective non-tariff barriers. The number of anti-dumping investigations in the recent past have increased manifolds. Not every investigation results in the finding of dumping and/or injury to the domestic industry. But the period for which the investigations are on, and this period may be upto 18 months, the exports from the country investigated suffer severely. Anti-dumping and countervailing duties being product specific and source specific the importers well prefer switching over to other sources of supply. 

In some cases the authorities apply innovative methods to prolong the investigation.  A recent practice adopted by the European Commission is a case in example. The European Commission has terminated anti-dumping investigation following withdrawal of the complaint in two cases namely unbleached cotton fabrics from India and others (20th February 1996) and bed-linen from India and others (9th July, 1996), after nearly two years without concluding the investigation, and started fresh investigations immediately after the termination of the two investigations on 21st February, 1996 and 16th September 1996 respectively. It may be a matter of debate whether the European Commission was within their rights to do so but the impact of these decisions is grave on exports of these item from the concerned countries. 

Another aspect concerns the quantum of duty levied. The WTO Agreements on Anti-dumping and Countervailing duties permit the importing countries to impose full margin of dumping and subsidisation as anti-dumping duty or countervailing duties but recommends levy of lesser amount as duty if such lesser amount is adequate to remove the injury to the domestic industry. In other words the Agreements recommend that the amount of duty imposed should be such as is adequate to remove the injury to the domestic industry as any amount in excess of that would only provide an undue protection to the domestic industry. While in India, the European Union and some other countries the lesser duty rule is applied, in the  case of USA, Canada, and some other countries, the full duty rule is applied which can well be considered as a non-tariff barrier. 

iv) EXPORT SUBSIDIES & DOMESTIC SUPPORT

Both export subsidies and domestic support have a great bearing on the trade of other countries. While export subsidies tend to displace exports from other countries into the third country markets, the domestic support acts as a direct barrier against access to the domestic market. Generally the developing countries can hardly find resources to grant subsidies or domestic support. But developed countries like the Members of the European Union and Japan have been heavily subsidising their agricultural sector through schemes like export refunds, production support system and other intervention measures. 

Under the Common Agricultural Policy, the EU subsidises European farmers upto $4bn every year, which end up mostly into the pockets of rich land lords who really do not need it. In 1992, Ray MacSharry, EU’s agriculture commissioner, calculated that 80% of the subsidies went to the richest 20% of farmers. For example, Queen Elizabeth receives annually $352,000 for her Sandringham estate, and her daughter Anne recieves $128,000 annually for her Gatcombe Park farm. Even Arab princes owning estates in UK are receiving these doles. Saudi Prince Khalid Abdullah al Saud claimed $192,000 for his country estate in Kent. (Asian Wall Street Journal, 11 December 1996). 

v)  PROCUREMENT

Government procurement and bulk procurement policies followed by some of the countries act as a non-tariff barrier. Notably, Japan follows peculiar purchasing practices in the Government sector which are neither transparent nor uniform. Similarly the UAE and Saudi Arabia maintain preferential buy-national policies giving a preference to local products in the governmental purchases or insist on a certain percentage of sub-contracting in favour of locally owned firms. 

vi) SERVICES BARRIERS

Some of the measures which fall in this category include restrictive visa regime maintained by the USA which act as a severe restriction to India’s services exports, the local sponsorship requirement for visas for Saudi Arabia, the special measures Law concerning the handling of legal business by foreign retainers in Japan and restriction on issue of licences to the foreign professionals in service areas like accounting, architecture, engineering and legal services etc. in Thailand. 
 
 

vii) Lack of Adequate Protection to Intellectual Property Rights

Lack of adequate protection to Intellectual Property Rights in some countries hurts the exports of other countries. For example, piracy of motion pictures, video cassettes, audio cassettes, computer software etc. is widely practised in some of the Gulf countries, which affects Indian exports of these items. 

viii) Other Barriers

Some of the other main non tariff barriers are discriminatory on account of use of child labour, investment barriers, language barriers, Super and Special 301 measures under the Omnibus Trade Act by the USA etc. 

Use of child labour is increasingly growing as a serious concern in many countries. Carpets and sports goods have often faced criticism mostly from the non-governmental organi-sations for use of child labour. In the Indian context it may be mentioned that the Indian Laws do not permit child employment in the industrial sector, particularly in hazardous sectors. The cottage industry is mostly run by joint families where skills travel down the generations through the participation of family members including children. Even in cases where child labour is employed commercially, the choice is clearly between letting the child somehow earn his livelihood or to let him live a miserable life. There is, therefore, a need to find a solution taking all these aspects into account rather than simply creating an awareness against use of goods made with child labour. 

CONCLUSIONS

While  tariffs having been already brought down substantially in the Uruguay Round, the future efforts are more likely to concentrate on the non-tariff issues. 

It is not true that the non-tariff measures are entirely unnecessary. The WTO Agreements permit the Members to take measures to protect human, animal or plant life or health, to conserve natural resources or to ensure the quality of goods finding an access in their markets. Members can also in certain circumstances take specified action to protect their domestic industry. The non-tariff measures act as barriers if they are applied as protectionist measures in a disguise. The non-tariff measures need, therefore, to be examined for their consistency with the WTO disciplines and whether they are applied as a protectionist measures in a disguised form or manner. 

If a country feels that non-tariff measures taken against its exports are inconsistent with the WTO provisions, it may take the matter to the WTO dispute settlement mechanism, besides seeking bilateral consultations. WTO provisions, however, do not cover all areas and, therefore, some difficulties may be experienced where WTO provisions do not exist. Even where the measures are consistent with the WTO provisions, most of the agreements envisage special and preferential treatment for the developing country members. Bilateral consultations can perhaps help a lot in this regard. 
 
 

RECOMMENDATIONS
 Some of the non tariff barriers can be tackled by the exporters themselves by ensuring that they adhere to quality and standards requirements of the importing countries. For this purpose they need to plan production and packaging methods specially for the export markets. 
  • The manufacturing techniques used must be carefully selected so as to ensure that the resultant products do not cause any harm to human, animal or plant life or health. 
  • The exporters need to carefully study the laws and regulations of the importing countries and their likely impact on the exports. Similarly they should also carefully examine the notices or notification made by the importing countries under the Agreement on Application of Sanitary and Phyto-Sanitary measures and the Agreement on Technical Barriers to Trade.
  • The exporters should maintain an effective interaction with their counterpart associations etc in the importing countries. Any difficulties due to technological or economical limitations must be adequately brought forward to the notice of the Government.  Most of the WTO Agreements envisage special and preferential treatment to developing countries. Specific problems being faced and the favour required should therefore, be identified. This may help the Government to have effective bilateral consultations with the concerned countries and to seek specific dispensation.
  • Since any dispute in the WTO can be raised by the Governments only, the exporters will do well to fully cooperate with their Government and to provide it with all the necessary information through their association etc.

©  CUTS, This Briefing Paper has been researched and written by Mr R. K. Gupta, Director, Ministry of Commerce, Government of India, New Delhi
Back to the Top
 
 Copyright 1997; Consumer Unity & Trust Society (CUTS)
Hosted by: www.fullestop.com