Apr 19, 1988

NO SIGNIFICANT EXPANSION WITHOUT TACKLING NTMS - UNCTAD

GENEVA APRIL 20 (IFDA/CHAKRAVARTHI RAGHAVAN)ó Unless some action is taken by industrial countries in the field of non-tariff measures (NTMS), "no significant expansion of trade can be expected through tariff reductions, not even in high-tariff items", according to the UN conference on trade and development (UNCTAD).

In a report (td/b/1160) on protectionism and structural adjustment, for next week's meeting of the trade and development board (TDB), the UNCTAD secretariat points out that in 1987 NTMS covered a larger share of non-fuel imports originating in third world countries (24.9 percent) than of such imports from all sources (22.6 percent).

Third world countries in particular face a heavier burden of, Quantitative Restrictions (QRS).

According to UNCTAD calculations, the ratio of imports covered by QRS to total non-fuel imports was 18.6 percent for third world countries compared to percent for intra-developed marked economy (DME) country trade.

The trade coverage ratio of NTMS applied against socialist countries was also higher than those against all trading partners, both for total and for non-fuel imports.

In its report, the secretariat paints out that despite the efforts of major industrialised countries to strengthen the coordination of their economic policies, and despite the growing awareness of the need to review domestic farm policies and the commitments to multilateral trade negotiations (MTNS) under GATT, "there has been no significant improvement in the fundamental conditions which have contributed largely to the current crisis in the international trading system".

The current situation, according to UNCTAD, calls for a further strengthening of coordination of macroeconomic policies and determined resistance, to protectionist pressures, for greater transparency in domestic policies and greater awareness of possible impact on both national and international economy.

Also needed are further measures to achieve stronger demand growth in countries with external surpluses, especially Japan and Germany, and for an increase in transfer of resources to third world countries.

One of the main features of current trade policies has been the emphasis on bilateral actions, and frequent resort to "voluntary export restraints (VERS), orderly marketing arrangements (OMAS)", and arrangements which provide for guaranteed market access.

Implementation of Tokyo-round tariff cuts, and reductions in some countries even beyond those agreed to, have resulted in MFN tariffs in some countries remaining practically unchanged in 1987. A number of third world countries have also substantially liberalised tariff policies.

But despite renewed standstill and rollback commitments; no significant progress has been made towards trade liberalisation in 1987, UNCTAD comments.

NTMS due to expire on January 1, 1987 or during the year, have in almost all cases been renewed. New trade restrictions, particularly of antidumping (AD) and countervailing (CV) duties have been introduced, as also so-called "grey area" measures, VERS and OMAS, and import monitoring.

And while there had been some decrease in ad proceedings during July 1986-June 1987, as compared to previous 12 months, some of the actions involved third world countries not previously affected by such actions.

But Norway and new Zealand have continued liberalisation efforts, and so have a number of third world countries - Argentina, Colombia, Morocco, South Korea, Indonesia, Philippines, Taiwan province of China, Tunisia, Turkey and Yugoslavia.

A number of countries have also increased the timescape of NTMS or introduced new ones, with NTMS concentrated in the steel sector.

Trade liberalisation in footwear, reported by UNCTAD a year ago, now risked being 'partially reversed' by recent developments - EEC actions against Taiwan and South Korea, and Canadian efforts to negotiate VERS with major suppliers.

Nearly 17 percent of imports into the DME countries in 1984 were subject to one or more selected NTMS. These involved import trade of 188 billion dollars on a broad definition of NTMS and 120 billion on a narrow definition.

UNCTADís broad definition includes some para-tariff measures, variable levies, CV and ad actions, QRS, surveillance of quantities and prices of imports, and automatic licensing and measures to control price levels.

Its narrow definition excludes from the above para tariffs, CV and ad actions, and import surveillance measures.

The extent of NTMS, according to UNCTAD, varies widely across sectors.

Trade intervention is very high in iron and steel, textiles and clothing. Steel is a sector where international trade is "heavily managed by government intervention". But unlike in textiles and clothing, NTMS are concentrated in a few countries.

While the general MFN tariffs have come down after Tokyo round, there are still products with relatively high tariff rates in DME countries, and third world countries have an important stake in trade in such products.

Their market share is greater in higher tariff imports and, hence, reductions in high tariffs more than lower ones, are in the interests of third world countries.

Third world countries would benefit from such reductions despite any erosion in their preference margins under the GSP schemes.

But since high tariffs are also coupled with NTMS, tariff liberalisation and improved GSP product coverage and margins in Higher tariff items would do little for third world countries, if NTMS are not relaxed, UNCTAD comments.

As regards tropical products (TP), despite some past liberalisation on MFN or GSP basis, TPS still face high tariffs in some countries.

In some of them there are high tariffs on products in groups like coffee, cocoa, flowers, tobacco, roats and tubers, processed fruit, and lute and hard fibres.

Tariff escalation is also a major problem in this sector.

While third world countries are in a position to engage in processing of their primary TPS up to a fairly high level in the processing chain, their efforts would not be rewarded unless imparting industrial countries reduce levels of tariffs affecting higher levels of processing.

With some exceptions in the U.S., a higher nominal protection is afforded to processed or semi-processed goads than too raw products or products incorporating little value added.

The difference in rates between high and low stages of processing in many cases are more than ten percentage points, and even more considerable in cases like cocoa, oilseeds and vegetable ails, tobacco and fruits.

Access to DME markets for TPS are also affected by NTMS.

As regards high-technology (HT) goods, where imports in 1984 represented 11.9 percent of DME imports, and where some countries have a strong competitive position and thus a stake in an open international trading system, recent actions, such as in semiconductors between U.S. and Japan, suggest that trade frictions have now spread to the HT sector, UNCTAD comments.

UNCTAD data suggest that there is an inverse relationship between R and D intensity involved in the product and application of NTMS.

However, the UNCTAD data base deals only with border control measures, while government procurement policies, state funding of R and D, defence-related contracts, etc, are more dominant in the HT sector, do not figure.

While trade in HT goads is not generally subject to forms of restrictions, say as in agricultural imports and manufactures with low R and D intensity, ad measures are being applied against imports of sophisticated HT goods, particularly against Japan.

While the DME countries still account for bulk of world trade in HT goods, the relative importance of third world markets for HT exports from some countries have been growing steadily since 1970.

For a group of third world countries and territories (Hong Kong, India, South Korea, Malaysia, Pakistan, Singapore, Thailand, Argentina, Brazil, Chile and Colombia), in 1985 HT goods accounted for almost one third of all exports from U.S. to this group of countries, and for about one fourth from Japan. For the EEC it was close to 20 percent.

In the some countries, total manufactured imports accounted in 1983 for a share of 17.5 percent of apparent consumption of manufactured products.

(The share of imports in total domestic consumption or import penetration ratio is of ten used to indicate significance of competition from imports)

The third world share of manufactured imports in consumption in the some countries was only slightly more than 1.5 percent and by any standard this must be considered low, UNCTAD points out.

Over the period 1975-1983, the import penetration ratio for third world suppliers increased only by 0.3 percentage points.

As to the argument that problems occur at sectoral level because of much higher penetration ratios, UNCTAD notes that analysis of imports from first five most important third world suppliers showed only a limited number of product groups with shares in domestic consumption significantly above the manufacturing average of 1.5 percent.

The bulk of industrial employment in DME countries, UNCTAD adds, is concentrated in production sectors where imports from third world countries account for less than five percent of apparent domestic consumption.

Underscoring the importance of third world countries as import markets in international trade, UNCTAD notes that DME export dependence an third world markets in food and processed and manufactured goods reached a peak of 28 percent in 1981, and then declined to 2l percent in 1985, with foreign exchange constraint in these countries being part of the explanation.

In 1985, both U.S. and Japan sold more than 30 percent of their total exports in such goods to third world countries, and it amounted to nearly half of all such DME exports.

Even industrial countries with relatively law export-dependence ratios have quite substantive exports to the third world.

In 1985, West Germany exported billion dollars worth of such products to third world countries, Italy 14.3 billion or 20 percent, Nehterlands 5.6 billion or 12.1 percent and Belgium 4.9 billion or 10.8 percent.

The share of exports to third world countries of specific products in total exports of these products is also markedly higher than the average export dependency ratio of 21 percent.

Products where this export dependency ratio amounted to 40 to 100 percent, accounted in 1985 for exports of 17 billion dollars to third world countries.

On products with above average export dependence on the third world, one half of the exports were in labour-intensive intermediate products, one-third on capital-intensive goods, both intermediate and finished._