Impact Of Nontariff Measures On Developing Countries Exporters Economics Essay

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Exports of goods are subject to tariff and non-tariff measures (NTMs). NTMs encompass policy measures (except ordinary customs duties) that are related to export and import and can potentially have an economic effect on international trade. NTMs include a wide category of instruments such as sanitary and phytosanitary measures (SPS), technical barriers of trade (TBT), quotas, anti-competitive measures, import or export licenses, export restrictions, customs surcharges, financial measures, and antidumping measures. The economic effect of certain measures, and therefore their protectionist potential, can be very significant - for 55 per cent of tariff lines the ad-valorem equivalent (AVE) of NTMs is higher than the tariff, with simple average AVE ranging from zero to 51% (Kee et al, 2009). [1] 

NTMs are complex and very specific to the applying country. They are also less transparent than tariff measures, making it difficult to calculate the cost of doing business in destination markets. Furthermore, the application and complexity of NTMs is increasing. According to ITC Client Survey 2008, NTMs are among top 3 trade-related concerns. [2] The subsequent 2009 survey revealed that NTMs remain one of the most important challenges to developing exports, especially in the aftermath of the recent financial crisis. [3] Given that access to information and technical infrastructure and capacities is more limited in developing countries, exporters from developing countries are more likely to be negatively affected by NTMs.

From the perspective of exporting companies, the compliance with NTMs represents an additional cost and extra time which reduce the competitiveness of their products. For instance, a company may need to send examples of their products to a testing laboratory, obtain conformity assessment certificates, translate them, and have their shipment expected prior to delivery. To address NTM issues from a business sector perspective, the primary aim of this work is the identification of most challenging NTMs in relation to products and export markets, namely those that companies experience as serious hindrance for exporting their goods.

Methods

Two major approaches to estimating the impact of NTMs include direct measurements and quantification techniques. Different ways of quantifying NTMs and identifying trade distorting measures are provided in Box 2. Results presented below are based on a direct measurement, through large-scale company surveys on NTMs. The NTM surveys allow companies to identify and report most burdensome NTMs which have impact on their export performance.

A need for understanding the company perspective on NTMs

Direct work with companies in developing countries confirms that their most predominant concerns are problems related to NTMs, and business environments in general. ITC seeks to assist countries in better understanding the non-tariff obstacles to trade experienced by their business sector. NTMs are seen as a major determinant of market access and are at the forefront of bilateral, regional and multilateral trade negotiations. It is therefore vital to have a full understanding of their impact on exporting and importing companies.

The business perspective on the issue of NTMs is indispensable in the identification and definition of national strategies that help address and overcome obstacles to trade. Exporters and importers have to deal with NTMs on a day-to-day basis, and they know best about the specific challenges and problems they face. The understanding of their key concerns with regards to NTMs helps governments better define action and capacity building programmes.

To collect and classify the perceptions of importing and exporting companies on burdensome NTMs and other obstacles to trade, ITC has designed and implemented NTM surveys in 7 countries -Burkina Faso, Chile, India, the Philippines, Thailand, Tunisia and Uganda. NTM surveys are currently ongoing in Morocco, Sri Lanka, Paraguay, Peru and Uruguay, and aspire to cover all developing countries provided the interest of national stakeholders.

Box 1: NTM survey methodology

The NTM surveys cover trade in goods. The interviews are based on the questionnaires identifying NTMs and obstacles to trade that are very burdensome and current (experienced in the preceding year), as well as underlying reasons turning NTMs into barriers for companies. Stratified random sampling is employed to ensure that the survey results are systematic and representative. Each surveyed economy is divided into sectors (strata) within which a number of companies are surveyed at random (300-1500 companies per country).

The survey follows two-step process. The first step includes short (around 5 min) phone screens aimed at identifying the companies that are affected by burdensome NTMs or other obstacles to trade. Results of the phone screen interviews show the share of companies affected by barriers to trade. In a second step, in-depth face-to-face interviews (around 40 min) are carried out with companies that reported on the phone that their export is affected by barriers to trade.

Face-to-face interviews reveal detailed information on the types of burdensome NTMs and other obstacles to trade at the product level and by partner country. Interviewers use a pre-defined questionnaire in order to capture the experiences of companies with NTMs by "cases". Each case has several parameters, including the product, the type of NTM (as categorized in a new NTM classification, see Annex 1), the country applying the NTM, and the description of related challenges. This methodology allows collecting information only on very burdensome NTMs, and it is the interviewed companies which make judgements on whether NTMs represent a barrier for their trade.

Several caveats must be kept in mind when comparing NTM survey results across countries. The data is based on companies' perceptions and judgements. Cultural differences, local language requirements and the complex nature of the topic may have influenced both respondents and the local partner (generally a specialized survey company) implementing surveys on behalf of ITC. In all surveyed countries, interviewers used a very similar questionnaire and categorize reported measures according to the NTM classification. Yet some of the reported problems might have been matched inconsistently against NTM codes from the NTM classification. Furthermore, certain trade problems are not likely to be known by companies and recorded in the NTM surveys, for example demand side interventions, such as "Buy domestic" campaigns.

Finally, the surveys in Chile, India, the Philippines, Thailand, Tunisia and Uganda followed a slightly different methodology. Based on the feedback and experience from these pilot surveys, all subsequent surveys included phone screening phase identifying and recording the experiences of companies with NTMs, including neutral/positive and negative ones. Coupled with a representative sample, the phone screen results allow calculating the shares of companies which are negatively affected by NTM-related problems in each surveyed country (these results are presented in Table 1).

Non-tariff measures vs. non-tariff barriers

The terms of NTM (non-tariff measure) and NTB (non-tariff barrier) are often used interchangeably. However, in the current context, the distinction is very important.

A priori, NTM is a neutral concept - measures can have an effect on trade (either positive or negative) or no impact at all. Many of recently introduced NTMs reflect the increasing sophistication of markets and consumers' demand. NTMs can be introduced for legitimate reasons, for example, protection of human, animal and plant health. It is not possible and not required to "eliminate" such NTMs; however, transparency, the reduction of the cost of compliance, and capacity building in the area of NTMs can facilitate international trade. Unlike NTMs, the term NTB implies a negative impact. Some NTBs can emerge as consequences of NTMs, but others, like distance, have no relations to any NTM.

NTM surveys are designed to identify NTMs that are most challenging for companies, without making any judgement on their legitimacy. By construction the survey results contain only those NTMs that enterprises perceive as serious hindrance having a negative impact on their exports. Such measures are referred to as "burdensome NTMs". Furthermore, the reasons behind the difficulties with NTMs are also identified and recorded during the surveys.

From the companies' perspective, NTMs can become burdensome for various reasons. Firstly, NTMs per se can be very strict - for example tolerance limits for residues is set so low that it is unfeasible to comply with such a requirement (or so costly that it does not make economic sense for the company). Secondly, exporting companies may not be aware about certain requirements, or about what exactly constitutes the acceptable level of residues and other substances.

Thirdly, the company may be aware about this requirement and even comply with it, but can still have problems demonstrating that their products are compliant. For example certification authority (or testing laboratory) can be too costly, located too far, or request informal payments. So, in this case the problem is related to an NTM, but is not directly caused by it. Such types of problems are referred to as procedural obstacles. They include a wide range of constraints, from administrative burdens and time delays to the behaviour of officials and lack of legal protection.

For instance, an interviewed fish exporter from the Philippines has difficulties with tolerance limits for residues or contamination by certain substances in foods and feeds because he finds "EU countries' standards are too high". Similar perception was shared by a company in Burkina Faso exporting sesamum seeds to Israel and Switzerland. These are examples when measures applied by developed countries have more stringent requirements than similar NTMs applied by other importing markets. A Philippine exporter to Japan reported "Okra should be classified among crops with listing of acceptable pesticide/chemical use. Absence of such listing automatically gives the shipment a failed rating of .03". In this case the exporter has difficulties not because the requirement is stringent but because it is changing too often and he does not have access to the latest information.

The term NTM-related problems is used to describe all types of obstacles experienced by companies, including burdensome NTMs and procedural obstacles described above, as well as bottlenecks related to export-related facilities and business environment. Companies can experience NTM-related problems in their home country, as well as in the partner, transit and destination countries.

Major survey findings

The survey results suggest that a large share of companies is affected by NTM-related problems, most of which are technical measures. The impact is larger for small companies and for the companies exporting from landlocked developing countries (LLDCs). There is a large variation in NTMs depending on the export sector and importing market. Difficulties with NTMs applied by the partners in the home regions, as well as domestic impediments constitute a large share of reports. [4] 

Affected companies

In most countries significant shares of companies have experienced NTMs that were extremely difficult and, therefore, were perceived as barriers to trade. Among surveyed countries the largest share of affected companies is in Burkina Faso (70.3 per cent) and the smallest is in Morocco (32.3 per cent).

Table 1. NTM incidence by exporting company size in 2010

Surveyed country

Share of affected companies, %

Nr of companies screened

on the phone

Small

Medium and large

Total

Small

Medium and large

Burkina Faso

76.5

65.0

70.3

34

40

Morocco*

46.7

31.2

32.3

15

205

Paraguay*

65.3

63.8

64.3

72

138

Peru*

42.6

44.4

44.0

115

473

Sri Lanka*

64.3

56.2

57.2

42

290

Note: *Results are preliminary because the survey analysis is still ongoing. Most of the fully completed surveys (in Chile, India, the Philippines, Thailand, Tunisia and Uganda) do not include data on the shares of affected companies due to the difference in methodology.

The surveys indicated that small companies [5] have negative experience with NTMs more often than larger companies. In Sri Lanka 64.3 per cent of small companies are affected in comparison to 56.2 per cent of medium-sized and large enterprises (Table 1 above). Similarly, the share of affected companies is larger among interviewed small companies in Burkina Faso, Morocco and Paraguay. Small companies can be more affected than larger ones whenever the compliance with NTMs represents a fixed cost. In such cases smaller shipments translate into larger per unit cost of compliance with NTMs. Only the survey in Peru did not reveal any systematic differences between small and large enterprises. This could be explained by the availability of services provided by specialized forwarding agents in Peru and used by small companies, but this hypothesis needs further investigation.

Other company characteristics, such as presence of foreign ownership and the time the company have been in operation may also have sizable implications for their experience with NTMs, but this topic merits a separate analysis.

NTM types and incidence

Technical measures, which group together all sanitary and phytosanitary measures (SPS) and technical barriers to trade (TBT), are among the most reported in all surveyed countries (75.2 per cent on average, see Figure 1 below). These measures include regulations related to product characteristics or to the associated production process. Among them, certification (13.4 per cent of all reported technical measures), labelling, marking and packaging requirements (9.4) and traceability requirements (7.4) were most frequently reported.

As for non-technical measures, pre-shipment inspection and other customs formalities (9.1 per cent of all reported measures) and charges, taxes and other para-tariff measures (4.6) were among largest concerns to interviewed companies, both exporting and importing.

Figure 1. Average share of reported NTMs

Technical measures (SPS and TBT), 75.2%

out of which:

Note: Based on the reports by exporting and importing companies in Burkina Faso (158 reported cases), Chile (823), India (968), Philippines (859), Thailand (1829), Tunisia (1862) and Uganda (930). Percentages represent shares of the groups of NTMs in the total number of NTMs across all countries.

(*) Tolerance limits for residues and contaminants or restricted use of certain substances.

Country breakdown shows that technical measures are the major concern in all countries, but the types of most reported technical measures varies greatly. In Burkina Faso and the Philippines, 26.9 and 24.4 per cent respectively of all technical measures refer to certification, while in Uganda certification was mentioned only in 3.2 per cent of cases (Table 2 below). In Uganda, India and Chile, it is labelling, marking and packaging which are reported more often than in other countries (10.8, 14.3 and 19.6 per cent respectively). Traceability requirements are a relatively important issue in Thailand and Tunisia (14 and 11.4 per cent respectively).

Table 2. Share of reported NTMs, by surveyed country

Surveyed country (exporting)

Selected technical measures (SPS and TBT)

Pre-shipment inspection and other customs formalities, %

Charges, taxes and other para-tariff measures, %

Total absolute nr of NTM cases

Labelling, marking and packaging requirements, %

Traceability requirements, %

Testing requirements, %

Tolerance limits for residues and contaminants or restricted use of certain substances, %

Certification requirements, %

Burkina Faso

1.1

1.1

1.1

3.2

26.9

0.0

10.8

93

Chile

19.6

4.3

2.5

2.7

16.6

14.0

1.2

673

India

14.3

0.9

2.2

1.0

13.3

7.7

4.0

776

Philippines

8.5

4.0

4.7

5.5

24.4

3.1

2.7

851

Thailand

9.4

14.0

7.8

9.2

15.3

2.3

0.2

1803

Tunisia

8.9

11.4

4.9

1.1

10.2

22.6

4.7

810

Uganda

10.8

5.4

11.6

0.2

3.2

23.1

7.4

593

Note: Based on the reports by exporting companies.

Companies find it very challenging to comply with technical measures. Possible explanations are in the complex nature of these measures, as well as in a lack of transparency (measures change often) and access to information (measure vary significantly across importing countries). These results are partly driven by the export basket of each surveyed country, as discussed in the following subsection.

Most reported export products

The results of the NTM surveys have confirmed that NTMs are very sector-specific. For example, exporters report relatively more NTMs related to agricultural goods. This is somewhat expected, as agricultural products include food and feed, and their control is essential for ensuring health and wellbeing of consumers and protection of environment. All major importing markets have established special control systems related to imports of products destined for direct consumption by people and animals, such as The Rapid Alert System for Food and Feed (RASFF) of the European Union. [6] 

The largest share of NTM cases is reported for export of fruits and nuts. In Burkina Faso and Chile 22.8 and 34 per cent of all reports are about these products (Table 3 below). The share of reports on fruits and nuts is disproportionally larger than the share of reports on any other product groups, even when compared among agricultural products, most likely because fruits are perishable. Extra time required to complete all procedure related to NTMs can be detrimental for fresh products.

Table 3. Product groups most affected by NTMs

Surveyed country

1st most reported product group

Share in total nr of cases, %

2nd most reported product group

Share in total nr of cases, %

3rd most reported product group

Share in total nr of cases, %

Total nr of NTM cases

Burkina Faso

Edible fruits and nuts

25.8

Animal or vegetable fats and oils

20.4

Oil seeds and oleaginous fruits

10.8

93

Chile

Edible fruits and nuts

34.0

Beverages, spirits and vinegar

11.3

Fish and crustaceans

7.6

673

India

Electrical machinery, equipment and parts

7.0

Boilers, machinery and mechanical appliances

4.8

Man-made filaments; strip and the like

4.0

776

Philippines

Wood and articles of wood; wood charcoal

11.5

Furniture

11.4

Edible fruits and nuts

9.4

851

Thailand

Edible fruits and nuts

9.3

Fish and crustaceans

8.3

Electrical machinery, equipment and parts

5.3

1803

Tunisia

Apparel and clothing accessories, not knitted or crocheted  

13.0

Apparel and clothing accessories, knitted or crocheted

7.7

Boilers, machinery and mechanical appliances

6.0

810

Uganda

Coffee, tea, maté and spices  

18.5

Edible fruit and nuts

9.3

Plastics and articles thereof 

4.2

593

Note: Based on the reports by exporting companies. Product groups are defined at the 2-digit level of the Harmonised System (HS2). Manufacturing products are shaded.

Exporters in the Philippines, Thailand and Uganda also reported edible fruits and nuts among products most difficult to export (just above 9 per cent of all reports in each of these countries were related to edible fruits and nuts). Other products of most concern to interviewed exporters include electrical machinery (7 per cent) in India, wood and related articles (11.5 per cent) in the Philippines, apparel and clothing accessories, not knitted or crocheted (13 per cent) in Tunisia, and coffee, tea, maté and spices  (18.5 per cent) in Uganda.

However, when comparing NTMs across products, a positive relation between the total number of reports per product and the value of its export should be kept in mind. This relation is demonstrated on Figure 2 below where the number of reports provided by Ugandan exporters is plotted against export value of the same product. The main export items of Uganda, coffee and fish, also have the highest total incidence of burdensome NTMs. As exporters of major export products are likely to be more numerous, they are more likely to be randomly selected for interviews.

Figure 2. Value of exports and number of reported NTM cases in Uganda

Non-labelled products in the lower left corner include cotton waste, soap, palm oil,

sugar confectionery not containing cocoa,

dried leguminous vegetables, and

cereal flours other than of wheat or meslin.

Note: Based on the reports by exporting companies.

To avoid this correlation, the size of the bubbles shows the average number of cases reported by each surveyed company. From this perspective it is not coffee and fish which are most difficult exports for Ugandan exporters, but rather cement and unmanufactured tobacco. Interviewed exporters of these products have on average experienced 6 burdensome NTMs per company. A closer look on reports by cement companies in Uganda shows that the higher number of difficulties is not driven by the product characteristics, but by a lack of security and efficient procedures in the main importing market of Ugandan cement - Rwanda.

Partner countries applying NTMs

NTM surveys confirmed that partner countries importing products are strong determinant of the incidence of NTMs. Measures applied by the United States were among most predominant problem in the Philippines and Chile, accounting for 28.7 and 14 per cent respectively of all reports (Table 4 below). European Union is the most reported partner country applying burdensome NTMs, according to the surveyed exporters in Burkina Faso, India, Thailand, Tunisia, and Uganda. Among EU countries, most reported difficult importing markets included France, Italy, Belgium and the United Kingdom. Japan and Canada were also perceived as countries applying burdensome NTMs.

Somewhat unexpectedly, a number of developing countries were reported among most difficult importing markets. Strikingly, most of these developing partner countries are located in the same region and are members of the same trade agreements as the corresponding surveyed country.

Surveyed country (exporting)

1st most reported partner

Share in total nr of cases, %

Export share, %

2nd most reported partner

Share in total nr of cases, %

Export share, %

3rd most reported partner

Share in total nr of cases, %

Export share, %

Absolute nr of NTM cases

Burkina Faso

EU

36.6

27.9

Cote d'Ivoire

12.9

3.8

Canada

5.4

0.1

93

Chile

USA

14.0

14.5

Brazil

11.6

6.2

EU

10.5

27.8

673

India

EU

23.7

25.6

USA

12.5

14.3

UAE

12.4

8.4

776

Philippines

USA

28.7

17.8

EU

19.9

18.4

Japan

7.9

15.6

851

Thailand

EU

30.1

14.2

USA

18.6

12.2

Japan

11.7

11.8

1803

Tunisia

EU

63.5

70.2

Libyan Arab Jamahiriya

15.6

5.5

Algeria

8.5

2.4

810

Uganda

EU

27.3

27.9

Rwanda

18.5

8.5

Kenya

9.9

9.8

593Table 4. Most reported partner country applying NTMs

Note: Based on the reports by exporting companies. Developed importing countries are shaded.

NTM survey results indicate that the membership in the same trade agreement does not insulate exporting countries from problems with NTMs. Burkina Faso is a member of the Economic Community of West African States (ECOWAS), together with Côte d'Ivoire which was mentioned in 12.9% of all reports as the partner country applying burdensome NTMs. Similar situation was reported in Uganda, which is a member of East African Community (EAC) together with Kenya (reported as third most difficult partner for Ugandan exporters). Chilean exporters had difficulties with Brazil, even though both countries are parts of the Latin American Integration Association (ALADI). For Tunisian exporters, the second and third most difficult markets are Libyan Arab Jamahiriya, applying 15.6 per cent of all reported NTMs, and Algeria (8.5 per cent) - despite their common memberships in the League of Arab States.

These results may suggest that NTM provisions of existing trade agreements are weak or not fully implemented. The results can also indicate that NTMs are mis-used with protectionist purposes, serving as a substitute to tariffs. When tariffs are low importing countries may have more incentives to introduce NTMs. This hypothesis is preliminary and needs further data and analysis.

In general the results related to partner countries applying NTMs need to be taken with a degree of caution as they may suffer from an endogeneity bias. Countries which trade more are more likely to enter into a trade agreement, and are also more likely to have a large number of trade problems recorded during the NTMs survey. At the same time, absolute number of cases is a good indicator where NTM-related assistance is most required, as making trade easy between countries with large trade flows will have a greater impact on developing countries' exports.

To remove the size impact of importing markets, the survey results can be presented as number of cases per million USD of exports for each trading partner. As Table 5 shows, the USA and EU are not the most difficult partners if NTM incidence is weighted by the value of bilateral exports. Furthermore, a number of developing countries is reported among those most difficult export destination. In Chile exporters reported 0.1 NTM cases per million USD of exports to Argentina, in the Philippines the most difficult partner given the value of exports is Egypt (0.6 cases per million USD of bilateral exports), in Thailand - Bahrein (0.1), and in Tunisia - Algeria (0.2). An interesting observation is a very marginal share of exports of the surveyed countries to the most difficult markets, ranging from 0.04 per cent (share of export to Egypt in the total exports of the Philippines) to 2.39 per cent (share of export to Algeria in the total export of Tunisia), thus signalling a high potential impact of trade barriers removal.

Table 5. Most reported partner country applying NTMs, trade weighted

Surveyed country (exporting)

1st most reported partner

Nr of cases per million $ of exports

Export share, %

Absolute nr of NTM cases

Burkina Faso

Canada

8.9

0.14

93

Chile

Argentina

0.1

1.80

673

India

New Zealand

0.1

0.15

776

Philippines

Egypt

0.6

0.04

851

Thailand

Bahrain

0.1

0.09

1803

Tunisia

Algeria

0.2

2.39

810

Uganda

Japan

1.8

0.52

593

Note: Based on the reports by exporting companies. First most reported partner country is selected among importing markets with more than 10 cases reported (more than 5 cases for Burkina Faso). Developed importing countries are shaded.

The surveys indicate that not only the incidence of NTMs but also their type depend on the applying country. The aggregated view is presented in the Figure 3 below which shows several most reported groups of NTMs by export destination region. Exporters to Latin American and the Caribbean countries were likely to be relatively more affected by labelling, marking and packaging; certifications requirements; as well as pre-shipment inspections and other customs formalities which altogether constituted about 70 per cent of all reports related to exports to this region. Tolerance limits for residuals and contaminants and restricted use of certain substances were more likely to be reported for exports to the developed countries in Europe, Northern America and Oceania. Exports destined for African countries were more likely to be subject to taxes, charges and other para-tariff measures than export to any other region. Asian countries did not exhibit any noticeable pattern of NTMs, but it is likely to be due to the aggregation of developing countries and a developed country (Japan) into a single geographic region.

Figure 3. Types of reported measures, by regions comprised of importing countries applying NTMs

Selected most reported technical measures (SPS and TBT)

Note: Based on the reports by exporting companies in Burkina Faso, Chile, India, Philippines, Thailand, Tunisia and Uganda. Percentages represent shares of the groups of NTMs in the total number of NTMs across all countries.

Thus, the surveys suggest that export to countries in Africa and Latin America and the Caribbean were relatively more affected by inspections, formalities and charges, while exports to other regions - in particular to developed countries - were subject to technical measures that focused on the characteristics of the specific product and production process.

Domestic impediments to trade

Although the majority of measures are applied by export destination countries, actual problems can be located not only in the destination countries, but also at home. The analysis of reported cases suggests that many of the problems faced by the surveyed companies stem from weak customs and administrative procedures and a lack of export facilities in their home countries.

Reports from the furniture exporters in the Philippines can well illustrate this situation. Furniture is an important export item in the Philippines, and around 60% of total furniture exports were bound for the United States in 2008 (the year in which NTM survey was implemented in the Philippines). The survey recorded a very large number of reports (11.4 per cent) concentrated on the export of furniture from the Philippines to the US. At the same time, Thai furniture exporters reported almost no difficulties trading with the United States. Like the Philippines, Thailand exported a large share of its furniture to the US in 2008 (251 out of 1,385 million USD).

A closer analysis of furniture-related reports reveals that 50 per cent of all cases refer to the certificates which are requested by the United States but issued by the agencies in the Philippines. In these cases, low efficiencies of the Philippine agencies, in particularly customs administration, were reported as reasons making NTMs difficult for compliance. Philippine exporters have also reported a significantly high number of cases of irregular payments. These observations are in line with Philippines' assessment by the Enabling Trade Index 2009 (World Economic Forum), which ranks relatively low the efficiency of customs administration, efficiency of import-export procedures and the transparency in border administration. [7] 

The Philippine furniture case is provided as an example. Similar cases can be found across all surveyed countries. Many NTMs do not discriminate against particular origin of goods, yet the companies' ability to comply with NTMs varies significantly across exporting markets. Most striking results are in Burkina Faso, where exporters perceived domestic impediments as major obstacles to trade in almost all surveyed sectors.

Landlocked countries

Exporters from landlocked developing countries (LLDCs) were a priori expected to be more affected by NTMs, because most of their exports would need to cross two borders - of the transit and final destination country. The ongoing 2010 surveys confirm these expectations. In Burkina Faso and Paraguay 70.3 and 64.3 per cent of all interviewed exporters respectively had negative experiences with NTMs (refer to Table 1). This share is much higher in comparison to other developing countries that have direct access to seaborne trade.

Landlocked position does not, however, automatically translate into export disadvantage. Landlocked countries that border developed countries with efficient business environment are even more open to trade than their non-landlocked neighbours. For example, there are successful exporters among landlocked developed countries, often due to their small size and proximity to large markets. Export to GDP ratio of the landlocked countries from OECD is 0.54 in comparison to 0.22 for non-landlocked OECD countries.

On the contrary, most of the landlocked developing countries are surrounded by other developing countries or least developed countries which have inefficient business environment and difficult border procedures. For example, Uganda is ranked 145th out of 183 countries in the category trading across borders, [8] and its five neighbouring countries are ranked similarly low or even lower. During the NTM survey in Uganda, many exporting companies reported challenges they experienced while passing through Kenya to the port of Mombasa. Most reported problems include poor quality of train and road infrastructure, frequent controls coupled with informal payments, as well as insufficient export related facilities (e.g. cooled storage). These difficulties render the export process and compliance with NTMs more burdensome and costly for Ugandan exporters.

Box 2: Methodologies for quantifying the impact of NTMs

Also Insert here summary of other approaches for quantification of NTMs, e.g. CGEM gravity, Cecchini report estimating the impact of EU integration, and Minor and Tsigas study on AVE of time loss, incidence of NTBs on imports using different methodologies and data, (Deardorff and Stern, 1997), frequency and coverage type measures (Nogues et al., 1986;OECD, 1995), price comparison measures (Andriamananjara et al., 2004; Bradford, 2003), and quantity impact measures (using NTB data as in Leamer (1990) and Harrigan (1993) or as residuals of gravity-type equations as in Mayer and Zignago (2003).

Shorten and re-phrase example below. Add other studies and numeric results for several countries. Show to Yvan.

Kee et al. (2009) methodology for calculation tariff equivalents of non-tariff barriers (NTBs) is carried out in two stages. The first includes an estimation of the quantity impact of NTBs on imports. Then, this impact is transformed into price effects, using import demand elasticities calculated in Kee et al. (2008).

In the first stage, the basic equation to be estimated is the following:

(2.1)

Where mn,c is the import value of good n in country c, Ckc denotes a vector of country characteristics variables. They include relative factor endowment and GDP which capture economic size as well as other gravity variables (average distance to world market and a dummy for islands). ntbn,c is a dummy variable which reflects the existence of a core NTB. DSn,c denotes agricultural domestic support, tn,c is the tariff on good n in country c and n,c corresponds to the import demand elasticity.

Equation (2.1) is then modified as follows. First, import-demand elasticities estimated in Kee et al. (2008) are substituted into (2.1). Second, the tariff term is moved to the left-hand side to address the endogeneity of tariffs. This introduces a new error term kn,c. Third, a White correction is introduced in order to tackle heterosckedasticity of the error term. Fourth, product specific effects are also introduced so as to capture the variation of s across tariff lines. Fifth, appropriate instrumental variables are included to address the endogeneity problem related to NTBs. (These instrumental variables are exports, past changes in imports as well as GDP weighted average of the NTBs and domestic support at product level.) Indeed, as shown in Lee and Swagel (1997), such endogeneity may lead to a downward bias on the estimated impact of NTBs on imports, which would result in underestimating AVEs. Sixth, a two-step estimation procedure is implemented to estimate the coefficients, following a Heckman two-stage procedure, while constraining s not to be positive.

After these transformations, the final estimated equation becomes:

+ (2.2)

The last step consists in calculating the AVEs after transformation of the quantity impact derived from equation 2.2 into price-equivalents. This leads to:

(2.3)

where Pd denotes the domestic price. After differentiation of equation (2.1), it is easy to obtain (see detailed derivation in Appendix):

(2.4)

(2.5)

Finally, AVEs can be calculated in each country at the tariff line level or for various sectors.

Since calculated AVEs are not available for all countries, the KNO methodology has been supplemented by a border-effect gravity approach, such as that presented in Fontagné et al. (2005). The starting point is the estimation of a gravity equation with border effects, which measure the specific cost of crossing a frontier, as a measure of market access. This methodology is close to that developed by Anderson and van Wincoop (2004). The key point is the precise definition of the trade cost function, which includes distance, tariffs, NTBs, as well as import prices (multilateral trade resistance). In the final estimation, the trade cost equation makes it possible to isolate each component (distance, prices, tariffs) whereas dummy variables for the border effect capture the influence of NTBs (as well as the home bias preference).

The calculation of the border effects coefficient by sector and country makes it possible to derive the tariff equivalent, as:

(2.6)

where  and  correspond respectively to the estimated parameter for border effects and the consumer CES. Although this method differs from Kee et. Al (2009), it proved to provide similar magnitudes of AVEs for similar countries. The two approaches can thus be reconciled in the present study. For that purpose, the KNO figures are first used when available. The border effect approach is simultaneously implemented for these figures. This makes it possible to derive a scale which can be applied to both methods for achieving similar figures. Then, this scale is applied to the border effect approach for the figures which are not available in the KNO approach. In other words, our results include the KNO figures supplemented by the border effect method after having applied the appropriate scaling method. Note that the scale factor is very close to unity.

Conclusions

To improve transparency on NTMs, and thus market access condition, ITC is undertaking company-level surveys in developing countries across the world. The survey methodology sets aside questions on the legitimacy of NTMs, and places emphasis on the companies' perception on the impact of NTMs on their export performance.

Results from the first seven countries shed light on variations that exist in the incidences and types of burdensome NTMs experienced by the exporting companies. Small companies and companies from landlocked developing countries are more affected by NTM-related problems. The prevailing types of barriers are linked to the products and the destination market. Major obstacles are experienced both in the importing developed countries as well as in developing countries, often member of the same trade agreements.

Even though NTMs are tightly linked to the applying country, reasons that lead an exporting company to qualify an applied measure as burdensome are not necessarily associated with the country that applies the measure. Obstacles may be caused by factors linked to the home country of exporters - for example, a lack of export-related infrastructure and efficient procedures.

This leads to the two most important results of the NTM surveys. First, market access begins at home. There is a large scope for domestic reform and improvement in institutions and policies. Second, trade-conducive business environment is a cornerstone to improving companies' export competitiveness, translating into more successful export performance at country level. These efforts need to go in line with multilateral, regional and bilateral negotiations aimed at improving transparency and predictability of NTMs and removing procedural obstacles and other barriers to trade.

Annexes

Annex 1. NTM classification for trade in goods

Importing countries are very idiosyncratic in the ways they apply NTMs. This called for an international taxonomy of NTMs, which was prepared by a group of technical experts from eight international organizations, including FAO, IMF, ITC, OECD, UNCTAD, UNIDO, World Bank and WTO. This classification is used to collect, classify, analyse and disseminate information on NTMs received from official sources, e.g. government regulations; and for working with perception-based data, e.g. surveys.

The NTM classification differentiates measures according to 16 chapters (denoted by alphabetical letters), each comprising of "sub-branches" (1-digit), "twigs" (2-digits) and "leafs" (3-digits). This classification drew upon the existing, but outdated, UNCTAD Coding System of Trade Control Measures (TCMCS) classification on NTMs, and has been modified and expanded by adding various categories of measures to reflect the current trading conditions. The current NTM classification (Figure below) was finalized in November 2009.

Figure . The structure of NTM classification

Chapter A, on sanitary and phytosanitary measures, refers to laws, decrees, regulations, requirements, standards and procedures to protect human, animal or plant life or health from certain risks such as the establishment or spread of pests, diseases, disease-carrying organisms or disease-causing organisms; risks from additives, contaminants, toxins, disease causing organisms in foods, beverages or feedstuffs. The chapter is also known as SPS.

Chapter B, on technical measures, contains measures referring to technical specification of products or production processes and conformity assessment systems thereof. It is also known as TBT (technical barriers to trade). TBT measures are most often applied to industrial goods. Technical measures can be also applied to agricultural products. An NTM applied to agricultural products is classified as a technical measure if the objective of this measure is not food safety. (If the objective is food safety, than the measure is classified as SPS).

Chapter C, on pre-shipment inspection and other (customs) formalities, refers to practice of checking, consigning, monitoring and controlling shipment of goods before or at entry into the destination country. Inspections and quarantine are examples of such measures.

Chapter D, on price control measures, includes measures implemented to control the prices of imported articles in order to: support the domestic price of certain products when the import price of these goods are lower; establish the domestic price of certain products because of price fluctuation in domestic markets, or price instability in a foreign market; and counteract the damage resulting from the occurrence of "unfair" foreign trade practices.

Chapter E, on licences, quotas, prohibitions and other quantity control measures, includes on one hand measures that restrain the quantity traded, such as quotas, and on the other hand, licenses and import prohibitions that are not SPS-related (SPS-related licenses and prohibitions are classified under chapter A).

Chapter F, on charges, taxes and other para-tariff measures, refers to measures, other than tariffs measures, that increase the cost of imports in a similar manner, i.e. by a fixed percentage or by a fixed amount: they are also known as para-tariff measures.

Chapter G, on finance measures, refers to measures that are intended to regulate the access to and cost of foreign exchange for imports and define the terms of payment.

Chapter H, on anti-competitive measures, refers to measures that are intended to grant exclusive or special preferences or privileges to one or more limited group of economic operators.

Chapter I, on trade-related investment measures, covers measures that restrict investment by requesting local content, or requesting that investment should be related to export to balance imports.

Chapter J, on distribution restrictions, refers to restrictive measures related to internal distribution of imported products.

Chapter K, on restriction on post-sales services, refers to measures restricting producers of exported goods to provide post-sales service in the importing country.

Chapter L, on subsidies, includes measures related to domestic support provided by a government or government body to producers, being a particular industry or company, such as direct or potential transfer of funds (e.g. grants, loans, equity infusions), payments to a funding mechanism and income or price support.

Chapter M, on government procurement restrictions, refers to measures controlling the purchase of goods by government agencies, generally by preferring national providers.

Chapter N, on intellectual property, refers to measures related to intellectual property rights in trade. Intellectual property legislation covers patents, trademarks, industrial designs, lay-out designs of integrated circuits, copyright, geographical indications and trade secrets.

Chapter O, on Rules of Origin, covers laws, regulations and administrative determinations of general application applied by government of importing countries to determine the country of origin of goods.

Chapter P, on export-related measures, encompasses all measures that countries apply to their exports. It includes export taxes, export quotas or export prohibitions, among others. This chapter has to be used when the measure is applied by the exporting country, i.e. when certain documentation has to be granted by the home country's customs, which is not required by the importing partner. (All the other chapters (A to O) refer to measures that countries apply to their imports .)

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