QUANTITATIVE METHODS for TRADE-BARRIER ANALYSIS Also by Alexander Yeats

QUANTITATIVE METHODS FOR TRADE-BARRIER ANALYSIS Also by Alexander Yeats

SHIPPING AND DEVELOPMENT POLICY *TRADE BARRIERS FACING DEVELOPING COUNTRIES *TRADE AND DEVELOPMENT POLICIES: Leading Issues for the 1980s *Also published by Palgrave Macmillan Quantitative Methods for Trade-Barrier Analysis

Sam Laird Senior Economist The World Bank, Washington, DC

and

Alexander Yeats Principal Economist The World Bank, Washington, DC

M MACMILLAN © Sam Laird and Alexander Yeats 1990 Softcover reprint of the hardcover 1st edition 1990

No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 33-4 Alfred Place, London WC1E 7DP.

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First published 1990

Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world

British Library Cataloguing in Publication Data Laird, Sam Quantitative methods for trade-barrier analysis. 1. Foreign trade. Non-tariff controls I. Title II. Yeats, Alexander J. 382'.3 ISBN 978-1-349-11143-5 ISBN 978-1-349-11141-1 (eBook) DOI 10.1007/978-1-349-11141-1 Contents

List of Tables vii List of Figures xii Acknowledgements xiii

1 Policy Issues Involving Nontarift' Trade Barriers 1 Informational needs for corrective policy action 2 The costs and consequences of protectionism 4 Implications of NTBs for trade and development policies 7 NTBs and the Uruguay Round 9 The trade potentials of the Socialist Countries 11 Outline and plan of the book 12

2 Quantitative Approaches to Trade-Barrier Analysis 15 The nontariff measure inventory approach 19 Economic effects of NTBs: a general analysis 24 Methods for quantifying specific nontariff barriers 37 Special purpose estimation procedures 48

3 Simulating the Effects of Trade Liberalisation 58 Basic features of partial equilibrium trade models 59 The data and parameters 60 Illustrative policy applications 65

4 The Implications of NTB Inventory Studies 88 The global importance of nontariff measures 88 The sectorial coverage of nontariff measures 94 National variations in nontariff measure usage 98 Nontariff measures in developing countries 107

5 Findings of Empirical Studies of Nontarift' Barriers 121 Studies based on the inventory approach 122 Studies of agricultural trade barriers 136 Studies relating to textiles and clothing 178 Studies relating to ferrous metals 200 Studies relating to other manufactured products 209 v vi Contents

Appendix 1: Country-Product Classifications for Trade-Barrier Analysis 228 Appendix 2: Approximating the Effective Rate of Protection 236 Appendix 3: Tariff Protection in Developed and Developing Countries 239 Appendix 4: A Glossary of Nontariff Measures 244 Appendix 5: The Punta del Este Ministerial Declaration 252 Notes 260 Bibliography 290 fu~ E List of Tables

1.1 Findings of empirical studies relating to the economic costs and effects of contemporary protectionism 5 2.1 The UNCTAD classification scheme for nontariff trade control measures of a product-specific nature 17 2.2 Extent of industrial countries' nontariff measures in 1981 22 2.3 Tariff and nontariff barriers facing imports from selected heavily indebted developing countries in major developed country markets 23 2.4 Estimated nominal equivalents for nontariff barriers in France, Japan, Sweden and the United States, 1973 31 2.5 Regression results for bilateral trade flows between OECD countries, 1970 to 1973 34 2.6 Comparison of coverage and rates of protection from Swedish tariffs and variable levies 39 2.7 Estimated levels of tariff and NTB protection for clothing in selected countries, 1981-3 (ad valorem equivalents) 42 2.8 Analysis of the final outcome of anti-dumping and countervailing actions in the developed market economy countries, 1979-82 47 2.9 Elements entering the calculation of producer and consumer subsidy equivalents: an illustrative example 53 3.1 Information collated by IMF on tariff equivalents of tariff and nontariff barriers for seven sectors in four OECD markets 66 3.2 Analysis of the simulated increase in developing country export earnings in terms of major SITC product groups 68 3.3 Actual values and projected changes in exports and trade balances for selected developing countries due to the adoption of a GSTP 72

Vll viii List of Tables

3.4 Projected changes in the structure of developing countries' intra-trade in primary and processed commodities under preferential tariffs 74 3.5 Potential trade effects on developing countries from reducing trade barriers for agricultural exports 76 3.6 Potential absolute and percentage increase in exports of selected developing countries after trade liberalisation, by commodity 78 3.7 Summary of the main results of recent simulation studies on agricultural trade liberalisation 80 4.1 Frequency ratios and the share of OECD country non-petroleum imports subject of hard-core nontariff measures, 1981, 1983 and 1986 90 4.2 Frequency ratios and nontariff measure trade coverage ratios for individual OECD countries, 1981, 1983 and 1986 91 4.3 Analysis of the incidence of OECD country nontariff measures on different groups of exporting countries, 1981 and 1986 93 4.4 The incidence of OECD nontariff measures on imports of foodstuffs and agricultural raw materials, 1986 95 4.5 The incidence of OECD nontariff measures on imports of various manufactured products, 1986 97 4.6 The incidence of OECD country nontariff measures on imports from developed countries 100 4.7 The incidence of OECD country nontariff measures on imports from developing countries 102 4.8 Trade coverage of two-digit SITC agricultural imports by NTMs in the EEC, Japan and USA, 1986 104 4.9 Analysis of changes in the use of different forms of NTMs in OECD countries, 1981 to 1986 106 4.10 The application of product-specific nontariff measures by groups of selected developing countries 108 A4.1 The incidence of individual EEC country NTMs on imports of foodstuffs and agricultural raw materials, 1986 111 A4.2 The incidence of individual EEC country NTMs on imports of chemical products, 1986 112 A4.3 The incidence of individual EEC country NTMs on imports of various manufactured products, 1986 113 List of Tables tx

A4.4 Trade coverage of two-digit SITC chemical imports by NTMs in the EEC, Japan and USA, 1986 114 A4.5 Trade coverage of two-digit SITC manufactured products by NTMs in the EEC, Japan and USA, 1986 115 A4.6 Analysis of the incidence and changes in EEC, Japan and US nontariff measures against foodstuffs, 1981-6 116 A4. 7 Analysis of the incidence and changes in EEC, Japan and US nontariff measures against textiles and clothing, 1981-6 118 A4.8 Analysis of the incidence and changes in EEC, Japan and US nontariff measures against ores and metals, 1981-6 120 5.1 Volume-restraining measures facing the exports of developing countries in selected developed market• economy and developing countries, incidence on primary and processed commodities 126 5.2 Percent of 1967 imports subject to nontariff restrictions 130 5.3 Summary statistics on nontariff barriers facing eight industrial markets' imports 134 5.4 Estimated ad valorem equivalents for Japanese protection of agricultural products, 1955 to 1980 139 5.5 Tariff equivalents of EEC variable levies on selected agricultural products, 1969 and 1972 140 5.6 Import price, domestic price and estimated tariff equivalents for Japanese restrictions on agricultural commodities 142 5. 7 The level of agricultural price support in industrial countries 146 5.8 Ad valorem tariff equivalents of the combination of border protection and consumer price subsidies, 1970-80: Sweden and the European Community 148 5.9 European Community: nominal protection coefficients, 1975-80 150 5.10 Japan: Nominal protection coefficients, 1975-81 155 5.11 United States: nominal protection coefficients, 1975-80 157 5.12 Average trade barriers against nine foodstuffs exported by tropical underdeveloped countries 159 X List of Tables

5.13 Nominal tariffs, variable levies, and the effective rate of protection in Sweden, 1970: selected products of importance to developing countries 161 5.14 Comparison of nominal and effective rates of protection for selected agricultural products in the European Economic Community 163 5.15 Ad valorem tariff equivalents in Japan and the European Economic Community 165 5.16 Cost-benefit analysis of agricultural policy interventions in the USA, EEC and Japan 167 5.17 Estimated levels of protection for selected agricultural products in Western Europe in the early 1970s 168 5.18 Estimated ad valorem equivalents for EEC variable import levies applied to selected agricultural products, 1975-81 170 5.19 Nominal protection coefficients for producer and consumer prices of selected commodities in industrial countries, 198(}..-82 172 5.20 Nominal and effective protection in US agriculture, 1958 and 1963 173 5.21 Producer's subsidy equivalents by commodity by country 176 5.22 Estimates of nominal rates of protection for agriculture in ten developed countries 177 5.23 Arrangements affecting trade in textiles and clothing, 1961 to 1991 180 5.24 Approximate estimates of the cost to consumers in the EEC of 1981 tariffs and import quotas on clothing 182 5.25 Empirical evidence on the shift in selected industrial countries' imports of textiles and clothing between 1970 and 1979 186 5.26 Import tariff equivalent of Hong Kong VERs in selected European countries 187 5.27 Protective effects of tariffs and quotas on Canada's imports from Hong Kong, Republic of South Korea and Taiwan in 1979 189 5.28 Economic effects of the abolition of the MFA by the European Community 191 List of Tables xi

5.29 Average landed costs of apparel products in Europe and implied levels of protection against restricted suppliers 198 5.30 The chronology of US steel trade policy 202 5.31 Statistics relating to the application of special US trade restrictions on ferrous-metal products 206 5.32 Major findings of studies of United States steel trade restrictions 208 5.33 Average effective rates of assistance for broad groups of manufacturing industries, 1974-5 to 1980-1 215 5.34 Statistics employed in estimating nominal equivalents and economic losses associated with UK VERs on footwear in 1982 217 5.35 Estimates of the effects of 1978-81 US trade restrictions for citizen band radios 220 5.36 Decomposition of observed price differentials into variable levies, transport costs and nontariff barrier residuals 223 5.37 Studies which derived analytical evidence on the incidence and effects of nontariff barriers 225 List of Figures

2.1 The general price and quantity effects of a nontariff barrier 25 2.2 Analysis of the influence of different demand conditions on price impact measures for NTBs 26 2.3 Analysis of the use of quota premium prices to estimate tariff equivalents for voluntary export restraints 43 A2.1 Analysis of the relation between the effective rate of protection, the value added coefficient, and nominal rates of protection 237

xu Acknowledgements

In the preparation of this book we incurred numerous individual and institutional debts. Over 1986-8, UNCTAD and the World Bank co-sponsored two seminars on nontariff barriers and we greatly benefited from the discussion and material presented in these meet• ings. In particular, a paper by Professors Allan Deardorff and Robert Stern (University of Michigan) on conceptual problems with the quantification of nontariff barriers provided background material for Chapter 2. A second study by Professor Richard Snape (Monash University) contributed to our analysis of the economic effects of non tariff barriers, while a paper prepared by Dr Andrzej Olechowski (National Bank of Poland) and one of this book's authors (Dr Alexander Yeats - then of UN CTAD) provided background for the analysis of nontariff barrier inventory studies. Several sections of the book draw on previously published research by the authors in co-operation with individuals at different insti• tutions. We would like to acknowledge past collaborations with Dr Gary Sampson (GATT), Dr Andrzej Olechowski (National Bank of Poland), Dr Vernon Roningen (US Department of Agriculture) and Dr J. Michael Finger (World Bank). In addition, Guy Karsenty (UNCTAD) assisted in computerising the trade simulation model described in Chapter 3, and also was a co-author of several sub• sequent policy studies. Finally, we would like to thank the editors of the following journals for permission to utilise parts of our previously published studies: Weltwirtschaftliches Archives, Review of Econ• omics and Statistics, Journal of Business and Economics, Economia Internazionale, Journal of Political Economy, American Journal of Agricultural Economics, and Journal of Developing Economies. We received helpful comments from numerous individuals in the preparation of this book. We must express special thanks to Dr Carl Hamilton (University of Stockholm) who made suggestions forma• terial to be included in Chapter 5, while Mr Nicolas Marian (Inter• national Textiles and Clothing Bureau) reviewed sections of this chapter dealing with the Multifibre Arrangement and provided ad• ditional material for inclusion. Dr Harsha Singh (GATT) and Dr Harmon Thomas (UNCTAD) made helpful suggestions on sec• tions of this book dealing with agricultural nontariff barriers. We also profited from working with Dr Ingo Walter (New York University), xiii XIV Acknowledgements

Dr Tracy Murray (University of Arkansas) and Dr Craig MacPhee (University of Nebraska) on some of UNCTAD's first applications of the NTB inventory approach in the 1970s, and with Rene Vossenaar (UNCTAD) in the 1980s. Finally, co-operative studies with Dr Refik Erzan (World Bank) and Dr Ho Dac Tuong (UNCTAD) were used in several sections.

SAM LAIRD ALEXANDER YEATS