Market Access Barriers: A Growing Issue for Developing Country Exporters? By Friedrich von Kirchbach, Mondher Mimouni International Trade Forum - Issue 2/2003
Contrary to conventional wisdom, market access barriers faced by developing country exporters are not decreasing for some of their most important export sectors. LDCs are especially at risk. Is market access simply ‘unfinished business’ or is it a deepening problem? ITC research suggests that we need to take a closer look. The common perception in developed market economies is that we live in a globalized world where trade barriers for developing countries have all but disappeared. The Doha Development Agenda, recent bilateral and regional agreements and voluntary reductions in trade barriers favouring least developed and developing countries are seen as having significantly enhanced market access. Developed market economies have taken steps to improve market access for developing countries. They have expanded preferential access for goods from developing countries and reduced tariffs on goods of interest to developing countries.
Unfinished business Yet, business people and trade policy-makers in developing countries frequently voice their concern about what they perceive as persistent or even increasing access barriers in their export markets. They argue that protection levels are underestimated. Many protectionist instruments — such as specific tariffs, antidumping measures, tariff quotas and a plethora of non-tariff barriers — are not taken into account, they say. Do they have a case, and is market access ‘unfinished business’ or even a deepening problem? Recent research by ITC — based on Market Access Map, ITC’s new market access database — suggests that the answers to these questions are yes. Three hurdles are blocking the track to better market access. First, specific tariffs are widespread. They are less transparent than ordinary (ad valorem) tariffs and they tend to discriminate against developing countries. Second, commodity prices have plummeted. If tariffs were ad valorem (a percentage of total value), the duties actually paid would have declined with the prices. Since specific tariffs are so important — especially for commodities — in practice, developing countries and least developed countries (LDCs) are witnessing an effective rise in protection. Moreover, the share of LDC exports with duty-free access is decreasing. Third, nontariff barriers (food safety standards, environmental certification, etc.) are growing; in the case of LDCs, they are particularly dramatic.
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First hurdle: Specific tariffs Specific tariffs — levied on quantity rather than value — are the first hurdle to better market access. The negative impact of specific tariffs (more common since the Uruguay Round ended) offset the benefits of lower ad valorem tariffs. Most countries levy tariffs in ad valorem terms — as a percentage of a product’s total value. But some countries use specific tariffs instead. This has been especially the case for agricultural products, which remain major exports for developing countries and LDCs in particular. The reason for this is that during the Uruguay Round countries agreed to convert quotas (quantitative restrictions) and variable levies for agricultural products into tariffs. Specific tariffs tend to discriminate against exports from low-income countries, whose producers often specialize in the lower price-quality segment of export markets. While ad valorem tariffs are transparent (say, 20% of import value), specific tariffs are not. When product prices and exchange rates fluctuate, ad valorem tariffs fluctuate in their amounts too. Specific tariffs, on the other hand, remain tied to quantity. When commodity prices fall, specific tariffs do not fluctuate. Thus market access becomes doubly difficult when prices go down. Protection is equal for a US$ 20-per-tonne specific tariff and a 20% ad valorem tariff, when the price equals US$ 100 per tonne. If the price falls to US$ 50 per tonne, however, the same specific tariff is equivalent to a 40% protection level. To assess overall protection levels correctly, then, one must measure the combined effect of ad valorem tariffs and specific tariffs. To combine them, one must first calculate the ad valorem equivalent of specific tariffs (and other related measures).
Second hurdle: Falling commodity prices Commodity prices are currently at their lowest level since the mid-1990s. All commodity groups (except petrol) saw prices fall significantly. So even when countries reduce specific tariffs, this may not translate into lower barriers, if prices are falling faster. ITC examined whether tariff protection actually declined since the Marrakech Agreement (which laid the foundations for the world trading system) was signed. ITC’s analysis covered the period from 1996 to 2001, and focused on agricultural products, textiles and clothing exports to OECD (Organisation for Economic Cooperation and Development) countries, from developing countries and LDCs. Agriculture ITC’s findings suggest that expectations have not been fulfilled in these three sectors. According to the spirit of the Uruguay Round and excluding price effects, tariffs for Market Access Barriers MarketAccessArticle-Zambia
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LDC agricultural exporters should have declined by two-thirds between 1996 and 2001. Because of declining commodity prices, however, ad valorem equivalents came down only by a quarter, namely from 5.1% in 1996 to 3.9 % in 2001. Moreover, effective agricultural protection levels have varied up to 50% from one year to the next as a result of fluctuating commodity prices and the application of specific tariffs. Textiles and clothing For LDCs’ textiles and clothing exporters, tariff protection in terms of ad valorem equivalents has actually increased: barriers in OECD countries rose from 3.0% to 5.5% for textiles and from 7.5% to 8.3% for garments from LDCs. For developing country textiles and clothing exporters, barriers declined marginally — less than 10% of the 1996 level.
Third hurdle: Non-tariff barriers Quantifiable tariff barriers aren’t the only hurdle for developing country exports. A recent ITC study shows that LDCs are the most exposed to non-tariff barriers (see Forum 2/2001). Examples include plant and animal health standards, food safety standards, environmental certification and other such export quality standards. A staggering 40% of LDC exports are subject to non-tariff barriers. For developing and transition economies and developed countries, the figure is only 15%. Even with preferential agreements that grant LDCs duty-free access to markets, nontariff barriers may prevent these countries from entering those markets. This may oblige exporters to diversify into markets with fewer non-tariff barriers, but which may have higher tariff rates. In fact, between 1996 and 2001, the share of duty-free LDC exports in their total exports — excluding oil and arms — fell sharply from 81% to 69% (see table on LDC exports). This has hardly been in line with the spirit of the Uruguay Round. A fresh look Exporters from developing countries clearly face an uphill battle: • Widespread specific tariffs discriminate against low-cost and low-price suppliers. • Falling commodity prices are a double curse: not only do exporters earn less foreign exchange, but they face higher effective market access barriers. • Non-tariff barriers are multiplying, and especially affect LDC exports. It is true that genuine efforts towards improving market access for low-income countries have been made. And market access conditions are not the most important determinant of international competitiveness. Yet market access has hardly improved for exporters of agricultural products, textiles and clothing from developing countries. LDCs are losing on all fronts: their effective market access barriers have actually become higher, the share of their exports that enter their target markets duty-free is declining and they are particularly exposed to Market Access Barriers MarketAccessArticle-Zambia
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non-tariff barriers. The above evidence shows the need to take a fresh look at traditional perceptions about market access. Why? First, there are several deep-rooted factors at work that undermine market access conditions for developing country exporters. Second, these factors are difficult to capture and are therefore often omitted from policy analysis. Hence, third, there is a strong case to enhance the analytical and negotiation capacity of trade policy-makers, the business community and other stakeholders in developing countries to ensure that the Doha Development Agenda lives up to its name. Declining commodity prices
Source: IMF, International Financial Statistics, 2003
Market access: The real picture LDCs and developing countries face surprising market access barriers in OECD countries for agriculture, textiles and clothing exports. Below are protection levels for the period 1996-2001. The calculations are based on ad valorem tariffs and specific tariffs (translated into ad valorem equivalents). The overall levels have not declined significantly contrary to Urugay Round expectations. In some cases (textiles and clothing for LDCs) they have actually increased.
Source: ITC calculations based on WTO, UNCTAD and ITC sources, 2003
LDCs: Are they benefiting from duty-free access?
Source: ITC calculations based on WTO, UNCTAD and ITC sources, 2003
ITC’s Market Access Map analyses entry barriers ITC’s Market Access Map assists the business community and policy-makers in developing countries to participate more effectively in international trade and to get the most out of trade negotiations. This comprehensive database of market access barriers covers: • over 160 countries; • ad valorem and specific tariffs, tariff quotas and antidumping duties; • major preference schemes; • calculations of bilateral ad valorem equivalents at the tariff-line level; and • options to build scenarios on how tariffs change under different multilateral liberalization approaches and formulas.
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Market Access Map data and analysis are available as: • country-specific Market Access Profiles on CD-ROM featuring all market access barriers faced by exporters from one particular country, plus scenario building; • product-specific market access information in TradeMap (ITC’s web site with trade statistics for international business development) and a dedicated Market Access Map web site (operational end-2003); and • in-depth, tailor-made analysis. ITC developed Market Access Map in close collaboration with the French Economic Research Institute (CEPII), UNCTAD and WTO. For more information, contact ITC’s Market Analysis Section at
[email protected] Mondher Mimouni (
[email protected]) is an ITC Market Analyst, Friedrich von Kirchbach (
[email protected]) is the Chief, ITC Market Analysis Section. Natalie Domeisen contributed to the development of this article.
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Key concepts on barriers to Trade: Import Tariffs (Definitions by Steven Suranovic in http://internationalecon.com) An import tariff is a tax collected on imported goods. Generally speaking, a tariff is any tax or fee collected by a government. Sometimes tariff is used in a non-trade context, as in railroad tariffs. However, the term is much more commonly applied to a tax on imported goods. There are two basic ways in which tariffs may be levied: specific tariffs and ad valorem tariffs. A specific tariff is levied as a fixed charge per unit of imports. For example, the US government levies a 5.1 cent specific tariff on every wristwatch imported into the US. Thus, if 1000 watches are imported, the US government collects $51 in tariff revenue. In this case, $51 is collected whether the watch is a $40 Swatch or a $5000 Rolex. An ad valorem tariff is levied as a fixed percentage of the value of the commodity imported. "Ad valorem" is Latin for "on value" or "in proportion to the value." The US currently levies a 2.5% ad valorem tariff on imported automobiles. Thus if $100,000 worth of autos are imported, the US government collects $2,500 in tariff revenue. In this case, $2500 is collected whether two $50,000 BMWs are imported or ten $10,000 Hyundais. Occasionally both a specific and an ad valorem tariff are levied on the same product simultaneously. This is known as a two-part tariff. For example, wristwatches imported into the US face the 5.1 cent specific tariff as well as a 6.25% ad valorem tariff on the case and the strap and a 5.3% ad valorem tariff on the battery. Perhaps this should be called a three-part tariff! As the above examples suggest, different tariffs are generally applied to different commodities. Governments rarely apply the same tariff to all goods and services imported into the country. One exception to this occurred in 1971 when President Nixon, in a last-ditch effort to save the Bretton-Woods system of fixed exchange rates, imposed a 10% ad valorem tariff on all imported goods from IMF member countries. But, incidents such as this are uncommon. Thus, instead of one tariff rate, countries have a tariff schedule which specifies the tariff collected on every particular good and service. The schedule of tariffs charged in all import commodity categories is called the Harmonized Tariff Schedule of the United States (HTS). The commodity classifications are based on the international Harmonized Commodity Coding and Classification System (or the Harmonized System) established by the World Customs Organization.
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