How west cheats in the name of free trade

The liberalization of world trade under WTO has made the policy of tariff barriers redundant. Countries are no longer allowed to impose discriminatory taxes on imports to help domestic manufacturers or favour specific countries/regions. Although world trade can be increased by further liberalization for a number of products that so far have been largely exempt, traditional trade policies such as tariffs and quotas no longer have a significant impact on restricting market access. So, how is the west cheating then?

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Given the inability of countries to support their home industries through direct tariffs, there have been a rapid increase in use of sneaky policy called non-tariff measures(NTM). Some NTMs are manifestly employed as instruments of commercial policy (e.g. quotas, subsidies, trade defence measures and export restrictions), while others stem from non-trade policy objectives (e.g. technical measures). It is the latter which is more sneaky in nature and justified under the pretext of environmental protection or food safety, thus increasing the export costs significantly usually for poor countries. The exact impact of such policies is hard to quantify given countries are continuously tweaking their NTM as we write, which is further exacerbated by low understanding of these issues. But the advantage of NTM for domestic manufacturers is hardly exaggerated.

One of the early examples of such NTM was blanket ban on Ayurvedic medicines in US and Europe citing health reasons:

The policy imposed a ban on all herbal medicines, which had been used for less than 15 years within the EU, and less than 30 years outside the EU, with effect from 1st May 2011. The EU’s Traditional Herbal Medical Products Directive was passed in 2004, and the experts said that it seemed strange that there was no formal response from the Indian government as to the safety and efficacy of Ayurveda products.

But there have been other ridiculous measures imposed by western countries under the influence of local lobby groups. One such example was US ban on import of Tuna fish from Mexico. The technique used by Mexico to fish Tuna would lead to death of some Dolphins and US used its domestic law to impost high tariff on Mexican Tuna in order to protect Dolphins. This was later changed to the requirement of “Dolphin-Safe” label on Tuna products. Mexico has appealed against US in this case at GATT/WTO citing its discriminatory and unnecessary nature, the results of which are currently awaited.

The above example clearly explains how countries can evoke random national clauses to discriminate against the import of certain products. NTM require more careful planning but given adequate legal framework can still restrict free movement of goods. No surprise, the number of products covered under NTM have increased by leaps and bounds in the last few years as shown in the below figure.

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As can be seen from the above figure high income and African countries impose NTM on a large number of products, going up to 70% in some cases. The number of products covered under Sanitary and Phytosanitary (SPS) Standard and Technical Barriers to Trade (TBT) are pretty high for both the west (i.e. high income) and Africa while Asia and Latin America still use pricing and quantity restrictions more but not as much as TBT used by the West.

TBTs usually define quality measure of products while SPS are usually more applied to food and sanitary products. But SPS measures and TBTs may erode the competitive advantage that developing countries have in terms of labour costs and preferential access. For example- if west imposes no use of child labour as a pre-requisite for garment imports from Bangladesh, the cost will immediately sky-rocket thus decreasing competitiveness of the whole Bangladeshi textile industry. Although the policy will be pursued in the interests of Bangladeshi children but it would hurt them more since they would be thrown out of the only jobs they can do and robbed of a chance to decent livelihood given local conditions.

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While SPS are more common in the food industry and products of animal origin, the TBTs dominate in other manufacturing industries. Although there is no precise data available on the evolution of NTMs but there is a wide consensus that the numbers have gone up sharply in the last decade. Even with an incomplete picture one can see from the below figure that countries are increasingly resorting to use NTMs as part of their trade policies.

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With this sharp increase in number of NTMs, the free trade agreement policies will have to be revised to ensure real free trade. It is unfortunate that while western nations have pushed for free trade through global bodies like WTO and regularly harassed countries like India on its agricultural policy and subsidies to poor, they have silently developed sneaky ways to protect local industries through the NTMs. While many of these NTMs might be non-discriminatory in nature given overlap of quality measures in the world, but many of them can be specifically evoked to hurt foreign industries as the examples above on Tuna fish and Ayurveda clearly show.

References:

Non tariff measures to trade

Image source:

http://uk.businessinsider.com/us-trade-balance-august-2015-10?r=US&IR=T