New protectionism versus inclusive trade
The Addis Ababa Action Agenda (United Nations, 2015) acknowledges that international trade is an engine for inclusive economic growth and poverty reduction. Target 17.10 is of paramount importance to advancing economic growth and fostering global competitiveness as it promotes a universal, rules-based, open, non-discriminatory and equitable multilateral trading system. Market access conditions are an important factor for the effectiveness of trade, and tariffsTariffs “are customs duties on merchandise imports, levied either on an ad valorem basis (percentage of value) or on a specific basis (e.g. $7 per 100 kg). Tariffs can be used to create a price advantage for similar locally produced goods and for raising government revenues. Trade remedy measures and taxes are not considered to be tariffs.” are an important determinant of market access.
Do trade reforms lead to economic growth?
Recent research in trade theory suggests that trade reforms which significantly reduce import barriers have on average a positive effect on economic growth, although the economic effect of such trade policies vary across countries (Irwin, 2019). Falvey et al. (2013) report that economic growth is roughly 1.7 percentage points higher after trade reforms than a benchmark (compared to the situation without any trade reforms). Easterly (2019) finds that the positive correlation between a good trade policy and economic outcomes has increased since the 1990s. Piketty (2014) notes that free trade and economic openness are ultimately in everyone's interest.
On the other hand, revenues accrued from tariffs may constitute a significant portion of a government’s public revenue, particularly in low-income countries, where the need for coordination of tariff liberalization with other tax policies is of particular importance.
Trade agreements
In 1947, major economies involved in international trade signed the GATTThe General Agreement on Tariffs and Trade (GATT) is a multilateral agreement, originally negotiated in 1947 in Geneva among 23 countries, to reduce tariffs and other trade barriers. It provides a framework for periodic multilateral negotiations on trade liberalisation ., an agreement through which countries entered into “reciprocal and mutually advantageous arrangements aimed at the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce” (WTO, 2020a).
Article 1 of the “GATT-94The GATT 1994 is contained in Annex 1A of the WTO Agreement. It incorporates by reference the provisions of the GATT 1947, a legally distinct international treaty applied provisionally from 1948 to 1995 .” stipulates that members set their tariffs on a MFNMost-favoured-nation basis in such a way that any advantage, favour, privilege or immunity granted to any product originated in and destined for other countries becomes immediately and unconditionally applicable to all contracting parties (WTO, 2020b).
The conclusion of the “GATT-94” multilateral trade negotiations led to the creation of the WTOWorld Trade Organization, with a clear mandate to develop an integrated, more viable and durable multilateral trading system. The WTO members set a maximum limit for tariffs levied on all agricultural goods and the majority of non-agricultural goods.1
Since then, most economies across the world have negotiated bilateral or multilateral trade agreements with the objective of reducing barriers to trade and promoting exchanges among members. In 1948, when GATT became operational, no formal regional trade agreements (RTAs) existed. Nowadays, practically all countries participate in at least one RTARegional trade agreement, with some countries forming more bilateral and regional RTAs than others. According to the WTO Regional Trade Agreements Database, as of 1st June 2020, 303 RTAs were in force, as compared to 291 in January 2019 (WTO, 2020c) (Figure 1).
The proliferation of preferential agreements among key developing countries is significant. The most recent example is the AfCFTAAfrican Continental Free Trade Agreement , which entered into force in May 2019. The AfCFTA creates a market comprising more than 1.3 billion people and a combined national income of US$2.5 trillion (United Nations, 2020a).
RTAs can serve as an important means of advancing gender-responsive trade policy. In June 2020, UNCTAD released a policy brief (UNCTAD, 2020a) on making trade agreements work for gender equality. An analysis of over 500 RTAs shows that although the inclusion of gender provisions is not new, only 74 agreements refer explicitly to gender issues (Monteiro, 2018). Often these provisions prohibit gender-based labour discrimination (ILO, 1958), referring to fundamental principles and rights at work, such as equal pay for work of equal value (ILO, 2020). The newly adopted ILOInternational Labour Organization Violence and Harassment Convention (ILO, 2019) is expected to become an important reference in trade agreements. Some of the more recent RTAs include a separate chapter to promote gender equality. They list concrete areas of cooperation to promote women’s participation in the economy. So far, however, only a few trade agreements call for the collection of sex-disaggregated data, use of indicators and analysis of gender statistics.
To this end, UNCTAD (2018b) developed a conceptual framework and a set of indicators on gender equality which focus on MNEs and foreign traders. A case study on Finnish data reveals that the gender pay gap tends to be larger in high-paying jobs in foreign multinationals and in enterprises that trade internationally. In Finland, the gender gap is smaller in domestically owned businesses. The UNCTAD research paper (Luomaranta et al., 2020) provides a blueprint, showing how business and social statistics can be linked to enable an analysis of gender inequalities in trade. The results indicate that even for a country with high gender equality, like Finland, trade is still an area where inequalities persist. RTAs could serve as an important tool to advance and monitor gender equality in the economy.
Note: ISCO 1-3 refers to the major groups 1-3 of the International Standard Classification of Occupations, namely managers, professionals, technicians and associate professionals.
In Finland, there are striking differences between firm types, and they are especially remarkable in knowledge intensive services. Therein, the ratio of women’s pay to men’s pay in foreign owned multinationals is seven percentage points smaller than in independent firms.
Making non-discriminatory tariff reforms work for development
Even though most developed countries have pushed for lower tariffs in recent years, there are still many parts of the globe where they remain high. In general, tariffs on imports of both agricultural and non-agricultural products tend to be higher in developing countries. Some of the highest import duties can be found in Africa, where Gambia stands out with an average tariff of 18.1 per cent. The country with the highest weighted average tariff worldwide is Palau at 34.6 per cent. Among major global economies, India imposes a weighted tariff-averageWeighted average of tariffs applied to imports of goods in HS chapter 01-97. The tariffs are weighted by the value of the imported goods to which they are applied. It is expressed as percentage of the value of goods imported. The average level of customs tariff rates applied worldwide can be used as an indicator of the degree of success achieved by multilateral negotiations and regional trade agreements. See metadata for indicator 17.10.1 . of 4.9 per cent while China's average rate is 3.4 per cent. The United States of America applies a weighted average tariff of 1.6 per cent on its imports, one of the lowest rates worldwide . The weighted average tariff, applied in the EUEuropean Union, was 1.7 per cent in 2018. In LDCsLeast developed country, weighted average tariffs vary from 2.4 per cent (Tuvalu) to 30.3 per cent (Solomon Islands). The lowest weighted average tariffs at zero per cent are recorded in Hong Kong SAR, China; Macao SAR, China and Brunei.2
Since 2008, both multilateral and preferential tariffs have been trending downwards. Tariffs on agricultural and natural resources have been reduced both through MFN tariffsMost Favoured Nation (MFN) tariffs are a tariff level that a member of the General Agreement on Tariffs and Trade of the WTO charges on a good to other members, i.e. a country with a most favoured nation status (See ) It applies to imports from trading partners-members of the World Trade Organization (WTO), unless the country has a preferential trade agreement. It is the lowest possible tariff a country can assess on another country. and more wide-spread preferential access. According to UNCTAD (2020c), the simple average of the world MFN tariffs for agricultural products in 2018 remained relatively high at around 16 per cent, although they have declined by about two percentage points since 2008. Among the countries with the largest levels of agricultural trade, Egypt, the Republic of Korea, Turkey, and India maintain the highest MFN agricultural tariffs, with simple averages exceeding 30 per cent (WTO, ITC & UNCTAD, 2019).
The simple averages of the world MFN tariffs and preferential tariffs for natural resources in 2018 continued to decline and were below three per cent and one per cent, respectively. The same indicator for manufacturing products averaged about seven per cent in 2018. The proliferation of PTA schemes has resulted in the decline of tariffs in this sector by about one percentage point (see figure 3).
Tariffs applied to exports of LDCs and developing countries are slowly reducing
The average level of customs tariff rates (indicator 17.12.1) faced by developing countries and LDCs illustrates the pace at which the multilateral system is advancing toward the implementation of duty-freeNot subject to import tariffs. and quota-free market access (United Nations, 2020b).
SDG target 17.12 aims to “realize timely implementation of duty-free and quota-free market access on a lasting basis for all least developed countries...”. Recognizing LDCs’ special economic situation, developed countries and other economies3 agreed to grant LDCs duty-free and quota-free preferential market access.
Preferential market access for developing countries has been initiated by most developed countries since the early 1970s under the aegis of UNCTAD (2020d). These unilateral trade preferences called the GSPGeneralized System of Preferences allow developed countries to apply different tariffs between different groups of trading partners without violating Article I of the GATT requiring non-discriminatory and equal treatment of trading partners.
Trade preferences under the GSP program are granted, not only by the so-called QUADQUAD countries refers to Canada, EU, Japan and the United States. countries, namely the EU, United States, Japan and Canada, but also by Australia, New Zealand, Norway, Belarus, Iceland, Kazakhstan, Russian Federation, Switzerland, and Turkey.
Figure 4 shows that import tariffs applied by developed countries to products from LDCs registered a slight decline since 2000 and amounted to about four per cent in 2018 . The variations of tariffs faced by LDCs across product groups are considerable. In particular, tariffs for clothing and textiles remained high in 2018 and amounted to 18 per cent and nine per cent, respectively. This could be partly explained by the exclusion of some large Asian exporters from certain preferential tariffs.
In addition to the GSP scheme and LDCs preferences, many developed countries grant trade preferences to other developing countries, either within the GSP or as a separate program (Klasen et al., 2016). For example, the European Commission’s EBAEverything But Arms (EBA) is a European Commission’s ‘zero’ tariff initiative for LDCs covering all products except the arms trade. initiative implements a slightly less preferential GSP+ tariff for vulnerable countries, respecting international conventions on human and labour rights, environmental protection and good governance (European Commission, 2019). Canada, apart from the GPTGeneralized preferential tariff applicable to developing nations, grants a non-reciprocal CCCTCommonwealth Caribbean Countries Tariff (CCCT) is a Preferential Trade Arrangements (PTAs) categorized as other type of PTAs. The provider of CCCT is Canada. CCCT entered into force on the 15th of June 1986 . to certain Caribbean nations (WTO, 2020f). This applies also to the Least Developed countries Tariff.
Import restrictivenessThe average level of tariff restrictions on imports as measured by the TTRI. differs substantially across countries, and even within the same region. Table 1 presents a matrix of the average tariff levels imposed on trade flows between regions in 2018. Intraregional trade is generally subject to lower tariff trade restrictiveness than interregional trade. However, this is not the case for exports from sub-Saharan Africa and South Asian countries, for which market access often enjoys better interregional trade conditions than for intraregional trade. South Asia and Sub-Saharan Africa face the highest intraregional tariffs , with tariffs of 5.7 per cent and 2.3 per cent respectively, in 2018. A large number of South–South trade flows are still burdened by relatively high tariffs. For example, exports from Latin American countries to the South Asian region face a tariff of about 16 per cent (UNCTAD, 2020c).
North-North tariffs are on average lower than North-South tariffs because of tariff peaks within product groups, which are of significant export interest to developing countries, such as agriculture and apparel. However, low income countries, within product categories, do receive higher preference margins, averaging three percentage points above other countries (World Bank, 2020b). Some countries, such as Lesotho and Afghanistan, receive preference margins as much as ten percentage points.
Importing Region | Exporting Region | ||||||
Developed economies | East Asia | Latin America | South Asia | Sub-Saharan Africa | Transition economies | Western Asia and North Africa | |
Developed economies | 1.5 | 2.3 | 1.1 | 2.0 | 0.5 | 1.6 | 0.8 |
-0.4 | -0.2 | 0.3 | -0.8 | 0.1 | 0.9 | 0.2 | |
East Asia | 4.3 | 1.9 | 4.4 | 4.1 | 3.1 | 3.8 | 2.8 |
-1.6 | -1.4 | 0.0 | 0.1 | 1.1 | 1.4 | 0.2 | |
Latin America | 3.3 | 7.9 | 1.0 | 11.3 | 1.9 | 1.6 | 3.1 |
-0.5 | -1.8 | -0.6 | -2.0 | -0.5 | 0.1 | -0.5 | |
South Asia | 9.5 | 6.8 | 16.2 | 5.7 | 5.4 | 6.6 | 6.0 |
0.1 | -2.7 | 8.6 | -2.5 | -0.8 | 0.9 | -1.8 | |
Sub-Saharan Africa | 7.1 | 9.4 | 9.4 | 9.1 | 2.3 | 7.1 | 6.6 |
-1.2 | -1.6 | 0.1 | 1.5 | -1.7 | 0.2 | 0.8 | |
Transition economies | 3.0 | 3.8 | 6.4 | 4.2 | 1.9 | 0.9 | 4.7 |
-3.5 | -4.1 | -3.9 | -6.1 | -1.0 | 0.8 | -3.1 | |
Western Asia and North Africa | 4.6 | 5.4 | 4.5 | 4.2 | 2.5 | 9.2 | 2.4 |
0.5 | 0.0 | -1.3 | 0.2 | 0.4 | 8.0 | 0.3 |
Note: Changes between 2008 and 2018 are shown in smaller font.
Tariffs on processed goods tend to exceed those on raw materials or semi-processed goods in many of the largest markets. This tariff escalation, designed to protect high value-added industries, hampers the diversification of exports of developing countries and increases their dependence on unprocessed goods subject to high price volatility. For example, the EU applies a bound rate of zero per cent on imports of cocoa beans, but a 7.7 per cent, and 15 per cent ad-valorem duty on cocoa powder and chocolate crumb containing cocoa butter, respectively (FAO, 2003). Figure 5 shows that middle and low-income countries impose, at over ten per cent, the highest average tariffs on processed goods.
The objective to improve market access conditions for LDCs’ exports by giving special and differential treatment to LDCs in accordance with the WTO agreements was not only outlined in SDG target 17.12, but also in SDG target 10.a. The following section will cover SDG target 10.a.
More than half of exports from developing countries are now eligible for duty-free treatment
Most developed countries grant either full or nearly full duty-free and quota-free, i.e. DFQFDuty-free and quota free market access for LCDs, and an increasing number of developing countries are in the process of extending similar treatment to most imports from LDCs. Australia, New Zealand, Norway and Switzerland provide full duty-free access through preferential LDCLeast developed country schemes. For Canada, Chile, the European Union and Japan, 97 per cent of tariff lines are free of duty for products originating from LDCs. China, Iceland, India, Korea and Montenegro grant duty-free access for LDCs to around 90 per cent or more of their tariff lines (WTO, 2019).
However, progress on export expansion from LDCs is slow. Despite considerable growth of LDCs’ exports since 2000, their share in world trade in 2019 accounted for less than 1 per cent, whereas the share of LDCs in world population was more than 13 per cent (UNCTAD, 2020e).
Tariff barriers remain an issue in some countries, notably the United States. In 2017, some 60 per cent of LDC exports were dutiable under the United States’ GSP scheme for LDCs, in dollar terms, with a trade-weighted average tariff of over ten per cent (WTO, 2019).
SDG indicator 10.a.1 shows the extent to which special and differential treatment has been applied through import tariffs.4
LDCs were granted duty-free market access on more than 67 per cent of tariff lines in 2018 (figure 6); the respective share for all developing countries was around 52 per cent. The proportion of duty-free tariff lines to LDCs’ exports has risen from 53.8 per cent in 2010 , an increase of almost 14 percentage points, thus showing the commitment of international community to boost exports from poorest countries. The corresponding increase for developing countries in general amounted to more than 8 percentage points.5
The highest growth of 36 per cent was observed in the zero-duty trade of industrial products, followed by the trade in agricultural products (15.7 per cent) (See figure 6).
Figure 7 shows that over 60 per cent of agricultural trade in 2018 was duty-free, with 20 per cent of this accounting for duty-free on the MFN basis and the rest under preferential tariffs. Preferential access is important for trade in agricultural products and manufacturing products, for which the remaining tariffs are fairly high, averaging to 20 per cent for agriculture, and around ten per cent for manufacturing products. For natural resources, preferential access is less important, as trade in these goods is largely tariff-free under MFN rates. The remaining tariffs are generally very low, with tariffs averaging 5.6 per cent.
The true value of the LDCs’ export competitiveness that is granted duty free treatment can be in part measured by the magnitude of the preferential tariff margin, that is the difference between the preferential tariff rates applicable to LDCs’ exports and the non-preferential tariff rates. The higher margin indicates the greater market shares of LDCs in preference granting countries. Figure 8 shows that LDCs’ preferential margins are the strongest in low-skill manufactures, such as, clothing, providing a tariff advantage of six percentage points in entering developed countries markets vis-à-vis foreign competitors. Preferential margins are also substantial for textiles and agricultural products (between three and four percentage points).
UNCTAD provides assistance to the LDCs in the elaboration of studies on DFQF market access. To this end UNCTAD produced two handbooks and a database on utilization of trade preferences (UNCTAD, 2020f).
Free trade is critical to fight COVID-19
The COVID-19Infectious disease caused by the strain of coronavirus SARS-CoV-2 discovered in December 2019. Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19 . outbreak has put a spotlight on the important role of trade in medical products, and specifically trade in certain critical products for diagnostics and treatment of patients with the new coronavirus disease as well as personal protective equipment (PPE). The taxes governments impose on imported life-saving products, while maintaining a source of government income, may impact the flow of critical medical goods across territories and impair the affordability of these products for hospitals, health-care professionals and low-income patients in their countries.
According to the WTO, the average tariff on COVID-19 relevant medical products was 4.8 per cent (WTO, 2020g). Although this level is lower than the 7.6 per cent average tariff for non-agricultural products, some medical products, such as, protective supplies used in the fight against COVID-19, receive an average tariff of 11.5 per cent, which can go as high as 27 per cent in some countries (see figure 9).
Weighted average applied tariffs on key COVID-19 products in the developing countries with the highest number of cases are generally above six per cent (see table 2). Personal protection equipment products, such as, aprons, medical masks and protective clothing are subject to tariffs of over ten per cent. For example, the Islamic Republic of Iran, one of the most severely affected countries in the early days of the outbreak, imposes a tariff of 65 per cent on medical masks and 100 per cent on protective clothing (Espitia et al., 2020).
Importing countries | Case Management | Diagnostics | Hygiene | Personal Protection Equipment | |||||||||||||
Bougies, catheters, drains | Flow-splitter for oxygen supply | Humidifier, non-heated | Patient monitors and pulse | Respirators | Venturi mask | Enzymes | Chlorine | Hand sanitizers | Liquid soap | Apron, heavy duty | Gloves, examination, non-sterile | Medical masks | Nitrile and sterile gloves | Other medical headwear | Protective clothing | Protective googles | |
Armenia | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Brazil | 10.7 | 13.6 | 11.9 | 10.5 | 13.6 | 8.8 | 1.0 | 7.0 | 14.4 | 17.1 | 17.4 | 16.0 | 21.9 | 35.0 | 19.1 | 22.6 | 17.1 |
Colombia | 0.7 | 0.3 | 0.3 | 1.4 | 1.2 | 0.6 | 0.0 | 0.3 | 0.8 | 4.9 | 11.9 | 14.9 | 4.6 | 9.3 | 13.6 | 2.4 | 8.8 |
Ecuador | 0.0 | 4.3 | 3.4 | 0.0 | 4.0 | 0.0 | 0.0 | 0.0 | 1.2 | 4.8 | 17.5 | 14.8 | 47.6 | 12.2 | 23.3 | 57.8 | 23.1 |
Egypt | 1.4 | 1.9 | 1.2 | 1.9 | 1.9 | 1.4 | 1.1 | 3.7 | 6.1 | 1.6 | 19.7 | 8.8 | 14.8 | 9.9 | 11.5 | 3.1 | 8.4 |
India | 5.9 | 6.5 | 5.5 | 6.8 | 7.1 | 5.9 | 8.8 | 5.8 | 8.4 | 7.3 | 9.5 | 0.4 | 8.8 | 0.1 | 9.4 | 7.4 | 8.5 |
Indonesia | 1.8 | 1.5 | 2.4 | 2.5 | 3.1 | 2.7 | 3.6 | 0.9 | 2.1 | 2.7 | 3.3 | 1.2 | 1.5 | 0.4 | 2.0 | 2.2 | 0.6 |
Iran (Islamic Republic of) | 17.6 | 10.0 | 18.4 | 18.0 | 4.0 | 9.6 | 10 | 4.0 | 18.0 | 55.0 | 45.0 | 35.0 | 65.0 | 57.5 | 30.0 | 100.0 | 35.0 |
Lebanon | 3.5 | 1.1 | 0.6 | 3.6 | 2.8 | 2.8 | 1.7 | 0.0 | 2.4 | 2.0 | 4.7 | 4.6 | 3.3 | 4.9 | 4.3 | 41.1 | 4.5 |
Malaysia | 0.0 | 5.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 10.0 | 0.0 | 0.0 | 20.0 | 0.0 | 10.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Mexico | 0.1 | 0.0 | 0.9 | 0.0 | 0.0 | 0.1 | 0.1 | 0.4 | 0.1 | 0.9 | 6.1 | 0.0 | 2.1 | 9.3 | 2.5 | 1.9 | 6.1 |
Pakistan | 7.0 | 10.9 | 3.4 | 2.7 | 1.8 | 2.6 | 19.5 | 20.0 | 19.7 | 20.0 | 16.1 | 16.5 | 19.7 | 5.4 | 15.2 | 20.0 | 6.5 |
Peru | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 1.2 | 0.2 | 0.8 | 0.8 | 4.9 | 1.1 | 2.8 | 0.5 | 5.1 | 0.1 |
Philippines | 0.2 | 1.4 | 0.1 | 0.0 | 0.5 | 0.4 | 1.0 | 2.5 | 1.0 | 1.8 | 0.3 | 0.1 | 1.3 | 0.1 | 0.6 | 5.1 | 0.2 |
Russia | 0.0 | 0.0 | 0.4 | 1.0 | 0.0 | 1.1 | 4.8 | 6.4 | 6.1 | 6.1 | 6.1 | 10.0 | 0.1 | 9.9 | 8.8 | 12.1 | 4.6 |
Serbia | 0.6 | 0.2 | 0.3 | 0.6 | 0.3 | 0.6 | 0.3 | 0.0 | 0.1 | 0.1 | 8.6 | 0.6 | 2.1 | 8.3 | 2.8 | 3.7 | 1.6 |
South Africa | 0.0 | 0.0 | 2.8 | 0.0 | 0.0 | 0.0 | 0.0 | 6.9 | 5.0 | 4.9 | 9.5 | 19.9 | 16.7 | 14.6 | 9.0 | 13.2 | 0.0 |
Thailand | 3.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 3.8 | 1.6 | 4.1 | 2.9 | 1.5 | 0.0 | 2.1 | 0.3 | 3.8 | 2.5 | 0.5 |
Turkey | 0.0 | 0.5 | 0.4 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.2 | 0.3 | 6.2 | 0.3 | 4.1 | 0.5 | 1.5 | 5.3 | 2.4 |
Low | Medium | High | Very high |
As reported by Evenett (2020), before the pandemicCommonly described by the WHO as ‘the worldwide spread of a new disease’, no strict definition is provided. In 2009, they set out the basic requirements for a pandemic: • New virus emerges in humans
• Minimal or no population immunity
• Causes serious illness; high morbidity/mortality
• Spreads easily from person to person
• Global outbreak of disease.
The US Centre for Disease Control uses a similar approach, but with a reduced set of criteria. It is very difficult to gauge whether the spread of a disease should be termed an outbreak, epidemic or pandemic. In other words, when to declare a pandemic isn’t a black and white decision ., 78 governments taxed imports of soap at rates of 15 per cent or more. 15 nations currently implement non-tariff barriers on imports of protective equipment and 23 impose non-tariff barriers on imported disinfectant. Customs duties on imports of key medical supplies, used to fight the coronavirus pandemic, could affect the movement and accessibility of these products and exacerbate the spread of the coronavirus. The author called on countries to eliminate unilateral tariffs and implement “a tariff-and-aid initiative that sweeps away the barriers which impede medical supplies reaching locations where they are desperately needed.”
The World Bank (2020c) has published a list of trade policy do’s and don’ts in response to COVID-19. The do’s include measures to facilitate trade by reducing tariffs to zero on COVID-related medical products and food products and removing quantitative restrictions and export taxes. Some developing countries affected by COVID-19 have started implementing import reforms. For instance, Pakistan introduced tax and import duty exemptions for medical and testing equipment, while Brazil eliminated tariffs on medical and hospital products. Zimbabwe waived duties on COVID-19 materials, and Zambia suspended excise duties on imported ethanol for use in alcohol-based sanitisers. Although these policy changes are temporary, this is a step in the right direction in addressing the COVID-19 health crisis.
The rising importance of non-tariff measures
NTMsNon-tariff measures (NTMs) are policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both such as technical barriers to trade, price-control measures, etc., often impede imports more than border duties. Trade costs associated with NTMs are estimated to account for as much as 1.6 per cent of global GDPGross domestic product, or US$1.4 trillion (United Nations, 2020a), more than double that of ordinary customs tariffs. For intra-African trade, the average import-weighted tariff is almost 7 per cent, while the ad-valorem equivalentA tariff that is not a percentage of the price of the product (e.g. dollars per ton) can be estimated as a percentage of the price — the ad valorem equivalent. . cost of non-tariff barriers is estimated to be 14.3 per cent (UNECA, 2020). In order to help African governments monitor and eliminate NTMs which impede trade flows, UNCTAD and the African Union jointly developed an on-line platform - NTBsNon-tariff Barriers reporting, monitoring and eliminating mechanism (African Union, 2020), which became operational on 13 January 2020. African countries could gain US$20 billion each year by tackling NTMs, such as, quotas, excessive import documents or unjustified packaging requirements, at the continental level – far in excess of the $3.6 billion they could save by eliminating tariffs (Vanzetti et al., 2018).
NTMs, as policy instruments, can be either directly or indirectly linked to sustainable development. Direct linkages include policies that have an immediate impact on social and environmental issues and help achieve SDGsSustainable Development Goal: food security (SDG 2); nutrition and health (SDG 3); protect endangered species and the environment (SDGs 14 and 15); ensure sustainable production and consumption (SDG 12); energy (SDG 7); and combat climate change (SDG 13). On the other hand, indirect linkages may arise from trade policies that influence trade, which in turn can restrict economic growth and create negative spill over effects on sustainability objectives (UNCTAD, 2020g).
Today, a considerable number of NTMs are regulatory measures, which respond to a public demand for protection against environmental and health hazards (UNCTAD, 2020h). Technical NTMs, such as TBTTechnical barriers to trade (TBT) are measures referring to technical regulations, and procedures for assessment of conformity with technical regulations and standards., which includes labelling, standards on technical specifications and quality requirements, as well as all conformity-assessment measures, affect more than 30 per cent of product lines and almost 70 per cent of world trade (figure 10). Sanitary and phytosanitary measuresAny measure applied: (a) to protect animal or plant life or health within the territory of the trade partner from risks arising from the entry, establishment or spread of pests, diseases, disease-carrying organisms or disease-causing organisms; (b) to protect human or animal life or health within the territory of the trade partner from risks arising from additives, contaminants, toxins or diseases causing organisms in foods, beverages or feedstuffs; (c) to protect human life or health within the territory of the trade partner from risks arising from diseases carried by animals, plants or products thereof, or from the entry, establishment or spread of pests; or (d) to prevent or limit other damage within the territory of the trade partner from the entry, establishment or spread of pests ., which typically prevail in agriculture, affect almost 20 per cent of world trade, followed by price control measures which affect about 15 per cent of world trade.
Note: The frequency index is defined as the percentage of HSThe Harmonized System (HS) is an international nomenclature developed by the World Customs Organization, which is arranged in six-digit codes allowing all participating countries to classify traded goods on a common basis. Beyond the six-digit level, countries are free to introduce national distinctions for tariffs and many other purposes. six--digit lines covered; and coverage ratio is defined as the percentage of trade affected.
In LDCs and developing countries, about 40 per cent of imports are subject to NTMs , this is less than half as much as in developed countries (figure 11). NTMs in developing countries and LDCs are less diversified than in developed countries. On average, developing countries use two different NTMs on any regulated product, and LDCs one, compared to four in developed economies.
The COVID-19 crisis has shown the importance of trade policy in fighting the current pandemic. The impact of NTMs barriers on trade of medical goods is of particular importance during the current health crisis. Governments have been challenged to find the right balance between the need to import medical supplies and protective equipment against the loss of tariff revenues associated with them. In order to facilitate the trade of essential medical supplies, for example, the EU and China have employed ”green lanes” for fast customs clearance. In March 2020, Brazil introduced new legislation that simplifies the customs clearance process for articles used to combat the spread of COVID-19. Argentina streamlined the import clearance process of certain critical medical products, and the Islamic Republic of Iran removed an import ban on ethanol, used to produce sanitiser (Baldwin and Evenett, 2020).
In spite of the positive steps undertaken by many countries to facilitate the import of medical products, some nations still employ non-tariff policies that limit imports of medical consumables (Evenett, 2020). For example, 12 nations discourage imports of medicine: India has four non-tariff policies, followed by the Russian Federation (three) and Indonesia (three). Indonesia also has the most non-tariff barriers against foreign soaps – two are import licensing requirements and one is an internal tax that targets imported goods.
Statistics for NTMs are still incomplete. As of today, TRAINSTrade Analysis and Information System (UNCTAD, 2020b) database developed by UNCTAD in partnership with several regional and international organisations is the most complete collection of publicly available data on NTMs at the HS six-digit level. As of 2018, UNCTAD has collected comprehensive and comparable NTMs data covering 109 countries and containing more than 65,000 measures.
Notes
- According to WTO, for non-agricultural products the product coverage of tariff binding by developed country members was 100 per cent, while that of developing country members was around 73 per cent (WTO, 2020h).
- Data are classified using the Harmonized SystemThe Harmonized System (HS) is an international nomenclature developed by the World Customs Organization, which is arranged in six-digit codes allowing all participating countries to classify traded goods on a common basis. Beyond the six-digit level, countries are free to introduce national distinctions for tariffs and many other purposes. of trade at the six- or eight-digit level. Tariff lineA single item in a country’s tariff schedule. A single item in a country’s tariff schedule. (see SDG metadata). data were matched to the SITCStandard International Trade Classification revision 3 codes to define commodity groups and import weights. To the extent possible, specific rates have been converted to their ad valorem equivalent rates and have been included in the calculation of Weighted mean applied tariffThe average of effectively applied rates weighted by the product import shares corresponding to each partner country .. Import weights were calculated using the UNSD’s Commodity Trade (Comtrade) database. Effectively applied tariff rates at the six- and eight-digit product level are averaged for products in each commodity group. When the effectively applied rate is unavailable, the most favoured nation rate is used instead.
- Following the WTO Hong Kong Ministerial Decision in 2005 (WTO, 2015).
- Limitations of this indicator include the following: (i)Tariff-based measures are only a part of trade limitation factors. (ii) Inability to comply with rules of origin criteria limits the utilization of preferential treatments. (iii) Using data on zero-tariff lines assumes full utilization of benefits. (iii) Low MFN tariffs mean that duty-free treatment is not always preferential (United Nations, 2019).
- Proportion of total number of tariff lines applied to products imported from least developed countries and developing countries is presented in per cent, corresponding to a 0 per cent tariff rate in HS chapter 01-97. This indicator allows observing on how many products developing countries and LDCs will have free access to Developed countries markets (United Nations, 2020b).
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