Guest Post: Five things you need to know about Non-tariff measures this Christmas

Guest post from John Ballingall, Deputy Chief Executive, NZ Institute for Economic Research (NZIER)

Non tariff measures (NTMs) are becoming increasingly worrisome for New Zealand exporters. Our firms know these NTMs impose considerable costs, reduce trade volumes and eat into margins.

 
NTMs are regulatory tools, other than standard border tariffs, that can have potential economic effects on trade – either a decrease in quantities traded, an increase in their price, or some combination of both. Common examples are quotas, technical standards (TBT), registration processes, labelling, sanitary and phyto-sanitary (SPS) measures and biosecurity procedures.

NZIER wanted to estimate just how serious these costs are. NZIER’s recent paper presents a number of key findings. Here are the top 5:

1. Not all NTMs are born equal; all impose costs but some deliver benefits

NTMs may be imposed by a government for genuine policy reasons, such as protecting human, plant or animal life or health (mainly SPS measures) or protecting the environment and consumer safety (mainly TBT) or even national security. These measures can be seen as delivering benefits in terms of domestic welfare gains.

Yet they also distort trade: this can harm both domestic consumers and firms (i.e. they must pay higher prices or have less choice) and the welfare of other economies (because exporters can’t fully exploit their comparative advantages).

NTMs are also used for more nefarious purposes – largely to protect domestic producers from international competition, much in the same way that punitive tariffs do. These are often referred to as non-tariff barriers or NTBs, and are the most trade-distorting and expensive NTMs.

2. NTMs cost Kiwi exporters billions every year

The overall cost of NTMs imposed by other governments on New Zealand’s primary sector exports to APEC economies is NZ$6.7 billion (based on 2011 trade). For our overall export portfolio, the cost is NZ$8.4 billion.

The vast majority of these costs are imposed on the dairy (NZ$3.9 billion), beef (NZ$1.1 billion) and food products (NZ$ 1.0 billion) sectorsn – precisely the things New Zealand is good at exporting.

3. Governments’ use of NTMs is growing significantly

As tariff levels have fallen over time due to bilateral and regional trade agreements, the use NTMs has become more common in the Asia-Pacific region. The total number of NTMs imposed by APEC governments APEC has increased by 74% from 814 in 2004 to 1,414 in 2015.

4. NTMs are three times as costly to APEC firms as tariffs

If you convert NTMs to tariffs, NZIER estimates that the tariff equivalent of NTMs in APEC is 9.7%, compared to an average APEC tariff of 2.9%. That means these measures add almost 10% to the costs of doing business in APEC.

NTMs cost APEC economies some US$790 billion each year, around three times as much as tariffs.

5. NTMs are complex to negotiate away

The delineation between an NTM and an NTB is nearly always blurry. One country’s legitimate policy justification is another’s protectionism in disguise. This makes establishing the costs and benefits, and apportioning them across economies, especially challenging. In turn, this makes any rational ‘exchange’ of offers to reduce NTMs in trade negotiations very tricky.

New Zealand’s suite of free trade agreements makes a start to putting in place more effective rules for NTMs. That said, given the very high cost to consumers and firms of NTMs in the APEC region, any regional initiatives to reduce NTMs would be hugely valuable, and very much welcomed!