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While trade tariffs are getting all the press, less visible non-tariff barriers (NTBs) might arguably be the bigger impediment to free trade. Martin G Kaspar explains.

The most heated discussion of our day, that of the rise of protectionism and the breakdown of free trade, often lacks the level of detail needed to arrive at a nuanced and more realistic picture. It is not just the fiercely debated tariffs that are obstacles to trade, but also the less visible layer of so-called non-tariff barriers (NTBs). Arguably, these might even be the bigger impediment. So what are NTBs, and why should we worry about them?

For the past two or three decades, trade has grown steadily and ever more rapidly. Tariffs have continuously been removed, or at least been lowered. Only the recent spate of anti-trade outbursts from US president Donald Trump and his threats of punitive tariffs on everything from steel to cars have tainted the otherwise glorious picture of everlasting progress, that it has never been as easy (or cheap) to do business with the world. But has it really?

As any businessman can tell you, the true picture is not quite as rosy as the tariff reductions (usually announced with big fanfare) would have us believe. There is a less visible story; while tariffs have been reduced, the number of NTBs has steadily been increasing.

Undefined something

The tricky thing about NTBs is that there is not even an agreed definition for them. The best way to describe NTBs is as discriminating approaches that, in the widest sense, are designed to keep foreign firms out and protect one’s own domestic firms. Due to their hidden and often subtle nature, they are hard to detect and even harder to measure. Hence, robust figures are difficult to come by.

The most obvious NTBs are import controls, import bans or quotas. But other than that, where do you draw the line? Health and safety or environment protection is making life difficult for exporters and investors, but these restrictions are dealt with by both local and foreign companies, and are arguably legitimate measures to protect the greater good of society. Therefore we would not consider them NTBs. 

The most widely applied measures – which most commentators also class as NTBs – are not ‘negative actions’, such as bans, but a sort of positive discrimination in the form of financial grants or subsidies provided to domestic companies in order to give them a competitive advantage. It might be debateable whether supporting one’s own firm base is necessarily always protectionism.

But where the case is abundantly clear is where nations start to attempt to keep others out of their own markets and make their lives as difficult as possible. A prime example would be the Byzantine licensing or documentation requirements – particularly for non-national investors or capital import rules – that keep foreign firms busy for months and make them wonder whether it is really is worth the effort.

Worst offenders

Having established what NTBs are, the next question is: who is applying them? And here, one might be surprised to find that the most ‘protectionist’ nation in terms of NTB use is the US. With nearly 800 non-tariff measures listed in the Global Trade Alert database, the US leads in erecting barriers by a wide margin. The measures employed range from the “stricter enforcement of Buy American rules” on a broad range of products from footwear to steel, to subsidies for the US merchant marine, the producers of textiles or of cotton.

The second most protectionist nation in terms of NTBs is India (with 312 measures), followed by Russia (250) and Saudi Arabia (151). China – which is especially surprising, given the sheer volume of its trade and investment engagement, as well as the constant accusations of unfair trading practices – only ranks ninth.

As opposed to the US approach of ‘Buy American’, India operates with a different pattern of NTBs. Apart from being one of the most active users of anti-dumping measures, its licensing and permitting regimes are so extremely complex, and variable from state to state, that foreigners almost never find their way through the opaque maze without the help of local consultants.

Clearer picture

This brings us to the last question: why should you worry about NTBs? Because they are arguably more problematic and damaging than tariffs; tariffs and duties are clear to see and firms know what they are letting themselves in for. With NTBs, the story is one of gradual discovery, often when significant costs have already been incurred. And while for products that are in heavy demand, tariffs are merely a cost item added to the product price (and essentially paid for by the customer), the way to deal with NTBs is often less clear.

So while tariffs only keep out foreign companies whose products are merely me-too, NTBs discriminate against all foreign companies, often in ways that are not only price-related. Local content requirements keep you from bidding for government contracts, while Byzantine licensing keeps companies out, no matter how unique their product might be.

Most importantly, however, is that a clearer view of NTBs makes the debate about ‘fair’ and ‘unfair’ trading practices correspond a little more closely to the real picture.

Martin G Kaspar is head of business development at a German mittelstand company within the automotive industry. E-mail: martin.georg.kaspar@gmail.com

 

This article is sourced from fDi Magazine
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