Cost of Protection: Non-Tariff Barriers to Trade

Trade protection that restricts competition or restrains circulation of products in international markets reduces global efficiency and slows economic advance. A number of policy tools are used by nations to shelter firms from international competition.7 These include high tariff rates; voluntary export restraints; production subsidies; import quotas; and a wide range of non-tariff barriers, including those related to standards and conformity assessment mechanisms. Standards that discriminate against imports and nontransparent or discriminatory requirements for showing conformity to standards can create significant non-tariff trade barriers.

The economic harm caused by trade discrimination and protection of domestic markets is well documented.8 Most empirical research and data on the costs of instruments to either block imports or subsidize exports have focused on indirect measures of trade protection. Their effect on increased consumer prices and reduction of global wealth is clear. A recent study of the cost of protection in textiles, apparel, autos, and steel, for example, found that removal of all quantitative restrictions, such as quotas, on imports into the United States would result in a 0.5 percent increase in national income. This increase would be worth $25 billion to $29 billion dollars. The same study found that the reduction in welfare caused by U.S. non-tariff barriers in these sectors is equivalent to that which a 49 percent tariff would produce.9

Great progress has been made in reducing worldwide tariffs since the Second World War. Prior to 1947 and the establishment of the GATT, for example, average weighted tariffs on goods in the industrialized nations stood at 35 percent. A tax of $35 per $100 of products traded before 1947, therefore, was paid by final goods producers on imported components and by consumers of finished products. After the Tokyo Round of GATT trade negotiations ended in 1979, average tariffs in the major trading markets of the United States, Japan, and Europe were lowered to about 3.8 percent. The Uruguay Round of negotiations completed in 1994 cut tariffs in major industrial markets to zero in many sectors. These include construction, agricultural, and medical equipment; pharmaceuticals; paper; toys; and furniture, among others.10 Tariff cuts ranged from 50 to 100 percent on semiconductors and computer components. The agreement also committed many emerging, newly industrializing markets to cut tariffs sharply in these sectors.

Although global tariffs have been reduced, there has been a rise in the use of other mechanisms to deny access of goods to national markets. Whereas the extent and costs of traditional forms of trade protection are well documented, less attention has been devoted to analyzing or measuring the effects of non-tariff barriers to trade.11 This is particularly true of analysis on the trade effects of discriminatory standards and conformity assessment procedures.12 It is clear, however, that non-tariff barriers raise costs of production in a manner similar to



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