Trading regulations and red tape in the global markets–designed to protect domestic production–are having disproportionate negative effects on exports and production from the developing world. These non-tariff measures make it more difficult for producers in the developing world to receive the best prices for their products and hinder entrepreneurial growth.
Non-tariff measures (NTMs) are all measures other than traditional tariffs that have the potential for distorting trade flows. Much like traditional tariffs, NTMs raise the prices of imports and naturally favor domestic over foreign supply. The higher prices from imports allow domestic prices to increase. NTMs often strengthen the domestic production by forcing imports to be more expensive and harder to access.
To understand the impact of these NTMs to economic development, it must be examined how they affect market access to producers in the developing world. For example, a Kenyan tobacco farmer might find out that he can get the highest market price for his crops in the neighboring Tanzania. If he wishes to export his goods, there is specific legal and regulatory framework which he must navigate around, that can involve expensive licensing, corrupt and lengthy customs procedures, or unreasonable packaging, labeling, and product standards. A poor tobacco farmer might not have the resources to wade his way through the complexities of these import procedures.
NTMs are allowed under the WTO’s regulations and are meant to allow governments to pursue legitimate policy goals even if this can lead to increased trade costs. For example, NTMs like sanitary procedures and licensing could be used to protect consumers from harmful products. However, according to the International Trade Centre, “NTMs are sometimes used as a mean[s]to circumvent free-trade rules and favor domestic industries at the expense of foreign competition. It is very difficult, and sometimes impossible, to distinguish legitimate NTMs from protectionist NTMs, especially as the same measure may be used for several reasons.” When NTMs are used in this manner, they are called non tariff barriers (NTBs).
NTMs have a wide breadth of manifestations, including general or product-specific quotas, complex regulatory environments, export subsidies, restrictive licenses, and inadequate infrastructure. The one thing that all of these forms have in common is that they add difficulty to the trade process, and they limit producers’ access to markets.
There has been a large increase in the use of these NTMs; their overall importance has grown since the liberalization of tariff policy. Tariffs are taxes on products imported to a country. The WTO and many other multilateral and bilateral trade agreements have reduced tariffs, as they inhibit free trade and are correlated with lower welfare and economic efficiency, along with higher poverty. The fact that tariff liberalization alone has proven unsuccessful in providing genuine market access has created a focus on NTMs as barriers to market access. As World Trade Organization regulations have limited their use of tariffs, more countries are substituting them with NTMs.
The newfound importance of NTMs has created organizations designed to deal with them. The New Markets Lab is an NGO that deals with the omnipresent nature NTM related concerns and focuses on helping small producers understand and overcome the complex legal environments they face. Luke Warford, a research analyst for the New Markets Lab, explained the importance of NTMs and NTBs to the Borgen Magazine:
“Legal and regulatory issues, many of which can be categorized as non-tariff barriers, are one of the largest impediments to growth and development in many developing countries.” Warford stated, “They affect wide-ranging issues including access to land, finance, inputs, services and markets.”
The New Markets Lab addresses non-tariff barriers in two ways: by helping businesses overcome their legal and regulatory barriers, and by increasing the information that exists regarding laws and regulations governing the market; making that information accessible to entrepreneurs and policymakers.
A recent case where New Markets Lab overcame NTBs was in their work with Mtanga Farms. Mtanga farms is a commercial Tanzanian seed potato farm where the farmers were unable to obtain the necessary disease-resistant potato seed varieties to make the business work. When Mtanga tried to acquire these seeds, they were told this was illegal unless they were willing to conduct extensive field testing, which could take years to license the crop. New Markets Lab and its partner organization TransFarm Africa were able to navigate the laws and licensing barriers and get the farm producing these potatoes after one season. Not only did this get Mtanga off the ground, but it led to the training of Tanzania officials, allowing them to begin to apply sanitary and phytosanitary laws according to international standards, making it possible for future commercial endeavors to succeed.
The elimination of non-tariff barriers is also important in the creation of regional markets in the developing world. If many goods and services can’t travel across borders, then markets become isolated from country to country. According to Warford, “Building regional markets increases the size of the market that producers have access to. The size of the market is closely linked to the livelihood they can sustain from engaging in that market. Increased market demand in a larger market will result in the producer being able to sell their goods for a higher price and make more profit.” Additionally, according to the World Bank report, Africa Can Help Feed Africa: Removing barriers to regional trade in food staples, Africa’s farmers could grow enough food to feed the continent and avert future food crises if countries removed cross-border restrictions on the food trade within the region.
Although NTBs are obstructing development, they are hard to combat. Each barrier in these cases are so specific to each scenario that it is hard to create international laws or agreements which can eliminate them. Like in Kenya, where a controversial overload limit for transporters is threatening to disrupt the smooth movement of cargo along the Northern Corridor — one of the major routes linking the port of Mombasa with landlocked East African Community countries. The problem is that cargo trucks are being weighed by the weight of the axle, instead of the weight of the whole truck. Since goods in the trucks shift around, the axle’s weight fluctuates. This problem could be fixed by a change in specific policy, but it is hard to create broad legislation to prevent these sorts of issues.
Regardless, given the newfound importance of NTMs and NTBs for the international community, development experts and leaders should be taking notice of the obstruction that NTBs pose to the developing world. There need to be more resources like New Markets Lab available to help remove these barriers to trade.
– Martin Drake
Sources: Trade Barriers, Aspen Institute, World Bank, The East African International Trade Center, INTRACEN