NON-TARIFF MEASURES AND RELATED OBSTACLES TO TRADE THE BUSINESS PERSPECTIVE

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NON-TARIFF MEASURES AND RELATED OBSTACLES TO TRADE THE BUSINESS PERSPECTIVEFIRST FINDINGS AND IMPLICATIONS FOR ARAB STATESBy: Ursula Hermelink, ITCA presentation at the UN-ESCWA EGM in Tunis 06 December 20121What is ITC?MissionITCs overarching goal is to help developing countries achieve sustainable development through exports. In particular it helps SMEs better integrate in the global trading system and reap the benefits of trade - to increase sales, export performance and hence revenues and to contribute to creating jobs and reducing poverty.

UNCTAD: United Nations Conference on Trade and Development (formulation of trade policies for economic development through trade and investment)World Trade Organisation: Forum of multilateral trade negotiations, implementation of agreements and managing trade conflicts

ITC enables small business export success in developing countries by providing trade development solutions to the private sector, trade support institutions and policy makers

2Short introduction to non-tariff measures (NTMs)The ITC programme on NTMsSurvey results (general)Survey results (Arab States)What to do?Conclusions

NTMs What are they?Official policy measures on exports and imports, other than ordinary customs tariffs, than can potentially have an effect on international trade in goods, changing traded quantities, prices or both;

Mandatory requirements, rules or regulations legally set by the government of the exporting, importing or transit country (in contrast to private standards which are not legally set);

Can affect both exports and imports.44NTMs Why are they important?Tariff rates have fallen to historic low levels

National regulations are more important and used more often by governments as trade policy instruments

Products need to comply with wide range of NTMs; NTMs often vary across products and countries and can change quickly

Nature of NTMs has changed over time they have become less visible and direct, but rather more complex

Impediments companies face in relation to NTMs and their compliance are often linked to lack of capabilities, infrastructure and efficient procedures (procedural obstacles) in the country

No transparency on and easy access to relevant information about NTMs that are applied by the destination market

Policy makers often lack a clear understanding about the current obstacles to trade their private sector is facing making it difficult to define policies and strategies overcoming these challenges


The ITC programme on NTMs7Global objective:

Key stakeholders in beneficiary countries are aware of non-tariff obstacles to trade that affect their products and are enabled to formulate options to address these obstacles.

Key activities (Mar 2010 - Mar 2013):

Collection, classification and dissemination of NTM regulations; in collaboration with UNCTAD and World Bank ( integration of data into MAcMap)

Comprehensive business surveys on NTMs in 23 countries

Mainly funded by UK DFID

7Why do we need the business perspective?: NTMs and other trade barriers

NTMsRegulations on trade and products, other than tariffs, which may negatively affect the international trade of goods.8Excessively strict NTMsE.g.: pesticides levels set by the EU on imported tomatoes are hard to comply with for Moroccan exporting companiesProcedural obstacles (POs) E.g.: the analysis required by the EU to test the level of pesticides of imported tomatoes from Morocco is delayed because the laboratory in charge of the analysis (in Morocco or in partner country) is overstrained.Business environment: obstacles that are not related to NTMs but hinder international trade. E.g.: lack of port infrastructure. Trade barriersNTMs can be introduced for legitimate reasons, for example protection of human, animal and planth health

But can also be mis-used as an instrument of protection

Definition of NTMs is a priori neutral. There is no judgement on whether a given measure constitutes a trade barrier and whether the measure has protectionist or discriminatory intent

A subset of NTMs are illegitimate trade measures;There is no common definition about what constitutes a trade barrier nor an international consensus;In depends on the perspective: trade negotiators (legal), researchers (impact analysis based on data), exporters (additional costs), ...

8The ITC Programme on NTMs - Survey countries

6,650 phone interviews2,015 face-to-face interviews(plus 7 pilot countries)910Phone screens with all exporting and/or importing companies in the sampleBasic information: address, main export product, status (exporter, importer or two-way trader), etc.Structure of the firm: no. of employees, share of female employees, etc.NTB experience : whether any of their products faced restrictive and burdensome regulations or related obstacles to trade during the last 12 months

Face-to-face interviews with exporting and/or importing companies that reported difficulties Additional characteristics of the firms such as the turnover and share of exports in total salesExporting and importing activities of the company with all trade products (HS6-level) and partner countries recordedRelevant government-imposed regulations, affected products (6-digit level of the HS), the partner country, and the country applying the regulation (partner, transit or home country), the institution(s) involved, the reasons making the regulation burdensome

The survey process consists of two steps:Speaking notes:

Face-to-face interviews consist of three main parts. The first part aims at collecting additional characteristics of the companies such as the turnover and share of exports in total sales. The second part is dedicated to the exporting and importing activities of the company, with all trade products and partner countries recorded. During this step, the interviewer also identifies all products affected by burdensome regulations and the countries applying these regulations. The third part of the interview investigates each problem in detail. A trained interviewer helps respondents to identify the relevant government-imposed regulations, affected products (6-digit level of the Harmonized System), the partner country exporting or importing these products, and the country applying the regulation (which may be the partner, transit or home country).

The survey allows constructing frequency and coverage statistics based on cases. A case is the most disaggregated data unit of the survey. By construction, each company participating in a face-to-face interview reports at least one case of burdensome NTMs, and, if relevant, related procedural obstacles and problems with the business environment. Each case of each company consists of one NTM (a government-mandated regulation, for example sanitary and phytosanitary [SPS] certificate), one product affected by this NTM, and partner country applying the reported NTM.

Perception data: respondents are asked to report burdensome regulations representing a serious impediment to their exports or imports. They may have different scales for judging what constitutes an impediment (cultural, political, social, economic and linguistic differences)

Unavailable or incomplete business registers: As a result, it may be difficult to ensure random sampling within each sector, and a sufficient rate of participation in smaller sectors

Limited knowledge: for example, exporters may not know the demand-side constraints behind the borders, e.g. Buy domestic campaigns


Who is affected? (1/2) Simple cross-country average based on 11 countries12

This table is based on the phone-screen phase of the survey which aims at establishing whether or not companies face burdensome NTMs. Those answering that they do are then invited to a face-to-face interview.In total (average of eleven countries), about 53% of companies report being affected by burdensome NTMs or related obstacles to trade.The agricultural sector (Sectors 1 and 2, ITC definition) seems on average more affected than manufacturing (sectors 3-13).Note: minerals and arms are excluded from the survey.

12Who is affected? (2/2)Country Number of firms in the phone-screen interviewShare of firms facing burdensome NTMsBurkina Faso44260%Egypt86938%Jamaica60835%Kenya76474%Madagascar39353%Malawi14066%Mauritius60241%Morocco79443%Paraguay40661%Occ. Palestinian T.23057%Peru96040%Rwanda35474% Senegal26262%Sri Lanka52170% Trinidad and Tobago50034%Uruguay45854%13Note: The share is calculated as the number of firms with NTMs over the total number of firms having replied to this question.

1314Why are NTMs perceived as burdensome?**Procedural ObstaclesMost NTMs are reported as being burdensome due to Procedural Obstacles (POs) like administrative delays or lack of appropriate facilities.Is it only the NTM itself that is a problem?Most NTMs are not problematic themselves - linked to the majority of non-tariff measures, which are reported as challenging, are procedural obstacles such as administrative delays or inappropriate facilities that render compliance with the underlying NTMs difficult. I.e. an exporter may be compliant with the required tolerance limit for pesticides, yet has difficulties to prove it because the accredited testing laboratory is too costly or far away.

1415Most reported types of SPS / TBT measures (import-related measures, Chapters A+B)37.3%Product certification8.7%Testing7.9%Inspection requirement6.0%Labelling (e.g. product labels with information for consumers)4.4%Fumigation 4.1%Origin of materials and parts3.6%Tolerance limits for residues of or contamination by certain substances3.5%Product characteristics, including quality or performance requirements2.9%Product registration2.6%Packaging 2.5%Authorization requirement because of: national security; protection of human health or safety; environmental protection; or prevention of deceptive practices2.5%Restricted or prohibited use of certain substances in food and feed14.0%OtherWhich NTMs are perceived as burdensome? (2/2) Simple cross-country average based on 11 countries15Does the partner country matter?16Burdensome NTMs applied by partner countries: developing vs developedSimple cross-country average based on data from 11 reporting countriesWhen exporting to developed countries, nearly three quarters of the NTM cases (for NTMs applied by the partner country) concern SPS/TBT measures.When the partner countries are developing, this share drops to about a half and other types of measures "gain in importance" (i.e. are perceived as comparatively more challenging).Note: these figures take into consideration NTMs applied by government (compulsory regulations) of either developed or developing countries. This does not take into account private standard (voluntary regulations) which have also been captured in the survey notably for Egypt (5 cases), Jamaica (2 cases), Madagascar (2 cases) and Rwanda (28 cases).


Aggregate survey results for Arab countries (1/4)a/ Agriculture: simple average across Egypt, Morocco and Tunisia; Manufacturing: simple average across Egypt and Morocco

18Figure: Share of NTM cases by sector and country applying the NTM simple average a/Note: ITC staff calculations. Only burdensome NTMs reported by exporters are considered. Data source: ITC NTM surveys in Egypt, Morocco and Tunisia.

LAS = League of Arab States (22 member states)EU27 = European Union (27 member states)ROW = Rest of the WorldNTM = Non-Tariff Measure

Speaking points:

The figure summarizes the origin of challenging Non-Tariff Measures (NTMs) reported by exporting companies in Egypt, Morocco and, for the agricultural sector, Tunisia. For both the agricultural and manufacturing sector, a significant share of challenging measures affecting exports, 24% and 33% respectively, is applied by the home country. This is in line with the findings of NTM surveys in other countries and regions, which have revealed that many trade impediments originate at home.

The majority of burdensome NTMs faced by exporting businesses in the three countries under consideration are however applied by partner countries, in particular EU and LAS members despite the existing free trade agreements with both. Put differently, trade agreements providing preferential market access do not insulate against problems related to NTMs. In agriculture, more NTM cases concern thereby the EU than LAS, whereas in manufacturing, the share of cases related to LAS members is higher. In both sectors, only 15% of cases reported by businesses in Egypt, Morocco and Tunisia concern NTMs applied by the rest of the world (i.e. countries which are neither EU nor LAS members).

These figures represent averages across the three surveyed countries, however cross-country differences are quite pronounced. In line with its trade structure, Morocco reports much fewer cases related to LAS members than the average and relatively more for EU, whereas the opposite holds true for Egypt. This is a consequence of the sampling for the surveys, which is closely linked to the trade pattern of each country and therefore leads to a correlation between export shares and number of NTM cases (for both sectors and partner countries).

18Aggregate survey results for Arab countries (2/4)19Fig. B: Share of burdensome NTMs and exports across trading partnersNote: ITC staff calculations. Agriculture: simple average across Egypt, Morocco and Tunisia; Manufacturing: simple average across Egypt and Morocco. Only burdensome NTMs reported by exporters are considered. Data source: Trade :ITC Trade Map. Trade data for 2010, minerals and arms excluded. NTM data comes from ITC NTM surveys in Egypt, Morocco and Tunisia.

NTM = Non-Tariff MeasureLAS = League of Arab States (22 member states)EU27 = European Union (27 member states)ROW = Rest of the World

Speaking points:

To assess the perceived difficulty of different (groups of) trading partners, the reported NTM cases have to be put into the trade context. This figure plots the average share of NTM cases against the average share of exports by partner region. If the former exceeds the latter, a destination market can be said to be relatively difficult. E.g. exports of manufacturing goods to LAS (League of Arab States) countries, seems challenging: 18 % of trade is confronted by more than 40% of all reported NTMs.

For agricultural exports, the EU seems to be the most challenging destination. While less challenging than the EU, LAS members are reportedly more difficult in terms of NTMs than countries outside LAS and EU, at least for Egypt and Tunisia in Morocco, no NTM case was reported by the (very few) companies that export agricultural products to LAS countries. In manufacturing, export destinations within the League of Arab States are perceived by far as most challenging whereas all other countries, whether EU or not, seem relatively accessible.

In conclusion, the NTM survey results in Egypt, Morocco and Tunisia indicate that intra-regional trade in the LAS, in particular for manufacturing products, is indeed affected by non-tariff barriers.

1920Aggregate survey results for Arab countries (3/4)Figure: Agricultural exports: types of burdensome NTMs applied by partner countriesNote: ITC staff calculations. LAS: Simple average of types of challenging measures applied by LAS partner countries that were reported by companies in Egypt and Tunisia (no cases in Morocco); non-LAS: simple average of types of measures applied by non-LAS partner countries that were reported by companies in Egypt, Morocco and Tunisia.Data source: ITC NTM surveys in Egypt, Morocco and Tunisia.

LAS = League of Arab States (22 member states)NTMs = Non-Tariff Measures

Speaking points:

The types of burdensome NTMs experienced by companies when exporting agricultural products to other LAS members are summarized in the left panel of the figure. SPS and TBT measures are perceived as most challenging. More than half (54%) of the NTM cases fall into this category, which comprises technical regulations i.e. product-specific requirements such as tolerance limits for residues, hygienic requirements or measures on labeling and packaging, and conformity assessment measures aiming at proving compliance with technical regulations e.g. through testing and certification. It is worth noting that companies have significantly more problems complying with conformity assessment measures applied by LAS partner countries than with technical regulations themselves. This stands in contrast to the cases reported for partner countries outside the LAS (whether EU or not), where both technical regulations and conformity assessment seem equally challenging (see right panel of figure D).

Next to SPS and TBT measures, rules of origin represent a significant problem for companies exporting agricultural products to other LAS members. As previously discussed, GAFTA and numerous bilateral agreements between Arab States have in principle established tariff-free market access; however, in order to benefit from tariff preferences, companies have to prove the origin of their products. As such, trade agreements replace the tariff by a non-tariff measure. This is not necessarily problematic as an example, for the EU only 2.7% of reported NTM-related problems concern rules of origin. These rules seem however a major challenge when trading with LAS countries.

Other burdensome measures reported for LAS partner countries include quantity control measures (licenses, quotas etc.), charges and taxes, and finance measures (such as regulations concerning terms of payment for imports or on official foreign exchange allocation). These measures represent together about 30% of challenging NTMs applied by LAS members in contrast to only 10% in countries outside the LAS.

20Aggregate survey results for Arab countries (4/4)21Figure: Manufacturing exports: types of burdensome NTMs applied by partner countries Note: ITC staff calculations. Data source: ITC NTM surveys in Egypt and Morocco. Simple average of shares of the different NTM types reported by exporters in Egypt and Morocco for NTMs applied by partner countries.

LAS = League of Arab States (22 member states)NTMs = Non-Tariff Measures

Speaking points:

The types of NTMs reported by exporters in the manufacturing sector are displayed in this figure. In comparison to agricultural exporters, companies in this sector report less problems related to conformity assessment when exporting within the LAS. However, the challenges related to rules of origin are much more pronounced with 37% of NTM cases concerning this type of measure. This is not limited to partner countries in the LAS the same problem is reported for EU countries and, even more so, the rest of the world. Again, finance measures and charges and taxes turn out to be relatively more problematic for LAS trading partners than for partners in other countries.

The NTM survey results in Egypt, Morocco and Tunisia thus indicate that intra-regional trade in the LAS, in particular for manufacturing products, is indeed affected by non-tariff barriers. In particular SPS and TBT measures as well as rules of origin are perceived as major challenges to export to LAS members. This is despite the fact that GAFTA includes provisions on the elimination of non-tariff barriers to trade.

21Talking about ROOs.: Trade Agreements involving LAS members22

Note: This graph reflects, to the best of ITCs knowledge, the situation as of January 2012. Included are (implemented) agreements concerning trade in goods only. The number and list of products to which preferences are granted varies from country/territory to country/territory. Only agreements with reciprocal preferences are shown. It should be borne in mind that the displayed countries may be granted preferential tariffs resulting from trade regimes such as the General System of Preferences (GSP); that is from countries providing non-reciprocal preferential tariffs to developing and least developed countries.Data source: ITCs MacMap

LAS = League of Arab States (22 member states)GAFTA = Greater Arab Free Trade Area (18 member states)GCC = Gulf Cooperation Council (6 member states)Agadir agreement (4 member states)

Speaking points:

LAS members have signed a number of trade agreements on preferential market access, many of them overlapping. Most notably, the Greater Arab Free Trade Area (GAFTA) comprises all League members except Comoros, Djibouti, Mauritania and Somalia. Within GAFTA, the six Gulf countries form the Gulf Cooperation Council (GCC) and Egypt,Jordan, Morocco and Tunisia are party to the Agadir agreement for establishing a Mediterranean free trade area. At the same time a number of bilateral agreements between Arab states, most of which were implemented before GAFTA, formally still exist. Although in principle superseded by GAFTA, these agreements may still be used for preferential trade, in particular where rules of origin differ from the ones stipulated by GAFTA.

Average tariffs applied by LAS countries to other League members are accordingly low. Based on the LAS import structure during 2006-2010, a weighted average of 0.4% tariff duty was applied among LAS members. By contrast, non-LAS members face tariffs on LAS markets in the range of 5% to 6%.

22Examples of problems reported (intra-regional trade): ROOs (1/2)In many cases even with this preferential COO the company pays tariffs in most of the Arab countries.

Although the products imported from Morocco are complying with the PAFTA rules of origin, the Customs Authority do not grant it the preferential treatment and they refuse the PAFTA certificate of origin. Their excuse is that the producing company is a French subsidiary functioning in Morocco.

All entries required in the PAFTA certificate of origin must be written 100% in Arabic otherwise the certificate is refused. This is very difficult as some technical specifications can't be translated in Arabic.

23Examples of problems reported (intra-regional trade): ROOs (2/2)According to the Pan Arab Free Trade Area (PAFTA), the customs authority ask for a mark of origin to be printed on the product itself in a way that can't be removed or erased. This can't be done in this company's case due to the nature of the products, which are big rolls of coil nets. The supplier was instructed to print those marks on a metal piece to be attached to the product but the Customs Authorities refused and the company had to pay tariffs.

Issuing the certificate of origin (EUR 1) takes 5 days which delays the shipping process. (case reported for exporting to the EU)

According to the context of PAFTA agreement, originating products shouldn't consist of any Israeli component. The Customs Authorities in some importing countries require the presentation of many documents and declarations to prove that this requirement is fulfilled. A certificate from the shipping line is required stating that the ship didn't pass through any Israeli port, which is really unnecessary. The other documents are hard to get.

24Examples of problems reported (intra-regional trade): Technical measuresThe Saudi authorities prohibits the use of genetically modified organisms (GMOs)- The product should be GMOs free. The Egyptian Ministry of Health is not able to test the products and issue the relevant certificate because of the lack of the appropriate facilities or equipped labs to do such analysis.

The Lebanese Authorities changed the labelling requirements where each furniture piece should have a "Made in Egypt" stamp on it. There was no due notice for this modified requirement, that caused problems for the company when shipping a non-complying shipment thus a fine of USD 5000 had to be paid.

The partner country often changes the required labelling requirements without due notice.

25Examples of problems reported (intra-regional trade): Conformity assessmentThe Saudi Customs Authorities require a comformity certificate for the product according to the European Standards (EN 817). This certificate is only accepted from a private third company called "InterTech" located in Alexandria. The cost of this certificate is very high (30,000 EGP) per shipment according to Intertech. The Customs Authorities refused to recognize or accept a similar certificate from the Egyptian Standardization Organization or the Faculty of Engineering.

The Jordanian Customs requires the products to be tested against their standards where a sample is taken in Jordan and tested once it reaches the port. The testing process takes time and usually delayed for at least 2 weeks. Also they accepted no equivalent Egyptian certificate (Chemicals)

26Examples of problems reported (intra-regional trade): import authorizationsYearly import authorization is required to import polyurethane sheets, that is based on a test conducted by the Department of Chemistry. Receiving the authorization is usually delayed. It is difficult and time-wasting to undertake the same process on a yearly basis especially when the company imports the same product from the same producer with a quality certificate.

After complying with the strict technical specifications requirement, the company should receive an import authorization which is delayed for more than 5 months and it's not granted yet. (case of export to Tunisia)

27Examples of problems reported (intra-regional trade)Despite having the PAFTA agreement with many Arab Countries, some of those countries ask for legalizing all export documents from their embassies against fees which delays the process & incurs high fees.

The authorities in the partner country [Arab States] require product registration; however, despite registration the customs officials stop the goods claiming that they don't satisfy the national standards. The authorities are not transparent about their standards and those standards are never published. As a consequence, the importer has to pay bribes

Importers of medicines are required to be registered by the ministry of health. In order to register, the company is required to comply with so many documents. The problem is the lack of a clear system leads to a huge delays, not all the required documents are asked at one time.s to clear the goods.28Stylized facts from ITC NTM surveysBurdensome NTMs vary significantly depending on the company size, the sector affiliation and partner countries where products are exported

RTA membership does not insulate from NTM-related problems

A lot of problems are home-made, even if the NTM itself is applied by the partner country2929Short introduction to non-tariff measures (NTMs)The ITC programme on NTMsSurvey results (general)Survey results (Arab States)What to do?Conclusions

What to do?Selected examples from Morocco:

Many companies unable to comply with SPS/TBT measuresharmonization of domestic technical regulations with international standardsImprovement of information about the norms and regulations in force

Exporters are unable to prove compliance with NTMs at reasonable costAccreditation of national laboratoriesMutual recognition agreementsImprovement of inspection and certification procedures; capacity-building of officials; more transparency /better communication of procedures

Problems related to customs valuationBetter training to officials to avoid wrong classification / valuation of products Independent and regular control of customs valuation practices

Scope for action at the national level: need for trade policy3131Short introduction to non-tariff measures (NTMs)The ITC programme on NTMsSurvey results (general)Survey results (Arab States)What to do?Conclusions

ConclusionsRegional integration requires efforts beyond the removal of conventional tariffs: Non-tariff obstacles significantly hamper intra-LAS trade: especially in manufacturingespecially due to SPS and TBT measures and Rules of Origin

Good and bad news: many issues, in particular procedural obstacles, can and need to be addressed at home, e.g. w.r.t. implementation of existing rules, efficiency of institutions, lack of information, etc

The simple existence of an FTA does not remove NTM-related problems: necessity to fully implement provisions related to elimination of non-tariff obstacles within agreements

Foster public-private dialogue with the goal of removing burdensome obstacles to trade, thereby assisting companies become more competitive

3333ITC is contributing to regional integration and competitiveness enhancement in the Arab Region:ITC assists SME exporters to integrate into regional value chains, for example in Tunisia where a company adapted its products to integrate into the luxury accessories value chain in Morocco to export to a global market

ITC provides support on the supply side to improve product design, quality and packaging of exported products, for example it has helped a Jordanian company export high-end home goods to Arab countries and Europe hence creating jobs for women

ITC has been supporting a variety of Trade Support Institutions such as chambers of commerce in Tunisia, sectoral associations for leather in Morocco and the handicraft association in Jordan to provide improved business support services3434http://www.tradeforum.org

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International Trade Centre (ITC)Palais des NationsCH-1211 Geneva 10, Switzerland

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NON-TARIFF MEASURES AND RELATED OBSTACLES TO TRADE THE BUSINESS PERSPECTIVE

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