WTO Issues 2012 World Trade Report; Focus on Non-Tariff Restrictions

Highlights of the report are as follows:

Trade growth slowed in 2011. World trade growth decelerated sharply in 2011 as the global economy struggled under the influence of natural disasters, financial uncertainty and civil conflict. The volume of world merchandise trade rose 5% in 2011, accompanied by global output growth of 2.4%. This marked a significant slowdown from 2010, when trade advanced 13.8% and output expanded by 3.8%.

Euro area concerns, natural disasters & oil concerns slowed growth. A slowdown in trade had been expected after the strong rebound of 2010 but the earthquake in Japan and flooding in Thailand shook global supply chains, and fears of sovereign default in the euro area weighed heavily in the closing months of the year. The civil war in Libya also reduced oil supplies and contributed to sharply higher prices. All of these factors combined to produce below average growth in trade in 2011.

Developed countries exceeded expectations, led by U.S. Developed economies exceeded expectations with export growth of 4.7% in 2011 while developing economies did worse than expected, recording an increase of just 5.4%. The relatively strong performance of developed economies was driven by a robust 7.2% increase in exports from the U.S., as well as a 5.0 per cent expansion in exports from the European Union.

Non-tariff measures increasingly prevalent as tariff restrictions grow. As tariffs have fallen in the years since the birth of the General Agreement on Tariffs and Trade (GATT) in 1948, attention has progressively shifted towards non-tariff measures (NTMs). When tariffs and other trade measures increasingly become unavailable to governments, certain NTMs, including behind-the-border NTMs such as Technical Barriers to Trade TBT) / Sanitary and Phytosanitary (SPS) measures, may be used to influence trade. For example, a government may be tempted to impose more stringent domestic technical regulations if domestic firms in an import-competing industry find it easier than foreign companies to comply.

Difficult to distinguish between legitimate & protectionist motives. The fact that the same NTM used to pursue a public policy objective can also be used for protectionist purposes underlines the difficulty of distinguishing between “legitimate” and protectionist motivations for NTMs, and of identifying instances where NTMs create unnecessary trade costs. The opaque nature of certain NTMs compared with tariffs and other policy instruments allows politically motivated governments to conceal the true costs and benefits of a measure and, thus, satisfy the demands of producer lobbies while maintaining the appearance of pursuing a policy of public interest.

Upward trend in TBT/SPS measures. Despite common perceptions about a rising trend in NTMs, evidence is inconclusive. NTMs appear to have risen in the mid-1990s, but between 2000 and 2008 activity remained relatively flat before picking up again following the financial crisis. However, WTO notifications suggest an upward trend in TBT/SPS measures.

Agriculture particularly affected. TBT/SPS measures are the most frequently encountered NTMs according to data collected from official sources. They are also considered among the most relevant impediments to exports, according to business surveys. Specific trade concerns related to SPS measures overwhelmingly affect the agricultural sector (94%), which is far from surprising. More unexpected is the fact that a large number of TBT concerns (29%) also relate to agriculture.

If ITC survey responses are weighted by trade, the reported incidence of NTMs among firms in the agricultural sector is 63%, compared with 45% in manufacturing. Furthermore, TBT/SPS measures are far more prevalent among NTMs in agriculture (59%) than in manufacturing (34%).

Services restrictions affect trade too. The trade-restrictive impact of services measures goes beyond trade in services and spills over to trade in goods. Transport and travel account for about half of cross-border trade in services and are obviously the most important direct services inputs to international trade. There is evidence that barriers to trade and competition in transport and logistics have a negative impact not only on cross-border trade in transport services, but also on a country’s overall trade performance. Similarly, regulatory barriers to FDI flows and business services are shown to affect export performance in manufacturing sectors such as machinery, motor vehicles, chemicals and electric equipment.

Disproportionate impact of NTMs on small & medium-sized companies. TBT/SPS measures may mainly represent a fixed cost to enter a new market. For example, a firm may need to pay an initial cost of adaptation to the standard in a foreign market that it enters, but this cost is independent of the amount the firm sells. This is consistent with evidence that TBT/SPS measures have a stronger effect on small rather than large firms, and on firms that outsource their components.

In particular, harmonization of TBT/SPS measures is shown to enhance the presence of small and medium-sized firms in export markets, the WTO said.

WTO press release on issuance of the report available here.