Expert views

Tear down this wall: non-tariff measures and regional integration

1 December 2018
Pamela Coke Hamilton, Director, Division on International Trade and Commodities, United Nations Conference on Trade and Development

Greater transparency and elimination of barriers hold the promise of deepening economic integration among countries and fostering greater trade, jobs and income growth

There has been no more opportune political moment to advance regional integration than the one presented by the current crisis in the multilateral trading system. Rising trade tensions, the backlash against trade in some corners of the developed world and the continuous attack on the multilateral trading system magnify a long-overdue need: establishing better regional integration, especially in the south. 

In the current decade, according to UNCTAD data, average intraregional trade in developing countries in Asia reached 53.5% of total trade but only 18.3% for Latin America and the Caribbean and just 14.4% in Africa. This contrasts sharply with intraregional trade in the European Union (EU), which has been as high as 60.7%. This level of integration has allowed the continent to create economic opportunities to foster prosperity and the interconnectedness to preserve peace. 

Regional integration should not be understood as a second-best option, nor a choice to pursue when international negotiations get stalled. It is complementary and a legitimate objective on its own. It can help countries achieve what interregional trade has thus far failed to deliver.

Increased intraregional trade can give countries the opportunity to export more and to diversify their economies in goods and services with higher value added.
Do not show

Trade opportunities

For instance, many African countries produce a limited range of goods with exports geared more towards developed countries. The limited intraregional trade in manufactured goods, inputs and services significantly restrict the enabling of African production networks. This in turn hinders structural transformation, limiting the creation of more and better jobs, which is arguably the most effective way to fight poverty. 

Increased intraregional trade can give countries the opportunity to export more and to diversify their economies in goods and services with higher value added. It can also be a major catalyst for development, helping countries, particularly the least developed ones, to achieve the United Nations Sustainable Development Goals (SDGs). 

Regional integration remains a tangible and unexploited area of opportunity in the south, particularly in Africa and Latin America. Many factors may underlie this reality, ranging from trade tariffs to lack of infrastructure and finance to cumbersome custom procedures, among others. However, an often-overlooked factor is non-tariff measures (NTMs). These are policy measures other than customs tariffs that can have an effect on international trade flows, for example technical specifications required on traded electronic goods to protect consumers. 

The media, especially today in the context of the trade war between China and the United States of America, tend to focus much more on trade tariffs. However, NTMs have a bigger impact on trade volumes and patterns and thus regional integration. 

In many sectors the ad valorem equivalent (AVE) of an NTM is higher than the sectoral tariff. In some instances, such AVE is four or five times higher than tariffs, as in the cases of oils and fats, vegetables and animal products (Figure 1). 

NTMs are also pervasive in global trade. There are over 15,000 regulations, 70% of which are technical. In 2017 alone, countries notified the initiation of more than 1,700 technical barriers to trade (TBTs) and 1,000 sanitary and phytosanitary (SPS) measures to the World Trade Organization (WTO). Private-sector surveys indicate that technical measures are the most frequent challenge to engaging in international trade. Perhaps not surprisingly, estimations show that technical measures have a trade-reducing effect for developing countries. 

Another challenge presented by NTMs, especially technical regulations, is the differences in regulatory frameworks across countries. This divergence tends to raise costs since exporters need to comply with several different technical regulations in each destination market. 

The power of regulatory convergence on regional integration and welfare should not be underestimated. It can serve as a tool to simplify and enhance trade, increasing export earnings. 

For example, an United Nations Conference on Trade and Development (UNCTAD) study on the Economic Community of West African States (ECOWAS) shows regulatory convergence can reduce trade restrictions by more than 25%. This could increase intra-ECOWAS trade by 15% and income in ECOWAS countries by $300 million annually. Moreover, convergence on international standards could further increase intraregional trade by 14% and income by $1.57 billion annually. 

Similarly, another UNCTAD study estimated that by reducing NTMs welfare could increase by $21 billion in the African Continental Free Trade Area and by $23 billion in the African, Caribbean and Pacific Group of States (ACP). This is more than five times the possible gain from a full free trade agreement.

To mitigate this problem, WTO committees have recommended regulatory cooperation, good regulatory practice, standard setting and transparency. 

NTMs will never disappear from the trade landscape. There are, however, specific measures that can be undertaken to ensure they do not become barriers and thus reduce their potential adverse effects on welfare and trade in regional trade agreements. Let me focus on two such aspects in which UNCTAD is actively working.

Promoting transparency

Firstly, we must promote transparency on trade regulations, such as SPS and TBT requirements, and enable easier access to such information by countries and enterprises to facilitate meeting these requirements. 

UNCTAD has supported this process by developing, with other partner agencies such as the International Trade Centre (ITC), an international definition and typology of NTMs. Based on this, UNCTAD has collected, categorized and made available data on NTMs. It has also collaborated with regional integration organizations such as the Latin American Integration Association (ALADI), the Association of Southeast Asian Nations (ASEAN), and research institutes in developing, maintaining and updating its global database on NTMs.

In regional trade agreements the majority of commitments on regulatory cooperation rarely go beyond WTO agreements, remaining non-binding and thus relying on members’ best endeavour. Such approaches and the willingness of regulatory agencies to cooperate regionally can help. UNCTAD has undertaken several studies on regulatory cooperation within regional groupings, especially to assess the regulatory differences between members of a free trade agreement and the potential greater economic benefits that could arise from regulatory convergence. 

Private-sector reporting

A second approach gaining considerable attention is the search for tools that enable the private sector to report barriers they face independently of a formal government process. One such innovative mechanism is the Tripartite mechanism for notifying barriers and encouraging member governments to address those notified. To date, 532 of 616 reported barriers have been resolved. While some protectionist measures persist, many were unintentional and thus easily removed. 

UNCTAD will be supporting the African Union Commission and African countries in their efforts to collaborate on improving regulatory transparency and developing a continent-wide mechanism to report and eliminate barriers. Successful progress in both fronts, transparency of NTMs and convergence towards common standards on the one hand, and an effective tool for the elimination of barriers, hold the promise of deepening economic integration among countries and fostering greater trade, jobs and income growth.