Market Access IssuesMarket Access IssuesMarket Access IssuesMarket Access Issues

Lecture 1Lecture 1

The Course

• Discussion on Market Access Barriers in World Trade

• Discussion covers both current agreements (e.g. – Agriculture, Anti-Dumping) and future agenda (e.g. - Competition Policy, Government Procurement)

• Implication of the barriers• How Market Access barriers hurt Tanzania’s

economic interest?

Today’s Discussions

• Theoretical backbone of market access barriers • The functioning of market access barriers• The Trade Game • Tanzania’s concerns: Competitiveness nullified

by others’ Market Access Barriers• Compliance Cost implications on competitiveness • The Role of WTO in reducing the barriers• The Efforts by Tanzania through negotiating

coalitions??

What has been Indian experiences and Responses??

Why Market Access Barriers? Theoretical Standpoint

• Heckscher-Ohlin Model: The export basket of the countries are relatively more intensive in the relatively abundant factor of production.

• Stolper-Samuelson Theorem: a rise in the relative price of a good will lead to a rise in the return to that factor which is used most intensively in the production of the good, and conversely, to a fall in the return to the other factor.

• Rybczynski Theorem: At constant relative goods prices, a rise in the endowment of one factor will lead to expansion of the output in the sector which uses that factor intensively, and a decline of the output of the other good.

So do the countries only protect their relatively scarce / abundant sector?? If not, Why??

WTO Framework: Current and Evolving

Number of Member countries in 1995 was 128, currently there are 153 members. 30 countries are observers: Russian Federation, Iran, Iraq, Algeria, Sudan, Ethiopia, Tajikistan, Uzbekistan, Bhutan etc. But how rewarding is WTO-induced market access reform?? Does non-membership hurt?

Coverage of Market Access Barriers

• Price-based / Tariff: (ad valorem, seasonal, specific duty, mixed duty etc., tariff peaks, tariff escalation) favouring the factor used intensively in the import-competing sector.

• Quantitative barriers: Import Quota, MFA, H 1B visa limits.• Subsidy provided to domestic players: agriculture, manufacturing

in China.• Misuse of contingency measures: to curb the rising import

volume, e.g. – anti-dumping, subsidy and countervailing measures, safeguard measures.

• Discriminatory measures on operation: banking service, civil aviation service.

• Procedural measures: Non-transparency in license granting, delays at border etc.

• Production standard-related measures: consumer security ground, e.g. - SPS-TBT.

• Improper implementation of WTO obligations: Copyright violations in China.

• Convenient Interpretations: SPS-TBT.

Need to understand the difference between Bound and Applied Tariff in WTO Framework.

How does Market Access Barriers affect India’s export growth??

The Prisoner’s DilemmaCountry Aspirations Country A

Free Trade Tariff / other barriers

Country B

Free Trade (10, 10) (0, 15)

Tariff / other barriers

(15, 0) (5, 5)

• The horizontal rows depict the policy options available to Country B, while vertical columns represent the same to country A.

• The numerical entries in the four boxes show the payoffs that each country. The first number represents Country B’s payoff. For example, the box in the lower left-hand corner tells us that if B imposes a tariff and A practices free trade, then B will receive a payoff of 15 and A receives nothing.

• Welfare optimization occurs if both countries practice free trade.• However, both countries try to obtain tariff benefits and reaches a

lower payoff of 5.

Who are taking recourse to protectionist policies??? How does WTO try to ensure Free Trade??? What causes a country to be protectionist??

Is there any relationship between Market Access barriers on Merchandise Trade and

Development?

Strong negative relationship between per capita GDP and trade barrier indices for 119 major countries – this indicates as countries become more and more developed, as measured by per capita GDP, they become more open, as measured by the lower trade barrier index.

Raihan (2004)

Is there any relationship between Market Access barriers on Merchandise Trade and Export

Orientation?

Raihan (2004)

Very weak negative relationship - low R2 value of 0.006. It actually suggests that there is virtually no association between these two variables.

Is there any relationship between Market Access barriers on Merchandise Trade and

Population?

Raihan (2004)

Very weak but positive relationship between population and trade barriers, suggesting that the countries with large population tend to have higher trade barriers.

Is there any relationship between Market Access barriers on Merchandise Trade and

Human Capital (Literacy Rate)?

Raihan (2004)

Strong negative relationship between literacy rates and trade barriers - as the level of human capital increases in a country it raises the levels of skills and productivities, which may have positive influence on the process of lowering the trade barriers thus increasing foreign competition in the economy.

Is there any relationship between Market Access barriers on Services Trade and

Development?

Strong negative relationship between per capita GDP and trade barrier indices for 52 major countries – this indicates as countries become more and more developed, as measured by per capita GDP, they become more open, as measured by the lower trade barrier index.

Source: Gootiiz and Mattoo (2009)

Tariff Scenario for Select Products - EU

Arrangement 29031200 61159900 87021019MFN 5.5 12 16EU-Algeria PTA 0 0 0EU-Chile FTA 0 0 0EU-Egypt Association Agreement 0 0 0EU-Isreal Trade Agreement 0 0 0EU-Jordon Trade Agreement 0 0 0EU-Lebanon Association Agreement 0 0 0EU-Mexico FTA 0 0 0EU-South Africa Cooperation Agreement 0 0 0EU-Syria Association Agreement 0 0 0EU-Tunisia FTA 0 0 0GSP Tariff 2 9.6 11.2

So, WTO Partners are gaining, but non-RTA partners like will be at a disadvantage vis-à-vis all the PTA / FTA partners of EU.

Do we get effective market access then??

Tariff Scenario for Select Products - US

Arrangement 42031040 61012000 62011100

MFN Tariff 6.00 15.90 41 cents / kg + 16.3%

Non-MFN Tariff 35.00 50.00 52.9 cents / kg + 58.5%

US-Australia FTA 0.00 15.50 15.50

US-Bahrain FTA 0.00 0.00 0.00

US-Chile FTA 0.00 0.00 0.00

US-Israel FTA 0.00 0.00 0.00

US-Jordon FTA 0.00 0.00 0.00

US-Morocco FTA 0.00 4.80 12.6 cents / kg + 5%

US-Singapore FTA 0.00 0.00 0.00

NAFTA 0.00 0.00 0.00

Like the EU case, the omitted country need to compete with all the PTA / FTA partners of US. Presence of Non Ad valorem tariffs also complicate the problem.

But is tariff a major barrier in partner countries??

Non-Agricultural Tariff Range (EU)

Tariff range Final Bound rate

MFN Applied Import value

Duty Free 28.4 31.0 62.3

0 – 5 % 37.2 36.6 19.7

5 – 10 % 26.6 24.7 11.1

10 – 15 % 6.9 6.7 6.1

15 – 25 % 0.9 0.9 0.8

25 – 50 % 0.0 0.0 0.0

50 – 100 % 0.0 0.0 0.0

More than 100 %

0.0 0.0 0.0

% of tariff lines and import share

The absence of tariff barriers on a major proportion of trade value enables EU to negotiate vigourously in trade forums.

Non-Agricultural Tariff Range (US)

Tariff range Final Bound rate

MFN Applied Import value

Duty Free 47.3 49.6 54.5

0 – 5 % 27.0 25.2 33.1

5 – 10 % 16.6 16.6 7.0

10 – 15 % 5.0 4.8 0.8

15 – 25 % 1.8 1.8 3.6

25 – 50 % 0.5 0.5 0.9

50 – 100 % 0.0 0.0 0.0

More than 100 %

0.0 0.0 0.0

% of tariff lines and import share

US enjoys a similar advantage.

The other side of the coin is that there is a need to focus more on NTBs.

Has Tanzania Benefited from WTO Market Access?? Share in Merchandise Exports

Tanzania’s share has increased only from around 0.01 percent in 1998 to around 0.02 percent in 2008.

A Comparative Picture

Has Tanzania Benefited from WTO Market Access?? Share in Service Exports

Tanzania’s share has increased only from around 0.04 percent in 1998 to around 0.05 percent in 2008.

A Comparative Picture

Tanzania’s Share in EU Market

Tanzania’s Share in US Market

Tanzania’s Share in Chinese Market

Tanzania’s Share in Japanese Market

Tanzania’s Share in South African Market

Tanzania’s Share in Indian Market

Tanzania’s export destination (2007)

Top 15 countries account for around 80 percent of exports. However, is Tanzania’s propensity to trade with them improving?

Trade Complementarity of Tanzania with major partners

Country 2000 2004 2007

China 2.29 - 5.34

EU (25) 4.62 7.72 8.38

India 11.08 15.73 15.35

Japan 4.94 7.90 6.77

South Africa 2.97 7.23 7.99

UAE - - 16.58

US 4.32 7.27 7.76

2100

ijik

kj

xmTC

Trade Complementarity Index is calculated by the following formula:

where xij is the share of good i in global exports of country j and mik is the share of good i in all imports of country k. The index is zero when no goods are exported by one country or imported by the other and 100 when the export and import shares exactly match.

Tanzania’s export Composition (2007)

Let’s see what could be the market access barriers for Tanzanian exports of textile and garment products in the major markets.

In the pre-WTO days and upto 2004 period – MFA quota was present. Delays in opening up of market harmed exporters.

Integration of MFA Quota with ATC Regime

Steps

Percentage of products to he brought under GATT (including

removal of any quota) 1 Jan 1995 (to 31 Dec 1997)

16 per cent (taking 1990 imports as base)

1 Jan 1998 (to 31 Dec 2001) 17 per cent

1 Jan 2002 (to 31 Dec 2004) 18 per cent

1 Jan 2005 - Full integration into GATT (and final elimination of Quotas)

49 per cent

Reforms undertaken in volume terms, not in value terms. Hence several value added export items of developing countries and LDCs suffered upto 2004.

Comparison with other products in US Market

HS Code China (2003)

China (2008)

India (2003)

India (2008)

Tanzania (2003)

Tanzania (2008)

10.59 1.54

- -0.04 0.02

310.31 15.61 4.80 1.66 0.05 0.03

540.48 43.18 0.29 0.56 0.01 0.00

61.32 1.58 0.79 0.74 0.03 0.00

72.96 5.40 1.03 0.74 0.00 0.00

81.18 2.07 3.50 2.87 0.03 0.11

414.61 4.73 0.76 1.52 0.01 0.03

4210.15 73.15 4.46 2.63 0.00 0.00

Comparison with other products in US Market ..

HS Code China (2003)

China (2008)

India (2003)

India (2008)

Tanzania (2003)

Tanzania (2008)

448.11 21.11 0.16 0.29 0.00 0.00

5210.05 20.86 4.39 6.99 0.05 0.03

6110.86 28.69 2.00 3.62 0.00 0.00

6216.68 37.45 4.56 5.09 0.00 0.00

6335.77 50.20 10.70 12.15 0.00 0.00

715.39 5.78 14.11 11.54 0.03 0.03

8417.35 27.56 0.21 0.59 0.00 0.00

8519.07 31.12 0.25 0.56 0.00 0.00

RCA Observations: 520100 (Cotton, not carded or combed)

Country 2000 2004 2007

China 1.48 0.03 0.04

EU (25) 0.23 0.16 0.10

India 0.25 2.34 16.36

South Africa 0.26 0.24 0.14

Tanzania 51.47 33.82 27.17

United States 3.05 5.25 5.85

Is Tanzanian cotton price uncompetitive??

Access in the Japanese Market (2008): 520100 (Cotton, not carded

or combed)

Country Share in Japanese market

Unit Price ($ / Kg)

USA 42.18 1.79

Australia 21.35 1.69

Brazil 19.84 1.50

India 4.03 2.06

Mexico 2.28 1.56

Egypt 1.96 3.04

Zimbabwe 1.61 1.73

Greece 1.52 1.53

Mozambique 1.08 1.68

China 0.67 2.15

Sudan 0.38 1.94

Uganda 0.26 2.47

South Africa 0.19 1.59

Tanzania 0.06 2.39

Access in the Indian Market (2008): 520100 (Cotton, not carded or combed)

Country Share in Japanese market Unit Price ($ / Kg)

USA 28.39 2.09

Egypt 21.22 2.13

Uzbekistan 9.58 1.87

Burkina Faso 9.18 1.97

Tanzania 7.83 1.87

Pakistan 2.30 1.70

Mali 2.07 1.90

Turkmenistan 2.04 2.05

China 1.86 2.64

Sudan 1.69 2.02

Senegal 1.43 2.25

Australia 1.40 1.85

Cote Divoire 1.10 1.77

Chad 0.93 2.02

Cameroon 0.71 2.00

Uganda 0.66 1.66

Zimbabwe 0.53 2.12

Mozambique 0.49 1.93

Benin 0.40 1.81

Cent.Afr.Rep 0.38 1.94

Nigeria 0.28 1.78

Zambia 0.25 1.82

Example: Chinese ‘Help’ to Textile SectorSubsidy Programme

Provider Financial implications

Brand Building Incentives

(Shishi City of Fujian Province)

Range from RMB 100,000-500,000

Brand Development Fund

Central Government For corporate development projects - grant up to RMB 200,000 or 50 percent of the actual expenses required; public services projects, if covered under the public services project plan jointly determined by the provincial foreign trade bureau and finance bureau, can be fully subsidized

Export Incentive Program

Guangdong Province $1250 subsidy for enterprises with more than $1 million in exports.

Export Incentive Program

Zhejiang Province Provide all exporting companies exporting more than USD $3 million with a subsidy of 0.01 RMB per each USD $ exceeding this threshold

Go Global Central Government The initial scale of the fund is RMB 1.35 billion with RMB 560 million dedicated to projects related to technology innovation and restructuring and RMB 800 million for the "go global" operation. This is accompanied by electricity and other input subsidies.

Similar support provided by other countries as well. These represents the market access barriers faced by Indian textile sector. And how do US actions impeded market access for India??

US Cotton Subsidies

• From 1995 to 2001, 78% of the US subsidies for cotton went to only 2000 cotton farmers.

• Consequences: cheap supply of input for local cotton textile firms, major challenge for cotton growers in other developing countries.

• Cotton farmers in Mali, Benin, and Burkina Faso developed the common African lament phenomenon (The more we produce - The more we export - The poorer we get), as the decline in cotton price has driven more than 4% of each country’s population into abject poverty.

The Solution? Analysis of DS 267

• Complaint by Brazil on US Cotton Subsidies – September 27, 2002.

• The panel concluded that US subsidies had caused significant price suppression in the world market for upland cotton, constituting serious prejudice to the interests of Brazil.

• One of the subsidies was also a prohibited subsidy inconsistent with SCM Agreement, because payments under that program were contingent upon the use of domestically-produced cotton and certain payments were contingent on export – September 8, 2004.

• The AB upheld the panel findings – March 3, 2005.• For a long time US did not implement the recommendation

even when the ‘reasonable period’ expired on one pretext or the other.

• Finally the arbitrator asked US to bring its policy in line with the DSB report without delay – June 2, 2008.

Brazil had to request for retaliation to US exports, to which the US objected. The matter reached the WTO arbitrator.

Environmental Compliance: GAP Product Safety Specifications for Apparel & Apparel

Accessories

Source: GAP (2009)

Environmental Barriers : European

Requirements

How does compliance cost work?

Source: World Bank (2009)

Rules of Origin Conflicts Process India USA

Making dyed or printed yarn from yarn

It is substantial transformation

It is not substantial transformation

Making dyed or printed fabrics from fabrics

It is substantial transformation

It is not substantial transformation

Green coffee is processed through roasting into roasted coffee

It is not substantial transformation

It is substantial transformation

Cocoa beans transformed into cocoa paste by roasting, winnowing, alkalization and grinding

It is not substantial transformation

It is substantial transformation

Fruits and vegetables are processed through extraction into juices

It is not substantial transformation

It is substantial transformation

Crushing / grinding of spices It is not substantial transformation

It is substantial transformation

Making dyed or printed yarn from yarn

It is substantial transformation

It is not substantial transformation

Making dyed or printed fabrics from fabrics

It is substantial transformation

It is not substantial transformation

Source: CENTAD (2006)

EU Experience on ROOTitle Non-Use of International Standards

Measure Quantitative Restrictions and Related Measures

Third Country United States of America

Description Under the rules of origin of 1996, the origin of apparel products is generally determined by the country where they are assembled. However, for certain products (mainly fabrics, bed and table linen, silk accessories), the country of origin is where the fabric is made. As a consequence, the origin of the final product becomes the third country origin and it was required to indicate the name of the country where the fabric was made. In order to address this issue, in July 1997, the EU signed an Agreement with the for certain products (silk scarves and fabrics, printed cotton and printed man-made fabrics). The Congress adopted in May 2000, the Trade and Development Act reinstating the rules of origin that existed prior to 1996 for certain textile products.Nevertheless, European companies still face difficulties with the rules of origin, especially for products such as scarves, bed linen, table linen, bedspreads, quilts containing cotton and wool. For these products, according to the U.S. rules of origin, the country of origin is still the country of origin of the fabrics, even if the fabrics have been dyed and printed and have undergone two or more finishing operations in the EU. Therefore, the producers of these products have to label their products with the country of origin of the fabric. This, according to them, does not reflect the work of design and the production process, which have been made in.Regarding marking of origin, customs allow some flexibility. The goods can be marked with, for example, designed in, but in immediate proximity of this indication and at least in comparable size, there should be marked legibly and permanently the name of the country of origin preceded by Made in and Product of.

State of PlayIn the context of the WTO negotiations on NAMA-NTB, the EC and US have made a joint specific negotiating proposal in relation to labelling for textiles, clothing, footwear and travel goods aimed at establishing disciplines on requirements for labels.

Barrier id 960179

Barrier StatusOngoing

Anti-Dumping on Textile Sector: By Exporter

Anti-Dumping on Textile Sector: By Importer 62

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Resources• Country Trade Policy Reviews, WTO• Market Access Database, EU.• WTO Working papers• World Bank Working Papers• ICRIER Working Papers• RIS Working Papers• USTR Reports, US• USBTI Reports, EU