42853 January 2008 A SURVEY OF NON-TARIFF MEASURES IN THE EAST ASIA AND PACIFIC REGION POLICY RESEARCH REPORT EAST ASIA AND PACIFIC REGION POVERTY REDUCTION AND ECONOMIC MANAGEMENT THE WORLD BANK ACKNOWLEDGMENTS This report was prepared by Silja Baller (EASPR) under the guidance of Mona Haddad (Task Team Leader, EASPR) and is based on contributions from Titik Anas (CSIS Jakarta, Indonesia), John Lawrence Avila (University of Asia and the Pacific, Philippines), Darson Chiu (Taiwan Institute of Economic Research), Kakada Dourng (Economic Institute of Cambodia), Clemente Ruiz Duran (Universidad Nacional Autónoma de México), Fernando Gonzalez-Vigil (Universidad del Pacifico , Peru), Tsai-Lung Hong (Taiwan Institute of Economic Research), Oh-Seok Hyun (Trade Research Institute, Korea International Trade Association, Seoul, Korea), Ashish Lall (Nanyang Business School, Singapore), Yu-Hsi Liu (Taiwan Institute of Economic Research), Thiphaphone Phetmany (Enterprise and Development Consultants Co. Ltd, Laos), Apichart Prasert (Fiscal Policy Research Institute, Bangkok, Thailand), Luz Julieta Rio (Enterprise and Development Consultants Co. Ltd, Laos), Sebastian Saez (Independent), Hach Sok (Economic Institute of Cambodia), Jorge Soto Solar (Foreign Trade Department, Ministry of the Economy, Chile), Dang Nhu Van (Institute of Economics, Hanoi, Vietnam), and Yang Zerui (CNCPEC, CIIS, Beijing, China). Bijit Bora (WTO) initiated the project and was involved until he passed away in October 2006 ­ we cherish his initiative and great contributions. In Memoriam Bijit Bora ABBREVIATIONS ACCSQ ASEAN Consultative Committee on MA-OTRI Standards and Quality Market Access OTRI AFTA ASEAN Free Trade Area MHTM Medium and high-tech manufactures ANZCERTA Australia-New Zealand Closer Economic MoU Relations Trade Agreement Memorandum of Understanding APEC Asia-Pacific Economic Cooperation MRA Mutual Recognition Agreement AQIS NAFTA North American Free Trade Australian Quarantine and Inspection Service Agreement ASEAN Association of South East Asia Nations NAMA Non-agricultural Market Access AVE NGMA Negotiating Group on Market Access ad-valorem equivalent for Non-Agricultural Products CAP Conformity Assessment Procedures NRBM Natural-resource based materials CEPT Common Effective Preferential Tariff NTB Non-Tariff Barrier CHM Charges on Imports NTFP Non-timber forest product CLMV Cambodia, Laos, Myanmar, Vietnam NTM Non-Tariff Measure CSI OECD Organization for Economic Container Security Initiative Cooperation and Development C-TPAT Customs-Trade Partnership Against Terrorism OIE Office International des Epizooties DDA Doha Development Agenda OTRI Overall Trade Restrictiveness Index DTIS Diagnostic Trade Integration Studies PG Primary goods EBA Everything But Arms Initiative QUAD US, Japan, EU, Canada EC REACH Registration, Evaluation, and European Commission Authorization of Chemical products EMC RoHS Restriction on the use of certain electro-magnetic compatibility Hazardous Substances EU SAARC South Asian Association for Regional European Union Cooperation FAO SIECA Secretariat for Central American Food and Agriculture Organization Economic Integration FTA Free Trade Agreement SLM Specific Limitations GATT General Agreement on Tariffs and Trade SPS Sanitary and Phyto-Sanitary GMP STDF Standards and Trade Development Good Manufacturing Practice Facility GPT Government Participation in Trade TBT Technical Barriers to Trade HACCP Hazard Analysis and Critical Control Points TCA Testing and Conformity Assessment IADB TCMCS Trade Control Measures Coding Inter-American Development Bank System IF Integrated Framework TF Trade Facilitation IMF TRAINS Trade Analysis and Information International Monetary Fund System IRA UNCTAD United Nations Conference on Trade Import Risk Analysis and Development ITC UNIDO United Nations Industrial International Trade Center Development Organization ITWG WEEE Waste Electrical and Electronic Interim Technical Working Group Equipment Directive LAIA Latin American Integration Association WHO World Health Organization LDC Least Developed Country WTO World Trade Organization LTM Low-tech manufactures WTO DSB WTO Dispute Settlement Body TABLE OF CONTENTS PART I...................................................................................................................................................1 EXECUTIVE SUMMARY.......................................................................................................................1 I. DEFINING AND MEASURING NTMS ................................................................................................3 1. NTM Classifications ..................................................................................................................3 2. NTM databases..........................................................................................................................5 3. Measuring the Economic Impact of NTMs ................................................................................7 II. INITIATIVES TO OVERCOME NTMS .............................................................................................12 1. The Multilateral Level .............................................................................................................12 2. Regional Initiatives..................................................................................................................16 III. THE ASEAN APPROACH TO NTMS............................................................................................20 1. Mandate for NTM Elimination ................................................................................................21 2. Prioritization Strategies...........................................................................................................23 3. Strengthening Compliance.......................................................................................................26 ANNEX IV: WORKING DEFINITIONS OF NTMS....................................................................................33 PART II...............................................................................................................................................40 LESSONS FROM THE COUNTRY STUDIES..........................................................................................40 EXECUTIVE SUMMARY.....................................................................................................................40 CAMBODIA .......................................................................................................................................44 1. Overview of the Economy and Trade.......................................................................................44 2. Methodology of the Study ........................................................................................................45 3. NTMs Faced by Cambodian Exporters ...................................................................................46 a. Internal barriers....................................................................................................................46 b. External barriers ..................................................................................................................46 4. Potential Exports if Barriers are Removed..............................................................................52 CHILE ...............................................................................................................................................54 1. Overview of Trade ...................................................................................................................54 2. Methodology of the Study ........................................................................................................55 INFORMATION CONTAINED IN THE NATIONAL SURVEY ON FOREIGN TRADE BARRIERS........................55 INFORMATION PROVIDED BY THE PRIVATE SECTOR ...........................................................................57 3. NTMs Faced by Chilean Exporters .........................................................................................57 CHINA...............................................................................................................................................65 1. Overview of Trade ...................................................................................................................66 2. Methodology of the study.........................................................................................................67 3. NTMs Faced by Chinese Exporters .........................................................................................68 a. Internal barriers....................................................................................................................68 b. External barriers ..................................................................................................................69 INDONESIA........................................................................................................................................78 1. Overview of Trade....................................................................................................................78 2. Methodology of the study.........................................................................................................79 3. External Barriers Faced by Indonesian Exporters..................................................................81 KOREA..............................................................................................................................................91 1. Overview of Trade ...................................................................................................................91 2. Methodology of the Study ........................................................................................................93 3. NTMs Faced by Korean Exporters ..........................................................................................93 4. Summary Statistics.................................................................................................................101 a. Restrictiveness of different NTMs.....................................................................................101 b. Non-Tariff Measures by Development Level....................................................................101 LAOS...............................................................................................................................................105 1. Overview of the Economy ......................................................................................................105 2. Overview of Trade .................................................................................................................106 3. Methodology of the Study ......................................................................................................108 4. NTMs Faced by Lao Exporters..............................................................................................109 a. Internal barriers..................................................................................................................109 b. External barriers ................................................................................................................113 MEXICO..........................................................................................................................................123 1. Overview of Trade .................................................................................................................123 2. NTMs Faced by Mexican Exporters ......................................................................................124 PERU...............................................................................................................................................133 1. Overview of Trade .................................................................................................................134 2. Methodology of the Study ......................................................................................................134 3. NTMs Faced by Peruvian Exporters .....................................................................................136 a. Frequency and Intensity of NTMs.....................................................................................138 b. NTM Intensity Index.........................................................................................................139 c. NTM Specialization Index.................................................................................................141 d. Field Research...................................................................................................................144 4. Conclusion.............................................................................................................................152 TABLE 1.1.......................................................................................................................................154 TABLE 1.2.......................................................................................................................................154 PHILIPPINES....................................................................................................................................155 1. Overview of Trade .................................................................................................................156 2. NTMs Faced by Philippino Exporters ...................................................................................158 3. Domestic Responses...............................................................................................................167 SINGAPORE.....................................................................................................................................170 1. Overview of Trade .................................................................................................................170 2. Methodology of the Study ......................................................................................................172 3. NTMs Faced by Singaporean Exporters................................................................................174 TAIWAN..........................................................................................................................................184 1. Overview of Trade .................................................................................................................185 2. Methodology of the Study ......................................................................................................186 3. NTMs Faced by Taiwanese Exporters...................................................................................187 a. Internal barriers..................................................................................................................187 b. External barriers ................................................................................................................187 THAILAND ......................................................................................................................................192 1. Overview of Trade .................................................................................................................192 2. NTMs Faced by Thai Exporters.............................................................................................194 VIETNAM........................................................................................................................................213 1. Overview of Trade .................................................................................................................213 2. Methodology of the study.......................................................................................................214 3. NTMs Faced by Vietnamese Exporters..................................................................................215 a. Internal barriers..................................................................................................................215 b. External barriers ................................................................................................................219 PART I EXECUTIVE SUMMARY A large part of liberalization efforts have in the past focused on reducing tariff barriers to facilitate the integration of goods markets across the world and within particular regions. However, countries which were more serious about integration also recognized early on the importance of eliminating trade-reducing measures other than tariffs, so-called non-tariff measures or NTMs, which, if not already present, often sprung up precisely where tariffs were reduced. This report seeks to give a multifaceted view of non-tariff issues facing countries in the East Asia and Pacific region both vis-à-vis their most important export markets as well as intra-regionally. While the first perspective is important today given the high dependence of East Asian and Latin American countries on the markets of the EU, the US and Japan, the second is important in the context of countries' efforts to bring about ever closer regional integration. On a superficial level, NTMs are simply defined as any measure that causes a trade distortion but is not a tariff, whereby a trade distortion exists where the price at the border is different from the domestic price. Distortions are assumed to mainly arise from government imposed measures, but can also be due to restrictive business practices. Many authors have attempted to develop a positive taxonomy of NTMs; however, the boundaries of these classifications remain blurred due to the countless possibilities in which any regulatory measure or business practice can be an impediment to trade. While there is currently no complete global inventory of NTMs, several efforts are being undertaken by international organizations at the regional and global level to collect comprehensive data on NTM incidence. Quantification of the economic impact of NTMs has also proven difficult, mainly due to the wide range of mechanisms by which NTMs can affect economic outcomes and the enormous amounts of data that are necessary to obtain accurate results. Nevertheless, some propositions for the quantification of NTMs have been made. The standard approaches to measuring NTM include frequency-type measures based on counts of observed NTM that apply to particular countries, sectors, or types of trade; price-comparison measures calculated as tariff equivalents, and quantity-impact measures based upon econometric estimates of trade flows. Even though quantification remains an issue, NTMs are widely recognized as distortive and efforts to eliminate or lessen their trade-reducing effects are taking place in many fora simultaneously, though the level of ambition varies. While the GATT 1947 was mainly focused on tariff reduction, the 1995 WTO Agreements include many disciplines regarding non-tariff issues. Examples are Article VII on customs valuation, the TBT Agreement, the SPS Agreement, TRIMS and various articles on import licensing, trade facilitation and trade remedies. At the WTO Ministerial Meeting in Doha 2001, participants declared their commitment "to reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries". This commitment was reaffirmed in the so-called "July package", which was the outcome of a General Council Meeting in 1 July 2004 to further the Doha Agenda. At this time, the Negotiating Group on Market Access for Non-Agricultural products (NGMA) has the general mandate for negotiating NTMs at the WTO. NTM disciplines are currently of relatively little stringency, emphasizing mainly transparency by obliging countries to notify any relevant changes in domestic legislation. This is due to the fact that all of the rules and regulations in question are imposed by sovereign governments which may be pursuing diverging regulatory objectives ­ such as different degrees of protection of health and safety of consumers ­ or which are reluctant to give up the option to use trade remedies as a last resort. The least intrusive way of reducing the negative impact of NTMs has proven to be adherence to the WTO principles of transparency and non-discrimination in the application of national regulatory measures. Regional efforts at reducing or eliminating NTMs have been more ambitious, the prime example being the EU, which turned its focus on non-tariff measures as early as 1973, the year in which all internal tariffs were abolished. More recent initiatives include that of ASEAN which has made the elimination of NTMs an important component in their strategy to establish an ASEAN Economic Community with a single market and production base by 2020. The ASEAN Secretariat is currently working on compiling an ASEAN inventory of NTMs based on a notification exercise and has classified reported measures according to various criteria in order to have a basis for prioritizing their elimination. They are further in the process of identifying all relevant legal sources of reported NTMs. Elimination is likely to proceed on a sectoral basis. Country studies which draw on firm level surveys and interviews with government agencies and exporters' associations in East Asia and Latin America are presented in Part II of this report. 2 I. DEFINING AND MEASURING NTMS The exact definition of non-tariff measure (NTM) has been subject to much debate. NTMs can be broadly defined as any measure that causes a trade distortion but is not a tariff, whereby a trade distortion exists where the price at the border is different from the domestic price. These distortions can be intentional or a side effect of a measure which is imposed to mainly serve a different regulatory purpose (such as legitimate health and safety standards). If the measure is imposed explicitly to protect domestic industry by restricting import demand, it is also known as non-tariff barrier or NTB (some definitions imply that NTBs are measures which are inconsistent with WTO rules). In general, distortions are assumed to mainly arise from government imposed measures, but can also be due to restrictive business practices. Baldwin (1970) defines a non-tariff measure as "any measure (public or private) that causes internationally traded goods and services to be allocated in such a way as to reduce potential real world income". While practitioners at first focused mainly on non-tariff border measures, the concept also includes internal measures that affect trade. One of the key points to emerge from the NTMs as a distortion approach is that NTMs cannot be limited to measures designed to restrict trade. Export subsidies and other policies, which increase trade, but are distortions nonetheless would also be included in the basic framework (cf. e.g. Deardorff and Stern, 1997). Baldwin (1970) includes foreign investment controls and immigration policies as NTMs. Laird's (1997) definition is even wider in that it encompasses export restraints, as well as production and export subsidies, next to measures that directly affect imports. The root of the distinction between tariff and non-tariff barriers can be traced back to GATT, which, through Article XI envisaged a trading system governed by tariffs. At that time, quantitative restrictions represented the principal NTM, although a number of other instruments such as licensing and standards were also in existence. Instead of developing specific approaches to handling NTMs, GATT Contracting Parties simply dealt with different NTMs as they were put forward for negotiation. 1. NTM Classifications Various NTM classifications exist, though their boundaries remain blurred. A first step in the process of dealing with NTMs was the development of a positive taxonomy of NTMs; however, the boundaries of these classifications remain blurred due to the countless possibilities in which any regulatory measure or business practice can be an impediment to trade.1 Baldwin (1970, 1984) is credited with having developed the first NTM taxonomy, while the taxonomy by Laird and Vossenaar (1991) has also received much attention (Bora, 2003; ASEAN Program for Regional Integration Support, 2005). Laird and Vossenaar argue for an approach that takes into account the intent and impact of a particular measure on trade as the basis for their framework. Measures designed to control imports and prices each have their own category and are supplemented with categories covering monitoring measures, technical barriers and production and support measures. In 1994, UNCTAD combined the Laird and Vossenaar taxonomy with one that it had developed internally in the early 1 Deardorff and Stern (1998), Roberts, Josling and Orden (1999) and Bora, Kuwahara and Laird (2002) discuss different methodologies for classifying and measuring the effects of NTMs, though many caveats remain. A discussion of these can be found in Maskus, Wilson and Otsuki (2000). 3 1980s and created what is now known as the UNCTAD Trade Analysis and Information System (TRAINS) coding system. Box 1: UNCTAD NTM Classification Key Headings 1000 Tariff Measures 2000 Para-Tariff Measures 3000 Price Control Measures 4000 Finance Measures 5000 Automatic Licensing Measures 6000 Quantity Control Measures 7000 Monopolistic Measures 8000 Technical Measures Source: UNCTAD document TD/B/COM.1/EM.27/3 The UNCTAD classification is the most comprehensive international classification system available for NTMs. At its most detailed level, the current classification (Trade Control Measures Coding System ­ TCMCS) identifies over 100 different types of NTMs. It comprises six categories of NTMs, including price control measures, finance measures, automatic licensing, quantity control measures, monopolistic measures and technical measures (see Box 1). It notably does not include measures applied to exports and production. The classification is included in Annex III. The UNCTAD taxonomy has also served as basis for the classifications used by different regional institutions, such as the ASEAN Secretariat. The taxonomy used by the WTO is similar to UNCTAD's in many respects, but was developed with practical negotiation considerations in mind. In 1967, the GATT Contracting Parties decided to create an inventory of NTMs based on notifications. Some 800 measures notified were classified in the following five broad categories: (i) government participation in trade; (ii) customs and administrative entry procedures; (iii) standards involving imports and domestic goods; (iv) specific limitations on imports and exports (e.g. quantitative restrictions); and (v) restraints on imports and exports by the price mechanism. Contracting Parties decided during the Tokyo Round to continue and improve this inventory for both agricultural and industrial products. Following the Tokyo Round, the inventory was kept up to date by first the Group on Quantitative Restrictions and Other NTMs (created in 1982) and subsequently the Technical Group on Quantitative Restrictions and Other NTMs (created in 1986). Today the classification is as shown in Box 2. The detailed classification is included in Annex I. Box 2: NAMA NTM Classification Key Headings I. Government Participation in Trade and Restrictive Practices Tolerated by Governments (state owned enterprises, single channel marketing arrangements, discriminatory government procurement practices and government subsidies or preferences such as tax incentives) II. Customs and Administrative Entry Procedures (valuation practices, tariff classification, document requirements, and other formalities as well as anti-dumping) III. Technical Barriers to Trade IV. Sanitary and Phytosanitary Measures V. Specific Limitations (quotas, outright bans, discrimination arising from preferential agreements, domestic price restrictions, and labeling requirements) VI. Charges on Imports (levying of prior import deposits, import surcharges and other discriminatory levies) VII. Other (intellectual property and safeguards) Source: Table of Contents of the Inventory of Non-Tariff Measures, 28 November 2003 TN/MA/S/5/Rev.1 4 Both the WTO classification system and the UNCTAD TRAINS classification system appear to have a heavy focus on measures that are applied at the border, although some behind the border measures such as subsidies and restrictive business practices are also included. Deardorff and Stern (1997) propose a third classification system, which has at its core price (other than tariffs) and quantity border measures. To these they add the remaining (other) set of measures that may affect trade as well as customs and technical barriers as a separate category. When the proposed framework of Deardorff and Stern (1997) is compared with that of UNCTAD TRAINS some differences emerge (Annex II). The most significant difference is the inclusion of a range of measures that affect foreign investment and the environment for trade such as corruption. Another difference is the collapse of all the quantitative measures and what are essentially other duties and charges and trade defense measures into one category. The advantage of this categorization is that many of the policies included in the two categories are easily identifiable. The differences across the three classifications are a testament to the complexities of measuring and classifying NTMs. Each classification tries to capture all measures that affect trade, regardless of their impact. The possibility of grading various measures by restrictiveness and welfare impact will be taken up later on. 2. NTM databases Several databases of NTMs exist, though none of them are complete. At this time various global and regional efforts to collect the necessary information on the incidence of NTMs across sectors and export markets are ongoing. Since the impediment perceived by an exporter in one country is in most cases the regulation imposed by the government of another country, two methodologies can be used in collecting information on NTMs: the method more often employed relies on individual governments to notify potentially trade-hindering laws and regulations imposed by them (notification). The second methodology involves firm-level surveys of exporters reporting barriers they face in foreign markets (reverse notification). Both methodologies have potential biases: while governments may be reluctant to notify potentially contentious laws and regulations, exporters may have an incentive to overstate the incidence of non-tariff barriers faced abroad. Both approaches are being used in current efforts, sometimes simultaneously. The main existing databases are the following: UNCTAD TRAINS The database which currently has the most comprehensive coverage regarding NTMs is UNCTAD TRAINS; at this time, it is the only cross-country and time series database on NTMs in existence (WTO document WT/COMTD/LDC/W/39). It is being managed by a multi-agency NTM consortium consisting of UNCTAD, FAO, IMF, ITC, OECD, World Bank, UNIDO and WTO. It draws exclusively on information from the measure-imposing countries (i.e. the importers), using for example notifications to GATT/WTO or official journals containing information on regulatory changes of the individual countries. Information is also being provided by regional organizations such as ALADI, SIECA and SAARC, as well as the Inter-American Development Bank. TRAINS has so far refrained from using information from the exporters' side as they are often not substantiated by existing laws and regulations and product coverage would be limited to the exact products exported by complainants. However, a proposal for a dual data collection method (i.e. from both importers and exporters) has been circulated and a prototype database is being constructed and discussed in the multi-agency NTM consortium. 5 One of the limitations, which was highlighted by the Report of the Expert Meeting on Methodologies, Classifications, Quantification and Development Impacts of Non-Tariff Barriers (UNCTAD (2005) TD/B/COM.1/EM.27/3), but which is not yet being tackled, is that the database gives no indication of the restrictiveness of specific NTMs (see Kee, Nicita and Olarreaga, 2004 on this issue). The report further criticized that identification of affected products is sometimes difficult as the products covered by a tariff line do not necessarily coincide with the reach of the NTM. UNCTAD's TRAINS database is also subject to criticism because of its limited country and instrument coverage. Nevertheless, as it is the only cross-country and time-series NTM database, it can provide some insights into the landscape of NTMs, especially if caution is exercised in interpreting the results obtained using its data. Finally, when TRAINS was developed, quantitative restrictions represented the principal NTM of concern. Today, however, largely as a result of the Uruguay Round Agreement a number of quantitative restrictions affecting trade have been abolished. The elimination of these barriers and the more focused attention on other NTMs, such as standards and customs-related measures raise the issue of whether or not a wholesale evaluation on how NTMs are collected and classified is required. WTO A partial inventory of NTMs is available at the WTO, where countries are obliged to notify own measures under individual agreements (TBT, SPS, anti-dumping, etc.). These notifications are collected in separate databases and made available to the public. They are also periodically incorporated into the UNCTAD NTM database. In order to help developing and especially least developed countries address market access concerns due to NTMs, the working group on non-agricultural market access (NAMA) had in addition initiated a reverse notification exercise, where governments could report complaints by their exporters. However, this exercise has been abandoned due to insufficient resonance from member countries. In October 2002, the first reverse notification exercise, which was to complement own-notifications by countries under WTO Agreements was initiated by the Chairman of the NAMA negotiating group. A variety of countries submitted complaints, amongst them, however, only two developing East Asian economies (the Philippines and Thailand).2 The exercise was repeated in July 2003 in order to give more countries the opportunity to notify NTMs.3 Since countries did not report the markets in which their exporters are facing barriers, the Committee on Market Access also initiated a bilateral reverse notification exercise, where exporters were asked to specify the country in which they face a particular barrier; however, only one country responded. A separate reverse notification exercise for least developed countries was further initiated by the Committee on Trade and Development. Since notifications were limited again, the exercise was supplemented with findings from Diagnostic Trade Integration Studies (DTIS) conducted under the 2Results of the first set of submissions are reported in WTO document TN/MA/W/25 (28 March 2003) + 2 revisions; countries from which submissions were received were: Argentina, Australia, Bangladesh, Hong Kong, India, Japan, Kenya, Korea, New Zealand, Norway, Pakistan, Philippines, Senegal, Singapore, Thailand, Trinidad and Tobago, Turkey, United States. 3Submission under the second exercise can be found in WTO document TN/MA/W/46 (26. November 2003) + Addenda 1-17 (last one submitted 15.May 2006) 6 Integrated Framework (IF), the WTOs Trade Policy Reviews, SPS notifications by other countries which identify LDCs as being affected by a particular measure, as well as other studies. In addition to these efforts, the Agriculture and TBT Committees are in the process of setting up a comprehensive information management system for notifications. The TBT Committee further conducted a survey in 2002 with the aim of prioritizing TBTs faced by developing countries. The reverse notification exercises were eventually abandoned due to the very low response rate (see Section 2). Other Additional efforts to compile an inventory of NTMs are undertaken at the regional level. Besides the EU, the ASEAN database is one of the most comprehensive ones and draws on a range of sources, such as UNCTAD TRAINS, various surveys and cross-notifications, whereby all included measures were subsequently verified by the individual countries. Reported measures were further classified according to the criteria of transparency, scientific basis and discriminatory application, which is an important step towards a better understanding of the legitimacy of various measures; in addition the legal sources of government-imposed measures were identified. 3. Measuring the Economic Impact of NTMs Import quantity, price and elasticity changes are the main effects of NTMs. NTMs by definition affect trade, but in what ways can this happen? Deardorff and Stern (1997) analyze the trade impact of a generic NTM graphically and from this conclude that the main channels through which NTMs affect imports are the following:4 · "Reduction in quantity of imports. NTMs are most often imposed with the intent of reducing the quantity of imports [...] the most direct indication of the trade restrictiveness of NTMs. · Increase in price of imports. NTMs succeed in reducing the quantity of imports only to the extent that they raise the actual or shadow price of imports to demanders. This price increase has further implications for economic performance in other sectors of the economy, especially if the import is an intermediate input. · Change in the elasticity of demand for imports. NTMs often alter the slope of the demand curve for imports, and thus they alter the responsiveness of imports in a particular sector to price changes. The elasticity effect of an NTM is also important in assessing, in a general equilibrium context, the role of NTMs in influencing the outcome of other events such as a change in tariffs. An increase in a tariff on a final good, for example, will have its protective effect reduced if there is an elasticity-reducing NTM in place on an important intermediate input." Apart from the three effects on quantity, price and elasticity of demand for imports, Deardorff and Stern note several more indirect ways in which NTMs can affect both exporters and importers (Deardorff and Stern, 1997): 4Deardorff and Stern use the term NTB. This has been changed to NTM here. In doing so, however, it should not prejudice their use of the term NTB. 7 · "Variability of NTMs. Unlike tariffs, NTMs often are defined relative to a benchmark quantity or price independent of market conditions. If this benchmark is held fixed when underlying conditions of supply and demand, exchange rates, and other market conditions change, as they inevitably do, then the effectiveness of the NTM will vary. Such variability may constitute a neglected cost that the NTM imposes on society and thus is very important to measure along with its more obvious average price and/or quantity effects. · Uncertainty of NTMs. All government policies are uncertain in their implementation, but this seems to be especially true of some NTMs. Indeed, some practices such as anti-dumping and countervailing duty investigations have been identified as NTMs almost entirely because of the uncertainties that they impose on international traders. Even those barriers that are clearly restrictive, however, can become more so if their implementation is uncertain. · Resource Costs of NTMs. In addition, there are also certain costs that are associated with the manner in which the NTM is administered. First, are the direct administrative costs themselves, that is, the resources used directly in enforcing whatever rules an NTM imposes. Second, and perhaps of much greater importance, are the resources lost to rent seeking and related phenomena. These are the time and other resources that are wasted by individuals and firms in their efforts to secure the profit opportunities and other benefits that are created by an NTM." In order to obtain a more precise estimate of the impact of individual types of NTM, several methodologies for their quantification have been suggested; however, difficulties in developing a precise definition of an NTM, especially in the form of an ad valorem equivalent, create many problems when it comes to quantifying NTMs and estimating their impact on key economic variables, especially at aggregate levels (Bora et. al, 2002). Quantification of the trade impact of NTMs has proven extremely difficult, mainly due to the wide range of mechanisms by which NTMs can affect economic outcomes and the large amounts of data that are necessary to obtain accurate results. Nevertheless, some propositions for the quantification of NTMs have been made. The standard approaches to measuring NTM include frequency-type measures based on counts of observed NTM that apply to particular countries, sectors, or types of trade; price-comparison measures calculated as tariff equivalents, and quantity-impact measures based upon econometric estimates of trade flows. Frequency measures: Frequency can simply be measured as the share of tariff lines subject to a given NTM in the total number of tariff lines. Further, using the same basic trade data, import coverage is often derived as the value of imports in a category subject to NTM as a proportion of the total value of imports. However, this has the drawback that weights will be biased downwards, as increased restrictiveness of a given NTM will likely lead to fewer imports.5 A further drawback of frequency type measures is that they do not give any indication of the actual economic impact of the measure as the counterfactual volume of trade or value of GDP without the NTM remains unknown. Price-comparison measures: A theoretical condition that is often suggested to test for the presence of non-tariff measures is the law of one price (cf. Bora, 2003; Lloyd, 1996) ­ i.e. in a world where trade is completely free, the price of a good should be the same everywhere. Price comparisons between a reference price (i.e. the price that would exist if trade was absolutely free) and the domestic price (minus the tariff) will hence capture the net effect of all NTMs impacting on a given product, from which it will be possible to derive ad-valorem equivalents (AVEs), or implicit tariffs. However, this is difficult to implement in practice as it is impossible to observe the hypothetical NTM free price. Comparing prices is further complicated by product differentiation. 5Deardorff and Stern (1997) suggest the following weights for aggregation (in decreasing order of priority): world production, world trade, domestic production, and domestic imports. 8 Quantity impact measures: Quantity impact measures, which measure the extent to which a given NTM reduces trade, are subject to similar data limitations, but seem to offer a better approach to obtaining impact estimates; some recent work has sought to estimate the trade effect of NTMs using the gravity model. The empirical framework of Helpman, Melitz and Rubinstein (2004), which uses the gravity equation, for example is amenable to testing the trade effects of specific NTMs such as technical barriers to trade. Where import demand elasticities are known, the gravity estimates can also serve to derive price effects or ad-valorem equivalents.6 Kee, Nicita and Olarreaga (2004) estimate demand elasticities for 4625 imported goods in 117 countries and subsequently use these estimates to compute the AVEs for 104 developing and developed countries. Their study is the first which takes a comprehensive and systematic approach to measuring the impact of NTMs. They subsequently use these results to estimate the overall impact of NTMs and tariffs in form of an overall trade restrictiveness index (OTRI), which aggregates restrictiveness by country across all measures and tariff lines (Kee, Nicita and Olarreaga, 2005):7 The OTRI is defined as the single (tariff) value which keeps imports at their observed levels when they are affected by both tariffs and NTMs. A mirror image MA-OTRI (market access OTRI) is defined in turn as the "equivalent uniform tariff faced by exporters of country X in the rest of the world that would keep exports of country X at their observed levels" (Kee, Nicita and Olarreaga, 2005). The OTRI/MA-OTRI is computed by adding tariffs and ad-valorem equivalents of non-tariff measures. Figure 1: Bilateral OTRI/MA-OTRI: Agriculture Figure 2: Bilateral OTRI/MA-OTRI: Manufacturing 0.6 0.6 0.5 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0 0 Quad Exporter High Income Middle Income Low Income LDC Exporter Quad Exporter High Income Middle Income Low Income LDC Exporter Exporter Exporter Exporter Exporter Exporter Exporter QUAD Import Restrictiveness Middle Income IR Low Income IR LDC IR QUAD Import Restrictiveness Middle Income IR Low Income IR LDC IR Source: data from Kee, Nicita and Olarrega (2006). Country groupings are based on the World Bank classifications Figure 1 and Figure 2 present some of the results derived from this approach for broad categories of exporters and markets. Summing across all tariff and non-tariff measures, the data show a striking difference between market access for agricultural goods vs. manufactures, with access to agricultural markets clearly being more restrictive than that for manufactures. Further, for manufactures, import restrictiveness does not seem to vary much by identity of the exporter, though it does vary depending on the market to which access is sought. By far the least restrictive is access for manufactures to markets of the QUAD countries, while access to middle income, low income and LDC markets is equally difficult and more stringent than that of QUAD countries by a factor of approximately 3-5. In the case of agricultural goods, market access varies depending on both the identity of the exporter and the market to which the goods are shipped. The largest variation is evident with respect to import restrictiveness of the QUAD markets, where access is least stringent for high income exporters and most stringent for middle income countries, while low income countries and LDCs fall in between the 6although it may not be entirely possible to isolate the effect of the NTM, as the elasticities are also likely to be biased by the presence of an NTM 7Kee, Nicita and Olarreaga's (2005) trade restrictiveness indices are based on the framework developed by Anderson and Neary (1992, 1994, 1996, 2003 and 2004). 9 two. Import restrictiveness in the other three types of market is largely independent of the country of origin of the products. One of the many advantages of this approach is that the aggregate measure of protection can be decomposed into its tariff and non-tariff components. Furthermore, specific measures of protection for a market can be obtained for each exporter to that market. The World Bank Global Monitoring Report 2006 shows that when NTMs are taken into account the overall level of protection increases. When these figures are compared over time, they show that tariffs represent a smaller share of the overall figure, confirming the common perception that the relative importance of NTMs is increasing alongside a decline in the overall level of protection. In practice, all of the methods presented above are fraught with difficulties due to a lack of appropriate data; there is also no consideration of general equilibrium effects. Further, the mechanisms by which different NTMs affect the economy may be very different (making general methods inappropriate) and the same NTM may affect one product differently than another, i.e. "transmission channels" are very product-specific. Deardorff and Stern (1997) therefore insist that "there is no single method that can be relied upon to measure the sizes of NTBs that may be present in all sectors of the economy." Hence, "the estimates of NTBs must be done at the most disaggregated levels possible." Importantly, they point out that "there is no substitute for NTB [and sector-] specific expertise. The reliability of any measure of NTBs that may be constructed for particular sectors is limited by the knowledge of the intricacies of those sectors that bear upon the measures." Negative trade effects do not automatically imply welfare losses in the NTM imposing country. A perennial problem with the analysis of NTMs, which has certain asymmetries with tariff analysis is the distribution of welfare when an NTM is imposed. NTMs are by definition trade distortive; this, however, does not imply that they are at the same time automatically welfare reducing. Traditional tariff analysis yields the result that the country imposing the tariff is usually worse off as a result of the protection. The reverse, however, can be true for some NTMs such as standards or subsidies. These instruments can be applied to correct different types of market failures, which could result in an increase in the welfare of the implementing country. Conversely, if NTMs are removed and trade increases, the country that had implemented the NTM could experience a reduction in its welfare. An extensive analysis of the economics of standards and how they affect trade is contained in the World Trade Report 2005 (WTO, 2005). One of the key messages from that study is that the link between standards and trade is not always one of trade reduction and welfare deterioration for exporting countries. Contrary to the general characteristics of NTMs enumerated by Deardorff and Stern (1997), some standards can have the effect of increasing trade, especially when they are applied to correct information problems. There is also evidence to show that higher standards can increase and at the same time demonstrate product quality, thereby improving the competitiveness of the product in the market place. The above considerations show that neither the trade nor the welfare effects of NTMs can be generalized or easily measured, but instead a detailed analysis by NTM type is necessary to identify and ultimately tackle the negative effects of different measures. NTMs are used as a policy tool and their legitimacy is often difficult to judge. NTMs are imposed for various reasons, including the protection of domestic industry from "unfair" competition (anti- dumping and countervailing duties), as a source of government revenue or as a means to achieve public policy objectives such as the safeguarding of public health, public morals or national security. 10 Establishing a common global definition of what is and is not "legitimate" in this respect has proven difficult; firstly, because decisions to impose certain measures often depend on value judgments and secondly because public policy priorities vary widely across countries mainly dependent on the development level. The benchmarks established by the WTO in this respect reflect this situation, requiring for the most part only transparency and non-discrimination. Only in the case of measures imposed for reasons of public health and safety is it possible to evaluate the necessity of a given measure by means of scientific evidence, a requirement imposed by the SPS but not the TBT Agreement. The only measure that is unequivocally forbidden under the WTO are quantitative restrictions. Even fairly ambitious regional integration initiatives such as ASEAN have not gone further than using the WTO principles as benchmarks for legitimacy tests of NTMs despite greater similarities in values and regulatory objectives amongst member countries. 11 II. INITIATIVES TO OVERCOME NTMS Activities to overcome the trade barriers posed by non-tariff measures have been ongoing in various fora, both multilateral and regional. Arrangements are of very different degrees of stringency largely depending on the number of countries involved and the similarity of their regulatory objectives ­ which are generally closely connected to the development level of the country ­ as well as their overall goal for the depth of integration. 1. The Multilateral Level The WTO with its wide-reaching mandate for trade policy surveillance, negotiations and dispute settlement, offers different mechanisms for addressing NTMs. Non-tariff measures were a concern at the multilateral level already under the GATT. Getting to the core of the issue is not a simple exercise, however, as all of the rules and regulations which are turning out to be barriers are imposed by sovereign governments which are often pursuing specific regulatory objectives ­ such as protection of the health and safety of consumers ­ and the stringency of those rules will depend on value judgments and preferences of the individual governments. Other NTMs, such as anti-dumping and safeguards measures are defended by governments as a last resort to protect domestic industry. It has therefore proven difficult to impose detailed obligations on an MFN basis regarding the elimination of non-tariff measures. Nevertheless, member countries are working to achieve more stringent disciplines, taking into account the concerns of developing and least-developed countries. There are several mechanisms by which NTMs can be dealt with in the framework of the WTO. They can be employed as stand-alone or in combination with each other and include 1) horizontal or multilateral approaches 2) dispute settlement; 3) request/offer, bilateral or plurilateral; 4) vertical or sectoral approaches; and 5) tariffication of the NTM (WTO, 2006). While the GATT 1947 was mainly focused on tariff reduction, the 1995 WTO Agreements include many multilateral disciplines on non-tariff issues. During the Uruguay Round, five earlier agreements were multilateralized and several new multilateral NTM-related agreements were negotiated. A further innovation under the WTO was the introduction of Part III into the schedules to allow for the inclusion of commitments relating to NTMs. At the WTO Ministerial Meeting in Doha 2001, participants reinforced their commitment "to reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries". This commitment was reaffirmed in the so-called "July package", which was the outcome of a General Council Meeting in July 2004 to further the Doha Agenda. Annex B of the Decision adopted by the General Council on August 1, 2004 states: "We recognize that NTBs are an integral and equally important part of these negotiations and instruct participants to intensify their work on NTBs. In particular, we encourage all participants to make notifications on NTBs by 31 October 2004 and to proceed with identification, examination, categorization, and ultimately negotiations on NTBs. We take note that the modalities for addressing NTBs in these negotiations could include request/offer, horizontal, or vertical approaches; and should fully take into account the principle of special and differential treatment for developing and least-developed country participants." 12 NTM-provisions currently included in the WTO Agreements are Art VII on customs valuation, the TBT Agreement, the SPS Agreement, rules on import licensing procedures, rules of origin, pre- shipment inspection, trade-related investment measures, state-trading enterprises, and trade remedies. Disciplines regarding these matters are however of relatively little stringency, emphasizing mainly transparency by obliging countries to notify any relevant changes in domestic legislation, along with adherence to the principle of non-discrimination and proportionality. All of these agreements are monitored by regular WTO bodies where grievances related to these rules can be raised, and the Trade Policy Review provides additional opportunities to address issues related to non-tariff measures. The SPS and TBT Committees amongst others provide regular forums for the identification and discussion of specific trade concerns. There are also mechanisms, for example in the SPS Committee, to enhance, in particular, developing countries' ability to respond to measures adopted by importing countries. A procedure adopted by the SPS Committee in 2004 allows a developing country Member to request for consultations to find a solution to specific problems faced in fulfilling the SPS requirements of an importing Member. The solution can take the form of modifications of a measure, technical assistance or through the provision of special and differential treatment (G/SPS/33). In cases where these mechanisms are felt to be insufficient to solve the issue, countries can take recourse at the WTO Dispute Settlement Body. Members can also request negotiations in order to remove a particular NTM. The Negotiating Group on Market Access for Non-Agricultural products (NGMA) has the general mandate for negotiating NTMs at the WTO. NTM-related negotiations are also taking place in the Negotiating Group on Trade Facilitation and the Negotiating Group on Rules.8 A draft proposal for a ministerial declaration is currently being circulated at the request of several delegations in NGMA, which proposes procedures for facilitating solutions to individual NTMs as they arise (TN/MA/W/88). This process would be independent of the dispute settlement procedures under the WTO DSB and would instead be overseen by the WTO committee most relevant to the NTM in question. Procedures would involve an initial exchange between affected members and the appointment of a facilitator if no agreement can be reached at the initial stage. A solution would be brought about only by mutual agreement. Addressing Concerns of LDCs Even though LDCs may not face the most stringent market access conditions in absolute terms (see Figure 1 and Figure 2), larger capacity constraints make it more difficult to overcome barriers posed by non-tariff measures. In East-Asia, the group of least developed countries includes Cambodia, Laos, and Myanmar. 8Annex D of the Decision adopted by the General Council on August 1, 2004, para 1&2: "1. Negotiations shall aim to clarify and improve relevant aspects of Articles V, VIII and X of the GATT 1994 with a view to further expediting the movement, release and clearance of goods, including goods in transit. Negotiations shall also aim at enhancing technical assistance and support for capacity building in this area. The negotiations shall further aim at provisions for effective cooperation between customs or any other appropriate authorities on trade facilitation and customs compliance issues. 2. The results of the negotiations shall take fully into account the principle of special and differential treatment for developing and least-developed countries. Members recognize that this principle should extend beyond the granting of traditional transition periods for implementing commitments. In particular, the extent and the timing of entering into commitments shall be related to the implementation capacities of developing and least-developed Members. It is further agreed that those Members would not be obliged to undertake investments in infrastructure projects beyond their means." 13 While some of the concerns of LDCs regarding NTMs could be addressed by raising them in the relevant committees and through bilateral discussions within multilateral and regional fora, LDCs often lack the necessary negotiating capacity. Other problems are related to their lack of capacity to comply with certain measures imposed by importing countries. Along with negotiating options, this section therefore highlights the importance of overcoming capacity constraints (human, institutional and supply-side capacity) and the need for increased interaction between the private sector and governments of LDCs to identify the real issues and to seek necessary solutions. Maximizing Opportunities through the DDA Negotiations: The Negotiating Group on Market Access (NGMA) has been working on a process of identification, categorization and examination of NTMs notified by Members, with a view to ultimately negotiating appropriate ways to address problems raised.9 Although LDCs have been active participants in several areas of the DDA negotiations, their engagement in this area has been limited. Notifications have been few in number and information as to the specifics of the problems in those notifications was limited (which is why the approach was eventually abandoned). Members are developing bilateral, vertical and horizontal approaches to the NTM negotiations. The outcome of these negotiations would be multilateralized ensuring that benefits accrue to all Members. Nevertheless, more engagement from LDCs in these areas of negotiations could ensure targeted benefits including, inter alia, the possibility of improving market access conditions in developed as well as developing country markets. It is therefore important that the LDCs table specific proposals for the elimination or reduction of NTMs. An additional means for LDCs to address NTMs in the context of the DDA is through the trade facilitation (TF) negotiations, which seek to tackle a number of NTMs, especially in the areas of trade goods transit, import/export fees and formalities and trade regulations centering on Articles V, VIII and X of the GATT 1994. A few LDCs have tabled proposals in the TF negotiations. Rwanda, along with Paraguay and Switzerland has submitted proposals on improving and clarifying the provisions of GATT Article V with a view to expediting the movement of goods in transit (TN/TF/W/39).10 Uganda has co-sponsored a communication along with the United States concerning GATT Article VIII proposing prohibition of requiring consular transactions, including consularization- related fees and charges, in connection with the importation of goods (TN/TF/W/22 and TN/TF/W/86).11 LDCs could further consider identifying lacunae in the trade facilitation field and make proposals in this regard. It may be noted that 16 out of the 50 LDCs are landlocked, and many of them have called attention to the need to facilitate transit arrangements to enhance their export competitiveness. Although preferential rules of origin have so far not been subject to WTO rules, the Hong Kong Ministerial Declaration refers to them.12 At the Twenty-Fifth Special Session of the Committee on Trade and Development, the LDCs introduced a paper on Rules of Origin (later circulated as document TN/CTD/W/30). The paper proposes using a combination of value addition and local content criteria to confer origin and provides a detailed proposal on how value addition and local 9See WTO, Job(04)/62/Rev.7 for a compilation of NTM notifications received. 10 As a follow-up to this submission, these Members also submitted a textual proposal on the use of international trade facilitation standards (TN/TF/W/119). 11Building upon this submission on transit, a textual proposal is contained in document TN/TF/W/104. 12Paragraph (b) of the "Decision on Measures in Favour of Least-Developed Countries" in Annex F of the Hong Kong Ministerial Declaration says that "developed-country Members shall, and, developing-country Members declaring themselves in a position to do so should ensure that preferential rules of origin applicable to imports from LDCs are transparent and simple, and contribute to facilitating market access". 14 content percentages should be calculated. The submission is specific to the Decision 36 in Annex F of the Hong Kong Ministerial Declaration relating to duty-free and quota-free (DFQF) market access for LDCs. Strengthening Negotiating Capacity: Despite an increase in LDCs' participation in the multilateral trading system in recent years, their overall participation in the regular committees of the WTO that deal with NTMs has been limited. This can largely be explained by their human resource constraints. Generally, LDC delegations based in Geneva are small in number. Moreover, attendance of experts from capitals, which is often required due to the technical nature of some committee work, cannot be assured due to resource constraints. This capacity constraint also affects their ability to screen and analyze the information contained in the notifications from Members and to communicate this to their private sectors. Strengthening Standards Capacity: Another capacity constraint concerns the actual ability to comply with required standards. LDCs have indicated in the past that an important reason why they have not been able to fully utilize market access opportunities - MFN or preferential - is their weak supply-side capacity. Targeted assistance from bilateral donors has helped a number of LDCs meet certain requirements in their major markets and a number of initiatives have been taken at the international level to address standards-related constraints faced by LDCs. One such initiative is the Standards and Trade Development Facility (STDF). The WTO, in partnership with the FAO, WHO, OIE and the World Bank, created the STDF in September 2002. The aim of this Facility, which is both a financing and coordinating mechanism, is to assist developing countries in enhancing their capacity to meet international SPS standards, improve their human health, animal health and phytosanitary situation, and thus gain and maintain market access. The STDF provides grant financing for private and public organizations in developing countries including LDCs seeking to comply with international SPS measures.13 LDCs can also utilize the regular WTO committees to address their technical assistance needs. For instance, the TBT Committee adopted a format for the voluntary notification of specific technical assistance needs and responses in 2005 (G/TBT/16). While LDCs are yet to make any notifications in this regard, two LDCs have submitted responses to the questionnaire circulated in the SPS Committee indicating their technical assistance needs.14 Furthermore, WTO is part of several international technical assistance initiatives which provide assistance to developing countries to enhance their capacity to increase their participation in world trade. Since ultimately it is only the private sector, which can provide first-hand information on the problems they encounter in exporting their products, it is vital that a regular and effective link is established with the private sectors/industries in collecting information on relevant NTMs. Lack of specific information about NTMs inhibits delegations from raising the issue in the relevant bodies. LDCs have recently taken steps to conduct a survey among their exporters.15 A proper identification of difficulties through such surveys would help LDCs identify the actions that need to be taken to address the concerns expressed by their exporters. 13It provides funds for two types of grants: project preparation grants (PPGs) and project grants. The partners in the STDF have committed to devote at least 40 per cent of facility resources to projects from LDCs. 14Uganda (WTO, G/SPS/GEN/295/Add.5) and Senegal (WTO, G/SPS/GEN/295/Add.20/Rev.1). 15 The Secretariat has helped LDCs prepare a model survey form that can be used by the LDCs in order to identify the problems facing their exporters. 15 2. Regional Initiatives16 Approaches at the regional level stretch across a wide spectrum, reaching from complete prohibition of NTMs to agreements that go barely further than WTO commitments. By guaranteeing free movement for goods and services, implying a right to market access for member countries, the EU system occupies one end of the spectrum, whereas APEC with its main emphasis on transparency of national regulations is to be found towards the other end. Other NTM initiatives are found in ANZCERTA, NAFTA, Mercosur and ASEAN. Before turning to the case of ASEAN, this section will briefly describe different prominent systems so as to provide a frame of reference for the ASEAN approach. Table 1 provides a brief overview. In judging the effectiveness of different NTM initiatives, not only the rules themselves will be important but also their credibility, i.e. enforcement mechanisms are crucial. A good enforcement mechanism does not necessarily have to mean formal, third-party adjudication but can also take the form of informal consultations between governments, where the number of parties to the agreement is small and parties to the agreement interact frequently and with high stakes (in this case high trade volumes/values) such that the cost of defection would be high. Table 1: Trade Agreement Approaches to NTMs NTM Program and Compliance/ Effectiveness in objective commitments enforcement meeting objectives required mechanism EU Elimination by Pooled sovereignty, Monitoring, 12.8% of directives not 1992 Transpose into complaints, yet implemented in national law, mutual infringement 2000; 50% of mandated recognition, procedure, standards ratified harmonized law sanctions WTO Transparent, Consistency with Dispute settlement Low compliance with not trade Agreements (rules to thru consultations, notification objectives distortive limit trade restrictive trade policy review (MFN, effect), notification National Treatment) APEC Elimination Action plans, None (use WTO) Notification for notification since voluntary transparency in EVSL sectors varies CER Elimination by Removal Consultations QRs removed by 1990 1995 MERCOSUR Elimination by Progressive removal Direct No data 1994 negotiations, Common Market Group decision, or Council NAFTA Elimination by Phase out of 4 dispute Mexico NTMs being 2008 virtually all settlement modes, eliminated; Canada and restrictions on trade no retaliation US done before and investment Source: ASEAN Program for Regional Integration Support (2005) 16This section draws on ASEAN Program for Regional Integration Support (2005), Issues and Options for the Work Program to Eliminate Non-Tariff Barriers in AFTA 16 The EU The EU today consists of 27 member states and has, with the introduction of the Single Market in 1992 and a common currency in 2001, achieved the deepest form of international integration in existence. Goods and services (as well as capital and labor) are guaranteed free movement, which goes further than free trade in that it eliminates not only tariffs but also non-tariff measures (with the exception of some derogations). Commitments made by countries under the various EU treaties are legally binding and the right to market access is enforceable in the last instance at the European Court of Justice. Since the adoption of the Single European Act in 1986, it is possible to make most decisions by qualified majority voting rather than unanimity, thereby speeding up the decision making process. Together with tariffs, quotas between member countries were eliminated by 1968 and attention subsequently turned to other non-tariff measures. Art 28 (29) of the 1957 Treaty of Rome as amended by the 1997 Treaty of Amsterdam states that "quantitative restrictions on imports (exports) and all measures having equivalent effect shall, without prejudice to the following provisions, be prohibited between member states". Measures equivalent to quantitative restrictions are interpreted to include import licenses, certificates, inspections, conditions of credit or payment, national regulations or price controls, or discrimination in government procurement, amongst others. The EC further prohibits all types of trade remedies, which include anti-dumping, safeguards and countervailing measures. The removal of non-tariff measures rests on three broad principles, which are (i) non-discrimination, prohibiting different treatment for "similar" goods produced in another member country, (ii) mutual recognition (of the regulatory objectives of legislation in the other member states), derived from the 1979 Cassis de Dijon case, providing that any good legally marketed in one member state must be accepted in all other member states; and (iii) direct harmonization of legislation, where regulatory objectives of countries initially differ, as for example in the case of health and safety regulations. Enforcement of treaty obligations is strict in the EU. Monitoring compliance with obligations falls first on national authorities which must verify that European directives are correctly applied once they have been transposed into national law. Where countries are found to be violating obligations, the European Commission as "guardian of the treaty" can initiate infringement procedures. Should a country still not comply after such a procedure, the European Court of Justice has the power to impose penalty payments and take away privileges under the treaty from the country as a last resort. A single market scoreboard was introduced in 1997 as a benchmarking tool to monitor progress, giving member countries another push to complete the Single Market. APEC The Asia-Pacific Economic Cooperation (APEC) is an inter-governmental grouping of 21 countries which aims to bring about trade and investment liberalization and business facilitation through policy dialogues and technical cooperation. All decisions are reached by consensus and all commitments made under APEC are non- binding. The Osaka Action Agenda of 1995 is the main document setting out APEC's integration strategy. In 2002, member countries agreed on a more concrete Trade Facilitation Action Plan which set out the objective of reducing transaction costs for businesses by 5% in 2006. While the tariff element of the liberalization efforts was transferred to the WTO in 1998, there have been various initiatives within APEC to reduce barriers posed by non-tariff measures. A committee on Trade and Investment was set up to implement the Osaka Agenda, which houses the Market Access Group, tasked with identifying and reducing NTMs. The work program on non-tariff measures under the Osaka Agenda is mainly concerned with enhancing transparency by means of building an NTM database and compiling lists of measures considered to be NTMs and products affected by them. It further calls for identification of concrete national regulations and administrative arrangements that could turn out to be impediments to trade. To this end, APEC adopted Transparency Standards on Tariff and Non-Tariff Measures committing members to make available 17 information to interested parties "through readily accessible media, information on its laws, regulations, procedures and administrative rulings on tariffs and NTMs". Only two measures are singled out explicitly by the Osaka Agenda for reduction and elimination ­ export subsidies and unjustifiable export prohibitions and restrictions. The initiative further calls for more discussion and research on the status quo of NTM impediments and best practices for their reduction. Given the absence of a dispute settlement system within APEC, none of the commitments above are enforceable beyond the minimum required by the WTO. A report by the Market Access Group in 2001 concluded that initiatives have been successful to the extent that countries have been streamlining trade- and capital transaction-related regulations and systems, in particular related to customs and quarantine administration and standards and technical regulations. Sector-specific initiatives took place in forest products, environmental goods, fish and fish products, toys, gems and jewelry, chemicals, energy, medical equipment and instruments, food, natural and synthetic rubber and oilseed and oilseed products in the late 1990s. These initiatives generally took the form of notification exercises or studies collecting inventories of NTMs, and had very varying response rates and ultimately little impact. ANZCERTA The Australia-New Zealand Closer Economic Relations Trade Agreement came into effect on January 1, 1983 and builds on earlier trade arrangements between the two countries. It encompasses free trade in goods and services based on a negative list approach, i.e. goods and services are liberalized unless explicitly excluded from the scope of the agreement. Besides elimination of tariffs, CER contains an obligation to phase-out existing quantitative restrictions and tariff quotas and not to impose any new ones. It has further adopted the all- encompassing principle of mutual recognition for goods17 (as pioneered by the EU, and so far applied only by the EU and ANZCERTA), meaning that a good legally sold in Australia must be granted market access in New Zealand and vice versa. CER also imposes stricter rules regarding the use of trade remedies than most other regional agreements. While countervailing measures can be used in accordance with the WTO Agreement as a last resort, both anti-dumping and safeguards measures are prohibited under the CER.18 The administration of both regular and SPS standards is governed largely by the WTO Agreements, however the objective is to harmonize standards eventually or have mutual recognition agreements in place, as appropriate. Australia and New Zealand have further introduced common procedures to determine whether rules of origin have been met. The long-standing relationship of trust between the two governments has made a specific binding dispute settlement system unnecessary. Instead any disagreements regarding the CER are addressed directly through dialogue between the two governments. It is also due to the close relationship between the two countries that free trade in goods was achieved five years ahead of schedule, including elimination of quantitative restrictions and progressive approximation of policies, laws and regulations. NAFTA NAFTA evolved out of the BTA between the US and Canada and fully came into existence in 1994 with the inclusion of Mexico. NAFTA's liberalization goal is slightly less ambitious than that of some other agreements discussed here in that it aims to eliminate barriers and facilitate trade in goods and services while falling short of wanting to achieve free movement. 17In ANZCERTA, mutual recognition also applies to occupations 18Australia and New Zealand have a common competition law in place. 18 The use of non-tariff measures in NAFTA is fairly restricted. Export and import restrictions are prohibited, in particular any quantitative restrictions must be eliminated unless there is an explicit exception. The WTO SPS Agreement largely applies, while in addition countries have agreed to work towards mutual acceptance of each other's SPS measures. Other standards only fall under the obligations of the agreement where they are directly related to trade. Safety, health and consumer protection standards can be different between countries as long as they are non-discriminatory and are based on international standards. There is no obligation to harmonize existing standards, but new standards should be made compatible with existing regulations in the other two countries. A special regime applies to trade remedy measures: countries are allowed to keep their national legislation regarding anti-dumping measures and countervailing duties, however, there is an obligation to consult with the other two members when modifying one's legislation. Further, countervailing measures, while allowed along the terms set out in the WTO Agreement, should be used as a last resort only. The imposition of both bilateral and global safeguards is allowed under NAFTA. Members to the agreement set up the Free Trade Commission which is tasked with ensuring compliance and resolving disputes. The dispute settlement system applies except in anti-dumping and countervailing duties cases which fall under a different adjudication process. Where panel rulings are ignored by the offending party, the dispute settlement system of NAFTA allows compensation or suspension of equivalent benefits, making the enforcement mechanism more powerful. Overall, progress of NTM elimination has been successful in facilitating trade, though trade has not yet become free. 19 III. THE ASEAN APPROACH TO NTMS The ASEAN Vision ­ as originally agreed upon by ASEAN leaders in Bali in 2003 ­ entails the economic integration of member countries so as to create a single market and production base by 2015. To this end, ASEAN members are working towards the free flow of goods, services, investment and skilled labor as well as a freer flow of capital. The stated goal of this integration is mainly to foster competitiveness, which in turn is expected to raise growth rates. There was broad consensus at Bali amongst the membership that the implementation of initiatives such as the ASEAN Free Trade Area (AFTA), the ASEAN Framework Agreement on Services, and the ASEAN Investment Area needs to be strengthened in order to achieve this ambitious goal. Members further identified eleven priority sectors at the 10th ASEAN Summit in 2004, which are to be fully liberalized by 2010. In the framework of AFTA, members are in the process of reducing tariffs on a preferential basis, while equal weight is placed on the reduction of non-tariff measures based on the understanding that NTMs may undermine any tariff reductions achieved. This point has been emphasized repeatedly at the highest level by the AFTA Council and the ASEAN Economic Ministers. A broad strategy to achieve this goal is laid out in the recommendations by the High Level Task Force on ASEAN Economic Integration which states that member countries are "to ensure transparency of non-tariff measures and eliminate those that are barriers to trade". The Roadmap for Integration of ASEAN specifies that NTMs are to be eliminated by 2010 for the ASEAN 6 and 2015/2018 for CLMV. Elimination of NTMs has been moving more slowly than tariff reduction, however, as its scope is not as easily defined (see discussion on measurement and other methodological issues). Nevertheless, ASEAN is further ahead than most regional agreements in developing a coherent strategy for overcoming NTMs. In terms of incidence, a first glance at the data makes clear the importance of quantitative and technical measures in South-East Asia (UNCTAD TRAINS). Overall, ASEAN countries have notified around 2000 technical measures and 1500 quantity restrictions, together making up approximately 90% of NTMs in ASEAN. Price control, finance, automatic licensing and monopolistic measures seem less important (Figure 3). Figure 3: NTMs by country Figure 4: NTMs by sector price control measures Vietnam misc. manufacturing (optics, clocks, arms, toys, art) Cambodia finance measures Indonesia automatic licencing measures electronics, computers, motor vehicles, tools, Laos household appliances, machinery Thailand quantity control measures Malaysia monopolistic measures iron and steel, base metal and metal articles Philippines technical measures Thailand Philippines fabric, textiles, footw ear Vietnam w oven fabrics of w ool, cotton, flax, synthetic fibers Malaysia rubber, leather, paper, books, plyw ood Laos chemicals, pharmaceuticals, cosmetics, fertilizers, explosives, plastics prepared foodstuffs, alcoholic and non-alcoholic Indonesia beverages, tobacco, organic chemicals cereal, seeds, oil, prep. foodstuffs Cambodia live animals, meat, fish, dairy, plants 0 200 400 600 800 1000 0 100 200 300 400 500 600 700 800 900 100 0 number of NTM notifications Number of NTM notifications Source: UNCTAD TRAINS, latest available year Note: latest available data: Cambodia: 2003, China: 2001, Indonesia: 2003, Laos: 2004, Malaysia: 2003, Philippines: 2001, Thailand: 2003, Vietnam: 2004 20 Thailand, Indonesia, Malaysia and the Philippines have more technical regulations in place than the CLMV countries, which can partly be explained by the fact that countries begin to regulate more as incomes increase and a standards infrastructure is put in place. Quantity control measures are the second most used NTM, with Malaysia and Vietnam using predominantly non-automatic licenses and the Philippines having a considerable number of prohibitions in place. Taking a sectoral perspective, most NTMs in ASEAN are found in the agricultural goods and food sector, which call for SPS regulation due to the health risks for humans, animals and plants carried by goods in these sectors (Figure 4). Detailed data on sectoral incidence of NTMs in East Asia are provided in Annex IV. As the East Asian market is becoming more important as an export destination for the individual East Asian countries, the barriers presented above are likely to become a concern to exporters in the region in addition to the barriers imposed by the large traders US, EU and Japan and other OECD countries. 1. Mandate for NTM Elimination19 NTMs have been a concern for ASEAN countries not only since the inception of AFTA in 1992. Already the Preferential Trading Arrangement Agreement of 1977 contained provisions regarding the preferential liberalization of NTMs. This commitment was reiterated in the 1987 Memorandum of Understanding on Standstill and Rollback on Non-Tariff Barriers. The MoU was concerned both with NTMs inconsistent with GATT, as well as those which were in line with GATT rules, in particular covering those that were affecting industries which were seen as crucial for the success of ASEAN economic integration. Members agreed to reduce NTMs on a preferential basis if they were consistent with GATT, while GATT inconsistent measures were to be eliminated. All concessions were to apply to all member countries. The MoU further introduced an obligation to provide the Secretariat with an inventory of all existing measures as well as an obligation to notify new NTMs. Countries were also able to report grievances about measures imposed by trade partners (reverse notification) and the Secretariat would facilitate the solution of such disputes. Box 3: Decisions taken in ASEAN NTM meetings in recent years: · Procedures for notification, cross-notification or complaints · Database formation · Review of working definitions and criteria · Verification and justification by members of notified NTMs · Classifying them into (i) technical barriers to trade (TBTs), (ii) sanitary and phytosanitary measures (SPS); (iii) security and environment measures, (iv) import licensing procedures (ILP) and/or other administrative measures. Subsidies, anti-dumping and countervailing duties were deleted from the list. · Mechanism for addressing complaints · Design of a work program for eliminating "unjustifiable and unnecessary" NTMs Source: ASEAN Program for Regional Integration Support (2005) With the inception of the AFTA-CEPT Agreement in 1992, rules regarding NTMs were tightened further. The Agreement called for an immediate elimination of all quantitative restrictions for products enjoying concessions under the CEPT scheme, giving a grace period of up to 5 years for the elimination of other NTMs affecting those same products. Subsequently, the Coordinating Committee on the Implementation of the AFTA-CEPT Scheme designed a work program, which focused on a review of the working definitions of NTMs, their verification and cross-notification and the creation of a database. 19This section draws on ASEAN Program for Regional Integration Support (2005), Issues and Options for the Work Program to Eliminate Non-Tariff Barriers in AFTA 21 The recommendations of the ASEAN Economic Ministers' High Level Task Force on ASEAN Economic Integration in 2003 (included in the Annex of the Bali Concord II) were made in light of the Hanoi Plan of Action (1999-2004) and reinforced the demand for acceleration of tariff reductions, customs harmonization and solution of issues related to standards and conformity assessment, including simplified customs procedures as well as accelerated implementation of Mutual Recognition Agreements for priority sectors and harmonization of standards and technical regulations. Activities in the areas of customs and standards had previously taken the following form: Customs By 1996 ASEAN had phased out all customs surcharges affecting identified CEPT products and a Framework Agreement on the Facilitation of Goods in Transit was signed in 1998, allowing goods to be moved by road or rail across ASEAN countries with minimum customs inspections, vehicle specifications and regulations for drivers. ASEAN has also simplified and harmonized national tariff nomenclatures at the 8-digit Harmonized System level. This new ASEAN Harmonized Tariff Nomenclature was implemented in January 2002. Further, the Green Lane through which goods can be cleared within one to two hours has been expanded to cover all ASEAN products. In order to achieve faster customs clearance in general, ASEAN has embarked on cooperative efforts to improve the technical capabilities of ASEAN customs to meet the demand for a more sophisticated trading environment in support of ASEAN's economic integration. This is being forged through partnerships among ASEAN members, the trading and business community in the region, and with ASEAN's Dialogue Partners. Priority is given to preparing members to adopt modern approaches to customs procedures, in particular risk management techniques. Standards and Conformity Assessment In recognition of the importance of standards and conformance in regional integration, the ASEAN Economic Ministers established the ASEAN Consultative Committee on Standards and Quality (ACCSQ) in October 1992. The Committee has been given the mandate to eliminate technical barriers to trade in the region and to this end has formed several cross-cutting (on MRAs/standards; accreditation/conformity assessment; and legal metrology) as well as product-specific working groups. The two main integration strategies pursued in the region take the form of harmonization to international standards and mutual recognition agreements (MRAs) for testing procedures. In 1997, the AFTA Council identified a list of 20 priority areas for harmonization, dealing mostly with consumer health and safety. According to the ASEAN Secretariat, full harmonization had been achieved for all 20 products in 2003. Harmonization was carried out based on 59 ISO, IEC and ITU international standards as suggested in clause 2.4 of the WTO TBT Agreement. In addition, an initiative to harmonize standards with respect to electrical safety aspects of electrical products and Electromagnetic Compatibility (EMC) was commenced in 1999. 71 Safety and 10 EMC standards were identified and all ASEAN Member Countries had completed harmonization of these standards in July 2004. Similarly, the working groups under the Senior Officials Meeting of the ASEAN Ministers of Agriculture and Forestry (SOM-AMAF) identified priority crop and livestock products harmonization of Sanitary and Phytosanitary (SPS) measures in 1997. ASEAN standards for 28 types of animal vaccines were also finalized. 22 Table 2: ASEAN Harmonization ASEAN harmonization for 20 priority products was completed by 2003: Air-conditioners Refrigerators Monitors and keyboards Inductors Loudspeakers Video apparatus Telecommunications equipment Radio Television Parts of TV and radio Capacitators Resistors Printed circuits Switches Cathode ray tubes Diodes Mounted piezo-electronic crystal Motors and Generators Rubber condoms Medical rubber gloves (+ 71 safety standards and 10 EMC standards) Source: ASEAN website Further, a Framework Agreement on Mutual Recognition Arrangements (MRA) was signed in December 1998, providing the basis for accelerating the development of bilateral as well as regional mutual recognition arrangements on standards and conformity assessments among members. The Interpretative Notes to this were finalized in October 1999. This was followed by concrete sector specific MRAs for electrical and electronic equipment, telecommunications equipment and cosmetics (2003), which are currently in different stages of implementation. An MRA in pharmaceuticals is near completion and another one is planned for prepared foodstuffs. Further approximation of standards and testing procedures is being undertaken in the traditional medicines and health supplements, medical device, automotive and wood industries. There is further a movement away from government involvement in securing health and safety standards and towards more private sector responsibility. On January 1, 2008, the ASEAN Cosmetics Directive came into effect, harmonizing the regulatory regime of member countries' cosmetics industries and switching the system from one of pre-market product-by-product approval by government to risk-based post-market surveillance. 2. Prioritization Strategies There are several elements one needs to consider in designing a strategy to eliminate or reduce NTMs: (i) the importance of different sectors in raising the competitiveness of the integrating region; (ii) the trade restrictiveness of different measures (volume and elasticity); (iii) the regulatory objectives a measure seeks to obtain; and (iv) a measure's consistency with WTO rules and principles, including transparency and non-discrimination. These elements can be considered in different sequences. One option is to primarily agree on a selection of priority sectors and eliminate or reduce ­ as appropriate ­ the NTMs plaguing these sectors across the board (horizontal approach). Another strategy would be to identify those NTMs which are most welfare reducing (i.e. affect a large amount of trade and are not justified by other social welfare objectives) and primarily target those measures across sectors (vertical approach). ASEAN members have decided to follow the first strategy and focus on NTMs affecting the eleven priority sectors identified in 2004 and subsequently prioritize their elimination taking into account the other elements. Priority Sector Criterion In 2004, ASEAN singled out eleven sectors as priority integration sectors (independent of the NTM- process), based on their great potential for "(a) combining the economic strengths of ASEAN members for regional advantage, (b) facilitating and promoting intra-ASEAN investments, (c) attracting and retaining manufacturing and other activities within the region, (d) promoting 23 outsourcing within ASEAN, (e) developing "made in ASEAN" products and services." These priority sectors include nine goods sectors (agro-based products, fisheries, healthcare, rubber, wood, textiles, information technology, electronics, and automotive) and two service sectors (air-transport and tourism). In order to realize these potentials, it will be important to reduce the incidence of NTMs in these critical sectors. This is particularly relevant since an analysis by the ASEAN Secretariat (ASEAN Program for Regional Integration Support, 2005) shows that more often than not, the products with high NTM incidence fall under one of the eleven priority sectors: NTMs seem to be particularly prevalent in electrical equipment, organic chemicals, motor vehicles, tobacco, cereals, sugar, cosmetics, beverages, cereal/flour/milk preparations, edible fruit and nuts, pharmaceuticals, cocoa, dairy products, coffee/tea/spices, live animals, vegetables, meat/fish preparations, vegetable preparations, waste from the food industry, seeds, live trees, meat and edible offal. Trade Impact Criterion Ideally an estimate of the relative effects of a given NTM on welfare would give an indication of which should be eliminated. Given the difficulties with quantifying the welfare impact of NTMs however (see section 1), several more practical criteria have been considered by the Interim Technical Working Group on CEPT for AFTA (ITWG). These criteria are not mutually exclusive and can be used singly or in combination with each other to set priorities. These criteria are in order of importance: a) number of private sector complaints, b) difference between domestic and world prices, and c) trade value Regulatory Objective Criterion Regulatory objectives include for example revenue generation and protection of health and safety of consumers; any less-trade distorting measure replacing an NTM will have to take these into account. WTO-Consistency Criterion Since it is difficult to find a narrow standard by which to validate which NTMs are legitimate, the ASEAN Secretariat classified each of the verified broad classes20 of NTMs on the basis of the most important WTO principles. WTO-consistency requires that the NTM: 1. is transparent 2. does not discriminate 3. has scientific basis in the case of SPS measures, and 4. has no better alternative. Hence, one strategy would be to: first eliminate NTMs that are potentially non-transparent and discriminatory in application; next eliminate NTMs that are transparent but discriminatory and only retain NTMs which have scientific basis and are applied to both domestic and imported goods. In their effort to eliminate NTMs, ASEAN have examined every identified non-tariff measure in light of the four WTO criteria above (see Table 3). 20as defined in the working definitions adopted from UNCTAD; cf. Annex 1 24 Table 3. Characteristics of Verified NTMs Potential for non- Alternative measure that can Type of NTM Objective transparent and Scientific achieve objective in less discriminatory application basis distortive manner 1400 ­Tariff quota Protection None since based on None Tariffs duties predetermined criteria such as product type and amount but discriminates between products 2200 ­ Additional Revenue None since transparent and None Uniform tax on both domestic charges applied uniformly on imports and imported products 2300 ­ Internal Revenue or to cover None since transparent and None Uniform tax on both domestic taxes and charges administrative costs applied uniformly on imports and imported products levied on imports 3100 ­ Protection through price Non-transparent basis for None Tariffs Administrative control price; discriminates between pricing products 3400 ­ Protection through price None since transparent, None Remedy already provided for Antidumping control covered by WTO Agreement under WTO rules measures 4300 ­ Restrictive Control outflow of Transparent but may None Uniform surcharge on imports, official foreign foreign exchange discriminate between or tax on all foreign exchange exchange allocation importers transactions or some other form of capital control 5100 ­ Automatic Monitor imports None since freely granted None Ex-post reporting of imports licensing based on customs entries 6100 ­ Non- Protection through Can be nontransparent, None Tariffs automatic licensing quantity control unpredictable, arbitrary, discriminatory 6200 ­ Quotas Protection through Basis for quota may be non- None Tariffs quantity control transparent; discriminates between products 6300 ­ Prohibitions Protection through Transparent but Covers Tariffs if rationale is quantity control; also for discriminates between sensitive protection; domestic tax or public health and safety, products products, to regulation of consumption security, environmental, protect health, regardless of source if for religious, moral reasons safety, morals, technical reasons security, environment 6700 ­ Enterprise- Selective protection Procedures and their None Tariffs; fiscal incentives given specific restrictions application can be non- to selected sectors transparent and discriminate between products 7100 ­ Single Fiscal, economic, or Transparent but None Tax if fiscal; incentives if channel for imports social discriminates between economic; tax or controls on products domestic consumption, or operation of buffer stock if social 8100 ­ Technical Protect health, safety, Transparent administration Yes for health, None; harmonization, mutual regulations environment, security and equal application on safety, recognition of standards would domestic and imported environment or reduce costs products is likely; however, security discriminates against reasons subjected products 8200 ­ Pre- Protect government Basis for quality, quantity or None Risk management at Customs shipment inspection revenue price evaluation can be non- with post-entry audit transparent; discriminates between products and origins unless comprehensive Source: ASEAN Program for Regional Integration Support (2005) Ideally, these measures should be replaced by transparent and non-discriminatory measures which nevertheless achieve the same policy goals (such as protection, revenue, safety) (see Box 4). 25 Based on the combined insights regarding sectoral importance, trade restrictiveness, regulatory objectives and WTO consistency of a given measure, ASEAN has proposed to subsequently classify NTMs into the following categories: a) Red Box: NTMs maintained on products traded in ASEAN which would require immediate elimination; b) Amber Box: NTMs which could not be clearly identified or classified as barriers; and c) Green Box: NTMs which could be justified and should be maintained. Box 4: ASEAN Strategy for NTM elimination 1. Reexamine each of the verified NTMs and classify them correctly, indicating their purpose and implementing procedures. 2. Select NTMs that are unnecessary and can be removed without being replaced with alternative measures. Automatic licensing is an example. 3. Prepare to eliminate the first set of NTMs identified above as potentially highly non-transparent and discriminatory. Specify the requirements of the alternative measures that will replace them. In the case of tariffs which are to replace non-automatic licensing, quotas, or administrative pricing, estimate the rates for each product affected. This must be done within the context of the [preferential] scheme and may require a rationalization of the whole tariff structure. Determine the fiscal incentives which are to replace enterprise-specific restrictions. Risk management and post-entry audit at customs which is to replace pre-shipment inspection. 4. Undertake similar preparations for the second set, i.e. tariff quota duties, prohibitions on non-sensitive goods, and single channel for imports. For the last, a longer timeframe will be necessary if it involves changing the sole mandate of a government agency. 5. Study the main official documents (laws, regulations, decisions) which serve as the legal basis for each NTM. Ascertain the procedural and time requirements for amending these. 6. Draft the necessary amendments to the legal documents. This will include the rationale, replacement measure, date and period of effectivity. A transition period for the replacement measure may be specified, e.g. tariffs may be phased down or the whole tariff structure may be transformed into a low uniform rate. 7. Secure the necessary amendments within the targeted timeframe. Source: ASEAN Program for Regional Integration Support (2005) 3. Strengthening Compliance ASEAN's NTM strategy foresees two mechanisms for ensuring compliance: firstly, their drive towards increased trade among ASEAN member countries squares well with the fact that increased trade volumes will lead to higher self-enforcement; this is due to the fact that potential retaliation becomes more damaging as countries grow more dependent on each others' imports and markets; a second mechanism that is envisaged as supplementary is third party enforcement. In this context, ASEAN members have considered adopting the EU model of "pooling sovereignty" in a third party. Since this is a very ambitious undertaking and is very far removed from the usual ASEAN decision making by consensus and informal arrangements, this mechanism would primarily be applied only in one test sector. In effect, this would mean that a single ASEAN body would be set up for a particular sector, which would deal with all matters related to this sector and issue binding rulings or directives to be transposed into national law. This test sector would thereby become a truly integrated single market and production unit. 26 In sectors where these two mechanisms do not yet work, compliance will have to be enforced through peer pressure, counter-notification, dispute settlement and sanctions, based on a functioning monitoring system. Models for monitoring could be the WTO's Trade Policy Review Mechanism or the EU Scoreboard. The EU Scoreboard documents progress in the elimination of trade barriers by tracking the implementation of common directives, the status of infringements and infringement procedures for example, thereby acting as a benchmark tool by which the EU member countries are compared. 27 References ASEAN Program for Regional Integration Support (2005), "Issues and Options for the Work Program to Eliminate Non-Tariff Barriers in AFTA" Bacchetta, M. and B. Bora (2001), "Post-Uruguay Round Market Access Barriers for Industrial Products", Policy Issues in International Trade and Commodities, Study Series No. 12, Geneva, UNCTAD. Baldwin, R. (1970), Non-Tariff Distortions in International Trade. Washington, D.C.: Brookings Institution. Bora, B. (2005), "Quantification and Impact of Non-Tariff Measures", in P. Dee and M. Ferrantino (eds.), Quantitative Measures for Assessing the Effect of Non-Tariff Measures and Trade Facilitation, pp. 17-40. Bora, B., A. Kuwahara and S. Laird (2002), "Quantification of Non-Tariff Barriers", Policy Issues in International Trade and Commodities, Study Series No. 18, Geneva, UNCTAD. Deardorff, A.V. and R. M. Stern, (1997). Measurement of Non-Tariff Barriers. Economics Department Working Paper No. 179, Organisation for Economic Co-operation and Development, Paris. Ferrantino, M. (2006) "Quantifying the trade and economic effects of non-tariff measures", OECD Trade Policy, Working Paper No. 28, OECD, Paris. Kee, H. L., A. Nicita and M. Olarrega (2006), "Estimating Trade Restrictiveness Indices", World Bank Policy Research Working Paper No. 3840 Laird, Sam and René Vossenaar (1991), "Porqué nos preocupan las bareras no arancelarias?", Información Comercial Española, Special Issue on Non-tariff Barriers, November, pp. 31-54. Lloyd, P. (1996) "The Changing Nature of RTAs" in B. Bora and C. Findlay (eds.), Regional Integration and Asia Pacific, Melbourne, Oxford University Press. Organization for Economic Cooperation and Development (OECD) (2005), "Analysis of Non-Tariff Barriers of Concern to Developing Countries" United Nations Conference on Trade and Development (UNCTAD) (2005), "Methodologies, Classifications, Quantification and Development Impacts of Non-Tariff Barriers", Geneva, UNCTAD. World Trade Organization (WTO) (2005), "Trade, Standards and the WTO", World Trade Report 2005 WTO (2006), "Non-tariff Measures on Products of Export Interest to the Least-Developed Countries" 28 Annex I: NAMA Classification of Non Tariff Barriers Parts & Description Sections Part I Government Participation in Trade and Restrictive Practices Tolerated by Governments A Government aids, including subsidies and tax benefits B Countervailing duties C Government procurement D Restrictive practices tolerated by governments E State trading, government monopoly practices, etc. Part II Customs and Administrative Entry Procedures A Anti-dumping duties B Customs Valuation C Customs classification D Consular formalities and documentation E Samples F Rules of Origin G Customs formalities H Import licensing I Pre-shipment inspection Part III Technical Barriers to Trade A General B Technical regulations and standards C Testing and certification arrangements Part IV Sanitary and Phytosanitary Measures A General B SPS Measures including chemical residue limits, disease freedom, specified product treatment, etc. C Testing, certification and other conformity assessment Part V Specific Limitations A Quantitative restrictions B Embargoes and other restrictions of similar effect C Screen-time quotas and other mixing regulations D Exchange controls E Discrimination resulting from bilateral agreements F Discriminatory sourcing G Export restraints H Measures to regulate domestic prices I Tariff quotas J Export Taxes K Requirements concerning marking, labeling and packaging L Others Part VI Charges on Imports A Prior Import Deposits B Surcharges, port taxes, statistical taxes, etc. C Discriminatory film taxes, use taxes, etc. D Discriminatory credit restrictions E Border tax adjustments Part VII Other A Intellectual Property Issues B Safeguard measures, emergency actions C Distribution constraints D Business practices or restrictions in the market E Other Source: Table of Contents of the Inventory of Non-Tariff Measures, Note by the Secretariat, WTO, TN/MA/S/5/Rev.1 28 November 2003 29 Annex II: Comparison of UNCTAD and Deardorff and Stern Taxonomies of NTMs UNCTAD TRAINs Deardorff and Stern Price control measures Quantitative restrictions and similar specific limitations on · Administrative pricing imports or exports · Voluntary export price restraint · Import quotas · Variable charges · Exports limitations · Anti-dumping measures · Licensing · Countervailing measures · Voluntary export restraints · Exchange and other financial controls Finance control measures · Prohibitions · Advance payment requirements · Domestic content and mixing requirements · Multiple exchange rates · Discriminatory bilateral agreements · Restrictive official foreign exchange · Countertrade allocation · Regulations concerning terms of Non-tariff charges and related policies affecting imports payment for imports · Variable levies · Transfer delays · Advance deposit requirement · Anti-dumping duties Automatic licensing measures · Countervailing duties · Automatic licence · Border tax adjustments · Import monitoring · Surrender requirement Government participation in trade; restrictive practices; general policy Quantity control measures · Subsidies and other aids · Non-automatic licensing · Government procurement policies · Quotas · State trading, government monopolies, and exclusive · Import prohibitions franchises · Export restraint arrangements · Government industrial policy and regional · Enterprise specific restrictions development measures · Government financed research and development; Monopolistic measures technology policies · Single channel for imports · National systems of taxation and social insurance · Compulsory national services · Macroeconomic policies · Competition policies Technical measures · Foreign investment policies · Technical regulations · Foreign corruption policies · Pre-shipment formalities · Immigration policies · Special customs formalities · Obligation to return used products Customs procedures and administrative practices · Customs valuation procedures Miscellaneous measures for sensitive product · Customs classification procedures categories · Customs clearance procedures · Marketable permits · Public procurement Technical barriers to trade · Voluntary instruments · Health and sanitary regulations and quality standards · Product liability · Safety and industrial standards and regulations · Subsidies · Packaging and labelling regulations, including trademarks · Advertising and media regulations Source: Bora (2003). 30 Annex III: UNCTAD Coding System for Trade Control Measures 1000 Tariff Measures 3400 Anti-Dumping Measures 1100 Statutory Customs Duties 3410 Antidumping investigations 1200 MFN Duties 3420 Antidumping duties 1300 GATT Ceiling Duties 3430 Price undertakings 1400 Tariff Quota Duties 3500 Countervailing Measures 1410 Low duties 3510 Countervailing investigations 1420 High duties 3520 Countervailing duties 1500 Seasonal Duties 3530 Price undertakings 1510 Low duties 3900 Price Control Measures, n.e.s. 1520 High duties 1600 Temporary Reduced Duties 4000 Finance Measures 1700 Temporary Increased Duties 4100 Advance Payment Requirement 1710 Retaliatory duties 4110 Advance import deposit 1720 Urgency and safeguard duties 4120 Cash margin requirement 1900 Preferential Duties Under Trade 4130 Advance payment of customs duties Agreements 4170 Refundable deposits for sensitive product 1910 Interregional agreements categories 1920 Regional and subregional agreements 4190 Advance payment requirements n.e.s. 1930 Bilateral agreements 4200 Multiple Exchange Rates 4300 Restrictive Official Exchange Allocation 2000 Para-Tariff Measures 4310 Prohibition of foreign exchange allocation 2100 Customs Surcharges 4320 Bank authorization 2200 Additional Taxes and Charges 4390 Restrictive official foreign exchange 2210 Tax on foreign exchange transactions allocation n.e.s. 2220 Stamp tax 4500 Regulations Concerning Terms of Payment 2230 Import licence fee for Imports 2240 Consular invoice fee 4600 Transfer Delays, Queuing 2250 Statistical tax 4900 Finance Measures, n.e.s. 2260 Tax on transport facilities 2270 Taxes and charges for sensitive product 5000 Automatic Licensing Measures categories 5100 Automatic License 2290 Additional charges n.e.s. 5200 Import Monitoring 2300 Internal Taxes and Charges Levied on 5210 Retrospective surveillance Imports 5220 Prior surveillance 2310 General sales taxes 5270 Prior surveillance for sensitive product 2320 Excise taxes categories 2370 Taxes and charges for sensitive product 5700 Surrender Requirement categories 5900 Automatic Licensing Measures, n.e.s. 2390 Internal taxes and charges levied on imports n.e.s. 6000 Quantity Control Measures 2400 Decreed Customs Valuation 6100 Non-Automatic Licensing 2900 Para-Tariff Measures n.e.s. 6110 License with no specific ex-ante criteria 6120 License for selected purchasers 3000 Price Control Measures 6130 License for specified use 3100 Administrative Pricing 6131 Linked with export trade 3110 Minimum import prices 6132 For purposes other than exports 3190 Administrative pricing n.e.s. 6140 License linked with local production 3200 Voluntary Export Price Restraint 6141 Purchase of local goods 3300 Variable Charges 6142 Local content requirement 3310 Variable levies 6143 Barter or counter trade 3320 Variable components 6150 License linked with non-official foreign 3330 Compensatory elements exchange 3340 Flexible import fees 3390 Variable charges n.e.s 31 6151 External foreign exchange 7000 Monopolistic Measures 6152 Importers' own foreign exchange 7100 Single Channel for Imports 6160 License combined with or replaced by special 7110 State trading administration import authorization 7120 Sole importing agency 6170 Prior authorization for sensitive product 7170 Single channel for sensitive product categories categories 7200 Compulsory National Services 6180 License for political reasons 7210 Compulsory national insurance 6190 Non-automatic licensing n.e.s. 7220 Compulsory national transport 6200 Quotas 7900 Monopolistic Measures, n.e.s. 6210 Global quotas 6211 Unallocated 8000 Technical Measures 6212 Allocated to exporting countries 8100 Technical Regulations 6220 Bilateral quotas 8110 Product characteristics requirements 6230 Seasonal quotas 8120 Marking requirements 6240 Quotas linked with export performance 8130 Labeling requirements 6250 Quotas linked with purchase of local goods 8140 Packaging requirements 6270 Quotas for sensitive product categories 8150 Testing, inspection and quarantine 6280 Quotas for political reasons requirements 6290 Quotas n.e.s. 8160 Information requirements 6300 Prohibitions 8170 Requirement relative to transit 6310 Total prohibition 8180 Requirement to pass through specified 6320 Suspension of issuance of licenses customs 6330 Seasonal prohibition 8190 Technical regulations n.e.s. 6340 Temporary prohibition 8200 Pre-Shipment Inspection 6350 Import diversification 8300 Special Customs Formalities 6370 Prohibition for sensitive product categories 8400 Return Obligation 6380 Prohibition for political reasons (embargo) 8900 Technical Measures, n.e.s. 6390 Prohibitions n.e.s. 6600 Export Restraint Arrangements 6610 Voluntary export restraint arrangements 6620 Orderly marketing arrangements 6630 Multifibre arrangement (MFA) 6631 Quota agreement 6632 Consultation agreement 6633 Administrative co-operation agreement 6640 Export restraint arrangements on textiles outside MFA 6641 Quota agreement 6642 Consultation agreement 6643 Administrative co-operation agreement 6690 Export restraint arrangements n.e.s. 6700 Enterprise Specific Restrictions 6710 Selective approval of importers 6720 Enterprise-specific quota 6790 Enterprise-specific restrictions n.e.s. 6900 Quantity Control Measures, n.e.s. 32 Annex IV: Working Definitions of NTMs The definitions adopted by ASEAN from UNCTAD generally provide adequate guidance in identifying NTMs and will be used in designing the work program. In some cases, definitions offered by Laird and Vossenaar may be considered. A. Para Tariff Measures (2000) Other measures that increase the cost of imports in a manner similar to tariff measures, i.e. by a fixed percentage or by a fixed amount, calculated respectively on the basis of the value and the quantity. 1. Customs surcharges/import surcharges (2100) Also called surtax or additional duty, this is an ad hoc trade policy instrument to raise fiscal revenue or to protect domestic industry. 2. Additional charges (2200) Charges levied on imported goods in addition to customs duties and surcharges and which have no internal equivalent, comprise various taxes and fees. This includes the tax on foreign exchange transaction, stamp tax, import license fee, consular invoice fee, statistical tax, tax on transport facilities and charges for sensitive product categories. Various other taxes, such as export promotion fund tax, taxes for the special funds, the municipal tax, registration fee on imported motor vehicles, customs formality tax, etc., are classified as additional charges, n.e.s. 3. Decreed customs valuation (2400) Customs duties and other charges on selected imports levied on the basis of a decreed value of goods, as a means to avoid fraud or to protect domestic industry. The decreed value de facto transforms an ad valorem duty into a specific duty. B. Price Control Measures (3000) Measures intended to control the prices of imported articles in order to: (i) sustain domestic prices of certain products when the import price is inferior to the sustained price; (ii) establish the domestic price of certain products because of price fluctuation in the domestic market or price instability in the foreign market; and (iii) counteract the damage caused by the application of unfair practices of foreign trade. Most of these measures affect the cost of imports in a variable amount calculated on the basis of the existing difference between two prices of the same product, compared for control purposes. The measures initially adopted can be administrative fixing of prices and voluntary restriction of the minimum price level of exports or investigation of prices, to subsequently arrive at one of the following adjustment mechanisms: suspension of import licenses; application of variable charges, anti-dumping measures or countervailing duties. 1. Administrative price fixing of import prices (3100) When authorities of the importing country take into account the domestic prices of the producer or consumer, establish floor and ceiling price limits; or revert to determined international market values. Various terms are used such as official prices, minimum import prices or basic import prices. Alternatively Laird and Vosenaar define minimum prices as those that set a decreed target or reference price for an imported good, like the domestic support price used for many agricultural products. Actual import prices below the minimum price may trigger action in the form of compensatory duties or price investigations. A duty which is set in order to equalize the import price and the minimum or target price is a variable levy. However, where the target or reference price is a means of determining the value for duty (customs valuation) the "normal" rate is levied on the reference price, not the actual transaction value. 2. Voluntary export price restraint (3200) A restraint arrangement in which the exporter agrees to keep the price of his goods above a certain level. Alternatively, Laird and Vossenaar define voluntary export price restraints as undertakings by an exporter, accepted by the authorities in the importing country, to undertake actions which neutralize price effects of subsidies and/or dumping in order to avoid the imposition of countervailing measures. 33 3. Variable charges (3300) Variable charges bring the market prices of imported agricultural and food products close to those of corresponding domestic products, in advance, for a given period of time, and for a pre- established price. These prices are known as reference prices, threshold prices or trigger prices. Primary commodities may be charged per total weight, while charges on processed foodstuffs can be levied in proportion to the primary product contents in the final product. For Laird and Vossenaar, variable levies are special charges imposed on imports of certain goods in order to raise their price to a domestic target price. No levy is imposed when the international price exceeds the domestic support price. C. Finance Measures (4000) Measures that regulate the access to and cost of foreign exchange for imports and define the terms of payment. They may increase the import cost in a fashion similar to tariff measures. 1. Advance payment requirements (4100) The advance payment of the value of the import transaction and/or related imported taxes, which is required at the moment of the application for, or the issuance of , the import license. a. Advance import deposits (4110) An obligation to deposit a percentage of the value of the import transaction for a given time period in advance of the imports, with no allowance for interest to be accrued on the deposit. b. Cash margin requirement (4120) An obligation to deposit the total amount corresponding to the transaction value, or a specified part of it, in a commercial bank, before the opening of a letter of credit. Payment may be required in foreign currency. c. Advance payment of custom duties (4130) The advance payment of the total or a part of customs duties, with no allowance for interest to be accrued. d. Refundable deposits for sensitive product categories (4170) Charges which are refunded when the used products or its containers are returned to a collection system. 2. Regulations concerning terms of payment for imports (4500) Special regulations regarding the terms of payment of imports and the obtaining and use of credit (foreign or domestic) to finance imports. 3. Transfer delays, queuing (4600) Minimum permitted delays between the date of delivery of goods and that of final settlement of the import transaction (usually 90, 180 or 360 days for consumer goods and industrial inputs and two to five years for capital goods). Queuing takes place when the prescribed delays cannot be observed because of foreign exchange shortage, and transactions are settled successively after a longer waiting period. D. Quantity Control Measures (6000) Measures intended to restrain the quantity of imports of any particular good from all sources or from specified sources of supply, either through restrictive licensing, fixing of a predetermined quota or through prohibitions. 1. Non Automatic Licensing (6100) The practice to require, as a prior condition to importation, an import license which is not granted automatically. The license may either be issued on a discretionary basis or may depend on specific criteria. Laird and Vossenaar note that non-automatic licensing is usually the means for administering a quota or a conditional prohibition, and in such cases is a condition for import. Quotas are sometimes not determined in advance in which case, the non-automatic licence may be a means of rationing foreign exchange, or of determining whether certain conditions for import have been met, for example export performance requirements. Non-automatic licensing may be relatively restrictive or discretionary or liberal, depending on the economic circumstances in the importing country. Import authorizations, usually for a government agency, are a form of non-automatic import licensing, typically used to administer conditional prohibitions. 34 2. Quotas (6200) Restriction of imports of specific product by setting a maximum quantity or value of goods authorized for import. 3. Prohibitions (6300) Unconditional interdiction to import. The so-called "prohibition with exceptions" is incorporated in the category of licensing which is relevant to the nature of the exception (see 6100) 4. Export restraint arrangements (6600) Arrangements between an importer and an exporter in which the latter agrees to limit exports in order to avoid imposition of mandatory restrictions by the importing country. The arrangement may be concluded at either government or industry level. These arrangements are also known as orderly marketing arrangements. They may be bilateral or multilateral arrangements, e.g. Multilateral Multifibre Arrangement (MFA), which was negotiated as a temporary exception to GATT, to regulate trade in textile products. Alternatively, Laird and Vossenaar define VERs as usually informal export restraint arrangements (ERAs) between an exporter and an importer whereby the former agrees to limit, for a certain period of time, the exports of certain goods to the market of the imports to avoid the imposition of import quotas. 5. Enterprise-specific restrictions (6700) These restrictions may replace the quantitative restriction of a general character or may be applied parallel to them. They include selective approval of importers, limitations at the enterprise kevel resulting from the national import programme, value or quantity quotas for individual enterprise, etc. F. Monopolistic Measures (7000) Measures which create a monopolistic situation, by giving exclusive rights to one or a limited group of economic operators, for either social, fiscal or economic reasons. 1. Single channel for imports (7100) All imports of selected commodities have to be channeled through state- owned agencies or state-controlled enterprises. Sometimes the private sector may also be granted exclusive import rights. 2. Compulsory national services (7200) Government-sanctioned exclusive rights of national insurance and shipping companies on all or a specified share of imports. G. Technical Measures (8000) Measures referring to product characteristics such as quality, safety or dimensions, including the applicable administrative provisions, terminology, symbols, testing and test methods, packaging, marking and labeling requirements as they apply to a product. Technical measures and those by sensitive product categories are further subdivided according to specific purpose: (1) to protect human health (71); (2) to protect animal health and life (72); (3) to protect plant health (73); (4) to protect environment (74); (5) to protect wildlife (75); (6) to control drug abuse (76); (7) to ensure human safety (77); (8) to ensure national security (78); and for purposes n.e.s. (79). Alternatively Laird and Vossenaar define these as comprising technical regulations and standards to be met by products for sale on the domestic market, applying in principle equally to domestic and imported goods. Type approval may be granted for imports from certain suppliers, obviating the need for individual testing. Sometimes a certificate of compliance with international standards or national standards of the United States or European Union members, issued by approved agencies, is acceptable to other countries. Technical barriers may increase the price of imports or cause non-complying imports to be prohibited. 1. Technical regulations (8100) Regulations that provide technical requirements, either directly or by referring to or incorporating the content of a standard, technical specification or code of practice in order to protect human life or health or protect animal life or health (sanitary regulation); to protect plant health (phytosanitary regulation); to protect the environment and to protect wildlife; to ensure human safety; to ensure national security; to prevent deceptive practices. The regulation may be supplemented by technical guidance that outlines some means of compliance with the requirements of the regulation, including administrative provisions for customs clearance, such as prior registration of the importer or obligation to present a certificate issued by relevant governmental services in the country of origin of the goods. In certain cases, a prior recognition of the exporter or certificate issuing service by the importing country is also required. 35 a. Product characteristics requirements (8110) Technical specifications prescribing technical requirements to be fulfilled by a product. b. Marking requirements (8120) Measures defining the information for transport and customs, that the packaging of goods should carry (country of origin, weight, special symbols for dangerous substances, etc.). c. Labeling requirements (8130) Measures regulating the kind and size of printing on packages and labels and defining the information that may or should be provided to the consumer. d. Packaging requirements (8140) Measures regulating the mode in which goods must be or cannot be packed, in conformity with the importing country handling equipment of for other reasons, and defining the packaging materials to be used. e. Testing, inspection and quarantine requirements (8150) Compulsory testing of product samples by a designated laboratory in the importing country, inspection of goods by health authorities prior to release from customs or a quarantine requirement in respect of live animals and plants. f. Information requirements (8160) An obligation to provide information relevant to environmental protection to a relevant body. 2. Pre-shipment inspection (8200) Compulsory quality, quantity and price control of goods prior to shipment from the exporting country, effected by an inspecting agency mandated by the authorities of the importing country. Price control is intended to avoid under invoicing and over invoicing, so that customs duties are not evaded or foreign exchange is not being drained. 3. Special customs formalities (8300) Formalities which are not clearly related to the administration of any measure applied by the given importing country such as the obligation to submit more detailed product information than normally required on the basis of a customs declaration, the requirement to use specific points of entry, etc. 36 502 66 54 0 12 0 0 0 7 0 0 6 1 0 0 0 0 0 0 0 2 268 239 27 0 0 0 17 17 0 0 m Vietna 741 13 0 0 0 13 0 0 1 0 0 1 0 0 0 0 0 0 0 0 127 35 32 60 0 0 0 0 0 0 0 Thailand 647 18 0 0 0 18 0 0 0 0 0 0 0 0 0 26 0 26 0 0 264 124 11 0 0 0 0 0 0 0 129 Philippines 8 0 0 0 8 0 0 2 1 0 0 1 0 0 0 0 0 0 0 6 6 0 0 a 658 16 16 411 314 17 66 14 Malaysi 0 0 0 0 0 2 1 0 1 0 0 0 285 134 134 10 0 10 0 0 99 64 9 26 0 0 0 37 37 0 0 Laos 842 35 0 0 0 35 0 0 0 0 0 0 0 0 0 0 0 0 0 0 259 152 60 45 0 0 2 62 61 1 0 Indonesia 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1849 736 362 252 122 37 China 223 29 29 0 0 0 0 0 2 1 0 0 0 0 1 0 0 0 0 0 117 75 0 33 9 0 0 0 0 0 0 odiab m Ca y 3100 3200 3300 3400 3500 3900 4100 4200 4300 4500 4600 4900 5100 5200 5700 5900 6100 6200 6300 6600 6700 6900 7100 7200 7900 categoryb Code 3000 4000 5000 6000 7000 inta ges es ts s. s Ms icing ur rates ngi ntse pr strer por s.e..n n.e. n.e.s. ports icesv s.e.n. char NT easm asuresem s.e.n. es ntseme es license nteme es quotas ctionsi ur llocationa im licensing im ser es of tivea ice for queuing,s ur prt ablei strer for requir ticam onitorm quirer prohibition exchange rangemar nistrim var pingm asemlo ange ent ent delay, easurm port auto im easurmg ticam easuresm asem inta national bution ad expory antidu contr paym countervailing ltipleum exch paym nderer auto igne ofs ansfertr finance sur licensin non- strert specific channel ice seirp control single pr for Distri­ term voluntar advance ticam pulsorym expor enter co onopolisticm quantity iasAt official ning asurese auto m uressae asurese ctivei concer ng m uressae m Eas l strer rol m licensi V:x ta rol asurese tos m cont cont gulationser tica m nopolistico Anne NTM price finance auto quantity m 0 0 0 0 502 144 144 m ,30 20 Vietna d: 0 0 0 0 anl 741 600 600 Thailand Thai,1002 0 0 0 0 647 339 339 nes: Philippines ppiilihP, 03 0 0 0 0 a 658 215 215 Malaysi 20:aisyala 3 2 1 0 0 0 285 M,40 20 os: Laos 4 0 0 0 842 486 482 La,3002 a: Indonesia nesi 0 0 0 0 1849 1113 1113 donI,1002 38 China 223 75 74 1 0 0 0 odiab a:nihC,30 m 20 Ca a: 8100 8200 8300 8400 8900 Code 8000 bodimaC:a es aliti s.e.n. dateblal gulationser es inspection ntem formsm obligationn turer asurem avai technical shipe- custo pr technical special stetal:etoN TRAINS, es 4 l asure ta m 200: tos UNCTAD namet NTM technical Source: Vi 28 92 86 76 23 26 22 71 59 19 Vietnam 3 8 1 13 30 15 51 3 6 6 26 40 17 ,30 20 nd d: ila anl Tha 4 2 33 11 53 58 17 12 4 20 18 19 Thai,1002 nes: Philippines 3 3 15 12 91 24 10 25 10 21 4 18 17 ppiilihP, 03 iasya Mal 20:aisyala 56 40 51 32 10 7 11 18 45 15 M,40 20 os: aosL 7 9 0 14 19 27 37 13 4 1 42 6 10 23 La,3002 a: nesi Indonesia try 2 68 2 6 0 2 9 8 4 unoc 13 11 17 27 28 70 88 donI,1002 39 a and Chin a:nihC,30 goryteac 41 70 41 47 0 10 0 1 12 1 20 uct iadob a: prodyb Cam bodimaC:a 0 1 2 3 4 5 6 7 8 9 deoc dateblal NTMs of HS avai , fs nda ehold ributiont lic bacco,ot flax, ks,c clo Dis dairy, ­ )ebldi fish, ufstdoof.p dna eticsm board, and ho cos, perap oodw ltaem ts puters hous, and stetal:etoN nei Asia ryo cola,fsf ges,ra cals asticspl ply cotton, and andltaem par and com, tools rtsapy (optics, art),syto meat, stu ives,s wool, paper ics of rtsap ring TRAINS, East: tegac als, ndaebl pre,lio beve salci s,d od aceutimar fo explo wspapers,en ootwearf, 4 nelsap rse seabl,e and vehicles, fib inerhcam, VIx uct anim (edis see, ste edra chemcni ph,ls leather, ed fabrics cs textiles ammunition, 200: ica ers, and tronclee, UNCTAD liz and motor ncesa manufactu & Anne Prod live antpl cereal eprp ga non-alcoholic or chem ferti rubber, books veneer woven ntheticys cles tronic fabric, iron arti ele parts, appli equipment misc. arms namet Source: Vi PART II LESSONS FROM THE COUNTRY STUDIES EXECUTIVE SUMMARY Part II of this report provides an overview of non-tariff barriers faced by exporters in developing and least developed countries in the Asia-Pacific region, the main findings of which are summarized here. It includes case studies on Cambodia, Chile, China, Indonesia, Laos, Mexico, Peru, the Philippines, Thailand and Vietnam as well as some more advanced countries for comparison (Korea, Singapore and Taiwan). The studies were conducted by local consultants in the individual countries and consisted mainly of firm level surveys (questionnaires and face-to-face interviews). Some of the studies also include information provided by government agencies and exporters' associations. Classification of NTMs follows the NAMA template (included in Appendix I). In the country chapters, reported barriers are grouped by sectors/products and subsequently importing country. This order was chosen, as it was felt that prioritization of their elimination will be driven by the importance of individual sectors in a country's export strategy (this approach of eliminating NTMs by sector was taken at the regional level by the EU and is currently being considered by ASEAN). Identified barriers reflect market access complaints by exporters in the respective country and are reported without judgment as to their legitimacy or legality. Where it was reported, perceived restrictiveness of a given barrier is indicated as well in the chapters. There is, however, no attempt to estimate the direct impact of NTMs on countries' trade performance. Summary of Findings Even though at first sight the topic of non-tariff measures may seem hardly manageable due to its many dimensions and broad definition, some patterns emerge from the set of case studies, which could provide direction for policy. The ultimate "burden" (both in terms of number and restrictiveness) of NTMs faced by a country depends on several factors, as will be illustrated by the case studies below: (i) export composition, i.e. the relative importance of agricultural goods vs. manufactures and within manufactures, final goods vs. parts and components, (ii) the market structure of the importing country, determining the competitive landscape, (iii) the income level of the exporting country and (iv) the income level of the importing country. In the agricultural sector, most barriers are due to Sanitary and Phytosanitary (SPS) standards and requirements as well as related conformity assessment procedures. Not only do countries impose costly standards, but these standards vary by country, such that compliance costs are multiplied by the number of export partners. With respect to testing procedures, it was often pointed out that even if 40 producers can meet the standards required by their export markets, further obstacles arise from a lack of testing infrastructure, making it impossible or difficult to prove conformity with a given standard. Another general obstacle faced by exporters of agricultural goods were inefficient customs procedures, which are particularly problematic in the case of perishable products. In addition, some agricultural exporters suffered from anti-dumping investigations against their products. As regards country-specific barriers, exporters which ship to the EU mostly pointed to the strictness of SPS standards and the burdensome registration and inspection process a firm has to go through in order to be able to export to the EU market. Vis-à-vis Japan, firms mainly complained about the length and strictness of inspection procedures at the border, while arbitrariness and non-transparency of both standards and inspection procedures seem to pose a major problem when exporting to China. Market access to the US was reported to be obstructed by strict standards as well as various anti- terrorism measures (such as the 2002 Bioterrorism Act), requiring registration with the US FDA. Australia was also mentioned several times, often associated with burdensome inspection procedures. One requirement that is imposed by several countries following a voluntary ISO standard is that of traceability (see next section) which requires costly documentation regarding a product's origin and various stages of processing. As for product-specific barriers, exporters in the fisheries/seafood sector seem to be particularly hard- hit as they are subject to stringent contaminant and other SPS standards as well as bans due to contested fishing methods or non-adherence to international agreements. As regards manufacturing products, product-specific barriers are more discernible. Steel products stand out as being subject almost exclusively to anti-dumping measures and the same is true for many chemicals, plastics and other labor-intensive light industry products. Many exporters in the region face anti-dumping investigations and measures (including Indonesia, Thailand, and Vietnam), though the country which is most severely affected by them is China due to its status as a non-market economy (which was reinforced by its stringent WTO accession protocol). Further, exporters of chemicals, in particular pharmaceuticals, systematically report difficulties with registration processes, especially in the EU and the US. For others, such as producers of auto or electronics parts and components, obstacles consist mainly of product standards and technical regulations which are more or less pronounced depending on whether they are producing for a market which is only broadly defined or directly for a parent company. In the first case, exporters may be struggling with varying or technically difficult standards depending on who their customer is, while in the latter case the standard as well as the know-how and technology to meet it will be provided by the parent company. Electronics producers which are exporting to the EU are further subject to many environmental regulations (see next section). A general observation that emerges from the surveys is the difference between barriers depending on the development level of the importing country. In the case of developing countries, complaints often refer to non-transparency and arbitrariness, be it with respect to customs procedures or product standards. For the US, the EU and Japan, on the other hand, countries report difficulties with customs procedures and product standards resulting from the level of detail and stringency of these measures (in particular in the aftermath of the 2001 terrorist attacks, the US increased the stringency of its trade procedures as outlined in its Bioterrorism Act, Container Security Initiative and Custom-Trade Partnership Against Terrorism, see next section). Another barrier that is reported with respect to the US and the EU are strict rules of origin regimes. In developing countries, market access was reduced by the frequent use of non-automatic licensing, consular certificates, prohibitions and single channel import arrangements. 41 The field surveys further indicate that in particular small and medium-sized companies are struggling with the various non-tariff measures imposed by their trading partners. This is due to the fact that they lack both information about specific measures as well as resources and technology to overcome them. Important Regulations in Major Importing Markets EU Restriction of use of certain Hazardous Substances (RoHS): restricts the use of six hazardous materials in the manufacture of various types of electronic and electrical equipment, i.e. lead, mercury, cadmium, hexavalent chromium and two flame-retardants (polybrominated biphenyls and polybrominated diphenyl ether) (EC directive 2002/95/EC; entry into force Feb.2003) Waste Electrical and Electronic Equipment Directive (WEEE): regulates the recovery and recycling of electrical appliances and electronics, setting collection, recycling and recovery targets and imposing the responsibility for the disposal of waste electrical and electronic equipment (WEEE) on the manufacturers of such equipment. The directive requires companies to establish an infrastructure for collecting WEEE, such that "users of electrical and electronic equipment from private households should have the possibility of returning WEEE at least free of charge". Further, it obliges companies to either ecologically dispose of the waste or reuse/refurbish it. (EC directive 2002/96/EC; entry into force Feb.2003) Rapid Alert System: The EU's rapid alert system for food and feeds detains shipments if they are deemed non-compliant with any EU health regulation, information of which is immediately communicated to all other EU ports of entry. This often results in the detention by other EU ports of similar products from the same company often without testing the products ­ even if they may not be contaminated as they may come from a different production batch. Registration, Evaluation, and Authorization of Chemical products (REACH): covers production and use of toxic chemical substances; the law requires all chemicals of one ton or more in volume manufactured in the EU or imported to be tested for health and safety and registered with the European Chemicals Agency. It requires producers to share responsibility and expenditure with the importer in the registration process and arrange for product risk analysis. US Container Security Initiative 2002 (CSI): this initiative involves screening and inspection of US- bound high-risk containers at the port of departure and the use of tamper-evident seals. Under the CSI, CBP officers are deployed to participating ports, where they identify high-risk containers. The expenses of officers deployed to the participating ports are borne by the CBP. Bio-terrorism Act: The 2002 Bioterrorism Act requires domestic and foreign facilities that manufacture, process, pack and hold food for consumption in the US to be registered with the FDA. Procedures to get an FDA registration number are complicated: The FDA require notice prior to the entry of the food intended for import into the United States, and ask that persons involved in the manufacture, distribution, and sales of the food in the United States establish and maintain records that identify the immediate previous sources and immediate subsequent recipient of the food. Customs-trade partnership against terrorism 2005 (C-TPAT): this initiative imposes new security guidelines for importers. Participating businesses are required to conduct a comprehensive self- assessment of their supply chain, and are asked to supply information about trucks, drivers, cargo, 42 suppliers and routes. In turn, they benefit from less frequent cargo inspections by the CBP. While this may be convenient for large exporting firms, it creates market access difficulties for smaller exporters. Japan Food Sanitation Law: The Japanese Food Sanitation Law provides that the importing company is liable for any harm caused by the imported food. This provision necessitates insurance coverage for the imported food, an added cost that raises the prices of the imports further. The law requires the examination of imports for food additives, such as, anti-molding agents, film compounds, coloring agents, and other agricultural chemicals. If barred additives are discovered, the fruits must either be immediately burned or disposed of in other manners. As such, importers usually take samples from the exporters to test the products first in Japanese laboratories, approved by the Japanese Ministry of Health. Plant Protection Law: The Plant Protection Law strictly prevents the entry into Japan of harmful microorganisms, insect pests, and parasites that can cause damage to environment and crops of Japan. As such, no root crops that have soil sticking to them and no fruit that came from an infested area will be allowed entry to Japan. Furthermore, immediately after arriving at the port of entry of Japan, the importer must enter the Plant Protection Station and complete the "Application for Import Inspection of Plants and Prohibited Articles" together with a "Phytosanitary Certificate coming from the point of origin". In the case of infestation detection or failing of any other phytosanitary inspections, the importer will immediately be told to either "decontaminate, discard, or return [the products] to the shipper". EU, US, Japan Traceability: Traceability is often required to track the origin of food products. ISO (the International Organization for Standardization), which develops voluntary international standards for products and services, defines traceability as the "ability to trace the history, application, or location of that which is under consideration." Hazard Analysis and Critical Control Points (HACCP): HACCP is a systematic preventative approach to consumer safety, used during all stages of production and preparation; it was initially only applied to food products but is now also used for cosmetics and pharmaceuticals. 43 CAMBODIA Kakada Dourng and Hach Sok, Economic Institute of Cambodia Garments, rubber, rice, fish and fish products and pharmaceutical products occupy about 90 percent of the country's total exports, with garments taking the largest share of 71 percent. The main destination for Cambodian exports is the US, the primary customer for garments, followed by Hong Kong and the EU (especially Germany, the UK, France and the Netherlands) and Canada. Approximately 30% of Cambodian exports went to ASEAN countries and China in 2004. Common non-tariff measures imposed by importing countries which Cambodian exporters are currently facing mostly relate to standards issues. Out of the eight impediments reported by the agricultural sector, seven relate to SPS requirements and associated testing procedures, including tedious documentation requirements, expensive certification, inspection fees, and a host of requirements to obtain access to the EU market; a large part of the difficulties arise from the fact that Cambodia does not have an adequate laboratory infrastructure to test and prove compliance with all the required standards; the eighth complaint was related to government support received by Thai and Vietnamese rice farmers, making it difficult for Cambodian farmers to compete. Regarding agricultural goods, important barriers were reported in the Chinese, EU, Australian, Japanese, Thai, and Vietnamese markets as well as the global market for organic products. In the manufacturing sector, which consists mainly of the garments industry, the largest reported impediment was a stringent set of rules of origin attached to the EU EBA initiative, which would require Cambodian garment manufacturers to source cloth locally in order to qualify for preferences; due to the absence of a Cambodian textile industry, this is, however currently not possible. Concern was further expressed with regards to the requirement of quality certificates for rubber products in world markets, the lack of which has led to a large discount in the price of Cambodian rubber, as well as the enforcement of the WHO's GMP (good manufacturing practice) standards in the global market for pharmaceuticals, which Cambodian producers currently cannot meet. Cambodian pharmaceutical companies further reported difficulties in conducting bio-equivalence studies, which are important in getting products approved for international commerce. 1. Overview of the Economy and Trade Cambodia pursued a centrally planned economic system after the collapse of the Khmer Rouge regime. In 1989, the country began the transformation to a free market-oriented economic system despite the ongoing civil war and the signing of the 1991 Paris Peace Accords led to a free national election in 1993 under the auspices of the United Nations Peace-Keeping Process. With the establishment of the first coalition government and the assistance of the international community, Cambodia embarked on a reform process and began the restoration of the economy. Total exports of goods amounted to US$2.5 billion in 2004, up from US$1.6 billion in 2001. Cambodian exports are limited in terms of products and destinations. The main exports are garment products, accounting for about 70 percent of total merchandise exports in 2004. There are 238 garment factories operating in Cambodia. The dominance of garment exports is a remnant of the (by now phased-out) quota system granted by the US and quota free access to the EU and 44 Canadian apparel markets. After garments, the main exports are agricultural products including rubber, fish and fish products, rice and paddy. These items represent about 3.5 percent of total goods exported. The main destination for Cambodian exports is the US, the primary customer for garments, followed by Hong Kong and the EU (especially Germany, the UK, France and the Netherlands) and Canada. Approximately 30% of Cambodian exports went to ASEAN countries and China in 2004. Figure 5: Cambodia 2004 exports by product Figure 6: Cambodia 2004 exports by destination Crude/synthetic Textile yarn and Korea, Rep. Thailand China Singapore rubber fabric other Vietnam Japan Footw ear RoW Canada EU 15 United States Manufactures n.e.s. Apparel and clothing Hong Kong, China Source: UNCTAD COMTRADE 2. Methodology of the Study This chapter examines non-tariff measures (NTMs) facing Cambodian exporters of several major export commodities. The list of NTMs is not complete due to limited time and resources, but it illuminates the main sources of constraint for sensitive export products, imposed by importing countries. In order to gauge the effect of NTMs on Cambodian exporters, several sources were drawn on: the study consisted of a desk-phase where existing literature was reviewed as well as a survey phase, during which 23 interviews were conducted. In particular, eight government officials were interviewed (from the Departments of International Standards, Industrial Techniques, Trade Preferences, CamControl, Drug and Food, Fishery, Agronomy, and Agriculture and Land Improvement), as well as two business associations (Garment Manufacturer Association Cambodia (GMAC) and SME Cambodia Association), twelve exporters and one research institute (CRRI). First, the study tried to assess barriers faced in five main export sectors namely garments, rubber, rice, fish and fish products and pharmaceutical products. These products occupy about 90 percent of the country's total exports. The barriers for these products were assessed with the help of interviews with all relevant stakeholders, whereas for other products, only interviews with business associations and relevant government officials were used. In both cases the standard literature was also drawn on to support the analysis. Cambodian exporters face both internal and external barriers. Internally, exporters confront a wide range of obstacles from the factory gate to the exit points at the border. The integration of the country into regional and global trading systems such as ASEAN and the World Trade Organization, along with technical barriers from some specific importing countries, have raised costs. Firms have had to increase efforts in order to meet additional requirements inside their own factories and in order to comply with external requirements of other agencies. 45 3. NTMs Faced by Cambodian Exporters a. Internal barriers Costs arising from internal barriers are still significant in Cambodia. They affect all categories of export products. Overall, customs regulations seem to be the most constraining ones. Domestic barriers faced by Cambodian exporters can broadly be grouped under the headings of: Inefficient domestic bureaucracy (part i): Overlapping responsibilities and duplication of activities among agencies involved in export clearance reduce transparency and increase costs. Weak governmental capacity to respond to new trade regulations abroad (due to lack of expertise and funding) has also proven to be an obstacle. Domestic customs formalities (part ii g): Export processing involves a multiplicity of steps, introducing substantial delays and uncertainty in the process of trading goods. Among the major hurdles reported by trading firms are customs clearance, Ministry of Transportation border authorization or border police, veterinary and phytosanitary inspection, and CamControl (Cambodia Import Export Inspection and Fraud Repression Department) under the Ministry of Commerce. Each step involves delays, formal costs and informal payments. Customs regulations and tax administration were cited as the most serious constraints to exporters. Customs clearance imposes substantial delays and great uncertainty and hence unpredictability. It takes 4.5 days on average for exporters to clear customs. Documentation has been reported as being one of the major obstacles in this process. Domestic SPS testing, certification and conformity assessment procedures (part iv c): Veterinary and phytosanitary inspection are time consuming and expensive. Domestic surcharges and corruption (part vi b): Corruption is the largest constraint to business in Cambodia.21 When it comes to trading activities, costs are increased due to unofficial charges for container handling and payments to all relevant agencies involved in the inspection of export consignments. Domestic distribution constraints (part vii c): The number of shipping companies is still limited which prevents competition and keeps prices high. Transport costs are very high compared to the regional average when unofficial charges for container handling are included. Transport infrastructure problems also remain. Domestic business practices or restrictions in the market (part vii d), such as high fuel costs. Lack of domestic infrastructure (part vii e): A number of new trade regulations, mainly related to TBT and SPS, require internationally recognized test laboratories. Cambodia has very limited resources in this respect. Some laboratories are out-of-date and do not comply with the requisite standards. Noticeably, there are no significant new investments in this area. b. External barriers Common non-tariff measures imposed by importing countries which Cambodian exporters are currently facing mostly relate to standards issues. The next section will examine in detail specific non-tariff measures faced by exporters in Cambodia's most important export sectors as identified in the survey. 21According to a survey with 100 companies conducted by EIC and Global Economic Forum, 2005. 46 Agriculture Out of the seven impediments reported by the agricultural sector, six relate to SPS requirements and associated testing procedures; the seventh complaint was related to government support received by Thai and Vietnamese farmers, making it difficult for Cambodian farmers to compete. More particularly, barriers are imposed on Cambodian agricultural products as follows: All plant products: China: SPS (part IV C): The Chinese government requires extensive documentation and procedures for plant products from Cambodia including detailed information on the plant, its production, possible pests and diseases, information on plant protection and risk management measures taken to prevent diseases and information on Cambodian certification institutions and procedures. These requirements have proven prohibitive for Cambodian exporters. Australia: SPS (part IV C): the Australian government is taking action against the Giant African Snail (GAS). A draft action list of countries where the GAS is known to exist has been issued, which includes Cambodia. This has lead to increased costs for Cambodian farmers arising from extra inspection fees and more complicated export procedures in general. Farmers have reported this to be a major obstacle. Organic agricultural products: World market: SPS (part IV C): in order to be recognized as an organic product, importing countries require a specific certificate from the producers, which is costly to obtain. Since Cambodian farmers cannot always provide this certificate their products do not command the premium that is generally paid for products that have been certified as "organic". Demand for organic agricultural products ranging from cereals to fruits, from fish to meat and beverages is expanding. World sales of organic products are projected to rise to some US$100 billion in 2008 while sales were recorded at US$17.5 billion in 2000. Major importers will be Western Europe and North America. The growing demand in ASEAN countries such as Singapore, Malaysia, Thailand and other Asian countries such as China, South Korea and India are also noteworthy. This represents a potential source of export growth for Cambodia and a huge opportunity for organic agricultural production. However, it requires an organic certification system to be in place in the exporting country. A number of prerequisites needed for organic market access include certificates, standards and regulations compliance, appropriate labeling and consumer acceptance ­ requirements that are currently difficult to meet for Cambodian exporters. Fishery products: EU: SPS (part IV B and C): In order to be able to export fisheries to the EU, an exporting country must be included in the EU's approval list to which a number of conditions are attached: the EU will check compliance with relevant EU legislation; certain sanitary conditions will have to be fulfilled including hygienic conditions in the production areas and all establishments handling the product; in order to ensure the fulfillment of these conditions, controls are carried out under the HACCP system (Hazard Analysis and Critical Control Point System) which generally take the form of physical inspection of laboratories etc. These conditions have proven prohibitive for Cambodia in the past. The country is lacking expertise as well as laboratories of international standard and hence fails to qualify for inclusion in the approval list. As a consequence, Cambodia has not exported fishery products to the EU since 1997. 47 Fisheries is one of the most important sectors in generating food and contributing to the national economy. The fish and fishery products are exported to a number of countries including Australia, Malaysia, Hong Kong, the US, Singapore, Taiwan. Many inland and marine fish are legally and illegally exported to Thailand and Vietnam. In 2003, fish products exported included fresh fish and processed products and were calculated at about 54,160 tons.22 Cambodian fish and fish products are currently not allowed to be imported into EU markets. In 1997, the European Community (EC) Council Directives on fish products and live shellfish established sanitary conditions and procedures to be followed by both EC member states and third countries, with the aim to protect the health of European consumers. Since then, all third countries intending to export fish products to the EC must be authorized by the European Commission and be included in two lists as set out in commission decision 97/296/EC. Given that their results of evaluation by the European Commission are satisfactory, countries included in list I are allowed to export fish products to EU countries. List II is a temporary list and countries on this list have provisional authorization to export solely to those EU member states which accept their products. However, list II expired as of 31 December 2000 and only list I exporters have been allowed to export to the EU. Cambodia has not been included in either list and its fish and fish products have been banned since 1997. A number of conditions must be met to obtain approval. They include compliance with EC legislation; sanitary conditions in the production of fish products/live shellfish, hygienic conditions in production areas and in product handling, and controls such as physical inspection, inspection of HACCP systems and laboratory checks carried out by competent authorities.23 For Cambodia, these conditions require establishing and amending legislation according to EC requirements. Moreover, existing laboratory capacity does not meet EU requirements. Thus, these measures have proven prohibitive. Additionally, since 2004, the EU has banned the import of tuna and swordfish from a number of countries including Cambodia24, the reason being that Cambodia often failed to respect international conservation rules. However, this situation does not have a large impact because imports of fish products into the EU were already banned since 1997. It does, however, constitute an additional barrier. Confirel products made from sugar palm trees: China: SPS (part IV C): China attaches numerous requirements to the export of confirel products, such as 1) a certificate of origin 2) a certificate of free sales 3) a description and diagram of the production process 4) the composition of the formula 5) a certificate of registered trade mark 6) a certificate of free use of trade mark 7) a certificate of analysis 8) sample labels in Chinese. These requirements have proven prohibitive for Cambodian confirel producers. Confirel represents a whole range of products made from the unique Cambodian sugar palm. It includes different kinds of palm drinks and palm vinegars and other crystallized products made from the sugar palm. These products are currently exported to the European Union (mainly France) and China. Exporters who intend to export food, drinks and wines to China must have the "Certificate of Approved Labels for Food" to get an import license. The requirements for this 22According to statistics of MAFF. 23Extracted from http://europa.eu.int/comm/development/body/publications/fish/099904.pdf 24See: http://www.europaworld.org/week175/eutakes30404.htm 48 certificate are numerous and they prevent market access of Cambodian confirel exports to China as exporters need to work with many government agencies to obtain the required certificates. In addition, exporters need to pay for producing another label customized to Chinese markets. These requirements create administrative burdens. Exporters also express concerns about intellectual property issues and hesitate to provide documents on production processes and formula composition. Black Pepper: Japan: SPS (part IV B and C): To export black pepper to Japan, documents describing black pepper manufacturing processes, raw materials and additives used in manufacturing processes, as well as a certificate of sterilization are required. Exporters complain mainly about the requirement to get a certificate of sterilization, since sterilizing black pepper requires expensive technology. Private investment in sterilization equipment is still unforeseeable since black pepper is not yet an important export product. This barrier inhibits black pepper exports to Japan. Rice: China: SPS (part IV C): In December 2004, China added import requirements for several plants, including rice from Cambodia. Cambodia now has to provide a set of documents to the General Administration of Quality Supervision, Inspection and Quarantine of China (AQSIQ) for risk analysis and assessment. China has also insisted on the right to request further documents and to dispatch a group of experts to conduct field inspections in Cambodia. Prior to this notification, Cambodian rice exports to China were based on agreements between buyers and sellers. This new measure is difficult for Cambodia to meet and official rice exports to China have been suspended. Vietnam, Thailand: Government intervention (part I A): Cambodian exporters have found it difficult to compete with Vietnamese and Thai rice exporters, as the latter are benefiting from favorable government intervention. They receive government support to informally buy paddy from Cambodian farmers during peak harvest times, especially in areas along the borders, and hold these until prices have stabilized again. Local traders cannot compete with them as they can only afford to hold small quantities of paddy stock. Manufactures Three manufacturing products of export interest to Cambodia face large obstacles in international markets. One is related to rules of origin requirements, whereas the other two arise from standards and certification requirements imposed by global buyers. Garments: EU: Rules of Origin (part II F): Rules of Origin attached to the EU EBA Initiative have proven to be relatively stringent for Cambodia, as the country does not have a significant textiles industry and most fabrics therefore have to be imported from Asian countries which do not qualify for cumulation under the EBA. This is seen as a major obstacle by Cambodian garment producers. Garments are Cambodia's most important export. All garments are exported and accounted for US$2 billion in 2004, about 70 percent of the country's merchandise exports. The garment sector employs about one-quarter of a million Cambodians, which also generates many jobs in supporting sectors. Among garment exports, the US absorbs about 75 percent and the EU absorbs another 20 percent through duty free access. 49 Cambodian exports to the EU are covered under the "Everything But Arms" initiative, which provides duty-free access to almost all imports of least developed countries. This preference, however, is conditional upon meeting the attached rules of origin. These are difficult to meet for Cambodia as the garment industry is lacking a supporting industry. The textile industry is nearly absent and the sector is strongly dependent on imported materials from competitors. The rules of origin requirements are met if the garments are "sufficiently worked or processed" in Cambodia. The sufficiently worked or processed requirement allows Cambodia to use imported materials; however, these cannot exceed a certain percentage, usually 40 percent, of the former work price of the garments. Some leniency is introduced into the system by the fact that Cambodia can benefit from regional cumulation with other ASEAN countries. A garment is granted origin if the value added is greater than the highest customs value of the products used originating in any other ASEAN country. Overall, the rules of origin requirements place Cambodia at a disadvantage, however, as the Cambodian textile industry is nearly nonexistent. The country has limited production of fabrics and accessories and it is fully dependent on imported inputs for garment exports. Moreover, buyers dictate the specifications and sourcing of fabrics. Imports of fabrics and accessories from four countries account for about 90 percent of total imports25 (China, Taiwan, Korea and Hong Kong), none of which belong to the group of countries across which cumulation is allowed under the EU system. Currently, Cambodia is in the process of GSP negotiations to obtain duty-free access to the US markets. This preference would probably be conditional upon several requirements such as rules of origin. Cambodia will not benefit if the US rule of origin restricts qualifying sources of garment inputs. Rubber: World: Quality certificates (part III C): Global buyers of rubber require a quality certificate for rubber imports. However, since Cambodian rubber exports are not yet certified by an internationally recognized body, they suffer a price discount of about 20% compared to the international price, leading to losses for Cambodian rubber exporters of approximately US$10 million each year. Rubber producers see this as a major obstacle. The rubber sector currently amounts to 4 percent of the agricultural industry and accounts for about 3 percent of total exports in dollar terms with about 45,000 tons exported in 2004. In traditional areas (Kampong Cham), the small holders and private plantations are currently expanding at a rate of about 1,000 to 1,500 hectares per year. The new growing areas could be expanded at the rate of about 1,500 hectares per year after 2010. Currently, Cambodian rubber is suffering a 20 percent price discount to global prices due to several factors, most importantly an inability to meet technical standards.26 Further, no functioning certification system is currently in place, which could be used to show that a product conforms with pre-established standards and specifications. What would be required is the creation of an internationally recognized certification body to guarantee the rubber quality for all buyers. For this, Cambodia needs to be a member of the International Rubber Association (IRA) 25Based on survey by EIC, Werner International and AIRD with 70 garment factories in February 2005 available at: http://www.eicambodia.org/seminar/Cambodia_Garment_Sector_Main_Report_Nathan.pdf 26SOFRECO & CEDAC: Study on the evolution of the Cambodian Rubber Sector, Draft report, 2005. 50 which is subject to a number of conditions, including the formation of a Cambodian Rubber Trade Association representing all stakeholders in the commodity chain, a laboratory equipped with qualified personnel and requisite equipment, and test participation in compliance with international standards, as contained for example in ISO 2000. In particular, the lack of certification by an internationally recognized accredited laboratory prevents Cambodian rubber from accessing important markets. Cambodia cannot sell directly to end users and currently only exports to Vietnam. These market access limitations decrease bargaining power and force producers to sell below international prices. Cambodian companies receive an average of US$1,150 per ton for rubber at the Vietnamese border compared to US$1,343 per ton producers get in Malaysia.27 This is the major obstacle cited by all consulted rubber stakeholders. Pharmaceuticals: World: GMP standard (part III B): Global markets set high standards for participating in international commerce in pharmaceuticals. Requirements include compliance with the Pharmaceutical Good Manufacturing Practices (GMP) guidelines of the WHO, which Cambodian companies are unable to meet and bio-equivalence studies which they are unable to conduct. These standards have proven prohibitive to Cambodian pharmaceutical producers. There were 100 pharmaceutical companies operating in Cambodia in early 2005. Only 7 companies have their own factories, the others import from abroad. Currently, there is only one company that both manufactures and exports pharmaceutical products. Exports account for 30 percent of this company's activities and are destined for a number of countries in Africa (Mali, Togo, Guinea, Burkina-Faso, Mauritania, Gabon, Benin, and Cameroon). Almost all raw materials are imported from Europe, France in particular. The current trade of pharmaceutical products is fundamentally based on negotiations between buyers and sellers. Cambodian pharmaceutical products face few obstacles in markets of other LDCs and developing countries, as these countries are mainly focused on the benefits of relatively lower prices. Cambodian pharmaceutical manufacturers are not yet able to move into international markets, however, and to join international bids since capacities at both company and regulatory level do not meet the standard requirements. The two most difficult requirements for traders are GMP (Good Manufacturing Practices) standards compliant with WHO guidelines and bioequivalence studies. Producers are currently operating their businesses based on local GMP standards certified by the Ministry of Health which are less stringent than those of WHO. The lack of expertise and lack of modern laboratories and equipment are the main obstacles to satisfy international standards. Moreover, producers have to make significant investments to be able to conduct bioequivalence studies, which is often a condition for admission to international markets.28 These conditions also form part of Cambodia's commitments to ASEAN standards by end 2008. Given the current situation, Cambodia is unlikely to be able to implement these measures within 27The Cambodia Daily, 24 June 2005 p.18, based on interview with French Development Agency rubber expert. 28According to interview with exporter, bioequivalent study of a pharmaceutical product costs up to US$30,000 in China. 51 the time limit and market access to ASEAN will still be restricted for Cambodian pharmaceuticals. 4. Potential Exports if Barriers are Removed Cambodia would benefit greatly if the barriers discussed above were to be eliminated. Their removal would help Cambodia diversify exports and thus boost economic growth and poverty reduction. The following scenarios describe export opportunities if obstacles were to be removed: Rice: Cambodia has the capacity to increase paddy production through increasing productivity and expansion of arable land left from forestry overexploitation. The country's current rice productivity is lower than Thailand's and Vietnam's due to a lack of irrigation systems and technology. If Chinese markets were to reopen to Cambodian rice imports, demand for rice exports would increase significantly, leading to a rise in paddy demand. In addition, access to alternative markets would increase exporters' bargaining power. An increase in paddy demand and price would in turn attract private investment in the industry, resulting in better irrigation systems and technology, and ultimately higher productivity. Moreover, exporters may be interested in trading other plant products such as beans and corn. Further, an elimination of the effects of government purchases and subsidies abroad would open up the possibility for Cambodian exporters to increase their margins. Fisheries: The removal of the EU barriers would allow Cambodia to diversify export markets as well as gain bargaining power abroad.29 It would allow exporters to increasingly buy fishery products from local traders at better prices and reduce informal exports of raw fish to neighboring countries. Garments: Cambodia's garment exporters do not benefit fully from the EU's EBA initiative, due to restrictive rule of origin criteria. However, the EU markets absorb currently about 20 percent of garment exports among which some exports are subject to duties. The EBA presents large potential gains to Cambodian exporters, but would require either for the EU to change the rule of origin criteria or for East Asian LDCs to develop a garment­input industry at country and regional level, which seems unrealistic in the short term. If origin criteria were less demanding, the EU would be the first garment export destination, given that the worldwide quota system was recently eliminated and Cambodia has not yet received another trade preference system from the US. Moreover, if Cambodia were able to benefit fully from the GSP scheme vis-à-vis all countries that grant special treatment, it would be in a position to maintain the current number of operating garment factories and eventually attract more investment in this industry. Rubber: With the current annual exports of 45,000 tons, Cambodia expects to earn approximately US$10 million/year more if the barrier related to quality certification were removed. It would allow Cambodian rubber to enter more markets, thereby increasing producers' bargaining power. The resulting price increase would boost the revenues of small holders and private companies leading to more investment in new growing areas in provinces such as Ratanakiri, Kratie and Mondulkiri whose soils are potentially suitable for rubber plantations. 29An exporter who experienced in exporting of fishery products to the EU before 1997 cited that if the barrier is removed, he can increase about 50 percent of its current export sales and price in the EU market is relatively higher about 10 percent. 52 Pharmaceutical products: If Cambodian pharmaceutical companies can meet the standard requirement to move freely in international markets, Cambodia could generate income through export promotion of generic products. The current exports to a limited number of destinations seem to indicate that quality of generic products is already acceptable in some countries. Other products: The removal of other barriers would allow Cambodia to diversify exported products and destinations. Potential additional exports could be confirel products and black pepper to the Chinese and Japanese markets respectively. Both products are already exported in small quantities, but Cambodia still has large excess production capacity. Further, the prospect that Cambodian products could soon qualify for sale in organic markets is an exciting challenge. Some private companies are already undertaking organic farming initiatives. If an organic certification system were put in place now, Cambodia would be able to move into world organic markets in a few years, with a prospect of a share in the growing market for organic products in the long run. 53 CHILE Sebastian Saez and Jorge Soto Solar Independent and Foreign Trade Department, Ministry of the Economy, Chile Chile's trade is currently relatively balanced in terms of market destinations. Exports are scattered in similar shares between the American, European and Asian continents, whereby composition of its exports differs, depending on the destination. Exports to Asia are comparatively more concentrated in primary mining products, while Chilean exports to the US are more concentrated in agricultural products (fresh fruits), fish products and traditional manufactured products like wood and wood products. Meanwhile, exports to the Latin American region are much more diversified and have more value added; importantly, a large percentage of small and medium-sized firms participate in exporting activities to Latin American countries, which has implications regarding NTM in that this type of entrepreneurs has the most difficulties in coping with NTM. The study detected 149 non-tariff barriers, whereby the number of barriers is concentrated in the Americas (73.8%), followed at a long distance by Asia (14.1%) and Europe (8.1%). The composition of Chilean exports goes a long way towards explaining the nature of NTMs faced by Chilean firms: exports consist mainly of mining, agricultural and processed food products; it is hence unsurprising that 44 out of the 149 detected NTMs belonged to the category of sanitary and phytosanitary measures, affecting nearly 9% of total exports. The products most affected by NTMs are fruit and nuts as well as fish products. SPS requirements were closely followed by customs and administrative procedures, restrictions related to government participation in trade and restrictive practices tolerated by governments, as well as technical barriers to trade. The frequent occurrence of NTMs relating to customs procedures and trade formalities, such as import licensing may reflect a weakness associated with multilateral regulations and their enforcement. Most of these problems occur vis-à-vis other Latin American countries. Exporters often point out the lack of transparency of norms, procedures and decisions of the authorities in the region; hence increasing transparency is seen as an important issue going forward. Regarding SPS requirements, the study suggests that the government should place more emphasis on creating incentives for private investors to tackle these barriers, in particular reducing the costs associated with conformity assessment procedures. 1. Overview of Trade Chile's trade policy reform process differs from that in other Latin American countries for various reasons. The process started at the end of 1973, earlier than in the rest of the region. This gives reforms a degree of maturity that has been contributing to the stability of trade policy and to the continuous process of opening up that the economy has experienced in recent years. Since the late 1970s, Chile's exports have shown remarkable development, which has been analysed extensively (Wisecarver, 1992; Meller, 1996; and French-Davis, 2003). Exports of goods and services went from an average of 14% of gross domestic product (GDP) in the 1960s, to more than 30% in recent years (French-Davis, 2003). Between 1973 and 1990, Chilean exports grew at an average annual rate of 6.5%; this growth was accompanied by a significant diversification of market destinations, together with the incorporation of a large number of new products and firms (Silva, 2001; Sáez, 2004). 54 Chile's trade is currently relatively balanced in terms of market destinations. Exports are scattered in similar shares between the American, European and Asian continents. In 2005, the EU and the US accounted for 23.5% and 15.8% respectively while 12.1% went to the largest Latin American traders (Brazil, Mexico, Peru and Argentina). South East Asia absorbed 28.2% of Chilean exports (Japan and China each made up approximately 12%). However, the composition of its exports differs, depending on the destination. Exports to Asia are comparatively more concentrated in primary mining products, that is, copper concentrates and scale intensive manufactured products such as refined copper. This composition has not changed dramatically over the years (Clark, 1999). Chilean exports to the U.S. are more concentrated in agricultural products (fresh fruits), fish products and traditional manufactured products like wood and wood products. Meanwhile, exports to the Latin American region have several distinctive features: they are highly diversified in terms of products; they have more value added; they are generally manufactured (food and beverages) and scale intensive manufactured products; exports of durable goods and diffusers of technical progress are concentrated here; and finally, a large percentage of small and medium- sized firms participate in exporting activities to Latin American countries. This type of entrepreneurs has the most difficulties in fully understanding the nature of NTM, in particular, regulatory measures. Figure 7: Chile 2005 exports by product Figure 8: Chile 2005 exports by destination Petroleum and Argentina RoW UN Special Code products Non-ferrous Peru Other metals EU Inorganic Canada chemicals Taiw an, China Beverages Mexico Cork and w ood United States Pulp and w aste Metal ores/metal Brazil paper scrap Vegetables and Fish/shellfish/etc. Korea, Rep. China Japan fruit Source: UNCTAD COMTRADE 2. Methodology of the Study Two main sources of information were used for this study, the National Survey on Foreign Trade Barriers published by the Foreign Trade Department of the Ministry of Economy, and a series of interviews with key private-sector associations that are directly involved in trade matters.30 Information Contained in the National Survey on Foreign Trade Barriers31 The National Survey on Foreign Trade Barriers has been published on five occasions between 1999 and 2004. It identifies a number of tariff and non-tariff barriers that allegedly affect Chilean exports in their destination markets. The document is prepared on the basis of information supplied by export firms (either directly or through exporters' associations) or governmental organizations dealing with trade; data is also taken from the media. The information contained in the Survey is updated annually. For this purpose, a two-month period is opened every year where 30In particular, Sociedad de Fomento Fabril (SOFOFA) with 2,000 members companies and 46 sectoral associations; Asociación de Exportadores de Manufacturas (ASEXMA), 600 members, Corporación Chilena de la Madera (CORMA), with 206 members; and Asociación de Industrias Lácteas. 31This section was prepared on the basis of information presented in the National Survey on Foreign Trade Barriers (www.economia.cl). This report was originally based on USTR National Trade Estimate Report on Foreign Trade Barriers. 55 exporting firms and exporters' associations are requested to report the barriers encountered by their products at their destinations.32 Barriers thus identified are presented in the Survey in a descriptive manner. It is important to stress that the information included in the report is without judgement of their legal status within the framework of the trade regulations under international agreements. Hence, they are not necessarily illegitimate or forbidden obstacles under WTO agreements or under any bilateral agreements entered into by Chile with any country mentioned in the report.33 But they do represent obstacles to trade for Chilean products in the view of the private sector. The Survey is not an attempt to measure the evolution of tariff and non-tariff barriers, since it does not cover all trade with each one of the countries, nor does it quantify the impact of the measures on trade in terms of their restrictiveness. Instead, the methodology has evolved towards improved accuracy to describe the problems and products affected. Regarding the information contained in the Survey, the document is organised by countries of destination of Chilean exports where trade barriers have been identified. For each country, barriers are grouped into the categories described below, with their corresponding definitions: · Import policies: general procedures, mainly administrative, to obtain an import permit. Among them are import licenses, customs valuation rules, previous inspection of merchandise, and the like. Tariff-related issues are also included here. · Technical standards and regulations: specifications with respect to characteristics that products must fulfil, including packaging, marketing and labelling requirements, as well as sanitary and phytosanitary measures. · Intellectual property: standards governing trade and investments, in order to protect copyrights, trademarks, brands and geographical indications, among others. · Subsidies: financial contribution provided by a government to its producers. This support permits to reduce production costs, causing a distortion in sales prices. · Trade in services: services are defined as economic activities that do not involve a transaction of tangible goods and are not subject to tariffs. Thus, barriers included in this category refer to laws, standards or regulations that discriminate, in their conception or application, against foreign services or services providers. This category includes such services as transport, telecommunication, finance, publicity, consultancy, etc. · Trade defence: measures of a temporary nature that a country may adopt to protect a domestic industry against an increase in imports (safeguards) or intended to confront unfair trade practices (dumping), or the government or any public organisation from a member country making a financial contribution (grants), by applying a tariff surcharge, an anti-dumping or countervailing duty to imports. · Taxation measures: taxes in general and other domestic tax burdens. · Others: this caption includes any measures that cannot be classified in the above categories, plus measures in the area of government procurement and investments. 32The updated version is then prepared, which includes the newly identified problems, deletes the ones already resolved, and keeps the ones that persist. The latest report was issued in the second half of 2005, the information included did not change the conclusion of this paper. 33Cases where backup information is incomplete are excluded. The Survey establishes that the information provided is not necessarily shared by the Chilean governmental agencies and does not oblige the government in any way. 56 All information relating to non-tariff barriers that hinder trade in goods was retrieved from the Survey. Information about other barriers related to services and investment was not used. Also dismissed were some entries containing a very small amount of--or very specific--information that have little to do with a country's trade policy but rather with actions to exert pressure during times of specific trade conflicts. Overall, of the 222 barriers reported in the 2004 version of the Survey, 149 were used for this study.34 Measures were summarized and matched with bilateral export volumes in 2004 of affected products and measure-imposing trade partners. In certain cases, products could not be linked to tariff entries or were not fully identified; hence, no export value was included for 34 non-tariff measures, because they were measures of general application or, in some cases, because their effect on the exported products was indirect. Regarding the classification of measures, the template provided to WTO Members for the NAMA notification exercise was adopted. Information Provided by the Private Sector As a complement to the information gathered, a series of interviews with experts from the private sector were undertaken. These interviews provided little additional information since the Survey published by the Ministry of Economy is based on information provided by private associations. Nevertheless, some clarification was obtained regarding a few obstacles encountered by Chilean exports, particularly those relating to the transparency of trade regulations and corruption issues in certain markets.35 3. NTMs Faced by Chilean Exporters The study detected 149 non-tariff barriers distributed across 28 countries, considering the European Union as one single market. The 28 countries that applied non-tariff barriers to Chilean exports accounted for a combined exported value of 93.6% of Chile's exports in 2004. However, this figure is not a good measure of actual barriers to Chile's trade, because it does not reflect the true percentage of exports affected by an NTM. However, it reveals that this type of measure is applied in practically all of Chile's major export destinations. 34Information contained in the 2005 Report is very similar to the 2004 Report and does not change the conclusions of the paper. 35The interviews were conducted on the basis of a questionnaire prepared by the OECD in co-operation with the Business and Advisory Committee of the OECD: "Business Survey of Obstacles to Trade in Goods", provided for this Project. 57 A more detailed analysis of destination markets yields that the number of barriers is concentrated in the Americas (73.8%), followed at a long distance by Asia (14.1%)36 and Europe (8.1%). These figures do not match the share of each continent in Chilean exports (Table 4). Table 4: NTM faced by Chilean Exporters (2004) Exports % Total Number of Number of Number of Barriers % Total Firms Products (US$ million) Africa 102 0.3% 5 3.4% 221 284 America 11,155 35.5% 110 73.8% 5,468 3,708 Asia 11,167 35.5% 21 14.1% 1,202 772 Oceanía 123 0.4% 1 0.7% 316 366 Europe 8,507 27.0% 12 8.1% 2,253 1,718 Othes 406 1.3% 0.0% Total 31,460 100.0% 149 100.0% Source: Based on Central Bank data and the Ministry of Economy's trade barrier survey "Catastro Nacional sobre Barreras Externas al Comercio ­ 2004". One possible explanation lies in the range of products exported to different destinations. In fact, exports to the American continent are largely diversified, especially to Latin American markets. Also, the number of firms involved in the exporting activity to this region is the largest, with 5,468. The skewed distribution of NTMs may further result from the fact that small and medium- sized entrepreneurs have a bigger interest in forwarding their problems to the government to have it intervene in their favour, while large exporting companies have more resources of their own to deal with market access limitations directly. In the case of the Asian market, the export basket is more concentrated and fewer companies are actively engaged in trade with this region. This may imply that fewer restrictions are reported but it does not mean that there are less potential restrictions. In fact, those countries with closer trade relations with Chile, such as China, Japan and South Korea were reported to have a higher number of NTMs (see Table 2). According to this data, the country that ranks highest in terms of number of barriers is the United States, with 20 provisions, which represent 13.2% of all NTMs reported here. Total Chilean exports to this market in 2004 reached US$4,834 million of which US$2,041 million or 42% were affected by NTMs. Next comes Argentina with 19 NTMs, although these are highly concentrated such that only 7.5% of total exports to Argentina were affected; total exports to Argentina are also small. Brazil has 15 measures affecting US$135 million of exports. Further, numerous obstacles are faced in Colombia with 12 NTMs, as well as Mexico and the European Union with 10 each. In the case of the EU, these 10 measures affected US$1.740 million, ranking second after the US. This distribution of NTMs by country shows that Chilean exports face some type of restriction in practically all of their export markets. When organizing barriers according to chapter, it appears that 58 out of the 97 HS chapters are affected by non-tariff barriers, which account for 38% of all shipments from Chile in 2004. This does not mean, however, that 38% of Chilean exports are subject to some kind of NTM, because this depends on the country of destination. The data suggest that 14.6% of Chilean exports encountered some kind of NTM in 2004. 36 Clark (1996) estimated that 20% of exports to 12 Asia Pacific countries were subject to a NTM representing 16% of total exports to that market. 58 Table 5 NTM by Market of Destination, 2004 Country Exports % Total # of Number of Affected Barriers % Total Products Exports (7)= (6)/(1) (1) (2) (3) (4) (5) (6) (7) Argentina 448 1.4% 19 12.5% 2,236 34 7.5% Australia 91 0.3% 1 0.7% 331 - 0.0% Bolivia 140 0.4% 5 2.6% 2,232 34 24.3% Brazil 1,423 4.5% 15 11.2% 1,104 135 9.5% Canada 780 2.5% 1 0.7% 889 62 8.0% China 3,227 10.3% 3 2.0% 260 21 0.6% Chinese Taipei 972 3.1% 3 2.0% 172 0 0.0% Colombia 310 1.0% 12 8.6% 1,047 81 26.2% Costa Rica 97 0.3% 1 0.7% 625 - 0.0% Dominican Rep. 29 0.1% 1 0.7% 302 0 0.1% Ecuador 323 1.0% 8 5.9% 1,499 31 9.7% Egypt 5 0.0% 5 3.3% 40 2 34.0% European Union 7,889 25.1% 10 7.2% 2,143 1,740 22.1% Guatemala 166 0.5% 3 2.0% 538 22 13.3% Honduras 57 0.2% 1 0.7% 252 10 17.0% Hungary 1 0.0% 1 0.7% 17 - 0.0% India 413 1.3% 2 1.3% 88 9 2.3% Japan 3,733 11.9% 6 3.9% 577 289 7.8% Korea 1,821 5.8% 4 2.6% 193 0 0.0% Malaysia 125 0.4% 1 0.7% 95 - 0.0% Mexico 1,314 4.2% 10 6.6% 1,309 42 3.2% Panama 168 0.5% 1 0.7% 547 - 0.0% Peru 524 1.7% 6 3.9% 2,665 18 3.4% Philippines 61 0.2% 2 1.3% 73 - 0.0% Turkey 159 0.5% 1 0.7% 64 0 0.3% United States 4,834 15.4% 20 13.2% 2,086 2,041 42.2% Uruguay 67 0.2% 5 3.3% 1,078 8 11.5% Venezuela 273 0.9% 2 1.3% 897 28 10.2% Subtotal 29,451 93.6% Total 31,460 100.0% 149 100.0% 5,229 4,607 14.6% Source: Based on Central Bank data and the Ministry of Economy's trade barrier survey "Catastro Nacional sobre Barreras Externas al Comercio ­ 2004". Special attention should be paid to the situation of Chilean exports classified in chapters 26 (Ores, slag and ash) and 74 (Copper and articles thereof), both copper and mining products. The two chapters jointly account for 52% of exports from Chile in 2004 and register no NTMs under the classification used in this study. These products, however, face growing requirements in the environmental area related to their sustainable operation rather than the products' physical attributes ­ a barrier that this survey does not capture. 59 Table 6 Inventory of NTM according to NAMA Notification Format, 2004 Export Value of Parts and Barriers Affected Products: % Total Sections Description Total* 2004 Exports Number % Total (US$ ) Part I Government participation in trade and restrictive practices tolerated by governments 27 18.1% 28 2,924,320,902 9.3% A Government aids, including subsidies and tax benefits. 10 6.7% 10 2,063,918,420 6.6% B Countervailing duties 0.0% C Government procurement 3 2.0% 3 37,900,337 0.1% D Restrictive practices tolerated by governments 10 6.7% 11 178,558,503 0.6% E State trading, government monopoly practices, etc. 4 2.7% 4 643,943,642 2.0% Part II Customs and administrative entry procedures 42 28.2% 42 773,033,951 2.5% A Anti-dumping duties 3 2.0% 3 54,965,246 0.2% B Customs valuation 4 2.7% 4 78,230,895 0.2% C Customs classification 8 5.4% 8 41,919,247 0.1% D Consular formalities and documentation 2 1.3% 2 48,286,558 0.2% E Simples 0.0% F Rules of origin 3 2.0% 3 12,127,986 0.0% G Customs formalities 3 2.0% 3 1,546,946 0.0% H Import licensing 16 10.7% 16 529,925,331 1.7% I Pre-shipment inspection 3 2.0% 3 6,031,742 0.0% Part III Technical barriers to trade 19 12.8% 21 1,124,713,036 3.6% A General 7 4.7% 8 28,040,744 0.1% B Technical regulations and standards 8 5.4% 9 1,067,535,336 3.4% C Testing and certification arrangements 4 2.7% 4 29,136,956 0.1% Part IV Sanitary and phytosanitary measures 44 29.5% 50 2,726,753,520 8.7% A General 19 12.8% 20 2,310,342,940 7.3% B SPS measures including chemical residue limits, disease freedom, specified product treatment, etc. 12 8.1% 14 238,306,836 0.8% C Testing, certification and other conformity assessment 13 8.7% 16 178,103,744 0.6% OTHERS 17 11.4% 17 1,255,933,247 4.0% TOTAL 149 100.0% 158 Total of Chilean exports in 2004 31.460.137.813 Total * = when measures may be classified under more than one description. Due to the fact that certain tariff lines are subject to more than one type of NTM the last column cannot be summed up. Source: Central Bank of Chile and Ministry of Economy's trade barrier survey "Catastro Nacional sobre Barreras Externas al Comercio ­ 2004." 60 Under the HS classification, the chapters most affected by NTMs are Ch.08, "Edible fruit and nuts; peel of citrus fruits or melons" and Ch.03, "Fish and crustaceans, mollusks and other aquatic invertebrates". In 2004, Chile exported US$2.14 billion worth of products classified under chapter 8, of which US$1.7 billion were affected by some kind of NTM. Under Chapter 3, "Fish and crustaceans, molluscs and other aquatic invertebrates", Chile's exports amounted to US$1.89 billion, US$986 million of which were affected by NTMs; the latter originated mainly in three regions: the US, the EU and Brazil, which together accounted for almost 100% of trade affected. The following tables give an overview of NTMs faced by those two particular export sectors: Edible Fruit and Nuts; Peel of Citrus Fruits or Melons exported to US, Brazil, Colombia, Japan and EU Type of barrier NAMA Code Governmental programs that benefit Part I A ­ Government aids including subsidies and tax exporters. benefits Import authorisation procedures. Part II ­ Administrative entry procedures Changes in import requirements and Part II ­ Administrative entry procedures procedures. Antidumping duties. Part II A ­ Anti-dumping duties Delays to containers of frozen products. Part II G ­ Customs formalities Pre-shipment authorisation. Part II I ­ Pre-shipment inspection Delays from sanitary authorities in Part IV A ­ SPS general issuing import permits. Fumigation requirements by the sanitary Part IV B ­ SPS measures authorities, but facilities are not in place. Fumigation requirements. Sanitary Part IV B ­ SPS measures authorities do not accept as alternatives in situ inspections. Unnecessary fumigation performed by Part IV B ­ SPS measures sanitary authorities Different quality requirements. Part IV B ­ SPS measures Inspection procedures, delays and costs. Part IV C ­ SPS testing, certification, other conformity assessment Certification requirements and procedures Part IV C ­ SPS testing, certification, other conformity are costly. assessment Phytosanitary inspection requirement Part IV C ­ SPS testing, certification, other conformity imposed by state within a country. assessment Sanitary permits for importation. Part IV C ­ SPS testing, certification, other conformity assessment Testing requirements and procedures are Part IV C ­ SPS testing, certification, other conformity higher than necessary. assessment Import prohibition during domestic Part V A ­ Quantitative restrictions harvest season. Import quota administration Part V A ­ Quantitative restrictions Packaging requirements. Part V K ­ Requirements concerning marking, labeling and packaging Labelling requirements and sanitary Part V K ­ Requirements concerning marking, labeling and permits are cumbersome and costly. packaging Programs force Chilean avocado Part VI B ­ Surcharges, port taxes, statistical taxes exporters to pay a fee for generic advertising. Marketing orders. Part VII D ­ Business practices or restrictions in the market 61 Edible Fruit and Nuts; Peel of Citrus Fruits or Melons exported to US, Brazil, Colombia, Japan and EU Minimum import price system. Part VII E ­ Other: Minimum import prices Traceability requirements for food Part VII E ­ Other: Traceability requirement products. Fisheries exported to US, EU, Brazil Type of barrier NAMA Code Governmental programs that benefit Part I A ­ Government aids including subsidies and tax exporters. benefits Consular approval for certificates. Part II D ­ Consular formalities and documentation Delays to containers of frozen products. Part II G ­ Customs formalities Authorisation and licensing requirements. Part II H ­ Import licensing Pre-shipment authorisation procedures. Part II I ­ Pre-shipment inspection Approved labelling and mandatory Part V K ­ Requirements concerning marking, labeling and labelling requirements about specific packaging names. Ad-valorem consumption tax on salmon Part VI B ­ Surcharges, port taxes, statistical taxes Minimum import value. Part VII E ­ Other: Minimum import prices Traceability requirements for food Part VII E ­ Other: Traceability requirement products. The composition of Chilean exports goes a long way towards explaining the nature of NTMs faced by Chilean firms: exports consist mainly of mining, agricultural and processed food products; it is hence unsurprising that 44 out of the 149 detected NTMs (approximately 30% of the total) belonged to the category of sanitary and phytosanitary measures, affecting nearly 9% of total exports. SPS requirements were closely followed by customs and administrative procedures, with 42 measures (28% of the total), which impacted, however, only 2% of total exports. Third come restrictions related to government participation in trade and restrictive practices tolerated by governments, with 27 measures (18% of the total) and an incidence on 9% of total exports. Fourth are obstacles relating to technical barriers to trade, with 19 reported measures.37 The last category is "Others", with 17 measures. The frequent occurrence of NTMs relating to customs procedures and trade formalities, such as import licensing is quite striking. This may reflect a weakness associated with multilateral regulations and their enforcement, as well as the poor negotiating agenda in this respect. Most of these problems occur in Chile's trade relations with Latin America. Private sector representatives often point out the lack of transparency of norms, procedures and decisions of the authorities in the region. Given the source of information used, the inventory of measures discussed in this paper may be reflecting the situation of small and medium-sized firms that request support from the government to resolve their export constraints. As for the sectors that do not report NTM-related problems, this does not mean that these do not exist. In the case of copper or forestry products, for instance, producers are large (sometimes multinational corporations) and can hence adjust their production structures to accommodate barriers. As reported by the interviewees, 37According to some interviews, small and medium-sized firms cannot export because they are unable to adapt their production to certain technical requirements due to insufficient resources. Thus, this barrier is much more difficult to measure in terms of its impact on exports because such exports do not exist. This is similar to the case of sanitary and phytosanitary constraints. 62 commodities are arguably easier to redirect to different markets. Thus, in the latter case, barriers that limit trade in a specific market are not necessarily reported. 63 References Agosin, M. (2001): "Reformas comerciales, exportaciones y crecimiento," in French-Davis and Stallings (2001). "Catastro Nacional sobre Barreras Externas al Comercio ­ 2004". Ministry of Economy of Chile. Clark, X. (1996): "Comercio de Chile con APEC: barreras arancelarias y no arancelarias, Colección Estudios de CIEPLAN N 42, Santiago de Chile. COCHILCO (2003): "Impacto de los acuerdos comerciales en el acceso a los mercados para los productos de la minería chilena," June. French-Davis, R. (2003): Entre el neoliberalismo y el crecimiento con equidad: tres décadas de políticas económicas en Chile, J.C. Sáez, editor. French-Davis, R. & B. Stallings, eds. (2001): Reformas, crecimiento y políticas sociales en Chile desde 1973, Lom Ediciones CIUDAD. Fischer, Ronald Ed. (1997): Las Nuevas Caras del Proteccionismo, Dolmen Ediciones, Santiago. Meller, P. (1996): Un siglo de economía política chilena, Editorial Andrés Bello, Santiago. OECD (2005): "Analysis of Non-tariff Barriers of Concern to Developing Countries," February, TD/TC/WP(2004)47/Rev1. Sáez, S. (2004a): "La política comercial de Chile: una síntesis," presented at the conference "Centroamérica y otras experiencias de integración," San Salvador, El Salvador, 8 - 9 November 2004. Silva, V. (2001): "Estrategia y agenda comercial chilena en los años noventa," ECLAC Series of International Trade # 11. Wisecarver, D.L., ed. (1992): El Modelo Económico Chileno, Pontificia Universidad Católica de Chile and International Center for Economic Development, San Francisco, California, USA. 64 CHINA Yang Zerui, CNPECC and CIIS China's main export commodities include office and data processing machinery, telecoms equipment, and electrical equipment, followed by apparel and textile products as well as other industrial goods. The share of manufactured goods in China's merchandise exports is as high as 85 percent. Agricultural products do not feature among the top 75% of export products at the 2- digit level. They are, however, nevertheless an important export good for China, given the large number of farmers still involved in agricultural production. As far as export destinations are concerned, all of China's top 10 trade partners (with the exception of the EU) are Asia-Pacific countries and regions. They are USA, Hong Kong, Japan, ASEAN, Korea, Taiwan Province of China, Singapore, Russia, Australia and Canada. Their share in China's total trade was 81.5% in 2005. According to the study, Chinese exporters face significant barriers both internally and externally. Externally, trade remedy measures (antidumping, countervailing duties, safeguards and special safeguards) are the center of the NTMs faced by Chinese exporters. These are of particular concern to Chinese exporters as they are applied to China in a different way than to most other countries, partly due to the fact that many important trading nations still do not recognize China as a market economy and partly as a result of particularly stringent WTO accession commitments. According to the study, Chinese export products which are mainly affected by NTMs are natural resource based and labor-intensive industrial goods, such as agricultural and processed food products and mining products, as well as textiles and clothing, and light industrial products. Barriers were reported to affect mainly local Chinese firms rather than foreign invested companies, as the latter trade mostly intra-firm and generally have more knowledge and resources to overcome NTMs. Exporters across sectors complained about time-consuming, costly or non-transparent customs formalities in countries as varied as Brazil, Mexico, the US, Korea, Turkey and South Africa. There were further some general complaints about non-transparent standards systems as well as intellectual property issues. Even though agricultural products do not feature among the most important Chinese exports, they are still subject to many NTMs, first and foremost SPS measures and certification, labeling and packaging requirements, quantitative restrictions or even import bans as well as anti- dumping investigations. SPS measures can take the form of quarantine requirements, strict or non-transparent standards and documentation and inspection requirements. Many of the reported measures apply to foodstuffs in general or specific types of fruit and vegetables. When it comes to manufactured products, Chinese exporters experience NTMs mainly in the form of anti-dumping and safeguards investigations and measures, investigations concerning intellectual property rights, quantitative restrictions and registration requirements especially in the case of pharmaceuticals. Chemicals, steel and light industrial products are particularly hard- hit by anti-dumping cases, which are mostly initiated by countries in the Americas or East Asia. Textiles and clothing were subject to a wide range of NTMs including quantitative restrictions, safeguards, anti-dumping, pre-shipment inspection and rules of origin. Further, pharmaceuticals were affected by many measures, such as technical regulations, strict administrative entry procedures/licensing, and import bans. 65 1. Overview of Trade Evaluating the importance of NTMs affecting China's foreign trade will be a challenge, partly due to the volume and variety of Chinese export products and destinations. NTMs faced by Chinese exporters are increasing quickly after China's accession to the WTO in 2001. According to the data collected, the following seem to be the most important obstacles faced by Chinese exporters (using the WTO Inventory of Non-Tariff Measures): anti-dumping duties, customs valuation, technical regulations and standards, SPS measures, quantitative restrictions, embargoes and other restrictions of similar effects, discrimination resulting from bilateral agreements, intellectual property issues, safeguard measures, emergency actions and others including non- market economy status and labor and human rights issues. The so-called "trade remedy measures"-- antidumping, countervailing duties, safeguards and special safeguards -- are the center of NTMs faced by Chinese exporters. From a sectoral perspective, it seems that natural resource based and labor-intensive industrial goods, such as agricultural and processed food products and mining, as well as textiles and clothing, light industrial products, and machinery/electronics are most strongly affected by NTMs. The volume of Chinese exports affected by NTMs is expected to increase as China integrates further into the global trade system. Before 1980, China's foreign trade activity was minor. In 1981, China's total import/export volume was US$44.02 billion, and the country ranked No. 32 amongst the world's largest traders. From then on, China's foreign trade has seen rapid growth, based on its rapid overall growth performance and open policy. Today, China's economy is very open. Since 2003, China has been the No.3 largest trading power in the world. In 2005, China's total foreign trade was US$1.42 trillion, 23.2% higher than the previous year. Some experts expect China to overtake Germany as the world's No.2 trading power before 2010 and the United States as the world's largest trader before 2020. Figure 9 and Figure 10 show that the share of manufactured goods in China's merchandise exports is as high as 85 percent. China's main export commodities include office and data processing machinery, telecoms equipment, and electrical equipment, followed by apparel and textile products as well as other industrial goods. Agricultural products do not feature among the top 75% of export products at the 2-digit level. They are, however, nevertheless an important export good for China, given the large number of farmers still involved in agricultural production. Figure 9: China 2005 exports by product Figure 10: China 2005 exports by destination Other Office/data proc machines RoW Scientific Russian United States instruments Telecomms Federation equipment Footw ear Taiw an, China Iron and steel Electrical equipment Singapore EU Road vehicles Apparel/clothing Industrial equipment Korea, Rep. nes Metal manufactures Misc manufactures Hong Kong, China nes Textile yarn/fabric nes Japan Source: UNCTAD COMTRADE As far as export destinations are concerned, all of China's top 10 trade partners (with the exception of the EU) are Asia-Pacific countries and regions. They are USA, Hong Kong, Japan, 66 ASEAN, Korea, Taiwan Province of China, Singapore, Russia, Australia and Canada. Their share in China's total trade was 81.5% in 2005. A unique feature in China's trade structure is the importance of Foreign Direct Investment (FDI). FDI companies import raw materials and intermediate products to China which are then processed within the country. Subsequently, the finished products are exported to the countries where these FDI companies have their home base, or else to the global market. The figures presented here show that FDI import and export occupy the largest part of China's import and export. This amounted to 48.4 percent of China's foreign trade in 1999, 50 percent in 2000 and 58.5 percent in 2005, compared to 0.1 percent in 1981. On the other hand, the share of Chinese state-owned enterprises in total export is decreasing very quickly. Table 7: FDI in China's Foreign Trade, %, billion US dollars, 1981-2010 1981 2000 2005 2010 (est.) % Amount % Amount % Amount % Amount FDI 0.1 0.264 50 236 58.5 831 65 1950 Enterprises State Owned 99.9 43.758 45 214 25.7 366 17 510 Enterprises Private/Other 0 0 5 24 15.8 224 18 540 Total 100 44.022 100 474 100 1422 100 3000 Source: Ministry of Commerce Since the percentage of FDI trade in China's total trade is still growing quickly, it is currently difficult to come to a good understanding of NTM issues facing Chinese exporters if we treat all of China's exports in the same way. NTMs faced by foreign invested firms will therefore be excluded from this analysis. 2. Methodology of the study Evidence on the prevalence of NTMs was gathered from an inventory of business complaints, information provided by the government and reports by exporter associations. Further, surveys were conducted involving government entities, private sector business associations and individual exporters in an attempt to identify non-tariff measures affecting exporters of agricultural and manufactured products from China to all markets. Information in this chapter was compiled from the following sources: Ministry of Commerce: Officials of the Bureau of Fair Trade for Imports and Exports (BOFT) of Ministry of Commerce (MOFCOM) of China provided major materials needed. The Division of NTMs in BOFT is in charge of all NTM issues which Chinese exporters face. However, BOFT is a young government body (created in 2001 when China joined the WTO) and its collection of information is not complete; nevertheless, it represents a main source of information for this report. Chinese Exporters Chambers (associations): reports on NTMs Questionnaires and interviews with exporters: 13,000 questionnaires were sent out by email to exporters with export volume exceeding two million US dollars in 2003 and to hundreds of thousands of manufacturers in China. However, responses to the questionnaires were not satisfactory; only a limited number of valid responses were received. 67 The "Inventory of Non-Tariff Measures"38 created by the WTO Negotiating Group on Market Access (NAMA) was used to classify NTMs. Some of the NTMs faced by Chinese exporters are directly trade-related (e.g. import quotas, import surcharges, anti-dumping measures), others have a link to trade in as far as their implementation is monitored at the border (e.g. labeling, packaging, sanitary standards), while a third group arises from general public policy (e.g. government procurement, investment restrictions, extent of intellectual property rights protection). Amongst these, trade remedy measures -- antidumping, countervailing duties, safeguards and special safeguards -- are at the center of NTMs faced by China. A further NTM-related issue of concern to Chinese exporters is (the lack of) NTMs encountered by FDI exports. FDI related exports accounted for 58.5% of China's total export in 2005, but FDI firms have encountered fewer NTMs than other local Chinese exporters. There are many reasons for this. The first one is that most FDI trade is intra-firm trade by multinational companies; secondly these FDI companies are mostly from developed countries and they generally have well- established trade relationships with importing countries; thirdly, these companies have advantages in terms of technology, knowledge, experience, etc., making it easier for them to overcome NTMs. Complaints about domestic governance practices, such as impediments arising from government procurement practices, are also relevant and are in most cases not sector-specific, but of a general nature. These complaints are frequently associated with discriminatory practices or certification procedures and technical regulations. Any attempt to assess the impact of non-tariff measures is fraught with methodological challenges and limitations in available information. Because of limited time and resources, this analysis could not be exhaustive. It only outlines main difficulties facing Chinese exporters emanating from the policies and practices of trading partners. 3. NTMs Faced by Chinese Exporters a. Internal barriers Chinese exporters seem to be facing various domestic constraints in addition to NTMs imposed by foreign countries. In acceding to the WTO, China has committed to undertake important systemic reforms, which should facilitate business. These systemic reforms are still ongoing. The following domestic obstacles were pointed out by the exporting community: Inefficient domestic bureaucracy (part i) o Systemic reforms to facilitate business activity have not yet been completed. o Lack of effective management of trade activity from the government side: as both the opening up of the Chinese market and the country's accession to the WTO are only recent events, the government's role in export has not been well defined. Governmental bodies do not have enough experience in dealing with the different kinds of NTMs. Restrictive domestic bureaucracy (part i) o Arbitrary changes in policy and procedures. State trading, government monopoly practices (part i) 38WTO, TN/MA/S/5/Rev.1, 28 November 2003. 68 o In order to eliminate import monopolies maintained by state trading enterprises in China on many industrial goods, China agreed to provide full information on the pricing mechanisms of state trading enterprises and to ensure that their export and import purchasing procedures are transparent and fully in compliance with WTO rules. China also agreed that state trading enterprises will limit the markup on goods they import in order to avoid trade distortions. All these commitments need time to be enforced. Even today, monopolies by state trading enterprises and state-owned enterprises in many kinds of goods are still very popular. Business practices or restrictions in the market (part vii d) o Restriction of trading rights: Prior to its WTO accession, China restricted the number of companies with trading rights, i.e., the right to import and export goods, and the products that a particular company can import and export. China has phased in trading rights for all Chinese-invested enterprises and all foreign- invested enterprises and individuals over a three-year period. Though trading rights are now available to all Chinese companies, in practice, it is still very difficult for small and medium-sized enterprises (SMEs) to export directly, due to historical, systemic and technical obstacles. As a consequence, SMEs need to export via an agent which can be costly. o Lack of qualified human capital. o Information deficits within the trade community. Lack of domestic infrastructure (part vii e) b. External barriers General Imposing Country Type of Barrier NAMA Code cf. Appendix 1 for a Anti-dumping, safeguards, special safeguards Part II A ­ Anti-dumping detailed list of anti- and countervailing duties (major duties, and part VII B dumping, safeguards restrictiveness) Safeguard measures and and countervailing emergency actions duties cases by country Not specified WTO members retain the right to restrict Part III B ­ Technical exports e.g. for products made with prison Regulations and Standards labor. (PPM) More than 80% of respondents were affected Part III B ­ Technical by TBT, which was estimated to result in Regulations and Standards and approximately 6% reduction of their exports. part III C ­ TBT inspection and testing procedures SPS measures such as quarantines Part IV B ­ SPS measures China specific safeguards written into China's Part VII B ­ Safeguard WTO accession agreements (phase-out 12 measures and emergency years after accession) (major restrictiveness) actions - Limitations for government-owned Part VII D ­ Business companies to enter foreign markets or bid for practices or restrictions in the foreign government contracts (prohibitive) market - Limitations for Chinese companies to bid for certain contracts for political reasons, e.g. as in the case of rebuilding projects in Iraq (prohibitive) Non-market economy status as regards the Part VII E ­ other: non- 69 General Imposing Country Type of Barrier NAMA Code calculation of anti-dumping margins (phase- recognition of market out 15 years after accession). (major economy status restrictiveness) Brazil Customs clearance lacks transparency; high Part II G ­ Customs clearance fee. formalities List of goods requiring import licenses subject Part II H ­ import licensing to frequent and arbitrary adjustments; excessive requirements for materials to be provided in applying for non-voluntary import licenses; examination and approval procedures unduly complicated. Korea Written consent of the consignee is required Part II G ­ Customs for disposal of imported goods after their formalities arrival at Korean ports. Some Chinese exporters complain that in some cases, the Korean consignee has purposely exploited this regulation by refusing to make payments for the goods or deliver the goods; the Chinese exporter generally does not have the right to unilaterally dispose of the goods Certification methods are frequently altered Part III C ­ TBT testing and without prior notice, which sometimes leads to certification a doubling of time and expenses incurred by Chinese exporters for certification. Mexico Requirements for importers to furnish amongst Part II G ­ Customs others documents, commercial invoice, formalities packing list and certificate of origin; the latter should be authenticated by the Mexican consul in the exporting country. South Africa Chinese firms report that they frequently face Part II G ­ Customs delays when exporting products to South formalities Africa. Turkey In April 2004, Turkey set up a "red Part II G ­ Customs passageway" at customs to examine formalities specifically products of Chinese origin; Turkish customs started administering the so- called "double checking" on certain Chinese products, and drastically increased the proportion of checking by opening the containers and taking out the contents. In 2004, Turkey imposed "minimum prices" on Part II B ­ Customs valuation a number of Chinese exports during their customs clearing process. A "reference import price" was calculated on the basis of Turkey's local production costs. US US require additional information on goods Part II G ­ Customs waiting for customs clearance; for certain formalities products such as footwear, textiles, and clothing the information required exceeds that required for clearance of other goods. complicated and decentralized system of Part III B ­ Technical technical regulations and standards, resulting in regulations and standards slower customs clearance and increased costs 70 General Imposing Country Type of Barrier NAMA Code and uncertainty IPR investigations (Section 337 investigations) Part VII A ­ Intellectual ­ in recent years, Section 337 investigations property issues involving Chinese products have risen rapidly. In 2004, among all investigations, 11 were filed involving Chinese products (an increase of 57% compared to the previous year). Agriculture Even though agricultural products do not feature among the most important Chinese exports, they are still subject to many NTMs, first and foremost SPS measures and certification, labeling and packaging requirements, quantitative restrictions or even import bans as well as anti-dumping investigations. In particular, the following were identified by Chinese exporters: Agriculture Imposing Country Type of Barrier NAMA Code Live Animals Egypt Egypt requires the Chinese animal quarantine Part IV B ­ SPS measures department to provide animal disease quarantine reports Japan Import ban on Chinese larvae Part V A ­ quantitative restrictions Delays in customs clearance (major Part II G ­ Customs restrictiveness) formalities Foodstuffs general Australia different food standards imposed by different Part IV A ­ SPS general Australian states strict standards for aflatoxin, pesticide and Part IV B ­ SPS measures veterinary medicine residues (major including chemical residue restrictiveness) limits etc. - labels attached to foodstuffs are often found Part V K ­ requirements not to comply with food standard regulations concerning marking, as information on saccharin additives is labeling and packaging missing - labeling requirements for bio-tech food especially for poultry and eggs Canada nitrofuran inspection required for foodstuffs Part IV C ­ SPS testing, certification and other conformity assessment Egypt importers need to provide an inspection report Part IV C ­ SPS testing, notarized by the Egyptian embassy/consulate certification and other general in the country of origin conformity assessment EU import surveillance applied to food Part IV A ­ SPS general preparations from certain countries including China. strict food safety regime: EU regulation Part IV B ­ SPS measures prohibits the use of chloramphenicol in food including chemical residue production and enforces strict pesticide residue limits control; has in the past affected exports of Chinese products worth over US$ 1 billion. 71 Agriculture Imposing Country Type of Barrier NAMA Code Indonesia Registration required for food imports Part II ­ administrative entry procedures Japan delays in customs clearance for fresh food Part II G ­ Customs (major restrictiveness) formalities certain unusual and seemingly redundant Part IV B ­ SPS measures quarantine measures are imposed on Chinese including chemical residue agricultural and food exports. limits etc. Korea most agricultural products in which China Part V I ­ tariff quotas enjoys a competitive advantage are subject to tariff quota administration - products significantly affected by Korean Part IV C ­ SPS testing, inspection and quarantines measures include certification and conformity agricultural products, aquatic products, assessment products of animal origin, food and food additives and pharmaceutical products; - require pre-clearance examination for agricultural products such as pepper, garlic, sesame, carrots, soybeans, onions; prolonged customs clearance resulting from this requirement results in difficulties for Chinese exporters; Malaysia all Chinese animal products need to go through Part IV C ­ SPS testing, a joint registrations and examination process in certification and other order to obtain import approval conformity assessment Russia import ban on all animal products from China Part V A ­ quantitative (September 2004) restrictions Thailand tariff quota measures applied to agricultural Part V I ­ tariff quotas products require import license for food Part II ­ administrative entry procedures Turkey in 2004 Turkey issued a number of SPS Part IV A ­ SPS measures regulations, but never had a public review in general the process of enacting such legislation nor allowed a reasonable period of time between their promulgation and implementation US Tariff quotas Part V I ­ tariff quotas strict standards under the Bio-terrorism Act, Part III B ­ technical resulting in the denial of entry for 1815 regulations and standards Chinese shipments. IPR investigation concerning pet food treats Part VII A ­ intellectual property issues Specific fruit and vegetables Australia require import risk assessment for lychees and Part IV C ­ SPS testing, longan certification and other conformity assessment Brazil actions regarding garlic and canned mushrooms Part II A ­ anti-dumping and part VII B ­ safeguard measures and emergency actions EU Safeguard measures against canned citrus fruit Part VII B ­ safeguard from China measures, emergency actions Tariff quotas for canned mushrooms, garlic, Part V I ­ tariff rate quotas 72 Agriculture Imposing Country Type of Barrier NAMA Code dried sweet potatoes and manioc Indonesia Concerning wheat flour Part II A ­ anti-dumping investigations Japan Concerning green Chinese onion and fresh Part VII B ­ Safeguards mushrooms investigations Philippines Concerning onions (October 2004) Part VII B ­ safeguards measures, emergency actions Russia Quota administration for rice and maize Part V A ­ quantitative restrictions South Africa on April 16 2004, South Africa promulgated a Part III B ­ technical draft regulation concerning the grading, regulations and standards packaging and labeling of peanuts. According and part V K ­ requirements to the regulation, water content in peanuts concerning marking, should not exceed 7%. Foreign producers need labeling and packaging to apply to the South African government for a registration code, and a label bearing the registrations code approved by South Africa needs to be attached to all peanut packages. US - strict regulations concerning the condition Part IV C ­ SPS testing, under which Penjing plants for export to the certification and other US can be grown. conformity assessment - suspension of imports of Chinese Ya pears Shrimp Indonesia as of December 2004, Indonesia stopped Part V A ­ quantitative importing shrimp products originated from 6 restrictions countries including China, Thailand, India, Vietnam, Brazil and Ecuador. Poultry/eggs Australia stringent requirements for approval especially Part IV C ­ SPS testing, for poultry and eggs certification and conformity assessment Saudi Arabia suspension of imports of chicken Hong Kong Part V A ­ quantitative and Taiwan (September 2004), following an restrictions earlier suspension of chicken imports from South Korea, China and Japan. Beverages Russia quota administration for alcoholic beverages Part V A ­ quantitative restrictions Manufactures According to the data gathered for this report, Chinese manufacturing exporters experience NTMs mainly in the form of anti-dumping and safeguards investigations and measures, investigations concerning intellectual property rights, quantitative restrictions and registration requirements especially in the case of pharmaceuticals. In particular, the following measures were reported: 73 Manufacturing Imposing Country Type of Barrier NAMA Code Light industry products Argentina - On January 7, 2004, Argentina announced its Part II A ­ anti-dumping final anti dumping decision on less-than-2.5- duties liter thermos bottles with stainless steel liner and other heat preservation containers that are made in China. The involved products shall be subject to an anti-dumping tax not lower than US$10.75 per kg on FOB basis. (prohibitive) - In January 2004, Argentina launched an anti- dumping investigation against sunglasses and spectacle frames from China, anti-dumping duties between 342.1% and 1933.33% were imposed on the two products (prohibitive) Brazil - actions concerning desktop fan, padlocks, Part II A ­ anti-dumping pencils, bicycle inner tube, needles with screw- duties and part VII B ­ thread, toys, annular magnet, barium carbonate, safeguard measures and vacuum flask, magnesium metal and emergency actions magnesium powder; - ballpoint pens: anti-dumping investigation started June 2004 Canada - anti-dumping and countervailing duties Part II A ­ anti-dumping investigation against Chinese barbeques duties and part I B ­ (initiated April 13, 2004) countervailing duties - case concerning laminate floors EU standard for lighter child-resistance, requiring Part III B ­ technical lighters with a unit price of less than 2 Euros to regulations and standards install a CR device (published May 2002); Indonesia Pre-shipment inspection of toys Part II I ­ pre-shipment inspection Japan Safeguards investigations against rush for Part VII B ­ safeguards tatami matting investigations Korea Actions concerning disposable lighters and Part II A ­ anti-dumping alkali batteries duties Mexico Actions concerning gas-fuelled non-refillable Part II A ­ anti-dumping lighters and hydraulic bottle jacks duties New Zealand Actions concerning galvanized wire and Part II A ­ anti-dumping lubricating oil filters duties Philippines Concerning Part VII B ­ safeguard - printed glass, float glass and mirrors (April measures and emergency 2004) actions - tiles (November 2004) Turkey Anti-dumping measures Part II A ­ anti-dumping measures US IPR investigations regarding plastic food Part VII A ­ intellectual containers, ear-protection devices, ink markers property issues and point of sale terminals and components. Textiles and Clothing general WTO Accession Agreement allows special Part VII B ­ safeguard restrictions on Chinese textile products, such measures and emergency as special safeguards (phase-out 7 years after actions accession) Argentina In December 2004, Argentina issued two acts Part V A ­ quantitative 74 Manufacturing Imposing Country Type of Barrier NAMA Code aiming to restrict textile and clothing imports restrictions from China: imports of Chinese textiles and clothing shall not exceed by 7.5% and 6% respectively import volumes of said goods in the previous year. Cumbersome certificate of origin Part II F ­ rules of origin requirements. India Measures against curtain fabrics and mulberry Part II A ­ anti-dumping raw silk measures Indonesia Pre-shipment inspection for textile products Part II I ­ pre-shipment and footwear inspection Japan Investigations concerning cotton silk and Part VII B ­ safeguards towels investigations Russia High minimum price levels in customs Part II B ­ customs valuation valuation Turkey Anti-dumping measures Part II A ­ anti-dumping measures Electronics and Electrical Products Argentina On August 24, 2004, Argentina launched an Part II A ­ anti-dumping anti-dumping investigation against Chinese duties electromagnetic circuit protectors cumbersome certificate of origin requirements Part II F ­ rules of origin Australia Require safety certificate Part III C ­ TBT testing and certification Indonesia Pre-shipment inspection Part II I ­ pre-shipment inspection Russia High minimum price levels in customs Part II B ­ customs valuation valuation US IPR investigations regarding optical disk Part VII A ­ intellectual controller chips and chip sets, personal property issues computers, voltage regulator circuits and components thereof, semi-conductor devices and products containing the latter, digital image storage and retrieval devices Machinery Australia Require safety certificate Part III C ­ TBT testing and certification Steel Australia Measures against hot-rolled steel: anti- Part II A ­ anti-dumping dumping duties between 14.1% and 28.8% duties (determination 9 September 2004) Canada Measures against carbon steel and stainless Part II A ­ anti-dumping steel fasteners duties and part I B ­ countervailing duties Indonesia Investigations concerning steel tubes Part II A ­ anti-dumping investigations Pharmaceuticals Australia Pharmaceuticals need to be listed to be Part III B ­ technical standards accepted and regulations Brazil Registration procedure costly and time- Part III B ­ technical standards consuming and regulations Canada Traditional Chinese medicine is not legally Part III B ­ technical standards 75 Manufacturing Imposing Country Type of Barrier NAMA Code permitted on the Canadian market and regulations India in July 2004, India issued an import ban on Part III B ­ technical standards penicillin industrial salt causing great losses to and regulations industry ­ in the immediate aftermath of the ban, Chinese export volumes of penicillin industrial salt dropped by 46% require registration certificate for Part II ­ administrative entry pharmaceuticals, which increases the business procedures risk of Chinese exporters and has to a certain extent restricted Chinese exports to India Indonesia Investigations concerning paracetamol Part II A ­ anti-dumping investigations Japan Strict rules concerning the import of traditional Part III B ­ technical medicines and tonic foods regulations and standards Korea very strict licensing administration on imports Part II ­ administrative entry of patent medicines in place; licensing also procedures applies to Chinese traditional medicines Russia Complicated registration procedures for herbal Part II ­ administrative entry medicines procedures Thailand Import license required Part II H ­ import licensing Turkey in 2004 Turkey issued a number of SPS Part IV A ­ SPS measures regulations, but never had a public review in general the process of enacting such legislation nor allowed a reasonable period of time between their promulgation and implementation US strict standards under the Bio-terrorism Act, Part III B ­ technical resulting in the denial of entry for 1815 regulations and standards Chinese shipments Chemicals Australia anti-dumping duties between 3.7% and 8.1% Part II A ­ anti-dumping on silicon (determination 16 February 2005) duties EU import surveillance applied to ammonium Part IV A ­ SPS general chloride, polyhydric alcohols, citric acids etc (20 products total) from certain countries including China Indonesia Concerning calcium carbide Part II A ­ anti-dumping investigations Japan Concerning silicon manganese Part II A ­ anti-dumping investigations Korea Concerning silicon manganese alloy, choline Part II A ­ anti-dumping oxide and titanium dioxide duties Philippines Concerning tripoly phosphate (April 2004) Part II A ­ anti-dumping duties Russia Quota administration for chemical fertilizers Part V A ­ quantitative restrictions Concerning bearings and monocrystalline Part II A ­ anti-dumping silicon investigations Turkey Anti-dumping duties Part II A ­ anti-dumping duties 76 Other Product Importing Type of Barrier NAMA Code Country Leather Indonesia Suspension of imports Part V B ­ embargoes and other restrictions of similar effect Structural Australia Anti-dumping investigation started 24 Part II A ­ anti-dumping pipes December 2004 investigations Motorcycles India import licensing difficult to obtain Part II H ­ import licensing Fire retardant Russia product is subject to radiation Part III B ­ technical bricks inspection; this has proven time regulations and standards consuming and places additional burdens on exporters in terms of human and financial resources Medical Thailand Require import license Part II H ­ import licensing equipment Cosmetics Turkey in 2004 Turkey issued a number of SPS Part IV A ­ SPS measures and regulations, but never had a public general detergents review in the process of enacting such legislation nor allowed a reasonable period of time between their promulgation and implementation. 77 INDONESIA Titik Anas, CSIS, Jakarta, Indonesia Indonesia's export basked is extremely diversified, including everything from natural resources, to agricultural products, to light manufactures and low- and medium tech products, mostly parts and components for the automobile, electronics and telecoms sectors. Indonesia's most important export markets are Japan, the US and the EU, followed by Singapore and China. All barriers reported in the study were external. The analysis focused on six particular export sectors, which were fish and fish products, edible oil, furniture, rubber, auto-parts, and pharmaceuticals; the research further put an emphasis on Indonesia's most important export markets, i.e. Japan, US, EU, and ASEAN. Several barriers were identified as affecting a wide range of products, such as the tightened border procedures in the US as a response to the 2001 terrorist attacks (e.g. C-TPAT ­ Customs-Trade Partnership against Terrorism) and special procedures for high-risk goods (CSI ­ Container Security Initiative). There were further general complaints about quotas/non-automatic licensing, prohibitions and "single channel for imports" arrangements in various ASEAN countries. As far as agricultural products are concerned, Indonesian exporters point to complicated administrative procedures related to the US 2002 Bioterrorism Act and the vagueness of the US and EU requirement of traceability for food products (see introduction)). While voicing some complaints about various SPS standards for fruit and vegetables as well as processed food products (in particular the fact that standards differ by country and therefore lead to a multiplication in compliance costs), Indonesian exporters experience particular difficulties when it comes to fish and other seafood products. Complaints relate mainly to arbitrary contaminant standards, SPS standards that differ across countries, tedious testing procedures and import bans, some of which are related to contentious fishing methods. One product (mushrooms) was subject to anti-dumping investigations. For Indonesian manufacturing exporters, non-tariff barriers come mostly in the form of standards and technical regulations and the conformity assessment attached to them as well as anti-dumping measures. The auto-parts sector trades mainly intra-firm, such that standards are automatically harmonized, however, manufacturers report difficulties with meeting standards for parts they sell in the after-sale market. Further, electronics producers point to the EU regulations on recycling of electronic and electric waste and limitations on the use of hazardous substance as being cost-raising. Other sectors reporting problems with TBT are furniture manufacturers. A considerable number of anti-dumping cases were also reported (against rubber, steel, chemicals and various light industry products), as well as difficulties with registering pharmaceuticals in the EU. 1. Overview of Trade The pre-crisis economic boom in Indonesia (1986-97) was a classic example of export-led growth. Over this period, exports as a ratio of GDP rose from around 17 percent to 26 percent, and accounted for almost half of the increment in real GDP. After the 1997 economic crisis, export growth remained rather volatile; the nascent recovery in 2000 was capped by a global recession, pushing exports again into a negative growth in the second half of 2001. The most recent recovery started in the second quarter of 2002 and has gathered momentum since then. Despite the ups and down, however, 78 Indonesia continued to rely on exports, with ratios of exports to GDP hovering around 30 percent in 1998-2005. Until the late 1970s, Indonesia was predominantly a primary commodity exporting country. Subsequently, export composition began to change rapidly, reflecting the expansion of processed food exports and traditional light manufactured goods, in particular garments and footwear. During 1985-1997, manufactured exports grew at an annual rate of 84.3 percent compared with 15.7 percent growth of agricultural products. By 1997, manufactured goods contributed to 48.4 percent of total merchandise exports. During the post-crisis period, further diversification of the export mix took place. The relative importance of resource based manufacturing exports has been diminishing steadily, and has been replaced by low and medium tech. manufacturing exports. Japan and the US were Indonesia's major exports destinations in the 1980s, absorbing more than 70 percent of its total exports. The later period witnessed a declining share of these two markets due to the emergence of new export destinations such as the EU, ASEAN and China. In 2005, Indonesian exports to Japan and the US shrunk to 33 percent. Exports to the EU increased from 7 percent in 1980 to 12 percent in 2005 and exports to ASEAN increased from 13 percent in 1980 to 18 percent in 2005. Altogether, the four largest export destinations Japan, the US, the EU and ASEAN accounted for about 63 percent of total Indonesian exports. Figure 11: Indonesia 2004 exports by product Figure 12: Indonesia 2004 exports by destination Petroleum and products Apparel and clothing RoW Japan other Thailand Fixed veg oils/fats India Non-ferrous metals Electrical equipment United States Taiw an, China Textile yarn and fabric Malaysia EU Paper/paperboard Telecomms equipment Korea, Rep. Cork/w ood Singapore Crude/synthet/rec Office/data proc manufactures China rubber machines Coal/coke/briquettes Gas Metal ores/metal scrap Source: UNCTAD COMTRADE 2. Methodology of the study The previous sections showed the importance of exports for the Indonesian economy. Consequently, improved market access is important for Indonesia. Since multilateral and regional trade talks successfully reduced tariffs over time, it should be expected that market access for Indonesian exports increased. However, despite the declining tariffs, exporters remained concerned about impediments to their exports. It appears that the barriers they are facing are no longer in the form of tariffs, but instead ranging from lack of trade facilitation to standards conformance issues. OECD (2002) and Henson et al (2000) point out that the significant tariff reduction did not come in tandem with the reduction in non-tariff barriers. In fact, non-tariff barriers persisted and might even be on the rise in new and more discrete forms. This chapter attempts to address the impediments that Indonesian exporters face in the destination market, particularly the non-tariff barriers/measures. This study, however, is not an attempt to address in detail the issue of how NTMs affected the Indonesian export performance. 79 Data on NTM are relatively limited, both internationally and on a national level. The UNCTAD Database on Trade Control Measures provides comparable and comprehensive data, but is subject to definitional and methodological problems, including lack of data on NTBs affecting low-income countries (OECD, 2004). The WTO Trade Policy Review of member countries also discusses NTMs imposed by member countries but not as systematically as the UNCTAD database. This paper will use the WTO Negotiating Group on Non Agriculture Market Access (NAMA) categorization of NTMs. In Indonesia, data on NTMs faced by Indonesian exporters is not yet available. This chapter therefore draws on a number of different sources, focusing on Japan, the US, the EU and ASEAN as major Indonesian export destinations: WTO Trade Policy Reviews of Indonesian exports markets (i.e. Japan, US and EU): provides secondary information regarding NTMs WTO SPS notifications Literature: o James (2005) provides a list of NTMs applied by Indonesia's major trading partners and sectors affected by such measures. o Further, a comprehensive overview regarding NTMs applied by ASEAN members is provided by Martin (2006). Government websites Field survey: o Interviews with Chamber of Commerce and government officials (customs, national standard agency and issuer of certificate of origin) were carried out to confirm whether such measures were impeding Indonesian exports. o Firm level interviews were conducted to capture the exporters' perceptions of NTMs they are facing in their export markets. Interviews were focused on the three most cited NTMs in the WTO NTM notifications: TBT, Custom Procedures and SPS39. The interviews covered around 40 companies exporting food products, wood products, natural rubber, chemicals, automotive and footwear. The companies interviewed were mainly medium to large scale, with exports of US$ 1.5-2.5 million40, exporting to the US, Japan, Europe, Asia (ASEAN and other Asian countries) and the Middle East. Information about small exporters was mainly drawn from interviews with the Indonesian Chamber of Commerce. Indonesia has not yet submitted a complete list of NTMs faced by its exporters to the WTO Negotiating Group on NAMA. With regard to SPS, Indonesia did convey its specific trade concerns regarding a few trading partners to the WTO Committee on SPS (G/SPS/GEN/204/rev.3, 2003): · Concern over EU SPS measures: prohibition on shellfish imports and maximum level of certain contaminants (aflatoxins) in foodstuffs imports from Indonesia. · Concern over Japan's SPS measures: restrictions on importation of sugar cane top from Indonesia. 39The WTO Negotiating group on NAMA invited Member countries to submit notification on NTBs directly affecting their exports. OECD (2004) provides a comprehensive analysis on the notifications received in the period of March 2003-October 2004, consisted of 11 OECD countries and 21 non OECD countries39. The report revealed that the most frequently cited NTMs were technical barriers to trade (with 530 NTB entries of 1200 total entries), followed by customs procedures (380 entries) and SPS (137 entries). While, quantitative restrictions, trade remedies, government participation in trade, charges on imports and barriers fall in others groups were relatively small (about 5 percent of total NTB notified). 40A small number of companies refused to reveal their sales. 80 Table 8: Firm level survey: Respondents' profile Sectors Number of interviewees Food Products Flour and products from flour 1 Fish and fish products 3 Edible Oil 1 Food and feedstuffs 6 Fresh fruit and vegetables 2 Wood Products Furniture 6 Wood and wood products 3 Natural Rubber 2 Chemicals Pharmaceuticals 3 Plastics and other chemicals 3 Automotive Automobile 1 Auto-components 1 Batteries 1 Footwear 10 Others 2 3. External Barriers Faced by Indonesian Exporters As mentioned above, the analysis will focus on the export markets that are most important for Indonesia, i.e. Japan, US, EU, ASEAN, as well as put an emphasis on six particular export sectors, which are fish and fish products, edible oil, furniture, rubber, auto-parts, and pharmaceuticals. The WTO TPRs on Japan, US and EU seem to suggest that the main non-tariff impediments in those countries are custom procedures, rules of origin, TBT and SPS. However the WTO TPR does not reveal whether or to what extent those measures are impeding trade. From the WTO TPR, it also appears that in the aftermath of the 9/11 tragedy, the US increased the stringency of its trade procedures as outlined in its Bioterrorism Act, Container Security Initiative and Custom-Trade Partnership Against Terrorism. Non-tariff measures most frequently applied by ASEAN members are non-automatic licensing, technical regulations, and prohibitions (Martin, 2006). 81 Several non-tariff barriers emerged from the study that seem to affect exports across a wide variety of sectors, rather than being specific to a certain product (Table 9). Table 9: NTMs Affecting all Exports General Imposing NAMA code country US administrative entry procedures (part II): Customs-trade partnership against terrorism 2005 (C-TPAT): this initiative imposes new security guidelines for importers. Participating businesses are required to conduct a comprehensive self-assessment of their supply chain, and are asked to supply information about trucks, drivers, cargo, suppliers and routes. In turn, they benefit from less frequent cargo inspections by the CBP. While this may be convenient for large exporting firms, it creates market access difficulties for smaller exporters. High risk goods: administrative entry procedures (part II): Container Security Initiative 2002 (CSI): this initiative involves screening and inspection of US-bound high-risk containers at the port of departure and the use of tamper-evident seals. Under the CSI, CBP officers are deployed to participating ports, where they identify high-risk containers. The expenses of officers deployed to the participating ports are borne by the CBP. Vietnam Administrative pricing (part I) Tariff quota duties (part V I) Prohibitions (part V A) Single channel for imports (part VII C) Restrictive foreign exchange allocation (part V D) Brunei Quotas (part V A) Prohibitions (part V A) Myanmar Quotas (part V A) Malaysia Prohibitions (part V A) Single channel for imports (part VII C) Philippines Quotas (part V A) Prohibitions (part V A) Single channel for imports (part VII C) Thailand Quotas (part V A) Singapore Anti-dumping measures (part II A) Prohibitions (part V A) All ASEAN Non-automatic licensing (part II H) members Agricultural Products Agricultural products with the exception of vegetable oils and fats and fish/shellfish products, currently do not feature as big ticket items on Indonesia's list of exports ­ potentially an indication that some of the regulations faced by Indonesian exporters of agricultural goods have proven prohibitive in the past. The following barriers have been reported: Food products (general) US: administrative entry procedures (part II): The 2002 Bioterrorism Act requires domestic and foreign facilities that manufacture, process, pack and hold food for consumption in the US to be registered with the FDA. This makes market access difficult especially for small exporters. 82 US and EU: traceability requirement (part VII e ­ other): impose traceability requirement, which implies the "ability to trace the history, application or location of [the product] under consideration" (ISO definition). The 2002 Bioterrorism Act requires domestic and foreign facilities that manufacture, process, pack and hold food for consumption in the US to be registered with the FDA. Procedures to get an FDA registration number are complicated: The FDA require notice prior to the entry of the food intended for import into the United States, and ask that persons involved in the manufacture, distribution, and sales of the food in the United States establish and maintain records that identify the immediate previous sources and immediate subsequent recipient of the food. As far as the concept of traceability is concerned, ISO (the International Organization for Standardization), which develops voluntary international standards for products and services, defines traceability as the "ability to trace the history, application, or location of that which is under consideration." This definition is quite broad. It does not specify a standard measurement for "that which is under consideration" (a grain of wheat or a truckload), a standard location size (field, farm, or county), a list of processes that must be identified (pesticide applications or animal welfare), or a standard identification technology (pen and paper or computer). It does not specify that a hamburger be traceable to the cow or that the wheat in a loaf of bread be traceable to the field. It does not specify which type of system is necessary for preserving the identity of tofu-quality soybeans; controlling the quality of grain used in a particular cereal; or guaranteeing correct payments to farmers for different grades of apples. The definition of traceability is necessarily broad because food is a complex product and traceability is a tool for achieving a number of different objectives. As a result, no traceability system is complete. Even a hypothetical system for tracking beef - in which consumers scan their packet of beef at the checkout counter and access the animal's date and location of birth, lineage, vaccination records, and use of mammalian protein supplements - is incomplete. This system does not provide traceability with respect to bacterial control in the barn, use of genetically engineered feed or animal welfare attributes like hours at pasture and play time. A system for tracking every input and process to satisfy every objective would be enormous and very costly. Consequently, firms across the U.S. food supply system have developed varying amounts and kinds of traceability. Firms determine the necessary breadth, depth, and precision of their traceability systems depending on characteristics of their production process and their traceability objectives. To comply with general provision for traceability in the food and feed sectors, exporters should make the information of production and distribution chains of their products available (Regulation EC 178/2002). Importers are similarly affected as they will be required to identify from whom the product was exported in the country of origin. In some cases, operators are obliged to attach the mapping of cultivated area, or fishery products. Albeit voluntary, the EU and the United States adopted these requirements and exporters to these markets will have to conform to the requirement. Fresh fruit and vegetables EU: SPS ­ testing, certification and other conformity assessment (part IV C): Need to acquire Good Agricultural Practices (GAP) certificate, which in addition to Indonesian standards requires washing and decontamination. These extra requirements reduce shelf-life and degrade product quality. Singapore: SPS measures (part IV B): no pesticides can be used and products have to be sealed with antioxidants 83 Global buyers: SPS measures (part IV B): SPS standards, in addition to being difficult to reach due to their stringency, also differ by importer which raises production costs. In order to ensure food safety, exporters of fruit and vegetables to the EU need to acquire a Good Agricultural Practices (GAP) certificate. However, a health certificate issued by the Indonesian certification agency is not considered sufficient. Instead, Indonesian exports of fruit and vegetables to the EU are required to undergo washing and decontamination treatment at any points of entry in the EU territory. This type of treatment not only imposes costs on Indonesian exporters but also reduces shelf-life and degrades product quality. Nonetheless, the prevention of contamination at all points of the food chain is preferred over the application of disinfectants. Processed food products EU: Requirements concerning marking, labeling, packaging (part V K): o Labeling requirements include nutritional information, detailed product composition, indication of the presence of allergens, exact wording of the label; (in the EU, labels must be in the language of the individual importing countries; some EU countries require more than one language). o Prescriptions concerning container size. Singapore: SPS measures general (part IV A): applies US FDA standards Global buyers: SPS measures (part IV B): SPS standards, in addition to being difficult to reach due to their stringency, also differ by importer which raises production costs. The interviewed food exporters pointed out that some of their products were rejected in their destinations due to mislabeling. Although all markets required labeling, the detailed requirements differed. The EU standards were perceived to be relatively stringent as they required nutritional information, detailed product composition, indication of the presence of allergens, all in exact wording. The competent authority controls very strictly compliance between the product composition displayed on the label and the composition of the product. The information to be displayed on the label is sometimes considered as over-prescriptive (e.g. for sweet condensed milk, a detailed description of the ingredients used in the milk production process is required). Further, labeling becomes more costly as each EU member state has a different language, some of them several. EU legislation obliges exporters to translate all the information contained on the original package into the local languages. Further, the EU requires specific container size for some products (e.g. jam, seasoning) which are different from containers generally produced for other developed countries. Consequently Indonesian producers and importers are obliged to prepare specific containers for the European market. This has proven trade-restrictive for Indonesian exporters. European authorities justify the ban on other container sizes for specified products on the basis that it protects the consumer from deceptive practices. However, the measure seems more restrictive than necessary to protect the consumer. The consumer could be adequately informed about the container size through appropriate labeling. Therefore, according to importers of Indonesian products in the EU, the abolition of compulsory container sizes should be requested. Fisheries Fisheries general: EU: Discriminatory application of SPS measures (part IV): Discrimination between exporters in the case of maximum levels of cadmium (maximum levels are lower for sub- tropical fish for no apparent reason). Global buyers: SPS measures (part IV B): SPS standards, in addition to being difficult to reach due to their stringency, also differ by importer which raises production costs; however, 84 established exporters report that requirements in this particular market were transparent and the appeals procedure is cheap and fast. Shellfish: EU: SPS measures ­ general (part IV A): Prohibition of import (as notified to the SPS Committee at the WTO) Shrimp: US: o TBT measures ­ process and production methods (part III B): in 2002, the US embargoed imported shrimp from Indonesia, the reason being that Indonesia was not using appropriate methods for catching shrimp. It was alleged that authorities did not adequately disseminate Turtle Excluder Devices (TEDs), to the shrimp fishermen. The embargo was imposed against the background of sea turtle conservation and shrimp import regulations. Tuna: Japan: o TBT measures ­ process and production methods (part III B): in 2002, Japan threatened to embargo Indonesian tuna, the reason being that Indonesia had not become a member of the International Ocean Tuna Commission (IOTC), a commission that controls the exploitation of tuna fish. As a result, tuna caught by Indonesian fishermen in the Indian Ocean is considered to be illegal. The potential loss of the embargo was significant since 60-70 percent of tuna was exported to Japan at the time. Overall, it seems that varying standards and SPS measures were the most important NTMs in the export market of fish and shellfish products. In particular, In the Japanese market, imported processed food such as fish nuggets, undergo on-arrival checks to ensure SPS and standards compliance. This happens despite the fact that importers would have already sent their quality control personnel to do a pre-shipment inspection in the factory. In the European market, the measures include a freeze on all new establishment listings, a request for an audit of all establishments listed and a request for the systematic testing of all consignments for histamine, which imposes on importers an additional cost of Euro 2,500- 3,000 per container. Some Indonesian fisheries products, in particular, cuttlefish and slipper lobster, have been detained in European ports of entry for non-compliance with the maximum permitted levels of cadmium. Cadmium may act as a human carcinogen, and thus, maximum levels should be set as low as reasonably achievable. However, there seem to be differences in the application of the standard between tropical and sub-tropical fish: while the maximum level accepted for so-called sub-tropical fish is as high as 0.1 mg/kg, that for tropical fish is 0.05 mg/kg. The EU regulation on heavy metals (Regulation EC 78/2005) does not give a reason for these disparities. In the US, procedures in the market for fish fillet seem to be less stringent. Once the company obtains its HACCP (Hazard Analysis and Critical Control Points) certificate for exporters (issued by FDA), it is relatively easy for the company to export. However, FDA inspection on arrival remains. Established exporters perceive standards and other requirements in this particular market as transparent and the appeals procedure as not costly 85 and relatively fast. Minor problems remain, such as rejection due to mislabeling or bacterial contamination. Other Groundnuts: Singapore, EU, Malaysia, US, Australia (ordered in decreasing strictness) SPS measures (part IV B): Regulations for maximum levels of aflatoxin; allowances vary by country as there is no internationally agreed standard, yet (Indonesia submitted a complaint about this to the WTO SPS Committee). Aflatoxin contamination of groundnuts is a widespread problem in most groundnut-producing countries including Indonesia. It is a type of a fungus which is a natural syndrome for any groundnut farmed under rain fed conditions. Aflatoxin contamination does not affect crop productivity but it makes the produce unfit for consumption, as it may cause cancer. However, no international standard on maximum tolerable levels of aflatoxins has so far been established; instead, most countries specify their own standard. While Singapore does not tolerate any amount of aflatoxin, the EU tolerates 4ppb and 2ppb for total and B1 aflatoxins respectively, Malaysia 5ppb and the US and Australia 20ppb. Sugar Cane top: Japan: SPS measures ­ general (part IV A): Restrictions on importation (notified to SPS Committee). Edible Oil: Global buyers: SPS measures and SPS testing, certification etc. (part IV B and C): Standards vary depending on export market and generally, a quality certificate is required. There are formal and informal costs for obtaining certificates, but standards are transparent and therefore easy to comply with. In the experience of the producer of edible oil (specialty oil used in processed foods such as confectionary) interviewed for this survey, differing national standards pose only minor impediments to exporting in his sector. The company's exports are mainly to Russia, the US, Europe and Singapore (about 50 percent of total)41. In 2005, exports expanded to Japan, Egypt, Algeria, Brazil and China. The company set its own quality standards with reference to PARAM (Malaysian) standards, which are widely accepted, despite the fact that specific national standards may be different. Compliance with different standards further seems to be facilitated by the fact that they are clearly defined before pre-shipment (in the order form). The company's global buyers only asked for the company to include a quality certificate from an independent certification agency. Most buyers insisted on certificates being issued by Sucofindo and Balai Besar Industri Agro42, although some buyers accepted other Indonesia certification agency certificates as well. Getting certified by independent certification agencies, involves two types of cost: · Monetary: about Rp. 2 million/package per analysis (with Sucofindo). Additional costs (regular and irregular) arise if the company wants to speed up the process. · Time: fourteen days on average Mushrooms: US: Anti-dumping measures (part II A) 41Annual report 2004, p 34-35 42Sucofindo is affiliated to SGS and is hence widely recognized. Balai Besar is a government owned quality control agency. 86 Manufactures NTMs facing Indonesian manufacturing exporters come mostly in the form of standards and technical regulations and the conformity assessment attached to them. Some cases of anti-dumping were also reported, as well as barriers arising from labeling requirements and administrative entry procedures. Auto parts and components Various countries: o Technical regulations and standards (part III B): Standards are not an important issue for intra-firm trade, however, standards that need to be complied with for the after sale market are cumbersome and differ by country; tests are sometimes carried out by competitors in importing countries which is likely to lead to biased results. o Customs formalities (part II G) o Pre-shipment inspection (part II I) In the auto-parts industry, it is necessary to distinguish between OEM (original equipment manufacturing) on the one hand and the after sale market on the other. OEM in Indonesia feeds domestic and foreign automobile manufacturers that are operating under the same parent company. Here, standards are a lesser issue as they are harmonized internally to the firm (in effect determined by the parent company/principal). On the other hand, exporting auto-parts for the after sales market (under the local brand which is not the same as the principal's brand) is rather cumbersome, as parts now have to comply with different standards in different countries. In addition, conformity assessment is in some cases carried out by a competitor, which may lead to results being biased against importers. Regarding customs procedures, respondents pointed out that they are required to provide endorsements from the embassy and the chamber of commerce. Further, auto-parts are subject to pre-shipment inspection. Electronics EU: Technical regulations and standards (part III B): o Regulation on the Restriction of use of certain Hazardous Substances (RoHS), such as lead, mercury, cadmium, certain flame-retardants. o Waste Electrical and Electronic Equipment directive (WEEE): Costs arise from the fact that producers are individually held responsible for financing the collection, treatment and recycling of their products. This means decrease in competitiveness in a market/product where Indonesia was hoping to augment their exports. Restrictiveness of this barrier is seen as significant. In January 2003, the European Union adopted two Directives, in an effort to address environmental concerns regarding the growing volume of waste electrical and electronic equipment (WEEE): the first directive, the WEEE Directive focuses on the recycling of electrical and electronic equipment waste, whereas the Directive on the Restriction of the Use of certain Hazardous Substances (RoHS) addresses restrictions on the use of certain substances in electrical and electronic equipment, such as lead, mercury, cadmium, and certain flame-retardants. Under the WEEE Directive, producers are held individually responsible for financing the collection, treatment, and recycling of the waste arising from their new products as of August 2005. Producers have the choice of managing their waste on an individual basis or participating in a collective scheme. Waste from old products is the collective responsibility of existing producers based on their market share. 87 Member States were required to transpose the WEEE Directive into national law by August 13, 2004, and implement it by August 13, 2005. Some Member States still have not transposed the WEEE Directive and many are behind in their implementation and do not have their national WEEE registration systems in place. The WEEE Directive requires that by December 31, 2006, Member States ensure that a target of at least four kilograms of electrical and electronic equipment waste per inhabitant is being collected from private households annually. The policy is intended to create an incentive for companies to design more environmentally-friendly products. Under the RoHS Directive, the placing on the European market of electrical and electronic equipment containing lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls, and polybrominated diphenyl ethers has been prohibited, with some limited exemptions, as of July 1, 2006. The Commission Decision, published on August 18, 2005, established maximum concentration values of 0.1 percent by weight in homogenous materials for lead, mercury, hexavalent chromium, polybrominated biphenyls (PBB), and polybrominated diphenyl ethers (PDBE) and 0.01 percent by weight in homogenous materials for cadmium. This new directives will likely have adverse consequences for Indonesian exporters in the future as the export growth of electronic parts and components to the EU market is increasing. Rubber US: anti-dumping measures (part II A): o In 2002, Indonesia and other countries brought a case to the WTO on this issue. [Case: extruded rubber thread] [no country specified]: o SPS measures ­ general (part IV A) o Technical regulations and standards (part III B): ISO 2000 requirements (environmental standards) As most raw materials, exported rubber underlies certain standards e.g. on packaging, SPS, related to the environment (ISO 2000 standard for rubber products), and hazardous characteristics (ISPM measure 15). The wood used for packaging has to be fumigated or heat treated and marked according to FAO requirements. Exporters generally outsource the packaging to certified companies, whose marks are internationally recognized. Additional costs from this are $3-$3.5 per ton. Major exporters can sometimes shift these costs onto their buyers. Pharmaceuticals EU: administrative entry procedures (part II): the process to be granted market access involves many steps (tests, listing in insurance reimbursement schemes, registration for marketing authorization, factory audit based on Good Manufacturing Practices GMP). While developing country pharmaceutical markets are often unregulated, regulations are the norm in developed country markets. Since the EU has harmonized regulations for its pharmaceuticals market, a company that wishes to export to any of the EU member countries has to comply with this set of harmonized regulations. As for unregulated markets it is possible to enter the market through negotiations. There are a number of conditions that a company has to fulfill in order to be able to export pharmaceuticals to the EU: 88 · Compliance with the dossier which, among other things, requires the drug in question to pass a bio-equivalent test (i.e. the drug has to be tested on 4-5 persons of European descent). This may cost the company between 400,000 and 1,000,000 Euro. · The drug should be listed in the insurance reimbursement scheme; otherwise it will be difficult to sell. · The drug should be registered in order to get marketing authorization (MA). · The factory should be audited based on Pharmaceutical GMP (good manufacturing practices) and should be approved by a regulatory body. As far as entry barriers for traditional medicines are concerned, Japan sets a very low ceiling for the level of microbe contamination. Furniture US, Canada, EU, Australia: technical regulations and standards (part III B): Product standards (voluntary, demand driven) are high, but transparent. There is a requirement to test inputs, but the cost of testing is relatively small. Compliance with product standards is crucial in the case of furniture exports. The survey revealed that these standards are mostly demand driven. In the perception of the respondent, who exports 90 percent of its products ­ mainly to the US, Canada, the Netherlands, the UK and Australia ­ buyer- determined product standards are relatively high. Buyers often require suppliers to have their inputs tested in designated laboratories. However, the respondent stated that the cost of product testing was relatively small, at about US$20-50 per piece. Standards for these products are apparently easy to fulfill as they are clearly defined and a sample is generally sent to buyers before mass production is carried out. The company also has an internal quality control (QC) which is based on higher standards than applied by clients' QC in order to avoid unnecessary rejections. Wood packaging materials Members of the International Plant Protection Convention: technical regulations and standards and Requirements concerning marking, labeling and packaging (part III B and V K): The members of the International Plant Protection Convention (IPPC) approved ISPM-15, which contains requirements for global trade in wood packaging materials, such as heat treatment, fumigation and marking. Large exporters are generally able to shift extra costs arising from this to consumers. Steel US: o anti-dumping measures (part II A): Cases: · Cut to Length Carbon Steel Plate (CTL Steel) · Cold Rolled Carbon Steel (CRC) · Product Rebars, Product Hot Rolled Carbon (HRC) · Product Circular Welded Non-Alloy (CwnA) Steel Pipe o Safeguards (part VII B): On June 5th, 2001 President Bush implements section 201 of the US Trade Act 1984, regarding steel imports. This action was implemented upon the request from US Industry and labor association. Further dumping cases: US: Certain Expandable Polystryrene Resin (CEPR) Case 89 EU: footwear; polyester yarn; bicycles; manmade staple fiber; sacks and bags; unbleached cotton fabrics and magnetic disks 3.5, Polyester Staple Fiber-PSF and polyethylene terephthalate-PET. 90 KOREA Oh-Seok Hyun, Trade Research Institute, Korea International Trade Association, Seoul, Korea In 2005, agricultural products made up 1.9% of Korean exports, while fuels and mining products accounted for 7.2% and manufactures for 90.7%. Electrical and telecoms equipment were Korea's most important export products, closely followed by road vehicles. The next group of exports includes data processing machines, railway equipment, petroleum and iron and steel. Export composition by destination has shifted significantly over the last decade. While in 1995, the US were the top destination for Korean exports, their share had declined significantly in 2005, putting them in second position behind China (excluding Hong Kong). China's share reached almost 22% in 2005, a dramatic increase from 7.5% in 1995. The EU and Japan are in 3rd and 4th position respectively. Other important East Asian trade partners today are Hong Kong, Taiwan, Singapore, Indonesia and Malaysia. Exporters who participated in the survey only reported external barriers. Interestingly, a majority of the respondents (over 63%) identified the elimination of Non-Tariff Measures as a priority over the elimination of tariffs. Customs clearance procedures seemed to pose by far the largest obstacles to firms in all industries (in particular, when exporting to China), though the worst affected were exporters of agricultural goods and machinery. Further, many industries reported barriers arising from pre-shipment inspection and technical regulations. The two industries suffering most from pre- shipment inspection were plastics, rubber and leather as well as chemicals; regarding technical regulations, exporters of agricultural goods and fisheries as well as of live animals and plants were most affected, followed by electronics exporters in third place. Rules of origin were an issue especially for the textiles and electronics industry, while quantitative restrictions still play a large role in the iron and steel sector as well as in textiles. When asked which measure they perceived as most restrictive, survey participants gave very varied responses, which can be explained by the wide range of export products and destinations. Korean exporters were found to have most difficulties with customs clearance (17%) and customs valuation (15%). Further, respondents experienced most difficulties with non-tariff measures in developing countries (80%) vs. industrialized countries. In particular, the proportion of respondents having difficulties with customs clearance (84%) and pre-shipment inspection & consular certificates (98%) were overwhelmingly higher in developing countries than in industrialized ones. When asked to rank countries by the stringency of measures imposed, China was selected most often as the nation where the respondents experienced difficulties relating to non-tariff barriers, with the US coming second in almost half of the listed NTMs and most restrictive when it came to the use of transportation and harbor facilities (with the CSI being reported as highly restrictive). 1. Overview of Trade Korea is a major global trader: treating the EU as one single entity, it has consistently ranked as the world's 7th largest merchandise exporter over the last decade. GDP stood at approximately US$788 billion in 2005 and GDP grew on average by 4-5% between 2003 and 2006. Its trade to GDP ratio was 79.9% over the period 2003-2005. While domestic demand has been sluggish in recent years, the economy has heavily relied on exports as a source of growth. Merchandise exports grew at 9% on 91 average over the period 1995-2005, with growth being much faster in 2004 at 31% than in 2005 at 12%. In 2005, Korea's share in total world exports was 2.73%.43 Korea is continuing to liberalize its trade and investment policies, though recently there have been no significant changes in the general legal or institutional framework, nor in the way in which trade policy is formulated or implemented. The principal trade policy objective is to build a "free and open economy" based on market principles to promote structural reform and efficiency. Raising exports is seen as a major growth engine for meeting the political target of doubling average per capita annual income to US$20,000 by 2010. Korea's "global leadership" trade and investment strategy in key sectors, such as motor vehicles, steel, and IT industries, is aimed at enhancing the economy's efficiency and achieving export-led economic growth. Expanding high-technology industries and higher-value-added exports, and making Korea a Northeast Asia business and financial hub are high priorities. Korea participates actively in the multilateral trading system, especially to support stronger rules.44 In 2005, agricultural products made up 1.9% of Korean exports, while fuels and mining products accounted for 7.2% and manufactures for 90.7%. Electrical and telecoms equipment were Korea's most important export products, with a share of 15.1% and 13.3% respectively, closely followed by road vehicles at 13.1%. The next group of exports all have shares between 5 and just above 6% and include data processing machines, railway equipment, petroleum and iron and steel. Figure 13: Korea 2005 exports by product Figure 14: Korea 2005 exports by destination Electrical China equipment RoW Other Organic chemicals India Telecomms etc Textile equipment Malaysia yarn/fabric/art. Indonesia United States Plastics in primary Road vehicles Singapore form Iron and steel Petroleum and Railw ay/tramw ay Office/data proc. Taiw an, China EU Japan products equipmnt machines Hong Kong, China Source: UNCTAD COMTRADE Export composition by destination has shifted significantly over the last decade. While in 1995, the US were the top destination for Korean exports with a share of 20%, this share had declined to 14.6% in 2005, putting them in second position behind China (excluding Hong Kong). China's share reached almost 22% in 2005, a dramatic increase from 7.5% in 1995. At the time, China was the fifth most important destination for Korean export products. The position of the EU and Japan switched over the last decade; in 1995, Japan was in 2nd position with an export share of 13.7%, the EU in 3rd with a share of 13.3%; exports to Japan today account for 8.4% (4th position) and those to the EU make up a share of 13.7% (3rd position). Other important East Asian trade partners today are Hong Kong, Taiwan, Singapore, Indonesia and Malaysia with shares between 5.5% and 1.6%. 43WTO Country Profile as of September 2006: http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=KR 44 Based on WTO Korea Trade Policy Review 2004, Report by the Secretariat: WT/TPR/S/137, 18 August 2004 92 2. Methodology of the Study Results on NTMs reported in this chapter come mainly from a firm-level survey. Respondents in the survey were major local exporters with more than $100,000 of annual exports as well as local branches of overseas companies. Most major Korean exporting companies were contacted, 65% of which are manufacturing companies with production facilities. In terms of company size, 231 companies were large and 736 companies medium/small-sized. 1000 questionnaires were distributed by fax and email. A research agency was employed to contact domestic companies and local embassies were asked to help with the distribution of forms to overseas companies. In order to gather more detailed information, face-to-face interviews were conducted with a sub-sample of firms originally contacted. The response rate in the survey was extremely high, at 96.7%. 812 responses came from domestic companies; the remaining 155 were from overseas companies. All reported barriers were external. A majority of the respondents (over 63%) identified the elimination of Non-Tariff Measures as a priority over the elimination of tariffs: while importing countries may lower their tariffs, the tariff reduction can easily be offset by the effect of non-tariff measures. Overall, exporting companies considered non-tariff measures more burdensome than tariff measures. In particular, approximately 40% of the respondents said that non-tariff measures were burdensome and that they experienced considerable difficulties when they exported goods (Table 10 and Table 11). Table 10: Priority Needs for the Elimination of Non-Tariff Measures (responses in %) Classification Total Tariffs Non-Tariff Unable to get a Measures response Overall 100.0 36.4 63.0 0.6 Large Companies 100.0 33.3 64.9 1.7 By Size Small and Medium Sized Companies 100.0 37.4 62.4 0.3 Primary Industry 100.0 42.1 57.9 0.0 Light Industry 100.0 34.7 64.9 0.3 By Industry Heavy and Chemical Industry 100.0 37.0 62.5 0.5 Table 11: The Effects of Non-Tariff Measures on Exports (responses in %) Classification Total Great difficulties Somewhat Unable to get a troublesome No difficulties response Overall 100.0 39.4 44.2 15.7 0.7 Large Companies 100.0 42.0 47.6 8.7 1.7 By size Small-and-medium sized Companies 100.0 38.8 43.3 17.6 0.3 Primary industry 100.0 52.6 38.6 8.8 0.0 By Light Industry 100.0 43.0 44.3 12.4 0.3 IndustryHeavy and Chemical Industry 100.0 37.0 44.5 18.0 0.5 3. NTMs Faced by Korean Exporters Frequencies of non-tariff measures experienced were similar across sectors with many barriers arising from customs clearance, pre-shipment inspection and technical requirements. 93 Primary industry confronted many technical measures including sanitary and quarantine requirements, whereas less firms in this sector seem to be hindered by constraints on transport and harbor facilities and none experienced obstacles from foreign currency restrictions. Although the experience of the light industry sector is generally similar, the sector faced difficulties in particular from rules of origin. Meanwhile, it seems that the light industries did not have much difficulty in dealing with technical measures. Finally, in the heavy and chemical goods sector and the "other commodities" category, customs clearance, technical barriers, and pre-shipment inspection were often identified as a barrier. Table 12: Percentages of Non-tariff measures experienced By Industry By Type Preshipment Import Use of Rules Restrictions transport Regulations Fees for Restrictions TotalCustoms inspection Technical on payment customs on import Clearance and consular Barriers of and and Origin quantitative harbor and foreign valuation rights and By Industry certificate restrictions facilities currency requirements Overall 100.0 30.3 20.3 15.1 7.8 7.0 5.7 5.7 5.5 2.6 Primary Industry 100.0 35.6 17.8 27.7 4.0 5.9 2.0 0.0 5.0 2.0 Light By Industry 100.0 30.5 21.9 10.0 10.5 7.4 7.9 6.0 5.8 0.2 Industry Heavy and Chemicals 100.0 30.3 19.6 15.8 7.2 6.9 5.1 6.2 5.4 3.4 Other Commodities 100.0 35.6 25.0 31.8 2.3 6.8 4.5 0.0 4.5 3.4 Disaggregating these figures to the industry level yielded the following insights: customs clearance procedures seemed to pose the largest obstacles to firms in all industries, though the worst affected were exporters of agricultural goods and machinery. Further, many industries reported barriers arising from pre-shipment inspection and technical regulations. The two industries suffering most from pre-shipment inspection were plastics, rubber and leather as well as chemicals; regarding technical regulations, exporters of agricultural goods and fisheries as well as of live animals and plants were most affected, followed by electronics exporters in third place. Rules of origin were an issue especially for the textiles and electronics industry, while quantitative restrictions still play a large role in the iron and steel sector as well as in textiles. Table 13: Percentages of Non-Tariff Measures by Industry (results in %) By type Preshipment Import Use of Rules restrictions transport Regulations Fees for Restrictions Total Customs inspection Technical on payment on import Clearance and consular Barriers of and and and foreign customs rights and By industry certificate Origin quantitative harbor valuations restrictions facilities currency requirements Agriculture and fishery 100.0 35.6 17.8 27.7 4.0 5.9 2.0 0.0 5.0 2.0 Plastic, rubber, leather 100.0 32.8 26.9 8.4 8.4 1.7 5.0 10.9 5.9 0.0 Living goods 100.0 29.0 18.8 26.1 5.8 4.3 7.2 1.4 7.2 0.0 Miscellaneous goods 100.0 36.4 4.5 9.1 9.1 4.5 18.2 0.0 18.2 0.0 Textiles 100.0 29.6 21.9 7.5 12.2 10.0 8.3 5.5 4.7 0.3 Chemicals 100.0 18.1 29.6 13.8 7.6 4.9 4.6 11.2 4.6 5.6 Iron and Steel 100.0 29.9 16.5 11.5 4.6 18.0 5.0 3.8 7.3 3.4 Electronic and Electric goods 100.0 31.9 16.6 19.6 9.2 3.9 4.9 5.1 6.1 2.7 Machinery 100.0 39.0 17.8 15.2 6.0 4.9 6.0 5.2 3.7 2.3 Auto (100.0) (11.7) (37.7) (19.5) (2.6) (11.7) (7.8) (6.5) (1.3) (1.3) 94 In what follows, some anecdotal evidence on the different barriers summarized here, will be presented. Many of these measures do not apply to any product in particular, and are therefore discussed under the heading of "General measures". Others, however, were identified to apply to specific goods: General Imposing Type of barrier NAMA Code Consequence Countries China Taxes calculated by customs based on Part II B ­ Customs valuation prices higher than the declared value of the good. Classification varies depending on the Part II C ­ Customs customs official. classification Customs clearance: Excessive document Part II G ­ Customs formalities Time-consuming and requirements costly Customs clearance: excessive delays in Part II G ­ Customs formalities customs clearance due to lax enforcement of opening hours (e.g. on holidays) Customs clearance: rigid customs Part II G ­ Customs formalities Case where forced re- administration: Once exports to China are export and change in reported, its rectification is impossible documents took up 2 and only the exact volume of exports as months resulting in reported on the document must be cleared 10 times delivery cost at the customs. and other incidental expenses. Customs clearance: excessive customs Part II G ­ Customs formalities measures/penalties and detention Restrictions on importing ports for e.g. Part VII C ­ Distribution automobiles. constraints Packaging standards: wood package Part V K ­ Requirements materials: require certificates for more concerning marking, labeling types of trees than is common practice. and packaging Taxes calculated by customs based on Part II B ­ Customs valuation prices higher than the declared value of the good. Classification varies depending on the Part II C ­ Customs customs official. classification Hong Customs clearance: excessive delays in Part II G ­ Customs formalities Don't meet time Kong customs clearance: all the shippers of all limits for delivery, freights in the same container need to and hence products submit their export licenses, otherwise lose their value. customs clearance of all the freights is withheld. Vietnam Customs clearance: excessive delays in Part II G ­ Customs formalities customs clearance: clearance withheld without reason. Set times for transportation of containers. Part VII C ­ Distribution constraints Customs clearance: excessive customs Part II E - Samples Hinders marketing clearance procedures and tariffs imposed activities on samples and exhibits Malaysia Mandatory safety standard label `sirim' Part V K ­ Requirements on all consumer products. concerning marking, labeling and packaging 95 General Imposing Type of barrier NAMA Code Consequence Countries Philippines Government sometimes outsources Part III C ­ TBT testing and testing to private labs, who have little certification incentive to conduct tests speedily. Indonesia Classification varies depending on the Part II C ­ Customs customs official. classification India Customs clearance: rigid customs Part II G ­ Customs formalities administration Restriction on the period of payment: Part VII E ­Other: Financial payment for imported goods must be restrictions made within 6 months from the date of import. Discriminatory changes in applied tariff Part VII E ­ Other: changes in rates depending on customs post. applied tariff Sri Lanka Customs clearance: excessive customs Part II G ­ Customs formalities measures/penalties and detention Pakistan Taxes calculated by customs based on Part II B ­ Customs valuation prices higher than the declared value of the good. Pakistan, Dual foreign exchange rate system: Part VII E ­Other: Financial Myanmar countries apply the higher exchange rate restrictions and others to the settlement of the payment for imports. US CSI ­ Container Safety Initiative; Part VII C ­ Distribution Application to transit requirements must also be met if freight is constraints creates competitive only in transit (on its way to Latin advantage for US America). companies exporting to Latin America. Goods bought by the government need to Part VII C ­ Distribution be transported in US ships. constraints Customs clearance: excessive customs Part II E - Samples Hinders marketing clearance procedures and tariffs imposed activities on samples and exhibits Redundant testing and non-recognition of Part III C ­ TBT testing and results: even if a product has acquired a certification CE Mark, US request that companies should accomplish UL Mark, for which testing is composed of the same procedures. High inspection fees to obtain UL mark. Part III C ­ TBT testing and Every product model requires its own certification approval mode which adds to costs. Companies incur costs for maintaining Part III C ­ TBT testing and qualification or having to re-qualify as certification requirements change. Mexico Customs clearance: Excessive document Part II G ­ Customs formalities requirements, e.g. in practice, documents need to be filled out in Spanish. Customs clearance: dual customs Part II G ­ Customs formalities inspection. Ban on imports of used goods for Part V A ­ Quantitative consumer safety reasons (exception are restrictions imports from the US). 96 General Imposing Type of barrier NAMA Code Consequence Countries Changing customs procedures without Part II G ­ Customs formalities prior notification. Requirement to print labels in Spanish. Part V K ­ Requirements concerning marking, labeling and packaging Where the actual price is lower than the Part VII E ­ Other: minimum minimum price, need to deposit margin import prices between minimum price and actual price. Mexico has over 700 mandatory technical Part III C ­ TBT testing and regulations (NOM) issued by a number of certification different agencies, each with its own compliance certification procedures. Companies complain that the product certification bodies have increased the cost of the certification and are charging for expansion of ownership of a certificate. Companies incur costs for maintaining Part III C ­ TBT testing and qualification or having to re-qualify as certification requirements change. Don't accept certificates about heat Part V K ­ Requirements treatment, but inspect packaging materials concerning marking, labeling themselves. and packaging Argentina Customs clearance: Excessive document Part II G ­ Customs formalities requirements - Export license: An official seal of KORCHAN (Korean Chamber of Commerce). - Import approval: An official seal on a form issued by the Argentine Consulate in Korea. - A Confirmation of export price: An official seal of KORCHAN or the Argentine Consulate in Korea. Guatemala Customs clearance: excessive delays in Part II G ­ Customs formalities customs clearance: clearance is often withheld on the grounds of minute flaws on documents; lack of risk management, so often have 100% inspection. Customs clearance: excessive delays in Part II G ­ Customs formalities customs clearance due to lack of manpower Taxes calculated by customs based on Part II B ­ Customs valuation prices higher than the declared value of the good. Classification varies depending on the Part II C ­ Customs customs official. classification Brazil Customs clearance: suspicion that the Part II G ­ Customs formalities administration intentionally delays the customs clearance in order to prop up trade statistics in the last part of a quarter or a year when the results management 97 General Imposing Type of barrier NAMA Code Consequence Countries becomes important. Customs clearance: excessive customs Part II E - Samples Hinders marketing clearance procedures and tariffs imposed activities on samples and exhibits Ban on imports of used goods for Part V A ­ Quantitative consumer safety reasons (exception are restrictions imports from the US). Various charges and domestic taxes in Part VI B ­ Surcharges, port addition to the tariffs: national goods tax, taxes, statistical taxes etc. industrial goods tax, shipping charge. Application of these is arbitrary and administrative procedures connected to their collection are cumbersome. Port utility tax: importers are charged Part VI B ­ Surcharges, port 25% of the shipping charges, while taxes, statistical taxes etc. exporters are exempt. Classification varies depending on the Part II C ­ Customs customs official. classification EU Testing times are shorter for European Part III C ­ TBT testing and firms. certification Turkey Requirement to label products with the Part V K ­ Requirements certificate of the Turkish standards concerning marking, labeling institute during customs clearance. and packaging Dominican Fees arising from pre-consular Part VI B ­ Surcharges, port Republic, certification. Fees arising from pre- taxes etc. UAE, consular certification. In the UAE, for Argentina, example, Korean middle-sized exporters Saudi pay over 20 million won per month for Arabia, the consular certificates (over Jordan, US$21,000). Sometimes companies have Syria to hire an extra employee only for certification. The consulate's certification process generally takes five days or more. Vietnam, Foreign exchange restrictions: restriction Part V D ­ Exchange controls Algeria, on remittances and foreign currency. Tunisia, Venezuela Egypt Control over opening Letters of Credit. Part VII E ­Other: Financial restrictions Iran Restriction on the kinds of Letters of Part VII E ­Other: Financial Credit. restrictions Middle Prohibition to use ships with Israeli Part VII C ­ Distribution Eastern nationality. constraints countries and Bangladesh 98 Agriculture General Product Imposing Type of Barrier NAMA Code Consequence Country Food Indonesia Requirement to disclose detailed Part III C ­ TBT testing products product information (ingredients and certification and processing). Food Indonesia High costs for product registration Part III C ­ TBT testing products ($300 per product name). and certification Fruit and Japan Customs clearance: excessive Part II G ­ Customs Degrades product vegetables delays due to the fact that formalities quality inspection standards were increased, but not enough extra workers were hired to account for increased inspection times. Manufacturing General Product Imposing Type of Barrier NAMA Code Country Manufactures Mexico Private labs conducting tests are often operated by Part III C ­ TBT testing competitors of the Korean firms. There is hence a and certification danger for bias in testing as well as for leaks of intellectual property. Parts and Brazil Customs clearance: Excessive document requirements. Part II G ­ Customs components formalities Raw materials China Customs clearance: dual customs inspection: Part II G ­ Customs and particularly affects import clearance of expensive formalities intermediates intermediary products. E.g. textiles, Mexico Customs clearance: discriminatory import declaration Part II G ­ Customs footwear, system: some imports from 14 Asian countries are formalities fertilizers and required go through import declaration before their steel (applied arrival in port. Import clearance is allowed only when a to 74 products confirmation of pre-import declaration is attached and total) the price of import declaration should be within 5% of that of pre-import declaration. Sensitive China Import quotas (there are plans to eliminate these, Part V A ­ Quantitative products such however). restrictions as automobiles and steel Steel Steel Mexico Frequent changes in applied tariff rates. Part VII E ­ Other: changes in applied tariff Steel China Import licensing. Part II H ­ Import licensing Electronics and parts Electronics Philippines Requirement for on-site verification. Part III C ­ TBT testing and certification Electronics Taiwan Even though Taiwan is member of the IEC Part III C ­ TBT testing (International Electrotechnical Commission), and certification inspection results issued by offices appointed by IEC are not regarded as valid. Thus the exporting firms 99 need to undergo the testing in Taiwan. Plasma display Poland Frequent changes in applied tariff rates and retroactive Part VII E ­ Other: panels collection. changes in applied tariff Plasma display US Misclassification of monitor (0% tariff) to color TV Part II C ­ Customs panels (5%). classification Camcorders EU Discriminatory tariff based on technical difference. Part II C ­ Customs classification Chemicals and plastics Polyester Brazil Minimum price under which a good cannot enter the Part VII E ­ Other: staple fibres market minimum import prices Petrochemical Brazil Minimum price under which a good cannot enter the Part VII E ­ Other: products market: demand for petrochemical products in Brazil minimum import prices has been increasing with Korean companies being seemingly competitive suppliers. However a minimum import price for petrochemicals has been set taking into account national firms' production costs. Petrochemicals which are cheaper than the minimum price set by Brazilian authorities are prohibited from entering the market. Pharmaceuticals UAE, UAE, Saudi Arabia and Indonesia demand records that Part II ­ Administrative Saudi the exporting goods were registered with the health entry procedures Arabia, departments of the USA, England, Japan, Germany and Indonesia France. Textiles and apparel Textiles Brazil Minimum price not clearly defined. Part VII E ­ Other: minimum import prices Textiles US US recently increased stringency of RoO Part II F ­ Rules of Origin documentation requirements. Textiles and Mexico Requirement that exporters from 14 Asian countries Part II F ­ Rules of Origin footwear submit a hard copy certificate of origin, which is issued according to stricter rules than the general certificate of origin. Textiles Egypt Requirements for indication of origin too onerous to Part II F ­ Rules of Origin meet and sometimes prohibitive Leather and Japan Tariff quota system. Part V I ­ Tariff quotas leather footwear Automobiles and parts Automobiles Brazil Frequent changes in applied tariff rates (sometimes the Part VII E ­ Other: rate is raised even above the WTO bound rate). changes in applied tariff Automobiles China Prohibition of bonded transportation; requirement to Part VII C ­ Distribution and others clear customs upon arrival in the port. constraints Tires Brazil Requirements on tires in addition to international Part III B ­ Technical standards. regulations and standards 100 Other Software Brazil Customs clearance: Excessive demands on product Part II G ­ Customs information: Brazilian government requires that formalities imported software products should be registered in advance at Brazil's patent office, the National Institute for Industrial Property (INPI). This has proven time-consuming and there is a danger that business secrets are revealed; hence, discourages suppliers to enter the market Medical Mexico Time-consuming testing procedures (several tests). Part III C ­ TBT testing instruments and certification 4. Summary Statistics a. Restrictiveness of different NTMs When asked which measure they perceived as most restrictive, survey participants gave very varied responses, which can be explained by the wide range of export products and destinations. Notably, the ranking of perceived restrictiveness differs from the ranking by number of measures for any given NTM category, i.e. the measures incurred most often are not necessarily seen as being most restrictive overall. Korean exporters were found to have most difficulties with customs clearance (17%) and customs valuation (15%). Several types of customs clearance-related NTMs were reported, such as excessive documentation requirements, excessive demands on product information, dual customs inspection, and major delays in customs clearance. As for customs valuation, the minimum price system for imported products was the main obstacle, with imported goods with a price lower than the fixed price being prohibited from entering the market. Further, pre-shipment inspection, consular certificate issues and technical measures were reported as being relatively restrictive. Table 14: Relative restrictiveness of different non-tariff measures (in %) Customs Preshipment Import inspection restrictions Rules Regulations Restrictions Use of Classification TotalCustoms Valuation and Technical on payment on import transport and Clearance Commissions and Barriers and of and foreign rights and harbor (fees) consular quantitative Origin certificate restrictions currency requirements facilities Overall 100.0 17.0 14.5 14.5 11.1 10.2 9.6 7.1 5.3 4.6 Large Companies 100.0 14.9 15.3 14.6 12.2 11.8 6.6 7.3 6.6 4.2 By Size Small-and- Medium sized 100.0 17.4 14.4 14.4 10.9 9.8 10.3 7.1 5.0 4.6 Companies b. Non-Tariff Measures by Development Level According to the survey, respondents experienced most difficulties with non-tariff measures in developing countries (80%). In particular, the proportion of respondents having difficulties with customs clearance (84%) and pre-shipment inspection & consular certificate (98%) were overwhelmingly higher in developing countries than in industrialized ones. Further, foreign currency 101 restrictions, customs valuation, and import licensing were identified as import restricting measures particularly found in developing countries. Regulations concerning the use of local transport and harbor facilities seem to exist widely in both industrialized and developing countries, partly as a result of tightened security measures against terrorism. Table 15: Perceived Distribution of Non-tariff Measures in Industrialized vs. Developing Countries Classification Total Advanced Developing Countries Countries Unable to get a response Overall 100.0 20.4 79.4 0.2 1. Customs Clearance 100.0 15.7 83.7 0.6 2. Pre-shipment inspection and consular certificate 100.0 1.8 98.2 0.0 3. Technical Barriers 100.0 41.4 58.6 0.0 4. Rules of Origin 100.0 33.3 66.1 0.6 5. Import restrictions and quantitative restrictions 100.0 36.0 64.0 0.0 6. Use of transport and harbor facilities 100.0 51.6 48.4 0.0 7. Regulations on payment and foreign currency 100.0 4.9 95.1 0.0 8. Customs valuation and fees 100.0 8.5 91.5 0.0 9. Restrictions on import rights and requirements 100.0 5.5 94.5 0.0 c. Non-Tariff Measures by Country When asked to rank countries by the stringency of measures imposed, China was selected most often as the nation where the respondents experienced difficulties relating to non-tariff barriers. Exceptions were the pre-shipment inspection and transport and harbor facilities categories. Table 16: Non-Tariff Measures in Major Exporting Markets Rank By Type 1st 2nd 3rd 4th 5th Others Customs Clearance China US Brazil India Nigeria Others (48.2) (8.0) (4.0) (4.0) (2.2) (33.6) Pre-shipment Inspection and Consular Iran Saudi Arabia U A E Bangladesh Egypt Others Certificate (13.6) (9.7) (8.8) (7.6) (5.5) (54.8) Technical Barriers China US Japan Mexico EU Others (21.6) (11.1) (5.6) (4.6) (4.3) (52.8) Rules of Origin China US Mexico Middle East Saudi Arabia Others (17.9) (13.1) (8.3) (6.5) (5.4) (48.8) Import restrictions and quantitative China US EU Turkey Iran Others restrictions (30.7) (24.7) (5.3) (4.7) (4.0) (30.6) Use of transport and harbor facilities US China Middle East Pakistan U A E Others (45.1) (17.2) (6.6) (2.5) (2.5) (26.1) Regulations on payment and foreign China Iran Egypt Venezuela India Others currency (21.3) (18.0) (6.6) (4.9) (4.9) (44.3) Customs valuation and fees China Brazil India Turkey Middle East Others (27.4) (9.4) (8.5) (6.0) (4.3) (44.4) Restrictions on import rights and China Iran India Myanmar Malaysia Others requirements (58.2) (5.5) (5.5) (5.5) (3.6) (21.7) 102 The US was perceived as second most restrictive importer in almost half of the listed NTMs and most restrictive when it came to the use of transportation and harbor facilities. This mainly reflects difficulties of Korean exporters in coping with the new Container Security Initiative (CSI). Iran, Saudi Arabia, and the UAE were selected as countries where Korean companies experienced most difficulties in terms of the pre-shipment inspection and issuance of consular certificates. 103 References Baldwin, Robert (1970),"Non-tariff Distortions in International Trade", The Brookings Institution, Washington D.C. Bijit Bora, Aki Kuwahara and Sam Laird (2002), "Qualification of Non-tariff Measures", Policy Issue In International Trade And Commodities, Study Series No. 18, United Nations Conference On Trade And Development (UN) Bijit Bora (2003), "The Quantification and Impact of Non-Tariff Measures" prepared for the OECD Global Forum on Trade: "The Market Access Challenge in the Doha Development Agenda", Paris 4-6 June 2003, Economic Research and Statistics Division, WTO European Commission Market Access Database (2005), "Market Access Sectoral and Trade Barriers Database" by measure, DG Trade John S. Wilson, Catherine Mann, Yuen Pau Woo, Nizar Assanie, Inbom Choi(2002), "Trade Facilitation: A Development Perspective in the Asia Pacific Region", Asia Pacific Economic Cooperation, October 2002 Korea International Trade Association (2002), "NTBs in Core Countries" working paper for MOFAT, Trade Research Institute, November 2002 Korea International Trade Association (2004), "Current States of Non-Tariff Measures Faced with Korean Exporting Companies" research paper, International Affairs Bureau, January 2004 Korea International Trade Association (2005), Korea Trade Statistic Database of KITA.net Korea Trade-Investment Promotion Agency (2004), "Analysis of WTO NTBs Notifications" research paper, May 2004 OECD (2003), "Overview of Non-Tariff Barriers: finding from existing business survey", Working Party of Trade Committee, TD/TC/WP(2002)38/FINAL, March 2003. Park, Kawasaki, Kim(2001), "The Impact of APEC's Investment Liberalization and Facilitation" Working Paper, at APEC Meeting in Seoul, Korea, October 2001 Scott Bradford(2003), "Non-tariff Barriers in Rich Economies : Quantifying Them, Identifying Them, and Assessing Their Impacts", Working Paper, at APEC Capacity-Building Workshop in Bangkok Soamiely Andriamananjara, Michael Ferrantino, and Marinos Tsigas(2003), "Alternative Approaches in Estimating the Economic Effects of Non-Tariff Measures" prepared for the APEC Capacity-Building Workshop on Quantitative Methods for Assessing NTMs and Trade Facilitation, 8-10 October, 2003, Bangkok, Thailand WTO(2003), "Table of contents of the inventory of non-tariff measures" note by the Secretariat Revision, WTO Secretariat, TN/MA/S/5/Rev.1 WTO(2004), "Non-Tariff Barrier Notifications: Secretariat compilation of the various barriers notified in tn/ma/w/46", JOB(04)/62 Yang, J(2005), "Transparency in regulations and WTO discussions" working paper for KIEP, Catholic University, South Korea 104 LAOS Thiphaphone Phetmany and Luz Julieta Rio, Enterprise and Development Consultants Co. Ltd, Vientiane, Lao PDR Lao exports are highly concentrated in three product categories: garments, wood and wood products, and coffee, accounting for 96% of total exports of merchandise goods (electricity not included). Almost 80% of exports are directed to the EU and Thailand with limited diversification beyond these two markets; the US, China and Japan only have small import shares. Product categories for which some export potential seems to be unexploited are secondary wood processing products, knitted and other labor intensive categories of garments, footwear, live animals, livestock products (semi-processed meat) and possibly other kinds of labor intensive light manufacturing. The survey focused on the five most important export products: garments, wood and wood products, coffee, textile handicraft, and non-timber forest products. A barrier for which major or even prohibitive restrictiveness was reported for all the major export products (except textile handicrafts) are distribution constraints caused by a transport monopoly in neighboring Thailand. Barriers seem to also be arising from strict SPS standards and testing procedures (in particular for coffee exported to the EU), though the authors of the study recognize that many of these are needed and restrictiveness is generally indicated as being minor or moderate; the larger problem regarding standards is the lack of laboratory infrastructure for conformity testing. Further, textile handicraft producers seem to be struggling with high quality standards and certification requirements in the EU and Japan, some of which are proving prohibitive; this is true to a certain extent also for the garment sector. Of the 5 products identified as having the largest export potential, wood faces the most as well as the most prohibitive restrictions, in particular in the form of arbitrary and non-transparent customs procedures in Thailand and high quality standards in Japan. 1. Overview of the Economy The Lao People's Democratic Republic (Lao PDR) is ranked among the world's 50 least developed countries (LDC). It is a landlocked country at the center of the Mekong region surrounded by Thailand, Vietnam, Southern China, Cambodia and Myanmar and with a total area of 236,800 km2, much of which is forested and mountainous. With a population of about 5.6 million (in 2005), Lao PDR is the second least populated country in ASEAN with the lowest population density of approximately 24 people/km2. Approximately 80% of the total population is in rural areas, 66% of whom rely on subsistence agriculture. The country's poverty strategy targets to halve the number of poor people by 2010 and graduate Laos from LDC by 2020. It is becoming a long-term comprehensive growth and development framework for individual sectors across government line ministries at all levels. In 1986, Lao PDR put into place an economic reform program called "New Economic Mechanism" (NEM) that was to set in motion the country's transition from a centrally planned economy to a market-oriented one. Since then, the economy has been growing steadily with an average annual GDP growth rate of 6% during the 1990s. Lao PDR is to become a "land-linked" country which maximizes its potential from being "connected" to 5 other countries in the region. In 2000-2001, GDP at current prices was 1,759 billion US Dollars. The share of GDP was 51% for agriculture, 23% 105 for industry and handicrafts (up from 20% in 1995/9645), and 26% for the service sector. The forestry and wood industry took up approximately 20% and was accounted for under the agriculture heading. This pattern of GDP composition has remained largely constant over the years with a particularly large share for the agricultural sector. 2. Overview of Trade In the 1990s, export growth was around 15% p.a. During the first six months of 2004, Lao exports increased by 22% and imports grew at the same time by about 23%. Growth in exports was mainly driven by garments, electricity, mining and coffee while the main imported items were consumable goods, medicines and electric wares; intermediate goods, such as fabrics for garment, equipment and machineries for construction works and agriculture, as well as fuels.46 Due to the rise in world oil prices and higher investment costs for imports, the trade deficit increased to around 8% of GDP in 2003-2004. Informal trade Informal trade is considered to be "significant". Unrecorded imports are likely to be larger than unrecorded exports as suggested by the constantly negative value of the item "errors and omissions" in the balance of payments statistics during the 1990s. It should be noted however, that the "errors and omissions" may also include unintentional loss of data in the process of transferring data from border checkpoints to the central Department of Customs. Or the record of data is not sufficiently taken care of due to a limited number of customs officials coupled with an unavailability of necessary basic information and technology for communications. The amount of unrecorded exports may be as large as 20% of the total recorded exports from Lao PDR (agricultural products (including fruits and vegetables) 34%, forest products 26%, livestock 20% and handicraft products 12%); this figure is even bigger for imports at 31% (this includes various kinds of consumption goods such as food and beverages, household utensils, clothing, footwear and cosmetic products). International trade relations Since 1989, Lao PDR has been gradually integrating into the world economy. The country trades with more than 50 countries. It signed bilateral trade agreements with 19 countries and has been granted GSP status by 35 countries. It became a member of the Association of South East Asian Nations (ASEAN) in July 1997 and joined the ASEAN Free Trade Area in 1998. Lao PDR also applied for full membership to the World Trade Organization in 1997 with a successful mission of its First Working Party on the Accession of Laos to the WTO in October 2004. The country enjoys preferential market access to the European Union (EU) in the form of GSP treatment, subject to Rules of Origin (RoO) requirements. With exports of US$133m in 2002, the EU is the second largest market for Lao PDR after ASEAN (mainly Thailand and Vietnam), and the first destination for garments (87 per cent of total merchandise exports go to the EU). Lao garment producers however, have often been unable to take advantage of the duty-free access to the EU market due to problems in meeting minimum local processing requirements. In 1997, Lao PDR obtained a derogation to the RoO, which allowed exports at a zero tariff rate for garments produced from imported woven fabric or knitwear yarn, up to a certain quantitative limit. Lao PDR also qualifies for the regional cumulation rule, which slackens RoO requirements and extends GSP 45"Private Sector Development and Trade Capacity in the Lao PDR, Federico Bonaglia and Andrea Goldstein, Phnom Penh, Cambodia, 2003. 46"Lao PDR Economic Monitor", The World Bank Vientiane Office, November 2004 106 coverage to Lao exports produced from imported intermediate inputs originating from any ASEAN country. Composition of Lao export goods47 Lao exports are highly concentrated in three product categories: garments, wood and wood products, and coffee, accounting for 96% of total exports of merchandise goods (electricity not included). 61% of Laos' export revenue earnings come from products that have increased their global market shares in the period 1995 ­ 1999. However, 51% of Lao exports are also sold in markets in which world demand is stagnant or declining. Almost 80% of exports are directed to the EU and Thailand with limited diversification beyond these two markets. Lao exports of merchandise goods are currently standing on shaky ground. Unless strong measures are taken, merchandise exports are at risk of declining in the future. Product categories for which some export potential seems to be unexploited are secondary wood processing products, knitted and other labor intensive categories of garments, footwear, live animals, livestock products (semi- processed meat) and possibly other kinds of labor intensive light manufacturing. The ban on exports of logs introduced in late 2001 and the phasing out of the Multi-Fiber Arrangement (MFA) at the end of 2004 pose formidable challenges to 80% of Lao exports. More specifically, major export product categories and countries/regions of destination are the following: Garments ­ From 2001-2003, the garment sector accounted for 25% of total exports. The overall index of export potential for the clothing and accessories industry which is assessed by looking at both the world markets and export performance of the industry indicate that there is high potential for export. In 2003, the total apparel exports of Laos were 133 USD. About 56% of its exports are woven while 44% are knits48. The EU is the largest recipient of Lao garment exports (91% in 2003 up from 88% in 2001). The USA, Norway, and Canada imported 8%, 2% and 1% respectively in 2000, and 3%, 3% and 1% in 2003. The fairly high share of exports to the USA in 2000 is somewhat surprising since Lao PDR did not enjoy NTR (normal trade relations) with the USA during that year. Garment exports at the time were subject to duties of 40-90%, however, the change in trade relations with the US has lead to a sharp drop in tariffs of 17-20%. Wood and wood products - From 2001-2003, wood products accounted for 17% of total exports. The overall index of export potential indicates important opportunities. In 2000, the main destinations were Thailand (around 70%), Japan (14%), China (12%) and Taiwan (3%). However, these shares are likely to be overestimated, as exports to Vietnam are not included in the UNCOMTRADE database which may very well be of a magnitude of 30%. The industry accounted for about 40% of total merchandise exports. Coffee - The export potential of coffee is also high. From 2001-2003, coffee products accounted for 3% of total exports. Destinations for exports of coffee varied significantly from year to year during the 1990s. Since 1995, however, the EU has emerged as the most important recipient country, accounting for 50-60% of Lao coffee exports. Textile Handicraft - The export potential of handicrafts is medium. Despite benefiting from the GSP, the destinations of textile handicraft products are mainly EU countries (Germany, France, Italy, Sweden), followed by Austria, Singapore, Japan, and the USA. Thailand is also a major destination, 47Composition and Evolution of Lao PDR's External Trade, UNIDO, Mr. Mikael Brenning, et al, November 2002. 48Lao's Textile and Clothing Sector Analysis, ITC, March 2005. 107 though mostly through informal border trade. The MoC estimates that the export value of the handicraft sector as a whole was approximately US$12 million in 2002-2003, which constitutes a four-fold increase compared to previous years. The government expects exports to reach US$25 million by 2010. Other agricultural products and non-timber forest products (NTFPs) ­ The index of export potential of NTFPs is high for products such as cardamom, medical herbs and rattans as is the index for the aggregate of `other agricultural products'. This survey focuses on "industrial crops" which includes for example soybeans, jobs tears, sesame seed, maize, and ground nuts; the main commercialized NTFPs are cardamom, broom grass, sticklac, and mulberry resin. The trading partners are neighboring countries like Thailand, Vietnam, and China, with a few cases of export to the EU (especially France), Taiwan, and Korea. There is no precise export figure for industrial crops, as the category is often mixed with "other products" or other agricultural products such as rice, cabbage, potatoes, cassava, etc. The NTFPs on the other hand, have been recorded by the MoC, as showing highly fluctuating export figures: US$4.1 million in 1999-2000, 6.6 million in 2000-2001, 8.2 in 2001-2002, and 5.7 in 2002-2003. These commodities are regarded as crucial sources of income and key border-trade products. They employ mass populations in provinces but their full export potential is yet to be reached. Therefore, communities receive full support from the government along the value chain, especially in increasing their capacity to export. 3. Methodology of the Study The first part of the study consisted of a review of the existing literature, and the identification of priority products as well as of the key interview partners for each product. Interviews took place simultaneously to the secondary data collection and desk phase. The questionnaire, used for the interviews was based on that provided by the World Bank. It was further tailored to each product category based on a test-phase that was conducted among representative respondents. Questionnaires were then sent out to target exporters and business associations while at the same time interviews were conducted with government agencies. However, the survey was eventually conducted exclusively face to face and on an individual basis with both exporters and government agencies since this had proven to yield more precise information. The fieldwork was concentrated in Vientiane Capital where most of the key export goods are manufactured. Regarding coffee, other agricultural products and non-timber forest products (NTFPs), exporters in Pakse and Luang Prabang provinces were interviewed. 44 firms and 14 representatives from business associations and government agencies were interviewed in total during the process. Work was conducted over a period of 30 days spread out over the course of 5 months. During the course of the study, the dearth of information on this subject became evident, and it is recognized that more time would have to be invested in order to substantiate the analysis. In the meantime, what is presented here is still indicative of NTMs affecting exporters in Lao PDR. The study dealt not only with NTMs imposed by trading country partners but also with constraints internal to Lao PDR, an issue that was frequently raised by exporters themselves during the interview. 108 4. NTMs Faced by Lao Exporters a. Internal barriers The barriers mentioned by most interviewees from the five sectors included in the study stem from internal sources, often much more than the external ones. Many of the barriers seem to be coming from internal administrative inefficiencies and lack of transparency of rules and their enforcement. As general barriers, affecting all sectors the following emerged from the study (figures in brackets indicate how restrictive different exporters found certain obstacles): General Lack of transparency of rules and their enforcement (part i): Lack of publications and changing/unclear implementation of rules and regulations related to trade (7 cases of prohibitive effects, 2 major, 10 moderate and 4 minor). In the wood sector, official announcements on bidding processes, logging quotas, or shipment of woods are frequently not given on time, which is particularly problematic if contractual commitments have already been made by the manufacturer. For the handicraft sector, the lack of available publications on export procedures, duties, shipment and other requirements imposed by potential international customers has meant a loss of market opportunities. For many exporters, this type of barrier has become normality, however. In cases where a particular piece of information is needed or unclear rules need to be "abided" by, side payments will be made. If undealt with, this condition will eventually lead to a loss of trust in official documents and documents are likely to become subject to misinterpretation. Inefficient domestic bureaucracy (part i): o Duplicative work e.g. having multiple authorities inspect goods and approve the products: (1) Customs, (2) Commerce, (3) Economic Police, (4) Agriculture and Forestry, and (5) Assets Department (5 cases with major effect, 5 cases with moderate and 4 with minor). duplicated administration work (and expenses) especially between the border points, province to province and between Laos and Thailand (2 cases with major effect). This particular barrier relates to having multiple authorities inspect and approve goods, in addition to the multiple inspections at weighing stations and forestry check points along the road to Thanaleng port. In order to speed up the process, exporters often treat the officials by picking them up from their places as well as making side payments in order to obtain their signatures (as high as 10 US Dollars each). The duplication of tasks is mentioned as a barrier by all sectors including the coffee exporters in the provinces (the handicraft sector is the least affected as they use air express to ship their goods). Even though there has been an attempt at streamlining the export procedures and a "one stop service" was set up, these agencies still duplicate work. Having insufficient staff is one limiting factor when it comes to administrative procedures, but inefficiency is the more crucial one. Customs formalities (part ii g): Costly customs procedures (time and charges) (1 case with major effect, 2 moderate, and 9 minor). 109 This barrier is faced by all five sectors to varying degrees. In order to pass Customs at the border or port, a host of fees are charged which include: terminal handling charges, delivery fee, port gate fee, customs guard fee, third-party risk premium, returning fee for the empty truck, and unloading fee. Receipts are not issued for unofficial fees such that none of these expenses can be declared in the exporters' books. (Indirect) export taxes (part v j): despite the fact that the five export sectors are exempted from export duty, there are other duties involved in the export process: 5% is levied on the sales volume, 5% for re-plantation in the case of wood products and 3$/ton for inter-country transport. Another 5% for business tax is applied by the end of the year (1 case with major effect). Domestic distribution constraints (part vii c): transport controls, transport monopolies and associated cost. Wood and wood products Wood products Lack of transparency of rules and their enforcement (part i): Quantitative restrictions ­ limited and uncertain allocation of timber by the government (3 cases with major effect, and 1 case with a moderate effect). Exchange controls (part V d): 1 case with major effect. Import constraints (part i): Restrictions on import of equipment necessary to upgrade the production and design of wood products (2 cases with minor effects). Despite the fact that wood products are the third biggest export of Laos, doing business in this sector is still fairly risky. The annual allocation of timber by the government is limited and uncertain. Exporters cannot predict the amount of raw materials they will have available and thus committing early to orders is a high-risk undertaking. Entrepreneurs in the industry point out that what is needed is a sound management in order to ensure the optimal use of woods, scraps, and wastes. Quantity restrictions are not useful when there is still a large amount of scraps and wastes that are left unused in the forest. Further, timber quotas given to amateur wood traders based on a privilege from the provincial government has created chaos and mismanagement in the past. A bidding system for quotas has been recently put in place, but problems have arisen from the fact that bidders themselves are not sure how logging rules and regulations will be amended. One exporter from the wood processing sector reported obstacles arising from exchange controls as they had a major effect on his trading. Exporters are only allowed to withdraw a maximum of 5000 US Dollars per day, a rule that has been applied to date for almost 3 years to all commercial banks. This is considered cumbersome by traders. Wood manufactures Inefficient domestic bureaucracy (part i): it takes several weeks to obtain an import license (1 case with prohibitive effect). In one case, it took 45 days to obtain a license to import raw materials needed for wood manufacturing. This caused a production stop, delayed the order, and hurt the confidence of customers and that of the (FDI-) owner of the company. 110 Textiles and garments Garments Inefficient domestic bureaucracy (part i): Permission document for "internal transit of garments inputs" required when there is a transaction from one garment manufacturer to its smaller sub-contractors. The permission paper is only valid for 3 days making it difficult to do transactions during week-ends because the required papers may not be processed in time (2 reports with major effect, and 1 with moderate). Lack of transparency of rules and their enforcement (part i): Customs formalities discriminatory (not on a first-come-first-served basis) (1 case with major effect and 1 with minor). Import constraints (part i): (2 cases with minor effects) o Factory checks on imported fabrics by the Economic Police. Pre-shipment inspection (part ii i): 1 case with major effect, 3 with moderate, and 2 with minor effects. It was reported by the garments sector that the customs clearance agents often give preferential treatment to those from whom they can collect most fees instead of operating on a first-come-first served basis. In another case, it was reported that the format of export forms changed whenever there was new staff. Further, there were cases where no official exchange rate was applied, but rather depended on who was handling the papers. Other complaints about customs formalities included that goods were checked at the border even though the products were already inspected and approved at the factory. In another instance, pre-shipment inspection involved the Economic Police, which did not seem necessary and hurt the reputation of the exporter. Textile handicrafts Rules of origin (part ii f): 1 case with prohibitive effect. TBT ­ testing and certification (part iii c): Lack of laboratory facilities to test chemicals contained in colors (1 case with moderate effect, and 1 with minor effect). As Laos does currently not have a large fabric sector, inputs for textile handicrafts need to be imported. As a consequence, products do not always satisfy stringent rules of origin criteria and therefore fail to qualify for preferences. Another obstacle faced by the textile handicraft sector is that it lacks the laboratory facilities for testing the chemicals contained in colors. This results in a loss of confidence in the materials used, despite the fact that they are actually of high quality. Two firms report this as a barrier. Other Handicraft goods: Customs classification (part ii c): The process of customs classification gets held up if the producer has misclassified their product or commits minor typing mistakes (1 case with major effect, and 1 with minor). Coffee beans: Lack of transparency of rules and their enforcement (part i): profit tax is at the discretion of the provincial governments (2 reports with prohibitive effect, 1 report with major effect). 111 Coffee beans exporters pointed out that a tax of 450 Kip/kg for each export shipment seems unreasonably high and is likely to discourage investment and export in the sector. The tax is based on a rule that the provincial government seems to apply at their discretion. Under the contingency regulations the province is given a certain budget for different public projects, this is regarded as `advanced profit tax' and is deductible by the end of the taxation clearance. Nevertheless, no reimbursement has ever been made due to the fact that the government is short of budget. In early 2005, upon repeated requests by the Coffee Association, the Department of Customs and the Ministry of Finance ordered to discontinue this practice and requested compliance with the Customs Law's prescribed profit tax of 35%. However, until now, the order has not been adhered to. This not only encourages illegal trade via Vietnam, it also discourages investors, as the tax captures funds that would otherwise be needed to invest in product development and extension work which would be crucially important for the competitiveness of the Lao coffee industry. Industrial crops: SPS testing, certification, other conformity assessment (part iv c). Testing, certification and conformity assessment for chemical residue limits, freedom from diseases, and level of humidity: testing facilities are only present in Vientiane capital and often results from there are not recognized; testing can be done abroad, but costs will be higher (1 case with major effect, and 4 cases with minor effect). The Agriculture Department in the capital hosts the testing laboratories in which compliance with sanitary and phytosanitary requirements is tested. For provinces with industrial crops like Luang Prabang and Bokeo, there is no such laboratory. Instead, crops such as soybeans and jobs tears are sent to Vientiane Capital. The process takes approximately 1 to 2 weeks and involves shipping costs in addition to the costs arising from testing. Frequently, the results of the testing and certification body are not recognized internationally, which means the company has to look to another country to do the testing; alternatively the importing country conducts the test on a cost sharing basis. In both cases costs are higher than if testing was done domestically, reducing the competitiveness of the product. Especially non-timber forest products: o SPS testing, certification, other conformity assessment (part iv c). Uncertainty as to whether the necessary equipment will be available to do the conformity assessment testing (2 cases with major effects). o Lack of transparency of rules and their enforcement (part i): Calculation of taxes is duplicated and different from one district to another (2 cases with major effects). In the NTFP sector, in particular, exporters find the absence of standard procedures and guidelines concerning SPS issues time consuming, expensive and risky. There is much uncertainty as to whether an exporter will be able to obtain a permit to import the necessary testing equipment. Since guidelines are frequently non-existent at the provincial level, adhering to the standards will often involve several trips to the Capital. Another issue that was pointed out by NTFP exporters is the calculation of taxes which is duplicated and at the discretion of each district. In one province, the exporter needs to pay the district where the company is located 5% for "forest resource replanting" (even if the company is actually the replanting themselves), 5% business tax and 20% profit tax for each shipment of NTFPs. In another province, an extra 5% of the export values is imposed as a "special tax". At the end of the year, the business is charged another 5% business tax by the provincial customs authorities. 112 Handicraft, wood products and others: Inefficient domestic bureaucracy (part i): (2 with major effect, 5 with moderate, and 13 reports with minor effect). o Export/factory/investment certificate/license ­ short validities for licenses. o Cumbersome paperwork to obtain duty drawback for inputs that are being re- exported A factory license is generally valid for three years and later renewable for one year (for some wood manufacturers it is only one year to begin with). Exporters find this too short and cumbersome given the time, costs and paper work involved. Further, for the handicraft sector, an export certificate/permission is required for each export shipment. As handicraft exports are shipped in small quantities, two days to process export documentation seems particularly burdensome. This is similar for coffee exporters where it also takes two days to obtain an export certificate. In addition several stamps are needed at the border check point. Further problems arise from the way duty-drawback schemes are handled. Even though inputs imported for export-oriented manufacturing are charged a tariff as low as 1% according to a streamlined procedure, it takes 45 days in practice to prepare the import certificate that will reduce the duty. This poses a major barrier for the manufacturing sector, where entrepreneurs are discouraged to seek new imported technology for improving their products. The administrative bottleneck seems linked to a lack of government officials on duty, changing personnel and little delegation between government agencies. Herbal medicines, non-timber forest products: Intellectual property rights (part vii a) (1 case with medium effect). This issue was raised by a company using particular methods for herbal medicine and certain kinds of NTFPs extraction, technologies it would like to own. So far intellectual property is not yet protected, but there will be a high need for this in the near future. b. External barriers External barriers mostly arise from strict standards requirements and testing procedures, whereby obstacles to exporting seem to arise mainly from inadequate testing infrastructure. Two further issues are distribution constraints caused by a transport monopoly in neighboring Thailand and cumbersome customs procedures. These barriers affect both agricultural and manufactured goods. Product Imposing Type of barrier NAMA Consequence Restrictiven Countries Code ess Agriculture Coffee Raw Thailand High cost of cargo transit in Part VII C ­ Prohibitive coffee Bangkok, due to transport Distribution beans monopoly and monopoly in constraints cargo handling. Raw EU Strict regulations Part IV B ­ Moderate, coffee concerning toxins; analysis SPS but needed beans is done by trading country. measures Raw EU International standards. Part III B ­ Minor, but coffee Technical needed 113 Product Imposing Type of barrier NAMA Consequence Restrictiven Countries Code ess beans regulations and standards Coffee Thailand Scale used on Thai side is Part III C ­ Minor beans not the same as that on TBT testing Lao's side. and certification (metrology) Non-Timber Forest Products Gums and Thailand Cargo handling and port Part VII C ­ Major resins, procedures. Distribution medicinal constraints herbs Jobs tears Thailand Monopoly over Part VII C ­ Higher cost (42000 Major transportation. Distribution B vs. market rate constraints 30000 B per container). Product Imposing Type of barrier NAMA Consequence Restrictiven Countries Code ess Manufacturing Garments Trousers France, Accept results only from Part III C ­ Happened once. Minor USA recognized/ TBT testing Slows down certified laboratories. and production and certification export process. Imported Thailand Slow administrative Part II ­ Creates uncertainty Major raw processes and extra charges. Administrati for production materials ve entry plan. procedures Slows down and Part VI production. (B) Surcharges, port taxes Imported China, The use of Form A and Part II F ­ Creates Major raw fabric Pakistan Certificate of Origin is not Rules of uncertainty. the same for all countries; Origin Higher cost on China uses Certificate of products. origin and imposes tax. T-shirts EU Prescriptive requirements. Part III B ­ Requires more Major Technical technical effort regulations which is not always and available in Laos; standards using services of other countries involves higher cost. T-shirts, Thailand Transportation cost Part VII C ­ Loss of Moderate knitted unjustifiably high: from Distribution competitiveness and Bangkok port to Nongkhai constraints 114 Product Imposing Type of barrier NAMA Consequence Restrictiven Countries Code ess woven costs are about 5,000 to 6,000 BT but Bangkok port to Vientiane port costs are 10,000 BT. T-shirts USA Marking requirements. Part V K ­ There are no Major Requirement qualified providers s concerning for such a marking, requirement. labeling, packaging T-shirts General International standards not Part III B ­ 1 case with major always recognized. Technical effect. regulations and standards Wood and wood products Carved Thailand Rejection of wood products Part III B ­ Prohibitive seats made from naturally grown Technical (furniture) wood. regulations and standards Knock Thailand Delays in publication of Part I ­ lack Prohibitive down customs information. of furniture transparency of rules and their enforcement Knock Thailand Changing enforcement of Part I ­ lack High likelihood of Prohibitive down customs rules and of products being furniture regulations. transparency rejected when the of rules and rules change. their enforcement Knock Thailand Delays resulting from short Part II Increased transport Prohibitive down and changing operating Customs costs. furniture hours of customs. inefficiencie s Knock Thailand Additional expenses to Part II Adding unexpected Prohibitive down obtain customs clearance in Customs cost which is not furniture the case of transport delays inefficiencie included in the (extra fees for overtime) s negotiated price. Knock Thailand Lack of independent appeals Part I ­ lack Could be down regarding customs of prohibitive furniture clearance. transparency of rules and their enforcement Knock Thailand Penalties at customs for Part II Major delays in Prohibitive down minor typing errors. Customs delivery, as a new 115 Product Imposing Type of barrier NAMA Consequence Restrictiven Countries Code ess furniture inefficiencie set of documents is s generally required. Knock Thailand High transport costs. Part VII C ­ Prohibitive down Distribution furniture constraints Flooring Japan Technical standards are Part III B ­ Minor and other high. Technical wood regulations wares and standards Wood Thailand Control measures at the Part II I ­ Slows down export Major wares: border of Thailand Pre- process. tables, (Nongkhai). shipment chairs, inspection furniture set, etc Wood- Thailand Administration costs. Part II ­ Necessitates price Major semi- Administrati increases which processing ve entry make the product , Flooring procedures uncompetitive. Table Thailand Costly transportation and Part VII C ­ Major tops, table uncertainty about charges. Distribution legs, constraints doors, frames, tables Handicrafts (mainly silk-woven products) Scarves, Japan Demanding quality Part III C ­ Slows down Minor placemats, requirements; testing is TBT testing exports. runners, done in Japan. and silk certification fabrics Textile Japan, EU Acceptance of certificates Part III C ­ Time-consuming; Moderate handicraft only from recognized/ TBT testing added costs of : scarves, certified laboratories in the and sending samples. wall destination countries. certification hangings, fabrics Silk Japan Very demanding Part III B ­ Moderate, textiles requirements. Technical but needed regulations and standards Almost all Japan, EU Data, certification, and Part III C ­ Time-consuming. Prohibitive, product testing requirements by TBT testing but needed categories trading country concerning and (Silk characteristics such as certification products consistency of fabric used, and dyeing ingredients, textile; environmental friendliness. curtains, pillow cases, bed 116 Product Imposing Type of barrier NAMA Consequence Restrictiven Countries Code ess covers, scarves, blouses) Almost all Japan, EU Labeling, marking and Part V K ­ Requires technical Prohibitive product packaging requirements. Requirement expertise that is not categories s concerning readily available in (Silk marking, Laos. Using products labeling, services of other and packaging countries is costly textiles; and time- curtains, consuming. pillow cases, bed covers, scarves, blouses). As for the handicrafts category, it is noted that regardless of the type of product, the high end markets such as Japan, France, Spain, Germany, and other EU countries put demanding requirements on raw materials that are used for the handicrafts (woven fabrics). This includes testing, labeling, packaging and marking and specific requirements concerning ingredients, such as acceptable levels of chemical dye inputs or special ingredients from herbal trees. In some cases the clients will do their own testing to ensure that fabrics are environmentally friendly, which will often require spending much time on communicating and sending of samples before an approval is made. As for the labeling and marking requirements, costs arise from the need to design the label according to the clients' preferences, for which high quality services are still lacking in Lao PDR. Despite these obstacles, Lao exporters are keen to comply in order to ensure future market access. 117 APPENDIX 1 ­ Background information on major Lao export products Box 5: Background: Lao PDR's garment sector Compared to other established garment manufacturing countries, Lao PDR has a rather short history of manufacturing clothing, starting in 1990 with 2 garment factories employing about 800 workers. In early 2005, there were 57 listed garment manufacturers that employed approximately 21,000 workers. There are also around 39 small factories that are sub-contractors of the bigger ones. About 46% of the 57 factories are FDI, 19% are joint ventures, and 20% locally owned. They are subcontractors of parent companies mostly located in Thailand and Hong Kong. They offer only cut-make or cut-make-trim with almost zero backward linkages to fabrics and accessories. Most of the export garment manufacturers are OEM (original equipment manufacturing). These are manufacturers who rely on customers to provide designs, product specifications and supplier nominations. 100% of all fabric, accessories and packaging materials are imported, and their headquarters or customers usually make all procurements. Testing and inspection is very minimal since most of these garment manufacturers are not involved in the procurement of materials. The majority of the workforce in the garment industry has low literacy skills, productivity is low and annual turnover is high at 7-10%.49 Since Lao PDR is a landlocked country, all its exports are routed through Bangkok. Transportation costs from the Thai border to Bangkok Seaport are seen as prohibitive (Lao's Textile and Clothing Sector Analysis, ITC, March 2005). On the other hand, the Textile and Clothing Association is well established and has in many cases been successful in advocating and lobbying the Government for the interest of garment exporters. Some of the common obstacles identified along the value chain50: 1. Issues on production: Low productivity, lack of marketing training, no capabilities to develop own design; materials fail to meet specifications; no information on (raw) materials market; no direct dealings with material suppliers, especially in the initial price negotiation and sourcing; difficulties in getting good quality samples in the shortest lead-time; inability to provide on the spot quotations. 2. Issues on marketing: Difficulties in identifying products demanded by customers and matching with factories' capabilities; lack of international image of Laos as quality apparel producer. 3. Issues on trading: Delays in submitting documentation by materials suppliers resulting in lengthy delays in customs clearance, slow customs clearance for incoming logistics, cumbersome outgoing logistics and high transportation costs from factory to BKK seaport; insufficient storage for materials. 49The Textile and Garment Industry in Lao PDR, UNIDO, One-Sy Boutsivongsakd, et al, 2002. 50Ibid 118 Box 6: Background: Lao PDR's wood sector The wood processing industry is an important sector of the Lao economy, employing about 22,000 people.51 Approximately 2.5 million ha or 22% of the forestland is officially designated as production forest with an estimated potential of 77.8 million cubic meters. The forests are owned and managed by the Government. In order to prevent deforestation, a Prime Minister's decree sets a logging quota, the Annual Allowance Cut (AAC). It is estimated that due to a number of improper practices forests could decrease to less than 35% of today's volume by 2020. A further issue is that the allocation of the logs for industry is not administered in a uniform and transparent way. In collaboration with the Prime Minister's Office, MOFA allocates provincial logging quotas and issues annual logging licenses to individual companies through the Provincial Agriculture and Forestry authorities. The allocated volume varies considerably from province to province. So do related `royalty fees' with a suggested Floor Price Royalty average of 422 USD/cubic meter. In addition there is a `re- forestation fee' of 3% and a development fee of 10%. The Timber Sale Committee of the Province chaired by the Vice Governor is responsible for implementing this policy. The government is still the main "player" in the forestry and logging sector. No forest concession systems have been established to privatize forestry for self-regulation of the log prices according to international market value. The export trade of wood and wood products is strictly watched by the forestry sector line agencies. Timber and sawn wood are among the 9 categories of products that are restricted from being exported according to an MoC notification52. The export of such goods needs approval from the MoC as well as the line ministry. There is a strong will to increase plantation and in this way to secure the future wood supply. However, the total area of plantations is still small at about 90,000 ha. The target is to have 500,000 ha of plantations by the year 2020, which means that about 25,000 ha should be forested annually. One needs to distinguish between reforestation as a purely public matter, which should be handled by MAF, and plantations as private industrial investments. There are currently 182 primary industry factories (sawmills, miniature sawmills, and plywood), and 1,269 secondary industry factories (furniture). The production capacity of the existing sawmills is about two times higher than the average annual log supply would allow. Up to 90% of the sawn wood is directly exported without further value addition thus limiting the access of secondary industries to raw materials for processing. The export volume and value of wooden furniture and other value added secondary products is very low and has not been growing during the last years. Some common obstacles identified along the value chain 1. Issues on production and processing: A low level of production engineering that leads to unsafe working environments and explains low productivity and the limited number of companies incorporating further downstream processing like drying, with the eventual goal of producing higher value added products. Other concerns are the level of excess waste due to inaccurate cutting processes and that the sawdust resulting from the cutting process is dumped or burned instead of being utilized. There is a need for additional training concerning both managerial and technical aspects of the wood processing industry. 2. Issues on marketing and trading: Up to 90% of the products are directly exported, hence the industry cannot work as a supply industry for the secondary wood-processing sector; because of low value-addition, revenues achieved by the sector are also small. 3. Other related issues: The sawn wood is not graded according to international standards, which is further limiting international market access. 51Strategy for Development of the Wood Processing Industry-Policy Improvements and Technology Transfer, UNIDO, Juergen Hierold, October 2002. 52MoC's notification on prohibited goods for import and export, No. 284, March 2004 119 Box 7: Background: Lao PDR's Coffee Sector Coffee is grown in most parts of Lao PDR but the most productive is the area of the Boloven Plateau in the South that covers 4 provinces (Saravanh, Sokong, Champasak and Attapeu). According to statistics from the Department of Agriculture, the production area has expanded from 6,451 hectares in 1980 to 36,624 hectares in 2002 and yield per hectare has increased from 0.68 tons/hectare to 0.88 tons/hectare respectively. The number of producers in this area is approximately 22,000 and on average, each household holds 2 to 3 hectares of coffee fields. Coffee is listed as one of the top 5 export commodities. Yet, the share of coffee export value varies every year and declined to 3% in 2001/2002. Being a small coffee exporter, changes in the world coffee quantities and prices directly affect the coffee business in Lao PDR53. In recent years the coffee industry has not seemed as attractive and vigorous as before. The number of coffee exporters has been fluctuating dramatically from season to season, overall declining from almost 30 to currently 6 or 7 active exporters. Fluctuating world market prices are one crucial factor in this development; others relate to barriers coming from the customs mechanism in the province, according to the Lao Coffee Export Association. An additional issue is that more than 90% of coffee produced in Lao PDR is of the Robusta type which commands a relatively low price in the world market. The main markets are EU countries, such as Belgium, Germany, Poland, and Spain. Small amounts are also sold to Switzerland, Japan, China, Taiwan, Thailand and Singapore. Lao coffee is mostly exported as green beans with a small amount being roasted and sold locally. However, in recent years, efforts have been made to add value to raw and roasted coffee beans. In a joint effort, two key coffee exporters developed instant coffee using advanced technology from abroad. They are now investing in a new processing plant in Thailand and contracting with Thailand's key distributor Loxtle. This seems like a promising start to the future of higher value-added coffee exports. Large private export companies are increasingly entering into local farm trade and there is an emerging strong entrepreneurship among these large export-planters. This has lead to a "new transaction model" between farmers and export companies that allows them to benefit from pre-harvest credit and guaranteed prices. 53 Macro Economic Support Phase II Interim Workshop Report, "Coffee Production in the Lao PDR: A Review of Development and Recent Changes", Yoko Matsushima and Chongpraseuth Vilaylack, CPI/JICA, March 2004. 120 Box 8: Background: Lao PDR's textile handicraft sector Laos' textile handicraft products include fabrics, cloth, home furnishings, and souvenir items. 98.1% of woven textiles are crafted in small-sized firms and handicraft businesses, whereas medium and large enterprises account for only 1.5% and 0.4% respectively. According to a survey, there are 3,000 people producing silk and about 8,500 weavers across the country.54 Lao silk is popular for using natural dyes and its unique design. The current production of raw silk in Lao PDR is about 100 tons annually, while the actual demand is about 300 tons. Therefore, about 100-200 tons need to be imported from neighboring countries such as Vietnam, China and Thailand every year. The three Northern provinces Huaphanh, Xiengkhuang, Lauangnamtha and Bolikhamxay province in the center host the main mulberry plantations where silk yarns are produced. Silk yarns produced locally are mainly for household use, whereby the left-overs are sold directly to textiles producers, in particular, traders in Vientiane Capital. It is not yet a fully commercialized commodity. Some issues the sector faces along the value chain: 1. Production and processing: There is a lack of highly skilled weavers, seasonal labor is common and land is limited. In addition there is a lack of tools for feeding silkworms, mulberry plantation facilities are very basic and ways of planting mulberry trees are still very primitive. The majority of textile producers finance their projects with their own savings; they cannot access bank loans due to high interest rates and requirements for collateral. Natural dye has potential and is widely used; however, techniques and tools are still inadequate. Further, rearing silk worms is still very elementary. 2. Other issues: The local raw material production does not meet demand, and hence the majority needs to be imported from neighboring countries. 54 Silk, Final Report, Mr. Kham Ouan HOUNGDOUANGCHANH, Deputy Director General, Department of Handicraft, 2003. 121 Box 9: Background: Lao PDR's non-timber forest products sector The main agricultural export products which are seen as having potential for expansion include soybeans, jobs tears, sesame, and maize; they are also referred to as "industrial crops" and are grown and traded widely in the Northern provinces of Luang Prabang, Bokeo, Luang Namtha, Xayaboury, and Phonsaly. The Northern and Southern provinces are naturally rich in different NTFP species, such that only 5% of NTFPs have to be grown. NTFPs like Peuk Meuk, Broom Grass, Kisi, Yang Oil, Rattan and Bong Bark are extractable all year round. There is in general considerable use of the products but their commercial value is low. One of the difficulties for small-scale producers who seek to commercialize their NTFP is that markets are often relatively complex compared to those for timber and agricultural goods. Many NTFPs occupy "niche" markets which tend to be small and dispersed. There are few established standards, and consumer preferences vary considerably depending on the type of market and time of the year. There is further a lack of statistics on the most important NTFPs for export and income generated from these products. In order to prevent over-exploitation of forest products, the government sets annual quotas for NTFPs. Planting of rice, industrial cash crops and collection of NTFPs is a common supplementary practice of farmers in the provinces. NTFPs are important in the Lao economy and their potential as an entry point to poverty alleviation, sustainable management of natural resources and private sector development is increasingly recognized. The sector is closely linked to the livelihoods of local people which generate approximately 50% of the local income and 3% of the national.55 Some issues the sector faces along the value chain: For industrial crops: · Absence of contract farming management that keeps longer relationships between traders who invest in the production and farmers who own labor and land. · Absence of land use management for industrial crops and technology to increase high-yield production. · General lack of information on market price, trends, and demand for different crops and seasons. For NTFPs · Planting, harvesting and land use management is still lacking. There are no documented techniques, clear policies, or local regulations for sustainable production. · Depletion of resources due to excessive extraction and trade of certain NTFPs without proper re- plantation (such as rattan). · General lack of information on cross-border NTFP markets, prices, and trends. · The present trade policy and regulatory system create bottlenecks for NTFPs' sub-sector growth. The current "forestry law" almost exclusively relates to timber, and the few articles relating to NTFPs are fairly vague. There are also regulations concerning commerce and taxation for particular kinds of NTFPs, as well as a number of special decrees related to trade and collection of NTFPs; however, these are difficult to obtain and understand such that interpretation is not always consistent at all levels of the trade system.56 55"Networking on NTFPs in Lao PDR", Workshop report, SNV-Netherlands Development Organization, 9 July 2004. 56 "Workshop on Market Information Systems (MIS) for Agriculture and Forestry Products", Reader: Case study on constraints in NTFP marketing: Champasak province, 5-6 July 2005. 122 MEXICO Clemente Ruiz Duran, Universidad Nacional Autónoma de México with the support of Gustavo Peniche Otero and Marco Martinez Garcia Mexico's exports are greatly diversified, the most important product categories being road vehicles, petroleum and petroleum products, electrical equipment and telecoms equipment. Exports by region are heavily concentrated in North America (United States and Canada) at approximately 89 percent while exports to the other Pacific Rim countries, the European Union and the Latin America Integration Association (LAIA) countries are very low at 2, 4 and 2% respectively. Mexican agricultural exports seem to be suffering almost exclusively from stringent SPS measures and related conformity assessment procedures. It appears that conformity assessment procedures are particularly troublesome in the case of Japan (and to a lesser extent China), while in other countries the standards themselves seem to be causing problems for exporters (e.g. in the US, Chile and South Korea). There were further a few cases of import prohibition and quantitative restrictions as well as one case of anti-dumping (brought by the US against Mexican tomato exporters). Mexican manufacturing products incurring NTMs are mostly natural resource based, such as chemicals, leather and wood products and are subject to a variety of SPS measures. Industrial manufacturing products which make up the largest part of Mexican exports do not seem to incur as many NTMs. This can be explained by the fact that much of these exports are taking place intra-firm with the parent company in the US, such that technical barriers to trade play less of a role. The absence of complaints about customs procedures and other administrative barriers can be explained by the fact that Mexico almost exclusively trades with the US and Canada, while customs clearance and administration is generally an issue mostly in developing countries. Overall, the share of Mexican exports which are facing NTMs, seems to be small, at only 4.8% on average. 1. Overview of Trade Mexico has become one of the leading exporters in the world, ranked number 10 globally in 2005. At the time, Mexican exports were almost US$214 billion, up from US$23 billion in 1990. The large majority of exports go to the United States and Canada (89 percent of total) and only 2 percent to other Pacific Rim countries. Imports are more diversified: the US and Canada have a share of 60 percent, and the other Pacific Rim countries account for approximately 20 percent. The Mexico vs. Pacific Rim trade balance is positive (14 billion) due to the large surplus that Mexico holds with the US (US$54 billion in 2004). The impressive export performance of Mexico is largely attributable to the 1994 signing of the North American Free Trade Agreement (NAFTA). Similar agreements were later reached with Japan and Chile; exports to Japan are currently below 1990 levels, while exports to Chile have reached US$668 million, a significant increase. The largest export increase among Pacific Rim countries is vis-à-vis China, which went from zero in 1990 to almost US$1 billion in 2004. Nevertheless, many tariff and non-tariff barriers remain for Mexican exporters in the Pacific Rim region. The composition of Mexican exports has seen significant structural changes over the last decade. One of the main features of this change has been the dramatic decline in the importance of oil exports since the 1980s, while manufacturing goods emerged as the main export force. Today, Mexico's 123 exports are greatly diversified, the most important product categories being road vehicles (14.9%), petroleum and petroleum products (14.6%), electrical equipment (12.4%) and telecoms equipment (11.3%). Others with a share above 3% are office and data processing machines, power generating equipment, industrial equipment, apparel/clothing/accessories, and scientific instruments. Vegetables and beverages are the only two food products which make up more than 1% as a share of exports. Exports by region are heavily concentrated in North America (United States and Canada) at approximately 89 percent while exports to the other Pacific Rim countries account for only 2 percent. The European Union share stands at approximately 4 percent and that of the Latin America Integration Association (LAIA) countries at 2 percent. The only region vis-à-vis which Mexico has a surplus is North America (US$54 billion in 2004). This is absorbed by the deficit of the other Pacific Rim countries (US$37 billion), the European Union (US$14 billion) and Latin America (US$5 billion). The deficit grew most rapidly vis-à-vis the East Asian countries ­ from US$428 million in 1990 to US$37 billion in 2004. The two countries where most of the deficit is concentrated are Japan (US$9 billion) and China (US$13 billion). The deficit is also growing vis-à-vis South Korea (US$5 billion) and Malaysia and Singapore (US$5 billion). These developments can be explained by the weakness of Mexican exports to the region, which have been challenged by a set of very dynamic Asia Pacific countries which has been able to multiply its exports twenty-fold in the period 1990 to 2004. Mexican exporters have faced similar problems in accessing the markets of the European Union and Latin America (although an agreement was signed with the European Union in 2000). Figure 15: Mexico 2005 exports by product Figure 16: Mexico 2005 exports by destination Other Road vehicles Venezuela China Brazil Misc manufactures Japan Aruba RoW nes Petroleum and products Colombia Scientific Canada instruments Apparel/clothing/a Electrical EU ccessories equipment Industrial Telecomms etc equipment nes equipment Pow er generating Office/dat proc equipmt machines United States Source: UNCTAD COMTRADE 2. NTMs Faced by Mexican Exporters The aim of this study is to determine the main non-tariff barriers faced by Mexico, particularly vis-à- vis the Pacific Rim countries. The analysis will be based upon an inventory of non-tariff barriers collected by BANCOMEXT (Mexico Export-Import Bank). A detailed search on the database was performed for each country on the Pacific Rim. From this analysis, it emerged that the main non-tariff barriers were faced in the main trading partner US, followed by Japan and South Korea. Relative to the volume of trade, the countries imposing most restrictions were Russia, South Korea and the Philippines. Overall, the share of Mexican exports which are facing NTMs, seems to be small, however, at only 4.8% on average. 124 Table 6. Mexican Exports subject to NTM in the Pacific Rim Countries Share of Mexican Share of Share of Xs Million of dollars total Xs Exports exports subject to NTM to Number of non (%) subject to subject to tariff barriers NTM NTM (%) total exports (%) Total Mexican Exports 187,998.6 100.00 Pacific Rim Exports 171,856.6 91.41 8,234.2 100.000 4.8 111 1 US 164,798.7 87.66 8,047.1 97.728 4.9 18 2 Canada 3,291.5 1.75 4.2 0.051 0.1 5 3 Japan 1,190.5 0.63 96.1 1.168 8.1 23 4 China 986.3 0.52 17.8 0.217 1.8 10 5 Chile 442.9 0.24 26.8 0.325 6.0 10 6 Singapore 312.0 0.17 2.7 0.033 0.9 5 7 Australia 274.7 0.15 1.0 0.012 0.4 3 8 South Korea 219.0 0.12 21.4 0.260 9.8 8 9 Hong Kong 173.5 0.09 9.3 0.113 5.3 3 10 Malaysia 57.4 0.03 1.3 0.015 2.2 6 11 Thailand 51.2 0.03 0.9 0.011 1.8 3 12 Russia 25.8 0.01 4.0 0.048 15.4 7 13 Philippines 17.8 0.01 1.5 0.019 8.6 6 14 New Zealand 15.4 0.01 0.1 0.002 0.9 4 Source: INEGI: BIE Indicadores del Sector Externo Noviembre 2005; Bancomext Sistema de Información de Comercio Exterior; Table 5. The following presents a selection of particular NTMs faced in various countries. Mexican agricultural exports seem to be suffering almost exclusively from stringent sanitary and phytosanitary (SPS) measures and related conformity assessment procedures. It appears that conformity assessment procedures are particularly troublesome in the case of Japan (and to a lesser extent China), while in other countries the standards themselves seem to be causing problems for exporters (e.g. in the US, Chile and South Korea). There were further two cases of import prohibition and one case of anti- dumping. Mexican manufacturing products incurring NTMs are mostly natural resource based, such as chemicals, leather and wood products; they are also subject to a variety of SPS measures. Industrial manufacturing products which make up the largest part of Mexican exports do not seem to incur as many NTMs. This may be explained by the fact that much of these exports are taking place intra-firm with the parent company in the US, such that technical barriers to trade play less of a role. In particular, the following barriers were recorded in the BANCOMEXT database: Product Imposing Type of barrier NAMA Code Consequence Countries Agriculture General Live plants Canada Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements measures Live plants China Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Live plants Russian Licenses and permits re. SPS Part IV B ­ SPS Export restrictions Federation requirements measures Live plants United Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and States requirements measures causes delays Plant products China Licenses and permits re. SPS Part IV C ­ SPS Increases export costs and 125 Product Imposing Type of barrier NAMA Code Consequence Countries requirements; inspection testing, causes delays requirements. certification, other conformity assessment Edible products United Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and of animal origin. States requirements measures causes delays Fruit Fruit trees Hong Kong Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements measures Fruit trees Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Bananas Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Vegetables Avocados Chile Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements measures Avocados Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Avocados Russian Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and Federation requirements measures causes delays Corn Chile Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements measures Corn Canada Licenses and permits re. SPS Part IV B ­ SPS Increases export costs requirements measures Onions China, Licenses and permits re. SPS Part IV C ­ SPS Export restrictions South requirements; inspection testing, Korea, requirements. certification, Japan other conformity assessment Garlic China, Licenses and permits re. SPS Part IV C ­ SPS Export restrictions Japan requirements; inspection testing, requirements. certification, other conformity assessment Rice flour China Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Bamboo Russian Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and Federation requirements measures causes delays Chickpeas Malaysia Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements measures Peas Singapore Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and 126 Product Imposing Type of barrier NAMA Code Consequence Countries requirements measures causes delays Tomatoes United Licenses and permits re. SPS Part IV C ­ SPS Increases export costs and States requirements; inspection testing, causes delays requirements. Anti ­ dumping certification, measures other conformity assessment and Part II A ­ Anti- dumping duties Beans United Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and States requirements measures causes delays Spices, herbs and other plants Green tea South Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and Korea requirements measures causes delays Tea aromatized Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Vanilla United Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and States requirements measures causes delays Gladiola flower Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Moss Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Mushrooms Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Dairy products Milk and cream, Canada Licenses and permits re. SPS Part IV B ­ SPS Export restrictions concentrated or requirements measures with addition of sugar. Powdered milk or in pills Milk and cream, South Licenses and permits re. SPS Part IV B ­ SPS Export restrictions concentrated or Korea requirements measures with addition of sugar Butter and other Canada Licenses and permits re. SPS Part IV B ­ SPS Export restrictions products of milk requirements measures Milk powdery or New Licenses and permits re. SPS Part IV B ­ SPS Export restrictions in pills Zealand requirements. measures Coffee Coffee, roasted Chile Licenses and permits re. SPS Part IV B ­ SPS Export restrictions or decaffeinated; requirements measures coffee shell and husk; substitutes 127 Product Imposing Type of barrier NAMA Code Consequence Countries of coffee that contain coffee in any proportion Coffee, roasted Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions or decaffeinated requirements; inspection testing, even; coffee requirements. certification, shell and husk; other conformity substitutes of coffee that assessment contain coffee in any proportion Preparations to Malaysia Licenses and permits re. SPS Part IV B ­ SPS Export restrictions excerpts, requirements. measures essences or concentrates base or to coffee base Meats Bovine meat, Chile Licenses and permits re. SPS Part IV B ­ SPS Increases export costs fresh or requirements measures refrigerated Pork, fresh or China Licenses and permits re. SPS Part IV C ­ SPS Export restrictions refrigerated requirements; inspection testing, requirements. certification, other conformity assessment Meat of animals South Licenses and permits re. SPS Part IV B ­ SPS Export restrictions of the bovine Korea requirements measures species, fresh or refrigerated Pork, fresh or South Licenses and permits re. SPS Part IV B ­ SPS Export restrictions refrigerated Korea requirements measures Guts, bladders South Licenses and permits re. SPS Part IV B ­ SPS Export restrictions and stomachs of Korea requirements measures animal, except those of fish Guts, bladders Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions and stomachs of requirements; inspection testing, animals, except requirements. certification, those of fish other conformity assessment Meat of animals Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions of the bovine requirements; inspection testing, species, fresh or requirements. certification, refrigerated other conformity assessment Bacon Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Meat and United Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and scrapes States requirements measures causes delays Bird and chicken products Products of Australia SPS Requirements Part IV B ­ SPS Increases export costs birds and farm measures 128 Product Imposing Type of barrier NAMA Code Consequence Countries chickens Bird eggs, free- Chile Licenses and permits re. SPS Part IV B ­ SPS Export restrictions range, kept or requirements measures y C boiled Meat of birds, Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions fresh or requirements; inspection testing, refrigerated requirements. certification, other conformity assessment Live animals Live animals Japan Licenses and permits re. SPS Part IV C ­ SPS Increases export costs and requirements; inspection testing, causes delays requirements. certification, other conformity assessment Live animals of China Licenses and permits re. SPS Part IV C ­ SPS Export restrictions the bovine requirements; inspection testing, species (pure requirements. certification, breed) other conformity assessment Live animals Russian Licenses and permits re. SPS Part IV B ­ SPS Export restrictions Federation requirements. measures Live animals United Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and States requirements measures causes delays Ornamental live Australia Import licenses and permits as Part II H ­ Import Export restrictions fish defined in the Convention on licensing International Trade in Endangered Species (CITES). Ornamental live South Licenses and permits re. SPS Part IV B ­ SPS Export restrictions fish Korea requirements measures Ornamental live Japan Licenses and permits re. SPS Part IV C ­ SPS Increases export costs fish requirements; inspection testing, requirements. certification, other conformity assessment Live fish China Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Live fish Hong Kong Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements; endangered measures species protection. Live Pigs Philippines Licenses and Permits, Protected Part II H ­ Import Export restrictions Areas and Wildlife Bureau. licensing Fisheries Crustaceans, China SPS requirements Part IV B ­ SPS Increases export costs shrimps, prawns measures Mollusks Hong Kong Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements; endangered measures species protection. Fish, fresh or Japan Licenses and permits re. SPS Part IV C ­ SPS Increases export costs refrigerated requirements; inspection testing, requirements. certification, 129 Product Imposing Type of barrier NAMA Code Consequence Countries other conformity assessment Shrimp and Japan Licenses and permits re. SPS Part IV C ­ SPS Increases export costs prawns requirements; inspection testing, requirements. certification, other conformity assessment Oysters Japan Licenses and permits re. SPS Part IV C ­ SPS Increases export costs requirements; inspection testing, requirements. certification, other conformity assessment Fish, United Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and crustaceans and States requirements. measures causes delays mollusks Tuna United Licenses and permits re. SPS Part IV B ­ SPS Export restrictions States requirements. measures Fish rubbish Singapore Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and requirements. measures causes delays Sardines Singapore Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and requirements. measures causes delays Food supplements Nucleic acids South Licenses and Permits. Part II H ­ Import Increases export costs and and its salts Korea licensing causes delays Glycerol in Philippines Prohibition. Part V A ­ Export prohibitions dense form Quantitative restrictions Vegetal waxes Philippines Prohibition. Part V A ­ Export prohibitions Quantitative restrictions Glucose Philippines Prohibition. Part V A ­ Export prohibitions Quantitative restrictions Corn starch Malaysia Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements. measures Salt United Licenses and permits re. SPS Part IV B ­ SPS Export restrictions States requirements. measures Vitamin C United Licenses and permits re. SPS Part IV B ­ SPS Export restrictions States requirements. measures Sugar, included Thailand Licenses and permits re. SPS Part IV B ­ SPS Export restrictions the lactose and requirements. measures the glucose Cane sugar United Licenses and permits re. SPS Part IV B ­ SPS Export restrictions States requirements. measures Cereals Oats Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Products of Chile Licenses and permits re. SPS Part IV B ­ SPS Export restrictions cereal obtained requirements. measures by inflated or ocher base. Wheat United Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and 130 Product Imposing Type of barrier NAMA Code Consequence Countries States requirements. measures causes delays Sesame seed New Licenses and permits re. SPS Part IV B ­ SPS Export restrictions Zealand requirements. measures Other Chocolate and Chile Licenses and permits re. SPS Part IV B ­ SPS Export restrictions other requirements. measures preparations that contain cacao Chocolate and Singapore Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and other requirements. measures causes delays preparations that contain cacao Tomato sauce Chile Licenses and permits re. SPS Part IV B ­ SPS Export restrictions (ketchup) requirements. measures Malt beer Chile Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements. measures Natural honey Philippines Prohibition. Part V A ­ Export prohibitions Quantitative restrictions Natural honey Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Patisserie Philippines Prohibition. Bureau of Part V A ­ Export prohibitions products without Customs, Department of Quantitative cacao Finance. restrictions Yogurt Japan Licenses and permits re. SPS Part IV C ­ SPS Export restrictions requirements; inspection testing, requirements. certification, other conformity assessment Mineral water United Licenses and permits re. SPS Part IV B ­ SPS Export restrictions States requirements. measures Tobacco United Licenses and permits re. SPS Part IV B ­ SPS Export restrictions States requirements. measures Product Imposing Type of barrier NAMA Code Consequence Countries Manufacturing Leather Leather Canada Licenses and permits re. SPS Part IV B ­ SPS Export restrictions manufactures requirements. measures (handbags, briefcases, wallets) Leather Australia Import licenses and permits as Part II H ­ Import Export restrictions manufactures defined in the Convention on licensing (handbags, International Trade in briefcases, Endangered Species (CITES). wallets) Leathers and China Licenses and permits re. SPS Part IV C ­ SPS Increases export costs and skins, rough, of requirements; inspection testing, causes delays bovine requirements; endangered certification, 131 Product Imposing Type of barrier NAMA Code Consequence Countries species protection. other conformity assessment Leather Thailand Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and manufactures; requirements. measures causes delays (handbags, briefcases, wallets) Leathers and Singapore Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and skins requirements. measures causes delays Leather United Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and manufactures; States requirements. measures causes delays (handbags, briefcases, wallets) Chemicals Pharmaceuticals Chile Licenses and permits re. SPS Part IV B ­ SPS Export restrictions in multiple requirements. measures nuclei and delayed breakup tablets Pharmaceuticals United Licenses and permits re. SPS Part IV B ­ SPS Export restrictions States requirements. measures Hydrogen Malaysia Licenses and permits re. SPS Part IV B ­ SPS Export restrictions chloride requirements. measures Ethylic alcohol Thailand Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements. measures Ethylic alcohol Russian Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and Federation requirements. measures causes delays Wood and paper products Wood products New Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and Zealand requirements. measures causes delays Wood products United Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and States requirements. measures causes delays Products of New Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and wood for Zealand requirements. measures causes delays construction Paper Russian Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and Federation requirements. measures causes delays Hygienic paper Japan Licenses and permits re. SPS Part IV B ­ SPS Export restrictions requirements. measures Other Pipe tubes and Malaysia Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and accessories requirements. measures causes delays Petroleum Russian Licenses and permits re. SPS Part IV B ­ SPS Increases export costs and Federation requirements. measures causes delays 132 PERU Fernando Gonzalez-Vigil, Universidad del Pacifico 57 At the two-digit level, Peru's most important export products in 2005 were metal ores, gold, non- ferrous metals, followed at a distance by petroleum and petroleum products, animal feed, apparel and clothing and vegetables and fruit. In terms of export destinations, the US took the largest share in 2005, while the next largest importers were the EU, China and Chile. With the exception of Japan, all other important export partners of Peru are located in America, both North (Canada) and South (Brazil, Colombia, Mexico, Venezuela). The study was confined to Peru's four largest export markets (the US, the EU, China and Chile) and the number of export products was restricted to those which show signs that they may be hindered by NTMs (exported by Peru and by other countries to the four chosen markets), eventually yielding 73 product items at the 3-digit level. From a very basic analysis, the following main conclusions emerge (these are confirmed and extended by the more sophisticated methodological tools): First, even though the number of NTMs is highest at both extremes of the technology-intensiveness classification (primary goods and medium- /high-tech manufactures), when taken together, more than half of NTMs (54.8%) seem to be imposed on the two product groups reflecting low levels of industrialization (primary plus natural resource based manufactures). Second, most of those 800 NTM cases were identified as TBTs, followed by SPS, Specific Limitations and Customs and Administrative Entry Procedures. Third, the bulk of NTMs affecting the natural resource-side of the product spectrum (primary and natural resource- based) falls under the TBT, SPS and specific limitations categories; while the TBT, customs procedures and specific limitations categories form the bulk of NTMs affecting products in the other side of the spectrum (low-tech and medium-high tech groups). Despite a limited scope of the field research sample, results from the interviews confirm the patterns previously identified in the desk research phase, at least concerning the two NTMs most frequently mentioned: SPS and Customs and Administrative Entry Procedures (CAP). The concentration of SPS measures affecting fruits and vegetables confirmed the previous findings that SPS measures are intensively applied to primary goods, while the concentration of customs procedures affecting cotton textile and apparel products confirmed the finding that complicated customs procedures are intensively applied to low-tech manufactures. Exporters of garments, textiles and fabrics also complained about rules of origin though to a lesser extent (mainly in the US and the EU but also in Venezuela, Argentina, Ecuador and Chile). When asked to judge the restrictiveness of different measures, obstacles arising from customs formalities on average received a "medium" rating (mostly vis-à-vis the US and the EU), while SPS measures were generally rated as being of either high or medium restrictiveness (mostly vis-à-vis the US and the EU, but also Venezuela and Ecuador). 57Professor of the Economics Department and Coordinator of the Research Area on International Economics and Business of the Universidad del Pacifico (Lima, Peru), with valuable support provided by a team of research assistants composed of Leslie Salmon, Diego Urbina, Vanessa Uchiyama and Pedro Carazas. 133 1. Overview of Trade Peru's generally open trade regime has remained relatively stable in recent years. The country has a comparatively low trade to GDP ratio of 39.7%. Its global ranking in terms of merchandise exports has been fluctuating in recent years, from 53 in 1995 to 62 in 2000, back up to 52 in 2005. Total merchandise exports stood at US$17.2 billion in 2005, with an average annual growth of 12% between 1995 and 2005 and a growth rate of 39% in 2004 and 36% in 2005. According to main commodity groups, agricultural goods made up 18.4% of exports, while fuels and mining products accounted for 48.5% and manufactures for 14.2%. At the two-digit level, the most important export products in 2005 were metal ores (22.5%), gold (17.9%), non-ferrous metals (17.4%) and petroleum and petroleum products (8.8%), followed by animal feed (7.0%), apparel and clothing (6.2%) and vegetables and fruit (3.7%). In terms of export destinations, the US took the largest in share in 2005 with 26.3%, while the EU accounted for 19.9%, China for 13.3% and Chile for 8%. With the exception of Japan (4.3%), all other important export partners of Peru are located in America, both North (Canada) and South (Brazil, Colombia, Mexico, Venezuela). Figure 17: Peru 2005 exports by product Figure 18: Peru 2005 exports by destination Coffee/tea/cocoa/ Venezuela spices Other Metal ores/metal Mexico RoW Vegetables and scrap United States fruit Colombia Apparel/clothing/a ccessories Canada Brazil Animal feed Gold non-monetary excl. ore Japan Petroleumand Non-ferrous EU products metals Chile China Source: UNCTAD COMTRADE 2. Methodology of the Study Lack of complete data made it inevitable to confine the sample to four of the main destination markets for Peruvian exports, which nevertheless jointly accounted for about 68% of the country's total exports in 2004. The four main export markets selected are, in order of importance, the United States, the European Union, the People's Republic of China and Chile.58 Table 17 shows the product composition of Peru's total exports and of its exports to each of the four sampled markets, in terms of Lall's "Technology-Intensiveness" classification.59 The salient feature is 58Even though the Andean Community (CAN) as a group is more important as an export market than Chile, it was not possible to include it in the desk research sample due to lack of consistent data on NTMs faced by exporters of the five CAN member countries taken together. 59The Medium and High Technology Manufactures (MHTM) can be handled as one group without missing any information relevant to this study, due to Peru's incipient level of industrialization as reflected in the product composition of its export supply. In grouping the data, the first step was to convert the trade data primarily available in terms of the HS 2002 into the terms of the SITC, Rev 2 according to the correlation (not included here for brevity, but shown in Annex 1 of the authors' November 2005's consultancy report) based on United Nations, Correlation Tables between the Harmonized Commodity Description and Coding System and the Standard International Trade Classification, Revision 3, Department of Economic and Social Affairs, 134 that the shares of manufactured products are comparatively more important in Peru's exports to the two developed economy markets (US and EU, for NRBM in both cases but also of LTM for the US), than to the two developing economies in the sample (China and Chile) where the weights of commodities are predominant.60 Table 17: Peru's Exports by Technology-Intensiveness Product Groups (2004) Primary Goods NRBM LTM MHTM Other USA 13% 31% 23% 2% 31% EU 28% 29% 4% 0% 39% China 56% 10% 0% 0% 34% Chile 62% 17% 10% 3% 8% Total 28% 30% 11% 3% 29% Source: Export data processed as referred in footnotes 39 and 41; and PROMPEX (2004), Trade Statistics, Comisión para la Promoción de Exportaciones, Lima (www.prompex.gob.pe). Notes: NRBM = natural resource based manufactures; LTM = low-tech manufactures; MHTM = medium- and high-tech manufactures The number of Peruvian export products considered here was restricted using the following procedure at the tariff heading level (four digits of the HS 2002): among the tariff headings registering Peruvian exports to at least one of the sampled destination markets in the 1999-2003 period, those meeting the following three criteria were chosen: (i) a positive rate of growth in exports to one of the chosen destination markets, yet (ii) lower than the average growth rate in total Peruvian exports to the given destination market or country, and (iii) a positive growth rate in imports by that country from the rest of the world. These criteria combined allow assuming that exports of the chosen products may be hindered by some limiting factors, linked to NTMs and/or to other supply or demand conditions specific to the exported product. Second, the sample is complemented with tariff headings registering Peruvian exports to markets other than the four in the sample, for which there is evidence (from other documentation) of NTMs affecting other countries' exports of those products to at least one of the four chosen markets. Such complementary information provides a more complete picture of the NTMs of interest to Peruvian exporters that are being implemented in the sampled destination markets, and paves the way for identifying factors that may be discouraging Peruvian exporters from targeting the sampled markets. Applying the aforementioned criteria results in a sample of 130 HS tariff headings, which when converted into SITC Rev.2 yield 73 product items (at 3-digit level). Table 18 shows their distribution by product groups and destination markets where NTMs are implemented against those products. Some interesting features of Table 18 are worth stating explicitly: first, the number of affected export products is more or less even across the four product groups. Some interesting features emerging from Table 2 are worth stating explicitly: First, when looking at the vertical Statistical Division, ST/ESA/STAT/114, New York, December 2001. The second step was to organize the SITC, Rev 2 data in broad product groupings according to Lall's "Technology-Intensiveness" classification [Sanjaya Lall, "The technological structure and performance of developing country manufactured exports, 1985-98", Oxford Development Studies 28(3), 2000, pp. 337-369], as adapted by ECLAC (Economic and Social Commission for Latin America and the Caribbean) in the Statistical Appendix of its Latin American and the Caribbean in the World Economy 2002-2003, United Nations, LC/G.2221-P, Santiago (Chile), November 2004. This classification is detailed in Annex 2 of the authors' November 2005 consultancy report. 60Since gold and special transactions explain the significant weight of the "Other" grouping in exports to all the sampled markets but Chile, this grouping will not be taken into consideration hereafter in order to simplify the analysis. 135 (column) totals, while the higher number of export product items possibly affected by NTMs belongs to the group of products representing advanced stages of industrialization (MHTM), it is however fair to say, at least for the case of this sample of Peruvian exports, that the number of export product items is more or less evenly distributed among the four product groups. Table 18: Sample of Peru's Exports affected by NTMs, by Product Groups (SITC Rev. 2 at 3 digits) PG NRBM LTM MHTM Total1 USA 6 12 4 7 29 EU 10 8 11 2 31 China 2 0 1 1 4 Chile 5 5 1 10 21 Non identified 2 0 2 3 7 Total 17 18 16 22 73 1 Totals do not add up because the same product may be affected by NTMs in more than one destination market. Sources: see footnote 42 Second, the two industrialized markets (USA and EU) account for the bulk of Peru's exports possibly affected by NTMs. Third, the main difference between the US and EU markets is the distribution of affected products within the "non resource-based" groups (LTM and MHTM): while most of them belong to the MHTM group in the US market, they are part of the LTM group in the EU market. The latter may be one explanation for the low proportion of Peruvian LTM exports to the EU compared with those to the US market (as shown in Table 17). Fourth, the finding that almost half of the export products possibly affected by Chile's NTMs falls in the MHTM group, in spite of Chile's comparative advantage in the "resource-based" groups (PG and NRBM), seems to call for further research beyond this report. Finally, the surprisingly low numbers in the case of China seem to reflect insufficient information in general and Peruvian exporters' poor knowledge of that market in particular. 3. NTMs Faced by Peruvian Exporters Using the WTO taxonomy of NTMs, a total of 800 measures seems to be associated with the sample as defined above.61_62. An overview of the general traits of the NTMs identified during the desk research phase is presented in Table 19. Some of the interesting general traits observed, which must be interpreted bearing in mind the product composition of Peruvian exports, are the following: First, even though the number of NTMs is highest at both extremes of the technology-intensiveness classification (PG and MHTM), when taken together, more than half of NTMs (54.8%) seem to be imposed on the two product groups reflecting low levels of industrialization (PG plus NRBM). 61Contained in the NTMs Inventory issued by the WTO Negotiating Group on Market Access (NAMA) in November 2003 (TN/MA/S/5/Rev.1) 62 Such basic information sources, provided by the project's coordinator, are: the work on NTMs in the NAMA, as summarized in Job (04)/62/Rev.1 (2 December 2004); the work of the Committee on Sanitary and Phytosanitary Measures, as summarized in G/SPS/GEN/204/Rev.4 (2 March 2004); and the notifications (by WTO members to the WTO Secretariat) of measures related to the Agreement on Technical Barriers to Trade (G/TBT/W/250, 16 February 2005). These information sources were complemented by the "Quinto Catastro Nacional sobre Barreras Externas al Comercio" (Santiago, Chile, 2005), because that country has an export basket similar to Peru's in many respects, as well as by two recent Peruvian studies: "Inventario de restricciones al comercio exterior peruano y la planificación de metodologías para su desmantelamiento" (CENTRUM-Investigación-Catholic University of Peru's Consultancy Report to the Ministry of Foreign Trade and Tourism, Lima, 2004); and "Informe para la identificación de OTC para la exportación de productos a Estados Unidos" (Consultandes' Consultancy Report for CENI, Lima, 2005) 136 Second, most (38.3%) of those 800 NTM cases were identified as TBTs (Technical Barriers to Trade), followed by SPS (Sanitary and Phytosanitary Measures, with 20.1%), Specific Limitations (19.2%) and Customs and Administrative Entry Procedures (15.1%). Much lower shares were reported for Government Participation in Trade, and Charges on Imports, which are both under 5%. Third, the bulk of NTMs affecting the natural resource-side of the product spectrum (PG and NRBMs) falls under the TBT, SPS and specific limitations categories, while the TBT, customs procedures and specific limitations categories form the bulk of NTMs affecting products on the other side of the spectrum (LTM and MHTM groups). Table 19: Number of NTMs by Types and Product Groups Description PG NRBM LTM MHTM Total Part I Government Participation in Trade and Restrictive Practices Tolerated by Governments A Government aids, including subsidies and tax benefits 0 1 10 2 13 B Countervailing duties 0 0 0 0 0 D Restrictive practices tolerated by governments 2 0 2 18 22 Other 0 0 0 0 0 Total 2 1 12 20 35 Part II Customs and Administrative Entry Procedures B Customs valuation 0 5 4 16 25 F Rules of origin 0 0 6 16 22 G Customs formalities 0 1 6 23 30 Other 11 11 9 19 50 Total 11 17 25 74 127 Part III Technical Barriers to Trade A General 26 21 8 14 69 B Technical regulations and standards 33 17 39 32 121 C Testing and certification arrangements 40 17 21 42 120 Total 99 55 68 88 310 Part IV Sanitary and Phytosanitary Measures A General 34 22 3 1 60 B SPS measures including chemical residue limits, 35 16 2 0 53 disease freedom, specified product treatment, etc. C Testing, certification and other conformity assessment 26 11 0 3 40 Total 95 49 5 4 153 Part V Specific Limitations A Quantitative restrictions 3 1 3 0 7 H Measures to regulate domestic prices 13 1 0 3 17 K Requirements concerning marking, labelling and 36 48 13 16 113 packaging Other 0 0 10 7 17 Total 52 50 26 26 154 Part VI Charges on Imports B Surcharges, port taxes, statistical taxes, etc. 0 0 1 2 3 C Discriminatory film taxes, use taxes, etc. 0 0 6 1 7 Total 0 0 7 3 10 Part VII Other A Intellectual property issues 0 0 1 0 1 C Distribution constraints 0 1 0 0 1 D Business practices or restrictions in the market 0 0 0 2 2 E Other 1 5 0 1 7 Total 1 6 1 3 11 General Total 260 178 144 218 800 Sources: see footnote 42 137 a. Frequency and Intensity of NTMs With the aim of improving the identification of the patterns of how NTMs are applied, the sample was analyzed using different methodologies: (i) a simple NTM Frequency Index derived directly from popular frequency ratios, (ii) an NTM Intensity Index and (iii) an NTM Specialization Index. The latter two were designed by adapting the intensity and specialization indicators widely used in trade flow analysis to the case of NTMs. The results presented in this section give an impression of the complexity of the web of NTMs imposed. NTMs Frequency Index The frequency analysis shows the number of times NTMs of different types were applied in the sampled destination markets to each of the sampled export products. It gives a first insight into the level of the complexity of the web of NTMs each of Peru's exports has to comply with in order to be accepted in those markets. The level of complexity or density is rated here as low, medium or high, using an NTM Frequency Index (FI). The index was constructed as follows: the 73 sampled export product items were ordered by number of NTMs faced by each (as identified from the sources in footnote 42). Two thresholds were chosen at the 0.33 and 0.66 percentiles, marking the low/medium and medium/high boundaries. Table 20: NTMs Frequency Index by Product Groups (items at SITC Rev 2, 3-digit level) FI PG NRBM LTM MHTM Total High 6 5 4 7 22 Medium 6 8 8 8 30 Low 5 5 4 7 21 Total 17 18 16 22 73 Sources: see footnote 42 The salient features from the NTM FI figures shown in Table 20 can be summarized as follows: 52 out of 73 (or 71.1%) of the sampled items fall into the medium or high categories, meaning, they face a complex web of NTMs in the sampled markets. Second, low NTM frequencies are the less numerous i.e. the number of export product items facing a low FI comprise the smaller number in all the four product groups, with the partial exception of the LTM group. Third, the proportion of export product items in the natural resources-end of the product spectrum (PG plus NRBM) facing a medium or high FI is slightly higher (71.4%, or 25 out of 35) than the proportion of LTM plus MHTM product items facing the same FI levels (71.05%, or 27 out of 38). Products with the highest NTM frequencies are shown in Table 18. These findings are revealing because the matter examined this time is the level of complexity or density of the NTM web as estimated by means of the FI, and not just the distribution of NTMs by product groups (as examined above), which can be largely attributed to the strong weight of natural resource-products in Peru's exports (already shown in Table 17). Yet a complex or dense web of NTMs is not necessarily made up of severe NTMs nor does it restrict trade unnecessarily. Thus, the frequency analysis has to be complemented with other methodological tools aimed at identifying the NTMs most relevant to particular export products, so as to facilitate the assessment of their severity during the interview phase of this research. This consideration leads us to propose and apply two additional methodological tools: the NTMs Intensity and Specialization Indexes, which are presented below. 138 Table 21: Products with Highest NTMs Frequency, by Product Groups SITC Name Frequency 057 Fruit and nuts (not including oil nuts), fresh or dried 95 Vegetables, fresh, chilled, frozen or simply preserved (including PG 054 dried leguminous vegetables); roots, tubers and other edible 49 vegetable products, n.e.s., fresh or dried 001 Live animals other than animals of division 03 23 012 Other meat and edible meat offal, fresh, chilled or frozen (except meat and meat offal unfit or unsuitable for human consumption) 33 NRBM 098 Edible products and preparations, n.e.s. 26 056 Vegetables, roots and tubers, prepared or preserved, n.e.s. 25 651 Textile yarn 43 Women or girls coats, capes, jackets, suits, trousers, shorts, shirts, 842 dresses and skirts, underwear, nightwear and similar articles of textile fabrics, not knitted or crocheted (other than those of 23 LTM subgroup 842.2) 845 Articles of apparel, of textile fabrics, whether or not knitted or crocheted, n.e.s. 21 652 Cotton fabrics, woven (not including narrow or special fabrics) 20 Pumps (other than pumps for liquids), air or other gas 743 compressors and fans; ventilating or recycling hoods incorporating a fan, whether or not fitted with filters; centrifuges; 22 filtering or purifying apparatus; parts thereof MHTM 266 Synthetic fibres suitable for spinning 18 784 Parts and accessories of the motor vehicles of groups 722, 781, 782 and 783 17 512 Alcohols, phenols, phenol-alcohols, and their halogenated, sulphonated, nitrated or nitrosated derivatives 17 Sources: see footnote 42 b. NTM Intensity Index Annex 1 explains in detail the methodology for calculating the NTM Intensity Index (NTI) at the category and type level of the WTO taxonomy. The NTI is a double-relative index measuring the ratio between (i) the contribution of a given category or type of NTM in the total of NTMs affecting a given group of products, and (ii) the contribution of the same category or type of NTM in the overall total of NTMs identified for the whole sample of products. If the NTI is higher than one, the application of the respective category or type of NTMs is biased towards i.e. more intensively applied to the group of products under consideration; in other words, the group of products in question is intensive in this particular category or type of NTMs. Table 22 shows the NTI results at the category level of the WTO taxonomy of NTMs. Four categories of NTMs government participation in trade or restrictive practices tolerated by governments (GPT), customs and administrative entry procedures (CAP), technical barriers to trade (TBT), and charges on imports (CHM) are clearly more intensively applied to (or biased towards) 139 export products of the LTM and MHTM groups. On the other hand, sanitary and phytosanitary measures (SPS) and specific limitations (SLM) are categories of NTMs intensively applied to products on the natural resource-side of the product spectrum; with PG more intensive in SPS than in Specific Limitations, and NRBM more intensive in Specific Limitations than in SPS. At the same time, NRBM are also intensive --and indeed much more so-- in the category of Other NTMs. Table 22: Intensity Index at NTM Category Level by Product Groups NTM Category PG NRBM LTM MHTM GPT 0.18 0.13 1.90 2.10 CAP 0.27 0.60 1.09 2.14 TBT 0.98 0.80 1.22 1.04 SPS 1.91 1.44 0.18 0.10 SLM 1.04 1.46 0.94 0.62 CHM 0.00 0.00 3.89 1.10 Other 0.28 2.45 0.51 1.00 Total 1.00 1.00 1.00 1.00 Sources: see footnote 42 Notes: GPT = government participation in trade; CAP = customs and administrative entry procedures; TBT = technical barriers to trade; SPS = sanitary and phytosanitary measures; SLM = specific limitations; CHM = charges on imports; More precise information is obtained from the NTI calculated at the type level of the said WTO taxonomy. The resulting NTI figures in Table 23 show that, while the overall traits observed in Table 22 hold generally, this time there is a better specification of the product biases in the application of some NTMs. This is the case, for instance, of government interventions in trade (through government aid, subsidies or tax benefits), which now show a clear bias towards LTM, whereas the bias of restrictive practices tolerated by governments moves towards MHTM. At the same time, this more detailed analysis by types of NTMs brings out new findings not revealed by the previous NTIs at the category level. The latter, for instance, did not show PG and NRBM being intensive in TBT. Yet TBTs of both the general form and in the form of testing & certification arrangement do appear as being intensively applied to PG, while the application of TBT of the general type is also biased towards NRBM. Specific limitations are another interesting case. In Table 22 these NTMs did not show a bias towards LTM and MHTM. However, it is clear now that LTM are intensive in quantitative restrictions and other Specific Limitations. This latter type of Specific Limitations is also intensively applied to MHTM. 140 Table 23: Intensity Index at NTM Type Level by Product Groups NTMs-Section Level PG NRBM LTM MHTM Government Participation in Trade and Restrictive Practices Tolerated by Governments Government aids, including subsidies and tax benefits 0.00 0.35 4.27 0.56 Restrictive practices tolerated by governments 0.28 0.00 0.51 3.00 Total 0.18 0.13 1.90 2.10 Customs and Administrative Entry Procedures Customs valuation 0.00 0.90 0.89 2.35 Rules of origin 0.00 0.00 1.52 2.67 Customs formalities 0.00 0.15 1.11 2.81 Others 0.68 0.99 1.00 1.39 Total 0.27 0.60 1.09 2.14 Technical Barriers to Trade General 1.16 1.37 0.64 0.74 Technical regulations and standards 0.84 0.63 1.79 0.97 Testing and certification arrangements 1.03 0.64 0.97 1.28 Total 0.98 0.80 1.22 1.04 Sanitary and Phytosanitary Measures General 1.74 1.65 0.28 0.06 SPS measures including chemical residue limits, disease freedom, specified product treatment, etc. 2.03 1.36 0.21 0.00 Testing, certification and other conformity assessment 2.00 1.24 0.00 0.28 Total 1.91 1.44 0.18 0.10 Specific Limitations Quantitative restrictions 1.32 0.64 2.38 0.00 Measures to regulate domestic prices 2.35 0.26 0.00 0.65 Requirements concerning marking, labelling and packaging 0.98 1.91 0.64 0.52 Others 0.00 0.00 3.27 1.51 Total 1.04 1.46 0.94 0.62 Charges on Imports Surcharges, port taxes, statistical taxes, etc. 0.00 0.00 1.85 2.45 Discriminatory film taxes, use taxes, etc. 0.00 0.00 4.76 0.52 Total 0.00 0.00 3.89 1.10 Other Intellectual property issues 0.00 0.00 5.56 0.00 Distribution constraints 0.00 4.49 0.00 0.00 Business practices or restrictions in the market 0.00 0.00 0.00 3.67 Other 0.44 3.21 0.00 0.52 Total 0.28 2.45 0.51 1.00 Sources: see footnote 42 c. NTM Specialization Index Further revealing information is obtained with the help of the NTMs Specialization Index (NTS), the basic formulation of which is similar to the one for the NTI, yet it is calculated in a different way (see Annex 1 for formula and explanation). The NTS is also a double-relative index, measuring the ratio between (i) the weight of a given type of NTM in the total of NTMs of its category affecting a given group of products, and (ii) the weight of total applications of the same type of NTM in the total 141 applications of its NTMs category identified for the whole sample of products. If the NTS is higher than one, the application of the respective type of NTMs is specialized in the group of products under review in the sense that, among the NTMs of its category, the type of NTM in question is specially applied to this particular group of products. The NTS results, shown in Table 24, show the specific patterns of specialization in the use of NTM types for given products. Table 24: NTMs Specialization Index by Product Groups NTMs-Section Level PG NRBM LTM MHTM Government Participation in Trade and Restrictive Practices Tolerated by Governments Government aids, including subsidies and tax benefits 0.00 2.69 2.24 0.27 Restrictive practices tolerated by governments 1.59 0.00 0.27 1.43 Total 1.00 1.00 1.00 1.00 Customs and Administrative Entry Procedures Customs valuation 0.00 1.49 0.81 1.10 Rules of origin 0.00 0.00 1.39 1.25 Customs formalities 0.00 0.25 1.02 1.32 Others 2.54 1.64 0.91 0.65 Total 1.00 1.00 1.00 1.00 Technical Barriers to Trade General 1.18 1.72 0.53 0.71 Technical regulations and standards 0.85 0.79 1.47 0.93 Testing and certification arrangements 1.04 0.80 0.80 1.23 Total 1.00 1.00 1.00 1.00 Sanitary and Phytosanitary Measures General 0.91 1.14 1.53 0.64 SPS measures including chemical residue limits, disease freedom, specified product treatment, etc. 1.06 0.94 1.15 0.00 Testing, certification and other conformity assessment 1.05 0.86 0.00 2.87 Total 1.00 1.00 1.00 1.00 Specific Limitations Quantitative restrictions 1.27 0.44 2.54 0.00 Measures to regulate domestic prices 2.26 0.18 0.00 1.05 Requirements concerning marking, labeling and packaging 0.94 1.31 0.68 0.84 Others 0.00 0.00 3.48 2.44 Total 1.00 1.00 1.00 1.00 Charges on Imports Surcharges, port taxes, statistical taxes, etc. 0.00 0.00 0.48 2.22 Discriminatory film taxes, use taxes, etc. 0.00 0.00 1.22 0.48 Total 1.00 1.00 1.00 1.00 142 Other Intellectual property issues 0.00 0.00 11.00 0.00 Distribution constraints 0.00 1.83 0.00 0.00 Business practices or restrictions in the market 0.00 0.00 0.00 3.67 Other 1.57 1.31 0.00 0.52 Total 1.00 1.00 1.00 1.00 Sources: see footnote 42 Regarding sanitary and phytosanitary measures (SPS), for instance, we have seen before (Table 22 and Table 23) that these NTMs are not biased towards LTM and MHTM. However, on the basis of NTS results in Table 24, now it can be seen that SPS of two types general first, and secondly regarding chemical residue limits etc. seem to be especially applied to LTM, at the same time that a third type of SPS testing, certification and other conformance assessments seems to be especially applied to MHTM. This implies that even though the application of SPS to LTM and MHTM is relatively rare or infrequent, when it happens it will likely be in the following manner: any or both of the former two SPS types to LTM, and the third type to MHTM. Moreover, since it appears from Table 24 that not only SPS testing, certification and other conformance assessment (TCA) but also TBT TCA seem to be targeted to products at either end of the product spectrum, it seems that the policy choice about the application of SPS-TCA and/or TBT-TCA to products in those two groups will largely depend on the specific characteristics of the product in question; notwithstanding other non-technical or political economy considerations. Such a conclusion embraces and refines the results found with the help of the NTIs presented in Table 22 and Table 23, showing a clear and strong bias of SPS of all types i.e., the SPS-TCA included towards products in the natural resources-end of the spectrum, whereas the bias in TBT as a whole is found in LTM and MHTM categories but with the TBT-TCA type showing a bias in the opposite direction (PG) as well. Interesting findings were further made with respect to government participation and customs and administrative procedures. As a whole, neither showed a bias towards natural resource-based products (Table 22), though some of their sub-categories did (Table 23). With the help of the NTS in Table 24, it can be further specified that, when the application of GPT measures to natural resource- based products happens, it will likely include government aids, subsidies or tax benefits in the case of NRBM, and restrictive practices tolerated by governments in the case of PG. As for the application of CAP measures to natural resource based products, there seem to have been issues with customs valuation. Thus, the NTS is a valuable tool in gaining a better understanding of the particular incidence of individual NTMs. NTI and NTS jointly help focus the qualitative assessment of some NTMs' severity to be derived from the interviews during the field phase of this research. Further, since NTI and NTS are not made of trade data, they could form a basis on which to explore possible correlations with relevant trade indicators and to subsequently estimate pertinent regressions, in order to obtain sound quantitative assessments of NTMs' trade restrictiveness; at this point, this task is left to further research. 143 d. Field Research The aim of the field phase was to gather more detailed data on the incidence and nature of NTMs for a sub-group of products. This section starts with a brief explanation of the sample selection criteria, and then presents the resulting template on NTMs affecting Peru's exports. Interview Sample On the basis of the desk research data, the 10 Peruvian export products (at the HS tariff heading or 4- digit level) facing the highest numbers of NTMs were chosen and added to the products listed in Table 21. The 10 additional products are listed in Table 25 in descending order reflecting the number of NTM cases faced. In terms of technology-intensiveness, products of the first four HS tariff headings (0805 to 0201) as well as of the seventh (0703) belong to the PG group; those of the 5108, 5205, 5208 and 6204 tariff headings fall under LTM and the last (2005) under NRBM. Subsequently, Peruvian firms were identified which in 2004 had exported products included in at least one of the listed HS tariff headings (see column "Number of Firms in Data Base"). A total of 76 exporting firms were selected for interviews. The criteria applied for this selection included the overall number of exporting firms and the amount of their exports by tariff heading, which explains why the number of firms interviewed varies across tariff headings (see column "Number of Interviews Requested"). Since Peruvian exporters are traditionally reluctant to disclose information about the NTMs they face in their destination markets, a personal interview guided by a questionnaire63 was the chosen modality instead of a pool by mail. Twenty firms eventually agreed to participate (see Annex 2 for details), an acceptance rate of 27% (20 out of 73). This may seem little in absolute numbers, however, the interviewed firms account for a considerable proportion of total Peruvian exports in most of the sample's headings in Table 22. The 20 exporting firms interviewed are all located in Lima. As small and medium-sized firms generally experience more difficulties with NTMs, the absence of exporting firms from the interior, most of which are smaller than those headquartered in Lima, introduces an important bias that has to be kept in mind when interpreting the results below. 63The questionnaire is not included for the sake of brevity, but is available upon request. It had four parts, the first (Part A) in order to register the basic information on the exporting firm and its interviewed representative, shown in Annex 2. As for parts B, C and D, it is better to briefly mention their contents at the moment of examining the respective results in subtitles 3.2 to 3.4. 144 Table 25: Interviews Requested and Share in Exports of Interviewed Firms HS Number of Number of % of Exports Heading Heading Products Description Firms in Data Interviews in Interviews Base Requested Accepted 1 805 Citrus fruit, fresh or dried 24 4 48% 2 207 Meat, edible offal of domestic poultry 2 2 100% 3 804 Dates, figs, pineapple, avocado, guava, fresh or dried 106 26 30% 4 201 Meat of bovine animals, fresh or chilled n.a - - 5 5108 Yarn of Fine Animal Hair(Carded or Combed),not put up for Retail Sale. 13 4 29% 6 5205 Cotton yarn not sewing thread >85% cotton, not retail 21 6 53% 7 703 Onions, shallots, garlic, leeks, etc. fresh or chilled 68 12 3% 8 5208 Woven cotton fabric, >85% cotton, <200g/m3 35 8 67% 9 6204 Womens, girls suits, jacket, dress, skirt, etc, wove 284 10 9% 10 2005 Other Vegetables Prepared or Preserved otherwise than by Vinegar or Acetic Acid, Not Frozen 96 4 20% Source: Export data base as quoted in Table 14 Results on Export Markets by Products Part B of the questionnaire served to gather information on the main products exported to each of the four main destination markets and/or to any other export markets served by the respondent. The interviews thus broadened the field research's sample of tariff headings to 19 since, adding the following 10 tariff headings: 0105, 0407, 0709, 0810, 0904, 2008, 5206, 6105, 6109 and 6203. The information gathered on these additional products is therefore included in the field research results. The number of reported destination markets never exceeded three for each tariff heading or product. Table 26: Interviews: Export Markets as Destinations and NTM Maintaining As Destination Market As NTM Market 1 Market 2 Market 3 Total Maintaining USA 18 6 1 25 28 EU 9 15 0 24 23 Andean Community 3 4 4 11 11 Japan 0 4 1 5 1 Chile 4 0 0 4 5 CA 0 1 3 4 4 Others 0 2 7 9 1 TOTAL 34 32 16 82 73 Source: Field interviews (August-September 2005), and Annex 3 for NTM maintaining countries. Table 26 summarizes information on the importance of different destination markets. The US has the lead with 25 mentions (or 30.5% of the 82 observations), followed closely by the EU regional market 145 with 24 mentions (or 29.3%). Behind comes the sub-regional market of the Andean Community (CAN) with 11 mentions (or 13.4%)64, followed by Japan with 5 (6.1%) and Chile and Canada with 4 each (4.9%). "Others" include Brazil with 2 mentions plus the following seven export markets with one mention each: Argentina, China (Mainland), Hong Kong, Korea (South), Mexico, New Zealand and Switzerland. Thus, for the 20 firms together, 14 markets 12 countries plus 2 country groupings were reported as export destinations of at least one of the 19 products or tariff headings and in different combinations of by-product mentions totaling 82 observations. Numbers for China seem biased, which may be a consequence of the fact that all interviewed firms were in the capital while Peru's total sales to China are mostly composed of commodities exported from firms in the country's interior. As for the sub-regional market of the Andean Community (CAN), the interviews confirmed its importance for Peruvian exporters and helped to collect and analyze at least some information on its NTMs, thus partially balancing the absence of the CAN market in the desk research analysis forced by the lack of consistent NTMs data. The interviews were further used to collect more detailed information on the nature of the NTMs faced: a description of each identified NTM which served to classify it according to the WTO taxonomy plus its trade effects and severity level, as perceived by the responding firm are included: Product Imposing Type of barrier NAMA Code Restrictiv Countries eness Agriculture Fruit Fruit n.e.s., fresh EU High SPS requirements. Part IV B ­ SPS measures L Fruit, nut, edible EU Euregap standard. Part IV B ­ SPS measures H plant parts n.e.s., prepared and preserved Dates, figs, US SPS treatment for disease Part IV B ­ SPS measures H pineapple, freedom which diminishes avocado, guava, product quality fresh or dried Dates, figs, US No SPS agreement between Peru Part IV A ­ SPS general H, H pineapple, and US. avocado, guava, fresh or dried Dates, figs, EU High Quality Standards: Part IV B ­ SPS measures M pineapple, Fumigation of Pallets. avocado, guava, fresh or dried Dates, figs, EU Euregap standard. Part IV B ­ SPS measures H, H pineapple, avocado, guava, fresh or dried Dates, figs, EU SPS measures for chemical Part IV B ­ SPS measures H pineapple, residue limits. avocado, guava, fresh or dried 64From those 11 mentions, Colombia had 3, Ecuador and Venezuela 2 each, Bolivia 1, and 3 times the respondents mentioned the Andean Community but did not single out any particular Andean country or countries to which exports are directed. Similarly imprecise were some answers regarding another group destination market: the EU. 146 Product Imposing Type of barrier NAMA Code Restrictiv Countries eness Dates, figs, EU SPS Certifications in Peru: Part IV C ­ SPS testing, M pineapple, SENASA. certification, other avocado, guava, conformity assessment fresh or dried Dates, figs, Canada High US Antiterrorism measures Part VII C ­ Distribution M pineapple, affect product on its way to constraints avocado, guava, Canada. fresh or dried Dates, figs, Canada High SPS requirements. Part IV B ­ SPS measures L pineapple, avocado, guava, fresh or dried Dates, figs, Canada Labeling requirements. Part V K ­ Requirements L pineapple, concerning marking, avocado, guava, labeling, packaging fresh or dried Citrus fruit, US High SPS requirements for Part IV B ­ SPS measures H fresh or dried disease freedom. Citrus fruit, US Special requirements of weight. Part III B ­ Technical M fresh or dried regulations and standards Citrus fruit, US No SPS agreement between Peru Part IV A ­ SPS general H fresh or dried and US. Citrus fruit, EU Euregap standard. Part IV B ­ SPS measures H fresh or dried Citrus fruit, EU Packaging requirements Part V K ­ Requirements L fresh or dried concerning marking, labeling, packaging Citrus fruit, EU Fruit that arrives in the EU after Part VI ­ Discriminatory H fresh or dried May 15 pays taxes. charges on imports Citrus fruit, Canada High US Antiterrorism measures Part VII C ­ Distribution M fresh or dried affect product on its way to constraints Canada. Vegetables Vegetables US Obligatory fumigation of product. Part IV B ­ SPS measures M n.e.s., fresh or chilled Vegetables US Fumigation of pallets. Part IV B ­ SPS measures L n.e.s., fresh or chilled Vegetables US Special fumigation requirements Part IV B ­ SPS measures H, H n.e.s., fresh or which diminish the quality and chilled lifetime of the product Vegetables EU High SPS standards Part IV B ­ SPS measures M, H n.e.s., fresh or chilled Vegetables EU Packaging requirements. Part V K ­ Requirements L n.e.s., fresh or concerning marking, chilled labeling, packaging Vegetables EU Fumigation of pallets (only 8 Part IV B ­ SPS measures L n.e.s., fresh or companies are allowed for the chilled process). Vegetables EU High freight charges. Part VII C ­ Distribution H n.e.s., fresh or constraints chilled Vegetables EU Labeling requirements. Part V K ­ Requirements M n.e.s., fresh or concerning marking, chilled labeling, packaging 147 Product Imposing Type of barrier NAMA Code Restrictiv Countries eness Pepper, crushed EU, US Special fumigation requirements. Part IV B ­ SPS measures H or ground Capsicum, Pimenta Pepper, crushed EU High SPS requirements. Part IV B ­ SPS measures M or ground Capsicum, Pimenta Onions, shallots, US Fumigation of pallets. Part IV B ­ SPS measures L garlic, leek, fresh or chilled Other vegetables US High SPS requirements. Part IV B ­ SPS measures H prepared or preserved otherwise than by vinegar or acetic acid, not frozen Other vegetables EU Special fumigation requirements. Part IV B ­ SPS measures H prepared or preserved otherwise than by vinegar or acetic acid, not frozen Live animals Live poultry, Ecuador High SPS requirements. Part IV B ­ SPS measures H domestic fowls, ducks, geese Live poultry, Ecuador High freight charges. Part VII C ­ Distribution H domestic fowls, constraints ducks, geese Live poultry, Venezuela Quality inspection. Part II I ­ Pre-shipment M domestic fowls, inspection ducks, geese Meat products Meat, edible US High SPS requirements. Part IV B ­ SPS measures M offal of domestic poultry Meat, edible EU High SPS requirements. Part IV B ­ SPS measures M offal of domestic poultry Dairy products Birds eggs, in Ecuador High SPS requirements. Part IV B ­ SPS measures H shell, fresh, preserved or cooked Birds eggs, in Ecuador High freight charges. Part VII C ­ Distribution H shell, fresh, constraints preserved or cooked Birds eggs, in Venezuela Quality inspection. Part II I ­ Pre-shipment M shell, fresh, inspection preserved or cooked 148 Manufacturing Textiles and Garments Mens, boys US Many requirements to get Part II C ­ Customs M shirts, knit or ATPDEA benefits. classification crochet Mens, boys US Requests of specific information Part II B ­ Customs M shirts, knit or about the product when it already valuation crochet left the country. Mens or boys US Customs formalities. Part II G ­ Customs M suits, jackets, formalities trousers, not knit Womens' and US Customs formalities. Part II G ­ Customs M girls' suits, formalities jackets, dresses, skirts, woven Womens' and EU Customs formalities. Part II G ­ Customs H girls' suits, formalities jackets, dresses, skirts, woven T-shirts, singlets US Customs formalities. Part II G ­ Customs M and other vests, formalities knit or crochet T-shirts, singlets US Rules of Origin. Part II F ­ Rules of Origin L and other vests, knit or crochet Fabric and yarn Woven cotton US Requirements of exact measures Part III B ­ Technical M fabric, >85% of product. regulations and standards cotton Woven cotton US Packaging requirements. Part V K ­ Requirements H fabric, >85% concerning marking, cotton labeling, packaging Woven cotton US, EU Rules of Origin. Part II F ­ Rules of Origin H, H fabric, >85% cotton Woven cotton US Rules of Origin. Part II F ­ Rules of Origin M fabric, >85% cotton Cotton yarn, not Chile Quality inspection. Part III C ­ TBT testing M sewing thread, and certification >85% cotton, not retail Cotton yarn, not Chile Customs formalities and Part II G ­ Customs M, M sewing thread, excessive documentation formalities >85% cotton, requirements. not retail Cotton yarn, not Colombia Consular formalities and Part II D ­ Consular L sewing thread, excessive documentation formalities and >85% cotton, requirements. documentation not retail Cotton yarn, not Colombia Customs formalities. Part II G ­ Customs L sewing thread, formalities >85% cotton, not retail Cotton yarn, not Argentina, Rules of Origin. Part II F ­ Rules of Origin L, L, L, L sewing thread, Ecuador, >85% cotton, Venezuela, not retail Chile Cotton yarn, not US, EU High freight charges. Part VII C ­ Distribution H 149 sewing thread, constraints >85% cotton, not retail Yarn of fine US Subsidies. Part I A ­ Government H animal hair aids, including subsidies (carded or and tax benefits combed), not for retail sale Yarn of fine US Customs formalities. Part II G ­ Customs M animal hair formalities (carded or combed), not for retail sale Yarn of fine Japan Quality certification and Part III C ­ TBT testing H animal hair standards. and certification (carded or combed), not for retail sale Even for a similar tariff heading, the number of identified NTMs varies across the interviews, reflecting differences either in export markets and/or in the accuracy of the information delivered by the interviewee. The number of NTMs mentioned by the interviewed exporting firms totaled 73. Most of them are Sanitary and Phytosanitary Measures (SPS) and Customs and Administrative Entry Procedures (CAP). Overall, NTMs mostly seemed to affect vegetables and fruit as well as cotton textiles and clothing products. Concentration patterns generally confirm the findings previously obtained from the NTM Intensity Index calculations (Table 22 and Table 23), which showed that SPS measures are usually intensively applied to traded products of the Primary Goods grouping and that customs procedures such as rules of origin and customs formalities, are usually intensively applied to Low Technology Manufactures. As regards other types of NTMs, Specific Limitations such as marking or labeling or packaging requirements came next after SPS and customs procedures, followed by TBTs. Due to the limited number of products included in the field research sample, NTM concentration by product could neither be established in the case of Specific Limitations nor in the case of TBT; results could therefore not be checked against Intensity Index findings. NTMs' Trade Effects and Severity Level Firms were further asked to make an assessment of the trade effects and severity of the NTMs encountered. According to such assessments, the predominant trade effects are increases in costs (40 mentions) and delays on trade (27 mentions). Much less mentioned were market share lost (7) and export impeachment (4). The predominant levels of NTM severity are high and medium, with 33 and 24 mentions respectively. Moreover, the bulk of high and medium severity assessments was made in regards to the NTMs affecting exports of the three agriculture tariff headings, which together accounted for 14 high severity and 8 medium severity assessments; in contrast to the NTMs affecting exports of the three cotton fabrics tariff headings (5205, 5206 and 5208), of which 7 were classified as low severity, 6 of high and 5 of medium. Table 27 summarizes the main results: 150 Table 27: Number of NTMs Identified by Type, and by Trade Effects and Severity NTM Inventory NTMs' Trade Effects (*) NTMs' Severity (*) Category A B C D H M L Part I (GPT) 1 0 0 1 2 0 0 Part II (CAP) 0 0 14 8 3 11 7 Part III (TBT) 0 1 2 5 3 4 0 Part IV (SPS) 3 2 8 16 17 6 5 Part V (SLM) 0 2 2 10 8 1 3 Part VI (CHM) 0 0 0 0 0 0 0 Part VII (Other) 0 2 1 0 0 2 1 Total 4 7 27 40 33 24 16 Notes: (*) A = Impedes exports; B = Market lost; C = Delay on trade; D = Increases costs. H = High; M = Medium; L = Low Source: Field Interviews (August-September 2005) The following is a synthesis of the comparative results by NTMs categories: · NTMs of the government participation in trade, SPS and specific limitations categories show the bulk of high level of severity assessments. Even though GPT and SPS are also included in all the mentions to the most restrictive trade effect (impedes exports), and SPS together with SLM account for most of the mentions to another strong trade effect (market lost), the general conclusion is that the majority of such high severity assessments are not associated with trade effects of a particular kind. · The same general conclusion also applies to NTMs of the TBT category, where no low severity assessment was registered despite the fact that costs increases were the most mentioned trade effect; though this applies to a somehow lesser extent because the medium level of severity assessments slightly dominates in the TBT case. · On the other hand, NTMs of the CAP and "Other" categories are those with the bulk of medium or low severity assessments. This is so in the Other NTMs case despite the fact that market loss was the most mentioned trade effect in that category, whereas in the CAP case the assessed levels of severity show a better match with the sorts of trade effects mentioned, all of which are either trade delays or costs increases. Results on Product-Specific Factors other than NTMs Finally, given that not all of the problems to export are attributable to NTMs in destination markets, but are instead caused by other constraining factors along the supply-demand chain of each product, Part D of the questionnaire sought to collect information on product-specific constraints other than NTMs, in order to avoid overestimating the impact of the latter on export performance. As regards supply factors, the intention was to try and focus the respondent's attention not on the many and well-known general domestic shortcomings that constrain Peru's export capacity, but on those of the interviewed firms own responsibility hindering their specific capacity to deliver a competitive export supply. However, answers obtained on demand-related factors were scarce and stressed only the distance to some desired destination markets, while regarding supply-side factors respondents spoke at length on well-known country constraints beyond the firm's control, such as bureaucratic customs and paperwork procedures, or deficient port facilities. References to internal firm factors included 151 difficulty to compete with foreign exporters benefiting from better technology and/or lower production costs, but such difficulties were typically perceived as policy-induced. 4. Conclusion The main findings from the desk phase can be summarized as follows: since 58% of Peru's export products in the sample are composed of primary goods (PGs) and natural resources-based manufactures (NRBMs), it was not surprising to find that most of the cases (54.8%) where NTMs were applied targeted PG and NRBM. Despite the limited scope of the field research sample, results from the interviews confirm the patterns previously identified in the desk research phase, at least concerning the two NTMs most frequently mentioned: SPS and Customs and Administrative Entry Procedures (CAP). The concentration of SPS measures affecting fruits and vegetables confirmed the previous findings that SPS are intensively applied to PG, while the concentration of CAPs affecting cotton textile and apparel products confirmed the finding that CAP are intensively applied to LTM. Another interesting finding was that the respondents' assessments of the severity of NTMs did not necessarily match their assessments on the trade effects of NTMs. In fact, the number of high severity assessments largely exceeded the combined number of mentions about the two worst trade effects: "impedes exports", and lost market share. A high severity assessment was often linked to trade delays or costs increases, which in principle are not trade effects as strong as the other two. An explanation for this seeming mismatch is that the concrete impact of NTMs is not only product-specific but firm- specific as well, in the sense that even relatively mild effects like cost increases and trade delays might weigh heavily on firms that like most of Peru's exporters are not major players in world markets. Another point worth highlighting are the methodological tools developed in this study, in particular the NTM Intensity and Specialization indexes. Both indexes were designed by adapting the intensity and specialization indicators, widely used in analyzing trade flows, to a different analytical purpose, i.e. to improve the measuring of the NTMs' own trade characteristics with indexes that do not incorporate trade flow data. This was seen as a necessary step prior to properly measuring NTMs' trade effects, in order to avoid the endogeneity problems typical of using tools that incorporate a combination of NTMs and trade flow data. The new NTM indexes were useful in at least two respects: (1) they revealed patterns of intensity and specialization in the use of the different types of NTMs which, together with the information obtained from the simple frequency index provide a picture combining three important characteristics i.e. complexity, intensity and specialization intrinsic to the way NTMs are applied; (2) they have allowed approaching the field phase of the research with an objective picture so as to better assess the inevitably subjective perceptions of the interviewees about the severity of the NTMs faced. 152 The two phases of this research effort have resulted in a combination of methodological tools and quantitative results as well as qualitative assessments that may facilitate further research on NTMs. With the help of new NTM measurement tools, an improved characterization of the main patterns in which NTMs are applied has been obtained. With the aim of bringing about sound quantitative assessments of NTMs' trade restrictiveness, this basis should now be used for further research exploring correlations and estimating regressions between those patterns and relevant trade flows. At the same time, other research methods seem necessary to properly examine firm-specific factors undermining the capacity to overcome NTM requirements that are successfully overcome by other exporters. 153 Annex 1: Methodology for the NTMs Intensity and Specialization Indexes The index of intensity in the application of NTMs to traded products is calculated as follows: NTM Intensity Index (NTI) = (Xij / Xi) / (Xj / X) where Xij is the number of NTM j applied to product group i. For example, if the NTM observations are at the Part (category) level of the WTO taxonomy, as shown in Table 1.1, the calculation of the NTI is as follows: NTI for GPT in MHTM = (20 / 218) / (35 / 800) = 2.10 TABLE 1.1 Primary Goods NRBM LTM MHTM Total GPT 2 1 12 20 35 CAP 11 17 25 74 127 TBT 99 55 68 88 310 SPS 95 49 5 4 153 SLM 52 50 26 26 154 CHM 0 0 7 3 10 Other 1 6 1 3 11 Total 260 178 144 218 800 For purposes of a more specific analysis, the same index can be broken down at the Section (type) levels of the WTO taxonomy. If the NTM observations are detailed as shown in Table 1.2, then the calculation of the NTI is as follows: NTI for Government Aids in MHTM = (2 / 218) / (13 / 800) = 0.56 TABLE 1.2 Government Participation in Trade and Restrictive Primary Practices Tolerated by Governments Goods NRBM LTM MHTM Total Government aids, including subsidies and tax benefits 0 1 10 2 13 Countervailing duties 0 0 0 0 0 Restrictive practices tolerated by governments 2 0 2 18 22 Others 0 0 0 0 0 Total GPT 2 1 12 20 35 Total 260 178 144 218 800 In addition, a similar equation is used in computing the NTMs Specialization Index (NTS). However, for the sake of clarity, it would be better to explain it using the following example: if, on the basis of the NTM observations shown in Table 1.2, one wishes to determine whether the Government Aids type within the GPT category is specialized on MHTM or not, then the NTS is computed as follows: NTS for Government Aids in MHTM =(2 / 20) / (13 / 35) = 0.27 Source: Fernando Gonzalez-Vigil and Diego Urbina. 154 PHILIPPINES John Lawrence Avila, University of Asia and the Pacific, Philippines* Philippino exports remain fairly concentrated. The two main categories of electronic products (electrical equipment and office/data processing machines) accounted for approximately 66% of the country's total exports. Exports of clothing, apparel and other wearables ranked as the third biggest export performer in 2005. Further, fresh and processed fruits and vegetables, seafood, and seaweed and others, now collectively account for more than 4% of the total exports earnings of the Philippines. The major export destinations for Philippine merchandise exports are ASEAN, China, Japan, USA and the European Union ­ accounting for 86.4% of total Philippine merchandise exports in 2004. The US market was the single largest country destination in 2004. During the past years, there has been a considerable shift, however, away from traditional destinations, such as the United States, to new markets like China and ASEAN. In particular, China's share of Philippine exports more than doubled from just 7.4% in 2001 to 18% in 2005. Some NTMs faced by Philippino exporters have been identified as affecting products across all sectors, though they are very country specific; they include stringent social accountability and environmental standards in the EU, cartelized buyer behavior in Japan, and excessive import fees and charges in the US. Further, firms exporting to China reported obstacles arising from strict domestic standards which lack reference to international standards, non-transparency in the application of rules and concerns over breaches of intellectual property rights. Most barriers facing agricultural exports from the Philippines arise from various SPS requirements, in particular low maximum allowances for contaminants (heavy metals, pesticides, aflatoxin) mainly in the EU and Japan and strict testing and quarantine requirements at the border, which tend to reduce product quality (reported here for Australia and South Korea). Fish and meat exporters further report burdensome procedures necessary to be granted accreditation by the EU without which their products are not allowed to enter the EU market. A regulation that stands out is the one of seller liability in Japan, whereby Japanese food importers are liable for any harm caused by food products sold by them, thereby increasing incentives for importers to enforce standards more strictly. Complaints regarding NTMs faced by manufacturing exporters were few. The majority of manufacturing exports of the Philippines fall into the categories electronics and office/data- processing machines. Products under these headings are mostly parts and components which are manufactured for a parent company according to firm-specific standards and then "exported" intra- firm. Since the parent company can be expected to provide the necessary technology to ensure compliance with standards, NTMs faced by the manufacturing sector are relatively few. The only concerns voiced by exporters during this exercise were stringent standards for packaging materials and environmental standards regarding the use of certain raw materials imposed by the EU on manufacturing products across the board. Textiles exporters complained about tests for chemical residues in Japan and chemicals producers pointed to stringent product standards when exporting to the EU. *Executive Director, Institute of Political Economy, University of Asia and the Pacific, Philippines 155 1. Overview of Trade Foreign trade remains a major feature of the Philippine government's development strategy. Export promotion is a key component of successive medium-term development plans since the country shifted from import-substitution to an outward-oriented strategy in the 1970s. The government looks to trade as a major generator of jobs and contributor to the country's industrialization. Under Republic Act 7844, or the Export Development Act of 1994, the government seeks to promote exports as a "focal strategy for agro-industrial development". The shift from import-substitution to export-orientation and import liberalization has had a profound impact on the Philippine economy. Both export revenues and import payments have accelerated following the implementation of the trade liberalization program of the government in the second half of the 1980s and the 1990s. This is illustrated by the increasing share of export trade in the Philippine economy. From 13.6 percent export-to-GDP ratio in the 1967-72 period, the share increased to 46.2% in 2004. At constant 1985 prices, average overall trade dependence (exports and imports) was 88.4 % of GDP from 1990 to 1999, increasing to 96.1% from 2000 to 2003, and to 100.5% in 2004. Exports have expanded from just USD 4.6 billion in 1985 to more than USD 41 billion in 2005. Exports had been growing slightly faster than imports (7.9 % vs. 6.7 %) from 1980 to 2003. From a 3.1% compound annual growth during the politically turbulent 1980s, Philippine merchandise exports (in dollars) grew at an average of 19.2 percent in 1992- 1997, decelerating to 14.8 percent in 1998-2000 and further to ­1.1 percent in 2001-2003. Philippine merchandise exports were affected by the meltdown in the IT sector in 2000 and sluggish demand from its traditional markets. In 2004, exports resumed their expansion, growing by 9.3% from the previous year. There has been a clear shift from primary sector exports to exports of higher value manufactured products, with the latter's share rising from about one-third in 1970 to over four-fifths of total exports by 2000. Prior to the 1970s, Philippine exports consisted mainly of agricultural or mineral products in raw or minimally processed form. Today, non-traditional exports, especially manufactured commodities such as garments and electronic components, comprise the greater proportion of total value of goods shipped abroad (Bautista and Tecson, 2003). Philippine exports remain fairly concentrated. The two main categories of electronic products (electrical equipment and office/data processing machines) accounted for approximately 65.8% of the country's total exports, amounting to almost USD27 billion in 2005 (Figure 19). Much of this is semiconductors, which in 2004 made up 47.09% of the country's total exports or about USD18 billion in value. The country's trade performance is particularly sensitive to the fluctuations in global demand in this sector. The drop in exports in 2003, which slowed down to 2.9 percent from the previous year's 9.5 percent growth, was mainly attributed to the slowdown experienced by the global electronics sector. Exports of clothing, apparel and other wearables ranked as the third biggest export performer, accounting for about 5.5 percent of Philippine exports in 2005, roughly USD2.3 billion. However, earnings in this sector have been progressively declining, contracting by as much as 4.27 percent between 2003 and 2004. Fortunately, growth in the other priority sectors compensated for the lack of growth in the garments sector and the slowdown in electronics exports in 2002. In particular, exports of food, motor vehicle parts, organics and transport & machineries were relatively strong (see Table 28). Electronics aside, the top merchandise exports in 2004 were ignition wiring sets and other wiring sets used in vehicles, aircraft and ships, coconut oil, woodcrafts and furniture, cathodes and section of cathodes or refined copper, petroleum products, metal products, and bananas. 156 Figure 19: Philippines 2005 exports by product Figure 20: Philippines 2005 exports by destination Photographic Misc manufactures Australia equ/clocks Indonesia nes Other Vietnam RoW Fixed veg oils/fats Thailand United States Petroleumand Electrical Korea, Rep. products equipment Taiw an, China Vegetables and Malaysia fruit Singapore Telecomms etc Japan equipment Hong Kong, China Office/dat proc Apparel/clothing/a Road vehicles machines EU ccess China Source: UNCTAD COMTRADE Table 28: Export performance of top 12 priority sectors Product Average growth rate (%) 2003 ­ 2004 2002 ­ 2004 TOTAL 9.29 6.10 Electronics 9.58 5.16 Garments (4.27) (4.32) Transport and machineries 19.57 34.56 Other Wearables (12.72) (9.33) Food 2.38 9.14 Motor Parts 32.52 23.07 Home Furnishings, Housewares 1.60 (4.01) Marine Products (0.92) 1.74 Giftwares & Holiday Decors 7.81 (0.37) Construction Materials 23.77 18.75 Organic Products 13.64 30.99 I.T. Manufactures 11.84 4.04 Others 8.07 13.69 Source: PEDP 2005-2007 using NSO data Primary agricultural production comprises mainly rice paddy production and to a lesser extent sugar, maize and coconuts. The traded part of this sector is highly concentrated in the coconut oil and fisheries industries. The Philippines account for approximately 70 percent of the world coconut supply. Coconut oil is the largest single agricultural export comprising 23 percent of resource-based exports and 1.48 percent of total exports, 80 percent of which goes to the US and Europe. Other important agricultural exports are fruit and vegetables (coconuts, bananas and pineapples) and sugar products exported mainly to the US and Japan. Fishery products, mainly shrimp and prawns account for another 1.04 percent of total trade. Fresh and processed fruits and vegetables, seafood, and seaweed and others, now collectively account for more than 4% of the total exports earnings of the Philippines. Food, whether processed or fresh, is a major export item of the Philippines. The performance of the sector has considerable effects on employment, rural growth and poverty alleviation, accounting for 18% of GDP and employing about 40% of the workforce. The country's export of food and food preparations amounted to $1.579 billion in 2004, with the US and Japan as leading importers and Europe, Korea, and the Middle East as other significant markets. The major policy goals and strategies are contained in the Philippine Export Development Plan (PEDP). The PEDP is a three-year plan detailing the country's export programs and policies and forms part of the Medium-Term Philippine Development Plan (MTPDP). In the 2005-2007 PEDP, 157 the Philippine government has embarked on a strategy to diversify its exports to lessen its dependence on electronics exports. Nine other priority sectors have been identified for export development apart from electronics, including food products, home furnishings, motor vehicle parts and components, marine products, wearables, IT-related services, gift wares and holiday decors, construction materials, organic and natural products. The major export destinations for Philippine merchandise exports are ASEAN, China, Japan, the USA and the European Union ­ accounting for 86.4% of total Philippine merchandise exports in 2004 (Figure 20). The US market was the single largest country destination and accounted for 18% of Philippine exports valued at USD7.4 billion in 2005. During the past three years, there has been a considerable shift away from traditional destinations, such as the United States, to new markets like China and ASEAN. In particular, China's share of Philippine exports more than doubled from just 7.4% in 2001 to 18% in 2005. The United States remains a major destination for Philippine goods but has seen its share declining from 29.8 percent in 2001 to just 18% in 2005. The share of the US was highest in 1992 at 41% but only averaged about 25.7% from 2000 to 2004. Although this pattern implies that the Philippines have gradually reduced their dependence on the US market, it is still an important export market, particularly for the major products such as garments and electronics. The EU's share of Philippine exports also declined from 19.3 percent in 2001 to 16.5 percent in 2005. At the same time, the share of the ASEAN market is growing capturing around 18% of Philippine merchandise goods from just 6.7% in 1980 and 11.5% in 1985 (mainly concentrated on Singapore and Malaysia). Exports to ASEAN also increased, helped by the creation of the ASEAN Free Trade Area (AFTA). This may be indicative of the government's success in promoting export diversification but is perhaps also attributable to the growing level of import restrictions in traditional markets. 2. NTMs Faced by Philippino Exporters Philippine merchandise exports continue to face a range of non-tariff barriers that restrict its access to a number of markets. In an address before the 35th International General Meeting of the Pacific Basin Economic Council in May 2002, Philippine President Arroyo complained of the imposition of trade restrictions by developed countries in the form of high tariffs and other non-tariff barriers which she says makes the entry of products to these countries very difficult. In particular, she pointed to barriers to textiles and garments, agriculture and fisheries products, as well as steel products. The Philippine government maintains that compliance with the plethora of SPS and product standards requirements has proven to be onerous and expensive. In some cases, the Philippines have had to meet exhaustive data collection and certification requirements that take years to complete. The Department of Trade and Industry identified a number of non-tariff barriers to its exports, many of them pertaining to sanitary and phytosanitary measures (SPS) taken against agriculture and food exports such as in its exports of mangoes and bananas. In an early study on trade barriers confronting Philippino exporters, estimates of the overall index of NTM coverage show that about 48 percent of exports to the US, 47 percent for Japan, and 75 percent for the EC countries were subjected to some form of non-tariff barrier (Medalla, 1988). In the report of the WTO Committee on Sanitary and Phytosanitary Measures65, a number of cases reflected the 65Committee on Sanitary and Phytosanitary Measures. World Trade Organization: Specific Trade Concerns. (WTO, 2004). 158 trade concerns raised and brought to the committee's attention by the Philippines since the year 1995. The subsequent discussion will be mainly based on this report as well as other recent literature. NTMs Affecting Products Across Sectors Some NTMs have been identified as affecting products across all sectors; they include the following: EU: o Technical regulations and standards (part III B): Social accountability standards (workers rights, health & safety of employees, rejection of forced and child labor) o Technical regulations and standards (part III B) and SPS testing, certification and other conformity assessment (part IV C): Codes of Conduct detailing environmental standards; requirement of certified environmental management system. The EU is promoting social accountability as a standard as embodied in the SA 8000, administered by the Council on Economic Priority Accreditation Agency (CEPAA). It encourages workers rights, ensures health and safety of employees, and rejects forced and child labor. The EU also imposes specific codes of conduct detailing environmental standards and seeks certification regarding environmental management systems. Overall, Philippine SMEs may find it difficult to implement these requirements. The implementation of this standard would most likely affect both Philippine suppliers to EU firms and independent exporters. Japan: Distribution constraints (part VII C): Closed structure of distribution system (major restrictiveness) US: Surcharges, port taxes etc. (part VI B): Fees (customs user fees, merchandise processing fees, harbor maintenance tax). China: o Other ­ Lack of transparency in application of rules (part VII E): Non-transparent measures (measures are applied in a discriminatory way or without justification based on scientific results). o Intellectual property issues (part VII A): Fear that intellectual property will be leaked to Chinese competitors after testing. o Technical regulations and standards (part III B) and SPS general (part IV A): Strict domestic standards with no reference to international standards; standard making bodies not open to foreign participation. With regard to Chinese import policies, exporters have complained that Philippine products are being subjected to "non-transparent" measures, which are unevenly applied and not based on laboratory results.66 In an effort to eliminate discriminatory treatment of imported products, the Chinese government established the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), in 2001. However, many foreign exporters continue to report discriminatory treatment and enforcement of standards.67 Many complaints point out, that foreign products can only be tested at certain laboratories without transparent methods. Moreover, the certification process takes a long time and foreign exporters into China fear that their intellectual property and other information will be leaked to local competitors due to a lack of transparency in the laboratories and other agencies' operations. Moreover, the majority of standard making bodies in China are not open to foreign 66Op Cit, Department of Agriculture 67Op Cit, USTR, 67 159 participation and these agencies were also reported to create unique and rigorous requirements despite the existence of international standards. Agriculture Most barriers facing agricultural exports from the Philippines arise from various SPS requirements, in particular low maximum allowances for contaminants (heavy metals, pesticides, aflatoxin) and strict testing and quarantine requirements at the border, which tend to reduce product quality. In the subsequent section, products are split into groups as follows: general agricultural, fresh food, processed food, fisheries, meat, and "other". General General agricultural products EU: SPS measures (part IV B): Maximum allowed levels of aflatoxin very low (without apparent scientific justification). In March 1998, several countries including the Philippines raised the issue of maximum levels for certain contaminants, such as aflatoxins, imposed in the European Communities (EC).68 The group argued that the proposed new maximum levels in aflatoxins was not based on proper risk assessment and would cause restrictions on trade without significantly increasing the health and safety of consumers. The EC has since revised their proposal but several nations remained unsatisfied, particularly, Bolivia. The United States also encouraged the EC to consider suggestions from FAO/WHO risk assessments, which establishes standard levels of aflatoxins for consumer-ready products. This suggestion, however, was not welcomed by the ASEAN, who argued that this practice will negatively affect developing countries' feed exports. For the Philippines, the maximum residue level of aflatoxin content in copra had been set to a very low level, at 0.05ug/kg aflatoxin in milk from cows that eat copra; this standard more stringent than the agreed Codex standards. Furthermore, due to high 3MPCD (contaminant) levels, some Philippine exports, such as Marca Pina and Silver Swan, have been banned from the EU. Japan: o SPS measures (part IV B): Standards on food additives are very high (arguably the most complex and stringent food additives standards in the world). Standards on residual agricultural chemicals are very high (arguably the most complex and stringent residuals standards in the world). o Traceability requirement (part VII E ­ other) (as explained in the introduction) US: Requirements concerning marking, labeling, packaging (part V K): Burdensome labeling requirements (ingredients, composition, origin of product). Detailed information is often required regarding the ingredients, composition and origin of the product. This labeling requirement has negatively affected the export of Philippine coconut oil because health officials in the U.S. consider the saturated fat, found in the coconut oil, unhealthy. 68Ibid,55 160 Fruit and vegetables Japan: o Seller liability (part VII E ­ other): According to the Japanese Food Sanitation Law, the Japanese importer is liable for any harm caused by imported food. This provision necessitates insurance coverage for imported food and adds costs that raise the price of imports (major restrictiveness). o SPS testing, certification, other conformity assessment (part IV C): The Japanese Food and Sanitation Law further requires examination of imports for food additives such as anti-molding agents, film compounds, coloring agents, and other agricultural chemicals. o SPS measures (Part IV B): Plant protection law prevents entry into Japan of harmful microorganisms, insect pests, and parasites that can cause damage (prohibitive). Japan is a major market for Philippine Fruit Exporters. Philippine bananas comprise 78.9% of the total banana imports of Japan, while Philippine pineapples comprise as much as 97.8%. Japanese mango imports are also dominated by the Philippines with 63.1% of the total imports, while the Philippines remains the number one exporter of papaya to Japan at 56.3%.69 However, Japan continues to restrict, for phytosanitary reasons, the entry of numerous fruits and vegetables from the Philippines.70 The Food Sanitation Law of Japan provides that the Japanese importing company is liable for any harm caused by the imported food. This provision necessitates insurance coverage for the imported food, an added cost that raises the prices of the imports further. The law requires the examination of imports for food additives, such as, anti-molding agents, film compounds, coloring agents, and other agricultural chemicals. If barred additives are discovered, the fruits must either be immediately burned or disposed of in other manners. As such, importers usually take samples from the exporters to test the products first in Japanese laboratories, approved by the Japanese Ministry of Health. The Plant Protection Law also strictly prevents the entry into Japan of harmful microorganisms, insect pests, and parasites that can cause damage to environment and crops of Japan. As such, no root crops that have soil sticking to them and no fruit that came from an infested area will be allowed entry to Japan. Furthermore, immediately after arriving at the port of entry of Japan, the importer must enter the Plant Protection Station and complete the "Application for Import Inspection of Plants and Prohibited Articles" together with a "Phytosanitary Certificate coming from the point of origin". In the case of infestation detection or failing of any other phytosanitary inspections, the importer will immediately be told to either "decontaminate, discard, or return [the products] to the shipper". The Philippines has expressed support on the issue raised by the United States regarding the proposal of Japan to include 27 pests into the non-quarantine list in its plant protection law. The EU also asked Japan to give a scientific explanation of their proposal. In one case, Japan suspended the importation of fresh fruits after fruit flies were discovered in a batch. Fresh mango shipments were also recently rejected due to the lowering of limits for residues of chlorphyriphos and Philippine okra exports, valued at around PHP 650 million, had been subjected to rigid SPS and quarantine procedures after a shipment containing very high pesticide levels was intercepted at a Japanese port by plant quarantine officials in January 2002. Since the 1980s, the Philippines have been exporting to Japan an average of 88.8 tons of fresh okra weekly valued at $240,000. However, since the pesticide issue erupted, shipments had dropped to 16.4 tons worth 69Jetro, Fresh Fruits, (Jetro, 2003), p.125 70See Ibid. 161 $45,200 tons until these were gradually stopped. The Japanese Ministry of Health, Labor and Welfare have since lifted the suspension. Currently, the Philippine Bureau of Plant Industry inspects and certifies okra exports to ensure that they are free from excessive pesticide residues before they are shipped to Japan. Further, in a study by Palanca-Tan (2004), Philippine exporters complained about the following requirements of the Japanese market, in particular: (1) Japan's metabisulfide8 standard of only 50 ppm (parts per million), relative to Europe's 1000 ppm and U.S.' 200 ppm, (2) Vapor heat treatment (VHT) for fresh fruits, non-defined and subjective standards for food products, mostly qualitative factors that do not constitute health and safety risks as provided for in the WTO SPS agreement. Agricultural and forestry products Japan: Requirements concerning marking, labeling, packaging (part V K): Standardized labeling requirements (label needs to contain ingredients and additives in Japanese). The Japanese government is strict with regard to proper product labeling. It requires the standardization of proper labeling of agricultural and forestry products.71 Japanese officials order that all processed food should be labeled with the ingredients and additives written in Japanese, wherein all terms should be translated precisely.72 Under the law, fresh fruit products are required to have labels containing information regarding the country of origin, product name and other ingredients. Moreover, there is also an "Act Against Unjustifiable Premiums and Misleading Representations," which prohibits exaggerated and vague labels that mislead consumers about the quality and nature of the product.73 Tropical fruit US: SPS testing, certification, other conformity assessment (part IV C): SPS measures such as pest screening. Processed food, fishery products, agricultural products EU: SPS measures (part IV B): Complex health and sanitary regulations (often higher than Codex requirements) which lead to a decline in Philippino food and feed exports to the EU by 21.6% in 2004 (major restrictiveness). The EU's rapid alert system for food and feeds detains Philippine shipments if they are deemed non- compliant with any EU health regulation, information of which is immediately communicated to all other EU ports of entry. This often results in the detention by other EU ports of similar products from the same company often without testing the products ­ even if they may not be contaminated as they may come from a different production batch. These regulations continue to affect a diverse range of products from canned fish and sauces to coconut oil products and desiccated coconut and others. As a result, Philippine food and feed exports to the EU have declined significantly by 21.6% in 2004. This decline in food and feed exports to the EU is the result of a variety of factors. The 20% decrease in meat and seafood product exports can be partially explained by the 5-month EU ban on aquaculture exports coming from the Philippines. 71Ibid 72Op Cit, Department of Agriculture 73Op Cit, Jetro, 128 162 Agricultural bio-tech products, GMOs EU: SPS general (part IV A): Lack of functional approval process for bio-tech and GMO products. The Philippines is an interested party in the issue raised by the United States regarding the lack of a functional approval process in the EU for agricultural biotechnology products.74 The US argued that since 1998, a de facto moratorium on approval of agricultural biotechnology products to protect the EU from its negative effects, specifically against Genetically Modified Organisms (GMOs), have cost them over $200 million per year in agricultural exports.75 As such, the EU stated that they are taking measures to re-start the authorization procedures but continued to express concerns over GMOs. Australia asserted that the traceability and labeling of GMOs by the EU remain problematic while the Philippines noted that the EU had failed to produce any scientific evidence that GMOs were more hazardous than naturally bred products. Fresh food (Tropical) fresh fruit Australia: o Business practices or restrictions in the market (part VII D): Commodity boards campaigning against the entry of Philippine fruit (major restrictiveness). o SPS testing, certification, other conformity assessment (part IV C): Strict and protracted quarantine procedures and risk assessment enforced by AQIS (Australian Quarantine and Inspection Service). Major delays in the procedure; approval withheld for several years in certain cases (major restrictiveness, sometimes prohibitive). One of the more prominent bilateral Philippino trade disputes is the one with Australia. The two countries have a long-standing disagreement over Australia's restrictions on imports of tropical fresh fruits, such as mangoes, bananas, and pineapples. The Australian Quarantine and Inspection Service (AQIS) put in place "strict and protracted" quarantine procedures that have held back Philippine food exports. The AQIS requires and approves a risk assessment before any importation can take place. The Philippines contend that Australia imposes extremely stringent animal and plant quarantine restrictions, which, allegedly at times, are not based on sound evidence, or appropriate for the risk involved.76 Australia promised to conduct tests as well as scientific and risk management assessments, in order to facilitate the entry of Philippine exports.77 However, the Philippines are complaining about delays in Australia's Import Risk Analysis (IRA) of Philippine fruits. The IRA is part of Australia's sanitary and phytosanitary (SPS) measures to ensure that Philippine bananas and pineapples are free from harmful insects and diseases that may infest Australian crops. Australia disallowed the entry of Philippine pineapples on the basis that the pineapple crowns were allegedly "breeding grounds of 74Ibid,77 75Ibid 76Ibid, 17. The Philippines is also an interested party in the WTO case raised by Thailand regarding Australian import restrictions on durian, prawn and prawn products; in the case raised by the United States exports of California grapes; and in the case of EC exports of truss tomatoes. In these cases, the Philippine government, on behalf of the ASEAN, contends that Australia's risk measures are not scientifically valid and unnecessarily trade restrictive. It has urged Australia to lift these restrictive interim measures. 77Ibid 163 disease". In 1991, Philippine mango imports were also restricted after they were alleged to contain the pulp weevil pests. The Philippine Bureau of Plant Industry (BPI) sought to comply with the Australian concerns by coming up with corrective measures. However, the approval by AQIS was subject to further delays. Industry insiders claimed that the AQIS defined requirements "piecemeal and by installment". Despite several visits by AQIS experts to the Philippines to help redress the situation, Australia continued to withhold its approval. Approval came after many years in 2000 and only after some pressure exerted by the Philippine government. The presence of commodity boards also poses significant barriers to entry. For instance, the Australian Banana Growers Council (ABGC) has created a fund to campaign against the entry of Philippine bananas in its domestic market. Fresh Coconut, bananas, pineapples, shrimp, prawn: South Korea: SPS measures (part IV B): Quarantine requirements, which negatively affect marketability of the product given its short shelf-life. In South Korea, imports of fresh coconut are subject to quarantine requirements that negatively affect the marketability of the product given its short shelf life. Bananas, pineapples, shrimp and prawn are also subject to quarantine requirements and procedures, which may affect the product quality. Fresh mangos and papayas were once banned because they were thought to contain the oriental fruit fly. Processed food New Zealand: SPS measures (part IV B): Strict bio-security regime, especially on tropical fruit and vegetable sap extract. Fisheries Seafood and processed seafood Australia, New Zealand: Requirements concerning marking, labeling, packaging (part V K): Cumbersome labeling requirements. Australia: Import licensing (part II H) Fish and fishery products EU: Administrative entry procedures (part II): Requirement of explicit inclusion by EC Food and Veterinary Office on a list of acceptable exporting countries of fisheries and aquaculture (potentially prohibitive). In the case of Fish and Fishery Products (F&FP), the latest inspection mission from the EC Food and Veterinary Office (FVO) in October 2004 (DG SANCO/7355/2004), identified major deficiencies with respect to the standards being applied, and found the situation very serious with regard to maintaining the inclusion of the country in the list of acceptable exporting countries of fishery and aquaculture products to the EU. Tuna EU: SPS measures (part IV B): Regulations on maximum levels of lead, cadmium and mercury in fish and contaminants in canned tuna; (legislation is under discussion at the Codex Committee with ASEAN involvement). (major restrictiveness). One prominent case concerning the lead in fish issue and contaminants in canned tuna involves Philippine tuna exports to the EU. In the first case, the EU approved 164 Commission regulation no 78/2005 regarding the maximum levels of heavy metals (lead, cadmium and mercury) in foodstuffs. The Philippines' concern is primarily on its impact on tuna exports to EU. Previous regulations have set the level of lead in tuna at 0.40 mg/kg wet weight or 0.40ppm; the current regulation places it at 0.20ppm. The ASEAN, including the Philippines, has proposed a standard of 0.50ppm to the Codex Committee on Food Additives and Contaminants (CCFAC). ASEAN cited the following reasons: · EC regulation 78/2005 was approved while the CCFAC was still discussing the appropriate maximum level; · In its on-going discussions, the CCFAC noted the difficulties for many countries to achieve levels lower than 0.2 mg/kg and to effectively analyze levels lower than 0.4 mg/kg. · The Codex Alimentarius, of which the EC is a member, has an established process for setting the maximum level for contaminants, e.g. through the Joint FAO/WHO Committee on Food Additives (JECFA). The 53rd JECFA's risk assessment study indicated that a maximum level of 0.50ppm lead in tuna provides the same level of health protection as 0.20ppm. · The maximum level of 0.20ppm will create analytical and trade problems especially for developing countries In the case of the canned tuna issue, the EU rejected shipments of canned tuna due to detection of new contaminants (such as BADGE and BFDG). Problems also arose from the discovery of chloramphenicol and nitrofuan antibiotics in aquaculture products. There is apparently difficulty in monitoring these limits that could not readily be established at the local or source level. Meat products Meat and meat products EU: SPS general (part IV A): No accreditation to export meat and meat products to the EU so far, partly due to failure to meet contaminants standards (prohibitive). The Philippines announced its intent to export meat and/or meat products to the EU. However, it must be listed as an accredited country under Directive 72/462/EC. Imports can only be authorized after a favorable inspection visit to certify sanitary conditions. Meat and meat products' exporters from the Philippines have been having a hard time entering the EU market due to these 3-MPCD levels of contaminant standard being implemented in the EU. Meat/other animal products US: Embargoes and other restrictions of similar effect (part V B): Import restrictions Other Feed grain Australia: SPS measures (part IV B): Requirement for steam treatment of feed grain. Animal feed EU: SPS measures (part IV B): Tightening of EC SPS legislation, notably the reduction of tolerance levels of residues and aflatoxins (new legislation came into effect Jan 1, 2006), which has caused a 50% decline in exports (major restrictiveness). The 50% decline in waste food and animal feed exports to the EU seem to be structural and correlated with the tightening EC SPS legislation, notably that of reducing the tolerance level of 165 residues and aflatoxin.78 The effect of this legislation on copra, for instance, is striking, with Philippine copra exports to the EU dropping by 85%, from 46 million in 1995 to 7 million in 2003. Sauces Australia: SPS measures (part IV B): Seemingly arbitrary restrictions on sauces containing benzoic acids (AUS seems to be importing similar sauces from NZ, but not from the Philippines). The Philippines raised concerns about Australia's restrictions on sauces containing benzoic acids.79 The Philippines argued that the prohibition of sauces containing benzoic acids from the Philippines was discriminatory because Australia imports the same types of sauces from New Zealand.80 Both countries are currently seeking the definition of an international standard with regard to benzoic acids and sauces. By November 1998, the Philippines reported to the WTO that the bilateral consultations have been unsuccessful. Australia justified the continued importation of sauces containing benzoic acids from New Zealand with a previous treaty between the two nations establishing common food standards. By 1999, Australia reported that a new Australian food code was to be established before the start of 2000 and that benzoic acid from the Philippines would already be allowed in the new code. In June 2000, Australia reported that their food code has already been revised and the tolerance level was raised to 1000 milligrams per kilogram for benzoates in sauces. By October 2001, the Philippines reported and confirmed that Australia has removed benzoic acid from its Hold Order List.81 Coconut oilseeds and oil fats for industrial use EU: Distribution constraints (part VII C): Requirement that coconuts can only be transported in designated vessels, which has proven very costly (major restrictiveness). Another issue concerns Philippine coconut oilseeds and oil fats for industrial use. The EU insists that these products be transported using dedicated vessels, using possible contamination by other and previous cargoes as a reason. This policy by the EU proves to be too costly. Coconut palms Brazil: SPS general (part IV A): Prohibition of import for phytosanitary reasons. Manufactures As apparent from the export profile presented above, the majority of manufacturing exports of the Philippines fall into the categories electronics and office/data-processing machines. Philippino manufactures under these headings are mostly parts and components which are produced for a parent company according to firm-specific standards and are then "exported" intra-firm. Since the parent company can be expected to provide the necessary technology to ensure compliance with standards, NTMs faced by the manufacturing sector are relatively few. 78The Philippines is also an interested party in the case raised by Thailand over EC import restrictions on soy sauce due to maximum levels for lead, cadmium, mercury and 3-MPCD in foodstuffs. 79Ibid, 9 80Ibid, 81Ibid, 166 General manufactures EU: o technical regulations and standards (part III B): standards for packaging materials. standards for use of raw materials (e.g. environmental standards for the use of wood). o Requirements concerning marking, labeling, packaging (part V K) Eco-labeling and organic labels. Textiles Japan: o SPS measures (part IV B): maximum limits for chemical residues. Philippine textile exports were subjected to tests for the presence of formaldehyde (among other chemical residues) by Japan. The garment industry is the Philippines' second-largest export industry. Although most of its garments and textiles are shipped to the USA (over 75% of export sales) a large volume is also exported to the European Union and Japan. The Philippine garment sector consists primarily of subcontracting operations for international brands. It is driven primarily by low-cost labor and quota allocations from major markets. Chemicals EU: technical regulations and standards (part III B): stringent product standards. 3. Domestic Responses The inability of Philippine exports to gain entry into some markets stem from difficulties in resolving risk assessment conflicts or in satisfying risk assessment requirements of its trading partners particularly concerning SPS measures. This has affected exports of such products as coconuts and related products, bananas, mangoes, pineapples, and poultry and other meat products. Moreover, there is a general lack of awareness or knowledge among local exporters of the developments in product, packaging, environmental standards, and social codes of conduct in their markets. In a 1999 survey conducted by the Philippine Exporters Confederation82, some exporters considered the costs of complying with standards and technical requirements of the destination country as representing only a minimal percentage of the overall expense of doing business. Respondents said that the cost of compliance is incorporated in the market and product research aspects of exporting. For processed food, these costs are usually born by the importers or buyers themselves or just a one- time expense incurred in the first shipment of new products. Subsequent deliveries are sometimes no longer subjected to testing, the cost of which becomes negligible with repeat orders. According to the limited survey, the effect of TBTs and SPS measures on exports appears to be insignificant. Those surveyed reported that the cost increase due to standards compliance or inspection is about 3-5% of the total costs. This indicates that standards do not seem to pose a big threat to the export earnings since the actual cost of complying were not substantial and were only imposed at the beginning.83 82 Covering major products including semi-conductors and electronics, food, garments, handicrafts and decorative items, and furniture. 83The authors however admit that the small number of respondents may have excluded exporters who may be adversely affected by these standards. 167 However, cost is still an important consideration for many Philippine exporters. For example, a number of exporters have complained about the cost of complying with HACCP regulations particularly for food products. The inadequacy of local testing facilities and certification bodies means that domestic exporters would have to resort to hiring foreign expertise, which tends to be expensive. The concern is that the costs incurred would undermine the comparative or cost advantages of Philippine exporters. In a recent trade needs assessment for the Philippines commissioned by the European Commission, the major technical difficulties identified for the Philippines in this area are: · Determining and executing research protocols that will satisfy an importing country's needs for evaluating pest risks; · Gaining recognition for the absence of quarantined pests and/or wider pest free areas in the country for the export of such products as mangoes and fresh coconuts; and · Providing own scientific data and findings on food safety issues Difficulties stem from un-harmonized labeling and food additive regulations. In the case of EU regulations, the main challenge is for local exporters to better understand the nature of such regulations and make the necessary adjustments so as to comply. In some cases however, local laboratories and testing facilities are simply not equipped to conduct testing for local exporters. In many instances, product samples have to be sent abroad for testing and thus adding to exporters' costs. Domestic ability for recording and implementing traceability is also poor. There is clearly a need for domestic capacity-building to assist Philippine exporters' compliance with these regulations. Exporters will directly benefit from improved capability to respond to requirements of trading partners. It has been observed that there is an apparent lack of coordination between the different standard setting and regulatory bodies concerning SPS/TBT particularly in how these bodies can better assist exporters. In general, compliance is hampered by human resource and infrastructure problems, particularly in access to expertise on the development and harmonization of standards. The government simply lacks the administrative, technical and other capacities to comply with more stringent regulations. According to the EC study on trade needs assessment, capacity-building efforts should be geared towards enhancing risk analysis practices, regulatory verification, industry compliance, traceability and information management, and improving the functioning of SPS/TBT enquiry points. Nevertheless, the Philippines hold the opinion that some consideration or flexibility should be extended to developing economies given their lack of technical capability to conform to these SPS and product standards. The Philippine government is currently seeking to align domestic standards with international ones.84 It is also negotiating mutual recognition agreements and conformity assessment arrangements at the bilateral and multilateral level. The Philippines has entered into a number of MRAs and MOUs with Australia (for audit services), Indonesia (product certification and approval scheme), and Japan (for factory inspection and product tests). However, harmonization of domestic policies will take time and substantial investment before they will come up to par with developed country standards. 84 The Philippines is currently a member of the International Organization for Standardization (ISO), the International Electrotechnical Commission (IEC), the FAO Codex Alimentarius Commission, the International Office of Epizootics, and the Pacific Accreditation Cooperation and International Accreditation Scheme for Quality Management Systems (QMS). To date, over 65% of Philippine national standards are aligned with international standards. 168 References Bautista, Romeo and Gwendolyn Tecson (2003) "International Dimensions" in Baliscan, Arsenio and Hal Hill (eds). The Philippine Economy: Development, Policies and Challenges. Ateneo de Manila University Press. Medalla, Erlinda (1988) "A General Assessment of Foreign Trade Barriers to Philippine Exports" PIDS Working Paper No. 88-01. (Makati City: Philippine Institute for Development Studies). Palanca-Tan, Rosalinda (2004) Prospects and Problems of Expanding Trade with Japan: A Survey of Philippine Exporters (PIDS Discussion Paper Series 2004-10). Study on Needs Assessment for Trade-Related Assistance for the Republic of the Philippines (2005) Funded by the European Union and implemented by Equicoccio SRL. (Draft). Technical Barriers to Philippine Exporters (1999) Commissioned by the Philippine Exporters Confederation, Inc. (Draft). Committee on Sanitary and Phytosanitary Measures (2004) World Trade Organization: Specific Trade Concerns 169 SINGAPORE Ashish Lall, Nanyang Business School, Singapore Exports from Singapore are fairly concentrated, with the top three product categories accounting for more than 55% of the total. Singapore's most important export product is electrical equipment accounting for almost 30%, followed by office and data processing machines and petroleum products. Agricultural products do not feature among the top 75% of export products at the 2-digit level. In 2005, the top three export destinations for Singapore were Malaysia, the EU and the US, followed by Indonesia and Hong Kong. A standard survey following the NAMA format was administered to certain important manufacturing industries85 and yielded the following results: Every industry surveyed indicated a wide range of barriers faced (between 10 and 25); however, with the exception of the chemicals industry, none of the respondents indicated any barriers as being prohibitive. Overall, most of the concerns seem to lie in the area of customs and administrative procedures (generally indicated as being of major restrictiveness), with some concerns relating to government participation and technical barriers to trade. There are few if any concerns in the area of sanitary and phytosanitary measures and this is not surprising given the minimal importance of agriculture in Singapore. The chemicals industry indicates prohibitive barriers under the categories of state trading/state monopolies and customs valuation. In some Asian countries misclassification of goods or origin and lack of transparency and arbitrary enforcement of rules and regulations pose major or moderate barriers. In general, countries where non-tariff measures are encountered include India, Thailand, Malaysia, China and the United States, though in most cases the importing country was not identified. The overall results broadly agree with the NAMA notifications where customs issues are the most frequently mentioned obstacle. In addition to the standard survey above, a second survey was conducted of logistics and delivery firms on trade facilitation and customs issues. This survey was used because logistics and delivery firms rather than manufacturers/exporters are in a better position to identify customs related impediments. Results from this survey show that, in general, these shippers do not face major or prohibitive barriers in European countries. The most prohibitive obstacles are in countries such as China, India and Thailand, particularly with respect to delays due to short operating hours of customs offices. 1. Overview of Trade Singapore has for some time belonged to the group of the world's top ten largest trading nations (counting the EU as one). In 2005, its total exports amounted to almost US$230 billion, an increase of 2/3 compared to 2000. Major trading partners show remarkable stability over the previous decade. 85Chemicals, fertilizers and chemical products excluding pharmaceuticals; rubber and/or plastics and plastic products; disc media and reproductions of recorder media; mechanical machinery, equipment and parts; electrical and electronic machinery, equipment and parts; sound recorders and reproducers; communication, radio and television equipment and apparatus. 170 Figure 21: Singapore's Major Export Markets 1994-2003 15.0 India China + Hong Kong 12.5 2.2% 21.3% 10.0 1994-2003 South Korea +Taiwan Australia 9.4% 7.5 4.4% Exportsc sti Europe omeD 5.0 16.1% of Japan 2.5 9.7% Value United States of Malaysia + Thailand 19.2% CGR 0.0 17.6% AA -2.5 -5.0 0.0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0 Value of Domestic Exports in 2003 - SGD $ Billions Source: CEIC database Figure 21 divides countries in three groups (which can be thought of as large, medium and small) based on the value of exports and in two groups (single-digit and double digit) based on growth in value over the eleven year period 1994-2003.86 China and Hong Kong (SAR) come out ahead in value terms and India dominates in terms of export growth but remains small in value terms. The US, Malaysia/Thailand and European markets emerge as important markets in value terms, however, they are clustered in the low growth quadrants. Separating China and Hong Kong moves China to the number one position in terms of export growth, followed by India. By 2005, Singapore's export profile by destination had changed in certain important aspects, in particular, the large volumes of exports going to Indonesia seem noteworthy. Figure 22: Singapore 2005 exports by product Table 29: Singapore 2005 exports by destination Other Electrical Malaysia equipment RoW Industry special machines EU Misc manufactures nes Taiw an, China United States Office/data proc Thailand UN Special Code machines Japan Indonesia Organic chemicals Telecomms Petroleum and China Hong Kong, equipment products China Source: UN COMTRADE Turning to Singapore's export composition by product, exports are fairly concentrated, with the top three product categories accounting for more than 55% of exports. Singapore's most important export product is electrical equipment accounting for almost 30%, followed by office and data processing 86The size of the bubbles represents country share in the value of total exports in the year 2000. 171 machines and petroleum products. Agricultural products do not feature among the top 75% of export products at the 2-digit level. 2. Methodology of the Study This paper uses two surveys in order to assess NTMs faced by exporters based in Singapore. The first survey follows the WTO NAMA (Negotiating Group on Market Access) inventory category of barriers and was sent to exporters. The second survey is of logistics and delivery firms on trade facilitation and customs issues and is presented in the appendix. It closely follows an earlier survey by the OECD.87 This survey was used because logistics and delivery firms rather than manufacturers/exporters are probably in a better position to identify customs related impediments in Singapore's top fourteen trading partners. The survey was sent to an association representing major express delivery firms in the region and to a few smaller specialty firms.88 Specialty shippers were included to develop an initial understanding of the issues facing the bio-pharma sector which is being promoted heavily by the Singapore government. Specialty shippers handle products such as vaccines and biological specimens for the bio-pharma sector and also transport other products such as integrated circuits and wafers. The appendix reports results of the trade facilitation survey administered to the specialty firms. In general these shippers do not face major or prohibitive barriers in European countries. The most prohibitive obstacles are in countries such as China, India and Thailand, particularly with respect to delays due to short operating hours of customs offices. Since major express carriers did not respond to the survey, data was also collected from country markets and customs barrier reports available at the website of the Global Express Association.89 The reports are extensive and include particular market access issues facing the express delivery industry. The main trade barriers survey was sent to 155 firms in thirteen industry groups (Table 30). The firms were identified using a directory of exporters published by International Enterprise Singapore.90 The industry groups do not follow any particular classification and were identified using Singapore's export profile discussed in the previous section and Singapore's NAMA notifications. Only a sub-set of industry groups responded to the survey and due to the small number of responses, it is best to treat the results as anecdotal.91 87OECD: A Business Survey of Obstacles to Exporting of Goods. 88The Conference of Asia Pacific Express Carriers did not respond to the survey. The only exception was DHL Japan. I thank Yosuke Taniguchi for taking the time to respond to the survey. 89http://www.global-express.be 90Singapore Exporters 2005, 21st edition (CD-Rom). 91The response rate was 8%. The Singapore Business Federation did not wish to participate in the survey since they had earlier participated in a similar survey conducted by the Singapore Ministry of Trade and Industry. Citing confidentiality, the Ministry was unwilling to share the results of that survey. The Singapore Manufacturer's Association also showed no interest in participating in the survey. One reason cited for the unwillingness to participate was that firms had not seen any results or outcomes from previous participation in such surveys. 172 Table 30: Industry Groups and those that responded Industry Groups Response Petroleum and refined petroleum products, coke Chemicals, fertilizers, and chemical products excluding pharmaceuticals Pharmaceuticals Rubber and /or Plastics and plastic products excluding disc media Disc media products and reproductions of recorder media Mechanical machinery, equipment and parts Electrical and electronic machinery, equipment and parts Optical, Photographic products, watches and clocks Sound Recorders and Reproducers Office, accounting and computing machinery Communication, radio, and television equipment and apparatus Scientific and medical precision instruments and apparatus Transport equipment The general characteristics of respondents are provided in Table 31. Most firms are small in size and have less than 50 employees and an annual gross turnover of less than SG$5 million. The majority of firms are Singapore based with few overseas facilities and none of them are state-owned. Almost all firms have been in business for five years or more and on average export to about five countries. Table 31: General Information on Respondents 1 How many employees did you have as of December 31, 2004? % of respondents 0-9 25% 10-19 8% 20-49 50% 50-99 8% 100-199 8% 2 How long has your business been operating? 2-5 Years 17% More than 5 years 83% 3 What was your business' annual gross turnover in 2004? At least SG$ 500,000 but less than SG$ 5 million 58% At least SG$ 5 million but less than SG$ 20 million 17% At least SG$ 20 million but less than SG$ 50 million 25% Does your business have operations in countries outside of 4 Singapore? No 50% Yes, offices and/or after-sales service facilities 42% Yes, offices and production facilities 8% Are the ultimate headquarters of your business outside of 5 Singapore? No 75% Yes 25% (If Yes) What country are headquarters located in? USA, Japan 6a Is there foreign participation in your ownership? Yes, majority share 33% 173 No 67% 6b Is there any state ownership of your business? No 100% 7 How much were your business' last annual exports sales (f.o.b.)? Less than SG$ 500,000 25% At least SG$ 500,000 but less than SG$ 5 million 42% At least SG$ 5 million but less than SG$ 20 million 25% At least SG$ 20 million but less than SG$ 50 million 8% 8 To how many countries do you currently export? Sample minimum (number) 2 Sample maximum (number) 10 Sample average (number) 5 3. NTMs Faced by Singaporean Exporters Responses are concentrated around certain product groups and generally do not explain barriers in detail, though they were classified in terms of restrictiveness. Imposing countries are identified in only a few cases. Ordered by product groups, the following barriers were reported: Manufacturing Chemicals, fertilizers and chemical products excluding pharmaceuticals Type of barrier NAMA Code Restrictiveness Countervailing duties Part I B Moderate Restrictive practices tolerated by government Part I D Major State-trading or state monopoly practices Part I E Prohibitive Anti-dumping duties Part II A Major Customs valuation Part II B Prohibitive Customs classification Part II C Moderate Consular formalities and documentation Part II D Moderate Samples Part II E Minor Rules of Origin Part II F Minor Customs formalities Part II G Moderate Import licensing Part II H Major Pre-shipment inspection Part II I Major TBT ­ General Part III A Moderate TBT- Technical regulations and standards Part III B Moderate TBT- Testing and certification arrangements Part III C Minor SPS ­ SPS measures including chemical residue limits, Part IV B Moderate disease freedom, specified product treatment etc. SPS ­ testing, certification and other conformity Part IV C Moderate assessment Rubber and / or plastics and plastic products excluding disc media Imposing Type of Barrier NAMA Code Restrictiveness country Government aids, including subsidies and Part I A Moderate tax benefits Malaysia, Countervailing duties Part I B Major Thailand Government procurement Part I C Minor Restrictive practices tolerated by Part I D Minor 174 government State-trading or state monopoly practices Part I E Minor Anti-dumping duties Part II A Moderate Customs valuation Part II B Moderate Malaysia, Customs classification Part II C Major Thailand Consular formalities and documentation Part II D Moderate Samples Part II E Moderate Rules of Origin Part II F Moderate Customs formalities Part II G Major Import licensing Part II H Moderate Pre-shipment inspection Part II I Moderate TBT ­ General Part III A Moderate Malaysia, TBT- Technical regulations and standards Part III B Major USA USA TBT- Testing and certification Part III C Major arrangements SPS ­ SPS measures including chemical Part IV B residue limits, disease freedom, specified product treatment etc. SPS ­ testing, certification and other Part IV C conformity assessment Disc media products and reproductions of recorder media Type of Barrier NAMA Code Restrictiveness Government aids, including subsidies and tax benefits Part I A Moderate Countervailing duties Part I B Major Restrictive practices tolerated by government Part I D Moderate Customs valuation Part II B Minor Customs classification Part II C Minor Consular formalities and documentation Part II D Minor Rules of Origin Part II F Minor Customs formalities Part II G Minor Import licensing Part II H Minor Mechanical machinery, equipment and parts Imposing Type of Barrier NAMA Code Restrictiveness Country Government aids, including subsidies and Part I A Minor tax benefits Countervailing duties Part I B Minor Government procurement Part I C Moderate Restrictive practices tolerated by Part I D Minor government State-trading or state monopoly practices Part I E Minor Anti-dumping duties Part II A Moderate China, India Customs valuation Part II B Major China, India Customs classification Part II C Major Consular formalities and documentation Part II D Moderate Samples Part II E Minor China Rules of Origin Part II F Moderate Customs formalities Part II G Moderate China Import licensing Part II H Moderate 175 Mechanical machinery, equipment and parts Imposing Type of Barrier NAMA Code Restrictiveness Country Pre-shipment inspection Part II I Minor TBT ­ General Part III A Minor TBT- Technical regulations and standards Part III B Minor TBT- Testing and certification Part III C Minor arrangements SPS ­ General Part IV A Minor SPS ­ SPS measures including chemical Part IV B Minor residue limits, disease freedom, specified product treatment etc. SPS ­ testing, certification and other Part IV C ­ SPS Minor conformity assessment testing, certification, other conformity assessment Electrical and electronic machinery, equipment and parts Type of Barrier NAMA Code Restrictiveness Government aids, including subsidies and tax benefits Part I A Moderate Countervailing duties Part I B Moderate Government procurement Part I C Moderate Restrictive practices tolerated by government Part I D Minor State-trading or state monopoly practices Part I E Minor Anti-dumping duties Part II A Moderate Customs valuation Part II B Major Customs classification Part II C Moderate Consular formalities and documentation Part II D Moderate Samples Part II E Minor Rules of Origin Part II F Moderate Customs formalities Part II G Moderate Import licensing Part II H Minor Pre-shipment inspection Part II I Moderate TBT ­ General Part III A Minor TBT- Technical regulations and standards Part III B Moderate TBT- Testing and certification arrangements Part III C Moderate SPS ­ General Part IV A Moderate SPS ­ SPS measures including chemical residue limits, Part IV B Minor disease freedom, specified product treatment etc. SPS ­ testing, certification and other conformity Part IV C Moderate assessment Sound recorders and reproducers Type of Barrier NAMA Code Restrictiveness Government aids, including subsidies and tax benefits Part I A Major Countervailing duties Part I B Moderate Government procurement Part I C Major Restrictive practices tolerated by government Part I D Moderate State-trading or state monopoly practices Part I E Moderate Anti-dumping duties Part II A Minor Customs valuation Part II B Moderate Customs classification Part II C Moderate Consular formalities and documentation Part II D Moderate 176 Sound recorders and reproducers Samples Part II E Minor Rules of Origin Part II F Major Customs formalities Part II G Moderate Import licensing Part II H Moderate Pre-shipment inspection Part II I Moderate TBT ­ General Part III A Moderate TBT- Technical regulations and standards Part III B Minor TBT- Testing and certification arrangements Part III C Minor SPS ­ General Part IV A Moderate Communication, radio, and television equipment and apparatus Type of Barrier NAMA Code Restrictiveness Government aids, including subsidies and tax benefits Part I A Moderate Countervailing duties Part I B Moderate Government procurement Part I C Minor Restrictive practices tolerated by government Part I D Moderate Anti-dumping duties Part II A Minor Customs valuation Part II B Minor Customs classification Part II C Moderate Consular formalities and documentation Part II D Major Rules of Origin Part II F Moderate Customs formalities Part II G Major Import licensing Part II H Minor Pre-shipment inspection Part II I Minor TBT ­ General Part III A Moderate TBT- Technical regulations and standards Part III B Moderate TBT- Testing and certification arrangements Part III C Moderate SPS ­ General Part IV A Minor Restrictiveness With the exception of the chemicals industry, none of the respondents indicated barriers as being prohibitive. Most of the concerns lie in the area of customs and administrative procedures, with some concerns relating to government participation and technical barriers to trade. There are few if any concerns in the area of sanitary and phytosanitary measures and this is not surprising given the minimal importance of agriculture in Singapore. The chemicals industry indicates prohibitive barriers under the categories of state trading/state monopolies (Ie) and customs valuation (IIb). In general, countries where non-tariff measures are encountered include India, Thailand, Malaysia, China and the United States. The overall results broadly agree with the NAMA notifications where customs issues are the most frequently mentioned obstacle. Table 32: Overall assessment of barriers Overall Assessment of Rubber, Disc Mechanical Electrical & Sound Comm. Barriers Chemicals Plastics Media machinery Electronic recording Radio, TV machinery equipment equipment Government participation in I Trade 4 2 2 1 2 2 2 Customs and Administrative II Procedures 2 3 2 2 2 2 3 III Technical Barriers to Trade 2 3 0 2 2 1 2 Sanitary & Phytosanitary IV Measures 2 1 0 1 2 0 0 Notes: 0 = Not an Obstacle or Not Applicable, 1 = Minor Obstacle, 2 = Moderate Obstacle, 3 = Major Obstacle, 4 = Prohibitive Obstacle 177 References Bacchetta, Marc and Bijit Bora (2003) "Industrial Tariff Liberalization and the Doha Development Agenda." World Trade Organization, Geneva. Donnelly, William A. and Manifold, Diane (2005) "A Compilation of Reported Non-Tariff Measures: Description of the Information" Office of Economics Working Paper No. 2005-05-A, United States International Trade Commission. Ghemawat, Pankaj (2003) "Semiglobalization and International Business Strategy" Journal of International Business Studies, 34, 138-152. Levitt, Theodore (1983) "The Globalization of Markets" Harvard Business Review, May-June. OECD (2005) "Analysis on Non-Tariff Barriers of Concern to Developing Countries." TD/TC/WP(2004)/47/REV1, 3rd February, Paris. Prusa, Thomas J. (1999) "On the Spread and Impact of Antidumping." NBER Working Paper No. 7404, October, Cambridge, MA. Prusa, Thomas J. and Susan Skeath (2001) "The Economic and Strategic Motvies for Antidumping Filings." NBER Working Paper No. 8424, August, Cambridge, MA. World Trade Organization (2004) "Non-tariff Barriers Notifications ­ Addendum." TN/MA/W/46/Add.4, 3rd November, Negotiating Group on Market Access, Geneva. 178 ance 1 0 2 3 2 2 1 1 1 0 0 0 0 0 Fr erh 1 0 2 2 2 2 1 1 1 0 0 0 0 0 S Net -lands URED any rmeG 1 0 2 2 2 2 0 0 0 0 0 1 1 0 PROCE D KU 1 0 2 2 2 2 0 2 1 0 0 0 0 0 AN lia TS MEN strauA 3 0 2 3 2 3 0 2 1 0 0 1 2 0 RE ndiaI 3 0 3 3 3 3 3 4 2 0 1 3 3 0 REQUI E NC dnaliahT 3 0 3 3 3 3 3 4 2 3 0 2 3 3 EARA ai CL laysa 1 0 2 2 2 3 2 0 0 2 2 1 1 3 D M AN rea ONIT outhS 3 0 2 2 2 2 0 2 1 0 0 2 1 0 Ko 3 0 2 2 2 3 3 2 1 0 1 3 1 3 181 Taiwan ASSIFICA CL na 3 0 3 3 2 3 0 1 0 0 0 2 2 0 Jap OMS STUC ng ng )RA 3 0 3 3 2 2 1 3 1 0 0 2 2 0 Ho Ko (S fers) ain 3 0 3 3 2 3 3 4 2 3 2 2 3 2 Ch WadnasCI, 3 0 2 2 3 2 2 1 0 0 0 2 3 0 USA or to d of s ofnig y and ruless d rsuoh ori trar s ishelb niatboot sa required" duree such ents proc (Bio-Pharma ers orsdoog ns emir arbi icerpet ands outban tuoba omstuc rule on of ingaterpo other atio ati hdnag lsa rorsre payments equrn esg of or Shipp onit esu flaniotd ods pe icaf val use ofnoitaicbl tioalugre ent atemotuafok ance lac horts pepatn norim formin punidedi nda formni cem to ance to onali clear nde tioatne es/ChareF ofy of st ed ed dessieb um pu ss enfor ys "addit omsst forseitl eskast ersU ecialty ssi I Sp­ mumi es of onsi tic lat ods Miscla go Min prac Lack regu ncieciffuS ovrpstnem ire ruleselbla relat earlc relat services dein neilem gofo pena doc requ avai Ti emenruiqre onsi dela of mi lat omst omst of ng or oms Arbitrary regu elaysD cus elaysD cus therO aseelre cuniat Irregular ob Lack zeiS ypit ataD Cust Appendix Results .a b. .c d. .e f. g. h. i. j. k. l. m. n. es dn ila Tha Yes tim-emoS noit No lluF specin No - No Yes No Yes No es ia lays Ma Yes tim-emoS ion sk/ scret A A A Yes Ri Di N/ N/ N/ Yes No No Yes aidnI me- es sk Yes So tim Yes Ri Yes No No Yes No Yes Yes an sk Taiw Yes Yes Yes Ri Yes Yes Yes Yes No Yes Yes ion h outS sk/ scret Korea Yes Yes Yes Ri Di No - Yes Yes No No Yes n sk Japa Yes Yes Yes Ri No - Yes Yes No Yes Yes ng Ko esmi ) no ng me-t sk Ho (SAR Yes So Yes Ri Yes Yes Yes Yes No No Yes ssociatiAs ain me- es sk Ch So tim No No Ri Yes No Yes Yes No No Yes res Exp sk 182 USA Yes Yes Yes Ri Yes No Yes Yes Yes Yes Yes al Glob sk me- UK Yes Yes Yes Ri Yes Yes Yes So esmit s No Yes Ye by s nda cted erlh nduocy sk Net Yes Yes Yes Ri Yes No Yes Yes No No Yes y rveus sk German Yes Yes Yes Ri Yes No Yes Yes Yes Yes No omfr ce me- es sk atedlloc Fran Yes So tim No Ri Yes Yes No Yes No Yes Yes a dte sults ralist % Au Yes Yes Yes 70 specin Yes Yes No Yes Yes Yes Yes Re­II dna s cy onsi dtea s herots cy en l needs rmal ourhg of fo aren lat ngi cy mentip leaseerl s ted ica scaif sruoh icesv kin nce sp guer inno ess eni sh agencie uc ser Appendix oc cali ion agrehto noni ents of nd the s) s for adva Tran ofnoit atiipict autom)7/ process in par pryro Effic 24(e esci ur rv pay orwlam ta shipm ngi hysp tions bysnoi omt are)(rof cosnoit hyspfo omfr ngikrows ialcremmoc nor and of stoms ica ic lat tim stoms forsi spectinepl ontia pect todte serof hognki ium ipt dalort Cu ublP decisions ublP guer ocess ltiu cusn Cu ull-F pr Bas examina M nsi( Yes tha If specin ?lyptmorp pareS odsog rolnt of co omstuC adap Fee orw emrP deits ou Rece con arrival dn ila itmil Tha No Yes o.m3 itmil No Yes ia lays A Ma N/ Yes oN A Yes N/ aidnI rs.y7 Yes o.m3 Yes Yes an . ys Taiw mo6 da Yes 30 Yes Yes h outS Korea rs.y2 No - Yes Yes n A Japa N/ Yes A/N A Yes N/ ng Ko ) ng Ho (SAR No Yes oN Yes Yes ain ys da Ch No Yes 15 No No / ys da -e 1- ys na s. - 2 USA 30 uallysu es som tim yr4 da no Yes 30 if merch sedi s. 183 else yr Yes No it s. UK yr3 Yes LimoN Yes No s nda erlh uty/D Taxes s. s. Net yr3 s. 7yr Yes yr3 Yes Yes y s. s. German yr3 Yes yr3 Yes Yes ce s. yr4 s. Fran 3- Yes yr3 Yes Yes a ralist s. Au yr5 .om Yes 12 Yes No Continued esses II Proc re-rod/ tosnoi sl lal on appea and or Appendix rofitmile- ng an s deciss l tion an na invoice orl ecidingd prices ficai ndibis to Post-Release tims tiesud omt al goodfo buitr cus ngli nt class ru ion ery ofl leve de forti uplifts reference stoms: Cu omstuC erh pen lime of dit ad lived ppeaA higa dein entry- Tim Pre ionatluav strop Use arbitrary esluav TAIWAN Tsai-Lung (Honigmann) Hong92, Yu-Hsi Liu, and Darson Chiu Taiwan Institute of Economic Research The main features of Taiwan's export structure in terms of its geographic destinations and components by industry are the following: of all destinations, exports to Mainland China and Hong Kong (often on a detour to Mainland China) have expanded the fastest during the last five years, making them Taiwan's number 1 and 2 export destinations. At the same time, export volumes to ASEAN have remained stable and the shares of the other importers, including the United States, the EU (25), and Japan have decreased, leaving the latter in 3rd, 4th and 5th position respectively. The composition of Taiwan's exports has changed substantially over the past few years. Industrial products have steadily increased their shares, accounting for 98.7% today. Exports of capital- and technology-intensive goods have shown impressive growth. For electronics and products related to information technology, the share of total exports increased to 31.2% in 2005. Further, basic metals & its products, plastics & rubber products, precision machineries products, and textile products are regarded as Taiwan's major goods for export. Internal barriers were not perceived as being as constraining as external ones, however, two that were mentioned were domestic customs procedures when dealing with China (for the electronics and metal industries) and local content requirements faced by Taiwanese-invested companies in Mainland China (for the electronics industry). As regards external barriers, Taiwanese exporters seem to be facing a variety of measures in different countries, for which a pattern seems difficult to discern. An exception is the steel industry which mainly suffers from anti-dumping measures and foreign subsidies. The most barriers were reported for the automobile sector, which seems to confront a wide range of barriers from TBT measures (in particular in Japan), to countervailing duties, to import licensing/quotas (in particular in China), state monopolies, financial requirements (in the EU), complex and inconsistent customs formalities as well as packaging standards (imposing countries were not specified in most cases). Fewer barriers were reported for the cement sector (TBT, buyer cartels in Vietnam and Bangladesh, pre-shipment inspection and anti-dumping), the textile sector (anti-dumping and administrative entry procedures) as well as chemicals and plastics. Agricultural products faced a variety of SPS measures as well as surcharges and barriers arising from government trading, though export importance of these products is small. It also seems worth noting in this context that Taiwanese exporters often benefit from strict SPS standards, as they are often the only ones who can meet them. As a general barrier, it was pointed out that transshipment via Hong Kong which is often required when exporting to China can add 10-15% to cost. Exporters were further worried by the increasing activity with respect to bilateral trade agreements in the region from which Taiwan has so far been excluded. Of the 40 companies surveyed, 19 reported decreasing exports as the consequence of NTMs, for six firms a particular obstacle was prohibitive, and for another five, a specific NTM simply increased cost. It seems that overall Taiwan's exports have been experiencing a decrease in NTMs in recent years. This is in part due to the relocation of manufacturing from Taiwan to China. Another factor could be that Taiwanese manufacturers are very flexible when it comes to adjusting production processes and inputs. 92Dr. Hong and Mr. Chiu are associate researchers at the Taiwan Institute of Economic Research. Ms. Liu is an assistant researcher at the institute. 184 1. Overview of Trade In 2005, Taiwan exported US$198.4 billion of merchandise goods and ranked 17th among the world's top exporters. Exports comprise 57% of GDP, indicating that Taiwan is a highly open economy. Because of the economic dynamism and increasingly strong production networks in East Asia, Taiwan's share in regional trade has been steadily increasing. Of all destinations, exports to Mainland China and Hong Kong (often on a detour to Mainland China) have expanded the fastest during the last five years,93 while export volumes to ASEAN have remained stable. Within ASEAN, Singapore plays the most important role as an export market followed by Malaysia, Philippines, Vietnam, Thailand and Indonesia. In contrast, the shares of the other importers, including the United States, the EU (25) (the Netherlands, Germany, U.K., Italy and France being the top markets for Taiwan's exports), and Japan have decreased. For instance, the share of Taiwan's total exports to the United States decreased from 23.8% in 1995 to 15.1% in 2005. Secondly, the composition of Taiwan's exports has changed substantially over the past few years, reflecting the restructuring and upgrading of its production structure. Industrial products have steadily increased their shares, accounting for more than 90% of total exports in 1990 and reaching 98.7% in 2005. In 2004, manufactures constituted 92.8%, fuels and mining products 4.7%, and agricultural goods including processed foods, comprised of about 2.5% of Taiwan's total exports.94 Figure 23: Taiwan 2005 exports by product Figure 24: Taiwan 2005 exports by destination Electrical Other equipment Thailand Vietnam RoW Road vehicles Malaysia China Philippines Metal Korea, Rep. manufactures nes Office/data proc machines Plastics in primary Scientific Singapore Hong Kong, China form instruments Textile Japan Petroleum and Telecomms etc yarn/fabric/art. EU United States products equipment Iron and steel Misc manufactures nes Source: UNCTAD TRAINS Exports of capital- and technology-intensive goods have shown impressive growth, increasing from a share of 32.2% in 1981 to 80.2% in 2005. For electronics and products related to information technology (ICT Industry), the share of total exports increased from 13.7% in 1981 to 31.2% in 2005. Further, basic metals & its products (10.7%), plastics & rubber products (7.7%), precision machineries products (7.2%), and textile products (6.2%) are regarded as Taiwan's major goods for export.95 93The sharp increase in the cross-strait trade is largely explained by the huge and asymmetric FDI from Taiwan to China. The official admission of FDI by Taiwan was about US $50 billion from 1991-2006. It is likely that this figure is greatly underestimated. In 2005, 71% of total FDI by Taiwan flowed into China. See Mainland Affairs Council: http://www.mac.gov.tw/english/index1-e.htm (accessed on 2006/8/2); Furthermore, approximately 70,000 Taiwanese enterprises have investment in China. 94http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=TW 95Directorate General of Customs, Ministry of Finance, ROC http://web.customs.gov.tw/statistic/statistic/EIS5_21x.asp (Data retrieved on July 25, 2006.) 185 2. Methodology of the Study The objective of this study was to identify the types and severity of NTMs, the markets that implement them and further to gauge traders' and manufacturers' perception of those measures. The main tool used for this purpose was a firm level survey among the target industries (including components of autos, textiles & clothing, leather, steel and instruments, electronics). 105 of 900 questionnaires were returned, however, only 40 of those were valid. Firms which submitted a valid questionnaire were in the following sectors: Components of Autos (10) Basic Metals & Metal Products (8) Textiles &Clothing (5) Electronic& Electric Products (4) Bicycles (4) Plastics Products (3) Medical Treatment Products (2) Food & Beverages (1) Leather Products (1) Chemicals products (1) Motorcycles (1) Additionally, the following auxiliary approaches were used: · Interviews with four members of the Chinese Taipei PECC (2005) · A symposium on NTMs (June 2005) · Government reports on NTMs (2001-2004)96 Given Taiwan's export profile, the following three key questions arose: 1. With the shifting of main export destinations from developed countries (US and EU) to Mainland China and East Asia, what are the implications for the type of NTM faced by Taiwan's exporters? 2. Related to 1.) but not identical, the shift of export gravity from the US and EU to China and East Asia is also affecting Taiwan's export composition. Does the increase of intermediate goods as share of Taiwan's total exports also lead to a different NTM incidence? 3. Will the fact that Taiwan may be excluded from FTAs for political reasons affect the incidence of NTMs faced by Taiwan relative to its competitors? The subsequent two sections will give an overview of the different internal and external non-tariff measures faced by Taiwanese exporters as gathered from the four different sources, while Box 10 presents brief case studies for the 4 PECC members specialized in plastics and cement production. 96This section benefits mainly from the following two resources, including the regular information of the Bureau of Foreign Trade (BOFT) of Ministry of Economic Affairs, see http://cweb.trade.gov.tw/kmDoit.asp?CAT1565&CtNode=861; and the results of one survey titled as "The Barriers to Trade of Taiwan", from the questionnaire exercised in 2004 by BOFT. 186 3. NTMs Faced by Taiwanese Exporters a. Internal barriers In general, internal barriers were not perceived as being as constraining as external ones, however, two that were mentioned were domestic customs procedures when dealing with China and local content requirements faced by Taiwanese-invested companies in Mainland China: Electronic and electrical products: Domestic customs formalities (part ii g): inefficient customs procedures for trade with China Business practices or restrictions in the market (part vii d): indirectly, Taiwanese businessmen who have invested in mainland China are facing trade measures imposed by China, such as local content requirements. Basic metals and metal products Domestic customs procedures (part ii g): inefficient customs procedures for trade with China (due to political tensions) b. External barriers The subsequent section gives an overview of external barriers identified from the various sources. Taiwanese exporters seem to be facing a variety of measures in different countries, for which a pattern seems difficult to discern. An exception is the steel industry which mainly suffers from anti-dumping measures and foreign subsidies. Components of autos seem to confront the largest number of NTMs. General Importing Type of Barrier NAMA Code Country Indonesia Frequent alteration of quantitative Part V ­ Specific limitations: restrictions during review process. discretionary quantitative restrictions Mexico Restrictions on importer qualifications and Part V A ­ Quantitative restrictions quantities. Turkey No clearly defined import regulations in Part II ­ Administrative entry some cases e.g. red meat and rice. procedures Agriculture Product Importing Type of Barrier NAMA Code Country Vegetable oil, sugar, China Imports only by SOEs. Part I E ­ State trading, tobacco government monopoly practices Litchi US Demand 15-day freezing Part IV B ­ SPS measures process which degrades product quality Hay for livestock Japan Banned due to concerns over Part IV B ­ SPS measures foot and mouth disease. Fruit Japan Strict, time-consuming Part IV C ­ SPS testing, 187 inspections. certification, other conformity assessment Fisheries Philippines Need permission from the Part II ­ Administrative entry Ministry of Agriculture in the procedures Philippines, in particular if the exports could cause damage to domestic industry. Travel cot Germany, SPS standards vary by Part IV A ­ SPS general France, UK country. Beef, Pork Thailand Fees for import permission of Part VI B ­ Surcharges, port $114 per ton. taxes etc. Chicken Thailand Fees for import permission of Part VI B ­ Surcharges, port $227 per ton. taxes etc. Jelly lollies Australia Banned because of choking Part IV B ­ SPS measures hazard. Meat products Indonesia Complicated customs Part II G ­ Customs procedures, e.g. need to formalities present Importer Letter of Recommendation. Manufacturing General Imposing Country Type of Barrier NAMA Code ASEAN in particular Free trade agreements in Part V E ­ Discrimination which Taiwan is not involved. resulting from bilateral agreements US AD Part II A ­ Anti-dumping duties EU/US TBT Part III A ­ TBT general EU/US SPS Part IV A ­ SPS general Brazil Export certificates Part II ­ Administrative entry procedures China Transshipment via Hong Part VII C ­ Distribution Kong, which increases total constraints costs by 10-15% Automobiles and automobile parts Product Imposing Type of Barrier NAMA Code Country Auto parts Fees for conformity Part III C ­ TBT testing and assessment, which is a certification disadvantage for producers who provide a variety of products in small quantities Auto parts Countervailing duties. Part I B ­ Countervailing duties Auto parts TBT Part III A ­ TBT general Auto parts Import licensing ­ the duration Part II H ­ Import licensing to obtain a license is too long and the fees are too high. Auto parts State monopolies. Part I E ­ State trading, government monopoly practices Auto parts Complexity of customs Part II G ­ Customs 188 procedures. formalities Auto parts Inconsistent formalities. Part II ­ Inconsistent administrative entry procedures Auto parts Packaging standards. Part V K ­ Requirements concerning marking, labeling, packaging Auto parts EU Letters of credit above Part VII E ­ Other: Financial $600,000 (lowers liquidity and requirements increases transaction costs). Auto parts China Transshipment via Hong Part VII C ­ Distribution Kong. constraints Auto parts Japan Standards and inspections. Part III B ­ Technical regulations and standards Commercial vehicles China Import quotas. Part V A ­ Quantitative restrictions Textiles and clothing Textiles and clothing Indirectly, Taiwanese Part II A ­ Anti-dumping businessmen who have duties invested in mainland China are facing trade measures imposed on China, such as anti-dumping duties. Textiles and clothing Turkey Cumbersome procedures to Part II ­ Administrative entry obtain export certificate procedures (requirement for the certificate to be verified by the court). Steel Steel Subsidies by foreign Part I A ­ Government aids governments. including subsidies and tax benefits Steel Russian AD Part II A ­ Anti-dumping Federation, duties Eastern Europe Steel fuel tanks for Canada AD Part II A ­ Anti-dumping autos duties Cement Cement US Inspection and certification. Part III C ­ TBT testing and certification Cement Nigeria Pre-shipment inspection is Part II I ­ Pre-shipment extremely time consuming inspection Cement Philippines AD Part II A ­ Anti-dumping duties Other Bicycles Canada AD Part II A ­ Anti-dumping duties Chemical fertilizers China Imports only by SOEs. Part I E ­ State trading, government monopoly practices PVC China AD Part II A ­ Anti-dumping duties Polyester EU AD Part II A ­ Anti-dumping duties 189 DVD players EU AD Part II A ­ Anti-dumping duties Tools in sets for retail Multiple conformity tests lead Part III C ­ TBT testing and sales to delays in delivery certification Dental floss Thailand Require CFS ­ Certificate of Part VII D ­ Business Free Sales for medical practices or restrictions in the purposes. market Lubricating oils and Vietnam, Import restrictions. Part V A ­ Quantitative greases Indonesia restrictions As for restrictiveness of these measures, of the 40 companies surveyed, 19 reported decreasing exports as the consequence of NTMs, while for six firms a particular obstacle was prohibitive, for another five, a specific NTM simply increased cost. Five companies said they dealt with NTMs by changing the product design. Further, the following points are worth highlighting: Firstly, as regards specific measures, the frequency of use of such measures seems highly influenced by economic cycles and events. During the East Asian financial crisis (1997/8) for example, economic activity was temporarily disrupted in the affected countries, decreasing aggregate demand and creating over-supply for some products. Certain countries feared dumping as a consequence of the collapse of domestic prices. Secondly, as regards affected products, an interesting observation for Taiwanese agricultural products is that stringent standards imposed by industrialized countries are not necessarily a disadvantage but instead an advantage for Taiwan. The export of soy beans from Taiwan to Japan is a good example. It is well known that Japan performs strict pesticides residue detection. Since the soy beans from Taiwan are of a better quality than those of other countries, the imposed standard turns into an opportunity for competitive advantage. Finally, as regards affected firms, Box 10 presents a set of case studies indicating that NTMs present more serious obstacles to smaller firms. Overall, Taiwan's exports have been experiencing a decrease in NTMs in recent years. This is in part due to the relocation of manufacturing from Taiwan to China. Another factor could be that Taiwanese manufacturers are very flexible when it comes to adjusting production processes and inputs. The results can be summarized in four points: 1. The survey confirms that developing countries generally use more traditional measures such as "local content requirements" as in the case of Electronic & Electric Products in China. Import licensing was also encountered in many cases, as well as red tape regarding customs procedures. In contrast, in developed countries Taiwanese exporters often face anti-dumping measures and TBT/SPS standards. Components of autos seem to confront the largest number of NTMs as a result of product differentiation. 2. Most NTMs were identified as being external, while some cases pointed to Taiwan's domestic customs procedures as being constraining. The procedure could be especially restrictive for exports bound for China (electronic& electric products and basic metals & metal products). Some firms also regard the additional transportation costs arising 190 from transshipping through Hong Kong as one form of NTM for cross-strait trade. 3. China in which Taiwanese businessmen invest heavily confronts severe NTMs, especially in the form of anti-dumping measures. Some Taiwanese firms (home country) have complained that their products made in China (host country), such as textiles & clothing, suffer from these kinds of measures. 4. The proliferation of FTAs in the region could result increased discrimination also in terms of NTMs for Taiwan if it is excluded from these agreements for political reasons. Box 10: Case Studies: Perception of NTMs by Taiwanese Companies The companies interviewed are leading plastics, chemicals and cement manufacturers in Taiwan as well as a small auto-parts firm, which is quite different from these three leading companies, providing some variety in the sample. Energetic small and medium enterprises are an important driving force for the Taiwanese economy. Their experience is extremely important to other developing countries and hence an in-depth interview was arranged with one of them. From the interview, NTMs do not seem to pose large obstacles to the SME. The company has all the necessary resources to understand all customs procedures. It cooperates well with the customs brokers and the fee paid to the brokers is not a heavy burden. This seems to indicate that the transaction cost in trade of small and medium-sized enterprises in Taiwan is not much higher than the cost for large companies. This may also be due to the export destination of the company being the EU, Canada and the US, where transparency regarding regulations is higher. However, the SME still faces some NTMs. These are: 1. The products exported to Europe require letters of credit above US$600,000, which lowers asset liquidity and thereby increases transaction costs. 2. Japan has inspections and standard requirements for auto components. 3. 20% of the company's products are intermediate goods sold to China. Later, these intermediate goods are sold back to Taiwan as components of the final goods. This procedure is made cumbersome by the fact that Taiwanese firms are unable to trade directly with China, but have to trans-ship via Hong Kong. The three large companies interviewed also do not perceive NTMs as major obstacles. However, one cited the prohibition of cross-strait direct trade as an important NTM. The company points out that the total cost increase is 10%-15% due to longer shipping times and fees. Lastly, the cement company encounters more NTMs than the other three enterprises. The company produces both for domestic and overseas markets. 45% of its products are exported and have in the past encountered the following NTMs: 1. goods exported to US needing to be certified and inspected. 2. The buyers in Vietnam and Bangladesh forging an alliance to increase their bargaining power, thereby distorting the price. 3. Goods exported to Nigeria having to undergo pre-shipment inspection which is very time-consuming. 4. The Philippines imposing anti-dumping duty on the import of the cement from Taiwan. 191 THAILAND Apichart Prasert, Fiscal Policy Research Institute, Thailand Thailand's top 10 export categories accounted for 60.1% of total exports in 2005. The top two exports in 2005 were electrical equipment and office/data processing machines. Other important export categories are auto parts and components, telecoms equipment, petroleum, plastics, rubber as well as textiles and clothing and certain agricultural products such as fisheries and cereals. Agricultural and agricultural industrial products made up 15.7%, while principal manufacturing products accounted for 78.2 % of the total. Despite the fact that agricultural goods like chicken, shrimp and fruit do not feature prominently among the top export products, market access conditions for these products are nevertheless important as their production employs a large number of Thai farmers. Thailand's main export destinations in 2005 were the US, Japan, and the EU as well as ASEAN (mainly Singapore, Malaysia, and Indonesia). Thai agricultural exporters reported an extremely large number of NTMs, whereby the bulk of those seems to be imposed by China, the US, Japan and Australia. While SPS measures were mentioned most often (taking the form of specific product treatments, burdensome inspections and certification requirements), other measures reported by exporters include time-consuming or non-transparent customs formalities, import licensing, quantitative restrictions, distribution constraints, cumbersome administrative entry procedures and discriminatory charges as well as packing and labeling requirements. There seem to be many regulations which apply to food products in general, while tuna and shrimp/ shrimp products seem to be hardest hit by various measures in a number of important markets, most prominently the US. Fruit and vegetables seem to be facing most measures in China and Australia. In the manufacturing sector, the majority of NTMs arise from standards/technical regulations and related certification requirements, import restrictions as well as anti-dumping measures. Obstacles are faced by auto exporters regarding quantitative restrictions, discriminatory charges and standards imposed by developing countries in the region and by electrical appliance and electronics exporters regarding safety and other standards mainly vis-à-vis the EU and the US. In addition a number of Thai furniture, wood, leather and toy exports are facing non-tariff barriers mainly in the form of technical regulations and packaging/labeling requirements. A measure that stands out as being used frequently by Thailand's trade partners is anti-dumping. In 2004, Thailand was subject to 6 anti-dumping measures from its trade partners. Of the 62 anti- dumping cases since 1995, 14 were brought by the EU, 11 by India, and 7 each by the US and Australia. Plastics, rubber, base metal, and their articles were subject to 28 anti-dumping measures and textiles and garments articles endured 9. Further, chemicals and steel exporters have been hard hit by a series of anti-dumping investigations. 1. Overview of Trade Thailand is a small open economy which relies greatly on exports. In 2005, the Thai economy grew by 4.5% despite critical incidents such as avian flu, drought, tsunami, and terrorism. The engines of growth were perceived to be both private investment and exports. In 2005, Thai exports reached $110 billion, equivalent to 62.3% of GDP. Total exports grew by 14.6% in 2005 vs. 19.6% in 2004. At the same time, imports expanded even faster at 26 %, driven especially by oil, steel, and gold. 192 Thailand's top 10 export categories accounted for 60.1% of total exports in 2005. The top two exports in 2005 were electrical equipment and office/data processing machines accounting for $26.2 billion or 23.8% of total exports (Figure 25). This implies a growth rate of nearly 30% for those two categories since 2003, when exports stood at $20.2 bio/ 25.2% of the total. Other important export categories are auto parts and components, telecoms equipment, petroleum, plastics, rubber as well as textiles and clothing and certain agricultural products such as fisheries and cereals. Overall, exports of high- and medium-tech products accounted for 63.7 % of total exports. Agricultural and agricultural industrial products made up 15.7%, while principal manufacturing products accounted for 78.2 % of the total. Despite the fact that agricultural goods like chicken, shrimp and fruit do not feature prominently among the top export products, market access conditions for these products are nevertheless important as their production employs a large number of Thai farmers. The subsequent study of NTMs will therefore include these products as well. In 2005, export growth of automobile and components reached 41.64 %, making it the fastest growing export sector in Thailand. The exports of plastics in primitive forms, chemical products, gem and jewelry, processed seafood, and rubber products expanded by 34.46 %, 27.66 %, 21.54 %, 16.48, % and 13.36 % respectively. Thailand's main export destinations in 2005 were the US, Japan, and the EU, accounting for 15.5%, 13.6%, and 12.9% of total exports as well as ASEAN with a share of 21.7% (mainly Singapore, Malaysia, and Indonesia) (Figure 26). Compared to 1995, the shares of the top 3 export destinations shrunk marginally: at the time, they were 17.8%, 16.8% and 15.0% for the US, Japan and the EU respectively, whereas the share for ASEAN remained relatively constant, having accounted for 21.6% in 1995. The share of China + Hong Kong at the same time increased significantly from 8.1% in 1995 to 13.9% in 2005. Figure 25: Thailand 2005 exports by product Figure 26: Thailand 2005 exports by destination Philippines Other Electrical equipment Office/data proc RoW United States machines Korea, Rep. Road vehicles Cereals/cereal Vietnam Japan preparations Telecomms equipment Taiw an, China Misc manufactures Textile yarn/fabric Australia Fish/shellfish Indonesia EU Crude/synthet/rec rubber Petroleum and Industrial equipment Malaysia Apparel/clothing Plastics in primary China products Hong Kong, China Singapore form Source: UNCTAD COMTRADE The following were the main export products by country/region in 2005: US: exports of electrical machinery and equipment (HS 85) represented 23% of total exports to the US. Exports of reception apparatus for television, video monitors and video projectors (HS 8528) rose by 4% to US$906 million. Exports of electronic integrated circuits and micro-assemblies (HS 8542) increased by 2.86% to US$600 million. Automatic data processing machines, parts, and accessories (HS 84) accounted for 15% of total export increasing by 18.66% from 2004. Within this category, earnings from automatic data processing machines/units and parts (HS 8471 and HS 8473) increased by 22.12% to US$1.86 billion. Exports of natural rubber (HS 4001) reached US$328 million. 193 Japan: about 27 % of the total exports to Japan were in electrical machinery and equipment (HS 85). Exports of electronic integrated circuits and micro-assemblies (HS 8542) reached US$676 and automatic data processing machines, parts, and accessories (HS 84) accounted for 15%. Thailand's exports of storage units (HS 8471700) and input/output units (HS 8471600) of automatic data processing machines and units achieved US$409 million and US$186 million of export earnings respectively. Exports of poultry and products (HS 1602) touched US$313 million in 2005. EU: the most important exports to the EU were computers & computer equipment, pickup trucks, air conditioners & components, gems and jewelry, and electronic circuits, accounting for 11.73%, 5.94 %, 4.36 %, 4.18 %, and 2.92 % of total EU exports, respectively. ASEAN: exports to Singapore, Malaysia, and Indonesia accounted for 30%, 24%, and 17% of total exports to ASEAN respectively. Machinery, electrical machinery and equipment, mineral fuel oil wax, and vehicles were among the top exports to ASEAN. Thailand exported US$418.67 and 247.15 million of motor vehicles (HS 8703) to Indonesia and the Philippines respectively as well as US$320.71 million worth of motor vehicle accessories and parts (HS 8708) to Malaysia. Thailand's exports of electronic integrated circuits and micro-assemblies (HS 8542) to Singapore reached US$553.69 million. Exports of rice to Malaysia stayed at US$139.12 million. China: about 28 % of exports to China were accounted for by machinery, mainly automatic data processing machines, parts and accessories (HS 84). Exports of automatic data processing machines and parts (HS 8471 and HS 8743) stood at US$1.36 billion in 2005, a reduction of 11.24 % compared to the previous year. Electrical machinery and equipment (HS 85) represented 14 % of total exports to China. Exports of electronic integrated circuits and micro-assemblies (HS 8542) accomplished US$381 million. The share of rubber and rubber products reached was 10.06% in 2005, followed by plastic and plastic articles with 8.84 %. Exports of natural rubber (HS 4001) achieved the record high of US$742 million. 2. NTMs Faced by Thai Exporters Thailand's exporters are facing a variety of NTBs abroad in both developing and industrialized countries. In the latter, agricultural products and foods are subject to a wide range of sanitary and phytosanitary measures. Manufacturing products are also subject to high technical standards and testing requirements which increase the cost of production and marketing for exporters. As for developing country importers, Thai products suffered from delays from customs procedures and regulations; non-transparency and arbitrary application of rules sometimes proved prohibitive for Thai exporters. Further, in 2004, Thailand was subject to 6 anti-dumping measures from its trade partners. Of the 62 anti-dumping measures since 1995, 14 measures were issued by the EU, 11 by India, and 7 each by the US and Australia. Plastics, rubber, base metal, and their articles were subject to 28 anti-dumping measures and textiles and garments articles endured 9. The following will present an overview of NTMs faced by Thai exporters drawing on existing literature. Agriculture As can be inferred from the export profile above, agricultural products do not play a major role as a Thai export good. In 2005, agricultural products made up 15.7% of total export value. 194 Nevertheless, NTMs affecting these products are important, as they have a profound impact on SMEs and farmers who make up a considerable number of Thailand's work force and poor. Thai agricultural exporters reported an extremely large number of NTMs, whereby the bulk of those seems to be imposed by China, the US, Japan and Australia. While SPS measures were mentioned most often (taking the form of specific product treatments, burdensome inspections and certification requirements), other measures reported by exporters include time-consuming or non-transparent customs formalities, import licensing, quantitative restrictions, distribution constraints, administrative entry procedures and discriminatory charges as well as packing and labeling requirements. There seem to be many regulations which apply to food products in general, while tuna and shrimp/ shrimp products seem to be hardest hit by various measures in a number of important markets, most prominently the US. Fruit and vegetables were reported to be facing most measures in China and Australia. Product Imposing Countries Type of barrier NAMA Code Agriculture General Food US Customs procedures: require Prior Part II G ­ Customs products Notice of Imported Food Shipment. formalities Food US Food Allergen Labeling. Part V K ­ products Requirements concerning marking, labeling, packaging Agricultural US Country of Origin Labeling (COOL). Part V K ­ products Requirements concerning marking, labeling, packaging Agricultural Japan Technical regulations and standards Part IV B ­ SPS products and (chemicals residue system was measures food recently changed from negative list to positive list). Several China Tariff quota on e.g. cotton, rice, corn, Part V I ­ Tariff quotas agricultural sugar, palm oil, soybean oil, wool. products Some China Monopolistic measures, i.e. imports Part I E ­ State trading, agricultural by SOEs only. government monopoly products practices Fruit and China Exporter and packager registration, Part II H ­ import vegetables import permit. licensing Fruit China Technical standards and regulations. Part IV B ­ SPS measures Fruit China Customs procedures. Part II G ­ Customs formalities Live marine China License required. Part II H ­ import and licensing freshwater animals Some fruit Japan Quantity control measures or import Part V A ­ Quantitative and ban. restrictions vegetables Sugar, US Tariff rate quotas Part V I ­ Tariff quotas tobacco, cement, 195 Product Imposing Countries Type of barrier NAMA Code tuna, cotton... Fruit and Australia Quantity control measures or import Part V A ­ Quantitative vegetables ban. restrictions Fisheries US Certification. Part IV C ­ SPS testing, certification, other conformity assessment Seafood Australia Customs procedures. Part II G ­ Customs formalities Seafood Australia Technical regulations and standards. Part IV B ­ SPS measures Fresh food Fresh US Quantity control measures or import Part V A ­ Quantitative vegetables ban. restrictions and fruit Fresh fruit US Customs procedures (includes pre- Part II G ­ Customs clearance program). formalities Fresh fruit US Technical regulations and standards, Part IV B ­ SPS including standards for radiation. measures Fresh fruit US Certification. Part IV C ­ SPS testing, certification, other conformity assessment Some fresh US License requirement. Part II H ­ Import fruit licensing Fresh fruit Australia Customs procedures. Part II G ­ Customs formalities Fresh fruit Australia Technical regulations and standards. Part IV B ­ SPS measures Fresh fruit Australia License requirement. Part II H ­ Import licensing Processed / packaged food Canned fruit US Technical regulations and standards. Part IV B ­ SPS measures Processed US Technical regulations and standards. Part IV B ­ SPS fruit and measures vegetables Packaged US Technical regulations and standards, Part IV B ­ SPS fruit and including HACCP. measures vegetables Packaged US Certification. Part IV C ­ SPS testing, fruit and certification, other vegetable conformity assessment products Food and China Customs procedures. Part II G ­ Customs pre- formalities packaged food Food and China Technical regulations and standards. Part IV B ­ SPS pre- measures packaged food Food and China Certification. Part IV C ­ SPS testing, pre- certification, other packaged conformity assessment 196 Product Imposing Countries Type of barrier NAMA Code food Preserved Australia Technical regulations and standards. Part IV B ­ SPS fruit and measures vegetables Canned Australia AD Part II A ­ Anti- pineapple & dumping duties condensed pineapple juice Canned Australia Customs procedures. Part II G ­ Customs animal food formalities Canned Australia Technical regulations and standards. Part IV B ­ SPS animal food measures Canned Australia License required. Part II H ­ import animal food licensing Canned Tuna: In 2004, the export value reached 29.21 billion baht for 311,618 tons. The customers include US (27.19%), Australia (9.35%), Japan (9.13%), Canada (9.06%), Saudi Arabia (4.46%), Egypt (4.02%), and UK (3.68%) Canned US Import quota of 4.8% of total Part V A ­ Quantitative Tuna consumption in the US. restrictions Canned US The exporters must comply with Part II ­ Administrative Tuna strict Bioterrorism Act by USFDA. entry procedures Canned US Dolphin Protection Law requires that Part V K ­ Tuna canned tuna sold in the US market Requirements must print Dolphin Safe on the can concerning marking, and forbids imports of tuna products labeling, packaging from the producers buying raw and Part III B ­ material from countries killing Technical regulations dolphin. and standards (PPM) Canned US Conformance with Marine Mammal Part III B ­ Technical Tuna Protection Law. regulations and standards (PPM) Canned US Pouch tuna from ANDEAN countries Part VI ­ Tuna (many of them import US raw Discriminatory charges material) is subjected to 0% on imports tariff while those from other countries must pay 6% in quota tariff and 12.5% off quota tariff. Canned US Low-acid Canned Food Regulation Part IV B ­ SPS Tuna limits the ph value not to exceed 4.6. measures Canned US The production process must follow Part IV B ­ SPS Tuna the Hazard Analysis and Critical measures Control Point System (HACCP). Canned US According to USFDA, Part III B ­ Technical Tuna producer/exporter/distributor must go regulations and by the Current Goods Manufacture standards (PPM) Practice (CGMP). Canned US Requirement for "Food Allergen" Part V K ­ Tuna (Effective January 2005) and Requirements Country of Origin Labeling (COOL). concerning marking, labeling, packaging Canned EU The producers must be on the list of Part II ­ Administrative Tuna the competent authority submitted to entry procedures and approved by EU. 197 Product Imposing Countries Type of barrier NAMA Code Canned EU Health certificate is required. Part IV C ­ SPS testing, Tuna certification, other conformity assessment Canned Japan Compliance with Food Sanitation Part IV B ­ SPS Tuna Law required. measures Canned Japan Require health certificate from the Part IV C ­ SPS testing, Tuna competent authority approved by certification, other Japanese government. conformity assessment Canned Saudi Arabia All invoices must be legalized by Part II ­ Administrative Tuna Saudi Arabia Embassy in Thailand. entry procedures Shrimp and Shrimp products: Thailand exported 240,953 tons of shrimp and shrimp products worth 67.32 billion baht in 2004. US (53.21%), Japan (24.16%), Canada (5.68%), South Korea (3.80%) and Australia (3.08%) are among the major importers of Thai shrimp and shrimp products. Shrimp and US Imported shrimp and shrimp products Part IV B ­ SPS shrimp must pass USFDA standard, measures products otherwise will be either sent back or detained or destroyed. Shrimp and US Ban on imports of shrimp captured in Part III B ­ Technical shrimp the nature with instruments that pose regulations and products harm to sea turtle. standards (PPM) Shrimp and US Import control measures to assure Part III B ­ Technical shrimp that shrimp farming is not regulations and products detrimental to intertidal forest. standards (PPM) Shrimp and US Marine products quality control Part IV B ­ SPS shrimp requiring that the producers adopt the measures products HACCP system (Hazard Analysis Critical Control Point) or food supply chain system to control and monitor the production process, processing, storage, and transportation of the products. Shrimp and US According to federal regulations, Part IV B ­ SPS shrimp chloramphenicol (in animal food) is measures products limited to less than 0.3 ppb. (parts per billion). Antibiotic and nitrofurans must be less than 1.0 ppb. Shrimp and US The producer/exporter/distributor Part V K ­ shrimp must comply with "Food Allergen" Requirements products labeling requirements (Effective concerning marking, January 2005 according to Food labeling, packaging Allergen Labeling and Consumer Protection Act 2004) and Country of Origin Labeling (COOL). Shrimp and US To conform to Public Health Security Part II ­ Administrative shrimp and Bioterrorism Act of 2002 entry procedures products involving: a. Registration of food processing facilities in and outside the US. b. To notify in advance of exports to the US. c. Detention of food that may be unsafe to the US consumers. Shrimp and US Traceability: creation of database on Part VII E ­ Other: shrimp receiving and distributing of the Traceability 198 Product Imposing Countries Type of barrier NAMA Code products products to be able to trace the requirement product's supply chain by requiring all associated parties to keep all records and documents on the products. Shrimp and US AD Part II A ­ Anti- shrimp dumping duties products Shrimp and US Certification Part IV C ­ SPS testing, shrimp certification, other products conformity assessment Shrimp and Japan Imported shrimp and shrimp products Part IV B ­ SPS shrimp must pass through the standard tests measures products set by the Ministry of Health and Welfare as follows: a. Quarantine Law: The products that fail Cholera test will be destroyed. Shrimp and Japan b. Food Sanitation Law: The Part II ­ Administrative shrimp importers must submit Notification entry procedures products Form for Importation of Food including related documents within 7 days before the cargo reaching the sea port. Shrimp and Japan c. Legally Required Labeling: Frozen Part V K ­ shrimp peeled shrimp or chopped shrimp Requirements products must indicate on the label product concerning marking, name, expiration date, name and labeling, packaging addresses of the producer/importer, and how to use and take care of the product. Shrimp and Japan d. Product Liability Law and related Part VII E ­ Other: shrimp laws: The producer, importer, and seller liability products distributor must be responsible for the damage to life and assets of the consumer. Shrimp and Japan Quantity control measures or import Part V A ­ Quantitative shrimp ban restrictions products Shrimp and EU The producer must have its name on Part II ­ Administrative shrimp the EU's Established List. entry procedures products Shrimp and EU The exporter must have permission Part II ­ Administrative shrimp from the competent authority (the entry procedures products Department of Fishery) in Thailand. Shrimp and China For small exporters, it is very Part II ­ Administrative shrimp difficult to obtain export permission entry procedures products from the Chinese government. Chicken and chicken products: In 2004, Thailand exported 200,795 tons of chicken and chicken products worth 22.60 billion baht mostly to Japan and EU (both markets account for 85% of the total export value). Due to SAR virus outbreak in Southeast Asia, some countries such as Japan, EU, and South Korea banned imports of frozen chicken from Thailand. However, exports of cooked chicken are allowed under the condition that the farms and manufacturers are approved by food and health authorities of the import countries. Japan, South Korea, Manufacturers must be inspected, Part IV C ­ SPS testing, 199 Product Imposing Countries Type of barrier NAMA Code EU and approved by the food and health certification, other authorities of the importing conformity assessment countries. Occasionally, EU uses 100% inspection to test for nitro furans antibiotics used by Thai farmers to help ward off disease among livestock. Taiwan Taiwan claimed that Thailand is not Part IV B ­ SPS SAR free, but refused to send measures inspectors to examine farms and manufacturing facilities in Thailand. Russia Import quota for chicken and chicken Part V A ­ Quantitative products. restrictions US Producer/exporter/distributor must Part III B ­ Technical follow the Current Goods regulations and Manufacture Practice (CGMP). standards (PPM) US Production plants/manufacturers Part IV C ­ SPS testing, must pass the US standard test. A certification, other certificate of high quality product conformity assessment from the authority in Thailand is required. The Products must also pass the USFDA tests. US Adoption of Hazard Analysis and Part IV B ­ SPS Critical Control Point (HACCP) in measures the production process. US Limit of the following residues: Part IV B ­ SPS Methoxyfenozide at 0.02 ppm. measures Glyphosate at 0.1 ppm. Flonicamid at 0.01 ppm. Gtufosinate Ammonium at 0.15 ppm. Vindoclozlin at 0.1 ppm. US Technical regulations and standards, Part IV B ­ SPS including FSIS. measures Boneless Japan Para-tariff measures: charges, Part VI ­ chicken internal taxes etc. Discriminatory charges on imports Japan Certification requirements. Part IV C ­ SPS testing, certification, other conformity assessment Longan and Longan products: In 2004, Thailand exported 199,075 tons of longan and longan products for 4.14 billion baht to China, Indonesia, and Hong Kong. Exports of fresh longan reached 2.17 billion baht. The key markets for the fresh longan are China (37%), Indonesia (32.6%), Hong Kong (14.9 %), and Netherlands (5 %)97. Dried longan represents 37% of total longan and longan products exports, mostly to China (1,039 million baht) and Hong Kong (143 million baht). China Need import permission from Entry- Part II ­ Administrative exit Quarantine Bureau (CIQ) entry procedures (Complicated and normally take 45 working days to get the permit and valid for only 90-180 days). China Need to have a pest free certificate Part IV C ­ SPS testing, from the Department of Agriculture, certification, other Thailand. conformity assessment 97Percentage of export value of fresh longan 200 Product Imposing Countries Type of barrier NAMA Code China Products must come from the farms Part II ­ Administrative registered with the Department of entry procedures Agriculture, Thailand (Since, there are numerous numbers of small farms which normally sell the products to middle persons/ processors/ exporters, it is costly and time consuming to register all the farms.) China Sulfurs Dioxide Limit: less than 50 Part IV B ­ SPS ppm. for flesh and 350 ppm. for the measures whole longan. Limited Metharmidophos used as a pesticide. The limits are even stricter than the Codex standard. China Import and customs procedures are Part II G ­ Customs different from province to province. formalities China Other NTMs such as limited ports of Part VII C ­ entry (for example Kwangcho and Distribution constraints Shanghai), distribution agencies, money transfer and payment, and logistics problems including transportation and storage (if no partners in China). Singapore Phytosanitary Certificate Part IV C ­ SPS testing, certification, other conformity assessment Singapore Label indicating product origin Part V K ­ Requirements concerning marking, labeling, packaging Rambutan: In 2004, Thailand exported 13,412 tons of rambutan and rambutan products for 410 million baht to China, Singapore, US, Malaysia, South Korea, and Taiwan respectively. Malaysia Require Phytosanitary Certificate and Part IV C ­ SPS testing, chemical residues control certificate certification, other from the Department of Agriculture, conformity assessment Thailand. Taiwan Require import permit and Part IV C ­ SPS testing, Phytosanitary Certificate by passing certification, other the tests for Mediterranean fruit fly, conformity assessment Codling moth, and Queensland fruit fly. Additionally, the product must be under temperature control throughout the shipping process. China 13% VAT where domestic SMEs and Part VI ­ small entrepreneurs pay lower rates Discriminatory charges (6 % and 4%). on imports China Only Chinese and companies with Part VII C ­ Chinese shareholders have no Distribution constraints difficulty distributing and marketing the product. China Registration and approval of Part II ­ Administrative rambutan orchards required. entry procedures China Repeated inspections Part IV C ­ SPS testing, 201 Product Imposing Countries Type of barrier NAMA Code certification, other conformity assessment India Require Methyl Bromine treatment 3 Part IV B ­ SPS hours before export, which blackens measures the rambutan skin. Durian and durian products: Thailand exported durian and durian products more than 153,017 tons for 2.24 billion baht in 2004 to Taiwan (22.5%), Hong Kong (22%), Indonesia (13%), China (25%), and US (8%). Australia Ban on import of fresh durian for Part IV A ­ SPS phytosanitary and quarantine reasons. general Australia Processed durian must comply with Part IV B ­ SPS Australian food standard. measures China 13% VAT where domestic SMEs and Part VI ­ small entrepreneurs pay lower rates Discriminatory charges (6 % and 4%). on imports China Need import permit from CIQ. Part II ­ Administrative entry procedures China Phytosanitary certificate. Part IV C ­ SPS testing, certification, other conformity assessment China Only registered orchards could Part II ­ Administrative export to China. entry procedures China Label regulations. Part V K ­ Requirements concerning marking, labeling, packaging China Unnecessary and redundant Part IV C ­ SPS testing, inspections delay import and damage certification, other the products. conformity assessment Mangosteen: Thailand exported 26,763 tons of mangosteen for 462 million baht in 2004 to China, Hong Kong, Japan, and US. China 13% VAT where domestic SMEs and Part VI ­ small entrepreneurs pay lower rates Discriminatory charges (6 % and 4%). on imports China Need import permit from CIQ. Part II ­ Administrative entry procedures China Phytosanitary certificate. Part IV C ­ SPS testing, certification, other conformity assessment China Only registered orchards can export Part II ­ Administrative to China. entry procedures China Label regulations. Part V K ­ Requirements concerning marking, labeling, packaging China Unnecessary and redundant Part IV C ­ SPS testing, inspections delay import and damage certification, other the products. conformity assessment Japan Need steam treatment for imported Part IV B ­ SPS mangosteen. measures Japan Phytosanitary certificate. Part IV C ­ SPS testing, certification, other conformity assessment Australia Import permit from Australian Part II ­ Administrative 202 Product Imposing Countries Type of barrier NAMA Code quarantine and inspection authority. entry procedures Australia Exported mangosteen to Australia Part II ­ Administrative must come from orchards registering entry procedures with the Department of Agriculture as export only patch. Australia Packing company also must enroll Part V K ­ with the Department of Agriculture. Requirements concerning marking, labeling, packaging Australia Every package must contain Part V K ­ information on patch number, Requirements enrollment number of packaging concerning marking, company. labeling, packaging Australia Every individual mangosteen must be Part IV B ­ SPS cleaned one at a time. measures Australia Phytosanitary certificate. Part IV C ­ SPS testing, certification, other conformity assessment Australia Re-inspection at the port of entry by Part IV C ­ SPS testing, Australian quarantine and detention certification, other authorities delay the process and conformity assessment degrade the product. Mango, lychee China 13% VAT where domestic SMEs and Part VI ­ small entrepreneurs pay lower rates Discriminatory charges (6 % and 4%). on imports China Need import permit from CIQ. Part II ­ Administrative entry procedures China Phytosanitary certificate. Part IV C ­ SPS testing, certification, other conformity assessment China Only registered orchards could Part II ­ Administrative export to China. entry procedures China Label regulations. Part V K ­ Requirements concerning marking, labeling, packaging China Unnecessary and redundant Part IV C ­ SPS testing, inspections delay import and damage certification, other the products. conformity assessment Orchids US Technical regulations and standards. Part IV B ­ SPS measures US Certification. Part IV C ­ SPS testing, certification, other conformity assessment Australia Customs procedures. Part II G ­ Customs formalities Australia Technical standards and regulations. Part IV B ­ SPS measures Australia Certification. Part IV C ­ SPS testing, certification, other conformity assessment 203 Rice and rice products Rice and Japan Quantity control measures or import Part V A ­ Quantitative rice products ban. restrictions Rice Japan Distribution restrictions. Part VII C ­ Distribution constraints Rice and Australia Customs procedures. Part II G ­ Customs rice products formalities Rice and Australia Technical regulations and standards. Part IV B ­ SPS rice products measures Rice and Australia Certification. Part IV C ­ SPS testing, rice products certification, other conformity assessment Coffee Coffee Australia Customs procedures. Part II G ­ Customs beans formalities Coffee Australia Technical regulations and standards. Part IV B ­ SPS beans measures Coffee Australia Certification. Part IV C ­ SPS testing, beans certification, other conformity assessment Coffee Australia License requirement. Part II H ­ import beans licensing Cocoa Cocoa and Australia Technical regulations and standards. Part IV B ­ SPS cocoa measures products Cocoa and Australia Certification. Part IV C ­ SPS testing, cocoa certification, other products conformity assessment Corn Corn Australia Customs procedures. Part II G ­ Customs formalities Corn Australia Technical standards and regulations. Part IV B ­ SPS measures Corn Australia Certification. Part IV C ­ SPS testing, certification, other conformity assessment Corn Australia License requirement. Part II H ­ import licensing Other Fish US Customs procedures. Part II G ­ Customs formalities Canned US AD Part II A ­ Anti- pineapple dumping duties Soft drinks US Technical regulations and standards. Part IV B ­ SPS measures Coconuts US Certification. Part IV C ­ SPS testing, certification, other conformity assessment Fish and Japan Quantity control measures or import Part V A ­ Quantitative cuttlefish ban. restrictions Pork and Japan Technical regulations and standards. Part IV B ­ SPS processed measures 204 pork Pork and Japan Certification. Part IV C ­ SPS testing, processed certification, other pork conformity assessment Seafood Japan Pre-certification. Part IV C ­ SPS testing, certification, other conformity assessment Cheese Australia Quantity control measures or import Part V A ­ Quantitative ban. restrictions Tobacco Australia Quantity control measures or import Part V A ­ Quantitative leaves ban. restrictions Wheat and Australia Quantity control measures or import Part V A ­ Quantitative wheat ban. restrictions products Dairy Australia Quantity control measures or import Part V A ­ Quantitative products ban. restrictions Tapioca Australia Certification. Part IV C ­ SPS testing, certification, other conformity assessment Tapioca Australia License requirement. Part II H ­ import licensing Cashew nuts Australia Customs procedures. Part II G ­ Customs formalities Cashew nuts Australia Technical regulations and standards. Part IV B ­ SPS measures Cashew nuts Australia Certification. Part IV C ­ SPS testing, certification, other conformity assessment Pepper Australia Customs procedures. Part II G ­ Customs formalities Pepper Australia Technical regulations and standards. Part IV B ­ SPS measures Manufactures In the manufacturing sector, the majority of NTMs arise from standards/technical regulations and related certification requirements, import restrictions as well as anti-dumping measures. Obstacles are faced by auto exporters regarding quantitative restrictions and standards imposed by developing countries in the region and by electrical appliance and electronics exporters regarding safety and other standards. Further, chemicals exports are subject to safety standards and anti- dumping measures imposed mainly by industrialized countries; steel exporters have also been hard hit by a series of anti-dumping measures. In addition a number of Thai furniture, wood, leather and toy exports are facing non-tariff barriers abroad. Product Imposing countries Type of barrier NAMA code Manufacturing: 6 industrial Thai export products seem to be affected by NTMs including chemical products, automobiles and automobile components, leather and leather products, steel, furniture, and toys. Chemicals/Plastics Chemicals EU EC REACH program (Registration, Part II ­ Administrative Evaluation, and Authorization of entry procedures Chemical products), implying that producers will have to share responsibility and expenditure with 205 Product Imposing countries Type of barrier NAMA code importer in registration process and arrange for product risk analysis. Chemicals EU Labeling requirements Part V K ­ Requirements concerning marking, labeling, packaging Polyester EU AD Part II A ­ Anti- staple fiber dumping duties PET EU AD Part II A ­ Anti- dumping duties Plastic bags EU, US AD Part II A ­ Anti- dumping duties Furfuryl US AD Part II A ­ Anti- alcohol dumping duties Plastic Japan Technical regulations and standards. Part III B ­ Technical products regulations and standards Fertilizer China Quantity control measures or import Part V A ­ Quantitative ban. restrictions PVC Australia AD Part II A ­ Anti- dumping duties Low density Australia AD Part II A ­ Anti- PE dumping duties Automobiles: In 2005, Thailand exported 440,715 automobiles for 5.08 billion $US to Indonesia and Australia (the two biggest importers of Thai automobiles), as well as Singapore, the Philippines, the UK, Saudi Arabia, Oman, and Kuwait. Automobile parts: In 2005, Thailand exported 2.22 billion $US worth of parts and accessories to Japan, Malaysia, USA and Indonesia. Automobiles Indonesia Import limit for under 10 seats car Part V A ­ Quantitative with Two Drives-axle System and restrictions cylinder capacity of 5,000 cc. or higher. Automobiles Indonesia Import limit for complete built-up car Part V A ­ Quantitative (CBU); importer must have importer restrictions identification number of which only a limited number are given out. Automobiles Indonesia Import ban for under 10 seats CBU Part V A ­ Quantitative including sedan and station wagon restrictions with cylinder capacity of 4,000 cc. or higher. Automobiles Malaysia Due to Malaysian national car policy, Part II H ­ import importer must acquire automobile licensing import license from Ministry of International and Industrial (MITI). Automobiles Malaysia 30 Mandatory Items are required for Part III B ­ Technical non-national cars (no mandatory regulations and items for national car) standards Automobile Malaysia Different import tariff on CKD Part VI ­ parts (Completely Knocked Down) parts Discriminatory charges between the non-national and the on imports national car (0-13 percent for the national car but 42-80 percent for the non-national car). Automobiles Malaysia Excise tax privilege for national car Part VI ­ 206 Product Imposing countries Type of barrier NAMA code (25-65 % of sale price for the non- Discriminatory charges national car but half for the national on imports car). Automobiles Malaysia Import quota of CBU from ASEAN Part V A ­ Quantitative only 6% of the total market demand. restrictions Automobiles EU, US Technical regulations and standards. Part III B ­ Technical & parts regulations and standards Automobiles US Certification. Part III C ­ TBT testing & parts and certification Electronics and Electrical Appliances: In 2005, Thailand's exports of electrical appliances and electronics reached 35.34 billion USD. Air conditioning machines, reception apparatus for television, electrical apparatus for switching were the top three electrical appliances. Exports go amongst other countries to China (computers and parts and components), Japan and Hong Kong (integrated circuits) Electrical EU, China RoHS: Restriction of use of certain Part III B ­ Technical appliances Hazardous Substances (e.g. lead, regulations and and mercury, cadmium, certain flame- standards electronics retardants). Electrical EU WEEE regulating the recovery and Part III B ­ Technical appliances recycling of electrical appliances and regulations and and electronics. standards electronics Color TV EU AD Part II A ­ Anti- dumping duties Electrical US, Japan Technical regulations and standards. Part III B ­ Technical appliances regulations and and standards electronics Leather and Leather Products: In 2004, Thailand exported leather and leather products for 18,853 million baht to Hong Kong (20%), US (14%), Vietnam (13%), and China (12%) Leather and EU Azocolorants are prohibited as a Part III B ­ Technical leather cancer causing substance. regulations and products standards Leather and EU Packaging must be recyclable. Part V K ­ leather Requirements products concerning marking, labeling and packaging Leather and EU International labor standard. Part III B ­ Technical leather regulations and products standards Leather and US Some bleaching chemicals are Part III B ­ Technical leather prohibited. regulations and products standards Leather and US No violation of preserved animal Part III B ­ Technical leather protection law such as CITES. regulations and products standards (PPM) Leather and US Anti-terrorism measures affecting Part II ­ Administrative leather imports of leather products. entry procedures products Leather and Japan Enforcement of Washington Part III B ­ Technical leather Convention on International Trade in regulations and products Endangered Species of Wild Fauna standards (PPM) and Flora Leather and China Collect import tariff/port fee in Part VI ­ 207 Product Imposing countries Type of barrier NAMA code leather different rates despite being the same discriminatory charges products products. Leather and China Allow imports only from the Part II ­ Administrative leather exporters who have Trading Right. entry procedures products Steel: Thailand exported 1.13 million tons of hot and cold rolled steel for 29.14 billion baht in 2004. The major markets include US, Italy, Myanmar, Hong Kong, Malaysia, and China. The US and Italy imported more than 40% and 29% of thin hot rolled steel worth 7.9 billion baht in total exports. Hong Kong, Malaysia, and China imported more than 31%, 20% and 16% of cold rolled steel worth 9.07 billion baht in total exports. Steel EU, Canada Safeguard measures. Part VII B ­ Safeguard measures, emergency actions Steel Mexico, Malaysia, Increased tax rates. Part VI B ­Surcharges, Brazil, and Argentina port taxes, statistical taxes Butt-weld US AD Part II A ­ Anti- steel joint dumping duties Steel pipe US AD Part II A ­ Anti- dumping duties Hot rolled US AD Part II A ­ Anti- steel dumping duties Pre-stressed US AD Part II A ­ Anti- concrete dumping duties steel wire/ strand Steel wire EU AD Part II A ­ Anti- rope / cables dumping duties Steel pipe- EU AD Part II A ­ Anti- welded dumping duties Stainless EU AD Part II A ­ Anti- steel dumping duties fasteners Certain iron EU AD Part II A ­ Anti- and steel dumping duties Certain Australia Quantity control measures or import Part V A ­ Quantitative types of iron ban. restrictions bar Steel Australia AD Part II A ­ Anti- shelving kits dumping duties Galvanized Australia AD Part II A ­ Anti- steel pipes dumping duties Hot rolled Australia AD Part II A ­ Anti- structural dumping duties steel sections Furniture: In 2004, Thailand exported 95.27 billion baht of furniture and furniture components to US, Japan, and UK. US US announced several controlled Part III B ­ Technical dangerous chemicals which can be regulations and verified at the Office of standards Environmental Health Hazard Assessment. US Bamboo and bamboo products for Part II H ­ Import 208 Product Imposing countries Type of barrier NAMA code gardening must acquire import licensing permission before passing customs procedures, otherwise, will be seized until the permission is issued. US Fumigation of the products is Part III B ­ Technical required by law. regulations and standards EU Boric Acid used to preserve rubber Part V K ­ tree wood is a controlled substance Requirements which need to be notified on the concerning marking, label. labeling, packaging Japan Any products having Chlorpyrifos Part III B ­ Technical (pesticide) are prohibited. regulations and standards Japan Label must have pictures Part V K ­ demonstrating how to use or take Requirements care of the product. concerning marking, labeling, packaging Japan Federation of Japan Furniture Part III B ­ Technical Manufacturer Association will issue regulations and a quality guarantee. Product standards standards are specified in Building Standards Law. Japan Labeling must follow the Japan Part V K ­ Industrial Standards (JIS). Requirements concerning marking, labeling, packaging Japan Some wood products are under Part V K ­ standard control of Household Good Requirements Quality Labeling Law and Consumer concerning marking, Product Safety Law. labeling, packaging Japan Furniture, mattress, and spring must Part V K ­ be labeled in Japanese. Requirements concerning marking, labeling, packaging Wood and wood products Wood US Customs procedures. Part II G ­ Customs packaging formalities and wood products Wood US Technical regulations and standards. Part III B ­ Technical packaging regulations and and wood standards products Wood China Technical regulations and standards. Part III B ­ Technical packing regulations and materials standards and paper Wood China Monopolistic measures. Part I E ­ State trading, government monopoly practices Wood China License requirement. Part II H ­ import licensing Toys: Thailand exported toys for 8,030 million baht in 2004 to US (24%), Japan (21%), France (8%), 209 Product Imposing countries Type of barrier NAMA code and UK (7%). EU Imported toys must comply with Part III B ­ Technical Safety Toys Law (EN 71) involving regulations and safety and prevention of harm caused standards by electricity, radiation, chemicals, and unsanitary conditions. EU CE mark required Part V K ­ Requirements concerning marking, labeling, packaging EU Ban of Phthalates a softener in soft Part III B ­ Technical PVC as cancer causing substance. regulations and standards Japan Toys for children under 18 months Part III B ­ Technical must contain no heavy particles, regulations and arsenic, and substances that cause standards cancer according to the Food Sanitation Law. Japan Toys with electrical motor must Part III B ­ Technical comply with international standard regulations and and label as stated by Electronic standards and Part V K Appliance and Material Safety Law. ­ Requirements concerning marking, labeling, packaging US Imported toys must meet ASTM Part III B ­ Technical F963 standard (The American regulations and Society for Testing and Materials) standards which is a safety standard for toys. US All toys must be labeled. Part V K ­ Requirements concerning marking, labeling, packaging Other Footwear EU Technical regulations and standards. Part III B ­ Technical regulations and standards Textiles and EU Technical regulations and standards. Part III B ­ Technical cloth regulations and standards Textiles and Japan Technical regulations and standards. Part III B ­ Technical cloth regulations and standards Jewelry EU Technical regulations and standards. Part III B ­ Technical regulations and standards Gems and China Import tariff and sales tax different Part VI ­ Inconsistent Jewelry from province to province. charges Cosmetics US Technical regulations and standards. Part III B ­ Technical regulations and standards Cosmetics China 3 certificates. Part III C ­ TBT testing and certification Medical Japan Technical regulations and standards. Part III B ­ Technical products regulations and 210 Product Imposing countries Type of barrier NAMA code standards Medical China Technical regulations and standards Part III B ­ Technical products (GMP). regulations and standards Rubber China Monopolistic measures. Part I E ­ State trading, government monopoly practices Rubber China License requirement. Part II H ­ import licensing Paper China AD Part II A ­ Anti- dumping duties Packaging China Technical regulations and standards. Part III B ­ Technical for food regulations and products standards Pipe fittings EU AD Part II A ­ Anti- dumping duties Food Japan Technical regulations and standards. Part III B ­ Technical processing regulations and equipment standards and appliances Decorations Japan Technical regulations and standards. Part III B ­ Technical and regulations and tableware standards 149 China CCC Mark. Part V K ­ industrial Requirements products concerning marking, labeling, packaging 211 References AD/CVD/SG confronted by Thai Exporters (2005), Department of Foreign Trade, http://www.dft.moc.go.th Economic and financial Statistics (2005:2), Bank of Thailand International Trade Measures (2005), Department of Foreign Trade, http://www.dft.moc.go.th Reasons for Import Rejection of Thailand's products in the US Market (2003), Department of Export Promotion, Thailand 212 VIETNAM Dang Nhu Van, Institute of Economics, Hanoi, Vietnam In 2003, petroleum and petroleum products were the most important export category for Vietnam followed by apparel and clothing, footwear and fish and shellfish products. Since 1997, exports of finished capital goods, such as vehicles and parts, machinery and equipment, and telecoms equipment had increased more than 6-fold, followed by intermediate manufactures, exports of which had quadrupled. Sectors such as basic intermediates, mining and resource extraction, light industries (textiles, clothing etc.) as well as fisheries grew by 150-180% over that period. The most important export destinations for Vietnam in 2003 were the US, followed by the EU and Japan, ASEAN and China. Reported obstacles include contingency measures such as anti-dumping and safeguards as well as technical regulations and standards (mostly SPS), including conformity testing requirements. Further, problems with stringent rules of origin (in particular in the EU) and US requirements concerning marking, labeling and packaging were reported. Lastly, border tax adjustments were encountered by some Vietnamese exporters. Barriers that seem to cause the greatest concern for the agricultural sector, which is relatively important in Vietnam, are high SPS standards in the industrialized countries as well as anti-dumping duties and quantitative restrictions. NTMs faced in the manufacturing sector are mainly related to anti-dumping measures imposed by industrialized countries. 1. Overview of Trade Formerly a centrally planned country, Vietnam has been carrying out economic reforms since 1986 under the "Doi Moi" (Renovation) policy. Reforms focused on market oriented economic management, restructuring to build a multi-sectoral economy, financial, monetary and administrative reforms and the development of external economic relations. Trade reforms gained momentum between the late 1980s and 1990s, stalled during the 1995-96 period, and picked up again from 1998. Like many other countries, Vietnam sought to encourage rapid export growth and it succeeded through duty drawbacks and export processing zones. Having previously joined the Association of Southeast Asia Nations (ASEAN), the Asia-Europe Cooperation (ASEM) and the Asia-Pacific Economic Cooperation Forum (APEC), the country acceded to the WTO in January 2007. Between 2000 and 2004, the economy grew on average by 7.2%, with an estimated growth rate for 2006 of 7.8%. Total exports stood at US$20.15 billion in 200398, an increase of 20.6% compared to the previous year. The average annual export growth rate since 1985 was also above 20%. Export growth has been a key driving force for rapid economic growth, job creation and exceptional reduction in poverty, giving the Vietnamese government resources to tackle the important tasks on its political and social agenda. Between 1997 and 2003, exports of finished capital goods, such as vehicles and parts, machinery and equipment, and telecoms equipment increased more than 6-fold (from US$165 million to just over US$1 billion), followed by intermediate manufactures, exports of which quadrupled from US$145 million to US$596 million. Sectors such as basic intermediates, mining and resource extraction, light industries (textiles, clothing etc.) as well as fisheries grew by 150-180% over that 982003 is the latest available year for Vietnamese trade data 213 period. By 2003, petroleum and petroleum products were the most important export category, taking up close to 20% (US$3.6 billion), followed by apparel and clothing at 17.2% (US$3.47 billion), footwear at 11.4% (US$2.3 billion) and fish and shellfish products at 10.9% (US$2.2 billion) (Figure 27). The most important export destinations in 2003 were the US with 19.6%, followed by the EU with 19.1% and Japan with 14.4% (Figure 28). Exports to ASEAN accounted for 14.6% and those to China for 11.1%. Compared to 1997, these are dramatic changes in destinations when Japan was the largest importer of Vietnamese goods with 18.2%, followed by the EU with 17.5%; at the time the US was only in 9th position, absorbing 3.1% of Vietnamese exports. ASEAN accounted for 21.5% in 1997, whereby the large drop in the share is mostly accounted for by Singapore losing importance as a market for Vietnamese goods. China, on the other hand, gained 1.3% of export share between 1997 and 2003. Figure 27: Vietnam 2003 exports by product Figure 28: Vietnam 2003 exports by destination y Thailand Cambodia Other Petroleum and Vegetables and products Philippines Hong Kong, China RoW fruit United States Malaysia Furniture Apparel/clothing Indonesia Electrical equipment Korea, Rep. Footw ear Coffee/tea/cocoa/ Taiw an, China spices EU Cereals/cereal Fish/shellfish preparations Singapore Australia Japan China Source: UNCTAD COMTRADE Even though trade liberalization has accelerated in recent years, exports (especially from private sector firms) are still constrained by a range of internal and external barriers. Internal barriers arise from restrictions in the regulatory environment as well as lack of access to capital, inefficient customs and administrative procedures and lack of infrastructure. External barriers include NTMs such as standards and technical regulations, quantitative restrictions and anti- dumping measures. Currently, internal barriers are still being perceived as more important than external ones by Vietnamese exporters. 2. Methodology of the study This study draws on existing literature and results from a firm survey as well as interviews with the chamber of commerce and government agencies. A sample of 40 export enterprises was selected in Hanoi and Ho Chi Minh City where most export firms are located (Table 33). Firms were stratified into three groups according to ownership structure: State-owned enterprises (SOEs): 14 in Hanoi and 5 in Ho Chi Minh City Non-state enterprises: 4 in Hanoi and 6 in Ho Chi Minh City 100% foreign-owned enterprises: 2 in Hanoi and 9 in Ho Chi Minh City Table 33: Ownership of firms included in the survey 214 Ownership Hanoi HCM City Total SOEs 14 5 19 Private 4 6 10 100% Foreign- 2 9 11 Invested Total 20 20 40 Firms were chosen so as to cover Vietnam's most important exports: agricultural products, fisheries, handicrafts and manufacturing. The sample contains 15 firms exporting agricultural products, 20 firms exporting different kinds of manufacturing products and 5 firms exporting both. More particularly, of the firms located in Hanoi, 5 firms export handicraft products, 4 manufactured equipment, 7 textiles and garments, and the rest agricultural products and fisheries. Of the ones located in Ho Chi Minh City, 3 firms export fishery products, 4 textile products, 7 equipment, 6 paper products and the rest agricultural and other manufacturing products (Table 34). Table 34: Distribution of products exported by firms in the survey Products Hanoi HCM City Total Agricultural products 9 2 11 Handicraft 5 0 5 Equipment 4 7 11 Textiles and Garments 7 4 11 Fisheries 2 3 5 Note: the total number of firms is greater than 40 since firms may export more than one product. Although, the survey covers a range of ownership structures and export products, the questionnaire was designed with no particular structure or export orientation in mind. The survey was conducted in order to gain a general understanding of non-tariff barriers/measures of which knowledge is currently limited. With many open questions, the questionnaire was designed to provide an impression of what are the most important non-tariff measures rather than to quantify their effects on trade. It nevertheless tried to capture quantitative effects of NTMs to the extent possible. The questionnaires were mailed to 25 firms in each city. The number of responses was sufficient to infer generalized conclusions. Four firms ­ all located in Hanoi ­ were subsequently visited for informal interviews. Further, informal interviews were conducted with representatives at the Vietnam Chamber for Commerce and Industry (VCCI), the Development Assistance Fund (DAF) and the Export Promotion Fund (EPF). Several phone interviews were conducted with junior officers at state-owned commercial banks. The report was supplemented with results from the existing literature. 3. NTMs Faced by Vietnamese Exporters a. Internal barriers The literature and firm survey showed that constraints on export growth are mainly seen as internal in Vietnam. Two main concerns were the crowding out of private firms by SOEs when it comes to capital access (export credits); and secondly the high price and low efficiency of 215 infrastructure provision with a remaining SOE monopoly in these sectors. Firms emphasized the urgent need for further deregulation of the logistics industry and greater private participation in infrastructure services. In particular, the following internal barriers were identified: General State trading, government monopoly practices (part i e): Comparatively high communication costs (post, fax, phone, internet). Customs formalities (part ii g): o Administrative rigidities and delays in customs administration o Unofficial payments to customs to process incoming shipments Administrative rigidities and delays in the customs administration continue to remain important internal barriers. Customs procedures are still relatively time consuming and costly in Vietnam, a fact that is well documented in various studies. According to a 2001 survey by the Institute for Market and Price Research (MPR, 2002) of 150 firms in the textiles and garment industry, 20 percent of the firms spent 5 to 25 days clearing customs and for approximately 10 percent the procedure took 15 to 32 days. Rigidities and delays in customs procedures have naturally given rise to widespread use of unofficial customs fees, which is widely held to disproportionately hurt private firms (Nguyen Thang, 2004). Based on interviews with managers of footwear exporting companies, Boye (2002) reports that the following "standard unofficial fees are required to process incoming shipments: US$20 for clearing a 20 foot container, US$40 for a 40 foot container, US$100 late inspection fee" (Boye 2002, p. 27). All 40 firms surveyed for this study, agreed that the cost of service as regulated by Customs was appropriate; however, approximately half of them pay extra fees for Customs officials' "overtime" in order to have their goods cleared in time so as to avoid late inspection fees otherwise imposed by Customs. Most of the surveyed firms thought that out-of- receipt payments were "acceptable" for "better" service. Steps have been taken by the government to improve Customs procedures as a part of Vietnam's general administrative reforms. Customs valuation and classification, for example, no longer seem to constitute an obstacle for firms, although in individual cases, they are still not always applied uniformly. Customs clearance has also improved recently, with firms in Ho Chi Minh City seemingly enjoying better customs clearance as compared to those in Hanoi: of the 10 per cent of firms complaining about customs clearance in the survey, 100% are located in Hanoi. According to these firms, the process is quite complex and consists of too many steps requiring too much documentation. In general, the clearance process is most difficult for new products. Once they have cleared Customs for the first time, it becomes easier to repeat the procedure. TBT and SPS general (part iii and iv a): Ignorance of firms about TBT and SPS measures, as standards are not widely used in Vietnam. Ignorance of firms regarding SPS and industrial standards cause them difficulties exporting, especially to developed economies where technical standards are high. Standards requirements often vary among importing countries, creating additional difficulties for exporters. One third of firms expressed serious concerns about the stringency of the requirements. These firms' exports are mainly agricultural products and fisheries. However, at the same time an equal number of firms seem to be able to meet such standards. 216 Vietnam is currently working on the establishment of an SPS regime based on international standards and guidelines. The country's existing regime draws on CODEX and FAO/WHO standards as well as on standards systems of industrialized countries and countries in the region. The main ministry involved in standardization is the Ministry of Science and Technology (MOST). The Directorate for Standards and Quality (STAMEQ) under the MoST is responsible for advising the government on issues related to voluntary standards and technical regulations. The system is complicated and not always transparent. Exporters must obtain a permit from the line ministry or a receipt showing an inspection in progress in order for the product to clear customs. Vietnam's TBT enquiry and notification point was formally established in the offices of STAMEQ in 2003. However, this enquiry point was not fully functional upon Vietnam's accession to the WTO. Distribution constraints (part vii c): Infrastructure: transportation costs are high and port facilities poor and expensive. Provision of infrastructure and logistics services in Vietnam is characterized by (i) state ownership of key sectors; (ii) restrictions on investment by non-national and non-state enterprises; (iii) a weak local private sector unable to participate; (iv) administratively determined infrastructure tariffs below full cost recovery, for example in power and roads; and (v) very high administrative fees, as for telecommunications and ports. (Martin, 2003) The survey showed that many firms consider transportation fees as too high and port facilities to be poor and expensive. Regulations concerning trucking and registration with public authorities cause delays in firms' trade activities. Arbitrary delays are common in ports. The port handling is not efficient in part because of out-dated equipment. Since most Vietnamese products compete on small margins, these additional costs can make them less competitive or uncompetitive. Communication costs, including post, fax, phone, internet, are also high in Vietnam. Although ADSL (broad band) has been introduced, the connection speed is much lower than designed. These deficiencies can in part be attributed to the fact that the sector is still not open to competition. In particular, no foreign management of telecommunications facilities is permitted. Business practices or restrictions in the market (part vii d): Fees for packing and shipping very high. Discriminatory access to credit (part vii e ­ other): Access to institutional credit is especially difficult for non-SOEs, such that exporters have difficulties to meet orders at the speed required by the international market. Limited access to institutional credit in Vietnam has been identified as a major constraint in all areas of economic activity, including exports. Provision of working capital loans remain the weakest link in the current policy framework for export promotion, as confirmed in interviews with officials at the VCCI. Less than half the firms in the sample have ever taken out loans from commercial banks. Having a loan approved may take weeks or even months, such that Vietnamese exporters often have difficulties in meeting orders at the speed required by international markets. Further, obtaining a loan involves many procedures and restrictions: at the beginning of each year, firms are asked to fix the size of the loans they expect to need, making it impossible for them to react to changes in 217 the market during the year. In order to access capital, firms may also have to pay some unofficial fees, including out-of-receipt payments. 80% of the respondents further indicated that they feel state-owned enterprises have better access to loans, with only 10% perceiving SOEs and non- SOEs as being on an equal footing in this respect. Foreign invested firms did not take out any loans from domestic banks due to the time-consuming procedures. Although the Export Promotion Fund (EPF) and the Development Assistance Fund (DAF) were recently established to provide funds for selective exporters and domestic firms, none of firms in the survey have made use of their services. One of the reasons is that procedures have proven just as time-consuming as in the commercial system. Further, some firms claim that the EPF is lacking an effective way of determining the efficiency of individual exporters. Success of an exporter in getting supported will depend on factors other than their competitiveness. Mainly SOEs seem to have access to this facility. The situation is similar in the case of the DAF. According to officials from the DAF, their main clients are SOEs, despite the government's policy of export promotion, and a new lending program for small and medium industry. Liquidity problems are compounded by legal issues related to collateral. Apart from a government guarantee, bank credits have to be backed up by real estate and plant facilities. Documentary credits require a cash deposit, sometimes up to 100% of L/C value. Furthermore, the banking system as a whole has not begun to use the rediscount facility of commercial papers. A regulation has been passed, but implementation directives are taking time. Collateral issues complicate the access to credit for (non-state) firms. The laws and regulations on mortgage and secured transactions themselves are of little transparency, another reason prompting state-owned commercial banks turn to "easy clients", i.e., SOEs, which have at least some form of government guarantee. Because of difficulties with collateral based on real estate, commercial banks in practice lend to SOEs on the basis of a simple signature (called "faith collateral" ­ or tin chap) from the client, an observation that has been confirmed by the survey. Agriculture General: Discriminatory Sourcing (part v f): Government requires a license for exporting to enforce domestic content requirements (regulations on local content requirements will soon become void due to obligations under WTO Agreement); applies to only a subset of agricultural firms and is generally not seen as an obstacle; only 20% of firms complained. Rice: Quantitative restrictions (part v a): Export restrictions for food security reasons; government requires export license from the Rice Export Association in the provinces. Quantitative limitations on exports in Vietnam have mostly been eliminated; the only one still being kept is on rice for food security reasons. In order to be able to export, firms are required to get an export license from the Rice Export Association in their province. While other agricultural firms do not have to get an export license, some manufacturing enterprises are required to have one for sensitive products and as a way of checking compliance with domestic content requirements. However, most of them did not perceive this as an obstacle, with only 20% stating that this requirement constitutes an impediment to their business. Domestic content requirement will soon become removed as part of fulfilling Vietnam's WTO commitments. 218 Manufacturing General: Lack of transparency of rules and their enforcement (part i): discretionary application of the duty drawback system. Coal, machinery, equipment: Business practices or restrictions in the market (part vii d): Production monopolies translating into trading monopolies. b. External barriers Perceived external barriers are still few judging from the points raised in the survey. Obstacles include contingency measures such as anti-dumping and safeguards as well as technical regulations and standards (mostly SPS), including conformity testing requirements, and rules of origin. Further, problems with stringent rules of origin (in particular in the EU) and US requirements concerning marking, labeling and packaging were reported. Lastly, border tax adjustments were encountered by some Vietnamese exporters. In terms of sector-specific issues, the following was observed: Agriculture Agricultural products and fisheries make up just above 25% of Vietnamese exports, a share that is relatively high compared to other countries in the region. Barriers that seem to cause the greatest concern are high SPS standards in the industrialized countries as well as anti-dumping duties and quantitative restrictions. General Product Importing Type of Barrier NAMA Code Country Agricultural SPS standards Part IV A ­ SPS general products and fisheries Vegetarian Muslim countries Require certificate from the Part III C ­ TBT testing and products Muslim church certification Cash crops Special surcharges Part VI B ­ Surcharges, port taxes etc. Specific Restrictions (like quotas) Part V A ­ Quantitative agricultural restrictions products such as honey Fisheries Fisheries EU Zero tolerance policy Part IV B ­ SPS measures concerning residuals of antibiotics such as chloramphenicol (CAP), which lead to a plummeting of shrimp exports to the EU Catfish US AD Part II A ­ Anti-dumping duties Shrimp US AD Part II A ­ Anti-dumping duties 219 Manufactures NTMs faced in the manufacturing sector are mainly related to anti-dumping measures and quantitative restrictions in textiles, both being imposed by industrialized countries. 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"ASEAN Free Trade Area and Its Efforts to Eliminate Non-Tariff Barriers". Presentation in International Workshop on Economic Cooperation in East Asia, Korea. May. TCVN (2000) http://www.tcvn.gov.vn Working party of the Trade Committee, TD/TC/WP(2003)7/FINAL World Bank, UNDP, ADB. 2001. Vietnam 2010: Entering the 21st Century: Vietnam Development Report 2001. World Bank. 2002. Vietnam Development Report 2003: Vietnam ­ Delivering Its Promise. 222 Appendix 1 Main NTMs in Vietnam (by percentage of affirmative responses) 1. Quantitative restrictions 2. Non-tariff charges 0 20 5 18 0 16 5 14 0 12 5 10 0 8 6 5 4 0 2 5 0 0 export fee anti- Border tax adjustment Export License Export Quota Domestic Content Export Limitations dumping/counervailing Requirement duties 3. Access to capital 4. Customs Procedures 80 80 60 60 40 40 20 0 20 Customs Customs Out-of- 0 practices fee Reciept advance deposit accessibility Cost for accession Easier for SOEs Fee requirement 5. Regulations on technical standards, 6. Infrastructure and System Failure or human/plants/animals health 35 60 30 50 25 40 20 15 30 10 20 5 10 0 0 health and Sanitary Industrial Safety packaging/labelling Rule of Origin Transportation Communication Port Delay Port handling 223