TRADE BARRIERS FACING DEVELOPING COUNTRIES

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1 TRADE BARRIERS FACING DEVELOPING COUNTRIES

2 TRADE BARRIERS FACING DEVELOPING COUNTRIES Commercial Policy Measures and Shipping Alexander J. Yeats Institute for International Economic Studies Foreword by ASSAR LINDBECK

3 Alexander J. Yeats 1979 Softcover reprint ofthe hardcover 1st edition Foreword Assar Lindbeck 1979 All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means. without permission First published 1979 by THE MACMILLAN PRESS LTD London and Basingstoke Associated companies in Delhi Dublin Hong Kong Johannesburg Lagos Melbourne New York Singapore Tokyo British Library Cataloguing in Publication Data Yeats, Alexander J Trade barriers facing developing countries. I. Underdeveloped areas-commerce 2. Underdeveloped areas-manufactures 3. Tariff 4. Import quotas I. Tide 382'.45'67 HFI413 ISBN ISBN (ebook) DOI /

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5 Contents List of Tables and Figures ix Foreword by Assar Lindbeck xiii Acknowledgements xv 1 TRADE LIBERALISATION AND THE NEW INTERNATIONAL ORDER 1 Background Developments 3 Essentials of the New Economic Order 4 Scope of the Present Study 8 2 INTERNATIONAL TRADE AND ECONOMIC DEVELOPMENT ll Trade and Growth: Some Basic Principles 12 Productivity Effects of International Trade 16 Trade Concentration and Developing Countries 23 Current Perspectives on Trade and Development 32 3 RECENT TRENDS IN DEVELOPING COUNTRY EXPORTS 36 The Export Performance of Developing Countries 37 The Commodity Composition of Exports 48 Implications of OPEC for Developing Countries 61 4 TARIFF PROTECTION IN INDUSTRIAL MARKETS 64 Problems in Tariff Comparisons 65 Sources of Tariff Statistics 73 Tariff Profiles of Industrial Countries 74 The Effective Tariff Concept 85 Evaluation of Potential Trade Flows I 00 vii

6 Vlll Contents 5 NONTARIFF BARRIERS FACING DEVELOPING COUNTRIES 104 A Definition of Nontariff Barriers 105 Effects of Nontariff Barriers 108 Measurement of Nontariff Barriers 112 A Critique of the Inventory Approach 124 Agricultural Protection: An Empirical Analysis 127 Trade Effects of Agricultural Protection 135 The Evidence from Price Differentials 139 Nontariff Barriers: A Summary Appraisal LIBERALISATION OF TARIFF AND NONTARIFF MRRIE~ I«Tariff Reductions in Industrial Countries 145 The Generalised System of Preferences 150 Off-shore Assembly 156 Tariff Reductions and Special Preferences 158 Reduction of Nontariff Barriers 160 Nonreciprocity and the Developing Countries SHIPPING PROBLEMS OF DEVELOPING COUNTRIES 173 Ocean Transport and Developing Countries 175 The Incidence of Transport Costs 180 Aggregate Transport Costs: An Empirical Assessment 184 The Structure of Freight Costs 193 The Potential for Freight Cost Reductions 199 Appendix: Trade Barriers Facing Individual Developing Countries by Andrez 0/echowski 202 Notes 221 References 249 Index 259

7 List of Tables and Figures TABLES 2.1 Commodity Shares in Exports and Gross National Product of Selected Developing Countries Export Growth and Price Instability in Primary Commodity Trade, Comparison of Values, Shares and Growth Rates of Total Exports from Major Country Groups in Selected Years The Level and Share of Developing-Country Exports of Major Commodity Groups; 1960 to 1973 with Estimated Developed and Developing Country Indices of Export Concentration and Fluctuations Ranked by Income Group; Totals and Selected Countries Changes in the Terms of Trade for Developed Market Economy and Developing Countries from the Levels which Prevailed during 1954 to Analysis of Changes in the Structure of Industrial Countries' Imports from Developing and Developed Nations during the Interval ; Selected Commodity Groups Comparative Analysis of Industrial Country Imports of Products of Special Export Interest to Developing Nations Analysis of the Structure oflndustrial Country Imports from Developing Nations in 1964 and Summary Concentration Measures for Industrial Countries' Imports from Developing Nations; 1964 and Analysis of the Differential Incidence of Switzerland's Specific Tariffs on Imports from Developed and Developing Nations; Computations Based on Tariff Line Information 68 ix

8 X List of Tables and Figures 4.2 Percentage of Tariff Line Items and Value of Imports Covered by Specific Tariffs in Major Standard International Trade Classification Product Groups: Selected Industrial Countries Pre- and Post-Kennedy Round Tariff Averages in the European Economic Community, United States and Japan for Products of Export Interest to Developing Countries Analysis of the Structure of Post-Kennedy Round Tariff in Industrial Countries on Primary and Processed Goods Exported by Developing Countries Averages of Nominal and Effective Tariffs on Manufactures Imported by the Industrial Countries Estimated Nominal and Effective Rates of Protection in the EEC, Japan and the USA Analysis of the Structure of Post-Kennedy Round Effective Tariffs in Industrial Countries on Primary and Processed Goods Exported by Developing Countries Simulation of the Effect of Removing EEC Trade Barriers on Products of Export Interest to Developing Countries Estimated Increase in Industrial Country Imports of Selected Products Following Reductions m Trade Barriers Summary of Nontariff Barriers Applied by Industrial Countries on Imports of Selected Agricultural Commodities Frequency and Coverage Indices for Nontariff Barriers Applied in Major Industrial Markets: One-Digit and Selected Two-Digit SITC Product Groups Developing Country Export Values Subject to Various Forms of Nontariff Trade Barriers in the European Economic Community, Japan and the United States in Estimated Ad Valorem Equivalents of the European Economic Community's Variable Levies over the Period Estimated Rates of Nominal Protection for the European Economic Community's Agricultural Products from both Tariffs and Variable Levies Comparison of Nominal and Effective Rates of Pro-

9 List of Tables and Figures 5.7 tection for Selected Agricultural Products in the European Economic Community NontariffTrade Barriers Facing Agricultural Exports to the European Economic Community Estimated Price Effects of a Hypothetical Removal of Agricultural Protection Estimated Economic Effects of a Removal of Agricultural 138 Protection in Industrial Markets 5.10 Comparison of Nominal Tariff Rates, Ad Valorem Incidence 139 and Frequencies ofnontariffbarriers Applied to Two-digit BTN Groups; Selected Industrial Countries, Estimation of an NTB Residual through Removal of Ad 141 Valorem Tariffs, Transport Costs, Taxes, and Variable Levies from International Price Relatives Analysis of the Influence of Alternative Tariff Cutting Formulas on Average Import Duties for Manufactures Exported from Selected Developing Countries to the United States Imports under the Generalised System of Preferences and other Preference Systems in the EEC, Japan and the USA in Imports under Off-shore Assembly Provisions of the Netherlands, West Germany and the United States Projected Costs and Benefits of a 50 per cent MFN Tariff Reduction in the United States, the European Economic Community and Japan World Seaborne Trade in 1965 and 1974 by Types of Cargo and Shares of Groups of Countries in Terms of Goods Loaded Distribution of World Shipping Tonnage by Country Group of Registration in 1965 and The Ratio of Liner Freight Rates to Prices of Selected Commodities, 1964, 1970 and Analysis of the Incidence of Transportation Costs and Tariffs on United States Imports from Developing Countries Estimated 1974 Ad Valorem Freight Rates for Developing Country Products Exported to the United States Evaluation of the Ad Valorem Incidence of Most- Favoured-Nation Tariffs and International Transpor- Xl

10 xii List of Tables and Figures tation Costs on India's Exports to the United States Nominal Tariffs and Transportation Costs for United States Imports: Data Presented by Stage of Processing 196 Appendix Tables A.1 Trade Barriers Facing Individual Developing Countries in the EEC 205 A.2 Trade Barriers Facing Individual Developing Countries in Japan 212 A.3 Trade Barriers Facing Individual Developing Countries in the United States 216 FIGURES 2.1 Illustration of Comparative Advantage and Productivity Gains from International Trade Combined Tariff Profile of the United States, the European Economic Community and Japan both before and after the Kennedy Round Analysis of the Relation between the Effective Rate of Protection, the Value Added Coefficient, and Nominal Rates of Protection Analysis of the Effects of Alternative Tariff Reduction Formulas Analysis of the Relation between Supply and Demand Elasticities and the Incidence of Freight Costs on Product Price 181

11 Foreword One of the basic problems of the international economy today is how the economies of the less developed countries (LDCs) could be further integrated into the global economic division oflabour for manufactured goods and not only, as now, for raw materials. It is well known that severe obstacles and problems connected with such an integration exist both within these countries themselves and on the international markets. In fact, the most important contribution that the developed countries could make towards the less developed countries is precisely to provide access to markets for manufactured goods. Alexander Yeats presents in this book a penetrating study of the obstacles on the international markets to an integration of this kind. The study covers not only tariff and nontariff barriers erected by the industrial countries, but also institutional arrangements iri international shipping. The most distinguished characteristic of this important book is the relentless attempts to estimate the quantitative size and spread of these various obstacles, as a basis for an evaluation of the economic benefits to the LDCs from their removal. This makes Alexander Yeats's work an important contribution to the international discussion of the potential consequences of changes in the world economic order-a discussion that no doubt has demonstrated the need for this type of empirical research. The book is the first report from an ongoing research project on the New World Economic Order by researchers at the Institute for International Economic Studies of the University of Stockholm, financed by the Bank of Sweden's Tercentenary Foundation. We are proud that the publication of our studies can start with such an excellent piece of work. Stockholm May 1978 Assar Lindbeck xiii

12 Acknowledgements This book, which constitutes the first of a two-part survey of developing country trade problems, was written during my stay as Visiting Scholar at the Institute for International Economic Studies at the University of Stockholm during the academic year 1977/78. Financial support for this endeavour was provided by the Bank of Sweden's Tercentenary Foundation as part of a comprehensive project on the New World Economic Order. In the course of my work I have been able to draw on the advice of several individuals at the Institute and the United Nations Conference on Trade and Development. Professor Odd Gulbrandsen read earlier versions of most chapters and was an invaluable source of criticism and constructive comments. I have also drawn from several previous studies written with Professor Gary Sampson, as well as Dr Andrzej Olechowski's expertise on empirical analysis of trade barriers. Several individuals at UNCT AD including Ho Dac Tuong, Jack I. Stone, Alfred Maizels, Craig MacPhee and Robert Ramsey, commented on specific aspects, as did Marian Radetzki, Carl Hamilton, Sven Grassman, Arne Jon Isachsen and several other colleagues at the Institute. Special thanks are also due to members of the secretarial staff at the Institute who prepared the manuscript. The author would like to express appreciation to the editors of the Journal ofbusiness and Economics, Quarterly Review of Economics and Business, Journal of Development Studies, Journal of Political Economy, American Journal of Agricultural Economics, Oxford Economic Papers and Weltwirtschaftliches Archiv for permission to use parts of the author's previously published studies. Stockholm March 1978 Alexander J. Yeats XV

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