Non-Tariff Barriers in Agriculture and Food Trade in APEC: Business Perspectives on Impacts and Solutions

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1 07/SOM/CTI/TPD/005 Non-Tariff Barriers in Agriculture and Food Trade in APEC: Business Perspectives on Impacts and Solutions Submitted by: University of Southern California Trade Policy Dialogue to Advance Understanding on Non-Tariff Measures in the Food Sector Nha Trang, Viet Nam 4 February 07

2 Non-Tariff Barriers in Agriculture and Food Trade in APEC: Business Perspectives on Impacts and Solutions University of Southern California Marshall School of Business Nha Trang, Vietnam - - Research overview 3 Identify the most burdensome NTMs and NTBs Capture the voice of business Recommend a set of practical solutions 3

3 75% 4X 700 kcal amount How much of calories food import every Container shipments are volumes person would rose between eat if all food 000 expected to quadruple by to was 00 split in evenly Asian world economies wide 030-3% $790B Billion 50% the amount trade would increase globally by halving the impact of NTM Cost to APEC to comply with people, rules Most and international globally, regulations do not gateways that have managed are enough incapable and food controlled of to handling lead a 50% a healthy increase imports and in active trade 0 volumes lifestyle Source: NZIER Key Takeaways NTMs are increasing in prominence and complexity across APEC There is a misalignment between business and government on these issues These barriers are capable of undermining food security APEC s 3 billion citizens absorb the consequences in the form of increased prices, lower quality, and reduced access Addressing these barriers provides additional pathways to meeting APEC s goal of inclusive economic development If businesses and governments work together they can create policies that benefit consumers without hindering businesses ability to grow - 4 -

4 Food trade enhances food security but the global trading system is increasing in complexity Source: World Bank Trends in Tariff Rates (%) Top 0 Products Ad Valorem Equivalent of NTMs Tariffs and Ad Valorem Equivalents of NTMs Faced by Exporters. Diary products. Processed rice 3. Gas 4. Paddy rice 5. Cereal grains 6. Vegetables, fruit, nuts 7. Wheat 8. Meat: cattle, sheep, goats, horse 9. Meat products 0. Sugar Source: International Trade Centre Ad valorem equivalent of NTMs Tariffs Capturing the voice of business in APEC Economy # of Interviewees Australia 8 Brunei 3 Canada 4 Chile China 5 Hong Kong 0 Indonesia Japan 8 Rep. of Korea 7 Malaysia 3 Mexico 39 New Zealand 37 Peru 0 Philippines 7 PNG 8 Russia Singapore 8 Chinese Taipei 3 Thailand USA 33 Vietnam 4 Executives, Experts, Officials Interviewed 308 Organizations interviewed 6 Total # of Survey Responses - 6 -

5 Business and government perceptions differ, exposing a deeper divide 68% 5% Of businesses believe that SPS requirements are Of arbitrary, businesses complex, believe the and trading economy environment specific is highly protected Source: Survey Results Public Sector Private Sector Private Sector Public Sector 70% Of government respondents believe 66% that SPS regulations are transparent, Of government sciencebased, believe and coherent trade is already respondents with global standards open Open to trade SPS requirements are transparent, science-based, and coherent with global standards Protectionist SPS requirements are arbitrary, complex, and economy specific A framework to define burdensomeness Information Process People Measures Regulatory Philosophy Information Process People Measures Regulatory Philosophy Inaccessible Ambiguous Outdated Underdeveloped Inconsistent Redundant Understaffed Under-skilled Relationshipdriven Inconsistent with international standards Excessive Discriminatory Protective intent Retaliatory intent Prescriptive - 8 -

6 Barriers are faced across the entire supply chain Vague and unclear info for compliance requirements High volume of goods, not enough officials to manage Info in only one language Cumbersome licensing procedures Inconsistent enforcement of rules and regulations at points of entry Inadequate transport and logistics services and infrastructure Unreliable connectivity Compliance with private standards MARKET ACCESS BORDER ADMINISTRATION INFRASTRUCTURE Unable to register new product(s) for import Unqualified lab Lack Before of the Border Navigating At the Border technicians regulatory overlap Informal Behind the Lack Border of cold chain Direct Costs automated 6% 44% facilitation 37% Ad-hoc Indirect changes Costs to rules Time and delays systems 4% 53% Discriminatory 7% behavior by 5% payments 38% 33% regulations Uncertainty 54% customs officials 76% 48% Complexity 59% 69% 44% Inadequate fleet Businesses assessment of APEC economies Least Trade Restrictive Economies Australia 3 Canada 5 Singapore Hong Kong 4 United States Most Trade Restrictive Economies China United States 3 Japan Australia 5 4 Indonesia - 0 -

7 Procedural Obstacles frustrate business, but TBT and SPS measures are the most burdensome Most Frequent Impactful Barriers to Trade Procedural TBT Measures Obstacles 70% 390 SPS SPS Measures 43% 3 Procedural TBT Obstacles Measures 36% Rules of of Origin & Traceability & 3 3% Source: Survey In-country Results Interviews - - Research Findings NTBs create a business dis-abling environment Food security is often viewed as selfsufficiency 3 Applications of Egregious NTBs 4 Procedural Obstacles are the most frequently encountered NTBs 5 Private standards are driving adherence to international standards but come with challenges

8 NTBs create a business dis-abling environment Sheer number (00 pages of paperwork for SKU) different regimes Resource-heavy compliance process Lack of information or consultation on changes Frequent or ad-hoc changes Accumulation of Standards Complexity of Regulations Finding I Finding II Finding III Finding IV Finding V Food security is often viewed as self-sufficiency Food Security Government interventions aim to enhance food security: Protect against supply-side shocks and price volatility Support to MSMEs and smallholders Enable domestic employment in agri/food sectors and ancillary industries Self Sufficiency Government interventions may amplify food-insecurity: Reject long-term food supply in favor of short term development Discount the gains from competitive and comparative advantage Prevent inflow of new capital and innovation through FDI restrictions Finding I Finding II Finding III Finding IV Finding V - 4 -

9 Applications of Egregious NTBs Trade Weapons Protectionist Measures Time as a Weapon Valves Discriminatory Tools Finding I Finding II Finding III Finding IV Finding V Procedural Obstacles are the most frequently encountered NTBs Administrative Burden Organizational Complexity Human Capital State of Agriculture Supply Chain Infrastructure ICT Infrastructure Finding I Finding II Finding III Finding IV Finding V - 6 -

10 Private standards provide opportunities but come with a unique set of challenges 4% Of businesses say that PVSs accelerate conformity to global standards much more rapidly than governmental efforts Adherence to Global Standards Governments are supporting businesses through the creation of government programs aimed to help them meet certification schemes Increased Burdens on Business If the world isn t going to do it, I am going to build it myself Our retail chain s standards are more important than governmental standards. 5% Of businesses say that PVSs are equal to or more burdensome than government s NTMs Finding I Finding II Finding III Finding IV Finding V Our approach to practical solutions 3 Transparency Consistency Known Reasonable timeframes & Formal Payments Businesses want the opportunity to compete fairly in the global marketplace, maximizing profitability and minimizing volatility. Yet, businesses believe that the trading environment is deteriorating as regulations and barriers impede long-term growth prospects

11 Practical solutions: Transparency Why 69% of government respondents believe that regulations are simple, straightforward and transparent 0% of business respondents believe that regulations are simple, straightforward and transparent Solutions Expand scope of APEC Trade Repository FTAs as a forum for consensus building (e.g., FTAAP) Benefits Provides real-time updates Reduces impact of incomplete information Collects and organizes information Promotes APEC-wide discussion on NTBs Drives regional alignment Serves as an equalizer between economies Practical solutions: Consistency Why 75% of government respondents believe that NTMs are consistently applied Solutions Consensus building between public and private sector Benefits Promotes coordination Strengthens the voice of business in policy making Enhances participation of MSMEs 3% of business respondents believe that NTMs are consistently applied Designation of a single point of contact Enables a consistent line of communication with businesses Centralizes access to trusted information - 0 -

12 Practical solutions: Known timeframes Why 66% of public sector respondents believe that government response times are shortening Solutions Accreditation of 3 rd Party Labs Benefits Expands capacity to handle volume of trade Capitalizes on expertise of skilled private sector technicians 39% of private sector respondents believe that government response times are shortening Adoption of an Automated Cross Border Environment Streamlines customs clearance process Increases accuracy of data collection for risk management Reduces opportunities for facilitation payments - - Recommended pathways forward to streamline trade across APEC Businesses Rankings of Solutions Standards Harmonization 35% Mutual Recognition 49% National Treatment % - -

13 $790B the cost of NTMs on APEC in 0-3% the amount trade would increase globally by halving the impact of NTM $790B the cost of NTMs on APEC in 0 Thank you Contact Information: sarah.horn.07@marshall.usc.edu -3% the amount trade would increase globally by halving the impact of NTM - 4 -