The common perception in developed market economies is that we live in a globalized world where trade barriers for developing countries have all but disappeared. The Doha Development Agenda, recent bilateral and regional agreements and voluntary reductions in trade barriers favouring least developed and developing countries are seen as having significantly enhanced market access.
Developed market economies have taken steps to improve market access for developing countries. They have expanded preferential access for goods from developing countries and reduced tariffs on goods of interest to developing countries.
Yet, business people and trade policymakers in developing countries frequently voice their concern about what they perceive as persistent or even increasing access barriers in their export markets. They argue that protection levels are underestimated. Many protectionist instruments--such as specific tariffs, antidumping measures, tariff quotas and a plethora of non-tariff barriers--are not taken into account, they say.
Do they have a case, and is market access 'unfinished business' or even a deepening problem? Recent research by ITC--based on Market Access Map, ITC's new market access database--suggests that the answers to these questions are yes.
Three hurdles are blocking the track to better market access. First, specific tariffs are widespread. They are less transparent than ordinary (ad valorem) tariffs and they tend to discriminate against developing countries. Second, commodity prices have plummeted. If tariffs were ad valorem (a percentage of total value), the duties actually paid would have declined with the prices. Since specific tariffs are so important--especially for commodities--in practice, developing countries and least developed countries (LDCs) are witnessing an effective rise in protection. Moreover, the share of LDC exports with duty-free access is decreasing. Third, non-tariff barriers (food safety standards, environmental certification, etc.) are growing; in the case of LDCs, they are particularly dramatic.
First hurdle: Specific tariffs
Specific tariffs--levied on quantity rather than value--are the first hurdle to better market access. The negative impact of specific tariffs (more common since the Uruguay Round ended) offset the benefits of lower ad valorem tariffs.
Most countries levy tariffs in ad valorem terms--as a percentage of a product's total value. But some countries use specific tariffs instead. This has been especially the case for agricultural products, which remain major exports for developing countries and LDCs in particular. The reason for this is that during the Uruguay Round countries agreed to convert quotas (quantitative restrictions) and variable levies for agricultural products into tariffs.
Specific tariffs tend to discriminate against exports from low-income countries, whose producers often specialize in the lower price-quality segment of export markets.
While ad valorem tariffs are transparent (say, 20% of import value), specific tariffs are not. When product prices and exchange rates fluctuate, ad valorem tariffs fluctuate in their amounts too.
Specific tariffs, oil the other hand, remain tied to quantity. When commodity prices fall, specific tariffs do not fluctuate. Thus market access becomes doubly difficult when prices go down. Protection is equal for a US$ 20-per-tonne specific tariff and a 20% ad valorem tariff, when the price equals US$ 100 per tonne. If the price falls to US$ 50 per tonne, however, the same specific tariff is equivalent to a 40% protection level.
To assess overall protection levels correctly, then, one must measure the combined effect of ad valorem tariffs and specific tariffs. To combine them, one must first calculate the ad valorem equivalent of specific tariffs (and other related measures).
Second hurdle: Falling commodity prices
Commodity prices are currently at their lowest level since the mid-1990s. …