The term “non-tariff measures” (NTMs) covers a diverse set of measures in terms of purpose, legal form and economic effect. NTMs comprise all policy measures other than tariffs and tariff-rate quotas that have a more or less direct impact on international trade. They can affect the price of traded products, the quantity traded, or both.
These measures can be broadly divided into two groups. The first type, called “technical” measures, includes regulations, standards, testing and certification, primarily sanitary and phytosanitary (SPS) and Technical Barriers to Trade (TBT) measures. The second type, called “non-technical” measures, includes quantitative restrictions (quotas, non-automatic import licensing), price measures, forced logistics or distribution channels, and so on.
International trade in goods and services can be strongly affected by non-tariff measures that originate from domestic regulations. These measures are generally imposed to address market failures, such as information asymmetries or negative externalities. They can provide a signal of quality, strengthening consumer confidence that foreign products abide by domestic regulations. But while countries may share the same objectives, they often apply different standards or methods to ensure compliance with regulatory measures. These differences can raise costs for businesses seeking to access more than one market.
As a consequence, economies may forego opportunities to participate in global trade if traders decide that the costs to meet additional market requirements are too high. Such costs can be related to product and production requirements, the conformity assessment and certification requirements, or to information requirements to enter a new market. These may be particularly prohibitive to small firms where the cost of simply gathering the necessary information can be disproportionately high. Well-designed and efficient processes, including use of relevant international standards, can help facilitate participation in trade by more and smaller firms, help ensure consumer trust, and help support good regulatory practices.
The challenge for governments is to achieve their regulatory and public policy objectives in a way that also allows them to maximise the gains from trade for all. To help governments with this challenge, the OECD estimates the distinct effects of different NTMs on trade volumes and prices. This allows cost-increasing effects associated with non-tariff measures to be separated from possible demand-enhancing effects that come from improving transparency and assuring consumers that imported products meet important domestic standards. Identifying these two distinct effects can help governments think through whether there are less costly or burdensome ways of achieving their policy objectives.
International regulatory co-operation can help reduce unnecessary trade costs
Targeted co-operation among governments in designing NTMs offers an efficient option to achieve regulatory objectives while reducing potentially unnecessary trade-costs. This approach can lead to greater coherence and interoperability across national regulatory regimes, thereby enabling economies to take better advantage of the welfare-enhancing benefits from trade.
To that end, international regulatory co-operation (IRC) helps create options that reduce unnecessary diversity of domestic regulation among trading partners, while maintaining national policy objectives. Advancing IRC has the potential to maintain policy objectives and the demand-enhancing benefits from these policies, while lowering regulation-related burdens (often costs) for exporters and producers alike. Options that can be grouped under the IRC umbrella include harmonisation, alignment to international standards and arrangements that recognise two countries’ standards as equivalent, despite some differences. Dialogue and exchange of information that can improve understanding of regulatory practices and build trust among governments and regulators is another important tool of regulatory co-operation.
While many agreements under the World Trade Organization (WTO) framework do not explicitly refer to regulatory co-operation, some agreements contain references to harmonisation and mutual recognition. These references are embedded in the Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) Agreements, for example.
A number of recent bilateral and regional trade agreements require or encourage members to initiate regulatory co-operation. Horizontal chapters in these agreements anchor the principles and commitments to engage in regulatory co-operation or regulatory coherence in the legal text. Other initiatives are being undertaken at the national level by governments interested in promoting adherence to standards and enhancing efficiency, for example in trade facilitation. Studies have shown a positive effect of these types of initiatives on imports and exports, reducing the costs of complying with regulations and standards.
The OECD is working to help countries identify regulatory divergence and help guide policymakers in thinking through the opportunities for co-operative actions to promote regulatory objectives while reducing unnecessary trade costs. The work is intended to provide a step-by-step approach to help governments identify and analyse types and magnitudes of trade costs associated with regulatory divergence, and the potential gains for trade and inclusive growth from greater cooperation to remove unnecessary trade costs while promoting regulatory objectives.