NZIER was engaged by the New Zealand Ministry of Foreign Affairs and Trade to provide technical assistance to feed into New Zealand’s contribution to the APEC ‘Collective Strategic Study on Issues related to the Realisation of the Free Trade Area of the Asia Pacific’. The focus of this assistance was on quantifying the costs of nontariff measures in the APEC region. Our paper aims to present some initial estimates of the potential costs of NTMs in the Asia-Pacific, by sector and by economy. We hope that it generates further debate and discussion, given the importance of the topic and the paucity of empirical estimates currently available.
Asia-Pacific trade is characterised by the increased use of non-tariff measures.
- As tariff levels fall over time, the use of non-tariff measures (NTMs) has become more common in the Asia-Pacific region.
- NTMs are regulatory tools, other than standard border tariffs, that can have potential economic effects on trade – either a decrease in quantities traded, an increase in their price, or some combination of both.
- The total number of NTMs within APEC has increased by 74% from 814 in 2004 to 1,414 in 2015.
All NTMs impose costs on businesses and households
- While some NTMs are put in place for legitimate public policy reasons, such as consumer safety or for protecting human, animal and plant health, others are used for more nefarious, intentionally trade-distorting purposes.
- Even the legitimate NTMs impose costs on domestic and foreign firms and households, which can often outweigh their domestic welfare benefits.
- Asia-Pacific economic integration is characterised by multi-country Global Value Chains, and the costs of NTMs accumulate along these chains.
- Reducing the costs of NTMs is therefore important for lowering firms’ transaction costs and improving competitiveness.
- Ultimately this will benefit consumers through lower prices for traded goods and services.
NTMs in the APEC region are three times as costly as tariffs; imposing costs of US$790 billion per year
- We estimate that the ad valorem equivalent of NTMs in APEC is 9.7%, compared to an average APEC tariff of 2.9%.
- NTMs are particularly costly in sectors like dairy, rice, meat and horticultural products.
- NTMs cost APEC economies some US$790 billion each year, around three times as much as tariffs.
New Zealand’s exporters face NTM costs of US$5.9 billion.
- The overall cost of NTMs on New Zealand’s primary sector exports to APEC economies is US$4.7 billion (based on 2011 trade). For our overall export portfolio, the cost is US$5.9 billion.
- The vast majority of these costs are imposed on the dairy (US$2.7 billion), beef (US$768 million) and food products sectors (US$717 million).
- Our initial estimates of the costs of NTMs point to the potential gains that could be made through researchers and policymakers more proactively addressing the most trade-distorting, discriminatory and hence welfare-reducing NTMs.