The Quantification and Impact of Non-Tariff Measures: Why Do NTMs Proliferate and What are the Consequences?

Abstract

At a time of unprecedented growth in trade fueled in part by a wave of trade liberalization, there has been a strong counter-current in terms of growth in non-tariff measures (NTMs) that tend to restrict trade. This short note takes up two questions: Why have NTMs proliferated and what are the policy consequences of this proliferation? It identifies three major factors contributing to the proliferation: selective protectionism in the face of mounting import pressures due to tariff liberalization, which creates concerns as it represents the replacement of efficient (tariff) protection with inefficient forms; growing concerns in areas such as health and the environment which (legitimately) collide with trade interests and thus raise important trade-offs; and large and prolonged exchange rate disequilibria which make the welfare effects of NTMs indeterminate. The paper also explores the implications for adjustment of trade imbalances and domestic competition of NTM proliferation, given their tendency to dampen price elasticities. Given the very different implications of NTMs, depending on the nature of the motivating factor, and their potentially pervasive effects, the paper argues for improved understanding of NTMs.

Keywords: trade, non-tariff measures

JEL Classification: F13