Developing countries have an important stake in products which have relatively high post-Tokyo MFN tariff rates in developed market economy countries (DMECs). On the whole, their market share is greater in higher tariff imports and, consequently, reductions which cut high tariffs more than lower ones, e.g. by applying tariff ceilings or harmonization formulae, are in the interest of developing countries. They would benefit from such MFN reductions despite erosions in their existing preference margins. This is due to relatively narrower product coverage of GSP schemes and smaller preference margins in higher tariff imports - other than the schemes for the least developed countries. Therefore, complementing MFN reductions with broadening the product coverage of GSP schemes in high tariff items and deepening the preference margins in certain markets would significantly enhance the exports of developing countries.
Tariff liberalization and improved GSP product coverage and margins in higher tariff items would do very little to developing countries, however, if NTMs were not relaxed to accommodate the potential gains from tariffs. The frequency and trade coverage of NTMs in DMECs affecting high tariff items are significantly greater compared to their overall imports. Furthermore, NTMs substantially discriminate imports from developing countries in high tariff products. Therefore, tariff liberalization schemes which are confined to products not currently covered by NTMs would not yield any noteworthy results for developing countries. This is to say that unless some action is taken in the field of NTMs, no significant expansion of trade can be expected through tariff reductions, not even in the high tariff items. Furthermore, if the relaxation of NTMs is only limited to the accommodation of potential trade expansion through tariff liberalization, even complete elimination of tariffs would only yield meager results.
This overall picture is especially bleak for certain sectors, notably labour intensive manufactures such as textiles and clothing and miscellaneous manufactures. In some sectors, particularly in food products, the observations are diluted due to the extreme restrictiveness of some DMECs' trade regimes. Hence, the conclusion to draw is that the importance of liberalization of high tariff products for developing countries can be grossly understated as these evaluations are based on trade which is significantly curtailed by NTMs.
Stockholm: IIES , 1987. , 36 p.
Published in connection with a visit at the IIES.