How to Measure Non-tariff
Barriers?
A Critical Examination of thePrice-Differential Approach
Kyoji Fukao*
Hitotsubashi University and RIETI
Goushi Kataoka
UFJ InstituteArata Kuno
UFJ Institute1. Introduction• Research on a Japan - Korea FTA oftenemphasizes the importance of the elimination ofNTBs (e.g. JETRO, 2000; KIEP, 2000; Kim et. al.
2003).
• The political background: Korea has higher tariff
rates (7.9%) in place against Japan than Japan
has against Korea (2.9%).
• If only tariffs are abolished, Korea would have tomake unilateral concessions to Japan.
• It has been argued that given the pervasivenessof non-tariff barriers in Japan, Korea canincrease its exports to Japan if reduction ofNTBs is included.

• In order to study NTBs, the Japan-Korea
FTA Study Group launched a Non-tariff
Measures (NTM) Cooperation Committee
in May 2003.
• However, so far, neither the study group
nor other researchers have come up witha consensus concerning the size of NTBs
in Japan and Korea.
• This paper attempts to address this issue
by critically examining the methods usedby preceding studies to measure NTBs.

Four methods of measuring NTBs
1. The first approach calculates thedifferential between the import price andthe domestic price of each commodity ata disaggregated level and subtracts thetariff rate on the commodity from thisdifferential. The result is treated as a nontariff barrier.
Japan: Sazanami, Urata, and Kawai(1995) , Kataoka and Kuno (2003)
Korea: Kim (1995), China: Shuguang et.
al. (1999), EU: Messerlin (2001)

2. The second approach, studies thedisparity between domestic and foreign
prices. JETRO (2000), METI Statistics
Data on PPP are limited.
It is not easy to take account ofdifferences in distribution margins andtrade costs among countries.
With this approach, it is also difficult totreat tariff barriers and NTBs separately.

3. The third approach estimates gravity
models and regards the residual error thatcannot be explained by the models astariff and non-tariff barriers. Japan; Sohnand Yoon (2001) , Harrigan (2003)
There are a variety of factors other thanNTBs that are responsible for residualerrors (such as imports from overseas
affiliates).
The number of estimates at thedisaggregated commodity level is limited.

4. In the fourth approach, scholars produce a listof individual cases of NTBs and use afrequency measure based on the number ofcases as the basis for an international
comparison.
UNCTAD, OECD, KITA . Not quantitative.
The coverage of GTAP database on NTBs islimited.
MacMaps (CEPII) is not open to the public.

How Price Differentials Were Calculated
by Kataoka and Kuno (2000)• Prices of domestic goods were obtained
from the Japan Input-Output Tables, 1995.
• Prices of imported goods were obtained
from Japan’s Customs data provided by
the Ministry of Finance (MOF), which arerecorded at the 9-digit HS88 level.

(% except for import amounts and domestic production amounts)
Japanese 1995
NonDegree of1999 import
1999 domestic
benchmark InputLevel of trade Tariff
tarifftransparency of
Output table Sector Items included inprotection
ratio
barrier amount (billion production amountimportscodes
the survey
（①＋②）
（①）
(②）
yen)
(billion yen)Beef (dressed1111011
63.7
27.6
36.1
411.9
608.1
40.4carcass)
2338.90.70111011 Rice262.7
0.0
262.7
16.0

(iron and steel)
Ordinary steel
2621012sheetsOrdinary steel
2621013
bands
Other ordinary
2621015 steel hot rolledmaterials
Ordinary steel
2622011
pipes
Plated steel
2623021materials
2631031 Iron casting(Petroleum products)

49.7

1.2

48.5

145.6

5033.2

2.8

75.8

0.9

74.9

28.9

439.8

6.2

35.8

1.3

34.4

63.8

1755.4

3.5

15.5

1.0

14.5

6.5

278.6

2.3

39.9

1.1

38.8

8.2

507.7

1.6

15.6

1.7

13.9

27.9

1239.9

2.2

136.1

0.0

136.1

10.3811.9

1.3

112.2

0.9

111.2

804.0

4569.2

15.0

187.2
49.1
2111012 Jet fuel
12.3
0.1
12.3
180.3
563.8
12.5
2111013 Kerosene
26.1
2.7
23.4
80.3
2470.61.52111014 Diesel fuel
206.3
5.4
200.9
38.2
572.4
4.7
2111015 A-grade heavy oil
45.8
3.4
42.4
27.9
B-grade heavy oil and2111016
42.1
2.6
39.5
86.6
638.8
11.9
C-grade heavy oil
Liquified
2111018 petroleum gas
11.2
0.0
11.2
390.7
136.4
74.1
(LPG)
Note 1: The tariff rate is calculated on the basis of the annual table as follows: (tariff amount/import amount) x 100.
Note 2: The degree of transparency of imports is calculated as follows: Import amount//(domestic production amount + import amount) x 100.
Note 3: The import amount and domestic production amount data is from the 1999 annual table (1995 Standards).
Note 4: The values for the sectors in parentheses and the total values indicate the aggregate calculation of the results of estimates for the covered
items against the domestic production amount and import amount.

Row sector codesof 1995
benchmark I-OtableDescription

HS 9 digit codes

1111011 Beef (dressed carcass) 0201.10-000、0201.20-010、0201.20-090、0201.30-010、0201.30-020、0201.30-030、0201.30-090、0202.10-000、0202.20-010、0202.20-090、0202.30-010、0202.30-020、0202.30-030、0202.30-090
0111011 Rice

1006.10-000、1006.20-000

2621012 Ordinary steel sheets 7208.32-011、7208.32-019、7208.33-010、7208.34-010、7208.35-010、7208.42-010、7208.42-090、7208.43-010、7208.43-090、7208.44-000、7208.45-000、7208.90-000
2621013 Ordinary steel bands 7208.11-010、7208.12-011、7208.12-019、7208.13-010、7208.14-010、7208.21-000、7208.22-010、7208.22-090、7208.23-000、7208.24-000、7211.12-010、7211.19-010、7211.22-000、7211.29-000
2621015 Other ordinary steel
hot rolled materials

7207.11-010、7207.11-090、7207.12-010、7207.12-090、7207.19-000、7207.20-011、7207.20-012、7207.20-019、7213.10-000、7213.31-010、7213.31-090、7213.39-000、7213.41-000、7213.49-000、7215.90-010、7217.11-000、7217.19-000、7217.21-000、7217.29-000、7217.31-000、7217.33-000、7217.39-000、7225.10-010、7225.10-090、7226.10-010、7226.10-090、7302.10-000、7302.20-000、7302.30-000、7302.40-000、2622011 Ordinary steel pipes

7304.10-020、7304.20-020、7304.20-040、7304.31-010、7304.31-020、7304.39-010、7304.39-020、7304.90-040、7305.12-020、7305.31-020、7305.39-020、7306.10-020、7306.30-011、7306.30-019、7306.30-021、7306.30-029、7306.30-090、7306.60-021、7306.60-029、7306.90-020
2623021 Plated steel materials 7210.11-000、7210.12-000、7210.20-000、7210.31-010、7210.31-020、7210.39-000、7210.41-000、7210.49-000、7210.50-000、7210.60-000、7210.70-000、7210.90-010、7210.90-020、7212.10-000、7212.21-010、7212.21-020、7212.29-000、7212.30-000、7212.40-000、721250-000、7212.60-010、7212.60-020、7217.12-010、7217.12-090、7217.13-010、2631031 Iron casting7325.10-000、7325.91-000、7325.99-000
2111012 Jet fuel2710.00-143

2111013 Kerosene

2710.00-149

2111014 Diesel fuel2710.00-150

2111015 A-grade heavy oil

2710.00-161、2710.00-163、2710.00-164、2710.00-165、2710.00-166、2710.00-167、2710.00-169

2111016 B-grade heavy oil and 2710.00-171、2710.00-173、2700.10-175、2710.00-179
C-grade heavy oil
2111018 Liquified petroleumgas (LPG)

2711.12-010、2711.12-020、2711.13-010、2711.13-020、2711.14-021、2711.14-022、2711.19-012

Price-differential approach, too, is notwithout its problems• As Komiya and Negishi (1998) has pointed
out, in order to obtain reliable results, it isnecessary to ensure that the quality of theimported and domestic goods that are thesubject of the comparison is in fact
identical.
• Although subsidies for domestic production
impede imports we can not measure sucheffects using this approach.

Beef• Before 1991, Japan imposed import quotaon beef.
• The applied tariff rate on beef in 1991 was70%.
• The tariff rate is now 38.5% (concessionrate of 50%).

Fig. 3.1 Trends in the production and imports ofand self-sufficiency rate for beef in Japan
Thousand Tons
1,800

100.0%

1,600

90.0%

1,400

80.0%
70.0%

1,200

60.0%

1,000

50.0%

800

40.0%

600

30.0%

400

20.0%

200

10.0%

00.0%
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000
Domestic Production (left axis)
Self-sufficiency rate (right axis)

Imports (left axis)

Price Differential between Imported Beef and Japanese Beef: 2000
(Yen/Kg）
Ordinary retail priceShoulder Brisket
SirloinRound
Japanese
530
478
1129
550
beef cattle
Domestic
339
301
641
376
beef
Imported
220
272
398
218
beef (US)Imported
175
159
350
173
beef(Australia
Source: Agriculture & Livestock Industries Corporation

Bargain sale price
BrisketSirloin

Chuck

Round

400

371

854

400

241

224

479

256

144

193

264

128

111

111

232

103

Comparison of Beef Prices between U.S. and Japan(yen/kg)
Ordinary retail Bargain sale price,
US Omaha fob base Trade price inJapan, strip loinprice, sirloin
sirloinprice, strip loin
chilled imported
chilled2003 March
1152.4
1,914
2,700
3,840
2003 April
1440.1
2,030
2,730
3,900
2003 May
1656.9
2,175
2,620
3,920
2003 June
1673.1
2,413
2,620
3,950
2003 July
1274.8
2,534
2,690
3,870
2003 August
1192.5
2,367
n.a.
n.a.
Source: USDA「National Carlot Meat Report」
Livestock-industry information network
Agriculture & Livestock Industries Corporation• It seems that consumers have a strong
preference for domestic beef.
• We can explain the price differential between theUS wholesale price and the trade price in Japanby a tariff of 36 % and additional transportationand distribution costs.
• We can conclude that there are no substantial
NTBs in the case of beef except the gradingsystem and the information issue.
• Unlike other tariff revenues, those from beef
imports in Japan are utilized as a part of beefrelated subsidies, such as funding for therationalization of beef production and meat
distribution.

Rice• Prior to the Uruguay Round agreement, riceimports were handled exclusively by the FoodAgency exclusively as a state-trading item.
• In April 1999, Japan introduced a tariff–ratequota system, maintaining minimum access riceimports under the state-trading system. The
current tariff rates are zero for minimum accessrice, and 341 yen/kg for above-quota imports.

Fig. 3.2 Trends in the production and import of and selfsufficiency rate for rice in Japan
Thousand Tons
120%

20,00018,000100%

16,00014,00080%

12,00010,000

60%

8,000
40%

6,000
4,000

20%

2,000
00%
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000
Domestic Production (left axis)
Self-sufficiency rate (right axis)

Imports (left axis)

Table 3.8 The results of the second round of SBS bidding in 2002
Exporting country

TypePrice*
Volume of Government Government
importspurchase
sales
(1)
(ton)

(2)
(yen/ton)(3)(yen/ton)

Modified
Markup border piece
ratio(3)-(2)=(4) (3)÷(2)=(5)(yen/ton)

U.S.A.
non-glutinous short grain, brown rice126
86,000228,457
142,457
non-glutinous short grain, milled rice
2,867
94,836219,359
124,523
non-glutinous medium grain, milled rice100
61,190216,901155,711
glutinous short grain, brown rice18
78,000238,200
160,200
glutinous short grain, milled rice
1,440
85,509213,203
127,694
subtotal
3,634
80,166
235,547
155,381
Australia
non-glutinous short grain, brown rice22
89,000233,300
144,300
non-glutinous short grain, milled rice435
94,121
247,128
153,007
subtotal
457
93,874
246,462
152,588
Thailandnon-glutinous long grain, milled rice60
69,667228,333
158,666
glutinous long grain, milled rice40
72,000231,000
159,000
subtotal
100
70,600229,400
158,800
China
non-glutinous short grain, milled rice
2,200
80,450228,831
148,381
glutinous short grain, milled rice
788
82,755
233,858
151,103
subtotal
2,988
81,058230,157
149,099
Total
8,096
87,147224,056
136,909
Note: The second round of SBS bidding took place on August 30, 2002.
The total volume offered was 20,278 tons.
* Weighted average price of the accepted offers.
Source: Shokuhin Sangyo Shinbun-sha, Easy to Understand Handbook of Rice , 2002/2003 , 2003.

2.66
2.31
3.54
3.05
2.49
2.94
2.62
2.63
2.63
3.28
3.21
3.25
2.84
2.83
2.842.57

• Because of the prohibitively high tariffs, almost norice is imported beyond the minimum accessvolume. Even though no revenues are collectedfrom tariffs, a large disparity is created between
import and domestic prices. When analyzing therice market, we might mistakenly identify thepresence of a very high non-tariff barrier if wewere to use the price differential approach.
• Uses of minimum access rice; processed foods(37.5%), government stockpiles (32.6%) andforeign aid (20.2%).
• Highly regulated distribution channels seem togive rise to higher transportation and distribution
margins for imported rice.
• Various kinds of subsidies are being applied andover 300 billion yen has been set aside for a ricepolicy reform budget for FY2004

SteelTable. 3.12 Japan’s imports and exports of steel by country（Year2002, Thousand JPY）
Exports
R KOREACHINATAIWANS AFRCABRAZILRUSSIANKAZAKHSROW

81,716,443
46,132,554
34,944,445
22,311,996
13,887,392
8,052,964
7,766,041
58,552,455

Imports
29.9% R KOREA
16.9% CHINA
12.8% TAIWAN
8.2% THAILND
5.1% HG KONG
2.9% MALYSIA
2.8% USA
21.4% ROW

379,639,789
336,176,569
152,225,250
149,492,858
96,249,162
61,609,843
61,561,994
409,381,737

23.1%
20.4%
9.2%
9.1%
5.8%
3.7%
3.7%
24.9%

Japan’s Trade of Ordinary Steel Pipes
Imports ofcommodity
730410020
730420020
730420040
730431010
730431020
730439010
730439020
730490040
730512020
730531020
730539020
730610020
730630011
730630019
730630021
730630029
730630090
730660021
730660029
730690020
Total

Quantity (metrictons)
565
106
124
966
763
97
2,760
628
2
1,921
3,054
19
7,493
46,297
66,05258,96523,636
20,204
15,725
3,643
253,020

Unit price
Value shares
Value（1000yen/metric tons）（％）（1000yen）
33,78860
0.24
25,616242
0.18
15,362
124
0.11
199,316206
1.39
175,018229
1.22
20,991216
0.15
366,465
133
2.56
57,964
92
0.40
1,841
921
0.01
111,664
58
0.78
266,878
87
1.86
792
42
0.01
449,90460
3.14
2,130,797
46
14.87
3,805,078
58
26.55
2,843,688
48
19.84
1,862,781
79
13.00
914,68345
6.38
800,55051
5.58
250,82269
1.75
14,333,998
57
100.00

Exports ofUnit price
Value sharescommodity Quantity (metric tons) Value （1000yen） （1000yen/metric tons）（％）
730410900
267,202
17,129,249
64
11.46
730420900
373,51229,894,483
80
20.00
730431100
8,301
1,430,105172
0.96730431900
26,6495,761,084
216
3.85
730439100
25,274
2,274,88790
1.52
730439900
281,960
19,736,092
70
13.20
730490100
59
32,215546
0.02730490900
1,455
435,129299
0.29
730511900
470,132
30,552,902
65
20.44
730512900
83,905
4,651,098
55
3.11
730519900
12
1,947
162
0.00
730520290
11,721
802,78368
0.54730531900
60,267
4,862,683
81
3.25
730539900
21,542
1,585,591
74
1.06
730590900
73
42,490582
0.03730610900
125,4148,204,734
65
5.49
730620900
61,6063,439,005
56
2.30
730630100
4,908
439,18289
0.29730630200
20,264
1,725,25585
1.15730630900
104,655
14,116,108135
9.44
730660900
27,2091,975,082
73
1.32
7306909001,260408,924
325
0.27
Total
1,977,380
149,501,028
76
100.00• The difference in product compositions
makes the unit value of Japan’s exports ofordinary steel pipes higher than the unit
value of Japan’s imports.
• Looking at the unit prices on an HS9 basis,
export unit prices are higher than import unit
prices, which points to the possibility of adifference in quality for each product (inaddition to the difference in productcompositions).

Petroleum Products
Table 3.15 Japan’s imports of petroleum products by country（Year 2002,Thousand JPY）
Light petroleum oils and preparations
Country
RepublicofKorea

Value
159,268,143

Kuwait101,537,706

Value
100,890,894

Share
53.10%

16.70% Indonesia

25,861,326

13.60%

69,801,818

11.50% Singapore

12,023,746

6.30%

Saudi Arabia

61,880,913

10.20% RussianFederation

8,042,086

4.20%

Indonesia

36,752,775

6.00% Taiwan

6,828,375

3.60%

ROW

178,920,071

29.40% ROW

36,276,036

19.10%

Total

608,161,426

100.00% Total

189,922,463

100.00%

UnitedEmirates

ArabShare
Country
26.20% RepublicofKorea

Other

Source: Ministry of Finance, Japan Exports & Imports: Commodity by Country.

Japan’s Trade of B-grade Heavy Oil and C-grade Heavy Oil
Imports ofcommodity
271000171
271000173
270010175
271000179
TotalQuantity(kilo-litre)
470,324
2,217,954
1,054,291
7,218
3,749,787

Value（1000yen）
5,022,939
22,722,820
10,316,436
99,26038,161,455

Unit price（1000yen/kilo-litre）
11
10
10
14
10

Exports ofcommodity
271000400

Quantity(kilo-litre)
4,269,365

Unit price
Value（1000yen） （1000yen/kilo-litre）
45,961,781
11• Comparing import and export prices, all productsrecorded almost similar prices for exports and forimports, bringing us to the conclusion that we cannot explain the price disparity between domestic
and foreign prices by either the difference inquality or commodity composition between
imported and domestic goods.
• Until 1997, imports of specific kinds of petroleum
refined products were regulated through a systemof registration of importers by law, the Provisional
Measures Law on the Importation of Specific Kindsof Petroleum Refined Products. It seems that there
exist substantial NTBs at least for the period
before 1997.

Conclusions• Price-differential approach provides us agood starting point. But too simplistic.
• In order to obtain reliable results, it isnecessary to ensure that the quality of theimported and domestic goods that are thesubject of the comparison is in fact identical.
Beef, Steel• Although subsidies for domestic production
impede imports we can not measure such
effects using this approach.
Rice, Beef