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<!-- Start of picture text --> International Trade<br><!-- End of picture text --> <!-- Start of picture text --> WPS 1174<br><!-- End of picture text --> This paper-a productofthe Intemational Trade Division, Intemational Economics Departnent-is part of a larger effort in the departnment to analyze and predict structual changes in trade and to identify factors affecting developing countries' exports. Copies of the paper are available fice from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Jean Jacobson, room S7-037, extension 33710 (September 1993, 29 pages).

Many developing counties are being encouraged to shift toward incmased processing and exports of domestically produced natural-resource-based products now exported in primary form. But in many major import markets, the structure of tariffs and nontariff barriers militate against such efforts.

Zero or low tariffs are generally applied to industrial countries' imports of primary (unprocessed) comnodities; duties increase, or "escalate," as the level of processing or fabrication increases. Tariff escalation produces a trade bias against processed goods.

In the past, such trade banier escalation has been attributed chiefly to industrial countries. Safadi and Yeats examined the structure of restrictions in Asian countries and found that most Asian countries' tariffs incorporated more escalation than do tariffs in industrial countries. Apparently tariff escalation is also often reinforced by nontaiiff barriers on processed goods, although supporting data for this finding are less firm.

This issue should not be viewed as a NorthSouth issue, contend Safadi and Yeats. A bias against imports of processed goods is built into trade barrier escalation _among_ Asian countries and should be addrrssed in regional initiatives to liberalize intra-Asian trade barriers.

Safadi and Yeats make three recommendations for dealing with escalation issues in _muld-_ lateral negotiations:

* Japan and, to a lesser extent, the Republic of Korea are the key to successful negotiations on these issues, as they have a far greater import bias against processed commodities than do all other countries with which Safadi and Yeats compare them. That is, Japanese and Korean trade barriers incorporate far more escalation than do trade barriers in other countrties studied.

* Disproportionately high cuts in trade barriers for unprocessed commodities are not the solution, as they would increase effective protection for processed goods.

* Any approach to trade liberalization should deal with both tariffs and nontariiff barrizrs, to ensure that a reduction in one type of restriction is not offset by a futher tightening in the other. Several Asian countries apply both types of restricdons to commodity imports.

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