metadata: authors: 0: author: Safadi, Raed
1: author: Yeats, Alexander
count: East Asia and Pacific,South Asia
docna: 0: docna: Asian trade barriers against primary and
            processed commodities
docty: Policy Research Working Paper
subtopic: Oil Refining & Gas Industry,International Trade and Trade Rules,Trade and Services,Energy Demand,Energy and Environment,Energy and Mining,Transport Services
teratopic: Transport
abstracts: cdata!: Many developing countries are being
            encouraged to shift toward increased processing and exports
            of domestically produced natural resource based products now
            exported in primary form. But in many major 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)
            commodities; 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 barrier escalation has been attributed
            chiefly to industrial countries. The authors 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 often reinforced by
            nontariff barriers on processed goods, although supporting
            data for this finding are less firm. This issue should be
            viewed as a North-South issue, contend the authors. A bias
            against imports of processed goods is built into trade
            barrier escalation among Asian countries and should be
            addressed in regional initiatives to liberalize intra-Asian
            trade barriers. The authors make three recommendations for
            dealing with escalation issues in multilateral negotiations:
            Japan, and to a lesser extent, the Republic of Korea are the
            keys to successful negotiations on these issues, as they
            have a far greater import bias against processed commodities
            than do all other countries with which the authors compare
            them. That is, Japanese and Korean trade barriers
            incorporate far more escalation than do trade barriers in
            other countries studied. Disproportionately high cuts in
            trade barriers for unprocessed commodities are not the
            solution, as they would increase effective protection for
            processed goodss. Any approach to trade liberalization
            should deal with both tariffs and nontariff barriers, to
            ensure that a reduction in one type of restriction is not
            offset by a further tightening in the other. Several Asian
            countries apply both types of restrictions to commodity imports.
repnme: repnme: Asian trade barriers against primary and
            processed commodities
display_title: Asian trade barriers against primary
            and processed commodities
listing_relative_url: /research/1993/09/698912/asian-trade-barriers-against-primary-processed-commodities
topicv3: Energy and Extractives m1326595 507,Transport m1326661 135,Trade m1326924 698,Trade in Services m1326928 780,Petroleum Industry m1583790 4710
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Transport
origu: International Economics Department
no_of_pages: 34
model_extractions: <!-- Start of picture text --> Polley Resouch|<br>4~~~~~~~~~~~~~~~~~~<br><!-- End of picture text -->

<!-- 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.

ThePolicy ReseaWorkin PaperSiesdisseminates thebmdinPsofwolkunder wayin theBis AnobjsidveofioesnC is to got thee findings out quiclcly. even if presenations are less dfian fuDfy polised. The i'mdings. mtupretalions. md coclcusionls in thiem papers do nlot necessarily resent of ficial Bank policy.

Produced by the Policy Reseah Di_ehmon Center
# Asian Trade Barriers Against Primary and Processed Commodities

by

## Raed Safadi and Alexander Yeats

Economists, International Trade Divibion Intemational Economics Department World Bank, Washington, DC 20433
# I. Introduction

Theoretical models of the development process and actual plans for industrialization often assign a key role to trade policy measures. Moreover, in addition to the maintenance of steady growth in exports<sup>and</sup> accompanying increases in foreign exchange earnings, developing countries repeatedly stress the<sup>need to reduce their</sup> dependence on traditional primary product exports. Among the factors cited as the underlying<sup>reasons for this</sup> proposed shift are' (1) the purported deterioration in the terms of trade for primary commodities;<sup>(2) the substitution</sup> of synthetics for _many_ of these items (plastics for metals, artificial for natural fibers, chemical sweeteners<sup>for</sup> sugar); (3) the instability of primary product pxices in international markets; (4) the increased employment opportunities associated with the production and export of manufactures; and _(5)_ the realization of economy-wide linkages and *learning effects' resulting from the processing (manufacturing) function (see Helleiner<sup>and Welwood,</sup> 1978 or Roemer, 1979).

One method suggested for increasing the proportion of developing countries' trade in fabricated goods is to increase the processing of natural resource-based products now exported in primary form. However, a factor often cited as worling against efforts to increase domestic processing is the structure of tariffs and<sup>other</sup> trade barriers in major import markets. Specifically, zero or low tariffs are generally applied to industrial countries' imports of primary (unprocessed) commodities with the duties increasing, or 'escalating', as the product experiences increased fabrication. Tariff escalation has been acknowledged to produce a tmde bias against<sup>processed goods due</sup> to the higher import duties imposed on these items.' 'For example, Balassa (1968, p. 195) states that 'increases in nominal and effective duties from lower to higher stages of transformation point to the existence of discrimination against the processed<sup>export products of developing</sup> countries.- A similar position concerning the influence of escalating t- Yfs has been taken by<sup>Johnson (1965).</sup> Representative studies which document the existence of tariff escalation -a developed<sup>countries include UNCTAD</sup> (1968, 1980) and Yeats (1979). Yeats (1984) argues that a trade bias against processed commodities<sup>may occur</sup> even when there is no escalation in tariffs because of generally higher import demand elasticities<sup>for processed as</sup> oppo99d to primary commodities.
2 The importance that developing countries attach to trade barrier escalation is reflected in the extensive policy debates on this subject that have occurred in major intemational forums. For example, developing countries wore instrumental in having a plank inserted in the 1982 GATT Ministerial Declaration (p. 16) stating that "prompt attentior should be given to the problem of escalation of tariffs on products with a view to effective action toward the eliminat.on or reduction of such escalation where it inhibits intemational trade, taking into account the concems relating to exports of developing countries. ' The Punta del Este Declaration also stated that 'negotiations shall aim to achieve the fullest liberalization of trade in natural resource-based products, including those in processed and semi-processed forms. The negotiations shall aim to reduce or eliminate tariff and nontariff masures, including tariff escalation.' UNCIAD (1979), Commonwealth Secretariat (1982), World Bank (1981 and 1987) have also viewed tariff escalation as a major problem for developing countries.

While trade barrier escalation has been an important point of contention in the Uruguay Round and previous multilateral trade negotiations (MTNs), the topic's relevance to intra-Asian has not been clearly established. Yet a number of Asian countries like Astralia, China, Malaysia, Philippines and Tailand have a major interest in promoting further processing of natural resource products that are now often exported in raw or semi-processed form (see Table 4). However, almost aU of the empirical studies that have documented the existen of trade barrier escalation, and the resulting import bias against processed goods, have focused an Japanese, North American and European markets and it has not been established that developing countries' trade barriers follow a similar pattern.' Moreover, it has not yet been determined that developing countries' (purported) naturnl advanta in primary commodity production generally establishes cost diffeentdals of a sort tlrt salating trade barrier protection is not required for domestic processing industries.

The purpose of this study is to assess the priority that should be assigned to trade barrier escalation in any multilateral libealization effort involving Asian countries. Employing a commodity processing chain classification scheme developed by the World Bank (see Box I for an example of a commodity processing chain), the structure of individual South and East Asian countries' imports is analyzed to determine if a significant trade 2One exception is a study by Laird and Yeats (1987) which showed that tariffs in 23 developing countries or country groups often incorporate a high degree of escalation. However, the major focus of this study was on countries outside the Asian region so it is not directly relevant to an Asian Round.
_3_ bias exists against semi-fabricated and processed commodities. Next, using detailed information on tr&de barriers compiled by UNCTAD and the World Bank an attempt is made to determine if Asian countries' tariffs and nontariff barriers (NTBs) escalate in the same manner, and to the same degree, as developed countries' trade restnictions. The analysis also attempts to identify specific commodity processing chains where liberalization could make an important contribution to Asian intra-trade. The study concludes with an overall assessment of the priorities that should be assigned to trade barrier escalation issues in Asia and also provides several specific suggestions for a regional multilaterml liberalization initiative.

# II. The Data and Methodology

In this study a World Bank classification scheme was used to identify different levels of fabrication for 48 commodities exported in primary and processed form by Asian developed and developing countries (see Appendix I for full details on the components of each stage identified in terms of SITC products). At a minmnum, the scheme distinguishes between a primary and processed stage product (i.e., the primary stage of the coffee chain consists of green and roasted coffee beans (SITC 071.1), while the processed stage consists of coffee extracts (SITC 071.2)). In other instances, a semi-fabricated stage or stages are identified (i.e., the cocoa chain consists of cocoa beans (primary stage), cocoa powder and butter (intermediate stages), with chocolate being the final stage item). Table 4 contains a ist of commodities covered by this classification scheme, and identifies major Asian country producers and exporters of these products.<sup>3</sup> Statistics on Asian countries' 1990 imports of each processing chain's stages were drawn from United Nations Series D trade tapes, as were similar data for several earlier years. In a few cases, trade data for individu2i commodity processing chains were aggregated into broad product groups (e.g., foodstuffs; ores, minerals and nonferrous metals; or energy products) to focus on broad trends in primary and processed products' import 3"Leakages me y occur as one goes up the processing chains since some products may be employed as inputs for production processes which are not a formal part of the chain. For example, cotton fiber may be used for the manufacture of rubber tires and not appear in the textile stages of the cotton chain. Such leakages may cause the magnitude of the shift to processed commodity imports to be understated and may also affect the accurv'y of estimates of the es-alation in tariffs and nontariff barriers. If trade barriers are lower for products where leauges occur than for goods included in the formal definition of the processing chain, the extent and magnitude of escalation will be overstated.
**4**

shares. Due to differences in factors like the level of development, the import structures (and trade barriers) of countries in South Asia, non-OECD) East Asia, and OECD Asia are analyzed separately. Table 1 identifies the major exporters in each group while the World Bank (1992, Table Al, p. 40) provides a full listing.

Statistics on Asien countries' trade barriers were drwn from two sources. Tariff data were compiled directly from GAIT documents and then compute.ized and stored in the World Bank-UNCTAD SMART (Software for Market Analysis and Restrictions to Trarle) data base. (See UNCTAD-World Bank, 1989 for a description of the SMART system). Information on Asian countries' nontariiff barriers was drawn from UNCTAD records and also incorporated in the SMART system. Since the tariff and NTB dati were recorded at the tariff line level, available concordances were used to aggregate these data to Standard International Trade Classification (SITC) groups. This procadure allowed the UN trade data to be matched directly with Asian countries' tariff and NTB infornation.

**Im.** The Coimmodity **Structure** of Asian Trade

Three key points should be considered in an assessment of escalation issues: (1) whether Asian countries' imports reflect a major bias against semi-finished and processed products; (2) whether a similar bias is reflected in Asian commodity exports; and (3) whether Asian trade barriers escalate. If these conditions are found to exist, the subject of escalation should be addressed in Asian trade negotiations.' 'An important conceptual atl ampiical issue is how to deternine if a bias exists in Asian trade and, if it does, what its magnitude is. In this stusy, the _ mnmodity import structure of the European Community (EC) is sometimes used as a "standard' for comparison. Two po - -should be noted with regard to this choice. First, Balassa (1968), Yeats (1984) and others argue " at a signifiu.. ias against processed commodities exists in EC imports and have assessed the influence of contributing factors. Here, any Asian import bias is measured relative to that of the EC. Second, separate tests conducted by the authors show #hat the overall commodity import structure of the United States is quite similar to that of the EC although there are some differences for several individual commodities (see Box 2 for details). Thus, the conclusions of this study would not differ significantly if the United Statee rather than the EC were employed as the standard for comparison.
_5_

# iox 1

# Characteristics of SC-Based C.i'uuodity Processing Chains

Although the approach has several recognized imperfections, a number of empirical studies have utilized the Standard International Trade Classification (SITC) system to construct "commodity processing chains" (Balassa 1968, Yeats 1979, Laird and Yeats 1987). Thesw chains trace individual commodities like cocoa and coffee beans, or cotton, jute and iron ore, through successive stages with each experiencing a greater degree of processing then the former. After detailed analysis of the SITC system, the World Bank was able to construct processing chains for 48 different commodities (see Appendix 1 for details). In 1990, the individual components of these chains accounted for approximately 85 percent of all developing countries' exports.

The major advantage of an SITC-based processing chain framework for analysis is that it provides a common basis for merging trade and trade barrier information. That is, the processing chains allow one to tabulate a country's imports or exports of each stage in a given chain and match this information directly with statistics on tariffs and nontariff barriers. The following example shows the three stages of the lead processing chais, Japan's 1990 imports at each stage, as well as Japan's average (unweighted) tariff on each product. Note how the import duties increase or *escalate" as one move: from lead ore to wrought lead alloys.

||1990 Japanese Imports|||
|---|---|---|---|
|Processing Stage (SITC)|Value (Smill.)|Share(%)|Tariff (%)|
|LEAR||||
|Lead Ore (283.4)|120.3|57.1|0.0|
|Unworked Lead idloy (685.1)|87.9|41.7|3.2|
|Wrought Lead Alloys (685.2)|2.5|1.2|558|
|All Stages|210.7|100.0||

Two specific points should be noted concerning these SITC-based processing chains. First, the level of detail changes from chain to chain due to the nature of the SITC system. That is, sevedal chains like cocoa and wood pulp contain three and four stages wbile other commodities like coffee or copra only include an unprocessed and processed stage. Second, there is a problem of "leakages" in some chains, **_L.e.,_** some commodities may be production inputs for items not included in the chain's components and lost from the analysis (see footnote 3 for a specific example). It is acknowledgeJ that the problem of leakages may produce biases in SITC-basod analyses of trade barrier escalation.
_6_ Table 1 presents summary information on 15 major. Asian countries' commodity imports in 1990. The reported data are aggregates of all 48 individual commodity processing chains (see Appendix 1) that have been classified under four broad headings (agricultural materials, foods and feeds, ores and metals, and energy products). The first five columns of the table show -acih country's imports of a" pnmary and processeJ stages of the chains while the next fivo show the share of primary (unprocessed) stage products in total imports. Finally, the individual country results are aggregated into an overall average for Asia (see the meme~ item) and thbs information is compared with similar statistics on EC imports.' Overall, Table 1 shows the Asian countries' imports are considerably more biased against processed commodities than those of the EC. This is surprsing given that the EC has often been criticized in UNCTAD and GATT for its (purported) bias against processed commodity imports. Approximate'4 36 percent (by value) of EC commodity imports are composed of primary (unprocessed) stage commodities while the corresponding share in all Asian countries is 16 percentage points higher (52.3 porcent). Relatively higher Asian import concentration in unprocessed commodities occurs for all four product groups, but is especially pronounced in ores and metals and agricultural materials where the Asian share is, respectively, two and threa times that of the EC. A key related point is that the overall import bias reflected in Table 1 also shows up in Asian intra-tade. Asian countries now export a considerably greater share of processed commodities to non-regional markets than to Asian markets (see Box 2).

Table 1 also reveals considerable variation in individual country results. Japan records the second highest (behind India) overall degree of prmary commodity import concentration (62.7 percent of Japan's total MThesw overall averages can be affected by an Asian country's natural resource endowments. If, for example, a country has abundant natural resources it might tend to have relatively lower processed good imports, _ceter* paribus,_ than countries not so well endowed if resource availability stimulates domestic processing. International transport costs could work toward this end since many bulky low value prmary commodities often have relatively high nominal freight costs which may decline significantly with further processing, although this is not always the case (see Yeats 1977). For some commodities like metal ores, stowage factors decline sharply with processing which makes the fabricated product easier to transport. For these reasons there may be a tendency for processing activity to be located close to available supplies of some natural resoures. Of course, escalating rade barriers in major international markets would be an offsetting factor. There are some products, however, like wood manufactures th4A become more fragile or subject to pilferage after processing than the primay commodity input (wood). For such items transport costs may have an insignificant effect on the location of processing **activity.**
7 Table 1. 'Mb Relative Imponawce of Asian Couniee Imports of Primary *nd Ptocuead Commodliies in 1990

|IP|Vaha of AlR F<br>Foods and<br>|rimary Stage an<br>Agnicltural|d_Ftcesued_C<br>OCa and|ommotes<br>Energy|(Smillion)'<br>AUl|Shar of Pin<br>_Foods_and|may Stap Podu<br>Agricuhural|s in ToalT b<br>Ors d|4mpos (%)<br>E||
|---|---|---|---|---|---|---|---|---|---|---|
|morter (Year)<br>|Feeds|Material|Mtas4|Products|Connodities|<br>Feeds|<br>Matrias|an<br>_Metals_|nergy<br>PIoducts|AUl<br>Conuoditics'|
|South Asi.<br>Ini<br>(90)<br>|1,853<br>479|1,736<br>1,135|2,389<br>1828|4,587<br>3342|10,565<br>6785|74.3<br>|40.0<br>|23.4<br>|83.6<br>|63.1 (64.6)|
|Paldsan (B9)<br>|999|<br>319|,<br>326|,<br>1144|,<br>2787|86.8<br>|30.3<br>|26.0<br>|99.0<br>|70.8 (75.4)|
|Sri Lanka 490)|375|282|<br>23S|,<br>101|,<br>m|72.6<br>|32.0<br>|21.S<br>|3i.0<br>|47.4 (44-7)|
|Non-OECD East Asi|||<br>|<br>||62.9|7.7|_5.9_|100.0|54.7 (S63)|
|<br>China (90)<br>|18,139<br>3,244|26,840<br>7,098|28,492<br>3,261|32,669<br>9S2|106,139<br>14SS4|64.7<br>836|36.4<br>|17.6<br>|63.4<br>|43.1_(52.1)_|
|Hong Kong (90)<br>|S,000|<br>1,479|<br>1,309|<br>2X6|,<br>17014|.<br>439|25.8<br>|61.5<br>|44.5<br>|38.2 (54.0)<br>|
|lodonesia(90)<br>|745|<br>1,270|<br>1,381|<br>1821|,<br>5218|.<br>915|7.8<br>|1.7<br>|0.0<br>|16.9 (15.2)|
|Rep. of Korea (90)|2,352|<br>7,342|<br>4146|,<br>8761|,<br>23301|.<br>|47.8<br>|7.3<br>|64.4<br>|49.2(61.9)|
|Malaysia (90)<br>|1,207|<br>1102|,<br>1S66|,<br>1227|,<br>5101|69.8<br>|53.1<br>|40.2<br>|72.8|57.2 (63.4)|
|Philippines (88)<br>|<br>462|,<br>392|,<br>536|,<br>1051|,<br>2441|71.9<br>|21.3<br>|14.5<br>|13.0<br>|29.2 (32.8)|
|Singapore (90)<br>|2,464|2,421|<br>2175|,<br>9486|,<br>1656|73.1<br>4|24.2<br>|22.5<br>|91.5<br>|62.1 (62.2)|
|Taiwan, China (90)<br>|1,632|<br>3,595|,<br>3,926|,<br>4310|<br>13463|8.5<br>691|25.6<br>|2.5<br>|73.0<br>|53.2 (46.2)|
|Tbailand(90)|1,033|<br>2,141|<br>2,492|,<br>2835|,<br>8501|.<br>941|40.<br>|S.?<br>|73 8<br>|453 (56.8)|
|OECD Asia||<br>|<br>|,<br>|,|.|43.2|2.8|53.7|41.0(7.3)|
|<br>Aurlia (90)<br>|26,158<br>1,057|28,860<br>2,946|20,92P<br>814|33,85<br>1748|109,232<br>6566|63.5<br>477|30.3<br>|37.6<br>|97.8<br>|60.3 (64.8)<br>|
|Japan (90)<br>|24,733|<br>25,389|_19,S55_|,<br>3099S|,<br>100672|.<br>64|4.0<br>|21.0<br>"|59.4<br>|27.9 (38.5)|
|New Zealand (90)|367|<br>_525_|<br>S60|,<br>542|,<br>1994|.3<br>|33.8<br>|39.<br>|99.9<br>|62.7(66.7)|
||||||,|53.1|7.4|11.3|100.0|42.1 (S4.0)|
|Menmo<br>_hem_<br>EuropeanCommunity (90)<br>|90,671|104,053|61,534|81045|344303|52||'|||
|_All_Above Asan Countries|46,149|<br>S7.436|<br>51,810|,<br>70S41|,<br>225936|7<br>644|11.1<br>|2.2<br>|70.6<br>|36.3 (44.5)<br>|
|||||,|,|.|36.3|25.7|80.0|52.3 (58.7)|

_3ee_ Appendix I for the primary and proceed stage products classified in eah group. Figuresinparuthesesshowaveragesbaedenweighutleing theindividualcommodity group'apone in worldtrad. Ao oher gursare basedonthe Asiancounty'sowntradeweighu.

Soure: Trade data compiled from United Nations Statiw;cl Offie recors.
8

# Box 2

# Do Asian Processed Commodities Fare Bettwr I Non-Asiar Markets?

Tables 1 and 2 show a major Asian import bias exiss against processed somodities and, as a result, many Asian countries export a relatively high share of their domestically produced commodities in primary form (see Tabl,.s 3 and 4). This observation raises the question of whether the structur-I bias against Asian processed commodities exists in non-Asian markets and, if so, whether it is greater or smaller than in Asia.

The followng tabulations comparm the total value of othar countries' 1990 imports of primary and pwcessed commodities from Asia and afro indicate the share of this exchange which consists of unprocessed goods. To assist in comparisons, the tabulations provide similar statistics on Asian intra-trade, and on trade with selected OECD markets.

|Importer|Food &<br>Feeds|Ores &<br>Metls|Agricultural<br>Materials|Energy<br>Products|Al<br>Items|
|---|---|---|---|---|---|
|<br>||(Value of all im<br>|por4 from Asia - <br>|USS million)<br>||
|ALL-ASIA|20,692|21,297|33,575|20,882|96j446|
|Japan|10,924|7,702|9,534|7,487|_35,654_|
|Korea|825|2,372|2,731|2,199|8,128|
|NON-ASIA OECD|13,742|6,778|26,375|2,929|49,814|
|U.S.A.|5,826|3,369|11,707|2,637|23,540|
|Canada|783|395|1,045|18|2,242|
|Oermany|1,563|1,026|2,979|78|5,646|
|U.K.|1,313|561|2,061|31|3,996|
|Sweden|152|60|338|-|550|
||(Sh<br>|are of prinmay sta<br>|ge in all imports fr<br>|om Asia - percent)<br>||
|ALL ASIA|63.2|25.9|28.5|64.5|43.2|
|Japan|64.4|53.5|42.8|Q9.9|63.7|
|Kvrea|64.7|26.8|52.7|57.9|47.8|
|NON-ASIA OECD|52.1|13.5|17.3|75.0|31.2|
|U.S.A.|43.9|4.1|9.1|76.2|24.5|
|Canada|47.5|12.9|8.6|98.3|23.7|
|Germany|56.5|_51.1_|21.6|77.4|37.4|
|U.K|47.6|31.1|14.5|-|27.7|
|Sweden|40.7|30.9|3.7|-|16.9|

The above comparisons show Asian processed commodity exports fare considerably better outside the region than in intra-Asian trade. Specifically, 43 percent of all Asian intra-trade consists of primary stage products, a share which is 12 percentage points higher than exports to non-Asian OECD markets.

Why is the share of processed commodities in intra-Asian trade so low? The above tabulations show that Japan's import performance (and to a lesser extent the performance of Korea) has a strong influence on the overall result. Both countries ar major commodity importers and both have a clear bias against processed goods (i.e., 64 percent of Japan's total imports consists of primary stage products). This observation attaches special importance to the level and sttucture of Japanese and Korean trade barriers.
9 Table 2. Trends in the Relative Importance of Asian Imports of Primary and Processed Commodities: 1970 to<sup>1990</sup>

||||Co|mmodity Groug|||
|---|---|---|---|---|---|---|
|Importing Region|Year|Foods and<br>Feeds|Agricultural<br>Materials|Ores and<br>Metals|Energy<br>Products|All<br>Commodities|
||(valu|e of total impo|rts of primary an|d processed co|mmodities- U|SS iillion)|
|South Asia|1990|1,853|1,736|2,389|4,587|_10,56S_|
||1980|1,453|_S61_|1,522|3,251|6,787|
||1970|748|281|307|39|1,374|
|Non-OECD East Asia|1990|18,139|26,840|28,492|32,669|106,139|
||1980|7,977|10,532|7,359|26,678|52,546|
||1970|1,423|1,;58|663|893|4,347|
|OECD Asia|1990|26,158|28,860|20,928|33,285|109,232|
||1980|12,024|19,267|13,080|61,378|105,7S1|
||1970|2,231|4,675|3,311|2,996|13,213|
|All Above Asian|1990|46,149|57,436|51,810|70,442|225,837<br>|
|Countries|1980|21,454|30,360|21,961|91,307|165,082|
||1970|4,402|6,324|4,281|3,928|18,935|
|||(share of|primary stage in|all imports of t|he group - pe|rcent)|
|South Asia|1990|74.3|40.0|23.4|83.6|63.1|
||1980|33.1|25.3|14.7|13.6|19.0|
||1970|62.6|62.3|16.2|0.0|_50.5_|
|Non-OECD East Asia|1990|64.7|36.4|17.6|63.4|43.1|
||1980|61.6|52.3|16.7|79.0|62.3|
||1970|63.1|51.9|15.3|57.4|51.1|
|OECD Asia|1990|63.5|30.3|37.6|97.8|60.3|
||<br>1980|<br>76.9|<br>47.9|56.0|86.4|74.5|
||1970|85.0|56.1|70.6|74.0|68.7|
|All Above Asian|1990|64.4|36.3|25.7|80.0|52.3|
|<br>Countries|<br>1980|68.2|49.0|40.0|81.6|68.3|
||1970|74.1|_55.5_|58.1|_69.5_|63.3|
|Memo Im|||||||
|European Economic|1990|52.7|11.1|12.2|70.6|36.3|
|<br>Community|1980|57.9|16.3|16,3|76.6|51.1|
||1970|60.6|25.3|20.7|82.6|46.1|

Note: See Table 1 for the countries included in each regional group. Appendix 1 identifies<sup>the individual products</sup> classified as primay stage items in each processing chain. Source is as for Table 1.
10 imports are primary stage items), whiie the Korean average (57.2 percent) is also well above that of other Asian countries. Neither Japan nor Korea figures prominently among important Asian commodity producers (see Table 4). Their combined imports of primary and processed commodities are almost 55 percent of the Asiae total. These facts highlight the importan .e of tariff escalation issues in any multilateral Asian trade liberalization effort.

Since Table 1 shows that the current structure of Asian imports is heavily biased against processed commodities (whether these shipments originate in Asia or elsewhere), an important related point is how this structure is evolving over time. Table 2 addresses this point by tabulating the value of Asian imports of primary and processed commodity imports at ten year intervals over the last two decades and also by showing the share of unprocessed (stage 1) commodities in this trade.<sup>6</sup> The import performance of the European Community for these same goods over the same period is also reported (see memo item).

Between 1970 and 1990 the share of Asian imports of all unprocessed commodities declined by approximately 11 percentage points (from 63 to 52 percent), which is about the sanm as the decline registered by the EC. In other words, the relative Asian trade bias against processed commodity imports has not narrowed over this 20-year period. This finding accents the -eed for policy action to identify and remove existing constraints to Asian intra-trade in processed commodities.

Aside from the overall regional trend, several different patterns are reflected within the regional sub-groups. South Asia's import shares for unprocessed agricultural raw materials declined sharply betwoee 1970 and 1980, but this was primarily due to special factors not directly connected with a shift to processed products. For example, India all but discontinued its (previously major) imports of raw cotton while its imports of cotton thread and fabrics remained fairly constant in dollu terms- this produced the appearance of a shift toward - fabricated cotton goods. Historically, India was a major market for Egyptian long-stem cotton dia's imports - averaged 25,000 tons per year in the early 1970s but, after developing domestic production of a suitable cotton substitute for spinning fine yams, its imports of Egyptian cotton declined to an average of less than 3,000 tons per 'One important data problem to be noted is that it was not possible to hold the composition of importing Asian countries constant over the 1970-90 period. The Peoples Republic of China did not report imports or exports to the United Nations prior to 1984 so the group of Asian countries included in the 1970 and 1980 statistics is somewhat different from that for 1990. Tables 1 and 2 rely on trade data reported by individual Asian countries (there are<sup>gaps</sup> in some country's reporting) while Tables 3 and 4 show imports reported by their trading partners. For this reason it was possible to report a somewhat larger selection of smaller Asian countries like Bhutan, Nepal and the Maldives in the latter tabulations.
11 year. India also imported major quantities of wheat meal and flour on a temporary basis in the late 1970s and early 1980s for famine relief. These imports were subsequently halted and this caused the unprocessed foods import share to decline by about 40 percent over the period 1970-80. The changes in crude and refined petroleum prices have also affected the inter-temporal comparisons. The fact that petroleum is largely traded in (crude) unprocessed form, coupled with relatively high prices in 1980 and 1990, greatly increased the weight of this commodity chain relative to all others. As a result, the progress that was made in shifting trade in some chains toward semi-finished and processed goods is masked in the overall averages.

In Table 3 the focus of analysis shifts from the import performance of Asian markets to Asia's export experience in prmary and processed commodities. The table addresses thuee questions: (1) how important are primary stage commodities in total exports (including all items whether or not they wero classified in a processing chain); (2) which Asian countries are the largest (absolute) exporters of prianry commod ities, and would therefore potentially experience the largest benefits from a reduction in barriers facing procossed goods; and (3) how has the concentration in primary commodity exports changed between 1970 and 1990.

Table 3 reinforces the importance of addressing tariff escalation issues. Primary stage commodities account for at least one fifth of total exports for one half of the 30 listed Asian exporters, while these items comprise at least 15 percent of total exports for 22 of the 30 countries. Australia is the single largest exporter of pdimary stage commodities with $9.6 billion in trade, while 12 of the 30 Asian countries have total primazy commodity exports of $1 billion or more.' A second point to emerge from Table 3 is that primary stage commodities are particularly important for several smaller countries like Brunei, Fiji, Guam and Tonga where export shares range between 43 and 59 percent of total exports. (The share of these exports reaches a high of 73 percent for Papua New Guinea). Furthermore, the share of primary commodities in total exports has actually risen for several of these countries between 1970 and 1990 (e.g., Tonga, Vanuatu, the Maldives). These countries have as much (or even more) stake in negotiating trade barrier escalation issues as do Australia, China, Indonesia or New Zealand whose total absolute 7If China's exports are combined with those of territories on which it has claims, i.e., Taiwan (China) and Hong Kong, its total primary stage commodity exports would be roughly $11.3 billion, or $1.7 billion more than Australia's exports.
12 Table 3. The Relative IMportnce of Primay (Uaproceused) Stage Commodities in the Total Export of 30 Asian Countries: 1970, 1980and 1990

||Primary S<br>Share of|tage Conm<br>Totai Expo|modides'<br>rt (%)|Countr<br>Exposb o<br>Co|y's Shame In<br>f All Primry<br>mmodities (%|Asian<br>Stage<br>)|Value of<br>Comnodi|Nominal<br>Aii Primary<br>ty Exports (S|Staep<br>miilion)|
|---|---|---|---|---|---|---|---|---|---|
|Asian Expoter|1970|1980|1990|1970|1980|1990|1970|1980|1990|
|Ausalia|28.6|27.4|25.5|23.8|12.6|18.5|1,397|5,784|9,608|
|China|23.7|25.4|10.5|7.2|10.1|16.7|420|4,628|8,670|
|Indonesia|61.5|62.6|33.5|14.1|31.5|16.7|829|14,423|8,666|
|Malaysia|44.5|39.3|18.6|7.6|13.2|11.7|446|<br>6,033|6,101|
|TMailand|35.6|31.0|_18.5_|4.4|4.4|7.8|258|2,006|4,050|
|India|31.9|20.9|14.5|9.9|3.6|4.4|579|1,664|2,291|
|Taiwan, China|10.5|4.8|3.1|3.0|2.1|4.2|176|947|2,184|
|New Zeaand|14.7|17.0|22.7|3.4|2.1|4.0|200|966|2,090|
|Philippines|29.7|29.7|16.1|6.2|4.3|2.9|366|1,969|1,508|
|Rep. of Kora|14.3|4.2|2.2|2.0|1.4|2.4|115|6J6|1,254|
|Btunei|93.0|62.9|43.7|1.8|5.7|2.0|106|2,586|1,035|
|Japan|1.6|0.6|0.3|4.4|1.7|1.9|260|785|978|
|<br>Papua, New GuInea|68.9|83.1|r,.2|0.9|1.9|1.3|51|881|657|
|<br>Singapore|17.1|4.5|<br>1.6|1.9|1.4|1.2|112|620|626|
|Pldstan|20.2|18.6|12.6|2.0|0.9|1.1|120|423|595|
|Sri Lanka|69.9|45.4|21.0|3.6|1.0|0.7|209|469|381|
|Hong Kong|1.0|1.1|0.7|0.4|0.4|0.6|25|180|322|
|<br>angladeb|n|23.4|17.4|na|0.4|0.6|as|199|295|
|<br>F3ji|71.4|56.4|50.5|0.8|0.4|0.3|45|166|168|
|Korea, Democratic Rep.|243|6.2|17.3|0.3|0.1|0.3|17|S0|131|
|<br>Myanmr|12.8|33.1|19.7|0.3|0.3|0.2|15|156|98|
|<br>Guam|333|31.2|46.8|-|-|0.1|1|1|29|
|Maldives|33.3|36.4|36.8|-|-|0.1|2|4|28|
|Democratic Kampucbet|43.6|28.6|48.6|0.3|-|-|17|2|18|
|vanutu|90.9|56.6|69.2|0.2|-|-|10|17|18|
|Solomon Ilans|37.5|47.4|21.0|0.1|-|-|3|37|17|
|Mongolia|3.5|29.8|23.3|-|-|-|-|2|16|
|<br>Tonga|97.3|55.6|58.8|-|-|-|1|5|8|
|<br>Nepal|27.1|18.4|2.0|0.1|-|-|7|14|5|
|<br>Kinbati|99.5|66.6|66.6|0.1|-|-|6|4|2|

Source: Compiled from United Nation's COMTRADE ecords using partner country imports.
13 value of commodity exports is far greater, In short, Table 3 shows conclusivel: that the potential interest in further Asian processing of primary commodities is spread among a large number of countries.

Table 4 profiles the primary commodities in which each Asian country has an important interest. These tabulations identify the largest exporters, sbow their share of all shipments of each commodity, and indicate the value of exports originating in South Asia, OECD Asia and non-OECD East Asia. The intention here is to discover how dispersed Asian interests are across regions, commodities and countries.' We want to determine whether major exporters have a stake in escalation issues for one or two commodities only, or whether their interests are likely to be spread over a wider range of items.

The general impression from Table 4 is that Asian exporters' interests are dispersed over a fairly large number of commodities. This has positive implications for any multilateral trade negotiations in the Asian region since it creates greater opportunities for trade-offs. Australia and China, for example, rank among the principal suppliers of at least 16 of the 42 commodity chains listed in the table (several relatively unimportant chains like hom and bone have not been included) with China being a factor in 25 chai. India, Indonesia, Papua _New_ Guinea, the Philippines, Malaysia, New Zealand, Taiwan (China) and Thailand are among the largest suppliers of five or more commodities. A further point to note is that Japan, which would play a major role in the negotiations given its prominence as the largest import market for commodities (see Table 1), does not figue as an important primary stage exporter for any of the commodity chains listed in Table 4. This observation accents the need for analysis of the structure of Japan's trade barriers.

'Overall, 70 percent or $38.3 billion of the primary commodity exports originate in East Asian non-OECD countries, 23 percent ($12.9 billion) come from OECD Asia, and 7 percent ($3.9 billion) originate in South Asia. However, these comparisons understate somewhat the true importance of commodities for the latter as these shipments account for roughly 20 percent of all South Asia's exports as opposed to 14 percent of the total exports of non-OECD East Asia.
'4 Table 4. Major Asian Exporters of Primary (UProcesseO Stage Commodities in 1990

|Primary Stage Commoditv (SYIC)|1990 Asia<br>South<br>Ai|n Eors<br>of the<br>Non-OECD<br>|Commodity<br>OECD<br>|(Smill.)<br>All<br>||
|---|---|---|---|---|---|
|<br>1. Foodstuffs<br> <br>|sa|East Asia|Asia|Asia|Major Asian Exponers (Share of TotalAinExponls- in percent)|
|Shel frsh<br>031.3)<br>Fish,frsh or child (031. 1)<br>|792<br>101|4,168<br>|681<br>|5,641<br>|China(21),Thailnd (19), Indonesia (12)<br>|
|<br>Vegetablks, fresh (054)<br>Frun**and**nuts, fr^esh (051)<br>Raw bedt and 0611|<br>85<br>280<br>|2.907<br>2,218<br>1,135|620<br>352<br>856|3,628<br>2,655<br>2271|<br>Tiwan, Cbina(26),Koe (19), China (10)<br>Thiland (34), China(23),Taiwan, China (12)<br>NwZland<br>(29) 1hi|
|caneauger(.)<br>Unmilledwheat(041)|7|964|757<br>|,<br>1,728<br>|<br>, pmnes(21), Chit (13)<br>Auslia(44), Th,ilanl P0<br>Philpines (7)<br>|
|<br>Tea(0741)|-<br>|-<br>|1,159|1,159|<br> <br>Ausalia(99)|
|. <br>Coffee, green or<br>asted(0711)|467<br>|**S06**<br>|4<br>|<br>977<br>|<br>China (35), Sri_Lank_(25) India (21)|
|<br> .<br>Cocoa buans(0721)|76|703<br>|2|781|,<br>Indonesia(52) Paus N Gi 1|
|.<br>Uve wine (001.3)|-<br>|356<br>288|-|356<br>|, p ew unea (6), lTailand (15)<br>Malaysia (61), Inoa<br>(2),Papua New Guinea (11)<br>|
|<br>Grounduuts (221.1)<br>|-<br>_5_|<br>279|-<br>-|288<br>285|<br> <br>China(74),Malays(26)<br>|
|Soyabeam C221.4)<br>|<br>1|<br>207||<br>|China (85), Taiwan, China (10)<br>|
|Lvepoultry (0014)||<br>|1|210|<br>China(93), Taivan China(2)|
|.<br>Li|-|171|3|174|,<br>Chi <br>|
|ve cows and sheen (001.1,001.2)<br>Rice inhusk(0421)|1<br>|<br>29<br>|<br>82|<br>112|na_(55),_Ma<br>a(41)<br>Ausrali(63) Cina(24)New Zld 10|
|.<br>Copra (221.2)<br>|36<br>4|32<br>64|12|s0<br>|,,eaan ()<br>_Thailand_(39) India (38),Austalia<br>(1)<br>|
|Paln nuts(213)||<br>|-|67|<br><br>Ph7ilippines (3) Papua New GuuQ7|
|.<br>Lineed(221.5)|-<br>1|4|-|4<br>|,<br>Papu- New Guinea (52), Malay<br>(45)<br>|
|B. Agricultural Materials||-|-|2|<br><br>In&(18), NewZeand(15)|
|Rubber(231.1, 231.2)<br>|69|3,811|472|4,353|Malysia (37)Thail<br>(22)Idi20|
|Rough log(242.21,242.31)<br>|167|2,768|282|<br>3217|.<br>,nonesa()<br>Malaysa (77) NZld|
|Couon(M63.1,263.4)<br>Wl222|81W|252|525|,<br>1,593|, eweaan(S), PFpua New Guinea (4)<br>AutAia(33)Pakistan(28)India(23)|
|oo(6.,262.6, 262.8)<br>Hid|13|141|1,172|<br>1,326|,,<br>Austalia (58)_New_Zelmd (30 Malasia3|
|esand kinsa(2l1 Ies211.8, 211.9)<br>R ilk2613|3|147|736|885|, , y()<br>Aualia(49) NewZealand(34) China 14|
|aw s(.)<br>|-|488|12|50|, , ()<br>Chia (83) Taiwan China (8)|
|Feathers(291.96)<br>lute(64)|1<br>|366|2|370|, ,<br>Chin(46), Taiwan China (34) HonKon(9)|
|<br>Homand hlb|94|27|-|121|, , gg<br>Banltab<br>(76)1China(1)|
|waeone (291.12)<br>Flhbn i|9|17|IS|41|,<br>NewZland(37) China (17) India (17)|
|ax,eap anea6s.1 to 265.3)<br>UnwokedLmm<br>hi29191|-<br>|18|1|19|, ,<br>China (74), Taiwn, China (16)|
|<br>ar(.)|2|8|-|10|<br>China(60) India(20|
|XI.OresandMinerals|||||,|
|Ironm e81.3)<br>C|723|241|2,510|3,474|Atutrlia (72) ndi (22) Phiies<br>6|
|opper or(83.11,283.12)<br>|7|1,208|192|<br>1,408|, , p<br>()<br>PapuaNew Guinea (32)Idonesia 27|
|ZincOre (83.5)<br>|1|25|49S|<br>521|,(), hilippines (21)<br>Ausralia (95) China(3)|
|Bauxite or (283.3)<br>|-|139|214|352|,<br>Ausria(59)China (8)|
|Mangane**ore**(283.7)<br>|15|6|224|246|,a<br>Ausalia (91) Idi 6|
|Sand, excluding meta beaing(73.3)<br> <br>|1|40|el|<br>122|, na ()<br>Austalia (63) Chia (15)|
|Tin oe<br>a83.6)<br>Ld|3|59|44|105|,<br>China(SO) Ausralia (42) Masia(2)|
|ea ore (283.4)<br>T|1|IS|65|81|, , y<br>Anamra (80)_Thailad_(IS)_Koes_2|
|ungtn ore 283.92)<br> <br>|1|33|5|39|, , ()<br>China (77) Austia 13|
|Natural phosphate<br>(271.3)<br>Sil|-|12|3|<br>IS|, ; ()<br>China (67) Australia_(0_Sinaooe7|
|ver ore (285.01)<br>_Cd_|-|2|-|2|,_._g()<br>Indonesia<br>(99)|
|_ae_abesto (276.4)|-|I|-|2|<br><br>Sinppore(50)Cbina (30)|
|IV. Enemyhw<br>Cmde petroleum (331.01)|74|14,469|1,371<br>1|5,914|, <br>hIdonesia (36) Ca<br>(24) Malasia<br>23|
|Source: Compiled fiom UnitedNaio'<br>COM1RADE|record using_t%_|_-ad_part<br>c|<br>ury<br>iaom|<br>a.|, ,<br>, y<br>()|
_15_

# Box 3

# Can a Trade Bias Against Processed Goods Still Occur if there is no Escalation of Trade Barriers?

For trade negotiations, it is important to distinguish between two points: trade barrier escalation which refers to tariffs and NTBs rising with fabrication, and the influence of these barriers on the structure of trade. To account properly for the latter, one must analyze changing conditions of demand at different levels of processing. Since empirical studies show import demand elasticities normally increase with fabrication, constant tariffs will have relatively larger trade effects on fabricated commnodities than on unprocessed commcdities.

This point can be clarified through the use of the example cited below. Here, it is assumed that the leather processing chain is composed of three distinct stages (hides, leather and leather manufactures), and import demand elasticities range from 0.6 for hides to over 2.0 for leather manufactures in developed countries. For illustration, it is assumed that the importing country ap2lies a constant 10 percent tariff and imports $20<sup>million</sup> in each processing stage. There is no tariff escalation, yet the tariff has more of a retarding effect on leather manufactures due to the more 'sensitive demand for these products. Specifically, reducing the tariff<sup>for hides to</sup> _5_ percent would increase imports by $558,000. A similar cut applied to leather manufactures would increase imports by more than three times this amount. Thus, in assessing the influence of trade barriers, consideration must be given to underlying demad conditions to draw meaningful conclusions about their influence on the trade structure. Stated differently, the escalation of trade barriers is normally a sufficient condition to conclude that an import bias against processed goods exists, but it is not a necessary condition.

|Processing<br>Stage|Nominal<br>Tariff|imports<br>(S mill.)|Import demand<br>elasticity|Projected Change<br>with a_50%_<br>tariff cut ($000)|
|---|---|---|---|---|
|Hides and skins|10|20|-0.62|_558_|
|Leather|10|20|-1.28|1,152|
|Leather mfg.|10|20|-2.11|1,899|

Note: The projected import change is based on the use of a partial equilibrium trade model in which<sup>the estimated</sup> change in imports is derived from a multiplicative function involving the initial level of imports, the import<sup>demand</sup> elasticity, and the clange in the landed price of the good due to the tariff reduction. See Stern (1976)<sup>for a</sup> discussion of this type of analysis.
16

# IV. The Structure of Asian Trade Barriers

The analysis to this point has demonstrated that Asian commodity imports reflect a strong bias against processed goods (Table 1), and that the bias against Asian exports of processed commodities is greater in intra-Asian trade than in non-regional markets (Box 2). Furthermore, between 1970 and 1990, Asian markets' import bias showed no evidence of narreiwing relative to other markets (Table 2). These facts raise the question of whether, and to what extent, this sub-par performance can be accounted for by escalation in Asian trade barriers.<sup>9</sup> Table 5 draws on GATT tariff data for 10 Asian countnies in order to provide relevant information." The table shows the average import duty each country applies to the primary stage item in the 48 commodity chains, as well as the tariff on the final stage product. Tariff averages have been computed for all 48 commodity chains and their differences are used as an overall measure of escalation for each market.

It is clear from Table 5 that ther are major differences in Asian tariff levels, and that tariff escalation occurs in most processing chains. Concerning the first point, GATT records indicate that Hong Kong has no tariffs on any primary or processed commodity (for this reason Hong Kong is not included in Table 5), while Singapore has minor duties of under 4 percent on seven processed commodities (refined petroleum is an exception with a 10 percent tariff). In contrast, tariffs of over 30 percent occur in Australia, Indonesia, Japan, Korea and 'It mw: te acknowledged that studies have identified numerous other problems besides external trade barriers that developing countries face in trying to increase processing of domestically produced commodities. These include: inappropriate economic policies (import substitution) pursued by the country itself; insufficient access to intemational capital or technical markets; tansnational corporation policies; monopoly pricing practices of liner conferences that may increase freight costs; and anticompetitive practices of established firms in major OECD markets. For a survey of these problems see UNCTAD (1979). It should also be acknowledged that some countries' comparative advantage may be in exporting unprocessed commodities and not in processing these commodities.

'The underlying tariff data were compiled by GATT and then recorded in the UNCTAD-World Bank SMART system. No data on China's tariffs were collected since this country currently is not a member of the General Agreement. Due to the magnitude of the effort required to compile matched trade and tariff statistics for a single country - more than 12,500 tariff line level products may be involved - GATIT did not attempt to compile statistics for several of the smaller Asian countries that are GATT members. UNCTAD's Inventory of Trade Control Measures was the source of information used in this study on nontariff barriers - see Table 6.
Tabic _S._ Compamof Asin Cwmui' _Tuiffi_ an _Phimy Fmil_ Stea _of 4B_ Cowaduty _Pmoceeh_ Chaia.

||grRAIJT|A|R40033I|N A<br>*|_APAN_||KOOEA||MALAY|SA|_NEW_ZEA|LAND|P||SNAPO|RE|_7TAAND_||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|9<br><br>a<br>0b|P a|Fb3|Pd|il|Hk||||||||||||||
|<br>..<br>,<br> <br>I<br> <br>d<br>l<br> <br> <br>|_ y<br> <br>|<br>|rmy<br>|Fa <br>|m)|Fbi|h<br>y|ey|F|kpI|P.ksy|Fbi|Phimy|FbI|hi=w|Fbi|y|Fdi|
|<br>McMe<br> <br> <br>o<br>e.<br>bm<br>2<br>swis<br>0)|lmi.(3)<br>3.3<br>_0D0_|_S.9_<br>79|_6._<br>_15_|_43.3_<br>409|_OA_<br>OA|17.3<br>_138_|_12._<br>|_27.1_<br>7<br>|A<br>|**_S.3_**<br>|_0o_<br>|_144_<br>|l0.0|JOB|0<br>|.0D|_24D D_|_DD_|
|<br>3<br>r.k.y4)|<br>_O_|.<br>83|_._<br>_135_|.<br>1|<br>00|<br>_1_|_2eD_<br>|31<br>|0.0<br>|**_9_**<br>|0.0<br>|14.1<br>|_10D0_|_sD._|OA|0.0|_2DD_|Go|
|<br>4<br>Fbek83ham|<br>0*|.<br>_*ID_|<br>_291_|<br>_462_|.<br>55|_eD_<br>_OA_|13.3<br>_239_|31.3<br>34|_SD_<br>|_9D_<br>|OA<br>|_U.2_<br>|_4*O_<br>|JOB<br>|_0D_|_OA_|_20D_|_6D_|
|5<br>S33&bb.b<br>d6bdt,|0A|_OA)_|_._<br>_30D_|_._<br>_35.0_|.<br>_79_|<br>67|<br>_23*_|.<br>_3*10_|0.0<br>_27_|_36.1_<br>443|12<br>|_5g_<br>|_2DD_<br>|42.0<br>|_0o_<br>|_OD_<br>|_6e D_<br>|_.0_|
|6<br>_WeaD_|_OA_|<br>84|0|_33_|<br>_230_|<br>||<br>|<br>|.<br>|_OD_<br>|_42L_|_sDD_|_2*_|_OD*_|_D_|_6.0_|_DD_|
|_7_<br>RIm|<br>20|.<br>2*|.<br>00|_._<br>_0O_|<br>|2_7.2_<br> <br>_*_|_s_<br> <br>|_30D_<br>|_1.3_<br>|33.7<br>|_O._|_2se_|_I_<br>_0D_|_4.0_|_OD_|3.7|OA<br>|0D|
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18

- Malaysia Korean import duties actually exceed 100 percent in several processing chains." The importance of these observations iF accentuated by the fact that average applied tariffs on processed comnmodities in the EC (our standardfor comparison) are about 6 percent (Laird and Yeats, 1987), w}ich is less than one third the average duty on Indonesian, Korean or Malaysian commodity imports.

The second important point that emerges from Table 5 is that tariff escalation occurs in most commodity processing chains. In Japan, 89 percent of the processed commodities have higher average applied tariffs than do the primary stage components, and in several cases the spread in duties over a chain exceeds 30 percentage points (e.g., the cocoa and tobacco chains). Overall, the average difference in tariffs on primay and processed commodities is 16 percentage points or more for Thailand and Indonesia and about 12 percentage points for New Zealand. Japan's tariffs increase by 7 percentage points, which is approximately double that for the EC taiffs over the same processing chains.'<sup>2</sup> The overall tariff difference for the Republic of Korea (about 9 percentage points) understates the true importance of escalation in most chains due to the perverse results in two chains -vegetables and tea, where relatively high tariffs are applied on the primary stage items. In both cases, nontariff protection may have been substituted for tariffs on the final stage good (see Table 6).

While Table _5_ indicates most countries' tariffs escalate sharply, other trade barriers may also contribute to Asia's import bias against processed commodities. Several Asian countries employ nontariff barriers, like quotas, licensing requirements, ot variable import levies to control imports. Thus, the presence (or absence) of NTBs over commodity processing chains should be examined to determine if these restrictions generally reinforce Asian tariffs.

**"** The Japanese rates are 'applied' tariffs in that they are the average of the MFN or GSP duty actually paid on imports. The GSP rates may provide developing countries with important margins of preferences for many manufactured goods, but our analysis indicates they are not of major importance for primary or processed commodities. In some cases Australia, New Zealand and other countries that face MFN tarrifs may pay higher tariffs on a few products than indicated by the average rates shown in Table 5.

12 Yeats (198X p. 115) provides a cross-country comparison of the degree of escalation in 10 OECD countries' tariffs. Japan's tariffs escalate far more sharply than any of the other countries used as comparators. The increase in Japanese tariffs over commodity processing chains was about three times greater than that for the United States and at least six times greater than that for Norway, Sweden and Switzerland.

;'
19 Table 6 summarizes available information on nontariff .arriers applied by Asian countries on the 48 processing chains. The table indicates the specific types of nontariff measures that Indonesia, Japan, Korea, Malaysia and Thailand use to regulate primary and processed commodity imports. Since Australia, Hong Kong, New Zealand ard Singapore appear to make in"requent use of nontariff barriers on either primary or processed commodities these countries are not included in Table 6. Box 4 provides a somewhat different perspective by showing the share of processed commodity imports (in value terms) covered by nontariff measures.

Table 6 shows that Asian NTBs are most highly concentrated in the foods and feeds and agricultural materials sectors. Japan uses eight different types of nontariff barriers to regulate food imports, including variable import levies on sugar, poultry znd pork and bovine meat and global quotas on fish and fruit. Related studies estimate that these Japanese nontariff barriers often have _ad valorem_ equivalents greater than 100 percent (see Box 4). Other studies reach similar conclusions concerning the importance of Korea's NTBs on a number of food commodity imports (for example, see Anderson 1981). The key point that follows from these observations is that tariffs and nontariff barriers are of sufficient importance that both must be addressed in an Asian multilateral liberalization effori V. Suymma and Policy Recommendations While numerous studies have examined trade barrier escalaton and its implications in industral countries, very few related analyses have been undertaken for developing countries. This study undertook such an investigation in order to assess the priority to be given to the issue in intra-Asian trade. After compiling a comprehensive data base on Asian trade, tariff and NIB restrictions, this study examined the structure of these restrictions on primary and processed commodities. Most Asian countries' tariffs were found to be set at high levels and to incorporate grater escalation than industrial countries' import duties. Evidence was also presented that the escalation in the tariffs is often reinforced by nontariff restrictions on processed goods although it was not possible to draw firm conclusions on this point due to the lack of reliabltJ NTB _ad valorem_ equivalents.
20 Tabl 6. Asira NondffMcea s Applied to Pimsfy and Fnal Stage Pocd Prod isn 48 Commodity Procesing Csin.

|I<br>Meet of aow, .sbp. lamb, goat<br>2<br>Swim||U. SP. GQ<br>U SP. GQ|TQ|VL<br>VL|IA<br>IA||CS||
|---|---|---|---|---|---|---|---|---|
|3<br>Pouay<br> <br>|U<br>|,<br>U,SP<br>||<br>VL<br> <br>|<br>IA<br>|IA|||
|4<br>Fih fth, cbilod,|U|U|I AQ|IA. GQ<br>IA|IA||||
|_S_<br>Shellah fresh, cild,<br>fxen|U, SP, GQ|U|<br>[A. GQ|<br>IA, GQ<br>IA|IA||||
|6<br>Whlat|U||<br>GQ, Su||||CS|U|
|7<br>Rice|||GQ. SM|GQ, SM||IA|IA<br>U||
|Fruit||U, Sp, GQ|ST.GQ|IQ, GQ<br>IA|IA|CS|CS|U|
|_9_<br>Vegetabls<br> <br>|U|SP. SM|GOQ,ORA|<br>IQ, im<br>IA|IA|CS. IA|CS-||
|10<br>Suar<br> <br>|||VL|ET, IA||U|CS<br>U|U|
|11<br>Coffee||SP, GQ||GQ<br>ET||IA|||
|12<br>Coeca||||<br>1, GQ<br>ET|Er||||
|13<br>Tea||U, SP, Q||<br>IA, GQ, SM<br>IA|ET, A||CS||
|14<br>Tobao|||SEA|||CS|CS||
|IS<br>Le-t%rr||||TQ|||CS||
|16<br>G<br>_uesat<br> <br>||U|GQ||IA|CS|CS||
|17<br>Capes|||||||||
|Is<br>,<br>_hbnub.keh||U|||IA||||
|<br>19<br>Sy abem|Su||||IA||U||
|<br>20<br>Ld|||||||||
|<br>_me|||||||||
|21<br>Comm wod|||||||||
|22<br>C"<br>oil seed|||||||||
|23<br>Rubber<br> <br> <br>||SP|||||CS|U|
|24<br>Pu<br>ood<br> <br>||||||IA<br>|CS||
|2S<br>Wood<br> <br>||||||IA|||
|26<br>_Codak_|||||||||
|27<br>Silk|||SM|IA|IA||U||
|2B<br>Wool|SP|SP|||||CS||
|29<br>Conoka||SP|||||CS||
|30<br>Jute|U.SM||OIM|IA|||U||
|31<br>Flax<br> <br>|||IA||||||
|32<br>_1hmpbat_|||||||||
|33<br>SeI<br> <br>|||||Er||CS,U<br>||
|34<br>Sulphr|||||||CS||
|35<br>Asbeda|||||||CS.,U|U|
|36<br>Ion||U. SP. Su|||||CS.U||
|37<br>Copper|||||||||
|38<br>flausite|||||||CS||
|39<br>Lead<br> <br>||||IA|||||
|40<br>ZiDC|||||||||
|<br><br>41<br>Tm<br>|||||||||
|42<br>Manganese||SP. SM|||||CS. U||
|<br>43<br>Tungam||||GQ|||||
|44<br>Sil|||||||||
|<br>er||||||||IA|
|45<br>Hom&wlebeom|||U,GQ||||CS||
|46.<br>Hair|||IA,GQ|A|||||
|47<br>Fcasho|||[A.GQ|GQ<br>IA|ET||CS||
|48<br>Pletromasm||||TQ|||CS|IA|
|GQ-<br>Gb6alQaud||SM-<br>Soat moolp||TQ -<br>Taniff Qua||OIM=ehr|<br>Impost MO<br>l<br>ame||
|[A<br>l= mt Amrhemw||SP=Selce lhdms||VI -<br>VaSPi<br>-||SIA Vt Sol|k Imo<br>Atamy||
|U<br>Lic*c||ST<br>Semina||Er - SETci- Tax||CS -<br>C|Swcbmga||

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21

# Box 4

# The Nature of Nontariff Protection for Processed Commodities

Table 5 shows that some Asian e:ountries' tariffs are higher than those in OECD markets and frequently incorporate greater escalation. However, primary and processed commodities may also face nontariff barriers in Asian trade. GATT records show that while NTBs are applied infrequently to commodity imports by Australia, Hong Kong, New Zealand and Singapore (records for the Philippines are not available), they are widely used in countries like Japan, Korea and Malaysia.

Share of prccessed commodity imports covered by nontariff barriers (9)

|Importing Country|Foods &<br>Feeds|Ores &<br>Metals|Agricultural<br>Materials|Energy<br>Products|
|---|---|---|---|---|
|Indonesia|18.3|6.2|0.4|0.0|
|Japan|'9.8|0.9|0.7|8.2|
|Rep. of Korea|18.4|0.0|22.2|85.4|
|Malaysia|23.2|22.3|36.5|52.5|
|<br>Thailand|11.9|1.3|2.6|22.2|

To illustrate this point, the above statistics show the percentage of tariff-line level processed commodities facing nontariff barriers in five Asian markets. In preparing these data, the 48 commodity processing chains wen aggregatd into four broad product groups. Processed foods are most often subject to NTBs - these - restrictions cover approximately 50 percent of Japan's imports but Korea, Malaysia and Thailand frequently apply nontariff measures to energy products (see Table 6 for information on the types of measures used in these markets).

Although information on the trade effects of nontariff barriers is limited, several studies suggest Asian NTBs often convey very high levels of nominal protection. For example, Ss-on and Anderson (1982) estimate that Japan's NTBs on primary and processed foods often have nominal equivalents over 100 percent, while ECAFE (United Nations, 1982) reached similar conclusions concerning nontariff protection in other Asian countries. The message from these studies is that nontariff barriers, as well as tariffs, must be addressed in any multilateral liberalization effort. At a minimum, the NTBs should be bound" to ensure that they cannot be tightened to offset the effects of any tariff cuts that might be achieved in negotiations.
22 These findings strongly suggest that Asian trade bariers have an important restrictive effect on intra-Asian processed commodity trade. In short, this study demonstrates that trade barrier escalation is an important issue to be addressed in regional initiatives to liberalize trade barriers. The implications are that this problem should not be viewed as a pure South-North trade issue, which was the case in the Tokyo and Uruguay Round negotiations, but must be approached in a broader context. However, related lessons from previous MTNs have important itplications for future liberalizationefforts. One key point is to ensure that disproportionately high trade barrier cutFi are not made for unprocessed (as opposed to processed) commodities since this would work against expanded trade opportunities for processed products.<sup>13</sup> A second message is that negotiations must deal jointly with tariffs and NTBs to ewsure that a reduction in one type of restriction is not offset by a further tightening in the other. As an illustraion, Laird and Yeats (1989) show that, over the 1966-86 period, industrial countries increasingly used nontariff barriers as a substitute for tariff protection.

The results of this study call into question traditional explanations as to why trade bamier escalation exists. For example, Balassa (1968, p. 19S) indicates that trade barriers in the North increase with fabrication to 'discriminate against the processed export products of developing countries' and thereby protect the formers' producers from their more efficient counterparts in the South. However, the fact that Asian developing countries find it necessary to escalate their own trade barriers suggests that alternative or at least, less broad, explanations must be found. As a minimum, the South-North orientation suggested by Balassa must be dropped since tariff escalation to protect domestic industry against more efficient producers is not limited to developed countries.

'MTis conclusion follows from numerous studies that have analyzed the influence of trade barriers within a theoretical framework known as the "effective protection concept. Among other points, this concept holds that a proportionately greater reduction in trade barrers for production inputs as opposed to the final (manufactured) product may actually work against trade in the latter since these cuts would lower production costs and actually raise protection for the value added component of the manufacturing process. For a useful nontechnical discussion of the effective rate concept see Grubel (1971). For applications of the effective rate concept see Balassa, _et. al._ (1971) or Finger and Yeats (1976).