Non-Tariff Measure
A non-tariff measure is any policy instrument other than a tariff that affects the quantity or composition of trade. The category is broad, encompassing import quotas, import licensing, technical standards, sanitary and phytosanitary requirements, customs procedures, rules of origin, state trading, and export restrictions, as well as measures that affect trade indirectly, such as subsidies and government procurement rules. Non-tariff measures have become more prominent as tariffs have fallen, and their effects on trade can be as large as, or larger than, those of tariffs.
Types
Quantitative restrictions include quotas, which limit the quantity of a good that may be imported, and embargoes, which prohibit trade altogether. Licensing requirements make imports conditional on obtaining permission, and they can be used to restrict trade or to raise its cost. These measures directly limit or condition market access and are among the most restrictive forms of non-tariff measures.
Technical measures include standards for product safety, quality, and performance, and requirements for labelling and packaging. Sanitary and phytosanitary measures protect human, animal, and plant health. These measures serve legitimate public objectives, but they can also be designed or applied in ways that protect domestic producers, and the distinction between legitimate regulation and disguised protection is often contested. Conformity assessment, testing, and certification add to the cost of compliance and can be a barrier, particularly for small exporters.
Other measures affect trade indirectly. Customs procedures and documentation requirements impose administrative costs. Rules of origin determine which goods qualify for preferential treatment and can influence sourcing decisions. Government procurement rules may favour domestic suppliers. Export restrictions, including export taxes and quotas, limit outward trade, and subsidies to domestic producers can displace imports and distort competition.
Economic effects
Non-tariff measures raise the cost of trade and reduce its volume. Quantitative restrictions limit the quantity imported and raise the domestic price, transferring surplus to holders of import rights and to domestic producers. Technical measures raise the cost of compliance, which is passed on in prices, and they may exclude some suppliers, particularly small firms and those from developing countries with limited capacity to meet complex requirements.
The effects of non-tariff measures are often less transparent than those of tariffs. Because they operate through regulatory requirements rather than through explicit taxes, their trade-restricting effect is not always visible, and it can be difficult to quantify. Research using estimates of the tariff equivalent of non-tariff measures shows that these measures can substantially raise trade costs, and that their incidence falls disproportionately on certain sectors and on smaller firms.
Transparency and disciplines
International rules seek to increase the transparency of non-tariff measures and to limit their trade-restricting effects. Agreements require that measures be notified, that they be based on international standards where they exist, that they be applied in a non-discriminatory way, and that they be no more trade-restrictive than necessary to achieve the legitimate objective. Dispute settlement provides a mechanism for addressing complaints.
Transparency is supported by notification systems and by databases that record measures, allowing traders and governments to see what requirements apply. Despite these efforts, coverage is incomplete, and many measures remain hard to identify and to quantify. Improving the measurement of non-tariff measures, and understanding their effects, is a continuing priority for researchers and for international organisations.
Policy issues
The rise of non-tariff measures raises several policy issues. Because they often serve legitimate objectives, such as health and safety, they cannot simply be abolished, and the challenge is to design them so that they achieve their objectives at the least cost to trade. Regional agreements increasingly address regulatory cooperation, mutual recognition of standards, and harmonisation, to reduce the costs of divergence.
For developing countries, non-tariff measures present particular challenges, because compliance with complex requirements can exceed the capacity of small producers and exporters. Technical assistance, capacity building, and the development of shared testing and certification facilities can help to reduce these barriers. At the same time, measures that protect consumers and the environment are important, and the objective is to reconcile openness with legitimate regulation, rather than to choose between them.
Measuring the effect on trade
Quantifying the effects of non-tariff measures is difficult because the measures are heterogeneous and because their trade-restricting effect depends on the response of firms and consumers. Analysts use several approaches, including gravity models, which estimate the effect of measures on bilateral trade after controlling for size and distance, and price-based measures, which compare prices in markets with and without the measures to infer the equivalent cost.
Survey-based methods ask firms about the measures they face and the costs of compliance, providing information on the mechanisms through which measures affect trade. The resulting estimates of tariff equivalents show that non-tariff measures can raise trade costs substantially, particularly for agricultural products and for goods subject to complex standards and certification requirements, and that the costs fall disproportionately on smaller firms and on poorer countries.
Regional agreements and regulatory cooperation
Regional trade agreements increasingly address non-tariff measures, because tariffs among members are often already low. They include provisions on regulatory cooperation, mutual recognition of standards, harmonisation of rules, and shared procedures for testing and certification. These provisions can reduce the costs of trade among members, but they can also create a spaghetti bowl of overlapping rules, complicating trade with non-members and raising the cost of compliance.
The design of regulatory cooperation must balance the objective of reducing barriers against the maintenance of legitimate protections. Mutual recognition, in which each country accepts products that meet the other's standards, reduces duplication but may lower the level of protection if standards differ. Harmonisation, in which countries adopt common standards, reduces complexity but requires agreement on the level of protection and may be slow. The choice depends on the products, on the objectives of the measures, and on the depth of the agreement.
Trade facilitation and capacity
Trade facilitation addresses non-tariff measures that arise from procedures and infrastructure. Simplifying customs documentation, automating processes, and improving the transparency of requirements reduce compliance costs and the time taken to move goods across borders. These measures benefit all traders, and they are particularly valuable for small firms and for landlocked countries, where procedural delays are costly.
Capacity building supports developing countries in meeting the requirements of markets they export to. Technical assistance, training, and investment in testing and certification facilities help exporters to comply with sanitary and technical measures, and they can open markets that would otherwise be closed. The objective is to ensure that measures are met at a reasonable cost, and that they do not become a barrier that excludes smaller producers, while maintaining the protections they are intended to provide.