Smoke and mirror: paying lip service to fairer trade Guyana and the Wider World
By Dr Clive Thomas
Stabroek News
October 13, 2002

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Last week we examined what I termed "protection by stealth". That is, the use of non-tariff barriers to trade in order to circumvent the WTO-rules in favour of freer trade. This practice is highly developed among the rich countries and has been the source of innumerable protests and complaints by developing countries, development scholars, and non-governmental organisations. While proclaiming an option for free trade, non-tariff barriers are often used by rich countries to deliberately restrain imports from poor countries. These non-tariff barriers restrict trade to a greater value than all the aid the rich countries give to the poor. To understand how globalisation and liberalisation work the study of non-tariff barriers to trade is a matter of the highest priority.

As we saw last week there are five types of non-tariff barriers recognized in the WTO Agreement. These are: technical regulations and standards, import licensing, rules of origin, rules for the valuation of goods at customs, and pre-shipment inspection or further checks on imports. A sixth barrier, investment measures, is sometimes referred to although its relation to the topic of non-tariff barriers is a bit ambiguous. The first three categories were considered last week and this week we examine the remainder.

Customs Valuation

From the numerous complaints that reach the media and that are also spread word of mouth, it is clear that how goods are valued at Customs could be just as or even more important to the final price of a product, than the rate of duty charged. Thus if an importer paid $1,000 for an item delivered to Customs and the duty is 20 percent, if that value is used by the Customs Administration then the final cost of the item is $1,200. If, however, the Customs department values the item at $1,400, then the difference between customs value and what was paid by the importer is larger than the duty. To this extent therefore, customs valuation could be a formidable non-tariff barrier to trade, if it so desired.

The WTO Agreement seeks to arrive at a fair, uniform, and neutral system of valuation for customs procedures. This Agreement prohibits arbitrary, fictitious, and non-commercial valuation of goods and this is detailed in a set of valuation rules which Customs departments are expected to follow. Member countries are required to frame laws, regulations and administrative procedures for establishing customs valuation consistent with these rules. The legislation also has to specify whether the valuation includes 1) the cost of transport of the product to the place of import 2) the cost of all handling changes and 3) the cost of insurance. Provision has to be made as well for the right of appeal to a legal body against customs valuations.

Pre-shipment Inspection

With the burgeoning of trade, specialized private firms have developed to provide the service of pre-shipment inspection. This requires checking the details of goods ordered overseas in terms of price, quantity and quality, before they are shipped. Guyana, like many other developing countries, had relied on this service in the 1980s. While ostensibly the aim was to protect the importer from fraud, this device also served several other purposes. For one, it prevented the deliberate under-valuation of goods so as to provide an opportunity for capital flight. In the days of strict foreign exchange and currency controls this was very important. It also reflected the weakness of our local customs and revenue services and their inability to effectively monitor official cross-border trade.

Pre-shipment inspection is a possible non-tariff barrier to trade as governments can use this service to restrict trade. However, under the WTO Agreement, government obligations carry over to the private firms mandated by government to perform the job of pre-shipment inspection. Governments are required to ensure that these firms operate in a transparent, non-discriminatory, and efficient manner, while respecting the confidentiality of business information. Specific guidelines are also given for the way price verification is to be conducted and to avoid possible conflicts of interest in the case of the private inspection firm. Exporting countries are similarly obligated to be non-discriminatory in the treatment of these firms. The WTO Agreement has also established an independent review procedure operated jointly by the world exporters body and the global organisation representing inspection agencies.

Investment Measures

Member countries sometimes apply rules and regulations on investments and these can operate as barriers to trade. To protect against this possibility the WTO Agreement em-braces a Trade-related Investment Measures Agreement (TRIMS), which applies to those investment measures that can restrict or distort trade in goods. Specifically it prohibits a member country from applying measures that discriminate against foreigners or foreign products. In this way it is designed to reinforce the principle of "national treatment" we discussed earlier. According to this principle, members of the WTO cannot treat an imported product in a manner less favourable than that accorded to the domestic equivalent. This means that the imported product cannot be taxed differently from the domestic product, it must be subject to the same rules and requirements relating to its sale and use, and there can be no regulation specifying a minimum domestic content.

If readers recall none of these rules were applied in the period of state-led import-substituting development in the 1970s and 1980s. Then, developing countries, including Guyana, deliberately protected and promoted their own products. It is a measure of the

radical transformation achieved under the WTO Agreement that these staple instruments of development of that time are now no longer legally permissible. Trade-related investment measures therefore impact on trade in goods as it prohibits 1) discrimination against foreign products 2) restrictions directed at foreign products only and 3) regulations requiring the use of domestic products. The WTO has established a Committee on Trade-related Investment Measures to monitor the way countries honour these commitments.

It follows from the discussion above that there may well be other trade-related concerns, for example competition policy, which may be used as non-tariff barriers to trade, circumventing the WTO pursuit of freer trade. Because of their financial and human resources along with technical and institutional capacity, the rich countries have been able to use non-tariff barriers to trade very effectively, in order to promote their national interests. As they do so, they combine stealth and deception, "smoke and mirrors" to get other countries to do what they preach (free trade) and not what they practice (trade manipulation).