International trade in services has become more important in recent years as
advances in technology have permitted new means of providing services across borders .While there is little doubt that services trade is an essential ingredient to economic growth and sustainable development ,it is a widely accepted that it can only make such positive contributions if appropriately liberalised and implemented across countries (Copeland and mattoo 200! ."n efficient services sector is crucial for the growth and competitiveness of an economy. #ervices have emerged as crucial economics activities for India in recent past .Its not only provides the bulk of employment and income in India ,services sector also serves as vital input for producing other goods and services .$he importance of services is therefore increasingly reflected in the policy agenda% ranging from liberali&ation to promotional efforts to regulation at national and international levels. $his is no surprise that India's share in world trade is relatively low when compared with other emerging economies such as a china .$he fact is that India falls behind of china in terns of availability of ade(uate infrastructure ,particularly in those infrastructure facilities which are immensely important for India's trade%services or otherwise. )ne precondition of trade led globali&ation process is that trade liberali&ation has to be actively supported by trade facilitation in order to ma*imi&e the welfare gain. +alling short of ade(uate trade facilitation would lead to suboptimal trade ,or in other words the trade potential would remain unlocked .$herefore properly estimated services trade barriers help support countries to take necessary policy measures . In view of the above the ob,ective of this paper is to analy&e the barriers to trade in services in India .We attempt to achieve this ob,ectives through a gravity model ,which relates the level of trade between countries to their physical and economic characteristic. -est part of the paper is arranged as follows .#ection 2 presents an overview of the India's services trade sector. 1 2) What is a Tariffs barrier? In a simplest terms a tariffs is a ta*. It adds to the cost of imported goods and is one of several trade policies that a country can enact. Why are tariffs and trade barriers used. $ariffs are often created to protect infant industries and developing economies, but are also used by more advanced economies with developed industries. /ere are five of the top reasons tariffs are used0 Trade Barriers:- $rade barriers are government 1included restriction on international trade. $he barriers can take many forms. Including the following0 2!$ariffs 2!3on%tariffs to $rade 4!Import 5icenses 6!7*port 5icenses 8!#ubsidies 9!:oluntary 7*port -estraints ;!5ocal Content -e(uirement !7mbargo <!Currency =evaluation 20!$rade -estriction >ost trade barriers work on the same principle0 the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results. 7conomists generally agree that trade barriers are detrimental and decrease overall economic efficiency, this can be e*plained by the theory of comparative advantage. In theory, free trade involves the removal of all such barriers, e*cept perhaps those considered necessary for health or national 2 security. In practice , however , even those countries promoting free heavily subsidi&e certain industries, such as agriculture and steel. $rade barriers are often critici&ed for the effect they have on the developing world. ?ecause rich country players call most of the shots and set trade policies, goods such as crops that developing countries are best at producing still face high barriers. $rade barriers such as ta*es on food imports or subsidies for farmers in developed economies lead to overproduction and dumping on world markets, thus lowering prices and hurting poor%country farmers. $ariffs also tend to be anti%poor, with low rates for commodities and high rates for labour%intensive processed goods. $he commitment to development inde* measures the effect that rich country trade policies actually have on the developing world. "nother negative aspect of trade barriers is that it would cause a limited choice of products and would therefore force customers to pay higher prices and accept inferior (uality.
3 3) Protecti! Do"estic #"$%o&"et $he levying of tariffs is often highly politici&ed. $he possibility of increased competition from imported goods can threaten domestic industries. $hese domestic companies may fire workers or shift production abroad to cut costs, which means higher unemployment and a less happy electorate. $he unemployment argument often shifts to domestic industries complaining about cheap foreign labour, and how poor working conditions and lack of regulation allow foreign companies to produce goods more cheaply. In economics, however, countries will continue to produce goods until they no longer have a comparative advantage (not to be confused with an absolute advantage!. Protecti! Cos'"ers " government may levy a tariff on products that it feels could endanger its population. +or e*ample, #outh @orea may place a tariff on imported beef from the Anited #tates if it thinks that the goods could be tainted with disease. Ifat Id'stries $he use of tariffs to protect infant industries can be seen by the Import #ubstitution Industriali&ation (I#I! strategy employed by many developing nations. $he government of a developing economy will levy tariffs on imported goods in industries in which it wants to foster growth. $his increases the prices of imported goods and creates a domestic market for domestically produced goods, while protecting those industries from being forced out by more competitive pricing. It decreases unemployment and allows developing countries to shift from agricultural products to finished goods. 4 Criticisms of this sort of protectionist strategy revolve around the cost of subsidi&ing the development of infant industries. If an industry develops without competition, it could wind up producing lower (uality goods, and the subsidies re(uired to keep the state%backed industry afloat could sap economic growth. Natioa% (ec'rit& ?arriers are also employed by developed countries to protect certain industries that are deemed strategically important, such as those supporting national security. =efence industries are often viewed as vital to state interests, and often en,oy significant levels of protection. +or e*ample, while both Western 7urope and the Anited #tates are industriali&ed, both are very protective of defence%oriented companies. Reta%iatio Countries may also set tariffs as a retaliation techni(ue if they think that a trading partner has not played by the rules. +or e*ample, if +rance believes that the Anited #tates has allowed its wine producers to call its domestically produced sparkling wines BChampagneB (a name specific to the Champagne region of +rance! for too long, it may levy a tariff on imported meat from the Anited #tates. If the A.#. agrees to crack down on the improper labeling, +rance is likely to stop its retaliation. -etaliation can also be employed if a trading partner goes against the governmentCs foreign policy ob,ectives. 5 )) T&$es of Tariffs ad No-Tariff Barriers $here are several types of tariffs and barriers that a government can employ0 #pecific tariffs "d valorem tariffs 5icenses Import (uotas :oluntary e*port restraints 5ocal content re(uirements Tariff Barriers to Trade :- ($ecific Tariffs " fi*ed fee levied on one unit of an imported good is referred to as a specific tariff. $his tariff can vary according to the type of good imported. +or e*ample, a country could levy a D28 tariff on each pair of shoes imported, but levy a D400 tariff on each computer imported. *d +a%ore" Tariffs $he phrase ad valorem is 5atin for Baccording to valueB, and this type of tariff is levied on a good based on a percentage of that goodCs value. "n e*ample of an ad valorem tariff would be a 28E tariff levied by Fapan on A.#. automobiles. $he 28E is a price increase on the value of the automobile, so a D20,000 vehicle now costs D22,800 to Fapanese consumers. $his price increase protects domestic producers from being undercut, but also keeps prices artificially high for Fapanese car shoppers. No-tariff Barriers to Trade:- 6 ,iceses " license is granted to a business by the government, and allows the business to import a certain type of good into the country. +or e*ample, there could be a restriction on imported cheese, and licenses would be granted to certain companies allowing them to act as importers. $his creates a restriction on competition, and increases prices faced by consumers. I"$ort -'otas "n import (uota is a restriction placed on the amount of a particular good that can be imported. $his sort of barrier is often associated with the issuance of licenses. +or e*ample, a country may place a (uota on the volume of imported citrus fruit that is allowed. +o%'tar& #.$ort Restraits /+#R) $his type of trade barrier is BvoluntaryB in that it is created by the e*porting country rather than the importing one. " voluntary e*port restraint is usually levied at the behest of the importing country, and could be accompanied by a reciprocal :7-. +or e*ample, ?ra&il could place a :7- on the e*portation of sugar to Canada, based on a re(uest by Canada. Canada could then place a :7- on the e*portation of coal to ?ra&il. $his increases the price of both coal and sugar, but protects the domestic industries. ,oca% Cotet Re0'ire"et Instead of placing a (uota on the number of goods that can be imported, the government can re(uire that a certain percentage of a good be made domestically. $he restriction can be a percentage of the good itself, or a percentage of the value of the good. +or e*ample, a restriction on the import of computers might say that 28E of the pieces used to make the computer are made domestically, or can say that 28E of the value of the good must come from domestically produced components. 1) Who Beefits? 7 $he benefits of tariffs are uneven. ?ecause a tariff is a ta*, the government will see increased revenue as imports enter the domestic market. =omestic industries also benefit from a reduction in competition, since import prices are artificially inflated. Anfortunately for consumers % both individual consumers and businesses % higher import prices mean higher prices for goods. If the price of steel is inflated due to tariffs, individual consumers pay more for products using steel, and businesses pay more for steel that they use to make goods. In short, tariffs and trade barriers tend to be pro%producer and anti% consumer. $he effect of tariffs and trade barriers on businesses, consumers and the government shifts over time. In the short run, higher prices for goods can reduce consumption by individual consumers and by businesses. =uring this time period, businesses will profit and the government will see an increase in revenue from duties. In the long term, businesses may see a decline in efficiency due to a lack of competition, and may also see a reduction in profits due to the emergence of substitutes for their products. +or the government, the long%term effect of subsidies is an increase in the demand for public services, since increased prices, especially in foodstuffs, leave less disposable income. 2o3 Do Tariffs *ffect Prices? $ariffs increase the prices of imported goods. ?ecause of this, domestic producers are not forced to reduce their prices from increased competition, and domestic consumers are left paying higher prices as a result. $ariffs also reduce efficiencies by allowing companies that would not e*ist in a more competitive market to remain open. 8 +igure 2 illustrates the effects of world trade without the presence of a tariff. In the graph, =# means domestic supply and == means domestic demand. $he price of goods at home is found at price G, while the world price is found at GH. "t a lower price, domestic consumers will consume Iw worth of goods, but because the home country can only produce up to Id, it must import Iw%Id worth of goods. +igure 2. Grice without the influence of a tariff +igure 2. Grice under the effects of a tariff When a tariff or other price%increasing policy is put in place, the effect is to increase prices and limit the volume of imports. In +igure 2, price increases from the non%tariff GH to GC. ?ecause price has increased, more domestic companies are willing to produce the good, so Id moves right. $his also shifts Iw left. $he overall effect is a reduction in imports, increased domestic production and higher consumer prices. ($o learn more about the movement of e(uilibrium due to changes in supply and demand, read Anderstanding #upply%#ide 7conomics.! 9 Tariffs ad 4oder Trade $he role tariffs play in international trade has declined in modern times. )ne of the primary reasons for the decline is the introduction of international organi&ations designed to improve free trade, such as the World $rade )rgani&ation (W$)!. #uch organi&ations make it more difficult for a country to levy tariffs and ta*es on imported goods, and can reduce the likelihood of retaliatory ta*es. ?ecause of this, countries have shifted to non%tariff barriers, such as (uotas and e*port restraints. )rgani&ations like the W$) attempt to reduce production and consumption distortions created by tariffs. $hese distortions are the result of domestic producers making goods due to inflated prices, and consumers purchasing fewer goods because prices have increased. ($o learn about the W$)Cs efforts, read What Is $he World $rade )rgani&ation.! #ince the 2<40s, many developed countries have reduced tariffs and trade barriers, which has improved global integration and brought about globali&ation. >ultilateral agreements between governments increase the likelihood of tariff reduction, while enforcement on binding agreements reduces uncertainty. The Botto" ,ie +ree trade benefits consumers through increased choice and reduced prices, but because the global economy brings with it uncertainty, many governments impose tariffs and other trade barriers to protect industry. $here is a delicate balance between the pursuit of efficiencies and the governmentCs need to ensure low unemployment. 10 5) Three Reasos Wh& Tariffs *re Preferab%e to -'otas 2. Tariffs 6eerate Re7e'e for the 6o7er"et0 If the A.#. government puts a 20E tariffs on imported Indian cricket bats they will collect D20 million dollars if D80 million worth of Indian cricket bats are imported in a year. $hat may sound like small change for a government, but given the millions of different goods which are imported into a country, the numbers start to add up. $he Grogressive Golicy Institute has found that the Anited #tates collects 20 billion dollars a year in tariff revenue. $his is revenue that would be lost to the government unless their import (uota system charged a licensing fee on importers. 2. I"$ort -'otas Ca ,ead to *d"iistrati7e Corr'$tio0 #uppose that there is currently no restriction on importing Indian cricket bats and 40,000 are sold in the A.#. each year. +or some reason the Anited #tates decides that they only want 8,000 Indian cricket bats sold per year. $hey could set an import (uota at 8,000 to achieve this ob,ective. $he problem is0 /ow do they decide which 8,000 bats get in and which 28,000 do not. $he government now has to tell some importer that their cricket bats will be let into the country and tell some other importer than his will not be. $his gives the customs officials a lot of power as they can now give access to favoured corporations and deny access to those who are not favoured. $his can cause a serious corruption problem in countries with import (uotas as the importers chosen to meet the (uota are the ones who can provide the most favours to the customs officers. " tariff system can achieve the same ob,ective without the possibility of corruption. $he tariff is set at a level which causes the price of the cricket bats to rise ,ust enough so that the demand for cricket bats falls to 8,000 per year. "lthough tariffs control the price of a good, they 11 indirectly control the (uantity sold of that good due to the interaction of supply and demand. 4. I"$ort -'otas *re 4ore ,i8e%& to Ca'se ("'!!%i!0 ?oth tariffs and import (uotas will cause smuggling if they are set at unreasonable levels. If the tariff on cricket bats is set at <8E then itCs likely that people will try to sneak the bats into the country illegally, ,ust as they would if the import (uota is only a small fraction of the demand for the product. #o governments have to set the tariff or the import (uota at a reasonable level. ?ut what if the demand changes. #uppose cricket becomes a big fad in the Anited #tates and everybody and their neighbour wants to buy an Indian cricket bat. "n import (uota of 8,000 might be reasonable if the demand for the product would otherwise be 9,000. )vernight, though, the demand has now ,umped to 90,000. With an import (uota there will be massive shortages and smuggling in cricket bats will become (uite profitable. " tariff does not have these problems. " tariff does not provide a firm limit on the number of products that enter. #o if the demand goes up, the number of bats sold will go up, and the government will collect more revenue. )f course, this can also be used as an argument against tariffs as the government cannot ensure that the number of imports will stay below a certain level. 12 9) Differece bet3ee tariff ad o-tariff barriers? $he purpose of both tariff and non tariff barriers is same that is to impose restriction on import but they differ in approach and manner. $ariff barriers ensure revenue for a government but non tariff barriers do not bring any revenue. Import 5icenses and Import (uotas are some of the non tariff barriers. 3on tariff barriers are country specific and often based upon flimsy grounds that can serve to sour relations between countries whereas tariff barriers are more transparent in nature. 13 :)T&$es of No-tariff barriers No-tariff barriers to trade 3on%tariff barriers to trade (3$?s! are trade barriers that restrict imports but are not in the usual form of a tariff. #ome common e*amples of 3$?Cs are anti%dumping measures and countervailing duties, which, although called non% tariff barriers, have the effect of tariffs once they are enacted. $heir use has risen sharply after the W$) rules led to a very significant reduction in tariff use. #ome non%tariff trade barriers are e*pressly permitted in very limited circumstances, when they are deemed necessary to protect health, safety, sanitation, or depletable natural resources. In other forms, they are critici&ed as a means to evade free trade rules such as those of the World $rade )rgani&ation (W$)!, the 7uropean Anion (7A!, or 3orth "merican +ree $rade "greement (3"+$"! that restrict the use of tariffs. #ome of non%tariff barriers are not directly related to foreign economic regulations but nevertheless have a significant impact on foreign%economic activity and foreign trade between countries. $rade between countries is referred to trade in goods, services and factors of production. 3on%tariff barriers to trade include import (uotas, special licenses, unreasonable standards for the (uality of goods, bureaucratic delays at customs, e*port restrictions, limiting the activities of state trading, e*port subsidies, countervailing duties, technical barriers to trade, sanitary and phyto%sanitary measures, rules of origin, etc. #ometimes in this list they include macroeconomic measures affecting trade. 14 Six Types of Non-Tariff Barriers to Trade 2. #pecific 5imitations on $rade0 2. Import 5icensing re(uirements 2. Groportion restrictions of foreign to domestic goods 4. >inimum import price limits 6. +ree 8. 7mbargoes 2. Customs and "dministrative 7ntry Grocedures0 2. :aluation systems 2. "nti%dumping practices 4. $ariff classifications 6. =ocumentation re(uirements 8. +ees 4. #tandards0 2. #tandard disparities 2. Intergovernmental acceptances of testing methods and standards 4. Gackaging, labeling, and marking 6. Jovernment Garticipation in $rade0 2. Jovernment procurement policies 2. 7*port subsidies 4. Countervailing duties 6. =omestic assistance programs 8. Charges on imports0 2. Grior import deposit subsidies 2. "dministrative fees 4. #pecial supplementary duties 6. Import credit discrimination 8. :ariable levies 9. ?order ta*es 9. )thers0 2. :oluntary e*port restraints 2. )rderly marketing agreement's 15 Examples of Non-Tariff Barriers to Trade:- Import bans Jeneral or product%specific (uotas -ules of )rigin Iuality conditions imposed by the importing country on the e*porting countries #anitary and phytosanitary conditions Gackaging conditions 5abeling conditions Groduct standards Comple* regulatory environment =etermination of eligibility of an e*porting country by the importing country =etermination of eligibility of an e*porting establishment (firm, company! by the importing country. "dditional trade documents like Certificate of )rigin, Certificate of "uthenticity etc. )ccupational safety and health regulation 7mployment law Import licenses #tate subsidies, procurement, trading, state ownership 7*port subsidies +i*ation of a minimum import price Groduct classification Iuota shares +oreign e*change market controls and multiplicity Inade(uate infrastructure B?uy nationalB policy )ver%valued currency Intellectual property laws (patents, copyrights! -estrictive licenses #easonal import regimes Corrupt andKor lengthy customs procedures. 16 Types of Non-Tariff Barriers $here are several different variants of division of non%tariff barriers. #ome scholars divide between internal ta*es, administrative barriers, health and sanitary regulations and government procurement policies. )thers divide non% tariff barriers into more categories such as specific limitations on trade, customs and administrative entry procedures, standards, government participation in trade, charges on import, and other categories. $he first category includes methods to directly import restrictions for protection of certain sectors of national industries0 licensing and allocation of import (uotas, antidumping and countervailing duties, import deposits, so% called voluntary e*port restraints, countervailing duties, the system of minimum import prices, etc. Ander second category follow methods that are not directly aimed at restricting foreign trade and more related to the administrative bureaucracy, whose actions, however, restrict trade, for e*ample0 customs procedures, technical standards and norms, sanitary and veterinary standards, re(uirements for labeling and packaging, bottling, etc. $he third category consists of methods that are not directly aimed at restricting the import or promoting the e*port, but the effects of which often lead to this result. $he non%tariff barriers can include wide variety of restrictions to trade. /ere are some e*ample of the popular 3$?'s . 17 ;) ,IC#N(#( $he most common instruments of direct regulation of imports (and sometimes e*port! are licenses and (uotas. "lmost all industriali&ed countries apply these non%tariff methods. $he license system re(uires that a state (through specially authori&ed office! issues permits for foreign trade transactions of import and e*port commodities included in the lists of licensed merchandises. Groduct licensing can take many forms and procedures. $he main types of licenses are general license that permits unrestricted importation or e*portation of goods included in the lists for a certain period of timeL and one%time license for a certain product importer (e*porter! to import (or e*port!. )ne%time license indicates a (uantity of goods, its cost, its country of origin (or destination!, and in some cases also customs point through which import (or e*port! of goods should be carried out. $he use of licensing systems as an instrument for foreign trade regulation is based on a number of international level standards agreements. In particular, these agreements include some provisions of the Jeneral "greement on $ariffs and $rade and the "greement on Import 5icensing Grocedures, concluded under the J"$$ (J"$$!. 18 1<)-'otas 5icensing of foreign trade is closely related to (uantitative restrictions 1 (uotas % on imports and e*ports of certain goods. " (uota is a limitation in value or in physical terms, imposed on import and e*port of certain goods for a certain period of time. $his category includes global (uotas in respect to specific countries, seasonal (uotas, and so%called BvoluntaryB e*port restraints. Iuantitative controls on foreign trade transactions carried out through one%time license. Iuantitative restriction on imports and e*ports is a direct administrative form of government regulation of foreign trade. 5icenses and (uotas limit the independence of enterprises with a regard to entering foreign markets, narrowing the range of countries, which may be entered into transaction for certain commodities, regulate the number and range of goods permitted for import and e*port. /owever, the system of licensing and (uota imports and e*ports, establishing firm control over foreign trade in certain goods, in many cases turns out to be more fle*ible and effective than economic instruments of foreign trade regulation. $his can be e*plained by the fact, that licensing and (uota systems are an important instrument of trade regulation of the vast ma,ority of the world. $he conse(uence of this trade barrier is normally reflected in the consumers' loss because of higher prices and limited selection of goods as well as in the companies that employ the imported materials in the production process, increasing their costs. "n import (uota can be unilateral, levied by the country without negotiations with e*porting country, and bilateral or multilateral, when it is imposed after negotiations and agreement with e*porting country. "n e*port (uota is a restricted amount of goods that can leave the country. $here are different reasons for imposing of e*port (uota by the country, which can be the guarantee of the supply of the products that are in shortage in the domestic market, manipulation of the prices on the international level, and the control of goods strategically important for the 19 country. In some cases, the importing countries re(uest e*porting countries to impose voluntary e*port restraints. *!ree"et o a =7o%'tar&= e.$ort restrait In the past decade, a widespread practice of concluding agreements on the BvoluntaryB e*port restrictions and the establishment of import minimum prices imposed by leading Western nations upon weaker in economical or political sense e*porters. $he specifics of these types of restrictions is the establishment of unconventional techni(ues when the trade barriers of importing country, are introduced at the border of the e*porting and not importing country. $hus, the agreement on BvoluntaryB e*port restraints is imposed on the e*porter under the threat of sanctions to limit the e*port of certain goods in the importing country. #imilarly, the establishment of minimum import prices should be strictly observed by the e*porting firms in contracts with the importers of the country that has set such prices. In the case of reduction of e*port prices below the minimum level, the importing country imposes anti%dumping duty, which could lead to withdrawal from the market. M:oluntaryB e*port agreements affect trade in te*tiles, footwear, dairy products, consumer electronics, cars, machine tools, etc. Groblems arise when the (uotas are distributed between countries because it is necessary to ensure that products from one country are not diverted in violation of (uotas set out in second country. Import (uotas are not necessarily designed to protect domestic producers. +or e*ample, Fapan, maintains (uotas on many agricultural products it does not produce. Iuotas on imports is a leverage when negotiating the sales of Fapanese e*ports, as well as avoiding e*cessive dependence on any other country in respect of necessary food, supplies of which may decrease in case of bad weather or political conditions. 7*port (uotas can be set in order to provide domestic consumers with sufficient stocks of goods at low prices, to prevent the depletion of natural resources, as well as to increase e*port prices by restricting supply to foreign markets. #uch restrictions (through agreements on various types of goods! 20 allow producing countries to use (uotas for such commodities as coffee and oilL as the result, prices for these products increased in importing countries. -'ota ca be of the fo%%o3i! t&$es:- tariff rate (uota global (uota discriminating (uota export quota. #"bar!o 7mbargo is a specific type of (uotas prohibiting the trade. "s well as (uotas, embargoes may be imposed on imports or e*ports of particular goods, regardless of destination, in respect of certain goods supplied to specific countries, or in respect of all goods shipped to certain countries. "lthough the embargo is usually introduced for political purposes, the conse(uences, in essence, could be economic. (tadards #tandards take a special place among non%tariff barriers. Countries usually impose standards on classification, labeling and testing of products in order to be able to sell domestic products, but also to block sales of products of foreign manufacture. $hese standards are sometimes entered under the prete*t of protecting the safety and health of local populations. *d"iistrati7e ad b'rea'cratic de%a&s at the etrace "mong the methods of non%tariff regulation should be mentioned administrative and bureaucratic delays at the entrance, which increase uncertainty and the cost of maintaining inventory. I"$ort de$osits 21 "nother e*ample of foreign trade regulations is import deposits. Import deposits is a form of deposit, which the importer must pay the bank for a definite period of time (non%interest bearing deposit! in an amount e(ual to all or part of the cost of imported goods. "t the national level, administrative regulation of capital movements is carried out mainly within a framework of bilateral agreements, which include a clear definition of the legal regime, the procedure for the admission of investments and investors. It is determined by mode (fair and e(uitable, national, most% favored%nation!, order of nationali&ation and compensation, transfer profits and capital repatriation and dispute resolution. >orei! e.cha!e restrictios ad forei! e.cha!e cotro%s +oreign e*change restrictions and foreign e*change controls occupy a special place among the non%tariff regulatory instruments of foreign economic activity. +oreign e*change restrictions constitute the regulation of transactions of residents and nonresidents with currency and other currency values. "lso an important part of the mechanism of control of foreign economic activity is the establishment of the national currency against foreign currencies. 22 11) The Transition from Tariffs to Non-tariff Barriers )ne of the reasons why industriali&ed countries have moved from tariffs to 3$?s is the fact that developed countries have sources of income other than tariffs. /istorically, in the formation of nation%states, governments had to get funding. $hey received it through the introduction of tariffs. $his e*plains the fact that most developing countries still rely on tariffs as a way to finance their spending. =eveloped countries can afford not to depend on tariffs, at the same time developing 3$?s as a possible way of international trade regulation. $he second reason for the transition to 3$?s is that these tariffs can be used to support weak industries or compensation of industries, which have been affected negatively by the reduction of tariffs. $he third reason for the popularity of 3$?s is the ability of interest groups to influence the process in the absence of opportunities to obtain government support for the tariffs. Non-tariff barriers today With the e*ception of e*port subsidies and (uotas, 3$?s are most similar to the tariffs. $ariffs for goods production were reduced during the eight rounds of negotiations in the W$) and the Jeneral "greement on $ariffs and $rade (J"$$!. "fter lowering of tariffs, the principle of protectionism demanded the introduction of new 3$?s such as technical barriers to trade ($?$!. "ccording to statements made at Anited 3ations Conference on $rade and =evelopment (A3C$"=, 2008!, the use of 3$?s, based on the amount and control of price levels has decreased significantly from 68E in 2<<6 to 28E in 2006, while use of other 3$?s increased from 88E in 2<<6 to 8E in 2006. Increasing consumer demand for safe and environment friendly products also have had their impact on increasing popularity of $?$. >any 3$?s are governed by W$) agreements, which originated in the Aruguay -ound (the 23 $?$ "greement, #G# >easures "greement, the "greement on $e*tiles and Clothing!, as well as J"$$ articles. 3$?s in the field of services have become as important as in the field of usual trade. >ost of the 3$? can be defined as protectionist measures, unless they are related to difficulties in the market, such as e*ternalities and information asymmetries between consumers and producers of goods. "n e*ample of this is safety standards and labeling re(uirements. $he need to protect sensitive to import industries, as well as a wide range of trade restrictions, available to the governments of industriali&ed countries, forcing them to resort to use the 3$?, and putting serious obstacles to international trade and world economic growth. $hus, 3$?s can be referred as a new of protection which has replaced tariffs as an old form of protection. 24 12) 2o3 to Re"o7e Trade Barriers
)ver the years, the >inistry of +oreign "ffairs has helped many companies to remove trade and investment barriers. $herefore, we are well e(uipped and prepared to help your company. Glease read more about the work and e*perience of the >inistry of +oreign "ffairs in removing trade barriers. Information about matters that are notified to the 7A will be accessible to the general public and will 1 in an anonymous form 1 be available wholly or partly in the 7A register on the Internet. >or e.$orters: Re$orti! trade barriers "ll =anish e*port companies feel the benefits of actions against trade barriers. $he first step is to report a barrier by use of the notification form. $he procedure for reporting a trade barrier is described under register a trade barrier. Ander all circumstances, it is crucial that the report concerns a concrete barrier that a =anish company has e*perienced in an e*port market. The ro%e of the co"$a& after re$orti! "fter a report has been sent to the $rade Council, a company need not take any further actions. When the $rade Council receives a report, the sender will receive an initial receipt. When the trade barrier is reported to the 7A, the sender will receive a 25 final receipt with a reference number, which can be used for follow%up en(uiries. /andling of a report can be time%consuming, and therefore some time may pass between reporting and the final receipt. " copy of the report can, if desired, be sent to the relevant industrial organi&ation. $he organisations can therefore be involved with the case through their relevant activities. $he $rade Council will on the basis of the report analyse the problem and develop a strategy for removing the barrier. If there is a need for further information in the course of handling a report, the $rade Council will in some instances contact the reporting company. $he $rade Council will also inform the reporter on progress in their case. "gain, this can be a time%consuming process, and companies are thus always welcome to ask us about for a status update on the handling of their case. In certain circumstances can the removal of a trade barrier take so long, that it may be appropriate for the company to focus on other e*port markets and later return to the specific market in light of how far progress of the barrier removal has come. If the company is willing and able to, it may contribute to the process, for e*ample with new information or more in%depth information about the nature and si&e of the problem or possible solutions. It is still however also possible, if the company prefers, to leave any further work to the $rade Council, which will work further in collaboration with other =anish public authorities and industry organi&ations. -eporting of a trade barrier is free of charge for companies. If the $rade Council in the course of handling the case become aware of the possibility to assist the company with additional services, which re(uire payment, the company may receive an offer about these services. Gaid services will however not be delivered, unless the company first accepts an offer in writing. 26 ('bse0'et case had%i! i De"ar8 When the $rade Council receives a report of a trade barrier, a preliminary evaluation of the report will be undertaken0 "re all relevant details included, or are there (ueries that re(uire further e*planation. /ow does the report relate to other reportsL is this a new report of an already known barrier. "re there other 7A countries that may also have an interest in this case. $he report will then be registered, so that information on trade barriers in other countries that affect =anish e*ports, can be used in =anish public authorities' work in removing barriers to trade. "t the same time, the barrier will be reported to the 7A Commission with a view to handling the case via 7A channels. In relation to the 7A, the >inistry of +oreign "ffairs will stand as the reporter of the trade barrier, and specific company details will not be given to the Commission. Company details will only be used in con,unction with meetings, visits and other similar activities taken by =anish ministers or civil servants where commercial factors are involved. 5ikewise, =anish overseas representations may only use details of reported trade barriers in their trade policy work. +inally, reports from =anish companies will form the basis of =anish efforts in relation to a common 7A trade policy. +or e*ample, =anish ambassadors together with representatives from the other 7A countries and the Commission, take part in local M>arket "ccess $eamsN, which improves the input in the formulation of the 7A's trade barrier efforts. #imilarly, =anish participants in meetings of the 7A's M>arket "ccess "dvisory CommitteeN in ?russels may use report details as a basis for influencing the 7A's priorities for which trade barriers should be removed in other markets. $he 7A 27 procedure is described in greater detail in the section on Msubse(uent handling in the 7AN. It should be underlined, that details of the reporting company will not be given further to the either the Commission of authorities in other countries. ('bse0'et case had%i! b& the #U $he $rade Council reports the trade barriers that =anish e*porters have encountered to the 7A. $he 7A Commission has established a special database 1 M>arket "ccess =atabaseN (>"=?! 1 where all the barriers with 7A trade partners are registered. $he database portrays a collective picture of the problems that 7uropean e*porters have with regard to market access in the individual markets. )ne can search after registered barriers in the database according to country, sector or barrier type. " special market access committee 1 M>arket "ccess "dvisory CommitteeN (>""C! 1 meets every month in ?russels to discuss (uestions on market access. " dedicated working group is set up under the Committee, which discusses sector%specific (uestions. In the countries where the 7A has key e*port interests, dedicated M>arket "ccess $eamsN (>"$! have been formed. -epresentatives for all 7A countries take part in the individual teams, which are led by representatives of the Commission. >"$ meets regularly in the individual countries to discuss the market access problems that 7uropean companies e*perience in the market in (uestion. )n the basis of these discussions, the Commission reports back to ?russels. 5ikewise, meetings with public authorities in markets in (uestion are taken so as to solve concrete problems. $he Commission and the 7A presidency meet regularly with the 7A's trade partners to solve market access problems. $hat can be via bilateral negotiations, or that can be in the course of cooperation in the World $rade )rganisation (W$)!. 28 *%read& re!istered barriers )n the 7A Commission's dedicated homepage for market access, one can find a overview of already registered trade barriers% "s part of the 7A's market access strategy, the Commission acting upon a =anish initiative, set in motion a system where all member state and the Commission in cooperation identify the key market access barriers in selected markets. ?arriers that have been identified until now for further attention are listed. #.$eriece )ver the years, the >inistry of +oreign "ffairsKthe $rade Council has assisted many =anish companies in fighting protectionist measures and has therefore much e*perience in removing trade and investment barriers on e*port markets. $he removal of trade and investment barriers is, conse(uently, a well%known product of the $rade Council of =enmark which is contacted on a daily basis by companies asking for 'diplomatic assistance' in solving problems that the companies are not able to solve themselves on the e*port markets. $he >inistry of +oreign "ffairs has been e*tremely successful in resolving cases worth millions, even billions of kroner. Cases range from disputes in connection with the collection of outstanding amounts to inade(uate market access in not very accessible e*port markets with, for e*ample, comprehensive regulation, bureaucracy, corruption and government control. $he point of departure for these successful results is the huge internal and e*ternal global network of the >inistry of +oreign "ffairs. $herefore, due to its market position as a political organisation with a commercial understanding, the $rade Council of =enmark commands uni(ue competencies and (ualifications for being companies' preferred Nproblem shooterN in the e*port markets. 29 Commercial and political solutions of great value to customers are provided on a daily basis. $his work is performed bilaterally through =enmark's >issions abroad as well as multilaterally through the 7A Commission and the W$). $he 7A CommissionCs website presents some of the cases that =enmark contributes to solving through active work on the 7A Commission's >arket "ccess "dvisory Committee in ?russels and through the Commission's local >arket "ccess $eams on the markets. 30 13) (er7ices o trade barriers a o7er7ie3 India has seen a gradual structural shift towards the services sector in the past decades, with services comprising a growing share of J=G and employment. $oday, services sector in India represents an essential component of competitive, knowledge based economies, accounting for 8;.2 percent of J=G in 200<%202. India's services e*port currently constitutes about 49.9 percent of the country's total e*port.2 Oet, a large part of India's services sector is untapped and rarely e*plored in the international market. $rade in services in India has been growing rapidly since beginning of the last decade, following significant domestic liberali&ation on one hand, and access to a growing overseas market for services, on the other. ?y not only growing more rapidly than the country's merchandise e*ports, India's services e*port grew much faster than that recorded by the world during the past decade and a half. =ue to such rapid growth in services e*ports, India has succeeded in raising its penetration in global markets more rapidly for services than for goods. +or e*ample, India's global e*ports of services in 200%0< stood at over A#D 202 billion4. In 200, India's share in world services e*port was around 2.9; percent, compared with a 2.22 percent share in world merchandise trade . +rom a low level of A#D 20.;2 billion in 2<<2, India's services trade volume increased to A#D 28<.804 billion in 200, thus witnessed 0.64 percent per annum growth rate. "t the same time, services trade and corresponding e*ports and imports in India have witnessed faster growth in the last decade compared to 2<<0s . ?urgeoning services trade sector thus reflects India's versatile services sector. Within the services trade sector, a number of sectors have performed significantly better than others. #ervices e*port from India has grown faster than imports in the last decade, thus widening the positive balance of trade. In particular, in areas where the sector has been liberalised, e*port has grown more rapidly. +or e*ample, computer and information technology services, which increased from A#D 6.;4 billion in 2000 to A#D 6<.4 billion in 200, grew by over 22 percent per annum during 2000 and 200 . In 200, this 31 sector has contributed about 6; percent of India's total services e*port . $he strong demand over the past few years in developed economies has placed India among the fastest growing information technology market in the world. With 22 percent share in India's services e*port, travel and transportation services come ne*t. In import side, about 6 percent of India's total import in 200 was contributed by transportation services. India's import of transportation services outweighs its e*port heavily. $herefore, transportation and computer and information technology services are two prominent sectors in India's services trade. In a static sense, much of India's e*port earning from computer and information technology services has been wiped out by India's import of transportation services. #ervices competitiveness will thus depend how India successfully develops these two sectors. India's Pservices revolution' has been supported by deregulation of services sectors (Jhani and @haras, 2020!. Jrowing openness and integration has helped India's services e*port. $elecommunications has been substantially opened up to competition. 3ewer sectors such as information technology (I$! and I$%enabled services (?usiness Grocess )utsourcing, @nowledge Grocess )utsourcing, and ?usiness $ransformation #ervices! are largely open. @nowledge%based segments have been prominent among the faster growing services sectors, assisted by technological advances and a low%cost educated workforce with good 7nglish language capabilities. $he challenge for India is (uality e*pansion of services e*port. ?eing traded invisible, it faces many complicated barriers. -emoval of these barriers through liberalisation, and complementary policy reforms can lead to both sectoral and economy%wide improvements in performance and generate pro%poor growth. $his in fact motivates us to assess the barriers to India's services e*port in this study. 32 1))6ra7it& Data o #coo"ics $rade costs matter, but difficult to measure ("nderson and van Wincoop, 2006!. "ny attempt to measurement trade costs needs consistent observable data, which in many cases are not available. $o overcome this limitation, "nderson and van Wincoop (2004! derive a theoretically consistent gravity model to infer unobservable trade costs directly from observable trade flows. In this study, we consider a world of 3orth countries and a continuum of differentiated services. We assume that countries speciali&e in a range of services and that consumers have constant elasticity of substitution (C7#! preferences. Ander the simplifying assumptions of a one%sector economy with consumers holding constant elasticity of substitution preferences, and common elasticity among all homogenous goods. $he gravity model for using panel data of e*ports from economy i to economy , (Qi,! takes the following shape0 We use the aforesaid augmented gravity model to analy&e the trade flows, and the coefficients thus obtained are then used to assess services trade barriers under various scenarios. $he augmented gravity model considers a panel data for the years 2000 to 2009. $he data for the gravity model are collected from several secondary sources and taken in bilateral pair. $he primary sources of services trade data used in this analysis is #tatistics on International $rade in #ervices assembled by the )7C= (2004!. $his covers imports and e*ports of services between 2; )7C= countries and up to 88 non%)7C= partner countries. $he collection of the data is based on >anual on #tatistics of International $rade in #ervices guidelines, which e*tend the International >onetary +und balance of payments methodology to account more fully for service transactions. )ur methodological approach imposes the assumption that the error terms are normally distributed, however this assumption is often violated in large datasets where the error term is 33 heteroskedastic . We thus use robust standard errors without specifying a cluster group in all the regressions. $he relationships can not be interpreted as causal until we rule out the possibility of endogeneity in e(uations (8!. $o address this problem, we use a dynamic /ausman % $aylor estimation to analy&e changes across countries and over time. -ecogni&ing the nature of trading flows between countries as relationships that develop and change over time has resulted in an increasing use of panel data approaches to the estimation of gravity models. $his method is chosen in this study. $he use of different panel data methods, such as random, fi*ed effects or /ausman% $aylor estimators, allows for various assumptions regarding trade flows to be analy&ed and tested. In particular, in panel data analysis of gravity models possible heterogeneity and endogeneity issues can be e*amined by isolating country pair effects (factors that influence trade between two countries!. "s 7gger and 3elson (2009! show, this allows the analysis of what they describe as between country pair effects (the cross sectional element! and within country pair effects (the time series element!. $he e(uation (8! has been estimated using the )rdinary 5east #(uares ()5#! panel data model and /ausman%$aylor model (/$>! with the dependent variable of services e*port between India and its partner countries. " cross% section model does not e*plain the variance in bilateral trade flows when we have time%specific impact on trade flows. #ince there are significant and systematic variations of e*port patterns across trade partners, a satisfactory model of bilateral e*ports should e*plain substantial heterogeneity of e*ports at the country level. We therefore use panel data since it can better e*plain the relevant relationships between trade flows and trade barriers over time when we have both time%variant and time%invariant e*ogenous variables. We use individual country effects interchangeably in the model. /$> fits panel% data random%effects models in which some of the covariates are correlated with the unobserved individual%level random effect. $he estimators, originally proposed by /ausman and $aylor (2<2! and "memiya and >aCurdy (2<9!, are based on instrumental variables. "lthough the estimators implemented in 34 /$> use the method of instrumental variables, each command is designed for different problems. $he /$> estimators that are implemented assume that some of the e*planatory variables are correlated with the individual%level random effects but that none of the e*planatory variables are correlated with the idiosyncratic error. It is also worth noting that the fi*ed effects approach does not allow for estimating coefficients on time invariant variables such as distance or common language dummies, though the consistent estimation of such effects are e(ually important in many situations. Cheng and Wall (2002! simply suggest to estimate the regression of the (estimated! individual effects on individual%specific variables by the )5#, though this approach clearly ignores the potential correlation between individual specific variables and (unobserved! individual effects such that the resulting estimates are likely to be severely biased. In order to properly address this issue we need to employ the /$> estimation techni(ue. >ost recent empirical studies also emphasise the importance of e*plicitly allowing for the presence of time specific effects in order to capture business cycle effects or to deal with globali&ation issues. "ccording to Cheng and Wall (2008!, )5# suffers from heterogeneity bias in gravity model conte*t. $rade between any pair of countries is likely to be influenced by certain country%specific unobserved information (country effects!. /owever, these country effects are appeared to be correlated with e*planatory variables, thus making the )5# as biased. $he e*planatory variables are considered to be endogenous as they are correlated with the error term. $o overcome these shortcoming, according to 7gger (2002, 2008!, /$> is the most appropriate estimator for trade in goods and services. $he /$> employs an instrumental variable approach that uses information solely from within the dataset to eliminate the correlation between e*planatory variables and the unobserved individual effects that undermines the appropriateness of the random effects model in the gravity model conte*t. $he /$> is increasingly applied in gravity models of trade in goods and services. $his also resolves the endogeneity problem. 35 11)Do Barriers 4atter? #sti"ated 6ra7it& 4ode% Res'%ts $he (uality and performance of services trade sectors differ markedly across countries, and more prominently between developed and developing countries. $hese variations stem from differences in the (uality and cost of infrastructure services as well as differences in policies, procedures, and institutions. #urely, they have a significant effect on trade competitiveness and market access. While there is strong anecdotal evidence that the lack of ade(uate trade infrastructure might have altered the trade potential due to rise in trade cost, we try to asses the effect of trade facilitation K trade costs elements on bilateral trade with the help of an augmented gravity model. "ny restriction imposed on the free flow of trade is a trade barrier. $rade barrier can either be tariff barrier ( the levy of ordinary negotiated duties in accordance with "rticle II of the J"$$ ! or non%tariff barriers, which are any trade barrier other than tariff barriers. )ne of the most common non%tariff barrier is the prohibition or restrictions on imports maintained through import licensing re(uirement. $hough India has eliminated its import licensing re(uirement for most consumer good, certain products face licensing related trade barriers. +or e*ample, the Indian government re(uires a special import license for motorcycles and vehicles that is very restrictive. 36 15)Coc%'sio $he benefits of tariffs are uneven. ?ecause a tariffs is a ta*, the government will see increased revenue as imports enter the domestic markets. =omestic industries also benefit from a reduction in C)> partition, since import prices are artificially inflated. Anfortunately for consumers both individual consumer and businesses% higher import prices mean higher prices for goods. If the price of inflation due to tariffs individual consumer pay more for products using steel, and businesses pay more for steel than they use to make goods. In short, tariffs and trade barriers tend to be pro%producer and anti%consumer. $he effects of tariffs and trade barriers on businesses, consumers and the government shifts over time. In the short run, higher prices for goods can reduce consumption by individual consumer and by businesses. =uring this time duties, in the long terms businesses may see a decline in efficiency due to a lack of competition, and may also see a reduction in profits due to the emergences of substitutes for. 37 Bib%io!ra$h& WWW.WIKIEPIEDIA.COM WWW.I!E"#OPEDIA.COM$#%ADE....&A%%IE%" WWW.'E"CAP.O%( WWW.&'"IE""$DIC#IOA%).COM 38