While health and safety requirements are often necessary, countries often use these concerns in order to protect their local markets.
By Andres Rodriguez Brauer
Tariff barriers are the most common analyzed examples of preferential treatment for local products, and have historically dominated the protectionism debate. However, following the post-WWII push for free markets and international trade, a lot of the developed world has been finding more subtle ways to restrict their markets against entry of foreign competition. These so called “non-tariff barriers” are defined by the WTO as “any obstacle to international trade that is not an import or export duty. They may take the form of import quotas, subsidies, customs delays, technical barriers, or other systems preventing or impeding trade.”
Many examples of non-tariff trade barriers are pretty explicit, such as import quotas and subsidies. While they don’t impose taxes on the import of foreign agricultural products, they either directly restrict the amount of imports or subsidize their produce in order to make their sector artificially competitive. However, there are some other more subtle ways in which countries prevent foreign competition, particularly through regulatory measures under the pretense of public safety.
Different countries have different ideas about the adequate amount of health and environmental protections and impose different regulations as a result. However, these diverging regulations actually end up having some negative economic consequences for all countries involved. More specifically, the diverging regulations add an additional cost to international trade, as companies have to end up changing their technical particularities for each country, which limits global economic efficiency. Good-intentioned and beneficial regulations such as pharmaceutical regulations, car safety laws, environmental standards, and food safety standards often come with a cost.
In some cases, restrictions are implemented intentionally in order to restrict foreign products from entering the market. For example, in 2009, the Family Smoking and Prevention and Tobacco Control act was signed into law by President Obama, under the concern for public health. One of these provisions banned all cigarettes that utilize flavors other than menthol. This ban extended to “kretek”, also known as clove cigarettes. As a result of this ban, Indonesia, which exports over 90% of the world’s kretek cigarettes, filed a complaint against the United States in the World Trade Organization, claiming that the measure is protectionist because it exempts menthol cigarettes from regulation. The World Trade Organization sided with Indonesia and concluded that kretek and menthol cigarettes are “like products” and thus the ban was discriminatory against foreign competition, since most menthol cigarettes are produced locally and almost all kretek cigarettes are imports. Despite the WTO’s ruling, the United States ignored the decision and left the ban in place.
Nonetheless, it can be exceedingly difficult to determine the overall spirit behind these regulatory measures. In 1989, the European Union banned American and Canadian cattle containing growth hormones, expressing worries over the health risks of the practice. The World Trade Organization permits such bans whenever there is scientific evidence to back up the health concerns that led to these bans. The United States and Canada disputed the regulation and in 1997 the WTO sided with the United States and Canada, claiming that scientific evidence does not support the health concerns associated with these growth hormones and allowed the disputing countries to impose retaliatory tariffs against the European Union. However, these measures did not dissuade The European Union. Just a few years later, the EU imposed further restrictions on the use of growth hormones in cattle as a result of the 2003 Mad Cow Scare. They appealed the WTO’s decision and presented new scientific evidence in favor of their case. Nonetheless, the World Trade Organization upheld the previous decision and sided with the United States and Canada once again, citing FDA studies that suggested that the level of hormones was not high enough to be a threat towards humans. To this day, Europe maintains their ban on the cattle in place.
Tariff barriers, while the most obvious, are far from being the only form of trade restrictions. There are clear alternatives that come to mind, such as subsidies and import quotas, but the most interesting, and subtle, form of trade restrictions come from regulatory discrepancies. Overall, it is often difficult to be certain if trade barriers genuinely serve to protect the public, or if they are only an excuse to restrict foreign competition.