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MEASUREMENT OF NON-TARIFF BARRIERS:
THE CASE OF UKRAINE


Veronika Movchan and Igor Eremenko
1







Prepared for the Fifth Annual Conference of the European Trade Study Group (ETSG)
September 11-13, 2003, Madrid, Spain

Keywords
: non-tariff barriers, protectionism, trade policy
JEL Classification:
F13, F14

Abstract:


In the process of the WTO accession Ukraine has to liberalize both its tariff and non-tariff trade regimes. However,
while tariffs have been studied more or less deeply, the countrys system of non-tariff barriers remains almost terra
incognita both for scientists and policy makers. The situation is quite usual, since non-tariff barriers have drawn special
attention only several decades ago, and the interest was closely associated with the success of the GATT trade rounds
in reduction of tariff barriers and, as a result, expected growth in the non-tariff protectionism.

In this paper, it is proposed an augmented index of non-tariff protection. Its major distinction from the import coverage
index lies in estimation of differentiated intensity of various types of non-tariff barriers, as well as in construction of
additive index that incorporates a whole spectrum of non-tariff barriers. In the frame of the research, index of non-tariff
barriers for Ukraine is calculated for the period between 1994 and 2001. It is shown that during the investigated period
the structure of Ukraines non-tariff protection has evolved from core barriers like quantity and price control to
technical barriers, known by controversy in their protective nature. This study is the first attempt to quantify the entire
system of non-tariff barriers in Ukraine, bringing new insights in the evolution of trade liberalization in the country and
its correspondence to the world trends in light of the WTO accession process.


1
Research Associates
Institute for Economic Research and Policy Consulting
Reytarska str. 8/5-A, Kyiv 01034
Tel: (+38044) 228-6358, 228-6342
Fax: (+38044) 228-6336
Email:
movchan@ier.kiev.ua
www.ier.kiev.ua
1 Introduction

Despite a long history of non-tariff barriers (NTB) in international trade, the special attention they have got only in the
early 70
th
(Quinn & Slayton, 1980) when the discussion of the NTB was explicitly scheduled in the framework of
Tokyo Round of the GATT negotiations. The understanding of importance of the NTB has appeared alongside with
gradual reduction of tariff barriers and, consequently, expected growth in importance of the NTB. These barriers are
less transparent, more flexible, and extremely variable. According to the United Nations Conference on Trade and
Development (UNCTAD) classification, there are approximately one hundred different codes representing various non-
tariff measures (OECD, 1997). These characteristics made the NTB important substitutes for countrys tariff regime.

The magnitude of the NTB in Ukraines foreign trade policy has remained almost terra incognita for majority of
policy makers and scientists in the country. Majority of studies of the trade policy focused on initial elimination of state
monopoly in foreign trade, as well as consequent evolution of tariff rates (Michaeli, 1998; German Advisory Group,
2001; World Bank, 1999). Studies of NTB were limited, to the large extent, to general description of legal regime
(Tereschenko, 1998), while no comprehensive investigation of the NTB aimed to quantify the level of NTB was done.
Still, it is important to know the intensity of the NTB taking into account the intension of Ukraine to become a member
of the WTO in the recent future. Ukraine applied for the GATT/WTO membership in late 1993, and nowadays the
negotiations are in pre-final phase. The estimation of the NTB structure is the important stage in the overall assessment
of the impact of the WTO membership on trade flows and the economic development as a whole. Thus, the objective of
this paper is to fill in the gap and to estimate the level of non-tariff protection in Ukraine.

The rest of the paper is organised as follows. Section 2 provides a brief overview of the NTB theory including
definition of this phenomenon and methods of measurement. Next, Section 3 discuses methodological changes
proposed to enhance the evaluation of the of the NTB. Section 4 presents results of estimation of the NTB dynamics
in Ukraine, and Section 5 concludes.

2 Theory of Non-Tariff Barriers Measurement

Before we consider particular measurement techniques, lets focus for a moment on the definition of non-tariff barriers.
Such researchers as Baldwin (1970), Walter (1972), Mayer & Gevel (1973), and Deardorff & Stern (1997) provided
their definitions of this phenomenon. Moreover, several international organisations like UNCTAD and GATT/WTO
(2001) contributed to formulation of the term non-tariff barriers. Careful review of these definitions as well as study
of NTB per se allowed authors to propose the following definition:

NTB are measures, other than tariffs, that are tightly connected with state (administrative) activity and influence
prices, quantity, structure and/or direction of international flows of goods and services as well as resources used
to produce these goods and services.

In this definition, the emphasis is made on the role of the state in establishment of NTB, although some researchers
propose to consider actions of private persons (entrepreneurs) as NTB source (Baldwin, 1970; Walter, 1972). This
emphasis on the state is explained, in the first place, by necessity to differentiate between evolutionary processes and
trade restrictions. The former also influences price and quantity of international goods flows although are based on
3
competition, technical innovations, and consumer preferences. The latter is administratively created and traditionally
considered as trade restrictions.

This definition does not cover another important feature of the NTB, namely their influence on the general level of
world welfare or on potential real world income (Baldwin, 1970; Mayer & Gevel, 1973). The absence of judgement
criterion is dictated by twofold nature of the NTB. Although traditionally the NTB are considered as sources of dead
weight loses that reduce level of social welfare, it could be the case that total effect of the NTB is positive. This
situation arises when social and private marginal utility functions do not coincide due to information asymmetry. For
instance, it could be shown that mandatory state certification is necessary for selected types of goods (Movchan, 1999)

The list of non-tariff barriers, according to the UNCTAD classification, includes such measures as custom charges and
taxes, price control measures, financial measures, quantity control measures, technical measures, and monopolistic
measures. Not all of them are equally hurtful for trade and designed specifically to restrict imports, thus a subcategory
of the NTB, namely core NTB, was introduced for a study of the restrictive NTB (OECD, 1997). The core NTB
include custom charges and taxes, price control measures, automatic licensing, and quantity controls.

One of the main questions in study of the NTB is a methodology of their measurement. The problems exist because of
non-transparency of the NTB, their variety, and disparity in influences. There are several types of non-tariff barriers
measurement: frequency measures, price-change measures, quantity measures, rates of assistance, and indices-
deflators. Lets briefly discuss them.

A.
Frequency measures

There are two common types of frequency measures: frequency ratio and import coverage ratio (Laird & Yeats, 1990).
Both of them are based on calculation of ratio of commodity lines subject to at least one NTB in total number of lines
for the respective group of trade nomenclature. The frequency ratio is calculated by formula:

100
1
×








×
=

=
J
j
T
T
i
i
i
N
N
D
F
,







(1)
where
N
i
is category
i
of commodity in trade nomenclature group;
D
i
is dummy variable,
N
t
is general number
of categories in trade nomenclature group, i.e.
i
T
=
1,...,
. Dummy variable is used as indicator of NTB:



=
1
0
i
D
,
where
D
i
=
1
, in good in category
i
is subject to at least one NTB; otherwise
D
i
=
0
.

For import coverage ratio, the value of imports of commodities subject to at least one NTB is used as a weight instead
of number of categories. That allows introduce time factor in the measurement of NTB, as well as better evaluate
importance of particular NTB for the trade as a whole.

4
Frequency method is intensively used by the UNCTAD as the most easily available, transparent, and universal
measurement technique. Its major drawbacks include upward biased due to overstatement of existing measures, and
difficulties in distinguishing the role of specific NTB.

B.
Price-change measures

Measures based on evaluation of changes in price due to introduction of the NTB are the most useful. Alternative to
other measures, they allow direct comparison between influence of tariff and non-tariff trade barriers. Moreove