Since the Global Financial Crisis, there is a clear trend that the implementation of non-tariff measures has become more prevalent, implying the possibility of countries’ usage of non-tariff measures to protect their domestic economy. The three Northeast Asian countries, China, Japan and Korea (CJK) are not an exception, where firm survey results identify TBT and SPS measures as major obstacles to trade. Although many non-tariff measures have legitimate, non-economic objectives such as human health, safety and environment, some non-tariff measures create unnecessary obstacles to trade where these non-tariff measures are called “non-tariff barriers.” Hence, it is important for these three countries to build a cooperative system to identify TBT and SPS measures which unnecessarily impede trade. In this report, we analyze the pattern of international trade and non-tariff measures of CJK, and devise an effective counterplan for these three countries to cooperate in order to identify and lower non-tariff barriers.
To examine the trade patterns of CJK, we looked at the World Input-Output Tables (WIOT), along with the gross trade statistics which has been generally used in the literature. The rationale behind this owes to the fact that the region has been one of the areas actively forming global value chains (GVCs). By calculating the three countries’ value added trade based on the WIOT, we reveal a deepening of GVC ？ all three nations experienced an increase in the foreign value added embodied in goods with decreasing domestic value added. By looking at CJK’s tariff and non-tariff measures, we observe a drastic increase in the three measures (particularly TBT and SPS-related measures), while average tariff rates have decreased for each country. This highlights the importance of non-tariff measures ？ specifically TBT and SPS ？ in facilitating intra-regional trade among CJK.
With both theoretical and empirical analysis, we attempt to study the effects of non-tariff measures on intra-regional trade. Theoretically, non-tariff measures can facilitate trade by alleviating the problem of incomplete information; in the meantime, compliance with TBT or SPS measures may increase costs and adversely affect trade. Thus, the net effect of implementing either TBT or SPS measures on trade depends on the two opposing effects. To examine the effect of TBT and SPS measures on trade of CJK, we first calculate the coverage ratio (share of import value exposed to non-tariff measures) and frequency index (share of the number of import products exposed to non-tariff measures) by year and by industry for CJK. For all three countries, we find a clear pattern where the coverage ratio and frequency index of both TBT and SPS measures have increased since the Global Financial Crisis. Also, food and agricultural imports of the countries exhibit higher coverage ratio and frequency index than imports of other ries. The coverage ratio and frequency index however does not tell us in which direction and how much TBT or SPS affects trade. To examine this, we conduct an empirical study based on the calculated coverage ratio and frequency index. The empirical result tells us that TBT measures of CJK negatively affect manufacturing trade from the world to CJK, while SPS adversely affects food and agricultural trade. Restricting the analysis to intra-regional trade, we find that only SPS measures decrease the trade flow of food and agricultural products between countries. The effect of TBT measures on trade is insignificant, possibly due to the fact that trade between the three countries mostly consists of intermediate goods trade which is less likely to be affected by TBT or SPS measures. Next, we complement our quantitative analysis with qualitative analysis on TBT and SPS measures of CJK. In addition to the explanation on certification procedures and systems of TBT and SPS measures in the three countries, we compare the TBT and SPS provisions in the commonly agreed FTAs of the three countries. For TBT agreement in these FTAs, China seems to have more or less conservative tendency towards International Standards and Transparency. With respect to the provisions of Conformity Assessment Procedures within the TBT agreement, both China and Japan have stricter criteria in acceptance of mutual recognition of results and procedure of Conformity Assessment than Korea does.
In terms of SPS provisions, China’s FTA included the most detailed, concrete provisions in terms of depth and scope, while South Korea and Japan were reluctant to include provisions other than the WTO SPS Agreement. The only provisions in common that all three countries included were the cooperation provisions (which includes information exchange) and the SPS committee provisions. Meanwhile, CJK seek mutual cooperation to promote protection of the health of their citizens, animals, and plants as well as to facilitate safe trade not only at the multilateral level but also at the bilateral level.
Despite its well-known restrictiveness on trade, CJK lacks a mechanism to regularly discuss and cooperate on non-tariff barrier issues between the three countries. Thus, in this report, we suggest the three countries to utilize the Pan-Yellow Sea Rim Economy and Technology Exchange Meeting. Within the meeting, harmonization of standards, mutual recognition of conformity assessment and enhancement of transparency can be discussed to lower non-tariff barriers to trade relevant to TBT and SPS measures. Regarding the first issue, for instance, we argue for creating a sustainable network system which includes annual experts` meeting on Korean-Sino food standards to build mutual understanding among the three countries. In a long-term perspective, the three countries can consider creating a common food regulation standing committee of CJK, benchmarking the Food Standards Australia and New Zealand (FSANZ), to promote food standards harmonization among the three countries. With respect to the second issue regarding the mutual recognition of conformity assessment, three methods are worth a consideration; ① an introduction and expansion of SDoC(Suppliers Declaration of Conformity) product list ② a delegation of authority to the assessment bodies located in the partner country ③ an establishment and management of a foreign-owned certification authority in domestic country, in addition to an extension of MRA within regional cross-border or a mutual recognition of the result on test certification between conformity assessment bodies.
Lastly, to enhance transparency, we propose to create a common website on TBT and SPS measures of CJK which alerts stakeholders about the changed or introduced TBT/SPS measures and provides information about cases of failure in complying with customs regulations.