Index of Non-tariff Measures: A Study of the EU Textile and Garment Market
| DOI | 10.1177/0015732519854932 |
| Author | Sudeshna Chattopadhyay |
| Date | 01 August 2019 |
| Published date | 01 August 2019 |
| Subject Matter | Articles |
Index of Non-tariff
Measures: A Study of
the EU Textile and
Garment Market
Sudeshna Chattopadhyay1
Abstract
The post-WTO period has witnessed a rapid increase in growth of non-tariff
measures (NTMs). As a result, quantification of NTMs has emerged as an
important policy question. Quantification of NTMs is often challenging as these
measures, in most cases, do not have direct numerical measurements. Hence,
proxies have to be constructed. The present article proposes a methodology
which uses time series information on legislation related to NTMs to construct
comprehensive indices of NTMs. The incidence of NTMs is very high in the textile
and garments (T&G) sector in the EU, which is also an important destination of
India’s textile and garments exports. Hence, the EU textile and garments sector is
selected as a case study. Separate NTM indices are constructed for the German
and rest of the EU market, and the effects of these indices on the flow of India’s
T&G exports are explored.
JEL Codes: F13, F18
Keywords
WTO, non-tariff measures, comprehensive indices, textile and garments,
European Union
Introduction
In the post-WTO period, the fall in tariff rates has been accompanied by a rapid
increase in various non-tariff measures (NTMs). These measures are assessed
from two different perspectives: on the one hand, they are criticized as disguised
Article
1 Taki Government College, Taki, West Bengal, India.
Corresponding author:
Sudeshna Chattopadhyay, Taki Government College, Taki, North 24 Parganas, West Bengal 743429,
India.
E-mail: sudeshna.chattopadhyay@gmail.com
Foreign Trade Review
54(3) 206–223, 2019
© 2019 Indian Institute of
Foreign Trade
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DOI: 10.1177/0015732519854932
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Chattopadhyay 207
barriers to trade and, on the other, they are thought of as instruments to promote
cleaner and greener trade, and on the whole sustainable globalization.1 Some of
the earlier analyses of NTMs have assumed NTMs to be trade impeding and wel-
fare reducing. However, it is now being increasingly recognized that in the pres-
ence of market imperfections such as asymmetric information and production and
consumption externalities, NTM policy interventions might be trade-impeding or
trade enhancing while increasing welfare. Standards and technical regulations
have trade-impeding effects by raising the costs of exporters and similar demand-
enhancing effects by certifying quality and safety to consumers (Beghin, Disdier,
& Marette, 2014; ESCAP, 2015; UNCTAD, 2013).
It has become increasingly important to assess the quantitative impact of
NTMs to design specific interventions to remove the bottlenecks in realizing the
favourable influences of these instruments. A major hurdle towards the quantifi-
cation of NTMs is the lack of comprehensive information on the extent and num-
ber of NTMs. NTMs can be qualitative and/or quantitative standards. For
qualitative standards, like labelling, no numerical values can be directly used. For
quantitative standards, like maximum residue limits (MRLs), some studies have
directly used the numerical values as indicators of stringency (Xiong & Beghin,
2012). However, a single disaggregated NTM has limited application. Generally,
a number of standards work in tandem to regulate the quality of a product and
picking just one of the NTMs may result in subjective selection bias and mischar-
acterization of the NTMs regulating the market under study. In fact, even in the
absence of such a bias, a single NTM is not exhaustive and may not be representa-
tive (Li & Beghin, 2013). Hence, construction of an index of NTMs requires
aggregation of different type of regulations and standards.
An attempt towards that direction has been made here and to illustrate the
approach, India’s trade in Textile and Garment (T&G) industry with the European
Union has been taken as a case. The choice of industry has been guided by a num-
ber of considerations: (a) T&G industry is one of the major industries in India in
terms of its contribution to employment, output and foreign exchange earnings,
(b) the European Union accounts for nearly 40 per cent of India’s T&G exports
and (c) the fall in the average tariff rates for T&G products following the disman-
tling of Multi Fibre Agreement (MFA) quotas in 2005 has been accompanied by a
rise in various NTMs, especially in European Union where the level of awareness
regarding environmental issues is relatively high. It is important to sensitize the
proposed index with respect to variation over time as well as across countries. To
achieve that end, the member countries of the EU have been clubbed in two
groups: one having standard regulations and the other having much stronger
standards. Germany and the Netherlands belong to this latter category. The index-
ation exercise has been done separately for Germany2 (with stronger norms) and
rest of the EU (with moderate norms) over a time period covering both pre- and
post-WTO (and MFA) regime.
The rest of the article is organized as follows: The second section briefly sum-
marizes some major studies which have attempted quantification of NTMs. The
third section explains the methodology used in the article for the aggregation of
NTMs into a single index. The fourth section carries out econometric exercises to
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