Media Briefings


  • Published Date: January 2009

Many developing countries are getting their priorities wrong in world trade negotiations. That is the implication of research by Marcelo Olarreaga and colleagues, published in the January 2009 issue of the Economic Journal.

Much ‘negotiating capital’ of developing countries is being spent trying to reduce agricultural subsidies. But this study shows that the importance of these subsidies to trade restrictiveness is almost negligible, even in high-income OECD countries. So while agricultural subsidies are a huge problem for European taxpayers, they are not for developing countries’ agricultural exporters.

At the same time, non-tariff barriers, such as anti-dumping measures and technical regulations, on which developing countries spend little negotiating capital, contribute a large share of trade restrictiveness. What’s more, rich countries have a greater tendency to impose these less transparent barriers on their imports than poor countries.

Marcelo Olarreaga comments:

‘For the average developing country, the negotiating priorities in the current
round of multilateral trade negotiations may be misplaced.

‘An important share of its negotiating capital is being spent in reducing agricultural subsidies. Some of their negotiating capital is spent on market access and none on non-tariff barriers.

‘Our results suggest that the emphasis should be reversed.’

The research aims to provide a precise definition of trade restrictiveness. Measuring trade restrictiveness requires overcoming two important aggregation hurdles: aggregation of different forms of trade policies; and aggregation across goods with different economic importance.

The first aggregation problem arises because trade policy can take many different forms: tariffs, quotas, non-automatic licensing, anti-dumping duties, technical regulations, monopolistic measures, subsidies, etc. How can a single measure summarise the trade restrictiveness of a 10% tariff, a 1,000 tons quota, a complex non-automatic licensing procedure and a $1 million subsidy?

Often economists rely on outcome measures, such as import shares. The rationale is that import shares summarise the impact of all these trade policy instruments. The problem is that they also measure differences in tastes, macroeconomic shocks and other factors that should not be attributed to trade policy.

Another approach is simply to rely on tariff data, and assume that all other instruments are perfectly correlated with tariffs. These are obviously unsatisfactory solutions.

The second aggregation problem arises because trade policy is set at the tariff line level and there are often more than 5,000 tariff lines in a typical tariff schedule. How can all this information be summarised in one aggregate and economically meaningful measure?

Commonly used aggregation procedures include simple averages and import- weighted averages; none of which have a sound theoretical basis. For example, imports subject to high protection rates are likely to be small and therefore will be attributed small weights in an import-weighted aggregation, which would underestimate the restrictiveness of those tariffs. In the extreme case, goods subject to prohibitively high tariffs have the same weight as goods subject to zero tariffs: a zero weight.

Similarly, when computing simple average tariffs, very low tariffs on economically meaningless goods would bias this measure of trade restrictiveness downwards.

The results of this research show that non-tariff barriers contribute to a large share of trade restrictiveness across countries. On average, they add an additional 87% to the restrictiveness imposed by tariffs, but the contribution to the overall restrictiveness increases with income per capita. Rich countries have a larger tendency to impose (less transparent) non-tariff barriers on their import bundle than poor countries.

On the other hand, the importance of agricultural domestic subsidies to trade restrictiveness is almost negligible, even in high-income OECD countries. Figure 1 below decomposes the trade restrictiveness of the OECD towards developing countries into its tariff, non-tariff barrier (NTB) and agricultural subsidy components for both manufacturing and agricultural goods.

The message is quite clear. The restrictiveness of agricultural trade policy in OECD countries towards developing countries is much larger than the restrictiveness of their manufacturing trade policy. But agricultural subsidies are not the culprit, as their contribution to the overall level of agricultural trade restrictiveness is below 5%.

The problems faced by developing countries’ agricultural exporters to the OECD are to be found in the OECD’s tariff and non-tariff barriers. Agricultural subsidies are a huge problem for European taxpayers, not for developing country agricultural exporters.


Notes for editors: ‘Estimating Trade Restrictiveness Indices’ by Hiau Looi Kee, Alessandro Nicita and Marcelo Olarreaga is published in the January 2009 issue of the Economic Journal.

A longer summary of the study is published on Vox:

Kee and Nicita are at the World Bank. Olarreaga is at the University of Geneva.

For further information: contact Marcelo Olarreaga on +41 22 379 82 86 (email:; or Romesh Vaitilingam on 07768 661095 (email:

Figure 1: Decomposition of OECD trade restrictiveness vis-à-vis developing countries