Nontariff distortions of international trade

Book reviews

395

different levels or structures of protection. But 1 believe that enough evidence is shown, enough new twists given to old theory, to classify the authors as new revisionists. They shift the burden of proof to the new orthodoxy of the 1950s and 1960s with its emphasis on big pushes and bottleneck ‘gaps’ that had to be filled with foreign aid. They are totally unsympathetic to ‘two-gap’ and similar analyses, showing much greater confidence in the flexibility of less developed economies when given a chance. (One of the many ironies in hn import substitution policy is that, by shifting the compositions of imports toward raw materials and capital goods, it creates the inflexibiiities in import requirements that ‘gap’ analysis presupposes). And foreign aid, while not decried per se, shows up rather badly, with its heavy if not exclusive emphasis on imported capital goods, reinforcing undesirable tendencies already present in official thinking in less developed counmes. A major question remains. WiB these authors’ recommendations, with their heavy emphasis on export promotion, generalize? Suppose all countries follow their advice. Then the terms of trade for manufactures from developing countries might worsen, requiring a new and more pessimistic calculation. Little et al. are right in stressing the insensitivity of the terms of trade to additjonal exports by some countries; but Taiwan and Korea have undoubtedly succeeded so well in their export performance precisely because India and Brazil (before 1967) did so badly. In addition, protectionist trends in the United States (which took more than half of the vast increase in exports of manufactures from less developed countries in the sixties) are ominous for their export prospects. Finally, discussio ns of industrialization in less developed countries raise a deep issue concerning valuation. The economists’ central concept is opportunity cost of resources in producing output. But if social value is placed on an activity, this method of valuation does not apply. The economist can only draw attention to the problem, and ask why the activity should by valued as such - externalities and national security are two traditional answers, but prestige, public morale and national self-confidence are sentiments of the spirit that economists ‘are illequipped to cope with. What is the social value of a monument? Perhaps factcries are the monuments of the developing country in the twentieth century. But even then the builders should know not only the initial investment costs of their monuments but also the continuing price the public must pay to keep them in operation. Little, Scitovsky and Scott hat:e provided a useful sketch of the nature and magnitude of &se costs. Richard N. Cooper Yale I!hiversity

Robert E. Baldwin, Nontariff’ Distortions of International Washington, D.C., 1970, pp. viii + 210, $6.95.)

Trade. (The Brookings Institution,

In this book, Baldwin analyzes a host of existing nontariff distortions of international trade among the developed, market-oriented economies, and assesses their empirical importance. He also considers the policy issues raised by these distortions, and evaluates the means by which international negotiatjons for their removal could become more effective. A nontariff trade-distorting policy is “any measure (public or private) that causes internationally traded goods and services, or resources devoted to the production of those goods and services, to be allocated in such a way as to reduce potential real world income” (pc 5). Thus, everything from exchange-rate policy, selective credit policies and regional development policies to import quotas and health and safety regulations can be, and is, a nontariff distortion.

306

Book reviews

Baldwin has done an outstanding piece of work, given the inherefit difficulty of his task. He’ has achieved a good balance between theory, empirical results, and policy recommendations. The theoretical limitations of his empirical results are pointed out, yet do not obscure the importance of his empirical findings. Thus, the importance of existing nontariff distortions are measured in terms of foregone international trade or in terms of effective tariff equivalents of nontariff distortions, although the reader is told that foregone world income would be a superior measure. Similarly, monetary, fiscal, and exchange-rate policy can distort international trade, yet are excluded from empirical consideration on the grounds that there can be no misallocation if internal and external balance are maintained. insofar as theory has been developed for the analysis of trade distortions, Baldwin presents it clearly and simply. The book should be of interest to theoris@. Hopefully, it will spur further theoretical work. Empirical workers will find an excellent comprehensive survey of available research and evidence, and a stimulus to further work on the subject, since Baldwin carefully points out the limitations of his results. Policy makers should k~e required to read the book, and it is extremely well written. In the first chapter, the groundwork for the book is laid, Baldwin gives his maximize-worldincome criterion, and defends it. He grovides focus by showing that the Kennedy Round succeeded in reducing tariff barriers to trade considerably, while leaving nontariff barriers virtually untouched. The greater difficulties associated with the nl gotiation for removal of nontariff barriers to trade than tariff barriers are analyzed, and GATT is proposed as a logical international agency f& future negotiations. Baldwin classifies trade-distorting policies into twelve varieties, and indicates that a limitation of his work is that four types are omitted from the analysis for want of sufficient data: restrictive trade practices, controls over foreign investment, restrictive immigration policies, and selective monetary and exchange-rate policies. Of these, Baldwin notes that the omission of controls over foreign investment is “especially Xrious”. The jnext five chap&rs contain analyses and empirical evaluations of the remaining d&ortion categories. Ch. 2, on import quotas and export subsidies, starts with an analysis of why tariffs are preferable to quotas, and then contains an evaluation of the major ones. Restrictians upon coal are probably the largest single distortion, measured by the reduction in the volume of world trade. U.S. exports are estimated to be about $2 billion less than they would be in the absence of European: import restrictions. Quantitative restrictions upon imports J?f petroleum, agricultural products, textifes, and Japanese exports are then reviewed. The increased pressure in recent years, for more restrictions over American imports, is then discussed. Finally, a survey of export subsidies is undertaken. Internationally, subsidies to export credit and insurance are probably the biggest distortion. American subsidies to agricultural exports a~; also evaluated. In ch. 3, Baldwin discusses the restrictive effects of government proarement policies. All sor?s of factors enter in: the methiod of soliciting bids, the timing and information on bidding requirements, the procedures for awarding contracts, and government preferences for domestic sources. An empirical estimate of the importance of these practices in distorting international trade is not made, although Baldwin clearly believes them to be important. A final section contains Baldwin’s suggested outline of a Code on Government Procurement that might be effected by GATT or the OECD. Ch. 4 is fecussed upon the difficult problem of border adjustments for internal taxes. The reader will fii aw excellent statement of the issues dividing the United States and Western Europe, as well as an ana,ysis of the incidence of border taxes (the model is ptovided in detail in the Appendix). Ch. S contains an analysis of the trade effects of domestic subsidies to qdflc industries (coal, PtroJeum, shipbuilding, shipping, and agriculture), to regions, and to particular economic activities (subsidies for the acquisition of new capital equipment are the most important). Technical and adminiistrative hindrances to trade are the subject off CR.6. Customs valuation

:practices, the American Ming price system, and administration of anti-dumping laws are all aMlyZed*

Book reviews

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In ch. 7, Baldwin estimates the tariff-equivalent of nontariff distortions for the U.S. and U.K., and compares them with the protection afforded by tariffs. The input output tables of the two countries are used to estimate the effective protection provided by tariff and nontariff distortions to each sector. In 1964, effective tariffs in the United States averaged 17 per cent upon imports, while nontariff barriers added another 3 per cent effective protection. By 1972, however, when the Kennedy Round cuts will have been effected, effective protection from tariffs will average about 10 per cent, but that from nontariff barriers will have increased to S per cent, according to Baldwin’s estimates (p. 165). Thus, the relative and absolute importance of nontariff barriers, contrasted with tariffs, is increasing. Moreover, Baldwin’s estimates are clearly lower limits on the size of nontariff barriers, since not all distortions could be estimated and included. The fiial chapter contains a discussion of policy alternatives for reducing nontariff barriers. A plea is made for greater exchange-rate flexibility, on the ground that: (1) protectionist pressures will decrease; and (2) the task of multinational negotiations for reducing these barriers will be simplified if pressures to maintain balance of payments positions are less severe. Moreover, a more effective adjustment assistance program is required in many countries, if progress is to be made to reduce protectionist pressures. Although it was too much to ask, this reviewer was disappointed that Baldwin did not present a concrete proposal for ways of strengthening adjustment assistance legislation. In light of existing protectionist sentiment in the United States, the social product of Nontan’Jf Distortions is enormous. One can only hope that the book gets the wide readership that it deserves, and that Baldwin’s effort will stimulate others to contribute on a difficult, yet extremely important, subject. Anne 0. Krueger University of Mirmesota

Lord Robbins, Money, Trade and international Press, 1971, pp. xii + 282, S4.50.)

Relations. [London:

Macmillan, St. Martin’s

This book is essentially a re-issue of the author’s The Economist in the Twentieth Cenhq (19S4), with a more appropriately descriptive title, exclusion of dead material and inclusion of earlier and later pieces relevant to a rounded representation of Robbins’s position, and a lengthy new introduction which presents an ot or-view of the issues dealt with. As such, it is more of a new book than an old one reissue& a bork remarkable for the consistency and integrality of its author’s views on the wide range of issues involved in international economic organization; and it should be read in conjunction with %s recent Autobiography of an Econom ist. The ten old chapters deal with the inflationary macro-economic and naive microeconcmic defects of the concept of full employment as a policy objective; the need for monetary policy in the control of inflation, and the objections 20 the Radcliffe Committee’s concept of ‘liquidity’ as the policy control variable; fixed versus floating rates, and the alleged postwar dollar shortage and the problem of international financial reconstruction after the second world war; the classical theory of commercial policy and the reasons for the failure of the case for free trade to win acceptanck. in contemporary times; and the economics of territorial sovereignty and liberalism and the international problem. Some of these are more interesting tkn their original context would suggest; the reader would do well to start with the introductory chapter as a basis for decision on what else is worth his reading. Fortunately, there is a beautifully comprehensive index that makes it easy to ascertain Robbins’s views on any particular issue;