Non-tariff measures, preferential trade agreements, and prices: new evidence

Abstract

Combining for the first time a new dataset of non-tariff measures (NTMs) in 65 countries with the CEPII’s unit values database, we estimate average ad-valorem equivalents (AVEs) for sanitary and phytosanitary, technical-barriers-to trade and other measures by section of the Harmonized System of product classification. While most existing AVEs are obtained from indirect quantity-based estimation, ours are obtained from direct price-gap estimation. They lie in a single-digit range, i.e. substantially lower than previous estimates based on older data. Our results may reflect the progressive phasing out of command-and-control instruments such as quantitative restrictions in many countries; they also suggest that sanitary and technical regulations have not substituted for them as trade-restrictive interventions. Most interestingly, we show that deep-integration clauses in regional trade agreements, in particular the mutual recognition of conformity-assessment procedures, substantially reduce the price-raising effect of NTMs, possibly reflecting lower compliance costs.

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Notes

  1. 1.

    These compliance costs can be substantial. Without the recognition of conformity assessment, exporters are sometimes required to have their products tested by accredited laboratories separately for each destination country. In developing countries, these laboratories are typically owned and operated by private companies in quasi-monopoly situations with very stiff fees. For instance, rice exporters in Myanmar incur testing fees between $500 and $1000 per sample at private laboratories in the region. As samples have to be tested for every two 20’ containers, testing costs can reach up to 9 % of the FOB price. By comparison, the government export tax is slightly over 2 %.

  2. 2.

    There is thus a logical inconsistency in the MAST classification’s treatment of domestic subsidies and regulations, since subsidies to domestic producers are included on account of their potential effect on competition with imported products, whereas cost-raising domestic regulations are not, even though they may also distort competition, this time by penalizing domestic producers.

  3. 3.

    NTMs could conceptually affect products based on their production processes—say, restrictions on imported products based on differences in labor regulations between the importing and exporting country—but they would then be in violation of (inter alia) GATT Article III (national treatment).

  4. 4.

    We assume that NTMs are imposed on all origins (including the destination country itself), while other trade costs are bilateral.

  5. 5.

    For an alternative approach with incomplete pass-through, see e.g. Berman et al. (2012).

  6. 6.

    In an alternative specification, we followed Kee et al. (2009) and interacted NTM dummies with country covariates in order to generate predicted effects conditional on destination characteristics. Mapping back those characteristics into « real » importing countries makes it possible to retrieve predicted effects corresponding to the particulars of each importing country.

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Acknowledgments

We are grateful to Lionel Fontagné, Sébastien Jean, Frank Van Tongeren, Michael Ferrantino, Anne-Célia Disdier, Gianluca Orefice and to other participants at CEPII Conference “Non-tariff measures: Economic Analysis and Policy Appraisal” in Paris and at the “Issues on quantification of Non-tariff measures” session of the GTAP conference in Shanghai for useful comments and suggestions. Support from France’s Agence Nationale de la Recherche under grants ANR-10-LABX-14-01 and ANR-12-JSH1-0002-0 and from Switzerland’s NCCR WP6 “Impact assessment” is gratefully acknowledged.

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Correspondence to Olivier Cadot.

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Appendix

Appendix

See Table 7.

Table 7 NTM data coverage and collection year

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Cadot, O., Gourdon, J. Non-tariff measures, preferential trade agreements, and prices: new evidence. Rev World Econ 152, 227–249 (2016). https://doi.org/10.1007/s10290-015-0242-9

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Keywords

  • Non-tariff measures
  • Price gaps
  • Regional trade agreements
  • Deep integration
  • Harmonization
  • Unit values

JEL classification

  • F13
  • F15