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The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence

Discussion paper by Marco Fugazza, 2013

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this paper from UNCTAD's study series reviews technical barriers to trade (TBTs) and sanitary measures (SPS) measures to generate different trade effects for different exporters and different industries. It adressess regulations and restrictions to protect human, animal or plant life or health and other technical regulations. It does so by showing variations in estimated trade effects through different forms of technical measures proxies, model specifications, and other methodology variations.










POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


STUDY SERIES No. 57






THE ECONOMICS BEHIND NON-TARIFF MEASURES:


THEORETICAL INSIGHTS AND EMPIRICAL EVIDENCE






by





Marco Fugazza
UNCTAD, Geneva

















UNITED NATIONS
New York and Geneva, 2013


U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T





ii POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


Note


The purpose of this series of studies is to analyse policy issues and to stimulate discussions in
the area of international trade and development. The series includes studies by UNCTAD staff and by
distinguished researchers from other organizations and academia. This paper represents the personal
views of the author only, and not the views of the UNCTAD secretariat or its member States.


This publication has not been formally edited.

The designations employed and the presentation of the material do not imply the expression of
any opinion on the part of the United Nations concerning the legal status of any country, territory, city
or area, or of authorities or concerning the delimitation of its frontiers or boundaries.

Material in this publication may be freely quoted or reprinted, but acknowledgement is
requested, together with a copy of the publication containing the quotation or reprint to be sent to the
UNCTAD secretariat at the following address:



Marco Fugazza


Trade Analysis Branch
Division on International Trade in Goods and Services, and Commodities


United Nations Conference on Trade and Development
Palais des Nations, CH-1211 Geneva 10, Switzerland


Tel: +41 22 917 5772; Fax: +41 22 917 0044
E-mail: marco.fugazza@unctad.org






Series Editor:
Victor Ognivtsev
Officer-in-Charge


Trade Analysis Branch
DITC/UNCTAD













UNCTAD/ITCD/TAB/58









UNITED NATIONS PUBLICATION


ISSN 1607-8291









© Copyright United Nations 2013
All rights reserved





The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence iii


Abstract



The paper presents a review of recent work both theoretical and empirical related to the
impact of non-tariff measures with a focus on technical regulations. A minimalist theoretical set-up to
analyse non-tariff measures is first presented. Various empirical approaches and techniques used to
assess the impact of technical regulations are discussed. Empirical results obtained across strategies
are then surveyed.






Keywords: Non-tariff measures, trade barriers, welfare


JEL Classification: F13

















iv POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES






Acknowledgements





The author wishes to thank Céline Carrère for helpful comments and discussion.

Any mistakes or errors remain the author's own.






The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence v


Contents




1 INTRODUCTION .......................................................................................................................... 1




2 MAIN ISSUES FOR THE THEORETICAL CHARACTERIZATION


OF NON-TARIFF MEASURES .................................................................................................... 2




2.1 A minimalist approach: the single market approach ......................................................... 2


2.2 Multiple overlapping non-tariff measures .......................................................................... 6


2.3 Welfare analysis ................................................................................................................. 7


2.4 Beyond the minimalist approach ....................................................................................... 8




3 MAIN METHODOLOGICAL ISSUES IN QUANTIFYING NON-TARIFF MEASURES ............... 9




3.1 Inventory measures ............................................................................................................ 9


3.2 Price comparison ............................................................................................................. 10


3.3 Business surveys ............................................................................................................. 10


3.4 Quantity impact ................................................................................................................ 11


3.5 Gravity models ................................................................................................................. 11


3.6 Applied general equilibrium models................................................................................. 13


3.7 Cost–benefit analysis ....................................................................................................... 14




4 EVIDENCE ................................................................................................................................. 15




5 CONCLUDING REMARKS ........................................................................................................ 18




REFERENCES ......................................................................................................................................... 19






vi POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


List of figures




Figure 1. Frequency index by broad type of non-tariff measures (1999 and 2010) ............................. 1


Figure 2. Application of a quota on imports ......................................................................................... 3


Figure 3. Internationalization of damage costs ..................................................................................... 5


Figure 4. Application of a public standard ............................................................................................ 5


Figure 5. Multiple overlapping non-tariff measures .............................................................................. 6


Figure 6. Application of a public standard and welfare ........................................................................ 8








The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 1


1. INTRODUCTION


Non-tariff measures (NTMs) and in particular technical measures have become a prominent


feature in the regulation of international trade in goods. This pattern is illustrated by figure 1. While


technical regulations were imposed on almost 37 per cent of tariff lines in 1999, the equivalent figure


for 2010 is more than 50 per cent. The bulk of technical regulations are grouped in two major


categories, namely sanitary or phytosanitary (SPS) measures and technical barriers to trade (TBTs). The


former includes regulations and restrictions to protect human, animal or plant life or health, while the


latter addresses all other technical regulations, standards and procedures. SPS measures and TBTs


are the objects of two World Trade Organization (WTO) agreements that impose disciplines to trade


that go beyond the usual non-discrimination. Independently from their objective and legal framework,


SPS measures and TBTs can have important effects on international trade. In terms of incidence, TBTs


are by far the most used regulatory measures, with the average country imposing them on about 30


per cent of products and trade. Countries also impose SPS measures on an average of approximately


15 per cent of trade. The large incidence of TBTs and SPS measures raises concerns for developing


countries’ exports. These measures impose quality and safety standards which often exceed


multilaterally accepted norms. However, policy is proceeding with little economic analysis. There is


substantial literature on individual types of NTMs, and in some instances sophisticated empirical


analysis of their effect (such as for antidumping). However, this information is likely to be instrument,


industry or country specific. There are good reasons why this is the case and these reasons are likely


to stay. Under a common denomination NTMs regroup a vast array of trade (and in some instances


non-trade) policy instruments. Unlike tariffs, NTMs are not straightforwardly quantifiable, not


necessarily easy to model, and information about them is hard to collect (figure 1).






Figure 1.


Frequency index by broad type of non-tariff measures (1999 and 2010)


0%


10%


20%


30%


40%


50%


60%


Technical Measures Price Control Quantity Control Other Measures


1999
2010




Source: Gourdon and Nicita (2013).





2 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


This paper offers a review of some recent work both theoretical and empirical related to the


impact of NTMs with a focus on technical regulations. The objective is not to review an exhaustive list


of relevant papers but rather to take the reader as close as possible to the frontier of current research


within a comprehensible analytical framework. The issue of legitimacy of a measure is only briefly


discussed as a proper treatment is beyond the scope of the paper.




The difficulty in analysing technical regulations essentially originates in the fact that such


measures could have contrasting effects on exports and consumption, and eventually on welfare. From


the producer point of view, a major difference between measures falling into the technical regulations


type, and other more standard NTMs is the existence of compliance costs that do not translate


straightforwardly into an ad valorem change in production costs and eventually prices. Those


compliance costs may include the fixed costs of upgrading the equipment and/or practice codes,


obtaining certificates, altering marketing strategies, and the like. Such compliance costs echo the


conventional “standards as barriers” argument in the international development literature on market


access (Otsuki et al., 2001). From the consumer point of view, however, a technical measure may


increase the demand for imports if the measure is informative (Thilmany and Barrett, 1997). For


instance, the measure can signal a higher quality of imports via information disclosure such as


trademarks, labelling requirements, detailed description of certain attributes or restricted toxic


residues. The quality improvement effect corresponds to the “demand enhancing effect” or “standards


as catalyst” argument.




The present paper is organized as follows. Section 2 presents and discusses a minimalist


theoretical set-up to analyse NTMs. Section 3 is dedicated to the empirical approaches and techniques


used to assess the impact of technical regulations. Section 4 is a survey of empirical results obtained


in a selection of papers. Section 5 concludes the paper.






2. MAIN ISSUES FOR THE THEORETICAL


CHARACTERIZATION OF NON-TARIFF MEASURES


The standard approach to appreciate price and quantity effects of NTMs is based on the


canonical supply–demand diagram for imports. Independently of the nature of the NTM this approach


allows qualification of the cost/price-raising, trade-restricting effect at the border, which can be termed


the protection effect or more generally the trade-cost effect. The term protection effect has an explicit


negative connotation. This would not be justified if the NTM responsible for the effect had no


protectionist objective. Hence, we will opt thereafter for the term of trade-cost effect.




2.1 A MINIMALIST APPROACH: THE SINGLE MARKET APPROACH


In this basic theoretical framework it is relatively easy to illustrate how any measure could be


made equivalent to an ad valorem tariff. The most discussed equivalence is that between a quota and


a tariff. Intuitively, a quota, similarly to a tariff, introduces a wedge between the price received by


foreign producers facing the quota and the price paid by domestic consumers for these imports. This is


illustrated in figure 2, which focuses on the import market.




Typically, the analysis of a quota gives similar results to that of a tariff. The quota limits the


level of imports to qA'. As a consequence the domestic price of imports rises to pAD' which is above the


world price pA. In the classical case of the large country, the world price of the imported good falls to


pA'. This is as if the demand curve becomes the dashed line labelled D' with a kink at qA'. It might be


the case that the quota is set above the level of free trade imports implying that it is not binding. In that


case the quota has no effect. Otherwise, the quota gives rise to “rents” because of the price wedge it


creates. These rents may be captured either by the government of the importing country if import





The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 3


licences/rights are auctioned, the domestic residents if they are given import licences/rights with no


financial counterpart, or foreigners if they have the import licences/rights with no financial counterpart.


The way the quota is administrated will eventually affect welfare analysis but not new equilibrium


properties.


Figure 2.


Application of a quota on imports


































A similar analysis applies to NTMs such as voluntary export restraint, variable levy on imports,


government procurement regulation or any other measure whose main objective is to limit deliberately


imports of a specific good through the imposition of a wedge between the world price and the price


charged to domestic consumers (see, for example, Baldwin (1991) and Deardorff and Stern (1997) for a


detailed analysis).




However, NTMs could generate categories of economic effects which are not prima facie a


trade-cost effect (Beghin, 2008) even though they translate into a similar impact on traded prices and


quantities. This is essentially true for measures such as TBTs and SPS measures or any with a


technical regulatory content. The rationale or political intent for this kind of measures is not necessarily


the protection of local/domestic industries. These categories of NTMs often have other stated social or


administrative objectives designed to regulate the domestic market. Meeting these objectives also


leads to a shift in the supply curve and/or to a shift in the demand curve (Roberts et al., 1999) as in the


case of classical NTMs such as quotas. The difference is found in the fact that the change in prices


due to the measure does not generate any private or public rent.




Typically prices vary as a consequence of variations in the cost of production and or changes


in consumption behaviour. More precisely, supply-shifting effects occur when regulations are used to


tackle externalities affecting international trade of goods, such as preventing the sale of products


hazardous for health or creating standards to increase compatibility and interoperability. Such


regulations can specify the production process (for example, the use of a certain technology), or


product attributes (for example, a maximum content of given components) required for conformity.


S=SF


A0


qAqA,’ q


p


pA


pA’


D


D’


pAD’ B


C


(quota limit)


(exporters’
quota price)


(domestic
quota price)





4 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


Demand-shifting effects are required for certain types of market failures, for instance by making it


compulsory to provide certain information to consumers, thus affecting their behaviour.




Supply-shift effects are of particular relevance to TBTs and SPS measures. Demand-shift


effects can be identified for any sort of technical regulation.




Ganslandt and Markusen (2001) explain how standards and technical regulations have both


trade-impeding and demand-enhancing effects, the former by raising the costs of exporters and the


latter by certifying quality and safety to consumers. However, in order to illustrate the impact of NTMs


such as TBTs and SPS measures on prices and quantity traded, we adopt the theoretical framework


used by Disdier and Marette (2010). The framework is based on a set of simplifying assumptions but


without loss of generality in its main analytical features. The analysis focuses on a specific good market


and excludes any general equilibrium mechanisms. The market good is assumed to be homogeneous


(or quasi homogeneous) except for a characteristic potentially dangerous to consumers. Foreign and


domestic goods can carry this characteristic. Domestic consumers may or may not be aware of the


latter. If they are aware they internalize the damage in consuming that good. Demand is derived from


quadratic preferences and supplies are derived from a quadratic cost function. Assuming that foreign


and domestic products are perfectly homogeneous and thus perfectly substitutable, the result is a


standard linear demand and supply diagram. The most interesting refinements are the dissociation


between foreign and domestic supply and the possibility to undertake welfare graphical analysis.




In figure 3, consumers internalize the possible damage related to the dangerous characteristic


of the product under consideration. As a consequence and assuming that the demand curve is linear in


the cost related to the possible damage, the demand curve shifts to the left. The size of the shift


depends on whether the dangerous feature is in both the domestic and foreign good or not. The


demand curve moves independently of the implementation or not of a standard. The implementation of


a standard exclusively affects supply curves as its impact is on the production process and thus on


production costs. With internalization the new market equilibrium occurring in A' is characterized by


lower consumption (from qA to qA') and lower price (from pA to pA'). The fall in consumption is reflected


in lower levels of both domestic production and imports. Figure 4 represents the case where the


dangerous characteristic is possibly carried by foreign goods only. In that context, the


implementation/reinforcement of a standard by domestic regulators affects imports exclusively, that is


foreign producers. This implies that only the foreign supply curve is affected directly. We further


assume that consumers have internalized the damage before the action of the regulator. The starting


equilibrium is made to coincide with the post-internalization equilibrium illustrated in figure 2. The


consequence of the domestic standard is an increase in the equilibrium price (from pA' to pA'') and a fall


in imports and thus domestic consumption (from qA' to qA''). The overall impact (that is, with respect to


the initial equilibrium in figure 3 characterized by the coordinates of point A) with internalization by


consumers of the damage cost is clearly a fall in the quantity consumed but an indefinite impact on the


equilibrium price (pA stands above pA'). The sign of the change in the equilibrium price will depend on


the probability of contagion, the associated cost form the consumer point of view and the stringency of


the standard. Standard stringency could be modelled essentially in two ways. The most straightforward


one is by the inclusion of a parameter indicating the proportion of output exported that eventually


enters the destination market after inspection. With a more stringent standard this proportion is


reduced. The proportion parameter behaves as a standard supply-shift parameter. This approach has


been applied to figures 3 and 4 with the additional assumption that no fixed/sunk costs exist. The


second approach consists of having a sunk (or fixed) cost parameter that varies with the application


and stringency of a standard. Sunk costs are linked amongst other elements to the firm’s costs of


market entry and of compliance with regulations. These two approaches are not exclusive and if taken


separately they both generate comparable results from at least a qualitative point of view. In the case


of the presence of sunk/fixed costs, the supply curve is no longer linear.





The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 5


Figure 3


Internalization of damage costs


































Figure 4


Application of a public standard






























S


SF


A1


A1’


qAqA’qA,FqA,F’ q


p


pA


pA’


D
D’


S’


SF’
S’’SF’’


A1’


A1’’


qA’qA’’qA,F’qA,F’’ q


p


pA’


pA’’


D’





6 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


Besides internalization of the damage, the so-called demand-enhancing effect could also lead


to a shift in the demand curve. A public standard possibly affects consumer’s information set and


behaviour. If the measure appears to be informative and signals a higher quality of the permitted


imports it may enhance the demand for imports. As a response to the measure the demand curve


would shift to the right, counteracting the demand shift coming from the internalization of damage by


consumers. The demand-enhancing effect should be considered separately from the internalization of


possible damage although the two could be related. Their correlation may not be of the most intuitive.


Indeed, if we allow internalization to be imperfect, then the implementation of the standard could raise


the awareness of consumers and as a consequence it would increase the incidence of internalization.




2.2 MULTIPLE OVERLAPPING NON-TARIFF MEASURES


The effect of a specific NTM on price and quantity may be difficult to identify in a situation


where several NTMs are implemented for the same product. Whether from a theoretical or an empirical


point of view, the simplest approach is to consider that the overall impact is related to the relative


strength in trade restrictiveness of each NTM in place. That is, there is a dominant NTM in terms of


impact which encompasses the impact of all other NTMs. This configuration is illustrated in figure 5


which represents the combination of a quota and some technical regulation. The quota is assumed to


be binding and its restrictiveness on imports is such that the cost effect of the technical regulation is


absorbed by the quota price effect. In other words, the equilibrium price increase gives no indication of


the technical regulation price effect.




Figure 5


Multiple overlapping non-tariff measures


































S=SF


A0


qAqA,’ q


p


pA


pA’


D


D’


pAD’ B


C


S’


pA’’





The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 7


However, there are also cases where the impacts of NTMs do not overlap but add to each


other. For instance, if we consider the case of a combination of any ad valorem para-tariff measure and


some technical regulation, the aggregate price effect would be the resultant of the price effect of both


NTMs. Theoretically, both measures affect the cost of exporting to the implementing country and thus


shift the supply curve to the left.




Generally speaking, when one of the NTM implemented has a quantity restriction dimension, it


is likely that multiple NTMs have a cumulative but not additive effect.1 If multiple NTMs all affect


production costs their respective effects cumulate and most probably add to each other.






2.3 WELFARE ANALYSIS


Welfare analysis in a basic single-market linear demand–supply framework such as the one


adopted in previous sections is straightforward. Consumer and producer surpluses are directly


reflected by areas under and above the demand and supply curves, respectively. Deadweight losses


are triangular areas whose size depends on the relative elasticity of demand and supply curves. In


figure 2 for instance, welfare is given by the sum of domestic consumers’ surplus and domestic and


foreign producers’ profits, the overall deadweight loss generated by the introduction of a quota


corresponds to the triangle ABC.




When considering measures such as SPS measures and TBTs welfare must also account for


the damage linked to the dangerous characteristic of the product whether the latter is internalized or


not by domestic consumers. The internalization leads to a change in demand which de facto affects


equilibrium and thus welfare. However, welfare is usually seen from the point of view of a social planner


implying that the cost of damage should be included in the set of welfare components. The overall


damage cost can be estimated by the probability of having contaminated products times the per unit


damage costs expressed in units of the reference good. The implementation of an SPS measure or a


TBT will reduce the probability of contamination. This is shown in figure 6, which is a reproduction of


Figure 3 with a graphical representation of the damage cost of the dangerous characteristic. We further


assume that there is no internalization of the damage possibly caused by the dangerous characteristic


and that the latter pertains to foreign goods only. The move from damA1' to damA1'' reflects the fall in


the probability of contamination due to the implementation of the measure. The welfare net impact is a


priori unclear, despite the existence of the standard deadweight triangle, as the damage cost related to


the dangerous product characteristic has been reduced by the public standard. As long as the


“savings” in damage cost are larger than the deadweight loss, the net welfare impact remains positive;


that is, as long as in figure 6 the area defined by qA'qA''defg (the reduction in damage cost) remains


larger than the area abc (deadweight loss).




1 See Tilton (1998) for an illustration based on Korean exports of cement to Japan.





8 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


Figure 6


Application of a public standard and welfare






































2.4 BEYOND THE MINIMALIST APPROACH


There are two major shortcomings in the preceding approach. First, it is a partial–partial


equilibrium analysis and, second, it remains essentially static. A partial equilibrium model, as the one


underlying the graphical analysis used here, focuses only on one part or sector of the economy,


assuming that the impact of that sector on the rest of the economy and vice versa are either non-


existent or small. A general equilibrium analysis on the contrary explicitly accounts for all the links


between sectors of an economy – households, firms, governments and countries. It imposes a set of


constraints on these sectors so that expenditures do not exceed income and income, in turn, is


determined by what factors of production earn. These constraints establish a direct link between what


factors of production earn and what households can spend. A general equilibrium approach is not


necessarily easy to put into practice as it would require more elaborated modelling especially if the unit


of analysis had to be the product. In addition, before turning to general equilibrium considerations it is


important to make sure that those considerations would generate important additional information. As


to the second shortcoming mentioned previously, it can be illustrated qualitatively in our minimalist set-


up. Generally speaking, a dynamic set-up would allow to qualifying the adjustment process going from


the original equilibrium to the post policy reform one. The best that can be achieved in the situation


described is comparative statics but with the application of a multidimensional adjustment process. A


good illustration is given by the demand-enhancing effect of the implementation of a standard. Such an


effect comes simultaneously or with some lags after the public standard has been implemented. As


mentioned previously, the economic effect is a demand shift effect moving the demand curve to the


right. For the sake of simplicity we assume that the two behavioural features are orthogonal to each


other. A demand-enhancing effect can in theory be stronger in impact than the rise in production cost


S’


SF’
S’’SF’’


A1’


A1’’


qA’qA’’qA,F’qA,F’’ q


p


pA’


pA’’


D’


damA1’


damA1’’


a


cb


d


f


e


g





The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 9


due to the fulfilment of the standard requirements. If this is verified then the implementation of the


standard could lead to an increase in both price and quantity at equilibrium. It would also lead to an


improvement in overall welfare always assuming that the implementation of the standard has reduced


the probability of damage by raising the quality of products consumed.2 This result would hold whether


the dangerous characteristic is specific to the foreign product or its domestic equivalent, or both.






3. MAIN METHODOLOGICAL ISSUES IN QUANTIFYING


NON-TARIFF MEASURES3


Among the methodologies expected to be the more reliable in quantifying NTMs, inventory,


price comparison and quantity impact are the most often used. However, even in the simplest


theoretical framework, the economic and welfare effects of NTMs cannot be unequivocally determined.


This feature is not exclusively inherent to multiple NTMs but also to NTMs such as SPS measures and


TBTs. The main objective in the quantification of NTMs has been to produce price effects estimates


and translate them into ad valorem equivalent measures (AVEs) (also called, although misleadingly,


implicit tariffs or implicit rates of protection). This approach is particularly attractive as it would


synthesize in one single metric the impact of an instrument with multiple dimensions often interrelated


with each other. However, the analysis undertaken in the previous section has pointed to the fact that


this ad valorem equivalent does not necessarily have to be positive, and even if it is positive it does not


necessarily reflect a restrictive quantity effect. Hence, the ideal empirical strategy should provide


estimates of both quantity and price effects in order to allow for a proper qualification and identification


the NTM impact. Recently, advances in gravity-based analysis have set the basis to disentangle the


various effects of the implementation of technical measures for a specific good market. Accounting for


the possible existence of contrasting effects due to the implementation of an NTM also drives the


recently revived cost–benefit analysis.






3.1. INVENTORY MEASURES


The simplest aggregate indicators of the use and incidence of NTMs are the frequency index


and the coverage ratio. A frequency index is the share in total tariff lines containing one or more NTMs.


The share can be expressed in weighted terms based on either imports or production. The coverage


ratio is the percentage of imports affected by one or more NTMs to total imports. These inventory


measures allow the summarization of information on NTMs collected at a disaggregated level in one


indicator. Detailed information collected for a country at a disaggregated level is necessary for the


computation of these measures.




The frequency index accounts only for the presence or absence of an NTM, and summarizes


the percentage of products to which one or more NTMs are applied. In more formal terms, the


frequency index of NTMs imposed by country j is computed as:




100⋅











=





i


ii
j M


MD
F






2 See Carrère and De Melo (2011) for discussion and further illustrations.


3 Refer to Deardoff and Stern (1997) and Ferrantino (2006) for a comprehensive review and discussion of the issue. Useful
discussions are also found in Maskus et al. (2001) on quantification of technical barriers to trade. Beghin and Bureau
(2001) discuss sanitary and phytosanitary standards.





10 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


where D is a dummy variable reflecting the presence of one or more NTMs and M indicates whether


there are imports of product i (also a dummy variable). Note that frequency indices do not reflect the


relative value of the affected products and thus cannot give any indication of the importance of the


NTMs on overall imports.




A measure of the importance of NTMs on overall imports is given by the coverage ratio which


measures the percentage of trade subject to NTMs for the importing country j. In formal terms the


coverage ratio is given by:




100⋅











=





i


ii
j V


VD
C






where D is defined as for the previous equation, and V is the value of imports in product i. One


drawback of the coverage ratio, or any other weighted average, arises from the likely endogeneity of


the weights (the fact that imports are dependent on NTMs). This problem is best corrected by using


weights fixed at trade levels that would arise in an NTM- (and tariff-) free world, otherwise, the


coverage ratio would be systematically underestimated. While that benchmark cannot be reached, it is


possible to soften the endogeneity problem (and test for the robustness of the results) by using trade


values of past periods.




The immediate advantage of such instruments is the relative ease with which they can be


collected, in essence not much more difficult than compiling tariff schedules. Inventories of NTMs do


represent valuable information that could, if updated on a regular basis, help keep track of the


evolution of the relative incidence of different types of NTMs on trade flows of goods, and of the


evolution of their incidence relative to tariffs. Another obvious advantage is that information can be very


NTM type-specific and highly disaggregated at the product level. On the other hand, these indicators


have limitations in that they do not give any direct information about possible impact on price and


quantities produced, consumed or traded. They are normally used to construct indicators of trade


restrictiveness that in turn can be used to estimate quantity and/or price effects.






3.2 PRICE COMPARISON


A more direct measurement of the price impact of NTMs is price comparison (also called price


wedge). This enables the easy computation of so-called ad valorem equivalents. Yet serious


conceptual and data problems are likely to arise in the estimation and interpretation of tariffs


equivalents. First, it is necessary to identify the appropriate prices to use and this is likely to be


problematic. While it is fairly easy to obtain information on the price paid by the importers of a good, it


might become difficult to obtain the corresponding price prevailing in the domestic market especially at


a fairly disaggregated level. This becomes even more difficult if data collection has to be done for a


large set of countries. Other drawbacks are: the price comparison implicitly assumes perfect


substitution between imported and domestic goods and the price differential does not convey


information about how the NTM operates in practice (Beghin and Bureau, 2001). Another factor is that


the comparison is made in the presence of the NTM distortion (and not by comparison to a benchmark


case without distortion; see Deardoff and Stern, 1997).






3.3 BUSINESS SURVEYS


Business surveys or structured interviews have also been used to obtain information on the


prevalence of NTMs. Survey investigations could be used to collect data for a specific analytical


purpose such as information about the frequency of NTMs, or the relative importance of different


measures, such as their trade restrictiveness or trade impact. One problem is that surveys tend to be





The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 11


very resource intensive. This feature is likely to constrain the scale and scope of the investigation and


the extent to which the collected information can be seen as representative of the sector or industry.


Surveys also tend to rely on perception information rather than on statistical data, and differences in


methodology make comparisons between different survey sources difficult.






3.4 QUANTITY IMPACT


Quantity-impact calculations should also provide precise information about the effect of NTMs


on trade, but similarly to price comparison it may be challenging to obtain appropriate data to compute


the exact impact. An advantage of quantity-based indicators is that a general approach to the


measurement of the quantity effects of NTMs can be undertaken, leading to the possibility of


systematic and repeated estimation. Such an approach could ideally (with a sufficiently large dataset)


include all categories of NTMs and thus isolate the individual impact of each. Quantity estimates


associated with information about import demand elasticities that can be used to derive price effect


estimates, and thus the computation of AVEs. This is the methodology followed in Kee et al. (2009).


The theoretical foundation for this kind of study is the n-good n-factor general equilibrium model with


log-linear utilities and log-linear constant returns to scale technologies (see for instance Leamer, 1988).


This model allows for both tariffs and NTMs to deter trade with effects that vary by importing country


and good. The empirically tested, reduced form of the model is given by:




cncncncn


DS
cncn


core


cn


k


k
cknncn utarDSCoreCm ,,,,,,,,, )1ln(lnln ++++++= ∑ φαγαα (1)




Once ad valorem equivalents of each NTM are computed then it is also possible to obtain an


overall level of protection at both the good and country level. There are drawbacks to this


methodology, the most important being certainly that it cannot fully account for the endogeneity of


imports to the presence of NTMs, and this is likely to bias the elasticities estimates.






3.5 GRAVITY MODELS


The gravity model of trade has also been used to estimate the value impact of NTMs. In a


cross section, a value impact is comparable to a quantity impact after some price normalization.


However, in terms of identification of the effect of the implementation of an NTM measure, a panel


structure is preferable even if it may complicate the empirical decomposition of variations in value into


price and quantity variations.




The standard gravity estimation is implemented at the product level or at the industry level. In


the former, estimation is in most cases product specific and often limited to a restricted sample of


countries (see, for example, Disdier and Marette (2010)). In the case of implementation at the industry


level, although the analysis could be exhaustive in terms of industry coverage it is usually restricted to


a limited number of countries (see, for example, Xiong and Beghin (2011)). Besides data availability,


empirical strategies must also account for computational constraints. A full fledge gravity model run at


the product level (for example, HS-6 digit) for a multiple-country sample (more than 20 countries) for a


period of 3 years or more may not be easily estimated, especially when controlling for possible


selection bias.




The general specification of the gravity model is as follows:


( ) tsijtjsiijtsjtsijtsijtsij fefefezNTMtarx ,,,,, ''1lnln εβγφ +++++++= (2)





12 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


where tar is the tariff applied by country j on imports of good s from country i, NTM is a set of NTM-


implementation-related indicators, z is the typical set of bilateral gravity variables and the fe variables


refer to fixed effects sector exporting country specific, importer specific and time specific. The NTM set


could reduce to the standard dichotomic indicator of the existence of an NTM, possibly capturing its


trade cost effect. However, it could also include variables allowing for the identification and estimation


of the demand-enhancing impact discussed above. In Xiong and Beghin (2011) a variable measuring


the difference in stringency between the SPS measure applied domestically and that applied in the


destination country is expected to capture the demand-enhancing effect. Another variable taking the


most stringent SPS measure as reference is expected to capture the trade cost effect.




In the “new” new trade theory, the existence of sunk costs to export affects the probability of


firms’ capability to export. This translates into a selection bias à la Heckman when dealing with


empirical analysis. Hence, the use of the Heckman sample selection model seems appropriate when


observing a high incidence of zeros in the bilateral trade relationships matrix. The Heckman selection


model applied to the gravity model writes:


( ) ( ) tsijtjsiiijtsjtsijtsijtsijtsij fefefeIMRzNTMtarxx ,,,,,, ''1ln0|ln εηβγφ ++++++++=>
( ) tsijsiijtsjtsij tjtsijtsijtsij fefefezNTMtarx ,,, '*'1ln ,,, µβγφ +++++++= ∗∗∗∗∗∗ (2')




where 0
,


>tsijx if and only if 0
,


>∗
tsij


x . IMR is the standard inverse Mill’s ratio obtained from the


selection equation. The error term in the exports value equation and the error term in the selection


equation are assumed to have a bivariate normal distribution with zero means, standard deviation


εσ and µσ and correlation εµρ . With selection, NTMs’ marginal effect in the outcome equation does
not correspond to the coefficient any more.4 Assuming that the NTM set of variables reduces to a


single continuous indicator its unconditional marginal effect is given by:




( ) ( )
tsj


selection


tsj


tsijtsij


tsj


tsij


NTM


k


NTM
xx


NTM
xE


,,


,,


,


,


'ln
0|lnln
















Φ∂


+


>∂
=



∂ µσ


θ






( )
µσ


γδγ
σ


γ
γ


∗∗


++=


∂ tsij
itsij


z


tsij
tsij


tsj


tsij IMR
NTM


xE
,


,


,


,


,


,
ln




where















Φ
















=


µ


µ


σ


θ
σ


θφ


selection


selection


k


k


IMR
'


'


is the inverse Mill’s ratio. Φ and φ are the cumulative standard normal


function and standard normal density function respectively. iδ is a function of the IMR and of
selectionk'θ , which corresponds to a set of regressors appearing in the selection equation of (2').




Assuming that the NTM set of variables reduces to a single binary indicator its unconditional


marginal effect when going from 0 to1 is given by:






4 See, for example, Greene (2011) or Hoffmann and Kassouf (2005) for a complete derivation.





The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 13


( )













Φ∆+∆+=∆ ∗


µσ


θγγ selectiontsijtsijtsij
k


IMRxE
'lnln


,,,


where


( ) ( )













−Φ=














Φ∆


µµµ σ


θ
σ


θ
σ


θ 0'1'ln'ln selectionselectionselection kkk




when the marginal effect is computed at the mean values.




In both expressions the unconditional marginal effect is a combination of the effect associated


to a change in the value of exports for exporting firms, and the effect associated to a change in the


probability of observing positive exports.




Sufficient variation is needed to identify parameters in the selection and outcome equations. In


theory this implies that variables explaining selection should differ from variables explaining outcome.


In practice enough variability would be obtained by identifying at least one variable that affects the IMR


but not the exports value equation. This is referred to as the exclusion restriction. In the gravity context


the identification of such a variable remains problematic and often identification is made to rely


exclusively on the normality of the residuals that is on the condition that ( ) 0,
,,


=tsijtsijCov µε . The
variable repeatedly used in the restricted model is common language. Helpman et al. (2008) used


common religion and proxy variables for fixed costs of exporting taken from the Doing Business World


Bank database. These authors further argue in the light of their theoretical insights that the empirical


model should also correct for the fact that the shape of the distribution of firms’ productivity


determines the share of exporting firms. Correction terms for both the export selection bias and the


intensive margin bias should be included. Correction for the intensive margin bias is usually omitted


although its influence may dominate the export selection bias, especially in North–North trade


relationships (Belenkiy (2009)).




A proper disentangling strategy should permit the determination of how a change in technical


regulations policies affects different agents in international trade. Identifying the two separate effects


could also lead to better policy, especially in presence of externalities associated with trade. The


information retrieved from such investigation could be used to assess the legitimate nature of the


measure. For instance, in the case that consumers are not found to respond to the quality


improvement induced by a tighter measure, the latter should be subject to further scrutiny for possible


protectionism. However, qualitative features may also have to be taken into consideration. It may be


the case, for example, that the absence of direct demand-enhancing effect could also be consistent


with policies addressing long-term deleterious health or environmental effects valued by society but


neglected by consumers (see Peterson and Orden (2008) for a detailed discussion).






3.6 APPLIED GENERAL EQUILIBRIUM MODELS


Thanks to advances in computer and simulation technology, such as the Global Trade Analysis


Project (GTAP) (Hertel, 1997) and efforts to improve data collection and availability (trade analysis and


information system (TRAINS) being a leading example). Applied general equilibrium (AGE) simulations


of tariff reductions can now be carried out almost routinely. General equilibrium modelling has played


an important role in the WTO multilateral negotiations, helping assess complex negotiation modalities


and global interdependencies but also fuelling a public debate on the direction and magnitude of


estimates. The same cannot be said of NTMs. The Fugazza and Maur (2008) paper offers a truly global


and detailed assessment of NTMs in an AGE model (the standard GTAP model) using recent


econometric estimates of NTM AVEs computed by Kee et al. (2009). The authors follow the path


opened by the work of Andriamananjara et al. (2004), which was limited to a subset of sectors.





14 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


Of the three effects mentioned above, the protection effect of NTMs is the most immediate


candidate for assessment in a AGE model, provided that the correct impact estimates are available.


Protection effects are usually assessed at the border. These border effects generate a wedge either


between the world price and the domestic price in the importing country or between the world price


and the domestic price in the exporting country. As discussed previously, protection effects also arise


beyond (within) the border because NTMs do not necessarily discriminate between domestic and


imported goods. Tackling these beyond-the-border effects would require a model including increasing


returns to scale and export specific costs. Moreover, the assessment of the other economic effects in


an AGE context is much more complex. Although it would be desirable to investigate how one can


identify and separate the cost and the welfare-enhancing dimension of NTMs, it is difficult to think of a


methodology that would allow this to be carried out in a systematic way. Detailed information is


needed; it would have to be provided by technical experts (Deardoff and Stern, 1997) and probably


only for specific products or a limited range of countries.




All in all, standard AGE models do not offer many ways to include demand-shift and supply-


shift effects and none of them are fully satisfactory.






3.7 COST–BENEFIT ANALYSIS


Since NTMs do not necessarily embody the economic inefficiencies that are associated with


classical trade barriers, it is not always the case that the trade impacts of regulations are inefficient, or


that removal of associated non-tariff measures that affect trade would achieve efficiency gains that


would exceed the losses from weaker regulation. For this reason, specific NTMs are often analysed in a


cost–benefit framework. An example of a cost–benefit framework applied to NTMs is given by Van


Tongeren et al. (2009). The main advantage of such an approach is that the quantification of costs and


benefits for all the different economic actors (domestic consumers, domestic and foreign producers,


domestic government, and the like) involved allows for a more tailored evidence-based treatment of


specific NTMs. This comparative approach to NTMs allows for the identification of alternative ways to


address specific regulatory problems. Cost benefit analysis is generally used only in specific case


studies of NTMs of particular importance where detailed information can be obtained. In practice, the


traditional cost–benefit framework expands the analysis to cover not only one cost or benefit


associated to the presence of the NTMs, but also those associated with not having the measure in


place. Ultimately, this methodology contributes to a more comprehensive welfare analysis of NTMs


than that offered by looking at trade affects alone. In the cost–benefit framework the costs of the


measures are generally imputed on the bases of the “willingness to pay” methods. That is the value (or


costs) that consumers and producers impute to removing (or implementing) the measure. For example,


the value that consumers give to avoid an undesired product characteristic is a key variable in the


cost–benefit assessment. Clearly, the validity of the cost–benefit analysis depends on the accuracy to


which the willingness to pay is computed. This can be quite challenging to compute. There are various


methods used to measure willingness to pay (reviewed by Lusk and Shogren, 2007). Contingent


valuation methods involve directly asking individuals about their willingness to pay to obtain an


otherwise unavailable good. Choice experiments indirectly determine the willingness to pay by


econometric estimation based on choices models. Experimental economics uses simulations and


control groups to reveal the willingness to pay of agents.






The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 15


4. EVIDENCE


The following review of the empirical evidence of the impact of NTMs on trade is not


exhaustive and includes essentially trade and welfare impacts obtained in gravity or gravity-related


estimations and AGE models simulations.






Gravity estimations


Empirical work on the trade impact of technical measures has proliferated rapidly over the last


twenty years, especially with investigations based on gravity equations. The literature shows a wide


range of estimated effects from significantly impeding trade to significantly stimulating trade.




Several indicators have been used to proxy the strength of technical measures. For instance


Otsuki et al. (2001), Wilson and Otsuki (2004) and Wilson et al. (2003) use maximum residue levels


(MRLs). MRLs enter the regression as numerical values, a straightforward and accurate measure of the


technical measures of interest. However, in most cases, technical measures do not have any direct


numerical measurement and their identification remains purely qualitative. In that context, proxies have


to be constructed. The most commonly used proxies of technical measures are dummy variables,


AVEs of the policies, frequency ratios and count variables. Choices among these different proxies


could lead to different estimates of trade effects of technical measures. Few researchers have tried and


compared different proxies within their investigations (see Disdier et al. (2008), discussed below) and


most researchers focus on one of them only.




One of the early and more discussed studies on the impact of SPS standards on trade is


Otsuki et al. (2001). These authors provide one of the first empirical analyses on the large impact of


SPS measures on developing countries exports. Using a gravity model framework, their analysis


investigates the impact of European Union regulations on aflatoxin (a naturally occurring mycotoxin


that frequently contaminates fruits and grains) on a few selected African export products. Their findings


indicate a quite important effect of the European Union regulation on African exports of cereals, dried


fruits and nuts. They quantify it as accounting for about 65 per cent export loss. Since this paper, a


number of other studies have investigated similar issues in different countries and sectors using


quantitative methods.




Wilson and Otsuki (2004) find that a 10 per cent increase in stringency of the MRL on


chlorpyrifos (an organophosphate insecticide) on bananas could lead to a 14 per cent decrease in


international trade of this good. Wilson et al. (2003) find that if MRLs of antibiotics on beef were


harmonized to the Codex Alimentarius standard, the rise in beef world exports would exceed 3 billion


tons. More than twenty per cent of that rise would originate from South Africa, Brazil and Argentina.


Again using data for the European Union, Chevassus-Lozza et al. (2008) find positive trade effects of


sanitary measures, and negative or insignificant impacts of phytosanitary and quality measures. More


specifically, their results suggest that for new member States (Bulgaria and Romania excepted) sanitary


measures do not act as a barrier to trade at entry to the European Union market and even significantly


stimulate traded volume for firms in those States fulfilling sanitary requirements. As far as Bulgaria and


Romania are concerned these measures still act as barriers to trade. However, once the barrier has


been overcome, the impact on traded volume is slightly positive.




For third countries, applying the quality measures reduces both the decision to export and the


volume traded. In addition, the authors can infer from their results that the impact of NTMs on the


degree of European market access is less a matter of the specific nature of the NTM than of the degree


of harmonization of the various measures amongst European Union countries.




Anders and Caswell (2009) find that implementation of hazard analysis critical control points


(HACCP) reduces United States’ seafood imports from large exporting countries.






16 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


Disdier et al. (2008) find, in their preferred specification with the AVE of NTMs, negative or


insignificant impacts of TBTs and SPS measures on agricultural and food aggregate trade amongst the


Organization for Economic Cooperation and Development (OECD) countries. However, they also find


that trade from developing countries towards OECD countries does see a significant reduction


because of NTMs. The originality of their approach lies in the fact that they investigate the impact of


NTMs using different proxies for the incidence of the latter. In a standard gravity model the authors


regress, along with the usual gravity explanatory variables, the bilateral tariff rate and three different


variables for SPS measures and TBTs: the tariff AVE of NTMs as computed in Kee et al. (2009), a


dummy equal to unity when the HS-6 level line has a notified SPS measure and a frequency index of


NTMs. They also investigate the impact of 30 disaggregated technical measures amongst industries


defined at the HS-2 aggregation level. Effects are estimated to be positive for 8 industries, insignificant


for 12 industries, and negative for 10. The disaggregated findings of Nardella and Boccaletti (2004),


Fontagné et al. (2005) and others further underline that the direction and the significance of trade


effects of technical measures appears to vary considerably across product groups and trading


partners.




These papers constitute a rich, although not exhaustive, set of illustrations of both trade-


impeding and trade-enhancing effects of technical measures. However, coherence in results may be


difficult to appreciate without further formal investigation. In this regard, Li and Beghin (2010) conduct a


meta-analysis to identify the sources of systematic variations found in estimated trade effects of


technical measures. In that regard, they investigate both data sampling and methodology differences.


They find that analyses of agriculture and food industries lead to estimates of trade effects of technical


measures, which are less likely to be positive. They also find systematic impeding effects of SPS


regulations on agricultural exports sourced from developing countries and going to developed


countries. This finding is robust and emerges in different estimation strategies (robust regression and


multinomial logit), suggesting that SPS regulations appear to be trade barriers rather than catalysts.


These authors also find that econometric models that control for unobservable country–pair


heterogeneity are more likely to produce positive (and less likely to produce negative) and significant


estimates of trade effects of technical measures than those models that do not control for it. The


aggregation level of the trade data is also expected to affect the estimated trade effects. The authors


find, although not unequivocally, that the more disaggregated data tend to provide relatively more


positive significant estimated trade effects of technical measures.




Xiong and Beghin (2011), as previously referred to in section 3.5, establish an econometric


approach to disentangle the demand-enhancing effect and the trade-cost effect of any


standard/technical regulation. Their econometric model is used to examine the impact of technical


measures on agricultural trade among OECD countries in 2004 and as such significantly refines the


findings of Disdier and al. (2008). Technical measures facilitate intra-OECD agricultural trade, as these


measures enhance consumers’ demand for imports more than they impede exports. In a further


disaggregated analysis of technical measures imposed on vegetable preparations primarily targeting


mycotoxins, they find that these measures tend to lead to additional intra-OECD trade in vegetable


products. However, they also find that technical measures affecting dairy products tend to decrease


trade in those products among OECD countries in their net effect. In both sectors demand-enhancing


effects are estimated to be significant. In a comparable disaggregated analysis focusing on Japanese


cut flowers, Lan and Yue (2009) show that estimates of the trade effects of SPS measures are biased


when the induced quality changes are not considered.




Hence, the separate identification of supply and demand effects is expected to help to


determine if a standard/technical regulation is driven by public awareness or potential protectionism.


The disentanglement of the effects of SPS measures on consumers and producers makes also


possible the welfare evaluation of a policy change, as pursued in Disdier and Marette (2010). These


authors use an analytical framework, applied to crustacean imports in several countries, to link the


mercantilist and welfare aspects of NTMs. Their estimates suggest that although antibiotic residue


limits reduce crustacean imports into the United States, the European Union, Canada, and Japan, they


improve both domestic and international welfare.





The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 17


Applied general equilibrium exercises


Andriamanajara et al. (2004) offer a large-scale study of impact of NTMs in an AGE model.


They include 14 product groups and 18 regions. This work first estimates global AVEs for NTMs, using


price data from Euromonitor and non-tariff barrier (NTB) coverage information from UNCTAD. The price


effects obtained are generally very large: up to 190 per cent in the wearing apparel sector in Japan and


the bovine meat sector in China. The estimate of the price incidence in wearing apparel in the


European Union is 60 per cent. The authors then use their AVEs to simulate in GTAP the welfare effects


of a removal of the selected NTMs. Global gains are important (US$90 billion) arising mostly from


liberalization in Japan and Europe and in the textile and machinery sectors.




Other important works such as Gasiorek et al. (1992) and Harrison et al. (1994) simulate the


effects of regulations harmonization in the European Union in the post Maastricht era. The former


adopt the sand in the wheel approach and assume that trade costs are reduced uniformly by 2.5 per


cent, allowing for the characterization of short run and long run equilibrium. The latter use a similar


framework, extended to endogenize the elasticity of substitution between domestic and European


Union goods to account to some extent for the demand-shift effect mentioned previously. Results in


these two studies suggest that the impact of harmonization could reach 2.4 per cent of gross domestic


product (GDP). In a country-focused but otherwise similar computational set-up, Chemingui and


Dessus (2008) assess the impact of NTBs in Syria. They introduce estimates of price effects of NTBs


as regular tariffs. AVEs of NTBs are obtained in their study using the price comparison approach.


Welfare gains could range between 0.4 and 4.8 per cent of GDP depending on whether or not dynamic


effects (associated with a technological catch-up with the rest of the world) are taken into


consideration.




With the surging political interest in trade facilitation, several recent studies have attempted to


capture its potential benefits, using the sand in the wheels approach. Hertel et al. (2001) are the first to


introduce an efficiency-shock variable in GTAP to simulate the impact of lower non-tariff trade costs


such as customs clearance costs in the free trade agreement between Japan and Singapore. Total


expected welfare gains for the agreement are worth $US 9 billion annually, with most of these accruing


from the trade facilitation component. Fox et al. (2003) account for the different nature of costs created


by NTMs by modelling both the direct costs and the indirect transaction costs of lack of trade


facilitation at the United States–Mexico border. Direct transaction costs are modelled as a usual import


tax, reflecting a transfer of rent between importers and domestic agents, while indirect transaction


costs are modelled as pure efficiency losses. They find indirect costs to be the major source of welfare


gains. Walkenhorst and Yasui (2005) follow the same approach to estimate the gains to be expected


from trade facilitation liberalization, additionally splitting the taxes between those borne by importers


and those borne by exporters. They find important welfare gains, around US$40 billion (arising for


nearly 80 per cent from efficiency gain effects). Francois et al. (2005) assess the impact of trade


facilitation reform related to the WTO Doha round of negotiations. They adopt the trade efficiency cost


approach to simulate the impact of improvements in trade logistics. In their baseline simulation


scenario, trade logistics impediments represent 1.5 per cent of the value of trade. Results suggest that


income effects related to trade facilitation reform could represent 0.2 per cent of GDP and two fifths of


overall reform impact.




Fugazza and Maur (2008) demonstrate the importance of modelling both the demand and


supply-shift effects of technical measures in policy analysis using AGE models. Most importantly their


simulation results underline substantial differences in effects, depending on whether AVEs are


introduced using shocks on import tariffs or on technological change. The sign of the welfare impact


can be reverted in more than 50 per cent of the cases.






18 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


5. CONCLUDING REMARKS




The incidence of technical regulations in the world of NTMs has increased substantially over


the last two decades and the trend is not expected to revert. Technical regulations can impact directly


both exporters’ and importing consumers’ behaviour with ambiguous net effects in contrast to more


standard NTMs such as quotas. Theoretical analysis, even in a partial–partial equilibrium context (one


good one market) reveals that technical measures can affect trade volumes and/or the propensity to


trade in either direction. Indeed, a tighter public regulation/standard promotes trade if its demand-


enhancing effect dominates its trade-cost effect; it impedes trade if its demand-enhancing effect falls


short of the trade-cost effect. The analytical ambiguity of the impact of technical measures on


international trade calls for a more careful empirical quantification and identification of the trade effects


of these measures, a task we pursue in this investigation.




The present review, although not exhaustive of existing empirical works, has revealed a mixed


picture of estimated impacts. Different TBTs and SPS measures are found to generate different trade


effects for different exporters and different industries. The variations in findings can be explained by


variations in data samples, mostly variations in industry, country, and aggregation level. Variations in


estimated trade effects may also be caused by different forms of technical measures proxies, model


specifications, and other methodology variations.




The most recent empirical works based on a refined theory underlying gravity equations and


econometric estimation techniques have addressed new issues, such as the treatment of zero trade


flows. These advances in empirical approaches represent a clear improvement although they are


limited to country- sector- or measure-specific analysis. This is not only due to the very nature of


technical regulations but also to binding constraints in econometric estimation.




Nevertheless, these recent contributions represent an important step towards a systematic


qualification of the nature of a technical regulation. Indeed, the empirical estimates obtained can help


identify whether a measure is legitimate or has been implemented essentially for protectionist


purposes.





The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 19


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The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 23




UNCTAD study series on


POLICY ISSUES IN INTERNATIONAL TRADE
AND COMMODITIES










No. 1 Erich Supper, Is there effectively a level playing field for developing country
exports?, 2001, 138 p. Sales No. E.00.II.D.22.




No. 2 Arvind Panagariya, E-commerce, WTO and developing countries, 2000, 24 p. Sales
No. E.00.II.D.23.




No. 3 Joseph Francois, Assessing the results of general equilibrium studies of multilateral
trade negotiations, 2000, 26 p. Sales No. E.00.II.D.24.




No. 4 John Whalley, What can the developing countries infer from the Uruguay Round
models for future negotiations?, 2000, 29 p. Sales No. E.00.II.D.25.




No. 5 Susan Teltscher, Tariffs, taxes and electronic commerce: Revenue implications for
developing countries, 2000, 57 p. Sales No. E.00.II.D.36.




No. 6 Bijit Bora, Peter J. Lloyd, Mari Pangestu, Industrial policy and the WTO, 2000, 47 p.
Sales No. E.00.II.D.26.




No. 7 Emilio J. Medina-Smith, Is the export-led growth hypothesis valid for developing
countries? A case study of Costa Rica, 2001, 49 p. Sales No. E.01.II.D.8.




No. 8 Christopher Findlay, Service sector reform and development strategies: Issues and
research priorities, 2001, 24 p. Sales No. E.01.II.D.7.




No. 9 Inge Nora Neufeld, Anti-dumping and countervailing procedures – Use or abuse?
Implications for developing countries, 2001, 33 p. Sales No. E.01.II.D.6.




No. 10 Robert Scollay, Regional trade agreements and developing countries: The case of
the Pacific Islands’ proposed free trade agreement, 2001, 45 p. Sales No.
E.01.II.D.16.




No. 11 Robert Scollay and John Gilbert, An integrated approach to agricultural trade and
development issues: Exploring the welfare and distribution issues, 2001, 43 p. Sales
No. E.01.II.D.15.




No. 12 Marc Bacchetta and Bijit Bora, Post-Uruguay Round market access barriers for
industrial products, 2001, 50 p. Sales No. E.01.II.D.23.




No. 13 Bijit Bora and Inge Nora Neufeld, Tariffs and the East Asian financial crisis, 2001,
30 p. Sales No. E.01.II.D.27.




No. 14 Bijit Bora, Lucian Cernat, Alessandro Turrini, Duty and quota-free access for LDCs:
Further evidence from CGE modelling, 2002, 130 p. Sales No. E.01.II.D.22.






24 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


No. 15 Bijit Bora, John Gilbert, Robert Scollay, Assessing regional trading arrangements in
the Asia-Pacific, 2001, 29 p. Sales No. E.01.II.D.21.




No. 16 Lucian Cernat, Assessing regional trade arrangements: Are South-South RTAs more
trade diverting?, 2001, 24 p. Sales No. E.01.II.D.32.




No. 17 Bijit Bora, Trade related investment measures and the WTO: 1995-2001, 2002.


No. 18 Bijit Bora, Aki Kuwahara, Sam Laird, Quantification of non-tariff measures, 2002,
42 p. Sales No. E.02.II.D.8.




No. 19 Greg McGuire, Trade in services – Market access opportunities and the benefits of
liberalization for developing economies, 2002, 45 p. Sales No. E.02.II.D.9.




No. 20 Alessandro Turrini, International trade and labour market performance: Major
findings and open questions, 2002, 30 p. Sales No. E.02.II.D.10.




No. 21 Lucian Cernat, Assessing South-South regional integration: Same issues, many
metrics, 2003, 32 p. Sales No. E.02.II.D.11.




No. 22 Kym Anderson, Agriculture, trade reform and poverty reduction: Implications for
sub-Saharan Africa, 2004, 30 p. Sales No. E.04.II.D.5.




No. 23 Ralf Peters and David Vanzetti, Shifting sands: Searching for a compromise in the
WTO negotiations on agriculture, 2004, 46 p. Sales No. E.04.II.D.4.




No. 24 Ralf Peters and David Vanzetti, User manual and handbook on Agricultural Trade
Policy Simulation Model (ATPSM), 2004, 45 p. Sales No. E.04.II.D.3.




No. 25 Khalil Rahman, Crawling out of snake pit: Special and differential treatment and
post-Cancun imperatives, 2004.




No. 26 Marco Fugazza, Export performance and its determinants: Supply and demand
constraints, 2004, 57 p. Sales No. E.04.II.D.20.




No. 27 Luis Abugattas, Swimming in the spaghetti bowl: Challenges for developing
countries under the “New Regionalism”, 2004, 30 p. Sales No. E.04.II.D.38.




No. 28 David Vanzetti, Greg McGuire and Prabowo, Trade policy at the crossroads – The
Indonesian story, 2005, 40 p. Sales No. E.04.II.D.40.




No. 29 Simonetta Zarrilli, International trade in GMOs and GM products: National and
multilateral legal frameworks, 2005, 57 p. Sales No. E.04.II.D.41.




No. 30 Sam Laird, David Vanzetti and Santiago Fernández de Córdoba, Smoke and mirrors:
Making sense of the WTO industrial tariff negotiations, 2006, Sales No.
E.05.II.D.16.




No. 31 David Vanzetti, Santiago Fernandez de Córdoba and Veronica Chau, Banana split:
How EU policies divide global producers, 2005, 27 p. Sales No. E.05.II.D.17.




No. 32 Ralf Peters, Roadblock to reform: The persistence of agricultural export subsidies,
2006, 43 p. Sales No. E.05.II.D.18.






The Economics Behind Non-tariff Measures: Theoretical Insights and Empirical Evidence 25


No. 33 Marco Fugazza and David Vanzetti, A South-South survival strategy: The potential
for trade among developing countries, 2006, 25 p.






No. 34 Andrew Cornford, The global implementation of Basel II: Prospects and outstanding
problems, 2006, 30 p.




No. 35 Lakshmi Puri, IBSA: An emerging trinity in the new geography of international
trade, 2007, 50 p.




No. 36 Craig VanGrasstek, The challenges of trade policymaking: Analysis, communication
and representation, 2008, 45 p.




No. 37 Sudip Ranjan Basu, A new way to link development to institutions, policies and
geography, 2008, 50 p.




No. 38 Marco Fugazza and Jean-Christophe Maur, Non-tariff barriers in computable general
equilibrium modelling, 2008, 25 p.




No. 39 Alberto Portugal-Perez, The costs of rules of origin in apparel: African preferential
exports to the United States and the European Union, 2008, 35 p.




No. 40 Bailey Klinger, Is South-South trade a testing ground for structural
transformation?, 2009, 30 p.




No. 41 Sudip Ranjan Basu, Victor Ognivtsev and Miho Shirotori, Building trade-relating
institutions and WTO accession, 2009, 50 p.




No. 42 Sudip Ranjan Basu and Monica Das, Institution and development revisited: A
nonparametric approach, 2010, 26 p.




No. 43 Marco Fugazza and Norbert Fiess, Trade liberalization and informality: New stylized
facts, 2010, 45 p.




No. 44 Miho Shirotori, Bolormaa Tumurchudur and Olivier Cadot, Revealed factor intensity
indices at the product level, 2010, 55 p.




No. 45 Marco Fugazza and Patrick Conway, The impact of removal of ATC Quotas on
international trade in textiles and apparel, 2010, 50 p.




No. 46 Marco Fugazza and Ana Cristina Molina, On the determinants of exports survival,
2011, 40 p.




No. 47 Alessandro Nicita, Measuring the relative strength of preferential market access,
2011, 30 p.




No. 48 Sudip Ranjan Basu and Monica Das, Export structure and economic performance in
developing countries: Evidence from nonparametric methodology, 2011, 58 p.




No. 49 Alessandro Nicita and Bolormaa Tumurchudur-Klok, New and traditional trade flows
and the economic crisis, 2011, 22 p.




No. 50 Marco Fugazza and Alessandro Nicita, On the importance of market access for trade,
2011, 35 p.






26 POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


No. 51 Marco Fugazza and Frédéric Robert-Nicoud, The ‘Emulator Effect’ of the Uruguay
round on United States regionalism, 2011, 45 p.




No. 52 Sudip Ranjan Basu, Hiroaki Kuwahara and Fabien Dumesnil, Evolution of non-tariff
measures: Emerging cases from selected developing countries, 2012, 38p.




No. 53 Alessandro Nicita and Julien Gourdon, A preliminary analysis on newly collected data
on non-tariff measures, 2013, 31 p.




No. 54 Alessandro Nicita, Miho Shirotori and Bolormaa Tumurchudur Klok, Survival analysis
of the exports of least developed countries: The role of comparative advantage,
2013, 25 p.




No. 55 Alessandro Nicita, Victor Ognivtsev and Miho Shirotori, Global supply chains: Trade
and Economic policies for developing countries, 2013, 33 p.




No. 56 Alessandro Nicita, Exchange rates, international trade and trade policies, 2013, 29 p.


No. 57 Marco Fugazza, The economics behind non-tariff measures: Theoretical insights and
empirical evidence, 2013, 33 p.






















































Copies of UNCTAD study series on Policy Issues in International Trade and Commodities may be
obtained from the Publications Assistant, Trade Analysis Branch (TAB), Division on International
Trade in Goods and Services and Commodities (DITC), United Nations Conference on Trade and
Development, Palais des Nations, CH-1211 Geneva 10, Switzerland (Tel: +41 22 917 4644).
These studies are accessible on the website at http://unctad.org/tab.




Since 1999, the Trade Analysis Branch of the Division on International Trade in Goods and
Services, and Commodities of UNCTAD has been carrying out policy-oriented analytical work
aimed at improving the understanding of current and emerging issues in international trade and
development. In order to improve the quality of the work of the Branch, it would be useful to
receive the views of readers on this and other similar publications. It would therefore be greatly
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UNCTAD Study series on


POLICY ISSUES IN INTERNATIONAL TRADE
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