Pulling back the curtain on 'behind the border' trade costs: The case of EU-US agri-food trade

Ana I. Sanjuán, George Philippidis, Helena Resano

Abstract


With the rise of anti-free-trade sentiment on both sides of the Atlantic, there is a growing urgency by trade negotiators to conclude the Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations. The harmonisation of non-tariff restrictions is a key component of the talks, whilst global modelling databases typically lack a price compatible representation of these measures, which lends a degree of bias to ex-ante modelling assessments. In the gravity literature, there is (limited) evidence of non-tariff ad-valorem equivalent (AVE) estimates of agriculture and food, although disaggregated agri-food activities and/or bilateral EU-US route specific estimates are still in relatively short supply. Using panel data, this study consolidates both of these issues, whilst also proposing an ‘indirect’ gravity method as a basis upon which to provide econometric non-tariff AVE estimates compatible with the degree of sectoral concordance typically found in global modelling databases. On a general note, the results revealed the presence of significant behind the border trade costs on both sides of the Atlantic, which exceed their tariff counterparts. Using simple aggregated averages, our estimates are comparable with ‘direct’ gravity method studies. Furthermore, rigorous qualitative and quantitative comparisons on a sector-by-sector basis showed that a number of bilateral non-tariff AVEs are also found to be plausible, although in some cases, with recourse to relevant policy documents and expert opinion, it is debatable whether the EU or the US is more restrictive. Further work could focus on refining the sector specificity of each gravity equation to improve the model's predictive capacity.

Keywords


non-tariff trade costs; gravity equation; Trans-Atlantic Trade and Investment Partnership

Full Text:

PDF HTML XML

References


Anderson JE, van Wincoop E, 2003. Gravity with gravitas: a solution to the border puzzle. Am Econ Rev 93: 170-192. https://doi.org/10.1257/000282803321455214

Anderson JE, van Wincoop, E, 2004. Trade Costs. J Econ Lit 42: 691-751. https://doi.org/10.1257/0022051042177649

Arita S, Beckman J, Kuberka L, Melton A, 2014. Sanitary and phytosanitary measures and tariff-rate quotas for U.S. meat exports to the European Union. Economic Research Service, USDA. https://www.ers.usda.gov/publications/pub-details/?pubid=37588.

Arita S, Mitchell L, Beckman J, 2015. Estimating the effects of selected sanitary and phytosanitary measures and technical barriers to trade on U.S.-EU agricultural trade. USDA Econ Res Serv, Economic Research Report No. 199, November.

Berden K, Francois J, 2015. Quantifying Non-Tariff Measures for TTIP. Paper No.12 in the CEPS-CTR project "TTIP in the Balance" and CEPS. Centre for European Policy Studies/Center for Transatlantic Relations. Special Report No. 116, July. https://www.ceps.eu/system/files/SR116%20Berden%20and%20Francois%20NTMs.pdf [April 27, 2016].

Bradford S, 2003. Paying the price: Final goods protection in OECD countries'. Rev Econ Stat 85 (1): 24-37. https://doi.org/10.1162/003465303762687686

Bradford S, 2005. The Extend and Impact of Final Goods Non-Tariff Barriers in Rich Countries. In: Quantitative Measures for Assessing the Effect of Non-Tariff Measures and Trade Facilitation; Dee P, Ferrantino M (eds.). pp: 435-481. Ed World Scientific Ltd, Singapore. https://doi.org/10.1142/9789812701350_0017

Burger M, van Oort F, GJ Linders, 2009. On the specification of the gravity model of trade: zeros, excess zeros and zero-inflated estimation. Spatial Econ Anal 4(2): 167-190. https://doi.org/10.1080/17421770902834327

Cadot O, Gourdon J, 2014. Assessing the price-raising effect of Non-Tariff Measures in Africa. J Afr Econ 23(4): 425-463. https://doi.org/10.1093/jae/eju007

Cameron AC, Trivedi PK, 1998. Regression Analysis of Count Data Cambridge University Press, Cambridge, UK. 432 pp.

Cameron AC, Trivedi PK, 2010. Microeconometrics using STATA. STATA Press, Texas, US. 706 pp.

CEPR, 2013. Reducing transatlantic barriers to trade and investment – An economic assessment. European Commission Contract TRADE10/A2/A16. Center for Economic Policy Research.

Chen N, Novy D, 2012. On the measurement of trade costs: direct vs indirect approaches to quantifying standards and technical regulations. World Tr Rev 11(3): 401-414. https://doi.org/10.1017/S1474745612000183

Chevassus-Lozza E, Latouche K, Majkovic D, Unguru M, 2008. The importance of EU-15 borders for CEECs agri-food exports: The role of tariffs and non-tariff measures in the pre-accession period. Food Pol 33: 595-606. https://doi.org/10.1016/j.foodpol.2008.07.005

Dean JM, Signoret J, Feinberg R, Ludema R, Ferrantino M, 2009. Estimating the price effects of Non-Tariff Barriers. The B.E. J Econ Anal Pol, 9(1): 1-41.

Deardoff AV, Stern RM (eds), 1998. Measurement of Nontariff Barriers. University of Michigan Press, Michigan, USA, 137 pp.

Dimaranan BV (ed), 2006. Global Trade, Assistance, and Production: The GTAP 6 Data Base. Center for Global Trade Analysis, Purdue University, West Lafayette, USA.

Disdier AC, Fontagné L, Mimouni M, 2008. The impact of regulations on agricultural trade: Evidence from SPS and TBT agreements. Amer J Ag Econ 90(2): 336-350. https://doi.org/10.1111/j.1467-8276.2007.01127.x

Donaubauer J, Meyer BE, Nunnenkamp P, 2016. A new global index of infrastructure: Construction, rankings and applications. World Econ 39: 236-259. https://doi.org/10.1111/twec.12290

ECORYS, 2009. Non-tariff Measures in EU-US Trade and Investment – An Economic Analysis. Report prepared by K. Berden, J.F: Francois, S. Tamminen, M. Thelle & P. Wymenga for the European Commission, Reference OJ 2007-S 180-219493.

Egger P, Francois J, Manchin M, Nelson D, 2015. Non-tariff barriers, integration and the transatlantic economy. Econ Pol 30(83): 539-584. https://doi.org/10.1093/epolic/eiv008

European Parliament (EP), 2014. Risks and opportunities for the EU Agri-Food Sector in a possible EU-US Trade Agreement. http://www.europarl.europa.eu/RegData/etudes/STUD/2014/514007/AGRI_IPOL_STU%282014%29514007_EN.pdf. [April 28, 2016].

Fadeyi OA, Bahta TY, Ogundeji AA, Willemse BJ, 2014. Impacts of the SADC free trade agreement on South African agricultural trade. Outlook Agr 43(1): 53-59. https://doi.org/10.5367/oa.2014.0154

Ferrantino M, 2006. Quantifying the trade and economic effects of non-tariff measures, OECD Publications. Paris, France. Working paper No. 28.

Fontagné L, Guillin A, Mitaritonna C, 2011. Estimations of tariff equivalents for the services sectors. CEPII working paper.

Francois J, van Meijl H, van Tongeren F, 2005. Trade liberalisation in the Doha development round. Econ Pol 28: 349-391.

Gourieroux C, Monfort A, Trognon A, 1984. Pseudo Maximum Likelihood Methods: Applications to Poisson models. Economet 52: 701-720. https://doi.org/10.2307/1913472

Guillin A, 2013. Assessment of tariff equivalents for services considering the zero-flows. Wor Tr Rev 12: 549-575. https://doi.org/10.1017/S1474745612000559

Hallack JC, 2006. Product quality and the direction of trade. J of Int Econ 68: 238-265. https://doi.org/10.1016/j.jinteco.2005.04.001

Hayakawa K, Yamashita N, 2011. The role of preferential trade agreements (PTAs) in facilitating global production networks. J Wor Tr 45: 1181-1207.

Hertel TH, Hummels D, Ivanic M, Keeney R, 2007. How confident can we be of CGE-based assessments of Free Trade Agreements? Econ Mod 24: 611-635. https://doi.org/10.1016/j.econmod.2006.12.002

Hummels D, Schaur G, 2013. Time as a Trade Barrier. Ame Eco Rev 103: 2935-2959. https://doi.org/10.1257/aer.103.7.2935

IMF (International Monetary Fund), 2002. World Economic Outlook, September, Trade and Finance. The International Monetary Fund, Washington D.F., USA. 247 pp.

Jafari Y, Tarr DG, 2014. Estimates of ad valorem equivalents of barriers against foreign suppliers of services in eleven services sectors and 103 countries. Policy World Bank Group. Washington, DC, USA. Research working paper no. WPS 7096.

Kee HL, Nicita A, O M (KNO), 2008. Import Demand Elasticities and Trade Distortions. Rev Econ Stat 90: 666-682. https://doi.org/10.1162/rest.90.4.666

Kee HL, Nicita A, Olarreaga M (KNO), 2009. Estimating trade restrictiveness indices. The Econ J 119: 72-199.

Li Y, Beghin JC, 2012. A meta-analysis of estimates of the impact of technical barriers to trade. J Pol Model 34: 497-511. https://doi.org/10.1016/j.jpolmod.2011.11.001

Limão N, Venables AJ, 2001. Infrastructure, geographical disadvantage, transport costs, and trade. World Bank Econ Rev 15(3): 451-479. https://doi.org/10.1093/wber/15.3.451

Linder S, 1961. An essay on trade and transformation. Almqvist & Wiksell, Stockholm, Sweden, 167 pp.

Martí L, Puertas R, García L, 2014. The importance of the Logistics Performance Index in international trade. Appl Econ 46(24): 2982-2992. https://doi.org/10.1080/00036846.2014.916394

Mayer T, Zignago S, 2011. Notes on CEPII's distances measures: The GeoDist database. CEPII. Working Paper No 25. http://www.cepii.fr [May 10, 2017].

Melitz J, 2007. North, South and distance in the gravity model. Eur Econ Rev 51: 971-991. https://doi.org/10.1016/j.euroecorev.2006.07.001

Narayanan BG, Walmsley TL (eds), 2008. Global Trade, Assistance, and Production: The GTAP 7 Data Base. Center for Global Trade Analysis, Purdue University, USA.

Narayanan BG, Aguiar A, McDougall R (eds.), 2012. Global Trade, Assistance, and Production: The GTAP 8 Data Base. Center for Global Trade Analysis, Purdue University, USA.

OECD, 2011. The impact of trade liberalisation on jobs and growth: Technical note. OECD Publishing. OECD Trade Policy Papers, No. 107. http://www.oecd-ilibrary.org/trade/the-impact-of-trade-liberalisation-on-jobs-and-growth_5kgj4jfj1nq2-en [April 28, 2016].

Park SC, 2002. Measuring Tariff Equivalents in Cross Border Trade in Services. Korea Institute for International Economic Policy. Working Paper 15.

Philippidis G, Sanjuán AI, 2007a. An examination of Morocco's trade options with the EU. J Afr Econ 16: 259-300. https://doi.org/10.1093/jae/ejl021

Philippidis G, Sanjuán AI, 2007b. An analysis of Mercosur's regional trading agreements. World Econ 30: 504-531. https://doi.org/10.1111/j.1467-9701.2007.01002.x

Rose AK, van Wincoop E, 2001. National Money as a Barrier to International Trade: The Real Case for Currency Union. Amer Econ Rev 91(2): 386-390. https://doi.org/10.1257/aer.91.2.386

Santos Silva JMC, Tenreyro S, 2006. The log of gravity. Rev Econ Stat 88: 641-658. https://doi.org/10.1162/rest.88.4.641

Santos Silva JMC, Tenreyro S, 2011. Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator. Econ Lett 112: 220-222. https://doi.org/10.1016/j.econlet.2011.05.008

Serrano R, García-Casarejos N, Gil-Pareja S, Llorca-Vivero R, Pinilla V, 2015. The internationalisation of the Spanish food industry: The home market effect and European market integration. Span J Agric Re 13 (3): e0104. https://doi.org/10.5424/sjar/2015133-7501

The Economist, 2013. In My Backyard: Special Report-World Economy, October 12th. http://www.economist.com/news/special-report/21587380-multilateral-trade-pacts-are-increasingly-giving-way-regional-ones-my-backyard [April 28, 2016].

Thoumi F, 1989. Trade flows and economic integration among the LDCs of the Caribbean Basin. Soc Econ Stud 38: 215-233.

TRALAC, 2010. Determining the scope and nature of non-tariff measures prevalent in selected international markets. Trade Law Centre for Southern Africa, November.

USDEC, 2013. Dairy Groups Welcome Launch of U.S.-EU Negotiations. United States Dairy Export Council. http://usdec.files.cms-plus.com/PDFs/USDECNMPFNewsRelease-DairyGroupsWelcomeLaunchofUS-EUNegotiations.pdf [May 10, 2017].

USTR, 2007. National trade estimate report on foreign trade barriers. European Union trade summary. United States Trade Representative. https://ustr.gov/sites/default/files/uploads/reports/2007/NTE/asset_upload_file170_10944.pdf [May 10, 2017].

Winchester N, Rau ML, Goetz C, Larue B, Otsuki T, Shutes K, Wieck C, Burnquist HL, Pinto de Souza MJ, Nunes de Faria R, 2012. The impact of regulatory heterogeneity on agri-food trade. World Econ 35(8): 973-993. https://doi.org/10.1111/j.1467-9701.2012.01457.x

Woolridge JM, 2002. Econometric analysis of cross section and panel data, MIT Press, Boston, MA, USA. 1064 pp.




DOI: 10.5424/sjar/2017152-10021