D5.1 | Intermediate technical report on NTM effects, fixed costs and welfare


D5.1 | Intermediate technical report on NTM effects, fixed costs and welfare

Executive Summary

Non-tariff measures (NTMs) are increasingly used by policymakers to protect human, animal or pleant health. Even if they are not protectionist, these measures are likely to influence trade flows, especially of agricultural products. 

Workpackage 5 of the Batmodel project focuses on these NTMS and aimsto refine the econometric estimation of their effects, beyond the standard-gravity approach, shed light on both the costs and benefits of NTMS, and better include these measures in simulation models. This deliverable reports the work conducted since the beginning of the project in the first two tasks of WP5. 

More specifically, Task 5.1 on ‘NTMs, fixed costs and welfare: conceptual framework aims to investigate first the effect of NTMs on the domestic market both theoretically and empirically. The second work focuses on the impact of NTMs on welfare when NTMs influence both variable and fixed costs of exports in the presence of possible damages for domestic and/or foreign countries. Finally, the third study analyses the importance of regulatory divergence in achieving identical or similar public policy goals that are otherwise legitimate.

Up to date, two of three studies included in this task have been done so far (a last work is still in-progress and not discussed in this deliverable). First, the research conducted by the INRAE and PSE on New Plant Engineering Techniques (NPETs) provides an analysis of the impact of NTMs on both the domestic and foreign markets. Second, the work conducted by the University of Bern highlights the importance of regulatory divergence in achieving identical or similar public policy goals. Using very detailed review, the authors disentangle the at-the-border (ATB) measures from the behind-the-border (BTB) measures and underline their differences: ATBs are trade cost increasing measures only imposed on the foreign firm, while BTBs are standard-like measures imposed on foreign and domestic firms. Their results suggest that both types of measures should be accounted for in any study on NTMs.

Task 5.2 has for objective an improvement in the empirical understanding of how NTMs affect trade through two different channels, the differentiated effect according to the type of measures (CITA, UBERN), and via bilateral routes (CITA). NTMs, such as SPS and TBT measures, implemented to provide superior guarantees of food safety and quality, reduce information asymmetries and negative externalities, thereby potentially having a demand enhancing effect. The objective is also to disentangle fixed and variable costs induced by NTMs, e.g. the impact on extensive and intensive trade margins, respectively. Further, alternative specifications (e.g. the indirect characteristics approach), as well as methods for mapping NTMs (which are usually index based) actual trade cost estimates will be extended to include measures of divergence and to incorporate measures that may not vary by country pair.

After two years of investigations, Batmodel researchers from CITA and UBERN have investigated how to classify NTMs using very disaggregated information from the UNCTAD database. Second, the different types of costs associated with different NTMs have been explored, as well as the trade effects of NTMs.

Third, econometric estimations – relying on a gravity framework – of the reductions of the NTMs trade costs
induced by preferential trade agreements and their provisions on NTMs and regulatory cooperation (transparency, harmonization, mutual recognition, etc.) have been performed.