D5.2 Report on NTMs along the supply chain


D5.2 Report on NTMs along the supply chain

Executive Summary

This Task aims to examine the impact of Non-Tariff Measures (NTMs) along agricultural and food supply chains. Specifically, it aims to assess: i) the cumulative effects of NTMs along specific GVCs; and ii) the impact of specific NTMs on trade in value added by applying quasi-experimental methods.

During the last forty years, the usage of NTMs has increased rapidly in quantity and importance. Governments adopt NTMs for various reasons: with protectionist intent or to address legitimate goals, such as protecting health, safety, or the environment. The effect of NTMs on trade is ambiguous. Some NTMs might positively impact trade, e.g. sanitary
and phytosanitary measures can contribute to quality upgrading, boosting trade. Likewise, some technical barriers to trade- such as labelling requirements – provide additional information to consumers, potentially shaping consumption patterns and increasing trust, which might be trade-promoting. Conversely, the effect is negative for other types of NTMs, such as quotas and prohibitions, since they exert a significant restrictive and/or distortionary impact on international trade. 

Numerous studies have been dedicated to analyzing the impact of these measures on international trade; however, the literature has not reached a univocal conclusion. 

Moreover, there is still limited attention and research on the effects of NTMs on value added trade, despite this aspect now being central due to the relevance of the processes of international fragmentation of production and their consequences on trade in goods and services. This report aims explicitly to shed light on this topic by contributing to the analysis of the effects of NTMs on global value chains, particularly in the agricultural sector.
We achieve this goal through various research contributions.

The first study examines the potential trade effects of a specific trade agreement, the Trade and Cooperation Agreement, which outlines the post-Brexit trading environment
between the United Kingdom and the European Union (Contribution 1). 1 Employing a computable general equilibrium model and focusing on trade in value-added, Fusacchia et al. estimate the Agreement’s impact on the costs of conducting UK–EU trade, encompassing various non-tariff barriers in goods and services. The findings reveal disruption in UK sectors dependent on trade with the EU. However, an analysis of the value-added structure of UK trade flows underscores that the adverse consequences will be more extensive, propagated throughout the economy by the backward and forward linkages between sectors.

The second study investigates the effect of trade policy associated with shifts in trade regimes on the agricultural sector’s GVCs at the global level (Contribution 2). To precisely evaluate the trade effects of NTMs, Hamid et al. initially calculate the NTMs frequency index and coverage ratio by leveraging the panel structure of NTM data at the product level from the WTO Integrated Trade Intelligence Portal (I-TIP). Subsequently, they integrate these measures with backward and forward GVCs indicators computed using EORA data for trade in value-added. A gravity model is then employed to assess whether and how shifts in trade policy regimes impact agriculture GVC participation. The empirical results indicate that the adoption of NTMs hinders both backward and forward GVC participation for exporting countries facing them. Additionally, NTMs may adversely affect the export performance of the imposing country.

To delve deeper into these findings, the third study explores the same topic but adopts a different methodology (Contribution 3).2 Specifically, Nenci and Vurchio further differentiate between types of NTMs to better discern their effects on GVC trade. They employ quasi-experimental methods to study the causal effects of NTMs better, addressing potential non-linearities and endogeneity issues. The results underscore that NTMs matter, and that their impact on GVC trade varies in a non-linear manner with the level of intensity. In particular, the imposition of NTMs on GVC trade has an overall negative impact on exporting countries, applicable to various NTM types. However, with differentiated effects that are less prominent when weighted by the importance of importing flows.