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Trade Restrictiveness Indices in Presence of Externalities: An Application to Non-Tariff Measures

John Beghin, Anne-Célia Disdier and Stéphan Marette

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Non-tariff measures are defined as public intervention powers other than customs duties that affect the flow of trade between countries. Following successive reductions in customs duties gained in a series of multilateral negotiations by the World Trade Organisation, and the growing interest among consumers in safe, quality products, these measures are having a great influence on international trade. Their commercial impact is sometimes ambivalent: they can increase production costs and thus reduce trade. But they can also facilitate trade and increase well-being by signalling to consumers that products are healthy and safe.
In this article, Beghin, Disdier and Marette study the indicators of commercial restrictiveness (1) in situations of market failure and intervention by the public regulator. This approach amounts to a calculation of a flat customs duty offering a level of well-being the same as that given by the existing protectionist structure composed of various instruments (customs duties, non-tariff barriers, export subsidies, etc.). The authors add to the usual framework a component assumed to be exogenous for the consumer (for example, a health risk linked to a product that is undetectable because of a lack of information), but which the public regulator corrects through a non-tariff measure, specifically by fixing a minimum quality standard for the product. The ad valorem equivalents of such non-tariff measures are then calculated using the base designed by the World Bank, and aggregated with the customs duties and domestic agricultural subsidies also included in the analysis. The authors thus form the tariff equivalent of all the trade distortions considered and determine the indicators of restrictiveness of each country. Results suggest that for around 40 per cent of products affected by the non-tariff measures, they contribute to a growth in trade (through increased demand driven by a reduction in negative externalities) (2). Taking into account these expansion effects reduces considerably the restrictive impact of trade policies that is found in earlier estimations, which maintain that any non-tariff measure reduces trade.
1. “Trade Restrictiveness Index” first developed by James Anderson and Peter Neary.
2. To put it another way :consumers acquire more goods when the relevant information increases.

Original title of the article: “Trade Restrictiveness Indices in Presence of Externalities: An Application to Non-Tariff Measures”
To appear in : Canadian Journal of Economics
Published in: CESifo Working Paper N°4968 (September 2014)
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