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How well have free trade agreements performed in reducing non-tariff barriers?

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  • Rusova, Tereza
  • Prendiville, Siobhan
  • Jones, Samuel

Abstract

This paper analyses the effect of past FTAs on non-tariff measures (NTMs) as well as the impact of individual FTAs (EU-Korea, US-Korea) on NTMs across individual GTAP65 sectors. NTM reductions are a key input for CGE modelling and they tend to drive the majority of CGE results. This is because tariff rates across the world are already relatively low, and FTAs therefore mostly target non-tariff measures. Despite their central role in CGE modelling, NTM reductions are notoriously difficult to estimate, especially on a disaggregated level (such as GTAP65) and per individual agreement. In many cases, modellers are left to assume blanket NTM reductions across aggregated sectors, which does not allow for heterogeneous impact of FTAs at a sectoral level. This paper follows the approach set out by Baier et al (2019) and contributes to the existing literature on NTMs in two ways. Using a new tariff dataset developed by the UK Department for International Trade, we estimate the gravity model on a sectoral level and secondly, we break down the traditional group of “trade costs” into tariff and NTMs by controlling for the impact of tariffs. We present the changes in NTMs by their corresponding GTAP65 sector. Our model shows that an ‘average FTA’ reduced NTMs in under a half of modelled sectors, mostly agriculture and manufacturing. Conversely, many service sectors have seen an NTM increase under the ‘average’ FTA scenario. We also find that trade in services has been more impacted by the ability of technology to enable remotely delivery, compared to goods sectors. The results connected to individual FTAs tend to be of higher magnitude and we find that fewer results are significant. This is likely due to lower number of observations connected to individual agreements. Despite this, the results of both individual FTAs we examine (EU-Korea and US-Korea) are mostly in line with what the FTAs were expected to deliver in sectors that were the focus of the agreements.

Suggested Citation

  • Rusova, Tereza & Prendiville, Siobhan & Jones, Samuel, 2022. "How well have free trade agreements performed in reducing non-tariff barriers?," Conference papers 333439, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333439
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    References listed on IDEAS

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    1. María Pía Olivero & Yoto V. Yotov, 2012. "Dynamic gravity: endogenous country size and asset accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 64-92, February.
    2. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    3. Borchert, Ingo & Larch, Mario & Shikher, Serge & Yotov, Yoto V., 2021. "The International Trade and Production Database for Estimation (ITPD-E)," International Economics, Elsevier, vol. 166(C), pages 140-166.
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