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The Trade Effects of Tariffs and Non-Tariff Changes of Preferential Trade Agreements

Author

Listed:
  • Juyoung Cheong
  • Do Won Kwak
  • Kam Ki Tang

Abstract

The recent literature on preferential trade agreements (PTAs) emphasizes the distinction between the extensive and intensive margins. What has been missing is the distinction between tariff and non-tariff changes under PTAs. Tariff reduction is a quintessential feature of PTAs. But member countries of a PTA often pursue deeper integration through agreements on nontariff matters as well. Some member countries, however, may want to use non-tariff barriers to compensate for tariff cuts. The current study isolates the effects of tariff and non-tariff changes under PTAs. It involves the construction of a new dataset of bilateral tariff rates for 90 importing and 149 exporting countries over 1996-2010, covering the Harmonized System 2-digit level of product varieties. Given the complexity of non-tariff arrangements, we allow for heterogeneity across three different types of PTAs, namely custom unions (CUs), free trade agreements (FTAs), and partial scope agreements (PSAs). We further consider heterogeneity within each of these three PTAs regarding responding time, partner type, and product type. The key findings are: (i) nontariff changes under PTAs on average increase both the intensive and extensive margins of trade; (ii) PSAs do not have discernible trade impacts unlike FTAs and CUs (iii) CUs have a stronger trade impact than FTAs; (iv) the impact of CUs comes mostly from non-tariff changes, while that of FTAs comes from both tariff and non-tariff changes; (v) non-tariff changes associated with CUs have a stronger trade effect than those associated with FTAs, which in turn are stronger than those associated with PSAs (vi) non-tariff changes take a longer time than tariff changes to impact on the intensive margin; (vii) non-tariff changes under FTAs and CUs between industrial and developing countries increase the exports from the former to the latter more than the other way around; and (viii) there is substantial heterogeneity across sectors in their response to trade liberalization.

Suggested Citation

  • Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2017. "The Trade Effects of Tariffs and Non-Tariff Changes of Preferential Trade Agreements," CAMA Working Papers 2017-49, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2017-49
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    2. Petr Polak & Nikol Polakova & Anna Tlusta, 2020. "How Bad Are Trade Wars? Evidence from Tariffs," Working Papers 2020/15, Czech National Bank, Research and Statistics Department.
    3. Cerqua, Augusto & Montalbano, Pierluigi & Temerbulatova, Zhansaya, 2024. "A decade of Eurasian integration: An ex-post non-parametric assessment of the Eurasian economic union," International Economics, Elsevier, vol. 178(C).
    4. Chen, Rui & Adu, Derick T. & Li, Wenying & Wilson, Norbert L.W., 2024. "Virtual water trade: Does bilateral tariff matter?," Ecological Economics, Elsevier, vol. 222(C).
    5. Cheong, Juyoung & Jung, SeEun, 2021. "Trade liberalization and wage inequality: Evidence from Korea," Journal of Asian Economics, Elsevier, vol. 72(C).
    6. Jose Jaime Baena-Rojas & Susana Herrero-Olarte, 2020. "From Preferential Trade Arrangements to Free Trade Agreements: One of the Downturns of Cooperation in International Relations?," Social Sciences, MDPI, vol. 9(8), pages 1-17, August.
    7. Mike Webb & Anna Strutt & John Gibson & Terrie Walmsley, 2020. "Modelling the impact of non‐tariff measures on supply chains in ASEAN," The World Economy, Wiley Blackwell, vol. 43(8), pages 2172-2198, August.
    8. Cheong, Juyoung, 2023. "Do preferential trade agreements stimulate high-tech exports for low-income countries?," Economic Modelling, Elsevier, vol. 127(C).
    9. Webb, Mike & Strutt, Anna & Walmsley, Terrie, 2019. "Regulatory harmonization in the ASEAN region: The effects of applying different types of non-tariff measures," Conference papers 333045, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    10. Webb, Mike & Strutt, Anna & Gibson, John & Walmsley, Terrie, 2017. "Modelling the Impact of Non-Tariff Measures on Supply Chains in the Asia Pacific Region," Conference papers 332906, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. Pham Hoang Linh & Nguyen Khanh Doanh & Nguyen Ngoc Quynh, 2019. "Determinants of Vietnam`s potential trade: a case study of agricultural exports to the European Union," Asian Journal of Agriculture and rural Development, Asian Economic and Social Society, vol. 9(1), pages 33-46, June.
    12. Doanh Khanh Nguyen & Van Ngoc Thi Pham & Heo, Yoon, 2019. "Impact of institutional and cultural distance on ASEAN's trade efficiency," Economics Discussion Papers 2019-57, Kiel Institute for the World Economy (IfW Kiel).
    13. Patricia Augier & Olivier Cadot & Marion Dovis, 2024. "Regulatory harmonization with the European Union: opportunity or threat to Moroccan firms?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(3), pages 813-841, August.
    14. Linh, Pham Hoang & Doanh, Nguyen Khanh & Quynh, Nguyen Ngoc, 2019. "Determinants of Vietnam's Potential Trade: A Case Study of Agricultural Exports to the European Union," Asian Journal of Agriculture and Rural Development, Asian Economic and Social Society (AESS), vol. 9(01), January.
    15. Eduardo Gutiérrez & César Martín Machuca, 2021. "The effect of tariffs on Spanish goods exports," Working Papers 2121, Banco de España.
    16. Christopher M. Dent, 2021. "Trade, Climate and Energy: A New Study on Climate Action through Free Trade Agreements," Energies, MDPI, vol. 14(14), pages 1-30, July.
    17. Eduardo Gutiérrez Chacón & César Martín Machuca, 2019. "Tariff protectionist measures and Spanish goods exports," Economic Bulletin, Banco de España, issue DEC.

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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration

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