Quantitative Methods for Assessing the Effects of Non-Tariff Measures and Trade Facilitation

The following sections are included:

• CONTENTS

• ACKNOWLEDGMENTS

Non-tariff measures are pervasive. In the area of merchandise trade, although tariffs have fallen worldwide, there has been no shortage of bureaucratic imagination in conceiving new non-tariff measures, or in turning existing regulatory instruments to protectionist ends. In the area of services trade, there is also a growing realisation that domestic regulatory regimes designed to address legitimate market failures may have incidental but unwarranted effects on services trade…

A key research theme from the papers in this volume is the extent to which analysis of non-tariff measures is data-driven.

The TRAINS database remains a key source of raw data for non-tariff measures affecting goods trade. This allows frequency counts to be computed, but without further analysis it does not provide an indication of economic impacts, nor an indication of policy priorities. Hence additional techniques are required to draw out these implications…

The following sections are included:

• Introduction

• Identifying a Non-Tariff Measure
  • Defining an NTM
  • Developing a Taxonomy of NTMs

• Incidence of NTMs
  • Frequency Measures
  • Survey Studies

• Impact of NTMs
  • Domestic Support and Export Subsidies
  • Quantitative Restrictions
  • Standards
  • Trade Facilitation
  • Government Procurement
  • Export Cartels

• Doha Development Agenda and NTMs
  • Focus On What Is Known
  • Choose the Appropriate Response
  • Choose the Appropriate Forum

• References

The following sections are included:

• Overview

• Explanation of Terminology and Information in the Compilation
  • Generic and Specific Measures

• Preliminary Data Summary
  • Categories of measures
  • Products and Sectors
  • Services Products
  • Horizontal Measures

The following sections are included:

• Introduction

• A Brief Description of Chilean Trade

• The Survey

• Survey Responses
  • Pilot Study
    • Firm 1
    • Firm 2
    • Firm 3
    • Firm 4
    • Firm 5
    • Firms 6 and 7
    • Firm 8
    • Firm 9
    • Firm 10
    • Firm 11
    • Firm 12
    • Firm 13
    • Firm 14
    • Firm 15

• Results of the Survey

• References

The following sections are included:

• Why Worry?

• What's Special About Services?

• How to Measure Services Trade Barriers?

• Services Trade Barriers – Some Examples

• A Measurement Methodology

• Trade Restrictiveness Indexes – Some Results
  • Banking
  • Telecommunications
  • Maritime

• Price and Quantity Impacts – Some Results
  • Banking
  • Professions
  • Other Sectors

• Modelling Services Trade Liberalisation
  • Studies to Date
  • Australian Research

• Agenda for Further Research

• References

The following sections are included:

• Introduction

• Growth of International Trade
  • And the Increasing Importance of Trade in Services
  • Coverage and "Modes Of Supply"

• Barriers to TMNP: An Analysis of the Economic Impact of Mode 4
  • Trade and Factor Price Equalization
  • Size and the Barriers to Mode 4 Trade
  • Gains from Liberalization of Restrictions on Mode 4 Trade
  • Gains From Increase in Mode 4 Trade: A Preliminary Case Study for the ICT Sector

• Conclusions

• Bibliography

The following sections are included:

• Introduction

• Overview of Previous Work
  • Definition of Trade Facilitation
  • Measuring the Impact of Trade Facilitation

• Data in This Study
  • Rationale for These Indicators of Trade Facilitation
  • Constructing the Measures Used in This Study
  • Trade Flows and Other Variables

• The Econometric Model and Results
  • An Aside on the Gravity Model
  • Our Gravity Model Specification
  • Regression Results
  • Implications of Geographical Characteristics
  • Robustness of the OLS Estimators

• Potential Benefits from Trade Facilitation: Simulation Results
  • Simulation Design and Aggregate Results
  • Exports and Imports by Region
  • Domestic and Partner Improvements

• Conclusions and Approach to Capacity Building Design

• Data Appendix

• References

Trade transaction costs (TTCs) related to border procedures vary depending on the efficiency and integrity of interacting businesses and administrations, the characteristics or kind of goods, and the size and type of businesses. Total costs may be seen as being composed of directly incurred costs, such as expenses relating to supplying information and documents to the related authority, and indirectly incurred costs, such as those arising from procedural delays. Empirical studies suggest that directly and indirectly incurred TTCs each amount to 1- 15 percent of traded goods' value.

Moreover, empirical evidence suggests that TTCs for agro-food products are higher than those for manufactured goods, as agro-food shipments are subject to special border procedures, such as sanitary and phytosanitary controls. Also, small and medium-sized enterprises face cost-disadvantages. In light of this diversity in TTCs, the potential for the realisation of benefits from trade facilitation varies across economies, sectors, and types of traders. In cases where best practices are already applied, further efficiency gains will be difficult to achieve. But if border clearance costs are substantially above those encountered under best practices, room for improvement through suitable measures of trade facilitation will tend to exist.

The model-based analysis of the economic impacts of trade facilitation carried out in this study differs from earlier research by taking several salient features of import and export procedures into account. In particular, the differing characteristics of direct and indirect TTCs are represented, and economy-specific differences in trade facilitation potential are reflected according to empirical information on border waiting times and survey-based evidence on the quality of border processes. In addition, the higher TTCs for agro-food products and small and medium-sized enterprises are incorporated into the analysis.

The analysis does not evaluate the economic and trade impact of specific trade facilitation measures or instruments, such as those that might result from a possible future WTO agreement on trade facilitation. Instead, the aim of the assessment is to better represent empirical characteristics of the border process in model-based analysis and to identify those features that crucially affect the results and that, therefore, deserve to be further explored in future analysis. Several scenarios of hypothetical, multilateral trade facilitation efforts are evaluated, focusing on the comparison of scenarios rather than the overall welfare gains that might result from trade facilitation.

For the purposes of this study, trade facilitation was assumed to lead to a reduction in TTCs by 1 percent of the value of world trade. This assumption is maintained across scenarios, in order to make it possible to meaningfully compare results. On this basis, aggregate welfare gains are estimated to amount to about US$40 billion worldwide, with all economies benefiting and non-OECD economies experiencing the biggest gains in relative terms. If the impact of trade facilitation on TTCs is taken to be more pronounced, then the welfare benefits will also be higher.

Earlier analysis often focused on the cost savings to traders and did not reflect the conceptual differences between direct and indirect TTCs, thereby ignoring macro-economic adjustment needs, such as re-deployment of redundant employees in the logistics sector, associated with direct TTCs. Incorporating these adjustment needs into the analysis provides a more nuanced assessment of the broader impact of trade facilitation and avoids creating inflated expectations concerning the potential benefits from reductions in TTCs. Moreover, the presence of these adjustment costs suggests that trade facilitation measures that focus on reducing indirect TTCs, notably border waiting times, might have a more marked impact on economic welfare than measures that aim at reducing documentation requirements and related direct TTCs. Furthermore, if the existing diversity of TTCs across economies, sectors and traders is represented, a larger share of the global benefits of trade facilitation of up to two-thirds of the total gains is obtained by developing economies than under an assumption of flat reductions in TTCs. Developing economies are also the prime beneficiaries from trade facilitation if the facilitation-generated welfare gains are related to GDP, as they tend to have considerable potential for reductions in TTCs and a relatively high trade to GDP ratio, so that reductions in the costs of importing and exporting affect them to a larger extent than many OECD members. However, the magnitude of the reported welfare gains has to be seen as an upper boundary of the actual gains that might be achievable, as investment needs to realise the assumed reductions in TTCs have not been incorporated into the quantitative analysis, due to lack of consistent, cross-economy information on the full range of costs associated with the implementation of trade facilitation measures.

The following sections are included:

• The VAR Model: Specification, Data, Estimation, and Model Adequacy
  • Sources of Quarterly Data and Data Issues
  • Directed Acyclic Graphs

• DAG Applications to Wheat and Wheat Products Markets

• Analysis of Impulse Responses and FEV Decompositions to Discern Effects of a U.S. Wheat Import Quota
  • Analysis of Forecast Error Variance Decompositions

• Summary and Conclusions

• References

The following sections are included:

• Introduction

• Quota Rents and Effective Preference Erosion

• A Quantitative Assessment of ATC Quota Margins

• Summary and Conclusions

• References

The following sections are included:

• Introduction

• Literature Survey on the Measurement of NTMs
  • The Range of NTMs
  • The Empirical Methodology of Measuring NTMs

• The Pervasiveness of NTMs in the APEC Member Economies
  • Constructing Method of By-Type Frequency Ratios of NTMs
  • Features of the Use of NTMs

• Estimation of Tariff Equivalents of By- Type NTMs
  • Estimation Procedures
  • Data Description

• Empirical Results and the Implication

• Conclusion

• References

The following sections are included:

• Introduction

• Modeling NTMs

• Estimation

• Data

• Results
  • Apparel
  • Shoes
  • Processed Food

• Conclusions, Caveats and Extensions

• References

The following sections are included:

• Background: Concepts of Nominal and Effective Rates Of Protection

• Estimation of Nominal Rates of Protection
  • The Survey
  • Concordance
  • Selection of Nominal Rates of Protection
    • Selection Rules for Import-Competing Industries
    • Selection Rules for Export-Oriented Industries

• Estimation of Effective Rates of Protection
  • Cleaning the I-O tables of Indirect Taxes
  • Domestic Price Based I-O Table
  • Treatment of Non-Traded Goods
    • Corden's ERP
    • Balassa's ERP

• Estimation Results and Policy Implications
  • NRPs
  • ERPs
    • ERP for Export Production
  • Implicit Income Transfer and Protection Tax
    • Implicit Income Transfer
    • Implicit Protection Tax
  • Policy Implications

• References

The following sections are included:

• Introduction

• Purposes and Effects of Rules of Origin
  • Purposes of RoO
  • Types of RoO
    • Product-Specific RoO: Five Main Components
    • Regime-Wide RoO
  • Effects of RoO
    • Administrative Costs of RoO
    • Production Costs of RoO
  • Policy Implications of RoO's Effects

• Rules of Origin around the World
  • Comparing the Structure of RoO Regimes in Five Regions
    • Europe: Expansion of the PANEURO System
    • Americas: Four RoO Families
    • Africa, Asia, Middle East: Toward Selectivity From Across-The-Board RoO?
  • Non-Preferential RoO
  • Depicting Product-Specific RoO Around the World
  • Regime-Wide RoO
  • Administration of RoO

• A Comparative Analysis of the Restrictiveness of RoO Regimes
  • Restrictiveness of Product-Specific RoO
    • Comparing the Restrictiveness of Sectoral RoO
    • "Weighted" RoO: RoO's Coverage of Actual Trade Flows
  • Comparing Regime-Wide RoO: A Facilitation Index

• Trade Effects of RoO
  • Empirical Specification for Panel Regression
  • RoO and Intermediate Imports: A Sectoral Approach

• RoO "Innovations": Ad Hoc Mechanisms for Flexibility
  • RoO Phase-Ins
  • Permanent Reductions in the Level of RVC
  • Options for Calculating Value Content
  • Tariff Preference Levels

• The Future of the Global RoO Panorama: Toward a De Jure Harmonization of Preferential RoO?
  • Future Global RoO Theater
    • Preferential RoO: Convergence toward a Bipolar RoO World?
    • Non-Preferential RoO: Awaiting the Final Push for Harmonization
  • Harmonizing Preferential RoO: A Boost to Open Regionalism
    • Problems with the multi-regime RoO world
    • Counteracting the Splintering of the RoO Panorama: Possibilities and Prospects

• Conclusion

• References

• APPENDIX

The following sections are included:

• Introduction

• Characteristics of AD Cases against China
  • The Size and the Trend
  • The Intensity
  • The AD Measures
  • The Sectors Being Named
  • The Filing Economies

• The Reasons for High China's AD Intensity and High AD Duties
  • AD as A Learned Strategy for Domestic Firms Blocking Foreign Competition
  • Non-Market Economy (NME) Status
  • Cumulation
  • Weakness in Corporate Governance Prevents Effective Defense in AD Investigations
  • Foreign Direct Investment and the "Antidumping (AD) Triangle"
  • Low Concentration Ratio in Chinese Industries

• Implications

• Conclusion

• References

The following sections are included:

• Introduction

• Measuring NTBs
  • Other Approaches to Measuring NTBs
    • Compute NTB "Coverage Ratios"
    • Infer protection from trade flows
    • Price Gaps
  • Our Method

• Summary and Assessment
  • Four Key Characteristics
    • Completeness
    • Comprehensiveness
    • Accuracy
    • International Comparability
  • Possible Concerns
    • Imperfect Competition
    • Terms of Trade Effects
    • Dumping
    • Demand Differences
    • Price vs. Quantity Effects

• The Extent of NTB Protection

• Other Evidence on NTBS

• Policies behind the Price Gaps

• The Welfare Effects of Integration
  • Description of the Model
    • Production Structure
    • Demand Structure
    • Incorporating Our Data
      • Protection Data
      • Distribution Margins Data
  • Welfare Analysis
  • Winners and Losers

• Conclusion

• References

The following sections are included:

• Introduction and Overview

• Quantifying the New Age Agreement
  • Trade and Tariffs
  • Customs Automization
  • E-Commerce
  • Services Trade

• Analytical Framework
  • Investment Theory
  • Foreign Capital Ownership
  • Treatment of Unobserved Trade Costs

• Baseline

• Results
  • Impacts on Singapore
  • Results for Japan
  • Results for Rest of World
  • Welfare Effects

• Summary and Conclusions

• References

• Appendices
  • Sector Aggregation
  • Construction of the Baseline

The following sections are included:

• Introduction

• Conceptual and Analytical Framework

• Estimating the Effects of NTM Price Wedges - Methodology

• Results
  • Overall Characteristics
  • Footwear
  • Wearing Apparel
  • Miscellaneous Processed Foods

• Conclusion

• Bibliography

The following sections are included:

• What is WITS?

• The Cost of WITS

• How to Install WITS?
  • To Obtain WITS software
  • To Install WITS
  • To Access WITS

• Data Extraction
  • Quick Database Query
  • UN COMTRADE Database
  • Quick Database Query by Country/Period
  • Quick Query: TRAINS
  • TRAINS-View and Export Raw Data
  • WTO Integrated Database
  • Advanced Query
  • Query Procedure

• What is the next step for WITS?

• References

This module provides an overview of the methods that can be used to identify and quantify barriers to international trade in services. Trade in services is customarily classified into four "modes of supply": Mode 1 – services that are traded internationally across borders; Mode 2 – services that require the consumer to be in the location of the producer; Mode 3 – services that require commercial presence in the form of foreign direct investment; and Mode 4 – services that require the temporary cross-border movement of workers. Barriers to any of these forms of trade typically take the form of regulations that either restrict supply or make it more costly. In either case, the economic impact of such a barrier can in principle be quantified as a "tariff equivalent," defined as the percentage tax on foreign suppliers that would have the same effect on the domestic market for the service as is caused by the barrier.

Barriers to trade in services are extremely diverse, making it difficult to classify them in any simple yet detailed way. Broadly, they may be separated on the one hand into those that restrict entry of firms versus those that affect firms' operations, and on the other hand into those that discriminate against foreign service providers versus those that do not. Within these broad categories, barriers have been classified much more finely in terms of characteristics that are appropriate to particular service industries.

Measurement of service barriers can be either direct or indirect. Direct measurement involves documenting barriers that are known to exist, either by extracting information about them from government documents or by questioning those market participants who confront them. Ideally, both of these methods should be based on detailed knowledge of the industries involved, since services differ greatly among themselves in the kinds of regulations that apply to them and in the rationales and effects of these regulations.

Indirect measurement attempts to infer the presence of barriers from their market effects, much as nontariff barriers on trade in goods are often inferred from price differences across borders. Unfortunately, most services do not cross a border in this way, and even those that do are often differentiated sufficiently that comparable prices do not exist inside and outside of economies. Thus indirect measurement has to be even more indirect, drawing heavily on theoretical models of activity in the absence of barriers.

We illustrate these various approaches by citing in some detail a number of studies that have been carried out, some for broad categories of service trade and others for particular sectors. We also, in an appendix, summarize a much larger number of studies. Procedures differ somewhat across studies, but most employ one or more of the following steps:

• Collect the details of regulations and other policies affecting service firms in the economies and/or sectors being examined. Ideally, this information should be collected by systematic surveys of governments and/or firms. However, it may also be possible to infer it less directly from documents prepared for other purposes.

• For each type of regulation or policy, define degrees of restrictiveness and assign scores to each.

• Construct an index of restrictiveness by: weighting the above scores based on subjective judgments; using a statistical methodology; or designing proxy measures.

• Convert these indices of restrictiveness into a set of tariff equivalents by one or more of the following methods.

• Assign judgmental tariff-equivalent values to each component of the index.

• Use data on prices and their determinants in a regression model to estimate the effect on prices.

• Use data on quantities produced or traded in a regression model to estimates the effect on quantities, and convert to tariff equivalents.

• Use the above measures as inputs into a model of production and trade in order to ascertain the economic effects of the presence of changes in the services barriers involved.

The following sections are included:

• Introduction
  • Trade Restrictiveness Index
    • Case Study: Banking Services
    • Extensions
  • Price Impact Measures
    • Case Study: Banking Price Measure
    • Additional examples

• References

The following sections are included:

• Introduction - The Role of Analysis as Conducted at the United States International Trade Commission

• The Role of Analytics

• The ITC's Partial Equilibrium Models

• The ITC's Single Country CGE Models

• The ITC's Multi-Country CGE models

• Econometric Estimation at the USITC

• Data Collection and Presentation at the USITC

The following sections are included:

• Three Challenges in Measuring Effect

• What to Consider in Measuring Trade Facilitation?

• Trade Facilitation: Areas of Focus in Existing Empirical Works

• Measuring Trade Facilitation: Definition

• Measuring Trade Facilitation: Four Areas of Focus

• Building Indicator–Step 1: Defining Inputs to Indicator

• Building Indicator–Step 2: Normalization

• Building Indicator–Step 3: Aggregation

• Method of Measuring: Computable General Equilibrium

• Measuring Effect: Choice of Methods

• Measuring Effect: CGE Model Approach

• Method of Measuring: Econometrics

• Measuring Effect: Gravity Model

• Model Specification

The following sections are included:

• INDEX