Exploring the ‘non-tariff measures black box’: Whose regulatory NTMs on which products improve the imported quality?

Abstract

Regulatory non-tariff measures (NTMs), such as technical barriers to trade (TBTs) and sanitary and phytosanitary (SPS) measures, have frequently been imposed to regulate the importing market when the market fails to address some issues of concern regarding harmful products. The mechanism through which regulatory NTMs affect the quality of imported products seems like a ‘Black Box’, which is fully opened and analysed in this paper. Our research is built on a monopolistic competition framework, in which firms choose both the quality and the price of their exports subject to the compliance costs of NTMs and a fixed cost of technological change or bureaucratic procedures. The quality of products at the six-digit level of the Harmonised System (HS) traded globally and bilaterally during the period 1996–2017 is then estimated. Using these estimates, the impacts of TBTs and SPS measures on trade values, volume, unit value and quality are estimated. Then, by estimating the importer-specific impact of NTMs on trade indicators for each product, the NTM Black Box is opened and analysed.