Non‐tariff measures, product quality and import demand

Abstract

AbstractThis article examines how trade effect of non‐tariff measures (NTMs) differs across quality segments of import market. NTMs reduce total import and force exit, while import from continuing partners increases, as well as their prices. Such effects are especially large for low‐end varieties. We construct a model to explain the difference between NTMs and tariffs and the various effects of NTMs at the low end of the quality distribution. We model two competing effects. First, NTMs impose minimum quality standard. Second, NTMs also inform consumers about import quality in a way that is particularly advantageous to low‐end varieties. The model predicts how these competing effects can force exit, while also altering market shares of continuing varieties.