Non‐tariff measures: What's tariffs got to do with it?

Abstract

AbstractAfter successive rounds of tariff reductions by GATT/WTO members, non‐tariff measures (NTMs) have increasingly become the focal point of multilateral trade negotiations. It remains an open question whether the liberalization in tariff rates has subsequently been weakened or even erased by increases in NTMs. Using a product‐level global panel of WTO members over the period 1996–2019, this paper systematically examines the empirical link between various tariff measures and the imposition of NTMs. I find that bound or applied tariff reductions do not correlate much on their own with NTM incidence. The relevant trade policy margin for detecting a tariff–NTM nexus is instead tariff overhangs, the difference between WTO members' bound and applied tariff rates. Countries impose more NTMs when their sectoral applied tariffs are close to their respective bound rates, indicating that small tariff overhangs signal limited legal trade policy flexibility.