Non‐tariff measures along global value chains: evidence from ASEAN countries

Abstract

This paper analyzes the effects of Non‐Tariff Measures (NTMs) on exports while considering the degree of participation in the global value chains (GVCs). Standard‐like non‐tariff measures, such as Sanitary and Phytosanitary Standards (SPS) and Technical Barriers to Trade (TBT), have influenced trade by increasing trade costs or improving consumers' awareness. Theoretically, NTMs can have either positive or negative effects on trade flows. In this study the characteristics of the production process are considered in order to disentangle the arguments of ‘standards as barriers’ and ‘standards as catalyst’. Due to the expansion of GVCs, NTMs have accumulated along production processes. Cumulative NTMs along the GVCs affect not only the direct trade sector and its partners, but also other relevant sectors and countries indirectly through the production chains. We use panel data on product‐level ASEAN exports for 2007–2019 to estimate the effects of NTMs depending on GVC participation. The estimated results show that the impact of SPS and TBT is heterogeneous according to the degree of GVC participation. While SPS and TBT regulations have been found to promote trade, their positive effects are less significant for industries involved in forward and upstream GVC participation. This reflects the characteristics of these sectors, which require higher levels of technology and skilled labour compared to backward GVC participation and downstream sectors. As a result, ASEAN exporters heavily involved in forward and upstream GVCs face increased production costs to comply with the requirements of the standard‐like NTMs. The increased production costs limit the trade‐promoting effects of the standard‐like NTMs.