The Trade Effect of the EU’s Preference Margins and Non-Tariff Barriers

Maria Cipollina,Federica Demaria

doi:10.3390/jrfm13090203

Maria Cipollina, Federica Demaria

Open Access

https://doi.org/10.3390/jrfm13090203

Copy DOI

Abstract

Nowadays, trade negotiations afford both liberalism- and protectionism-oriented policies. Indeed, in recent decades, the developed countries have been actively engaged in negotiating many preferential agreements to integrate developing countries (DCs) into world trade and encourage their economic growth, but many of these schemes contrast with the complex rules, often imposed on international markets, that still are an obstacle for exporters. Their presence and related costs reduce the importance of preferential trade agreements (PTAs) in increasing trade flows. This article attempts to assess the impact of preferential trade policies on trade flows controlling for different non-tariff barriers (NTBs), using a structural gravity model. The analysis uses disaggregated data, registered in the year 2017, on EU imports (defined at level HS-6 digit) from a large number of exporters (187 developed and developing countries) and also includes the intra-EU trade. Our results show robust and positive estimates for the impact of preferences on bilateral trade flows, however, higher non-tariff barriers are likely to play a role in reducing both the extensive margins of trade, and so tariff preferences alone are not sufficient to access international markets. The impact of NTBs on the intensive margin of trade is ambiguous; some measures may act as catalysts and therefore increase trade, and others may act as an additional cost of trade and thus hinder trade.

Highlights

Since the 1970s, non-reciprocal preferential regimes have been thought to be effective in promoting world trade integration and economic growth in developing countries (DCs)
In recent decades, the developed countries have been actively engaged in negotiating many preferential agreements to integrate developing countries (DCs) into world trade and encourage their economic growth, but many of these schemes contrast with the complex rules, often imposed on international markets, that still are an obstacle for exporters
The positive impact of preferences on trade is confirmed, some critics claim that non-reciprocal preferences have perverse effects (Borchert 2009; Reynolds 2009; Foster and Stehrer 2011; Kahouli and Maktouf 2015), while some authors find that preferential trade policies are ineffective: in sectors characterized by the presence of administrative burdens, restrictive sanitary and phytosanitary regulations, or quotas, generous preferences did not increase the volume of trade (Iimi 2007; Desta 2008)

Summary

Introduction

Since the 1970s, non-reciprocal preferential regimes have been thought to be effective in promoting world trade integration and economic growth in developing countries (DCs). The decline of tariffs increased the role of the NTBs which are often used to protect the domestic market; as a consequence, not all trade flows under a preferential agreement can be considered truly preferential. The term NTBs refers to restriction from prohibition or market conditions which make imports or exports demanding and costly These measures try to protect domestic firms from the competition of foreign firms. Preferential schemes are likely to remain unused as long as the Most Favored Nation (MFN) tariff (i.e., the ceiling set by the World Trade Organization (WTO) commitments) is at or below the administrative costs of proving eligibility for preference; exporters do not take advantage of preferences and trade flows cannot be considered preferential (Brenton and Ikezuki 2005; Medvedev 2010).

Methods

Results

Conclusion