Ad Valorem Equivalents Research Articles

Reducing Wait Times at Customs to Boost Trade: How Implementing the Trade Facilitation Agreement Can Expand Trade among AfCFTA Countries?

Abstract All WTO members participate in the Trade Facilitation Agreement (TFA), a rules-based bottom-up approach built on monitorable provisions (e.g., the publication of information, advance rulings, appeal or review of decisions, transparency and border agency cooperation) aimed at reducing time in customs. The paper draws on the OECD indicators of the state of implementation of provisions in the TFA summarised in a TFI (Trade Facilitation Index) to estimate the reduction in waiting time at customs for a large sample of 160 countries. Implementing the TFA could be a significant complement to the African Continental Free Trade Area (AfCFTA)'s objectives. The paper's estimates suggest that a realistic implementation of TFA measures could reduce time in customs for imports by 3.7 days and by 1.9 days for exports. Using extraneous estimates from customs-level transactions, this translates to a reduction tariff Ad-Valorem Equivalent (AVE) in the range 3.5%–7% for imports and 8% extra growth for exports. The large differences in interests across AfCFTA participants—landlocked-coastal, resource-rich and resource-poor, large-small—suggest large gains from reducing tariffs on intra-African trade. However, tariff reductions face the zero-sum hurdle of negotiations involving rent transfers across and within countries. By avoiding rent-transfer issues, this paper suggests that taking seriously the TFA provisions would be a powerful complement to the AfCFTA's tariff-reduction agenda.

Standards and non-tariff barriers in trade – A case study of South Asia

SAFTA (South Asian Free Trade Area) is not a success story. Geographically connected, but highly dis-integrated, with more than 90 % outward-oriented trade, this is the case of South Asia. Of course, military, and political tensions are the major obstacles. However, recent data and studies show that cumbersome procedures, ruthless application of NTMs (Non-Tariff Measures) and restrictions are the biggest challenges for trade in the region. NTMs are important for public health and the environment but if such standards are mutually recognized through bilateral or multilateral agreements then the hectic and lengthy procedures can be avoided. This is the basic hypothesis investigated and checked in this research. Taking four economies, (Bangladesh, India, Pakistan, and SriLanka) two-step process is adopted; firstly, AVEs (Ad Valorem Equivalents) of NTMs are calculated and then incorporated in an extended GTAP (Global Trade Analysis Project) based CGE model. Simulation results suggest that if standards are mutually recognized then all countries will be better off, intra-regional trade and welfare will increase. The study recommends that SAFTA should proceed to establish such a mechanism that enables member countries to recognize the certificates and tests approved by the exporting countries. Further, Port restrictions and the issue of para-tariffs should be discussed in future negotiations.

Empirical insights on the dynamics of SPS trade costs: The role of regulatory convergence and experience in EU dairy trade

With its influence on the world stage, the EU’s Farm to Fork initiative seeks to extend sustainable and fair food production practises globally, in part, by encouraging convergence with EU food standards (i.e., sanitary and phytosanitary measures-SPS). Harmonisation clauses have been found empirically to encourage trade, but no quantifiable estimates exist on the trade effects of SPS regulatory convergence. This paper examines this issue for the dairy industry, a highly regulated sector with significant sustainability concerns attached. Furthermore, the cost-saving effects arising from closer regulations and ‘experience’ (i.e., accumulated years of foreign trade track-record), are compared. Employing a 3-year interval panel starting in 2010, a structural gravity equation that includes domestic trade is estimated with a flexible empirical approach that evinces asymmetric trade impacts for specific bilateral trade routes. Results indicate a trade depressing effect for SPS measures, estimated as a global average 10.4% Ad-valorem Equivalent (AVE). Moreover, at the global level, converging regulatory frameworks generate larger trade gains than experience, where a 1% rise in regulatory convergence is equivalent to 5 years of positive trade and a 14% reduction of the AVE. The reduction of trade frictions prompted by harmonisation and experience does not, however, outweigh SPS trade costs. Exporters to the EU face a higher SPS AVE than that faced by the EU (10.1% vs 9.3%). On average, exporters to the EU also benefit from a 9% saving due to experience, although cost savings from regulatory convergence are only reported for larger exporters to the EU, whose consolidated position in EU markets also grants them even greater than average benefits from years of accumulated experience.

A Korea-Kenya Free Trade Agreement and Its Economic Impact: A Computable General Equilibrium Approach

Purpose – This study assesses the impact of a potential Korea-Kenya FTA on the global economy, which includes the US, EU, UK, China, and Japan, using the Global Trade Analysis Project (GTAP) model. Design/Methodology/Approach – The study employs a static global multi-sector CGE model using the GTAP database version 10 with the base year of 2014. For this study, we aggregate the 141 regions and 65 sectors of the GTAP database into 16 regions and 57 sectors. Four policy simulations were implemented based on tariffs and ad valorem equivalents (AVEs) of non-tariff measures (NTMs) estimated by Kitetu and Ko Jong-Hwan (2021). Findings – Simulation results suggest that the real GDP of Korea will likely increase by 0.001% to 0.002%, with welfare increasing by US$1.8 million to US$74.7 million. In comparison, the real GDP of Kenya will likely rise by 0.003% to 0.045%, while welfare will rise by US$1.8 million to US$ 75.3 million. Imports by both countries will rise at a higher rate than exports. For Kenya, domestic output increases in agriculture, extraction, and service sectors, and for Korea, output goes up in processed food and light and heavy manufacturing sectors. Research Implications – The novelty of this paper is in the first empirical quantification of the economic impact of a Korea-Kenya FTA on not only its members but also its trading partners, such as the US, EU, UK, China, and Japan. Moreover, this study provides a comprehensive overview of the impact of a potential FTA between Korea and Kenya by reducing and eliminating tariffs and AVEs of NTMs.

New Price-based Bilateral Ad-valorem Equivalent Estimates of Non-tariff Measures

As global applied tariffs continue to decline, and the stock of non-tariff measures continues to increase, applied international trade researchers increasingly seek to evaluate the effects of non-tariff measure (NTM) policies. This, however, requires their quantification – a non-trivial estimation task that needs to be undertaken at a disaggregated level. Estimation of ad-valorem-equivalents (AVEs) of NTMs is generally conducted using one of two approaches: price-based or quantity-based. This study uses a price-based approach to estimate AVEs at the Harmonised System (HS) six-digit level. Bilateral Global Trade Analysis Project (GTAP) sector-specific AVEs are obtained by aggregating the derived AVE estimates, using HS-GTAP sector concordance and HS six-digit level bilateral trade flows as weights. A key advantage of the price-based estimation method used in this study is that the AVEs can be directly used in the GTAP model, without the need to adjust them based on import-demand elasticities. Derived AVEs estimated in this study are also importer/partner-specific and rely on counts of NTMs rather than simply instances of NTMs. This paper provides GTAP-consistent estimates and aggregation code to facilitate custom GTAP aggregations of AVEs, as well as replicable, open source code that can be altered based on users' assumptions or particular research needs.

Trade fraud and non-tariff measures

Similar to tariffs, non-tariff measures (NTMs) may induce trade fraud when they are restrictive. This paper examines whether discrepancies observed in the official trade statistics of importing and exporting countries are partly due to trade fraud from evading border NTMs. To capture the restrictiveness of NTMs, this paper estimates the ad valorem equivalent (AVE) with importer-exporter-product variations. This paper presents a theoretical model and empirical evidence showing that discrepancies increase with AVEs, consistent with the trade fraud due to traders intentionally misdeclaring countries of origin or misclassify products in order to evade border NTMs. The results are driven by homogeneous products and the trade between developed and developing countries.

Properly capturing tariff rate quotas for trade policy analysis in computable general equilibrium models

Computable general equilibrium (CGE) models are generally used to conduct trade policy analysis; however, given the complexity in data collection and modeling, tariff rate quotas (TRQs) are often simplified in these models. However, TRQs are crucial for trade negotiations because they are rarely completely liberalized and often the obstacles to negotiations. We propose an approach to model TRQs explicitly and at the product level within CGE models and compare with previous approaches that considered an explicit (or implicit) representation at the tariff line or sector level. Using the Canada–EU trade agreement as an example, we find significant aggregation bias if TRQ shocks are implemented at the aggregate sectoral level. This bias is only partially eliminated if TRQs are implicitly represented by ad-valorem equivalents at the tariff line. Our findings suggest the need to represent TRQs explicitly at the relevant commodity detail in trade impact assessments.

Import demand elasticities revisited

Import demand elasticities are regularly used to compute trade restrictiveness indices, to transform estimated effects of trade policies into ad-valorem equivalents, or to judge on the prohibitive level of various tariff and non-tariff policy instruments. The fast rising number of negotiations of free trade agreements and the fact that non-tariff measures are at the core of these strongly motivates for an update of the import demand elasticity estimates provided by Kee, Nicita, and Olarreaga in 2008 which are based on trade data for the period 1988–2001. Following their GDP function approach, we present import demand elasticities for more than 150 countries and over 5000 products over the period 1996–2014. Countries exhibiting the highest average elasticities belong to the economically biggest countries in their respective regions, while countries with the lowest import demand elasticities are typically small island states. Import-weighted results suggest that especially countries rich in natural resources are facing an inelastic import demand, with the agri-food sector being more price-responsive than the manufacturing sector. Finally, import demand for intermediate goods seems to be more elastic than demand for products destined for final consumption.

Estimating the Ad Valorem Equivalents of the Non-tariff Measures: Focusing on Cross-Border Trade in Goods and Services

Estimating the Ad Valorem Equivalents of the Non-tariff Measures: Focusing on Cross-Border Trade in Goods and Services

Gravity Modeling of South Africa's Fruit Exports to Selected West African Countries

Exports are important drivers of economic growth and development. This study analyzed the factors influencing South Africa’s fruit exports to West African countries. The gravity model approach was used to analyse the data with panel data covering 1994 to 2016. The results showed that the model in its fixed effect panel data explained 60.5 percent of the fluctuations in South Africa’s fruits exports to West Africa. The results also indicate that imports’ GDP, population and South Africa’s production capacity had a positive association with South Africa’s fruit exports. On the other hand, the results indicated that importer’s Foreign Direct Investment, Ad-Valorem Equivalent, and inflation had negative impact on fruit exports. Therefore, the results suggest that South Africa should focus on its GDP and on countries with a growing GDP.

On the proper computation of Ad Valorem equivalent of non-tariff measures

ABSTRACT In all the previous studies evaluating the Ad Valorem Equivalent (AVE) of Non-Tariff Measures (NTMs) based on a gravity equation, Jensen’s inequality is not considered. Yet the issue of estimating the impact of dummy or count variables in semi-log or related equations has been raised since the early eighties. In this article, we illustrate the bias associated with the omission of Jensen’s inequality and show that when it is not considered, the estimation of AVEs can be significantly biased. This omission leads to a significant underestimation of the restrictive impact of NTMs and can even change the sign of the AVE.

Modelling Economic Effects of Reducing Non-Tariff Measures in the Food Processing Sector of Malaysia Using Computable General Equilibrium

The import intensive food processing sector in Malaysia is highly regulated with non-tariff measures (NTMs) from the import side. However, the ad-valorem equivalents (AVEs) of those NTMs vary substantially across the subsectors of food processing. To assess the trade costs or plausible protection effects associated with NTMs, the computable general equilibrium (CGE) model is employed with partial removal of NTMs from the baseline scenario with NTMs. The disaggregated impact of a reduction in NTMs indicate disproportionate gains in trade (both imports and exports) across the various subsectors, with highest gains derived by the subsectors with relatively high AVEs, namely dairy products, bakery products and animal feeds. The simulation findings further show that the overall impact of a reduction in NTMs on trade is larger in the long run relative to the short run, suggesting slow responses to such policy changes, as NTMs present themselves as a package and not as an instrument.

The dual trade impact of non-tariff measures: an empirical assessment of China’s pork imports

Abstract Theoretical arguments and empirical evidence suggest that non-tariff measures (NTMs) generate a mixture of trade effects. Using the maximum level of disaggregation provided by the UNCTAD NTMs database (four-digit), and focusing on those measures applied by China in its pork trade, a gravity equation is estimated with the poisson pseudo maximum likelihood estimator. Results confirm both restricting and promoting effects that higher levels of NTM aggregation mask. Compared to the average tariff applied by main importers (9 per cent) and China (14 per cent), the most restrictive NTMs are more stringent, with ad-valorem equivalents between 15 and 33 per cent. Simulations illustrate the upper bound bilateral trade gain from NTM removal and the resulting repercussions for China’s pork import shares.

Торговые взаимодействия регионов КНР с Россией: эффект границ

The paper analyzes the dynamics and structure of trade interaction between Chinese regions and Russia using official Chinese data and assesses the border effects for export and import flows. The analysis shows that Chinese imports from Russia exhibit a much more uneven distribution across Chinese regions than exports. The results of the gravity model estimation indicate that the size of the border effect for exports of Chinese regions to Russia was larger compared to trade barriers with other countries. At the same time, the hurdles impeding the access of Russian production to Chinese regional markets expressed in the ad-valorem tariff equivalent were higher than for other countries. The estimates reveal that Russian exports to Chinese regions have been experiencing higher barriers in recent years than Chinese regional exports to Russia. The findings suggest that leveling barriers would reinforce the access of Chinese coastal regions to the Russian market, making exports to Russia even less evenly distributed across Chinese regions. A substantial reduction of barriers is likely to increase Russian imports in China thanks to the growing flows of Russian goods to virtually all Chinese regions. Accordingly, Russian exporters need to diversify their supply across Chinese regions so as to bypass the middlemen and tap new regional markets in China

EU Trade Regulations and Imports of Hygienic Poultry

This study sheds light on particular issues of poultry imports to the EU during the 1996-2014 period. First, we analyze the mechanisms of EU market protection through the evolution of tariffs and non-tariff measures (NTMs), both descriptively and econometrically. Second, we estimate bilateral ad valorem equivalents (AVEs) of different types of NTMs imposed on the imports of poultry to the EU. These AVEs hint towards the diverse impact of NTMs on various exporters based on their production compatibilities with EU standards. Third, we analyze the quality impact of NTMs, which are also differentiated by the exporting countries.

Labour Market Effects of Non-Tariff Measures: A Computable General Equilibrium for the Food Processing Sector in Malaysia

Non-tariff measures (NTMs) affect the labour market indirectly through trade. However, much ambiguity surrounds the labour market effects of NTMs, as conditions of the labour market are somewhat contextual. With a specific focus on the highly regulated food processing sector in Malaysia, this paper examines the impact of reductions in ad-valorem equivalents of NTMs on employment and wages using a computable general equilibrium (CGE) model. The simulations indicate positive gains to employment following reductions of NTMs the short- and long-run. In the long-run, employment gains and wage losses are observed for the unskilled group. The findings justify the need to complement the NTM reform with other mechanisms to address the likely rise of low-quality jobs in the food processing sector.

Modelling Economic Effects of Reducing Non-Tariff Measures in the Food Processing Sector of Malaysia Using Computable General Equilibrium

The import intensive food processing sector in Malaysia is highly regulated with non-tariff measures (NTMs) from the import side. However, the ad-valorem equivalents (AVEs) of those NTMs vary substantially across the sub-sectors of food processing. To assess the trade costs or plausible protection effects associated with NTMs, the computable general equilibrium (CGE) model is employed with partial removal of NTMs from the baseline scenario with NTMs. The disaggregated impact of a reduction in NTMs indicate disproportionate gains in trade (both imports and exports) across the various sub-sectors, with highest gains derived by the sub-sectors with relatively high AVEs, namely dairy products, bakery products and animal feeds. The simulation findings further show that the overall impact of a reduction in NTMs on trade is larger in the long-run relative to the short-run, suggesting slow responses to such policy changes, as NTMs present themselves as a package and not as an instrument.

New Tools for the CGE Analysis of PTAs in the era of Non-Tariff Barriers and Global Value Chains: The case of Mercosur and China

This article explores new tools for the ex-ante analysis of PTAs using large scale CGE models. The traditional impact analysis based on tariff cuts and gross trade performance is then extended to incorporate new features of the ongoing globalization process, such as non-tariff barriers (NTBs) and the so-called trade in value-added. Several methodological as well as conceptual issues are then readdressed, including the proper use of estimated ad-valorem equivalents of NTBs as inputs in perfect competition CGE models as well as the very concept of a “preferential trade partner” in a world where nearly 65% of global exports correspond to trade in intermediates. The article concentrates its impact analysis on the Brazilian economy – providing an overview of its trade policy over the last decades- and the likely consequences of a hypothetical PTA involving Mercosur and China.

Pulling back the curtain on 'behind the border' trade costs: The case of EU-US agri-food trade

With the rise of anti-free-trade sentiment on both sides of the Atlantic, there is a growing urgency by trade negotiators to conclude the Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations. The harmonisation of non-tariff restrictions is a key component of the talks, whilst global modelling databases typically lack a price compatible representation of these measures, which lends a degree of bias to ex-ante modelling assessments. In the gravity literature, there is (limited) evidence of non-tariff ad-valorem equivalent (AVE) estimates of agriculture and food, although disaggregated agri-food activities and/or bilateral EU-US route specific estimates are still in relatively short supply. Using panel data, this study consolidates both of these issues, whilst also proposing an ‘indirect’ gravity method as a basis upon which to provide econometric non-tariff AVE estimates compatible with the degree of sectoral concordance typically found in global modelling databases. On a general note, the results revealed the presence of significant behind the border trade costs on both sides of the Atlantic, which exceed their tariff counterparts. Using simple aggregated averages, our estimates are comparable with ‘direct’ gravity method studies. Furthermore, rigorous qualitative and quantitative comparisons on a sector-by-sector basis showed that a number of bilateral non-tariff AVEs are also found to be plausible, although in some cases, with recourse to relevant policy documents and expert opinion, it is debatable whether the EU or the US is more restrictive. Further work could focus on refining the sector specificity of each gravity equation to improve the model's predictive capacity.

Estimating the bilateral impact of nontariff measures on trade

AbstractThis paper seeks to estimate how the impact of nontariff measures (NTMs) on trade can vary across exporter–importer pairs. Covering data for the early 2000s, regressions are run at a disaggregate tariff line level and the estimated results are converted into ad valorem equivalents (AVEs). The results underline the importance of conditioning conclusions on trading partners and products and demonstrate that the same NTM can have different—even opposite—effects across exporting countries. One general pattern that emerges is that low‐income importers impose more restrictive NTMs, but that the capacity for exporting countries to address NTMs increases with GDP per capita.