Gravity estimation of non tariff measures (NTMs) on EU-USA agri-food trade: Implications for further analysis

Abstract

Under development: This year marks the formal opening of trade negotiations between the world's two largest trading partners – the European Union (EU) and the United States of America (USA). It is expected that the transatlantic partnership negotiations will face significant obstacles on both sides, which in turn places the burden on economists to provide plausible impact assessments to inform policy makers. Unfortunately, modelling databases whilst rich with detailed disaggregated representations of tariff barriers, still underperform in the case of non- tariff measure counterparts. Indeed, unlike conventional tariff measures, NTMs do not have a transparent price effect which can be readily inserted into an economic model. Over the last decade, the usage of gravity models has received recognition as one such tool for understanding the 'part-worth' of NTM measures on trade restrictiveness. This paper also employs a gravity approach, whilst the explorative nature of the research restricts the current focus to four agro-food sectors. Preliminary results suggest that NTMs impose a relatively equivalent ad valorem equivalent (AVE) trade cost on trade flows of cattle meat and processed rice in both directions. In the case of cattle meat, this appears to be consistent with the retaliatory nature of NTM instruments employed by US importers on EU bans. In beverages and tobacco and dairy products, however, the AVE of the NTM is higher on EU imports of US goods. In the case of beverages and tobacco, this finding appears to be consistent with the qualitative survey work conducted in ECORYS (2009), whilst the result for US dairy imports from the EU remains at first sight, counterintuitive and deserving of further research.