Trade policy and global value chains: tariffs versus non-tariff measures

Abstract

Globalisation is increasingly characterised by intertwined geographical and local production processes through global value chains (GVCs). In the presence of GVCs, import tariffs not only affect the direct trading partners, but also result in indirect impacts through inter-country and inter-industry linkages. This is also the case for non-tariff measures (NTMs), which have gained in significance in recent decades and are an important part of comprehensive trade negotiations and agreements. This paper analyses the effects of such trade policy instruments along GVCs. The authors estimate bilateral ad-valorem equivalents (AVEs) of two types of NTMs (technical barriers to trade, and sanitary and phytosanitary measures) and calculate cumulative bilateral trade restrictiveness indices based on these AVEs and tariffs by taking GVC linkages into account. This produces a ‘trade restrictiveness index’. Using this index, the authors investigate the impacts of these trade policy measures by applying a structural gravity model on value added and gross exports. The results indicate that tariffs have a stronger impact on exports than do NTMs, though tariffs have been reduced significantly in the past decades. As for the impact of NTMs, the results confirm the existing literature that suggests there can be both trade-enhancing and trade-hampering effects.