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

Abstract

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.