Tariffs and Non-Tariff Measures: Substitutes or Complements. A Cross-Country Analysis

Abstract

Alongside the global tariff liberalization, a growing body of evidence demonstrates the rise in the use of non-tariff measures (NTMs), which suggests a substitution effect between these two import policy instruments. Yet, detailed economic data reveals that in countries with lower tariff rates (developed countries), the use of NTMs is significantly lower compared to developing countries, which implies a possible complementary effect between tariffs and NTMs across nations. Using a dataset of Kee, Nicita and Olarreaga (2009) on ad valorem tariff equivalents of NTMs, at a very disaggregated product level, this paper explores the determinants of NTMs and their substitutability/complementarity relations with tariff barriers. While exploiting the country variation, it demonstrates the decreasing trend of substitutability between the two import policy instruments with the rise in economic development. In particular, a significant complementarity correlation exists between the two trade measures among the wealthiest nations, implying a stronger commitment to freer trade.

Are nontariff measures and tariffs substitutes? Some panel data evidence

“…Taken together, these findings reveal some divergence from extant studies, which predominantly find NTM-tariff policy substitution to be a developing country phenomenon (see Moore & Zanardi, 2011;Ronen, 2017). It should be noted, however, that previous work tends to be concerned with the tradeoff between tariffs and a specific type of NTM or to be reliant on cross-country evidence only.…”

“…Two studies ground their estimation of the NTM-tariff relationship on the Kee et al's methodology to estimate AVEs of NTMs, namely Limão and Tovar (2011) and Ronen (2017). The former exploits the variation in tariff constraints to examine the impact of NTMs for Turkey.…”

“…https://orcid.org/0000-0001-9338-4338 ENDNOTES 1 Several studies use tariff "changes" as their main explanatory variable (see Herghelegiu, 2018;Moore & Zanardi, 2011;Orefice, 2017), with some solely focused on tariff "reduction" (see Beverelli et al, 2014;Feinberg & Reynolds, 2007;Ketterer, 2016), while others use tariff "levels" (see Kee et al, 2009;Ronen, 2017;WTO, 2012). 2 Although the NTM may be the binding constraint on the quantity of imports, we assume that the tariff barrier would remain with the removal of the NTM.…”

“… Several studies use tariff “changes” as their main explanatory variable (see Herghelegiu, ; Moore & Zanardi, ; Orefice, ), with some solely focused on tariff “reduction” (see Beverelli et al, ; Feinberg & Reynolds, ; Ketterer, ), while others use tariff “levels” (see Kee et al, ; Ronen, ; WTO, ). …”

Quantifying the Trade Effects of NTMs: A Review of the Empirical Literature

“…Hoekman & Nicita (2008) find that the trade restrictiveness of NTMs (relative to tariffs) increases with the level of GDP per capita. Ronen (2017a) shows that the substitutability between tariffs and NTMs decreases with the rise in the economic development of nations. In particular, a significant complementarity correlation exists between the two trade policy measures among the wealthiest nations, implying a stronger commitment to freer trade.…”