The Impact of Non‐tariff Barriers on Trade and Welfare

Abstract

Deep trade agreements are widespread and have taken the world beyond tariff liberalization in goods trade. As the importance of global supply chains and the services sector increased across the world, shallow tariff reductions gave way to deeper commitments that address non-tariff barriers and behind the border barriers to trade. This paper shows that deep trade agreement commitments increase trade by 25% for trade in goods and by even more for trade in services. Taking reducedform estimates to a quantitative model enables general equilibrium analysis of the trade and welfare impacts of deep trade agreements. We find that China, India, and the Eastern European bloc have benefited the most from trade agreements since the Uruguay Round. While a large share of the gains to Eastern Europe come from deep commitments during its accession to the EU, gains for China and India come largely from tariff reductions. Applying the framework to ex-ante analysis of the UK's departure from the deepest trade agreement in the world suggests that the potential benefits the UK may gain, post-Brexit, from future deep agreements with the EU and selected non-EU trade partners would not offset its losses from leaving the EU. Overall, deep trade agreements have contributed over 40% to the welfare gains from trade globally and even more so for advanced economies.

India’s Trade Policy Dilemma: RCEP and the New FTA Strategy

“…Moreover, Rebecca and others showcased that non-tariff provisions in deep trade agreements tend have significant impact on trade in services than trade in goods. 29 This study is relatively significant in the context of India's economy and its participation in the services negotiations at the WTO. India has progressed from the initial position of leading the group of countries opposing the liberalization of services in the Uruguay round trade negotiations to its current position wherein it has become one of the major players in trade in services.…”

Revisiting the Trade-Creating Effects of Non-Tariff Barriers

“…To answer the question whether regional trade agreements (RTAs) lower non-tariff barriers (NTBs) we follow the empirical strategy put forward by the literature, i.e., Aichele et al (2016), Dhingra et al (2021), andFelbermayr, Gröschl, et al (2018). The basic idea of the indirect approach is to estimate RTA effects using the gravity model while controlling for changes in tariffs to disentangle between the effect of tariffs and NTBs on trade.…”

“…Studies that apply the indirect approach and do control for tariffs typically find that RTAs do reduce NTBs and boost trade. Often, the effect is almost exclusively driven by deep trade agreements (e.g., Aichele et al (2016), Dhingra et al (2021), and Felbermayr, Gröschl, et al (2018)).…”

Deep trade agreements and trade costs

“…barriers and behind-the-border barriers to trade (see Dhingra et al, 2021;Lee et al, 2021;Mattoo et al, 2022).…”

“…On the one hand, the existing literature finds that DTAs have a stronger effect on trade creation than shallow (traditional) trade agreements (see Dhingra et al, 2021). For example, Dhingra et al (2021) argue that the DTAs play a more pronounced role for trade in service than trade in goods. They find that trade in service between country pairs that sign an agreement with the highest depth increase by 30%.…”