Modelling the impact of non‐tariff measures on supply chains in ASEAN

• Author: Terrie Walmsley,Anna Strutt,Mike Webb,John Gibson
• Date: 01 August 2020
• DOI: http://doi.org/10.1111/twec.12955
• Published date: 01 August 2020

2172

|

wileyonlinelibrary.com/journal/twec World Econ. 2020;43:2172–2198.

© 2020 John Wiley & Sons Ltd

Received: 1 April 2019

|

Revised: 12 November 2019

|

Accepted: 18 March 2020

DOI: 10.1111/twec.12955

ORIGINAL ARTICLE

Modelling the impact of non-tariff measures on

supply chains in ASEAN

MikeWebb1

|

AnnaStrutt1

|

JohnGibson1

|

TerrieWalmsley2

1Economics, Waikato Management School, University of Waikato, Hamilton, New Zealand

2ImpactECON and Dornsife Department of Economics, University of Southern California, Los Angeles, CA, USA

KEYWORDS

ASEAN, CGE modelling, gravity model, international trade, non-tariff measures, supply chains

1

|

INTRODUCTION

Since 2000, there has been a dramatic increase in the number of non-tariff measures (NTMs) notified

to the WTO, both Sanitary and Phytosanitary (SPS) measures and Technical Barriers to Trade (TBT)

measures. This has coincided with growing concern for health, quality and environmental attributes

and other externalities (Beghin, Maertens, & Swinnen,2015; and Herghelegiu, 2018). At the same

time, there has been a shift in emphasis in trade negotiations from tariff reductions to the removal of

NTMs (Berden & Francois,2015; Orefice,2017). A key driver for this focus is that NTMs can be

much more significant barriers to trade than tariffs; this has been found in various studies including

Egger, Francois, Manchin, and Nelson (2015) and Kee, Nicita, and Olarreaga (2009). Thus, while

NTMs may aim to achieve a legitimate public policy objective, such as consumer safety, improve-

ments in their design or enforcement may allow the objective to be achieved in a less trade restrictive

way (see UNCTAD,2018; OECD,2019).

The impact of NTMs on “supply” or “global value” chains is attracting increased attention by

researchers (Cadestin, Gourdon, & Kowalski, 2016; Kowalski, Lopez Gonzalez, Ragoussis, &

Ugarte,2015). NTMs affect either the fixed or variable costs of firms and the effects of these costs can

compound in a supply chain where semi-finished goods cross international borders multiple times:

“the effect of a marginal increase in trade costs everywhere in the supply chain is much larger than

would be the case if there were a single international transaction” (Ferrantino,2012).

While there are now many examples of studies which incorporate econometric estimates of the effect

of NTMs into computable general equilibrium (CGE) models, there remains significant scope to refine

the methodologies used (see the discussion in Walmsley & Minor, forthcoming, as well as Berden &

Francois,2015 for a survey of recent CGE work). Some key issues, relevant for a supply chain analysis

and addressed in the current study, include differentiating between NTMs on intermediate and final

goods, as well as distinguishing between NTMs that impose costs on the importer and those that impose

costs on the exporter. Moreover, we estimate the restrictiveness of NTMs for direct application in a CGE

framework and in this way allow for the impact of an NTM to vary depending on its type.

|

2173

WEBB Etal.

In this paper, we use a detailed new NTM database to obtain econometric estimates of the effect of

different types of NTMs on imports into six major ASEAN countries. We then use these econometric

estimates to identify the types of NTMs that are found to have significant negative effects on both im-

ports of products sold for intermediate production and those sold to final consumers in these ASEAN

countries. Next, we consider whether the NTMs primarily have an impact on costs for importers or

for exporters, as well as the extent to which these NTMs can be eliminated or their effect reduced.

Finally, we simulate a liberalisation in these NTMs using the ImpactECON Global Supply Chain

Model (IESC), which is based on the well-known Global Trade Analysis Project (GTAP) model, but

also accounts for differences in import sourcing by firms, final consumers and the capital goods sec-

tor, allowing for analysis of NTMs at different parts of the supply chain.

Our approach is novel because we estimate the effect of different types of NTM, both on interme-

diate inputs and final consumption. Moreover, we model the effect of the removal of burdensome

NTMs differently, depending on whether the effect is predominately on exporter or importer costs.

This paper therefore makes an important contribution by utilising different channels to model the ef-

fect of different types of NTMs.1

We focus on the six largest ASEAN countries. These major ASEAN economies are well linked into

regional and global supply chains and are likely to have a broadly similar regulatory environment;

thus, we are not combining a disparate group of countries from different regions.2

2

|

ECONOMETRIC METHODOLOGY AND DATA

2.1

|

The NTM database

The database of NTMs that we use has been compiled in a multi-agency project led by UNCTAD.3

This database—recently relaunched with expanded and updated country coverage—contains detailed

and comprehensive data on NTMs obtained from teams of researchers working systematically through

all laws, rules and regulations, which may affect merchandise trade in a particular country.4 These

measures are then set within a common classification framework and assigned to tariff lines within the

World Customs Organization's Harmonized System (HS). Cadot and Gourdon (2016); Cadot, Asprilla,

Gourdon, Knebel, and Peters (2015); Strutt, Knebel, Peters, and Walmsley (2018); Walmsley, Strutt,

Minor, and Rae (2018); Vanzetti, Peters, and Knebel (2014); and Webb, Gibson, and Strutt (2019)

provide examples of applications of this database.

The classification, developed by UNCTAD and the Multi-Agency Support Team (MAST), has 16

chapters, which underpin the NTM database, as summarised in Table1. Within each chapter, there

is a hierarchy of classification, for instance the grouping "A5 Treatment for elimination of plant and

1It is important to note that NTMs can also facilitate trade, such as by enhancing consumer confidence in imported products.

However, our analysis focuses only on those types NTMs that we find, on balance, to reduce trade. Disentangling the

conflicting effects of NTMs is an area for further research with some work, such as Cadot, Gourdon, and Van Tongeren

(2018) beginning to examine these issues.

2Updated NTM data have recently been collected and publicly released for these countries. Data for many other major Asian

economies, including Japan, Korea, China and India, are not currently available.

3http://unctad.org/en/Pages /DITC/Trade -Analy sis/Non-Tarif f-Measu res.aspx

4Two authors of the current paper were responsible for contributing the New Zealand data to this database.