Abstract

A tariff is a tax imposed by the government on imported commodities. In general, a country imposes tariffs for two reasons: to increase government revenue or to reduce the import of specific goods. Tariffs measure trade cost and price on imports, as well as being an indicator of a country’s openness. For this reason, tariffs are often used to measure the effects of trade liberalization.
Tariff reduction is a quintessential feature of PTAs as member countries aim to gain better access to each other’s market. However, member countries often pursue “deeper integration” through agreements on non-tariff matters as well. Non-tariff measures (NTMs) typically cover competition policies, product standards, regulatory regimes, investment codes, environmental policies, labor standards and so on.
The trade effect of NTMs can be either positive or negative. On the one hand, legally binding agreements can reduce uncertainty for traders arising from unilateral policy interventions (Bagwell and Staiger, 2002). On the other hand, some member countries may use NTMs to protect import-competing industries, especially those with strong lobbying power. Under the General Agreement on Tariffs and Trade (GATT), PTAs are allowed as an exception to the clause of Most Favored Nation (MFN) only if all duties are eliminated on “substantially all” trade between the member countries within a reasonable length of time. As such, countries wanting to protect specific industries can only resort to non-tariff barriers (NTBs) disguised as GATT-complying NTMs (Limao and Tovar (2011) show that tariff commitments in trade agreements increase the likelihood and restrictiveness of NTBs.
NTBs have risen during the mid-1990s to 2000 and then again after the Global Financial Crisis (WTO, 2012). Consequently, there has been a steady increase in sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBTs) notifications by WTO members since 1995 (Bacchetta and Beverelli, 2012). The GATT and WTO have already reduced tariffs substantially, as evident in the merely five percent average duty worldwide, tariff reduction arising from future PTAs will be moderate; consequently, NTMs may become increasingly important in determining the impact of PTAs.