The Trade Effect of Non-tariff Measures in a Comprehensive Trade Agreement

Abstract

The aim of this study is to quantify the trade effects of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which is considered to be a comprehensive trade agreement. To this end, we estimate the gravity equation for worldwide trade and introduce applied tariffs into this equation to differentiate between the trade effects of tariff reduction and non-tariff measure (NTM) changes. Our gravity equation results indicate that the trade effect of NTM changes under the CPTPP is insignificant on average and negative for most products. We also estimate the gravity equation for foreign direct investment (FDI) and find some evidence that the CPTPP increased FDI by a statistically significant amount. Thus, the NTM changes in the CPTPP may increase FDI, rather than trade, among member countries.

KEYWORDS:

• CPTPP
• trade
• non-tariff measures

JEL Classifications:

• F15
• F53

Disclosure statement

No potential conflict of interest was reported by the author(s).

Acknowledgements

We would like to thank two anonymous referees, Kyoji Fukao, Shujiro Urata, and seminar participants at the Institute of Developing Economies for their helpful comments. All remaining errors are ours.

Notes

1 Data of ratification were retrieved from Department of Foreign Affair and Trade (DFTA), Australia at https://www.dfat.gov.au/trade/agreements/in-force/cptpp/comprehensive-and-progressive-agreement-for-trans-pacific-partnership.

2 https://www.gov.uk/government/collections/the-uk-and-the-comprehensive-and-progressive-agreement-for-trans-pacific-partnershipcptpp.

3 Owing to the development of tariff databases (e.g. the Tariff Analysis Online facility), recent studies have begun to apply tariff rates to a gravity equation within the global trade context (e.g. Disdier et al., 2015; Caliendo & Parro, 2015; Fontagné et al., 2022).

4 In terms of identifying the heterogeneous effects of RTAs, Baier et al. (2019) is also related to our study. After obtaining the trade creation effect of each RTA, they regress this effect on various country characteristics.

5 All firms do not necessarily claim preferential tariffs due to the existence of rules of origin. If rules of origin in the CPTPP are stricter than those in the world average and the utilization rates of CPTPP preferential tariffs are lower, the coefficient for CPTPP decreases.

6 In the estimation, we use the Stata command “PPMLHDFE” (Correia et al., 2019, p. 2020).

7 http://www.cepii.fr/CEPII/en/bdd_modele/presentation.asp?id=37.

8 The data are available at https://www.ewf.uni-bayreuth.de/en/research/RTA-data/index.html.

9 https://wits.worldbank.org/default.aspx.

10 The basic statistics are reported in Table A2 in the Appendix.

11 https://www.usitc.gov/data/gravity/itpde.htm.

12 For other benefits, see Yotov (2021).

13 The basic statistics are reported in Table A3 in the Appendix.

14 The basic statistics are reported in Table A4 in the Appendix.

15 Examples of empirical studies in this literature include Beverelli et al. (2019), Dean et al. (2009), Goldberg and Pavcnik (2005), Lee and Swagel (1997), Moore and Zanardi (2011), Bown and Tovar (2011), Ketterer (2016), Orefice (2017), Herghelegiu (2018), Broda et al. (2008), Ronen (2017), and Niu et al. (2020).

16 http://i-tip.wto.org/goods/default.aspx?language=en.

17 https://stats.oecd.org/Index.aspx?DataSetCode=FDI_POSITION_PARTNER.

18 The basic statistics are reported in Table A5 in the Appendix.

Additional information

Funding

Hayakawa acknowledges financial support from JSPS KAKENHI Grant Number 22H00063. Jongwanich acknowledges financial support from Research Unit in International Economics, Thammasat University. Kohpaiboon acknowledges financial support from Senior Research Scholar Program in Social Science of the Year 2022 awarded by Thailand Research Council.

Notes on contributors

Kazunobu Hayakawa

Kazunobu Hayakawa is a senior research fellow of the Bangkok Research Center, Institute of Developing Economies (IDE). He received his doctorate from Keio University with a dissertation on intermediate goods trade in 2008. His main research areas are international economics and economic geography.

Juthathip Jongwanich

Juthathip Jongwanich is an Associate Professor in the Faculty of Economics, Thammasat University, Thailand. She graduated from Australian National University in 2005. Her research interests are International Economics; Capital Mobility; Multinational Enterprises; International Macroeconomics and International Production Network.

Archanun Kohpaiboon

Archanun Kohpaiboon is an Associate Professor in the Faculty of Economics, Thammasat University, Thailand. He graduated from Australian National University in 2005. His research interests are Thai economy, International trade, Free Trade Agreements, Trade Policy, Foreign Direct Investment, and Global Production Sharing.