Global value chain integration and non-tariff measures

Abstract

This paper investigates the degree to which domestic value added embodied in gross trade determines the formation of non-tariff measures (NTMs) imposed at the border and regulatory differences in technical regulation. We apply a recently developed political economy model of trade policies and global value chains to indicators of NTM restrictiveness. Our results demonstrate that higher domestic value added content in imports lowers policy makers’ incentives to impose trade restrictive NTM policies in a similar way as tariffs. These effects are heterogeneous with respect to sectors and income group of the policy-imposing country.

More generally, the results imply that further globalization of production processes may trigger a reduction in NTM border measures and possibly lead to harmonization of technical regulation. However, at the same time re-shoring increases the risk of protectionism, which may occur primarily via imposing opaque NTMs rather than increasing tariffs, which in many cases are bound by international agreements.

About the authors

Irene Garcés and Achim Vogt