New Estimates of the Ad-valorem Equivalent of SPS Measures: Evidence from Specific Trade Concerns

Countries maintain a large and diverse set of non-tariff measures (NTMs) to safeguard the health of plants, animals and humans. However, policymakers and regulatory bodies often neglect the potential adverse trade effects of non-tariff measures. Despite a large literature investigating the trade flow effects of NTMs, less is known about the extent to which sanitary and phytosanitary (SPS) measures raised trade concerns by exporters reduce exporting countries' agricultural and food trade to importing markets maintaining these measures. This study utilizes the World Trade Organization's (WTO) SPS specific trade concerns database to identify economically meaningful and potentially consequential SPS measures on members' trade. We develop a product-line structural gravity model to estimate the trade effects of non-tariff SPS measures flagged as concerns by the top 30 agricultural exporting and importing countries covering products in meat, dairy, fruits & vegetables, and cereals & preparations. Results indicate that trade losses due to SPS measures of concern are significant, both globally and for specific countries, sectors and individual SPS measures. Conservatively, our estimates imply a 68% reduction in agricultural trade during years in which SPS measures of concern were active. Moreover, the estimated ad-valorem protection imposed by SPS trade concern measures ranges from a 33% to 106% equivalent tariff, on average. Significant heterogeneity in the estimated AVE of SPS measures exists across countries. Comparing SPS measures maintained by U.S., EU and China on imports, presents a rather stark asymmetric picture, with ad-valorem tariff equivalents of U.S. SPS measures estimated at 41%, compared to 76.4% and 130% ad-valorem equivalent protection imposed by SPS measures maintained by the EU and China, respectively. Finally, we identified six case-study SPS measures of concern to take a closer look at their trade impacts. These included (i) EU Aflatoxin limits on groundnuts and cereals; (ii) EU GMOs policies on cereal grains; (iii) BSE restrictions on beef (various countries); (iv) Japan’s positive list MRL standards; (v) Ractopamine restrictions on pork; and (vi) China’s restrictions on Avian Influenza in poultry. Results indicate that China's restrictions on poultry imports due to Avian Influenza concerns and EU, China, Russia, Taiwan, and Thailand zero tolerance for ractopamine in pork exports are the most prohibitive standards, with AVE tariffs 120.3% and 88.9%, respectively.