Tariff Equivalent and Forgone Trade Effects of Prohibitive Technical Barriers to Trade |
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| Authors: | Chengyan Yue and John C Beghin |
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| Institution: | Chengyan Yue is assistant professor in the Departments of Horticultural Science and Applied Economics, University of Minnesota—Twin Cities. John Beghin is professor of economics at Iowa State University and chercheur–associéwith the Public Economics Unit of Inra–AgroParistech, France. |
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| Abstract: | We derive a method to econometrically estimate the tariff equivalent and forgone trade effects of a prohibitive technical barrier to trade (TBT) based on Wales and Woodland's Kuhn–Tucker approach to corner solutions in consumer choice. The method overcomes the lack of observed data on bilateral trade flows and accounts for differentiated goods by place of origin. We apply the derived random utility model to international trade in apples to identify the tariff equivalent of prohibitive phytosanitary barriers imposed by Australia on potential imports of New Zealand apples. We estimate the forgone apple trade between the two countries, the implied trade injury imposed by Australia on New Zealand, and the welfare loss to Australia. The removal of the Australian policy would induce net welfare gains around US$50 million annually for Australia. |
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| Keywords: | corner solution Kuhn–Tucker model New Zealand apples phytosanitary prohibitive barrier technical barrier to trade |
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