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RESEARCH AND ANALYSIS: WORKING PAPERS

Using Supply Chain Analysis to Examine the Costs of Non-Tariff Measures (NTMs) and the Benefits of Trade Facilitation

It has become increasingly common to produce goods in a number of geographically dispersed stages linked by international trade.

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It has become increasingly common to produce goods in a number of geographically dispersed stages linked by international trade. This tendency, known by names such as “production fragmentation”, “processing trade”, and “vertical specialization”, has important implications for the analysis of non-tariff measures (NTMs) and trade facilitation. First, different types of NTMs or trade facilitation issues are naturally associated with different stages in the movement of goods. Different price gaps can be assigned to these stages, making it possible to decompose the overall amount of distortion and to prioritize the policies with the largest potential efficiency gains. Second, NTMs may accumulate in long supply chains, implying that their trade-distorting effects are greater for goods produced in a fragmented manner than for goods with simple production processes. There is evidence that trade costs are more important for high technology goods or goods undergoing several stages of processing.  Issues with product standards may be particularly important for goods with long supply chains. The link between NTMs and supply chains also has implications for economic development and for the relationship between liberalization in services and goods.

No: ERSD-2012-02

Author:

Michael J. Ferrantino — U.S. International Trade Commission

Manuscript date: January 2012

Key Words:

trade costs, non-tariff measures, standards, intermediate goods

JEL classification numbers:

F13, F15, F29

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This is a working paper, and hence it represents research in progress. This paper represents the opinions of the author, and is the product of professional research. It is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors are the fault of the author. Copies of working papers can be requested from the divisional secretariat by writing to: Economic Research and Statistics Division, World Trade Organization, Rue de Lausanne 154, CH 1211 Geneva 21, Switzerland. Please request papers by number and title.

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