The Tariff Equivalent and Forgone Trade Effects of Prohibitive Technical Barriers to Trade

Yue, Chengyan; Beghin, John C.

American Journal of Agricultural Economics Vol. 91 no. 4 (November 2009): 930-941. (Originally published as WP #07027, October 2007 (Revised on April 24, 2008))

We derive a method to econometrically estimate the tariff equivalent and foregone 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 nontariff trade 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 TBTs would induce net welfare gains around US$50 million annually for Australia.

JEL Classification: F13, Q17, Q18

Keywords: Corner solution, Kuhn-Tucker model, New Zealand apples, nontariff barrier, NTB, prohibitive, random utility, TBT, technical barrier to trade, SPS, phytosanitary

Published Version