Impact of non-tariff measures (NTMs) on the bilateral trade of swine meat between Spain and China

The swine sector is one of the most important livestock industries in terms of global production, consumption and international trade. With the increase in worldwide demand for meat, fast-growing species with efficient feed conversion rates, such as pork, account for a major share in the growth of the livestock sector (FAO, 2014). In Spain, the swine sector plays the most important role within the livestock industry. Almost half of the local Spanish swine meat production is destined to export markets all over the world. Major destinations include the European Union and Asian countries, where China is the principal destination. Swine meat exports have witnessed a significant increase since 2007, year when a trade protocol was signed between the Chinese and Spanish governments were the main rules and regulations which would dictate the trade between these countries were outlined. International trade is mostly affected by trade policy which in turn differentiates between tariffs and non-tariff measures (NTMs). While tariffs are quite straightforward, NTMs are complex and there is a general perception that they are replacing tariffs as an alternative form of protectionism, and accordingly, are becoming increasingly relevant in trade negotiations. The objective of this study is to identify and describe the NTMs affecting Spanish swine meat exports to China and further quantify the trade impact and calculate the ad-valorem equivalent (AVE) of these NTMs, by means of a gravity equation approach. In the Trade Analysis Information System NTMs database (TRAINS) accessed through the World Integrated Trade Solutions (WITS) portal we identify 16 NTM subcategories affecting Spanish swine meat exports to China that later can be used in the estimation stage: 13 SPS (Sanitary and Phytosanitary) and 3 TBT (Technical Barriers to Trade). The main results obtained from the qualitative information show that China imposes less NTMs compared to other important destinations of swine meat, thus representing a favorable destination for Spanish exporters. Regarding the quantitative results, 6 gravity equations are estimated using the Poisson Pseudo Maximum Likelihood (PPML) estimator. We make use of two broad subsamples, one identifying the meat sector and the other the swine sector, consisting of a panel with a maximum of 40 importers; 201 exporters; 78 HS6-digit products; and four years, 2012 to 2015. The gravity equations are expanded to include, besides the usual economic, cultural and geographical explanatory variables, the frequency of NTMs disaggregated at 4 digits according to the 2012 classification system (UNCTAD, 2015) and calculated from raw data obtained from the TRAINS NTMs database. The main results obtained from the estimated models show that thirteen out of the sixteen NTMs categories affecting Spanish swine meat exports to China are found to have a significant impact on trade, seven of which have a trade restricting impact, while 6 have a trade promoting effect. In this sense, our results concur with the recent literature that posits both, a restricting and enhancing trade impact of NTMs. Removal of all trade restricting NTMs that affect Spanish swine meat exports to China would lead to a total trade value of USD 2.5 billion in the period 2012-2015, doubling observed trade (USD 1.2 billion). Removal of trade enhancing NTMs, on the other hand, would reduce trade to USD 0.5 billion in the same period. As a conclusion, the net effect of total removal of NTMs would be an increase in observed trade between Spain and China of USD 800 billion. Finally we make use of the estimations of each NTM subcategory to calculate their tariff equivalent (AVE). Interestingly, when a trade impeding effect is found, the respective AVE is above the tariff faced by Spanish exporters to China. The highest AVE is calculated for the NTM subcategory A120 (34 per cent), which is related to ‘prior inspection and clearance of establishments wishing to export swine meat in China’. This figure is highly consistent with the European Commission assessment of this measure as a key barrier. Other categories with high AVEs are A220 (24 per cent) and A851 (20 per cent), related to the use of food additives and country of origin disclosure in pre-packaged food, respectively. Interestingly, not necessarily more regulation through a greater number of NTMs and more coverage of subsectors imply higher AVEs or trade-restricting effects. On the other hand, the most trade promoting effect is calculated for NTM subcategories A210 and A820 with an AVE of -14 per cent each. The measures cover sanitary and health issues, establishing, for instance, maximum residues limits of contaminants, radioactive materials and veterinary drugs. Accordingly, complying with these specific NTMs increases demand in importing countries, and facilitates access to the Chinese market. As a conclusion we can distinguish between trade restricting categories of NTMs that negatively affect Spanish exports of swine meat to China (A120, A220, A310, A410, A851, B810 and B820) and trade promoting categories (A210, A820, A840, A850, A860 and B310). We hope that this information will help different actors involved in international trade and policy to consider the simplification and-or strengthening of compliance with these NTMs.