The Impact of NTMs on Agro-food Trade between the EU and Selected

MENA Countries Serhat Asci, A. Ali Koç, and M. Şükrü Erdem

September 25-26, 2014

Workshop on Agricultural Trade and Food Security in the Euro-Med Area

Antalya, Turkey

Objective • Exporters have to comply with non-tariff measures

(NTM) including standards and other requirements in order to supply foreign markets.

• The objective of this study is an attempt to measure the impacts of technical barriers, institutional quality and infrastructure on trade, particularly agro-food trade between selected MENA countries/Turkey and the EU-28, using the gravity model with unbalanced panel data analysis.

• Gravity model measures the impact of various trade costs and measures on the trade flows.

• Some recent studies applied gravity model in agro-food trade includes (Francois and Manchin 2007; Bao and Qui 2010; and Xiong and Beghin 2012).

Non-Tariff Measures • World Trade Organization (WTO): Countries have rights to take

precautions and to impose measures necessary to protect human, animal or plant life or health.

• These rights do not count as tariffs or quotas. • However, these technical regulations are now being used as

political means in place of diminished tariffs and removed quotas.

• Types of NTMs: – Technical barriers to trade (TBT ): Technical and information

requirements, – Sanitary and phytosanitary (SPS) measures: Import bans due to

disease outbreaks, – Investment protection, – Public procurement, – Competition policy, – Tariff rate quotas.

MENA Countries • MENA countries are characterized by:

– High unemployment rate (among youth and university graduated),

– High poverty ratio,

– Highly dispersed inequality situation,

– Severe trade, current balance and budget deficit positions

– Import dependency on essential foods.

• Sensibility to internal/ external shocks (such as world food price spike): – Resource scarcity (per capita water and land)

– Climate change impact,

– Misuse or misallocation of the resources

– Environmental overshoot position (carbon blueprint/bio-capacity)

Turkey and the EU Trade Integration • Turkey and the EU trade integration relation started with Ankara

Partnership Agreement in 1963.

• Under customs union agreement with the EU (started in 1996), Turkey undertook setting external tariffs no higher than those in the EU (except for a small number of goods) and agreed to provide preferential treatment EU imports.

• Customs union moderately led to a decline in the simple average tariff rate for imports from 27% in 1993 to 13% in 1998 (Togan, 2012). These measures have led to a more open economy, as the ratio of trade to GDP rose from 34% in 1995 to 49.5% in 2012 (Turkish Ministry of Economy, 2013).

• In addition, Under accession negotiations with the EU (started in October 2005), Turkey has significantly improved its institution including harmonization of trade and competition rules and infrastructure including food quality and safety control system.

Egypt and the EU Trade Integration • Egypt signed an Association Agreement with the EU in June 2001

and came into force in June 2004 which involves a free trade agreement for industrial products, preferential access for agri-food trade.

• A further bilateral trade liberalization agreement between Egypt and the EU was signed on agricultural, processed agricultural products and fish/fishery products in October 2009. This agreement facilitates the dismantling of applied tariffs and only a few numbers of sensitive products subject to protection from both sides.

• Recent data indicates that trade increased from €11.5 billion in 2004 to €23.3 billion in 2011 under the Association Agreement, and the value of imported agricultural products by the EU rose from €527 million in 2009 to €604 million in 2011 under the agricultural agreement (JRC-IPTS, European Commission 2013b).

Morocco and the EU Trade Integration

• The Euro-Mediterranean Partnership started in November 1995 which brought the Morocco-EU Association Agreement in force on March 1st, 2000.

• Moreover, Morocco requested “Advanced status” within the European Neighbourhood Policy (ENP) in 2008 which further strengthen Morocco and the EU relationship.

• Lastly, the European Commission concluded the negotiations with Morocco on the Agricultural Protocol in December 2009 which came into force in March 2012 (JRC-IPTS, European Commission 2013b).

• The latter protocol eliminated tariff rate quotas (TRQs) for allowing full duty-free access to the EU market over time.

Tunisia and the EU Trade Integration

• Euro-Mediterranean Association Agreements signed in 1995 between the Tunisia and the EU for the trade liberalization of the agricultural sector which came into force in 1998.

• Since January 2001, trade in agricultural and food products has been governed by the 2000 Agreement, which followed the Association Agreement of 1995 and established a reciprocal tariff concessions granted by both parties.

• The process of trade liberalisation between Tunisia and EU will be further enhanced by the opening of new trade negotiations in order to establish deep and comprehensive free trade areas (DCFTA) and Tunisia’s obtaining of the “Statut Avancé”, on November 19th, 2012 (JRC-IPTS, European Commission 2013b).

New EU Directive on Free Trade with MENA Counties

• The EU adopted negotiating directives at the end of 2011 for deep and comprehensive free trade areas (DCFTAs) with Egypt, Tunisia, Morocco and Jordan in order to strengthen democracy and economic reforms in these MENA countries (JRC-IPTS, European Commission 2013b).

• These agreements aim not only to remove tariffs in trade but also to protect investments and intellectual property and to standardize rules of origin and competition policies (European Parliament, 2012).

• Moreover, there has been a significant decline in public sector support for agriculture for 20 years that leads a lost to access key inputs and services for producers.

• Therefore, DCFTA on the agri-food sector would have a significant impact on agricultural policies and agri-food trade.

Data and Model • The bilateral trade data between MENA (Israel, Morocco, Tunisia, Egypt), Turkey

and EU-28 ): EUROSTAT database for period 1988-2010. Total trade, Food products, Industry goods, and fruits/vegetables (HSC-1988).

• Non-tariff barriers index (Fraser Institute): Survey data from Global Competitiveness Report and World Bank’s Doing Business data on compliance cost.

• Institutional quality (economic freedom index from Fraser Institute): Forty-two World Bank, IMF and UN indicators are used to construct a summary index in five broad areas: Size of Government, Legal System and Property Rights, Sound Money, Freedom to Trade Internationally, Regulation.

• Infrastructure indexes (computed from World Bank indicators): Internet and land/mobile phone membership, roads paved, ATMs, air cargo freight.

• Gravity Model:

• lnM: Bilateral Trade Value (in $) • lnGDP: Income, Gross Domestic Products- current; • lnPop : Populations; • lnDist : Distance ; • lnNTB: Non-tariff barriers; • lnEFW: Institutional quality; • lnINF : Infrastructure index; • FTA_Dummy: Free Trade Agreement Dummy. • i – exporter country; j – importer country; t – time; and ln – natural logarithm.

ijt

k

it

k

it

k

it

k

jtij

jttijtit

k

tij

DummyFTAINFEFWNTBDist

imPopexPopimGDPexGDPM

_lnlnlnln

_ln_ln_ln_lnnl

1110985

43210

Data Interpolation - 1

0

10

20

30

40

50

60

70

80

1988 1993 1998 2003 2008 2013

TRA

DE

VA

LUE

(BIL

LIO

N E

UR

O)

TURKEY VS EU-28

Food - Export Industry Goods - Export

Food - Import Industry Goods - Import

Customs Union

Data Interpolation - 2

0

10

20

30

40

50

60

1988 1993 1998 2003 2008 2013

TRA

DE

VA

LUE

(BIL

LIO

N E

UR

O)

MENA COUNTRIES VS EU-28

Food - Export Industry Goods - Export

Food - Import Industry Goods - Import

Association Agreements (Egypt, Israel and Morocco)

Assoc. Agree. (Tunisia)

Results • Gravity Estimation Results between MENA Countries and EU-28

In the parenthesis are standard errors. *** significant at 1% level; ** significant at 5% level; * significant at 10% level

Selected MENA Countries

Total Trade Fruits/Vegetables Trade

Intercept 7.564*** 7. 602*** 4.216** 5.877**

(0.993) (0.999) (2.148) (2.063)

lnGDP_importer 0.388*** 0.350*** 1.035*** 1.035***

(0.030) (0.034) (0.064) (0.077)

lnGDP_exporter 0.662*** 0.658*** -0.231*** -0.309***

(0.030) (0.030) (0.069) (0.072)

lnPOP_importer 0.618*** 0.631*** -0.119 -0.148

(0.052) (0.052) (0.111) (0.108)

lnPOP_exporter 0.287*** 0.291*** 1.407*** 1.464***

(0.052) (0.052) (0.122) (0.117)

lnDist -0.521*** -0.521*** -0.561** -0.525**

(0.118) (0.118) (0.251) (0.235)

lnNTB -0.160* -0.179

(0.097) (0.225)

lnEFW 0.370*** -0.425

(0.132) (0.310)

Free Trade Agreements - dummy -0.048* -0.057***

(0.026) (0.012)

lnINF 0.003 0.011

(0.014) (0.059)

n-observation 4660 4660 3603 3603

R-Squared 0.452 0.457 0.139 0.147

F-Test F(3,4651)=16.37** F(3,3597)=9.43**

Results • Gravity Estimation Results between MENA Countries and EU-28

In the parenthesis are standard errors. *** significant at 1% level; ** significant at 5% level; * significant at 10% level

Selected MENA Countries

Food Products Industry Goods (excl. fuel/petr.)

Intercept 3.782*** 4. 691*** 7.069*** 7.093***

(1.648) (1.655) (1.007) (1.014)

lnGDP_importer 0.429*** 0.438*** 0.374*** 0.329***

(0.054) (0.062) (0.031) (0.035)

lnGDP_exporter 0.293*** 0.256*** 0.707*** 0.703***

(0.054) (0.055) (0.031) (0.031)

lnPOP_importer 0.523*** 0.503*** 0.652*** 0.670***

(0.087) (0.088) (0.053) (0.053)

lnPOP_exporter 0.899*** 0.927*** 0.282*** 0.287***

(0.087) (0.087) (0.053) (0.053)

lnDist -0.156 -0.142 -0.547*** -0.547***

(0.194) (0.191) (0.119) (0.120)

lnNTB -0.190 -0.167*

(0.190) (0.101)

lnEFW 0.196 0.433***

(0.264) (0.138)

Free Trade Agreements - dummy -0.190 -0.169*

(0.190) (0.101)

lnINF -0.083* -0.028

(0.050) (0.027)

n-observation 4422 4422 4659 4659

R-Squared 0.116 0.120 0.444 0.446

F-Test F(3,4416)=16.37** F(3,4653)=9.43**

Results

In the parenthesis are standard errors. *** significant at 1% level; ** significant at 5% level; * significant at 10% level

• Gravity Estimation Results between selected MENA Countries and EU-28 Turkey Egypt

Total Trade Fruits/Vegetables Trade Total Trade Fruits/Vegetables Trade

Intercept -5.392** -5.418** 0.926 0.344 10.801*** 11.358*** -5.944 -6.140

(2.278) (2.259) (2.247) (3.624) (2.617) (2.643) (5.402) (4.963)

lnGDP_importer 0.590*** 0.503*** 1.317*** 1.112*** 0.590*** 0.761*** 1.701*** 1.605***

(0.062) (0.080) (0.118) (0.156) (0.055) (0.068) (0.136) (0.166)

lnGDP_exporter 0.743*** 0.766*** -0.643*** -0.588*** 0.280*** 0.275*** 0.363** 0.427**

(0.062) (0.063) (0.119) (0.122) (0.055) (0.056) (0.141) (0.137)

lnPOP_importer 0.912*** 0.922*** -0.033 0.137 0.828*** 0.727*** -0.426 -0.437*

(0.130) (0.138) (0.211) (0.232) (0.126) (0.129) (0.269) (0.259)

lnPOP_exporter 0.898*** 0.845*** 2.634*** 2.601*** 0.464*** 0.412*** 1.108*** 1.040***

(0.130) (0.129) (0.229) (0.227) (0.126) (0.129) (0.305) (0.283)

lnDist 0.345 0.401 -0.460 -0.440 -0.863*** -0.868*** -0.933 -0.898

(0.290) (0.287) (0.462) (0.458) (0.304) (0.307) (0.629) (0.573)

lnNTB -0.283* -0.053 -0.394** -0.702

(0.144) (0.311) (0.192) (0.534)

lnEFW 0.555** 1.017** -0.651** 1.957

(0.229) (0.483) (0.261) (0.727)

lnINF -0.054*** 0.104 0.008 0.614

(0.016) (0.108) (0.027) (0.444)

n-observation 932 932 818 818 932 932 739 739

R-Squared 0.752 0.757 0.305 0. 311 0.460 0.469 0.373 0. 373

F-test F(3,923)=5.02** F(3,809)=2.35* F(3,923)=16.37** F(3,730)=0.19

Results

In the parenthesis are standard errors. *** significant at 1% level; ** significant at 5% level; * significant at 10% level

• Gravity Estimation Results between selected MENA Countries and EU-28 Tunisia Morocco

Total Trade Fruits/Vegetables Trade Total Trade Fruits/Vegetables Trade

Intercept 14.132** 14.209** 17.274** 17.558** 19.826*** 19.073*** 10.246 9.118

(2.019) (2.032) (6.362) (6.158) (3.171) (3.310) (9.603) (10.018)

lnGDP_importer 0.131** 0.067 0.624*** 0.713*** 0.183*** 0.009 0.752*** 0.535***

(0.054) (0.056) (0.190) (0.201) (0.063) (0.079) (0.168) (0.204)

lnGDP_exporter 0.456*** 0.420*** -0.753*** -0.660*** 0.552*** 0.550*** -0.582*** -0.559***

(0.054) (0.055) (0.205) (0.209) (0.063) (0.071) (0.179) (0.188)

lnPOP_importer 0.903*** 0.823*** 0.382 0.506 0.995*** 1.133*** 0.914*** 1.074***

(0.117) (0.120) (0.390) (0.385) (0.111) (0.120) (0.329) (0.347)

lnPOP_exporter 0.746*** 0.823*** 1.788*** 1.571*** 0.658*** 0.669*** 2.037*** 2.065***

(0.117) (0.120) (0.420) (0.424) (0.111) (0.118) (0.430) (0.442)

lnDist -0.702*** -0.672*** -0.882 -0.915 -1.893*** -1.975*** -1.018 -1.100

(0.230) (0.231) (0.717) (0.690) (0.372) (0.381) (1.131) (1.166)

lnNTB -0.183 -0.471 -0.094 -0.065

(0.144) (0.672) (0.332) (0.741)

lnEFW 0.628*** -0.525 1.671*** 1.889*

(0.193) (0.483) (0.467) (0.993)

lnINF 0.002 -0.009 0.073* 0.076

(0.017) (0.432) (0.039) (0.138)

n-observation 932 932 782 782 932 932 655 655

R-Squared 0.53 0.53 0.04 0. 04 0.34 0.35 0.08 0. 08

F-test F(3,923)=16.37** F(3,773)=16.37 F(3,923)=16.37 F(3,646)=16.37

Conclusion • Institutional and infrastructure quality on total trade-volume exhibits positive

relationship between selected MENA countries and EU-28

• We capture negative effect of non-tariff barriers on trade-volume (Only in total and industry goods).

• Free trade agreements negatively effect the trade flow.

• In the disaggregated models results suggest that institutional quality generally has positive impact on trade flow except for Egypt.

• We do not observe substantial impact of infrastructure on trade with the EU.

• The estimated parameters for non-tariff barriers confirm negative impact on trade although we capture a few statistical significant coefficients in the results.

• One of the important results obtained in this study is that fruits/vegetable exports from MENA countries to the EU will decline as GDP increasing in all MENA countries except Egypt. The result implies that MENA countries will further more import dependent countries in terms of food-security as GDP increasing.

References • Bao, X. and L.D. Qiu, 2010. Do Technical Barriers to Trade Promote or Restrict Trade? Evidence from China. Asia-Pacific Journal of

Accounting & Economics, 17: 253-278.

• Beghin, J.C. and J.C. Bureau, 2001. Quantification of sanitary, phytosanitary, and technical barriers to trade for trade policy analysis. Working Paper 01-WP291. Center for Agricultural and Rural Development, Iowa State University

• Bergstrand, J., 1989. The Generalized Gravity Equation, Monopolistic Competition and Factor Proportions Theory in International Trade. Review of Economics and Statistics 71, February, 143-53.

• Breisinger C, Ecker O, Al-Riffai P., and Y, Bingxin, 2012. Beyond the Arab Awakening: Policies and Investment for Poverty Reduction and Food Security, IFPRI, Washington, DC, February 2012.

• European Commission, 2013a. Economic Growth in the Euro-Med Area through Trade Integration: Focus on Agriculture and Food, JRC Scientific and Policy Report Regional Impact Analysis (Report EUR 26231 EN), Authors: Aikaterini Kavallari, Marie-Luise Rau, Martine Rutten, Editors: Pierre Boulanger and Robert M'barek.

• European Commission, 2013b. Economic Growth in the Euro-Med Area through Trade Integration: Focus on Agriculture and Food, North Africa case studies (Egypt, Morocco, Tunisia), Report EUR 26233 EN, Authors: Mohamed Ben Abdallah, Abdelkader Ait El Mekki, Gamal Siam, Editors: Pierre Boulanger, Aikaterini Kavallari, Manuel Alejandro Cardenete, Marie-Luise Rau.

• European Parliament, 2012. Egypt – A strategic partner for the EU, Policy Briefing, Directorate-General for External Policies, Policy Department, Belgium, November.

• Francois, J. and M. Manchin, 2007. Institutions, infrastructure, and trade, Policy Research Working Paper Series 4152, The World Bank.

• Global FootPrint Network, 2012. Mediterranean Ecological FootPrint Trends Report, (www.footprintnetwork.org, Mediterranean_report_FINAL.pdf )

• Maskus, K.E., Wilson, J.S., and Otsuki, T., 2001. An Empirical Framework for Analyzing Technical Regulations and Trade. In: Maskus, K.E. and Wilson, J.S. (Eds.), Quantifying Trade Effect of Technical Barriers: Can it be done?. University of Michigan Press, Ann Arbor, MI.

• Xiong B. and J. Beghin, 2012. Does European aflatoxin regulation hurt groundnut exporters from Africa?, European Review of Agricultural Economics, 39(4): 589-609.

• http://databank.worldbank.org/

• http://epp.eurostat.ec.europa.eu/