ABSTRACT

In the wake of trade liberalization, countries have decreased traditional tariffs dramatically, while non-tariff measures have substantially increased, and are proving “sand in the wheel of trade”. NTMs are important for public health and environment but if such standards are mutually recognized through bilateral or multilateral agreements then the hectic and lengthy procedures can be avoided. This is the basic hypothesis investigated and checked in this research. For this purpose, a novel approach is used by combining the econometric model with CGE model. First, econometric model is derived, and baseline effects of non-tariff measures are estimated numerically in the form of their ad-valorem equivalent (AVE) values, then assumption of mutual recognition is imposed and AVEs are estimated again for non-tariff measures imposed by Pakistan and by its trading partners. For this purpose, Price Gap approach is utilized with latest data on NTMs available through ITC. Then MyGTAP model is extended by integrating SAM (2015) for Pakistan into CGE model to gauge the economy wide effects of these NTMs in both, with and without mutual recognition. Results show that Overall textile & wearing apparel sector is facing much of the NTMs manifested in the higher AVE values for this sector. Developed countries, especially EU-27 impose strict SPS measures on Agri- related sectors, meat & livestock, and processed food. While TBT measures are mostly imposed on textile & wearing apparel, extractions, heavy and light manufacturing sectors. Results show a substantial decrease in AVE values in case of mutual recognition of standards, which means Pakistan can get its traders facilitated if such arrangements are negotiated. CGE results for bilateral partners show that in case of China, Pakistan’s welfare gain is equal to $ 399 million, it is $ 900 million in case of EU-27, and $ 530 million in case of UK. Pakistan’s welfare is losing by $ 389 million due to proposed mutual recognition of standards in RCEP, however if Pakistan makes recognition arrangements with RCEP, its welfare increases by $ 1.14 billion. Based on the results and after consultation with the stakeholders, study suggests that Pakistan should improve the local NTM infrastructure, should upgrade domestic laboratories and then should negotiate with trading partners, especially EU-27, UK, China, and RCEP, for the mutual recognition of standards.