Trade Costs of Non-Tariff Measures: A Paprika Case

Abstract

This paper aims to identify and quantify the effect of Non-tariff measures (NTMs) on trade. Defining NTMs as stringent sanitary and phytosanitary (SPS) measures, this study investigates the extent to which the measure impedes Korea’s paprika export to Japan. The production of Korean paprika began in the 1990s with most of the product exported to Japan. Japan is the world's largest importer of paprika in which Korea maintains about a 72 percent market share. Modeling results suggest that the NTMs amount to 3~12 percents in tariff equivalents, which are greater than a 3 percent bound tariff in an ad valorem term. The Price-Demand Model and the import demand function are adopted to estimate the trade costs of the NTMs. Results of counter-factual simulations indicate Korea’s paprika exports would increase by 10 percent in comparison to a baseline case. When tariffs and the NTMs are removed altogether, Korea’s paprika exports would increase by 16 percent.