An Analysis on the Non-Tariff Measure Effect of the Korea-ASEAN FTA on Bilateral Trade in Goods

Abstract

The paper quantifies the trade volume effect of Korea-ASEAN Free Trade Agreement in light of liberalization through non-tariff measures. As the level of liberalization differ by sectors and product classes, the paper conducted analysis on more disaggregated level

processed food sector and nine product classes. To measure the trade volume effect of NTM liberalization took as part of the Korea-ASEAN FTA, the paper incorporates approaches from previous literature

1) a fixed-effect model with a directional fixed effect that accounts for multilateral resistance 2) gravity model in a multiplicative form to account for zero trade observation and 3) use of a PPML estimator to provide a consistent, unbiased estimator. To quantify the impact of the liberalization through the NTMs, the paper uses the residual effect, which is quantified by Korea-ASEAN dummies, by controlling for all possible trade costs including tariff barriers. The estimation shows that the mitigation of NTMs from signing Korea- ASEAN FTA had increased the bilateral trade volume between economies by 85.06%. For food sector, the trade volume effect was 25.86%. The product classes that faced one of the biggest volume effects were tobacco and starch products.