Technical Measures to Trade in Central America : Incidence, Price Effects, and Consumer Welfare

Despite the widespread tariff reductions
sparked by the Dominican Republic-Central America Free Trade
Agreement, borders in the region remain thick, with many
hurdles standing in the way of regional trade. Although
anecdotal evidence suggests that nontariff measures raise
trade costs and inhibit trade in the region, little is known
about the magnitude of these economic effects. This paper
uses a newly collected data set to quantify the incidence of
sanitary and phytosanitary measures and technical barriers
to trade in the region and benchmarks it with other parts of
the world. The results indicate that the Central American
region has the lowest prevalence of technical nontariff
measures in the world. However, there is significant
heterogeneity of trade-related regulations in Central
America; for instance, 48 percent of Salvadoran imports are
subject to at least one nontariff measure, compared with
just 16 percent of Honduran imports. The paper estimates the
impact of these technical measures on border prices and
finds that the price impact of sanitary and phytosanitary
measures is equivalent to an ad-valorem tariff of 11.6
percent. This price-rising effect is further investigated by
looking in detail at the impact of sanitary and
phytosanitary measures on the prices of beef, chicken meat,
bread, and dairy products in Guatemala. The impact is
estimated to be equivalent to an ad-valorem tariff of 68.4
percent, 51.4 percent, 22.0 percent, and 5.0 percent,
respectively. The paper shows that efforts to streamline key
sanitary and phytosanitary measures affecting these products
by, for example, reducing the cost and time required to
obtain sanitary registries, would likely reduce the
Guatemalan urban extreme poverty rate from 5.07 percent to
4.91 percent.