intermediate inputs

about SPS and TBT measures by countries in the region (see figure 4.2). The weak role of transparency could be because of poor enforcement of such provisions in Latin American and Caribbean PTAs.

Imports of intermediate inputs increase significantly for Latin American and Caribbean countries that sign PTAs with larger numbers of overall or essential TBT provisions. Signing a PTA with the maximum number of total TBT provisions (the 2009 Peru–Chile PTA) increases the value of imports of intermediate inputs for the region’s countries by 70 percent, after the depth of the PTA and tariff reductions are accounted for (figure 4.10, first bar). Signing a PTA with the maximum number of essential TBT provisions increases the imports of intermediate inputs for the region’s countries by more than 80 percent (figure 4.10, second bar). Imports of intermediate inputs respond substantially less for the countries signing PTAs with small numbers of provisions (figure 4.10, darker small rectangle in the first bar).

The increases in imports of intermediate inputs when PTAs include more TBT provisions are significantly larger for Latin American and Caribbean countries than for countries outside the region (annex 4D, table 4D.1). These findings on the impact on imports of intermediate inputs highlight the importance of SPS and TBT integration in a world of GVCs where intermediate inputs flow across borders and trade costs accumulate across the supply chain.

Figure 4.10 Estimated impacts of TBT provisions, by type, on Latin American and Caribbean imports of intermediate inputs

Increase in import value of intermediates (%) 100

80

60

40

20

0

All TBT Essential TBT Transparency TBT

Peru–Chile, 2009 EFTA–Mexico, 2001

Source: World Bank calculations. Note: The figure shows the calculated magnitude of added value of imports of intermediate inputs from increasing the number of specific technical barrier to trade (TBT) provisions to the levels in two different preferential trade agreements (PTAs): the 2009 Peru–Chile PTA (considered a deep PTA in sanitary and phytosanitary [SPS] and TBT provisions) and the 2001 European Free Trade Agreement (EFTA)–Mexico PTA (considered a shallow PTA in SPS and TBT). The figure shows increases in import value after the depth of the PTA and tariff reductions are accounted for. “Essential” provisions are those that require specific liberalization and integration commitments and obligations; relate to procedures, transparency, and enforcement; or relate to achievement of SPS and TBT integration. The light-shaded bar indicates insignificant effects in the case of the Peru–Chile PTA.

SPS and TBT integration in PTAs can have heterogeneous effects on trade across firms depending on firm size, but the aggregate impacts of SPS and TBT provisions in PTAs on bilateral exports can mask significant differences across firms.

SPS and TBT regulations require firms to make changes to their production processes or to other investments to comply with destination country regulations that differ from those of the home country. Increasing these fixed costs to trade can be prohibitive for small firms (Macedoni and Weinberger 2020). Business surveys from the multilateral International Trade Center consistently show that the costs of complying with NTMs are a barrier to trade for small firms (WTO 2012). Background work for this report focused on firms in Chile, Colombia, and Peru from 1996 to 2015, examining whether integrating regulatory trade barriers in PTAs alleviated burdens and benefited small firms (Fernandes, Lefebvre, and Rocha 2021).18

For small firms (in the lowest tercile of firm export value), agricultural and food exports increase substantially in Latin American and Caribbean countries that sign PTAs with larger numbers of overall or essential SPS provisions. A PTA with the maximum number of total SPS provisions (the 2009 Peru–Chile PTA) increases these firms’ agricultural and food exports by close to 30 percent on average in Chile, Colombia, and Peru (figure 4.11, panel a). A substantially larger increase—50 percent—is estimated for small firms’ agricultural and food exports if the PTA includes the maximum number of essential SPS provisions (figure 4.11, panel b). The benefits of SPS provisions in PTAs for exports of larger firms (those in the middle and highest terciles of firm export value) are not statistically significant (figures 4.11, panels a and b).

In contrast to evidence at the aggregate level, both mutual recognition and harmonization provisions for SPS foster significant increases in agricultural and food export value for small firms. Such exports for small firms in Chile, Colombia, and Peru increase by 40 percent on average if a PTA includes mutual recognition provisions for SPS, relative to PTAs without such provisions (figure 4.11, panel c). If the PTAs include harmonization provisions for SPS, they boost the export response even higher for small firms—with an average increase in export value of 50 percent (figure 4.11, panel d).

As for large firms, exports do not change significantly if their countries sign PTAs with mutual recognition provisions for SPS (annex 4E, table 4E.2), but they do increase by about 15 percent in response to the entry into force of a PTA with harmonization provisions for SPS (figure 4.11, panel d).

Small firms’ exports also increase substantially in Latin American and Caribbean countries that sign PTAs with larger numbers of overall or essential TBT provisions. Signing a PTA with the maximum number of total TBT provisions (the Peru–Chile PTA of 2009) leads to a 40 percent average increase in exports for small firms in Chile, Colombia, and Peru (figure 4.12, panel a).19 A substantially larger response—more than 60 percent—is estimated on smaller-firms’ exports if the PTA includes the maximum number of essential TBT provisions (figure 4.12, panel b). These strong micro-level