Non-tariff Measures and Regulatory Alignment in a North-South Context: Assessing Compliance Costs for Tunisian Agriculture under the EU-Tunisia Free Trade Agreement (ALECA)

Abstract

Abstract Non-Tariff Measures (NTMs) are usually defined as trade costs. Their reduction through regulatory alignment increases trade and could thus be beneficial for countries concerned. NTMs include any regulations at and behind the border (i.e. domestic regulations) that may have an impact on trade. This view of NTMs does not account for potential benefits on public policy goals, welfare, value addition and trade flows. Further, asymmetrical NTM alignment between countries with strongly divergent regulatory standards will cause adjustment and compliance costs. Here we integrate the effects of compliance costs for producers emerging from regulatory alignment into the ‘ÖFSE Global Trade’ model. We use the ongoing negotiations on the Deep and Comprehensive Free Trade Agreement between the EU and Tunisia (ALECA) to empirically assess the compliance costs for Tunisian agricultural producers to align to EU standards and model potential economic impacts. Scenario designs for our simulation analysis build on firm surveys. Results show that North-South trade agreements with asymmetrical regulatory alignment involve substantial adjustment costs for Southern producers and lead to losses in exports, value-added and employment, resulting in high economic and social costs that need to be weighed by policy-makers against any perceived long run gains from regulatory alignment.