Liberalizing Non-Tariff Measures through Regional Trade Agreements: the Impact on Multinational Production

Modern Regional Trade Agreements (RTAs) include, among other chapters, ones concerning Sanitary and Phytosanitary (SPS) measures and Technical Barriers to Trade (TBT). Drawing on recent literature highlighting the relationship between “deep” RTAs and the global organization of production, this paper empirically investigates whether these SPS and TBT provisions affect multinational production in the food, beverages and tobacco industry. To this end we combine two different databases to estimate, in a panel gravity framework, both the intensive and extensive margins of multinational production. Because the extensive margin of multinational production may be persistent, a dynamic probit specification is used. Our results show that legally enforceable SPS sections in RTAs, in particular, influence multinational production, though with a rather differentiated pattern in terms of intensive and extensive margins; further, the impact changes depending on the country of origin and destination.