The Tariff Equivalent and Forgone Trade Effects ofProhibitive Technical Barriers to Trade

We derive a method to econometrically estimate the tariff equivalent and foregone trade effectsof a prohibitive technical barrier to trade (TBT) based on Wales and Woodland’s Kuhn-Tuckerapproach to corner solutions in consumer choice. The method overcomes the lack of observeddata on bilateral trade flows and accounts for differentiated goods by place of origin. We applythe derived random utility model to international trade in apples to identify the tariff equivalentof prohibitive phytosanitary barriers imposed by Australia on potential imports of New Zealandapples. We estimate the forgone apple trade between the two countries, the implied trade injuryimposed by Australia on New Zealand, and the welfare loss to Australia. The removal of theAustralian policy would induce net welfare gains around US$50 million annually for Australia.[...]