# **1. Introduction**

Broadly defined, Non-Tariff Measures (henceforth NTMs) are policy measures, other than ordinary customs tariffs, that may have an economic effect on international trade in goods by changing quantities traded, prices or both (UNCTAD, 2010). The fall in tariffs in recent decades has been accompanied by an increase in the importance of NTMs in the international trade agenda. NTMs allow countries to address legitimate non-trade objectives such as the protection of human, animal, and plant health. The World Trade Organization (WTO) recognizes that countries are entitled to use NTMs in this manner. However, there are concerns that the multilateral reduction of traditional trade barriers has tempted countries to replace tariffs with NTMs and to use them to protect domestic interests (Fischer and Serra, 2000, Aisbett and Pearson, 2012).

The potential benefits of NTMs are evident, but it is important for policy makers to be cognizant of the costs associated with them. Unlike traditional trade policy instruments, such as tariffs, where the associated price increases are well understood, the costs associated with NTMs are more difficult to immediately quantify. Kono (2006), for instance, finds that democracy induces politicians to reduce tariffs but to increase the use of less transparent NTMs, and hypothesizes that this allows them to protect the domestic market but still to appeal to voters who prefer liberal trade policies. Although the outcome is the same, the price increases are less transparent to both policy makers and the public when NTMs are employed. Even when used legitimately and without protectionist intent, NTMs can have a major economic impact, potentially affecting regional integration, impacting domestic prices, diverting managerial attention, and penalizing small exporters. Countries imposing them may end up hurting their own poor (as NTMs may increase the price of key staples) and hampering the competitiveness of their own private sector (as NTMs may affect the price of imported inputs). The development an accurate metric of the costs of NTMs is thus important as it will inform policy makers of the minimum social benefit which is required to justify the presence of an NTM.

This paper has a particular focus on Central America. Despite the widespread tariff reductions sparked by the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), Central American borders remain thick, with many hurdles standing in the way of regional trade (see Gordillo et al., 2010). Anecdotal evidence suggests that NTMs raise trade costs and inhibit trade in the region (see, for example, Cato et al (2005) for an analysis of the impact of Sanitary and Phytosanitary (SPS) measures on the shrimp industry in Nicaragua). However, there is a dearth of empirical papers quantifying the economic effects of these regulations, and, traditionally, very limited data availability. Seemingly simple questions such as ‘what policy measures are imposed by a country?’ or ‘what types of measures are faced by particular products?’ can often not be answered due to a lack of appropriate data.

In order to fill this gap, and in response to the increased interest of both policy makers and researchers in the region, the World Bank, in collaboration with the United Nations Conference on Trade and Development (UNCTAD), initiated a new effort to collect NTM data in Central America. During the second half of 2012, NTM data was collected in Nicaragua, Guatemala, El Salvador, Honduras, and Costa Rica. This endeavor complemented a multiagency effort to gather NTM data worldwide (see Cadot and Malouche, 2012). To date, this program has resulted in the collection of NTM data in 48 countries. At the 2