Heterogeneity Index of Trade and Actual Heterogeneity Index – the case of maximum residue levels (MRLs) for pesticides

Non-tariff measures (NTMs) beyond traditional trade policy instruments define the requirements that importing countries imposed on foreign products. Due to differences across countries, requirements for supplying foreign markets can lead to trade costs and thus hamper international trade. In this paper, we introduce two regulatory heterogeneity indexes which are subsequently applied to the case maximum residue levels (MRLs) of pesticides. The Heterogeneity Index of Trade (HIT) reflects the respective differences across countries based on the assumption that the mere fact of difference in requirements causes trade costs. Taking the HIT index as a starting point, the Actual Heterogeneity Index (AHI) specially considers the situation where the requirements demanded by the importing country are stricter than those of the exporting country. The focuses is on the pesticide MRLs that the EU27 and 10 trade partner countries (Argentina, Australia, Brazil, Canada, China, Japan, New Zealand, Russia and the US) apply on a set of agri-food products (cheese, beef, pig meat, potatoes, tomatoes, apples and pears, aubergines, peppers, maize, barley and rape seed). In particular, we take the EU export perspective as the benchmark for the comparison and calculate the indexes. The indexes identify if the respective MRLs are similar or dissimilar, equal, stricter or more lenient, and the results of our analysis thus point out potential areas for negotiating equivalence or other strategies in order to overcome the possible trade-restricting impact of diverging MRLs.