ISSN: 2407-814X (p); 2527-9238 (e) AGRARIS: Journal of Agribusiness and Rural Development Research Vol. 8 No. 2 July-December 2022, Pages: 181-197 Article history: Submitted : March 30th, 2021 Revised : September 26th, 2022 January 24th, 2022 Accepted : October 7th, 2022 Imade Yoga Prasada1,*, Aura Dhamira2 1 Study Program of Agribusiness, Faculty of Science and Technology, Universitas Putra Bangsa, Kebumen, Indonesia 2 Agribusiness Department, Faculty of Agriculture, Universitas Pembangunan Nasional Veteran Yogyakarta, Indonesia *) Correspondence email: imade.yogap@gmail.com Non-Tariff Measures and Competitiveness of Indonesia’s Natural Rubber Export in Destination Countries DOI: https://doi.org/10.18196/agraris.v8i2.11392 ABSTRACT In the last few decades, the implementation of tariff policies between countries has declined. As a result, the enforcement of non-tariff measures (NTMs) experiences an increase. Implementing NTMs raises a new obstacle to trade activities in the global market, including the trade of Indonesia’s natural rubber. Therefore, this study was conducted to determine the effect of enforcing NTMs on the export competitiveness of Indonesia’s natural rubber. This study utilized secondary data from UN COMTRADE on 1995 to 2019. The data was analyzed using frequency index, coverage ratio, comparative advantage, and two-stage least square regression model. The results revealed that India, China, and the USA enforced the most NTMs of Indonesia’s natural rubber. Additionally, the implementation of NTMs in importing countries positively correlated to the export competitiveness of Indonesia’s natural rubber in destination countries. Keywords: Competitiveness; Destination countries; Indonesia; Natural rubber; Non tariff measures INTRODUCTION Free trade and protectionism are still being debated (Yeo & Deng, 2019). Relatively established countries desire more open trade and are concerned about the emergence of new trade tariff policies. However, developing countries still want protectionist policies to be enforced to protect their domestic industries. Tariffs on international trade increase deadweight losses, thereby reducing social welfare (Amiti, Redding, & Weinstein, 2019). Conversely, reducing or eliminating tariffs can escalate the growth of domestic consumption and production factors (Phat & Hanh, 2019). For the last few decades, the World Trade Organization (WTO) has successfully negotiated a tariff reduction within its member countries. Through the formation of the General Agreement on Tariffs and Trade (GATT) in 1947, the WTO continues to encourage free trade between member countries and reduce tariff barriers. In addition, the GATT seeks to liberate trade from quantitative restrictions and subsidies for various goods traded in the international market (Chin & Rusli, 2015). http://issn.pdii.lipi.go.id/issn.cgi?daftar&1420518152&1&& mailto:imade.yogap@gmail.com https://doi.org/10.18196/agraris.v8i2.11392 ISSN: 2407-814X (p); 2527-9238 (e) 182 AGRARIS: Journal of Agribusiness and Rural Development Research Countries worldwide, especially WTO member countries, have begun eliminating tariff policies, including Indonesia. At the same time, implementing non-tariff measures (NTMs) to protect domestic producers experiences a rise (Jordaan, 2017; Ronen, 2017). NTMs refer to policy measures other than tariffs impacting international trade in goods (United Nations Conference on Trade and Development [UNCTAD], 2021). This impact takes the form of changes in the number of goods traded, the price of goods, or a combination of the two. NTMs can be categorized into Sanitary and Phytosanitary (SPS), Technical Barriers to Trade (TBT), Pre-shipment inspection (INSP), Contingent Trade Protective Measures (CTPM), Quantity control measures (QC), Price control measures (PC), Export-related measures (EXP), and other measures (UNCTAD, 2020). Implementing NTMs raises varied impacts on the export performance of a commodity. NTMs positively influence the export performance of Indonesia’s tuna commodity to several major export destination countries (Rindayati & Kristriana, 2018). Furthermore, implementing NTMs with the TBT type positively affected Indonesia’s natural rubber export in various destination countries (Virginia & Novianti, 2020). On the other hand, research on NTMs and the export performance of RCEP countries unveiled that the implementation of NTMs by importing countries reduced the export performance of the health sector (Zainuddin, Sarmidi, & Khalid, 2020). It is supported by a study concerning NTMs and the export performance of Indonesia’s fishery commodities, uncovering that NTMs harmed the export performance of these commodities (Permata & Handoyo, 2019). Moreover, research in Africa revealed that the application of NTMs by importing countries significantly reduced the volume of trade in agricultural products (Liu, Lin, Liu, & Li, 2019). As one of the largest natural rubber exporters, Indonesia faces the challenges of NTMs. Indonesia contributed a market share of 28.06% of world’s total natural rubber export in 2019 (Trademap, 2021). Indonesia’s natural rubber export in the international market can be divided into several specifications: natural rubber latex, natural rubber smoked sheets (RSS), and technically specified natural rubber (TSNR). Respectively, each specification contributes 1.22%, 2.30%, and 97.48% of the total export (Statistics Indonesia, 2019). The high export of Indonesia’s natural rubber demonstrates the potential to enhance this commodity’s competitiveness in the international market (Erkan & Yildirimci, 2015; Wiranthi & Mubarok, 2017). Furthermore, the efforts to enhance the export competitiveness of the natural rubber commodity should consider NTMs applied in the destination countries. The major export destination countries for Indonesia’s natural rubber commodity are the USA, Japan, China, India, and the Republic of Korea. These five countries have implemented NTMs for the natural rubber commodity with TSNR specifications. Accordingly, the imposition of NTMs by these countries can limit Indonesia’s natural rubber trade and affect the competitiveness of this commodity. Several studies investigated factors affecting to NTMs and the competitiveness of agricultural commodities. Several research which utilized the Ordinary Lease Square (OLS model) in Indonesia revealed that export competitiveness was influenced by productivity, the http://issn.pdii.lipi.go.id/issn.cgi?daftar&1420518152&1&& ISSN: 2407-814X (p); 2527-9238 (e) 183 Indonesia’s Natural Rubber Productivity and ….. (Prasada and Dhamira) export price of agricultural commodities, and trade openness (Sa'diyah & Darwanto, 2020; Yanita, Napitupulu, & Rahmah, 2019; Yulhar & Darwanto, 2019). Another study on Indonesia’s cocoa commodity analyzed using the ECM model discovered that the export competitiveness was affected by the exchange rate, the world price of cocoa, and the export duty (Hapsari & Yuniasih, 2020). In addition, another research uncovered that the export competitiveness of the rubber commodity was influenced by the implementation of NTMs, encompassing SPS, TBT, and quota policy (Purnomowati, Darwanto, Widodo, & Hartono, 2015; Virginia & Novianti, 2020). Moreover, another study using the OLS model concluded that the application of NTMs was influenced by the Gross Domestic Product (GDP) and dummy membership of the WTO (Chin & Rusli, 2015; Zhang, Sun, Gordon, & Munn, 2020). Previous research analyzed the effect of NTMs on agricultural commodities’ volume and export value. Therefore, the effect on export competitiveness was unknown, especially for natural rubber. In addition, previous studies employed OLS and ECM models for the analysis. However, these models could not overcome the endogeneity problem in the variable of NTMs. Export competitiveness, in this case, was assessed using the RCA index, allegedly influenced by the application of NTMs. Furthermore, NTMs are influenced by an instrument variable of GDP and a dummy variable of WTO membership. Therefore, this study was conducted using the Two Stage Least Square (TSLS) model to fill the gaps that emerged from previous studies. This study aims to determine the effect of the imposition of NTMs by importing countries on the export competitiveness of Indonesia’s natural rubber commodity with TSNR specifications and identify the factors affecting the competitiveness of this commodity in five major export destination countries. RESEARCH METHOD This study employed panel data that consisted of time series and cross-section data. The time series data were from 1995 to 2019. The cross-section data were sourced from five major export destination countries of Indonesia’s natural rubber commodity with TSNR specifications (HS code 400122), comprising the USA, Japan, China, India, and the Republic of Korea. These five countries were determined as the main destinations due to the high proportion of TSNR imports from Indonesia, as displayed in Table 1. TABLE 1. AVERAGE OF INDONESIA’S TSNR EXPORT IN FIVE DESTINATION COUNTRIES FROM 1995 TO 2019 Country Import Quantity (tonnes) Share of Import (%) Rank USA 563,296.83 31.24 1 Japan 230,688.45 12.79 2 China 191,344.34 10.61 3 Republic of Korea 93,075.35 5.16 4 India 75,325.12 4.18 5 Indonesia’s Total Export 1,803,041.23 100.00 The variables in this study comprised revealed comparative advantage (RCA), real GDP at a constant price of importing countries (GDP), Indonesia’s real exchange rate (RER), the http://issn.pdii.lipi.go.id/issn.cgi?daftar&1420518152&1&& ISSN: 2407-814X (p); 2527-9238 (e) 184 AGRARIS: Journal of Agribusiness and Rural Development Research dummy of WTO membership, and the number of NTMs of the natural rubber commodity imposed by importing countries. The data were gathered from UN COMTRADE, UNCTAD, and the Federal Reserve Bank of St. Louis. RCA refers to a comparison between the export share of a commodity from a country to the share of commodity export in the world market (Muzayyin, Masyhuri, Darwanto, & Junaidi, 2019). Formula 1 was used to calculate RCA (Balassa, 1965). RCAij ̇= Xij/Xt Wij/Wt (1) 𝑅𝐶𝐴𝑖�̇� is revealed comparative advantage of product j produced by country i. 𝑋𝑖𝑗 represents the country i’s export value of product j to the destination country. 𝑋𝑡 implies the country i’s total export value to the destination country. 𝑊𝑖𝑗 refers to the world export value of product j. 𝑊𝑡 signifies the total world export value. The RCA lies in the interval between 0 and positive infinity (0≤RCA≤+∞) (Hailay, 2017; Jagdambe, 2019). The RCA can be grouped into four categories (Erkan & Saricoban, 2014): (1) no comparative advantage (0