Regulatory Similarity Between APEC Members and its Impact on Trade

This paper examines regulatory heterogeneity among APEC economies and its impact on intraregional trade flows. Using regulatory distance (RD) indices, we estimate a gravity model for APEC economies. Our results show that regulatory dissimilarity significantly impedes trade— a one-percent increase in RD reduces agricultural trade by 0.72 percent (SPS measures) and manufacturing trade by 0.53 percent (TBT measures)—while higher regulatory intensity, measured by frequency indices and coverage ratios, is positively associated with trade. These findings suggest that the Free Trade Area of the Asia-Pacific (FTAAP) can enhance trade not by weakening legitimate SPS/TBT objectives, but by reducing unnecessary regulatory divergence through harmonization, mutual recognition, and procedural alignment, with targeted cooperation needed for high-distance economy pairs and sensitive sectors.