Tariff evasion and rules of origin violations under the Canada‐U.S. Free Trade Agreement

Abstract Using product‐level data on trade between Canada and the U.S., this paper presents evidence of tariff evasion and violation of the rules of origin occurring under the Canada‐U.S. Free Trade Agreement (CUSFTA). It shows that more imports go unreported at the destination country when tariffs are higher. Consistent with the tariff evasion hypothesis, this result implies that the trade creation effect of a free trade agreement may in fact be due to less underreporting. Further, this paper shows that the larger Canadian tariff preference margin for the U.S. is associated with more goods originating in third countries being transshipped through the U.S. territory for re‐export. The preference margin is also positively correlated with the value of excess imports from the U.S., which qualify for preferential treatment. Both results suggest the presence of persistent violations of CUSFTA’s rules of origin.     

Simultaneous Releases of U.S. and Foreign GAAP Earnings

Prior studies examine the incremental information content of U.S. generally accepted accounting principles (GAAP) reconciliation of U.S. listed foreign firms and find mixed results. One of the main methodological issues in prior studies is the uncertainty concerning the dates of the reconciliation releases. This study examines the information content of U.S.GAAP reconciliation for a sample of U.S. listed foreign firms that released both U.S. and foreign GAAP earnings information simultaneously. The findings show that there is no incremental information content for the U.S. GAAP reconciliation over foreign GAAP earnings. When added to other empirical evidence from prior studies, this studies' results of no incremental information content further support the recent SEC announcement to work towards eliminating the reconciliation by 2009 for firms using IFRS.     

The role of importers and exporters in the determination of the U.S. tariff preferences granted to Latin America

This paper investigates the role played by domestic importers and foreign exporters in improving preferential access to the domestic market. To this end, the framework used in this paper extends the protection for sale analysis to explicitly model the role of domestic importers and foreign exporters in the determination of preferential trade treatment. The predictions of the model are tested using data on preferential trade between the United States and Latin American countries. The results suggest that Latin American exporters and US importers' lobbying efforts have a significant and important role in determining the extent of preferential access granted by the United States. More interestingly, these findings also show that U.S. importers capture a very substantial share of the rents generated by tariff preferences. These results therefore shed a pessimistic view on preferential trade schemes as a reliable source of gains for developing countries.     

Determinants of U.S. direct investment in the E.E.C.: Further evidence

This study attempts to identify the determinants of U.S. direct foreign investment in the E.E.C. Previous studies are examined and an alternative specification is presented. The results indicate that the size of the market, growth of the market, height of trade barriers, and lagged net plant and equipment expenditures are important. Even so, the author feels that the data is too weak to permit strong policy statements from being made, as has been done in some of the previous papers.     

Refinery mix in the U.S., Canada,and the E.E.C.

This paper examines the response of gasoline's share of a barrel of crude oil to changes in relative petroleum product prices. An inter-country comparison of the U.S., Canada, and the E.E.C. allows investigation of different parts of the production possibility frontier. In the U.S. and Canada, with relatively large amounts of cracking capacity, there is price responsiveness of the product mix to changes in relative product prices. In the U.S., both residual and distillates are substitutes in production for gasoline, but for Canada, only distillate is a substitute. Part of this difference is attributed to the U.S. oil quota. For the E.E.C. with relatively small amounts of cracking capacity there was no discernible effect of product prices on product mix.     

Remedying "Unfair Acts": U.S. Pay Equity by Race and Gender

Case studies in Canada, Australia, and the U.S. have found that pay equity (or comparable worth) has reduced the gender-based wage gap substantially, and results of research on the gender composition of jobs have been used guiding pay equity implementation. But, in general, the racial composition jobs remains overlooked in the literature and in public policy. We extend previous work on eliminating the wage penalty of employment in female-dominated occupations to estimating the potential effect of adopting comparable worth to alleviate race- as well as gender-based wage discrimination. First we report the negative impact of racial-ethnic and female composition of jobs on pay in the U.S. Correcting for this form of wage discrimination, we find that implementing comparable worth would appreciably narrow the race- and gender-based wage gaps and significantly reduce the percent of workers earning poverty-level wages, especially among women of color. Close to 50 percent of women of color and 40 percent of white women currently earning less than the federal poverty threshold for a family of three would be lifted out of poverty. Second, we show that, in addition to the effects of occupational concentration, being a woman, an African-American, or a worker of Hispanic origin negatively and significantly affects pay. Not every type of wage discrimination is alleviated by a pay equity policy, which is why activists have also supported anti-discrimination and affirmative action policies for women and people of color.     

The Demand for Money in Canada: A Cointegration Analysis

In this Paper, using the techniques in cointegration theory, we find strong support for the existence of a long-run equilibrium relationship among money demand variables in Canada. Additionally, when the conventional partial adjustment model (PAM) is compared to the two-stage error correction model (ECM), the latter approach is found to perform better, with M2+ showing better results than M2. Our results are also found to be in line with other studies from the U.K. and the U.S.A. These findings provide rationale for further in-depth studies on broader monetary aggregates to formulate sound monetary policy in Canada. [E41]     

Protection with many sellers: An Application to Legislatures with Malapportionment

What effect, if any, does legislative malapportionment have on international trade protection? This paper argues that in malapportioned legislatures, such as the U.S. Senate, industries become over‐represented in a legislature if they are disproportionately located in small constituencies. As a result, industries that are disproportionately located in smaller constituencies are likely to receive greater protection from international trade. To argue this point theoretically, this paper develops a new model, combining legislative bargaining and a model of lobbying to study trade protection while allowing for a legislature with multiple legislators and differently sized constituencies. We then test the predictions of this new model using tariff votes from the U.S. Senate in the late nineteenth and early twentieth centuries and a panel of tariffs and non‐tariff barriers to trade in the U.S. in the 1990s. Considerable support is found for the model's predictions. Industries concentrated in states where the population is low receive greater protection from imports.     

Are developed country multilateral tariff reductions necessarily beneficial for the U.S.?

Since the formation of the GATT in 1947, the belief underlying U.S. participation in GATT multilateral tariff reductions has been that they are beneficial to the U.S. This paper reports general equilibrium computations of the welfare effects of a 50% multilateral tariff reduction among developed countries using a seven region world trade model due to Whalley (1982).     

Flows of direct investment and their effects on U.S. domestic investment

Based on the ex post patterns of direct investment, separate hypotheses are offered on the effects of the outflows and inflows of direct investment on U.S. domestic investment. The outflows of capital will stimulate domestic investment and the inflows will displace this investment. Applying an accelerator-flow of funds model of investment with Almon lags for 1959I–1971IV, the results mildly support the hypothesis on the effect of capital outflows, whereas they clearly support the hypothesis on the adverse effect of foreign direct investment in the U.S.     

Protection and commercial policy: Experiments with a general equilibrium econometric model

This paper analyzes the incidence of commercial policy by simulating the effects of an import tariff in the context of a general equilibrium econometric model of the U.S. It is found that in the long run the tariff protection given to importables is mainly at the expense of exportables, rather than the nontraded goods sector. The simulations also provide the general equilibrium responses of a number of other variables to changes in commercial policy, which may be of interest from a policy perspective.     

TRADE CREATION AND DIVERSION EFFECTS OF THE U.S.-CANADIAN FREE TRADE AGREEMENT

This study empirically estimates and evaluates the economic benefits of the U.S. and Canadian Free Trade Agreement (FTA). Most past studies rely on aggregate data. The analysis here emphasizes the trade effects of removing tariff and nontariff barriers on each commodity group classified by the Standard International Trade Classification. Estimating the amount of trade expansion under FTA for both countries involves using the import demand elasticities from a dynamic demand model. Results show that U.S. imports from Canada are more sensitive to domestic, import, and world prices than are Canadian imports from the United States. U.S. imports from Canada would increase roughly £3.257 billion compared to the £2.432 billion increase for Canadian imports from the United States .     

Index Volume XIII – 1979

Abstract:

The Smoot-Hawley Tariff Act of 1930 has been typically viewed as being the Republican Party’s policy response to weak farm prices which – via political logrolling – snowballed into a full-fledged, across-the-board tariff bill, wreaking havoc at home and abroad (Irwin 2011; Shattschneider 1935; Taussig 1930). Empirical evidence, however, has failed to confirm this hypothesis (Callahan, McDonald and O’Brien 1994; Destler 1986; Pastor 1980). Rather, voting patterns in the Senate have been consistent with the “party platform” hypothesis. This paper presents an alternative account of the origins of the Smoot-Hawley Tariff Act of 1930, which is in keeping with the “party platform” hypothesis, and whose results are consistent with the “log-rolling” hypothesis. Specifically, I argue that the demand for protection on the part of U.S. farmers and manufacturers in the late 1920s, and the subsequent supply of protection by the Republican Party, were the direct result of a general-purpose technology shock – namely, electrification whose diffusion throughout the 1920s led to significant excess capacity in manufacturing and agriculture. In manufacturing, more productive firms became increasingly constrained on product markets. The resulting tractorization of U.S. agriculture and the motorization (trucks and automobiles) of transportation throughout the 1920s wreaked havoc on an already weakened agricultural sector (owing to lower post-war exports) by decreasing the demand by 48,294,887 grain- and hayequivalent acres. The proposed tariff bill sought to increase domestic firms’ market share in these industries by reducing imports.     

Spillovers of volatility index: evidence from U.S., European,and Asian stock markets

We investigated the cross-market relations of volatility indexes with U.S. and non-U.S. stock market returns. We found that the pervasive VIX influence at both U.S. and non-U.S. stock markets. The VSTOXX and VKOSPI capture the major shocks to the global economy and show movements similar to the VIX. The empirical findings indicate that volatility index changes are important in explaining stock returns. We also examined spillover effects across volatility indexes. The VIX is a main transmitter, and the VKOSPI the main receiver, of these spillovers. The results point to a leading role for the VIX in the international market.     

The relationship between saving and finance: theory and evidence from E.U. countries

This paper investigates the relationship between saving and investment in an effort to shed light on the issue of mobility of capital and whether or not this is prevented by the presence of any barriers. The data of our analysis are annual and come from 14 E.U. countries during the 1960–1994 period. The econometric analysis shows that for the E.U. countries, saving and the provision of credit are two cointegrated variables, which means that for each E.U. country (Belgium was the only exception) the amount of money saved is closely related to the amount of money that is ultimately invested. This result lends support to the view that in E.U. countries the degree of capital mobility plays a minor role in investment, which is primarily influenced by the conditions affecting the domestic provision of savings. In addition, the econometric analysis shows that the causal linkage is in most countries from savings to investment.     

Currency substitution and economic monetary aggregates: The U.S. Case

Existing analyses of currency substitution rely on the assumption that domestic monetary assets are perfect substitutes for each other. The present paper examines empirically the currency substitution hypothesis using Divisia monetary aggregates which relax the perfect substitutability assumption used in earlier work. The empirical results support the hypothesis of currency substitution for the United States.     

THE MEASUREMENT OF HOUSING OUTPUT: U.S. AND SOVIET CASE STUDIES

This paper examines the measurement of the output of the Housing industry in real GNP accounts of the U.S., the Soviet Union, and selected OECD countries. These real GNP accounts make use of quite different Housing indexes, based on different types of data. This paper's major empirical finding is that the (measured) growth rate of Housing output can be extremely sensitive to the type of index used.
After reviewing the concept of housing quality, the paper presents U.S. and Soviet case studies. The BEA and the CIA do not use identical procedures to measure Housing output for the U.S. and the Soviet Union: the BEA measures many more aspects of housing quality improvements than the CIA does. This difference in the two agencies' procedures increases the growth rate of the US. Real Estate industry relative to the growth rate of the Soviet Housing industry. The idea behind the two case studies is to remeasure Housing output far the Soviet Union (U.S.) using an index that approximates the BEA (CIA) index. The purpose of these studies is the calculation of numerical magnitudes: to what degrees are the levels and growth rates of Housing sensitive to the type of index that is used. The calculations for the U.S. are useful because they show the important role of housing quality growth in the U.S., and because they make the magnitudes reported for the Soviet Union more credible. The Soviet case study provides numerical support for the proposition that the post-WWII growth rate of Soviet housing quality has been considerable and exceeds the growth rate implicit in the CIA output figures.     

Social security and consumer spending in an international cross section

This paper expands the base of empirical evidence on the social security aggregate private saving issue by examining the behavior of consumer expenditure in 16 industrialized countries over the 1951–60 period. The results are mixed in that time series movements of social security exhibit a positive relation to consumer spending, while the cross-sectional variations reveal a negative association. Our overall conclusion is that the cross-country evidence provides neither empirical support for the hypothesis that social security depresses private saving nor an empirical refutation of that hypothesis. We argue that this indeterminacy of results applies also to previous studies of U.S. time series and to analyses of household cross sections in the U.S.     

IS THERE A “CULTURE OF SPENDING” IN CONGRESS?

This study empirically tests the "Culture of Spending" hypothesis (Payne, 199la). According to this hypothesis, the longer congressmen stay in office, the more likely they are to support federal spending. Spending behavior in this study is measured by the National Taxpayers Union (NTU) Congressional Spending Score. Samples are drawn from annual spending scores for all U.S. representatives and senators who served in office between 1975 and 1993. This study finds no statistical support for the hypothesis that congressmen have an increasing propensity to support federal spending the longer they stay in office. Furthermore, we are able to explain why other studies obtain results different from ours.