Welfare and market-access effects of piecemeal tariff reforms on environmentally preferable products

We examine how welfare and market access are affected by piecemeal tariff reforms on environmentally preferable products (EPP) in a small open economy. We define EPP as clean goods that, when consumed, have no impact on pollution. First, we show that a uniform reduction of all tariffs improves welfare if a country’s imports consist only of clean goods. If a clean good is a net substitute for all other goods in excess demand, then reducing the highest tariff on the clean good improves welfare. Second, we show that a proportional tariff reduction leading to a welfare improvement also increases the value of imports if all tariffs are set at the same ad valorem rates. If the clean good is a net substitute for all other goods in excess demand, then reducing the lowest tariff on the clean good increases the value of imports. Finally, we explore the link between the change in welfare and the change in the value of imports in response to the tariff reforms, and we show that unlike a proportional tariff reduction, a tariff reduction on the clean good does not necessarily lead to improvements in both welfare and market access.     

Tariffs and the most favored nation clause

In an n country oligopoly model of intraindustry trade (n≥3), this paper explores the economics of the most-favored-nation (MFN) principle. Under the non-cooperative tariff equilibrium, each country imposes higher tariffs on low cost producers relative to high cost ones thereby causing socially harmful trade diversion. MFN adoption by each country improves world welfare by eliminating this trade diversion. Under linear demand, MFN adoption by the country with the average production cost is most desirable. High cost countries refuse reciprocal MFN adoption with other countries and also lose even if others engage in reciprocal MFN adoption amongst themselves.     

The distribution of gains from bilateral tariff reductions

A two-good, two-country model is used to analyse the distribution of gains from proportionate, bilateral tariff reductions It is shown that the distribution of gains is given by the solution to a rather complicated quadratic equation which exhibits multiple real roots. The country with the more elastic offer surface will be the relative gainer, for example, if it has either a very large or a very small tariff relative to the other country's tariff and relative to its own ‘optimal’ (Nash-equilibrium) tariff.     

An economic analysis of the duty-free zone

This paper presents a theoretical framework to analyze the economic implication of a duty-free zone, where duties are exempted in order to attract foreign investments. Using the standard two-factor, two-commodity trade model, it is shown that in the absence of foreign investment the establishment of a duty-free zone does not affect production if the protection is in the form of import tariff; also that the increase in foreign investments in the duty-free zones does not necessarily improve the consumption possibilities available to a developing country.     

Optimal tax and tariff policies with tax credits

This paper examines the optimal tax and tariff policies for a small open economy when mobile capital receives a tax credit for taxes paid to the host country. For a capital-importing country, a tax on capital equal to the source country tax rate (to capture tax revenue) combined with a subsidy to encourage capital imports is the optimal policy. Results are also derived for cases in which only one of the instruments can be varied. For a capital-exporting country that cannot reduce its capital tax rate, a subsidy to the sector using exported capital is desirable.     

Optimal infant industry protection during transition to World Trade Organization membership – A numerical analysis for the Vietnamese motorcycle industry

This paper proposes a framework to derive the optimal dynamic path of tariffs to protect infant industries when a country initiates a process to join the World Trade Organization (WTO). The framework is based on the model of Melitz (2005) in which externalities associated with dynamic learning-by-doing provide a rationale for infant industry protection. Unlike the original model, this paper assumes that there is a time limit for protection: after a fixed number of years, tariffs are required to be constant over time at a low level. This setup reflects the nature of the actual WTO agreement. This model is solved analytically to derive quantitative implications for the optimal tariff path, unlike in Melitz (2005), where only qualitative analyses are undertaken. An interesting result emerges: conventional wisdom is that a country in this situation should reduce the tariff rate gradually over time so that it converges to its long-run rate at the terminal date of protection. By contrast, this paper finds that, in some plausible scenarios, the optimal time path of the tariff can be upward sloping. A numerical analysis applied to the Vietnamese motorcycle industry, a typical infant industry in a country joining the WTO, confirms such a pattern.     

Practical general equilibrium estimation of resource pulls under trade liberalization

This paper discusses the application of a model similar to the one developed in Leif Johansen's Multi-sectoral study of economic growth (1964) to the problem of determining general equilibrium responses of the economy to changes in commercial policy. This method amounts essentially to specifying a log-linear approximation to the general equilibrium solution for the economy, and solving the resulting linear equations for changes in endogenous variables as functions of exogenous variable changes. For a 35-sector model of the Chilean economy with labor as the only variable factor of production (to avoid the problem of overdetermination of many commodity price and output shifts when only two factors are considered in constant returns production functions), it is found that (i) the specification of the way in which intermediate inputs enter the production function is numerically important in determining output responses to tariff changes, detracting from the credibility of fixed coefficient effective rate of protection calculations if variable intermediate input coefficients are the rule (as appears likely empirically); (ii) exchange rate elasticities with respect to individual tariff changes are fairly large, so that the usual partial equilibrium assumption of exchange rate insensitivity to ‘small’ tariff revisions is not valid; (iii) employment effects of different tariff revisions are highly variable and in some cases substantial.     

Preference Erosion,Government Revenues and Non‐tariff Trade Barriers

Developing countries benefiting from developed country unilateral trade preferences fear that Doha Round tariff cuts will erode the value of those preferences. That these programmes confer significant benefits, however, is not clear. Studies indicate that the impact of preference erosion would be minimal for most developing countries. But for a small subset of middle‐income and least‐developed countries, concern may be warranted. WTO members, should address affected countries’ concerns, perhaps by tailoring WTO tariff negotiations to lessen adjustment pressures and providing development assistance. Developing countries also are anxious that lower tariffs will reduce government revenues. Dependence on tariff revenue is diminishing and trade liberalisation need not result in lower total tax revenues or even lower customs revenues. Much depends on a country's current tariff and trade regime, its tax structure and its overall economic structure. At some point, a country does need to broaden its tax base and look to other revenue sources to offset declining tariff revenues. Tax reform, therefore, complements trade reform. A third area of developing country concern is non‐tariff barriers (NTBs), which may limit market access even after tariffs are reduced. Despite prior WTO work in this area, NTBs remain a thorny issue for all WTO members.     

South–South Trade and Skill Premia

Contrary to the predictions of the 2 × 2 × 2 Heckscher–Ohlin model, empirical evidence shows that the skill premium increased in some developing countries and decreased in others after trade liberalisation. This paper attempts to reconcile the empirical evidence with the theoretical predictions by introducing a model where South–South trade can produce the observed patterns of skill premia in the South. In this context, South–South trade expands the import range of the country that reduces the tariff. This increases the demand for and the cost of skilled workers in the other country. This also leads the country that reduces the tariff to expand its export range and reduce its import range. Therefore, the country that reduces the tariff experiences an increase in its export range, which leads to an increase in the skill premium. As the impact on the import range is ambiguous, it is possible that the other country experiences a decline in the skill premium. Thus, trade liberalisation between Southern countries can cause an increase in the skill premium in one and a decrease in the skill premium in another.     

Ranking optimal tariffs and quotas for a large country under uncertainty

Optimal tariffs and quotas are compared for a large country under uncertainty. If the import supply schedule has constant elasticity and is subject to multiplicative uncertainty and domestic demand is random then the optimal policy is a fixed ad valorem tariff. If the supply schedule has constant elasticity but this elasticity is random then the optimal tariff is superior to the optimal quota. If the demand and supply schedules are linear then the optimal quota is superior to the optimal tariff if and only if the supply schedule is inelastic and the degree of uncertainty in the demand and supply schedules is small.     

A diffusion model of the process of implementing the generalized system of preferences

This paper uses a two-stage approach to study the process of adopting tariff preferences under the Generalized System of Preferences (GSP) and to identify factors that influence the dynamic adoption process. First, logistic growth functions of the share of preferential exports in total exports over time are estimated to provide measures of the adoption rate and upper limit participation value for developing country beneficiaries under each GSP scheme. The second step relates these parameters to measures of market access for GSP-covered products. Results indicate the process of implementing a tariff preference scheme mirrors a dynamic diffusion process whereby beneficiaries increase their share of preferential exports in total exports over time.     

Disagreement points in trade negotiations

This paper analyzes trade negotiations between two large countries in the framework of an alternating-offer bargaining model with endogenous interim disagreement actions. Despite of the flexibility in disagreement tariff selection, the countries would keep the status quo tariffs in disagreement periods as far as the country which benefits from keeping the status quo tariffs compensates for the other country’s foregone gains from deviating in disagreement actions. Each equilibrium outcome converges to a corresponding Nash bargaining solution whose disagreement point reflects the status quo tariff rates as well as the threat of raising the tariff to the Nash tariff rate.     

对优化我国入世后关税保护结构的再思考

在以中间产品为主的国际贸易商品结构中,有效保护率更为准确地反映了关税对国内产业的保护。入世后,在履行世贸组织(WTO)协议的关税调整过程中,我国的关税有效保护结构呈现出优化的倾向,但也存在着一些问题。今后,应根据各产业部门在国际贸易中比较利益优势的动态变化对关税的有效保护结构加以完善,同时防止过度的有效保护,解决资源基础产业的负有效保护问题,避免利用高关税抑制非生活必需消费品的进口而导致的效率损失。     

Tariff wars in the Ricardian Model with a continuum of goods

This paper describes strategic tariff choices within the Ricardian framework of Dornbusch, Fischer, and Samuelson (1977) using CES preferences. The optimum tariff schedule is uniform across goods and inversely related to the import demand elasticity of the other country. In the Nash equilibrium of tariffs, larger economies apply higher tariff rates. Productivity adjusted relative size (≈ GDP ratio) is a sufficient statistic for absolute productivity advantage and the size of the labor force. Both countries apply higher tariff rates if specialization gains from comparative advantage are high and transportation cost is low. A sufficiently large economy prefers the inefficient Nash equilibrium in tariffs over free trade due to its quasi-monopolistic power on world markets. The required threshold size is increasing in comparative advantage and decreasing in transportation cost. I discuss the implications of the static Nash-equilibrium analysis for the sustainability and structure of trade agreements.     

International capital mobility and commercial policy in an economic region

If two small countries are linked by capital movements then, at low tariff levels, any increase in capital flows induced by the commercial policy of either country will harm that country and benefit the other country, while at low levels of international investment a tariff increase always harms the country levying the tariff. Nevertheless, an increase in one country's tariff could benefit both countries by alleviating regional distortions in factor allocation. If the countries liberalize factor movements within a customs union, then conflicts must arise in choosing the level of the common external tariff.     

On necessarily welfare-enhancing free trade areas

The well-known Kemp-Vanek-Ohyama-Wan proposition establishes that if two or more countries form a customs union (CU) by freezing their net external trade vector through a common external tariff and eliminating internal trade barriers, the union as a whole and the rest of the world cannot be worse off than before. Owing to the fact that a Free Trade Area (whose member countries impose country specific external tariff vectors) does not equalize marginal rates of substitution across its member countries (in contrast to a CU), the literature has been unable to provide a parallel demonstration regarding welfare improving Free Trade Areas (FTAs). The present paper eliminates this gap. In extending the result to the case with intermediate inputs, the paper also sheds new light on the rules of origin required to support such necessarily welfare enhancing FTAs. We show here that provided no trade deflection is permitted, all that is required by way of rules of origin is that the goods produced within the union - whether final or intermediate - be allowed to be traded freely. The proportion of domestic value added in final goods does not enter as a criterion in the rules of origin.     

关税与经济增长模型在中国的实证分析

关税政策旨在通过关税的调节来调整进出口的数量和种类,进而影响国家经济增长和人民生活水平。改革开放以来,我国关税税率持续下调,加入世界贸易组织后关税水平进一步下降。国外学者对关税调整如何影响经济增长有很多研究。本文运用DREXE大学Constantious Syropoulos教授的基本观点,结合我国实际数据,构建回归模型,验证了关税对长期经济增长的影响机制,并对关税政策制定提出了一定的政策建议。     

关税减让对我国农产品进口的影响分析

本文运用理论和实证的分析方法,研究了关税减让对我国农产品进口的实际影响。研究结果表明,关税减让与我国农产品的进口之间存在着高度的负相关关系,在影响我国农产品进口行为的诸多因素中,关税起到了主要的作用,但并非唯一因素。同时,关税减让与农产品的进口额、进口结构之间存在密切的关系,最后,还提出几点政策性意见。     

论适度保护关税税率

面对日益加速的经济全球化进程,各国仍然在普遍使用关税措施来保护本国产业的发展.在这方面,发展中国家需要解决的问题是设定一个适度的保护关税税率,以让国内产业既有生存和发展的空间,同时又有足够的竞争压力来提高效率.根据国内与国际平均生产成本的差异来确定保护关税的税率是一个可行的办法.进一步削减关税是我国加入WTO后需要承担的义务,应当按照适度保护关税的原则把平均关税的税率稳定在一个合理的水平上,并根据国内不同产业的发展状况,提供必要而有效的保护.     

Tariff structure and output adjustment in the presence of interindustry flows

This paper investigates the adjustment of gross and net outputs to a change in tariff structure in models involving interindustry flows. Various conditions for the normal price-gross-output relationship are derived in a two-good, two-primary-factor model. These conditions are expressed in terms of the degree and also the patterns of substitutability and complementarity between different inputs. In the special case where the produced input is not used in its own production, the paper shows that the abnormal relationship between prices and gross outputs can occur only if the two primary factors are complements to each other and their degree of complementarity is sufficiently high. Finally, the response of net outputs due to a change in tariff structure is explored in a general model allowing arbitrary numbers of goods and primary factors.