Abstract
This paper examines the determinants of the probability that an exporter chooses between a most-favored nation (MFN) scheme and multiple regional trade agreement (RTA) schemes. We estimate a discrete choice model using transaction-level import data for Thailand in 2014. We find that RTA schemes are more likely to be chosen, given a larger transaction value. Among RTA schemes, the ones with less restrictive rules of origin or lower tariff rates are more likely to be selected. We also conduct simulation analysis to provide quantitative policy implications.
Highlights
During the 2010s, regional trade agreements (RTAs) were negotiated among numerous countries to reap the benefits of trade liberalization
Two more interesting results: (1) a 1% reduction in MFN rates decreases the probabilities of choosing ASEAN–China FTA (ACFTA) and ASEAN–India FTA (AIFTA) more than the probability of choosing the other RTAs. (2) a 1% reduction in ASEAN Trade in Goods Agreement (ATIGA) tariff rates reduces the probability of choosing Australia–New Zealand Free Trade Agreement (AANZFTA), ASEAN–Japan Comprehensive Economic Partnership (AJCEP), and ASEAN–Korea FTA (AKFTA), which is more than choosing the other RTAs (i.e., ACFTA and AIFTA) and the MFN scheme
This study examined the determinants of choice probability of tariff schemes between an MFN and multiple RTA schemes
Summary
During the 2010s, regional trade agreements (RTAs) were negotiated among numerous countries to reap the benefits of trade liberalization. Exporters from ASEAN to Thailand can apply any of these seven schemes for any product By examining this trade flow in 2014, we can investigate how firms choose tariff schemes, given multiple RTA schemes. This study computes the elasticities of the probability of choosing each scheme in terms of tariff rates Thereafter, it quantitatively demonstrates how differently the tariff reduction in one RTA influences the choice between. One firm may import one product from one country multiple times even within one day We identify these observations of multiple transactions and examine how the transaction size affects a firm’s tariff scheme choice. The use of transaction-level data is crucial when examining an exporting firm’s choice on tariff schemes.
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