Average Tariff Rates Research Articles

Trade in ‘virtual carbon’: Empirical results and implications for policy

The fact that developing countries do not have carbon emission caps under the Kyoto Protocol has led to the current interest in high income countries in border taxes on the ‘virtual’ carbon content of imports. We use GTAP data and input–output analysis to estimate the flows of virtual carbon implicit in domestic production technologies and the pattern of international trade. The results present striking evidence on the wide variation in the carbon-intensiveness of trade across countries, with major developing countries being large net exporters of virtual carbon. Our analysis suggests that a tax on virtual carbon could lead to very substantial effective tariff rates on the exports of the most carbon-intensive developing nations. As an illustration, we find that average tariff rates of 10%, 8% and 12% would be faced by imports from China, India and South Africa if carbon is taxed at $50/ton CO 2. Moreover, there is wide variation in intensiveness across sectors within countries with implications for the disparate effective tariff burdens on particulars parts of the economies of these countries. Such empirical findings, we argue, are useful for framing on-going discussions about the principles and practice of border taxes on virtual carbon.

Capital mobility, openness, and saving-investment relationship in Asia

The main objective of this paper is to investigate the relationship between openness to trade and saving-investment behaviour in Asia during the period 1990–2006. We use this relationship to examine whether those Asian countries that are more open to trade and enjoy less trade barriers have also higher degree of capital mobility. Cluster analysis is used to classify the countries into different groups according to the share of trade in their gross domestic products and their average tariff rates. The goal is to place the countries that are similar to each other in terms of their trade policy in one group. We apply the Generalized Least Square (GLS) technique to a set of balanced panel error correction models to estimate the short- and long-run relationship between saving and investment. The estimation results indicate that there exist long-run equilibrium relationships between domestic saving and investment in all groups regardless of their degree of trade openness. Moreover, contrary to Amirkhalkhali and Dar (2007) for the case of OECD, we find out that more openness in terms of trade policy is associated with higher degree of capital mobility for the case of Asian countries. One policy implication of this result for the Asian economies is that trade openness can be used as a strategy to attract capital from abroad. Our findings also confirm the prediction of new open economy macroeconomic models regarding the short- and long-run behaviour of current account.

International trade law and trade theory

PurposeThe purpose of this paper is to analyze the potential for tariff reduction under the most favored‐nation (MFN) provision of international trade law as it is written, lex lata.Design/methodology/approachThe paper analyzes differences in average tariff rates applied to imports under the MFN provision of international trade law. Two empirical methods are used; an analysis of variance to estimate significant differences in tariff rates between high‐income members and least‐developed members of the World Trade Organization (WTO); and fixed‐effects regression model to determine the effect of national output on the marginal propensity to import (MPM).FindingsThe paper finds that there is a significant difference in the margins of import tariffs that are applied to imports by the high income and the least‐developed members and that the MPM is significantly dependent on output for the high‐income members, but not for the least‐developed members.Practical implicationsThe findings indicate that international trade law must be developed with the aim of increasing national earnings capacity and not just creating enabling conditions for tariff reduction or the harmonization of municipal law with international trade law. When circumstances change in a fundamental way (rebus sic stantibus), WTO members must be measured in their approach to attain the law that is sought (lex ferenda).Originality/valueThe paper argues that multilateral trade arrangements for tariff reduction and fair trade must integrate enabling conditions with arrangements for earnings capacity to increase national income and reduce tariffs.

Government Policy and the Liberalization of Australia’s Car Industry: A Historical Analysis

Australia is regarded as a good advocate of progressive trade liberalization. With the notable exception of textiles, clothing and footwear (TCF), the automotive, and the sugar industries, Australia has reduced its average tariff rate to the lowest levels in the world. Its commitment to increased trade openness is also reflected in the recent review into its trade policy, which expressly supports a strong, rules-based, multilateral trading system administered through the WTO. However, with the suspension of the Doha Round, Australia’s trade policies have tended to be more protective in some sectors, which are demonstrated by increasing amount of budgetary assistance even though trade barriers are dramatically reduced. This paper examines the key developments in the Australian car industry policies over the years, in the context of Australia’s WTO commitments. The discussion is organized in four sections. The first section gives a brief overview of Australian car industry and its relationship to government policy. The three remaining sections examine different periods in Australia’s automotive policy as it relates to Australia’s WTO commitments. It will be argued that, while Australia has made considerable progress towards opening up its car industry to foreign competition, new forms of protection have emerged which pose the risk of undermining some of the benefits of liberalization.

How Common is the Common External Tariff?

This article examines the role of national-level politics and economics on the setting of supranational trade policy within the European Union (EU). It argues that, though EU member states must have a uniform tariff schedule, significant variation remains in the average, trade-weighted tariff because each country has a different bundle of imports into each country. Thus, some countries import more high-tariff goods than others. This article argues that a significant part of this variation is intentional, because countries know which goods they import. Therefore, countries that prefer protection push for tariffs on products they import whereas countries that prefer free trade push for liberalization on products they import, with these preferences being driven by the amount of institutional access provided to interest groups and the economic conditions in the member states. This argument is tested with regression analyses of a panel of average tariff rates in the EU member states and the tariff schedule agreed to by the EU at the Uruguay Round of the General Agreement on Tariffs and Trade.

Comment on “The Role of Fiscal and Monetary Policies in Sustaining Growth With Stability in India”

Mohan (2008) presents a comprehensive review of the macroeconomic policy developments in India over the past four decades with a particular emphasis on the last two decades. India transformed from a tightly controlled socialistic economy to one of the emerging market economies with accelerating growth. Before the transformation, the Indian economy was characterized by many regulations and controls, the nationalization of banks, and fiscal deficits that were financed by the central bank. The economy was in a low growth state, and the inflation rate was high. After the transformation, fiscal deficits have been reduced, and their direct financing by the central bank is banned. Monetary policy has been geared towards achieving a low and stable inflation rate. The critical regulatory changes took place after the balance of payments crisis of 1990 ‐1991. My comments are mostly directed to the current challenges rather than to India’s historical experience. The growth acceleration from 3% in the 1960s to 1980s, to 5% in the 1990s, to 8% after 2003, as shown in Mohan’s Table 1, is impressive, but still not perfect. It is impressive because it shows steady improvement as various reforms were taking place. It does not seem perfect because, first, the growth rate did not jump to a high range, say 8 ‐10%, immediately after the critical set of reforms in the beginning of the 1990s, and, second, in the near future, the growth rate does not seem likely to climb up to the 10% level that China has been able to achieve in the last decade. Why couldn’t India achieve doubledigit growth, if China could do it? The frustration is understandable but it may be important to recall some of the other growth experiences in Asia. Japan achieved double-digit growth in the 1950s and 1960s. South Korea, Taiwan, and Singapore achieved near 10% growth in the 1980s and 1990s. They all relied upon manufactured exports and climbed up the ladder of sophistication as they grew. Sustained 10% growth was possible only because those countries enjoyed export booms and their export items went from low-tech to middle-tech, and eventually to high-tech goods, as they chased the country just ahead of them. This view is known as the flying geese pattern of Asian growth. In a sense, 10% gross domestic product (GDP) growth was helped by very high (much higher than 10%) growth in the exports of toys and shoes followed by motorcycles and TVs, and then petrochemicals, steel, and automobiles.

Trade, Factor Proportions, and Political Rights

This paper uses aggregate data to test the implication that capitalpoor individuals favor trade liberalization in poor (capital-scarce) countries and are against it in rich (labor-scarce) countries. Income per capita is used as a proxy for the country capital-labor ratio while political rights is used as a proxy for the capital-labor ratio of the median voter. We analyze the determinants of average tariff rates in a cross section of countries to find that they are negatively associated with both income per capita and political rights, while they are positively, significantly, and robustly associated with their interaction, corroborating our initial hypothesis.

The Effect of North American Trade Liberalization on the Nature of Canadian Trade, 1989–2002

I. Introduction By the early 1980s, Canada-United States international trade was the largest bilateral trade flow in the world. In order to reduce its vulnerability to unilateral action from the United States through its foreign trade policy, the Government of Canada requested a comprehensive free trade agreement with the United States (as set out by the MacDonald Royal Commission) in 1985. This request was made despite the fact that in 1985, 85 percent of all Canadian exports to the United States crossed the border duty free, with the remaining average tariff rate being 4 percent--these zero and low tariff rates were in large part due to the Canada-United States Automotive Products Agreement of 1965 and Canada's dedication to the successive rounds of the GATT negotiations (Coffey et al. 1999). In anticipation of the effects of a free trade agreement between Canada and the United States, economists began assessing the potential impact of this substantial policy change in the mid-1980s using computer simulations. These simulations, built on the seminal work of Harris (1984), use a simplified model of the economy, impose a policy change (shock) on the economy, and calculate the change in the economy as a result of that policy change. This is done by gathering actual data on inter-industry transactions, factor payments (wages, interest, etc.), final demands for goods (consumption, investment, government expenditures, etc.), and making some simplifying assumptions regarding economic behavior. Further, assuming that the observed (real) data is in (short-run) equilibrium, the relevant policy parameters (tariff rates, etc.) are altered, a new equilibrium is calculated, and the change between the two equilibria is measured (Kehoe and Kehoe 1995). These models of the economy are usually referred to as applied general equilibrium models. They are popular because they can assess the impact of reallocating resources between industries, and determine the winners and losers differentiated by industry, region, or both, that result from the policy change. Unfortunately, these models of the economy are highly simplified versions of the actual economy with many simplifications such as a limited number of aggregated industries (typically 15-35) and the policy change is instantaneous. In the case of free trade agreements, all tariff rates and non-tariff barriers are removed at the implementation of the policy change. Therefore, any results should be taken with a grain of salt, interpreted and evaluated with caution. Nevertheless, they do provide a view into the future worth noting. Though the different studies using applied general equilibrium analysis all differ along the number of industries in the economy, how many countries are modeled, and market structure, the results are all qualitatively similar. The effect of the CUSFTA is positive for Canada, with the increases in real GDP ranging from 1.6 percent (Jenness 1987) and 4.5 percent (Cox 1994) to 11 percent (Roland-Holst et al. 1994)--these gains all take 8-10 years to materialize and are in addition to any growth in the economy independent from the CUSFTA. NAFTA, from a Canadian perspective, is quite different. The general result is that Canada has zero, or essentially zero, gains from the NAFTA over and above the gains from the CUSFTA (Kehoe and Kehoe 1995). Using the CUSFTA results as a benchmark, Cox and Harris (1992) and Cox (1994; 1995) find that Canada has small (though positive) gains from the NAFTA, particularly with respect to changes in the trading relationship with the United States. Relatively speaking, Canada-Mexico international trade increases significantly, 57 percent, but due to the small base level of trade, this increase has little effect on the Canadian economy. Brown et al. (1992) reports a significant positive effect of the NAFTA for Canada, but the magnitude, though larger than the Cox and Harris (1992) and Cox (1994; 1995) results, is low. …

On the Incidence of US Tariffs

This paper provides evidence on the incidence of tariffs on products of export interest to developing countries by investigating the relationship between per capita incomes of US trading partners and tariff rates. It constitutes the first attempt to assess the incidence of tariffs imposed by the US on countries that span the entire range of per capita incomes. Average tariff rates are lower for the poorest and richest countries and higher for countries in the middle of the income distribution. This finding is not consistent with the widely held view that tariffs used by industrial nations bear more heavily on products of export interest to poorer developing countries than on imports from industrial nations. It is consistent with the tariff escalation pattern reported in earlier studies if advanced countries account for most products at the high end of the fabrication scale. Results show that poorest countries will find it difficult to escape tariffs by attaining higher levels of economic development.

Trade Policy Issues in a Small African Economy: The Trade Policy Review of The Gambia 2004

The Gambia displays many of the classic characteristics of a small open economy, with the vulnerabilities that implies. The sum of its imports and exports are around 100 per cent of GDP, with a limited number of export commodities and a wide variety of imports, including some key staple foods. The Trade Policy Review of The Gambia 2004 provides a very helpful review and assessment of current trade patterns and policies. The latter rely predominantly on import and export taxes. While quite substantial trade reform measures have been implemented recently, these have led to only a very small reduction in the average tariff rate, and trade policy displays a substantial anti-export bias. Other important issues highlighted by the Trade Policy Review include serious capacity constraints relating to trade policy, and a failure to discuss connections between trade policy and growth and poverty reduction--again common characteristics of many small economies.

Why did the Tariff–Growth Correlation Change after 1950?

This article uses a new database to establish a key finding: high tariffs were associated with fast growth before World War II, while they have been associated with slow growth thereafter. The paper offers explanations for the sign switch by controlling for novel measures of the changing world economic environment. Rejecting alternative explanations based on changing export market growth or transportation cost declines, it shows how the modern negative correlation could be reversed in a world environment characterized by a moderately higher generalized tariff protection such as that which prevailed before 1914. We show that an increase in average tariff rates among trading partners by just one third might suffice to reverse any negative relationship between an average country's tariffs and its growth. An increase in own tariffs after 1950 hurt or at least didn't help growth, but it might have helped growth in a world where average trading partners' tariffs were moderately higher and retaliation was the best strategy. The world environment matters. Leader-country reaction to big world events matters.

Tariff Reduction Effects of WTO/DDA Agricultural Negotiations: Analysis of the Chairman's Second Draft Text

The average tariff reduction rate is 20% point higher in five developed countries analyzed in this study compared to five developing countries following the direction offered by the Chairman's Draft Text. Average tariff reduction rates are 31.6% for the five developing countries and 51.4% for the five developed countries. Korea's tariff reduction rate reaches to 36.1%, the highest reduction in developing countries, when Korea retains the developing country status. When Korea makes tariff reductions following the direction for developed countries, the average tariff reduction rate rises to 55.8%. Tariff reductions following the second Draft Text affect the tariff structure. Tariff escalation, dispersion and peaks can be mitigated by applying the tariff reduction methods proposed in the Second Draft Text. Tariff reductions give rise to the effects of reducing tariff escalation problem and the effects are stronger for the commodities with higher tariff rates and in developed countries. The average tariff rate for tariff peak commodities is reduced by 40% in developing countries and by 60% in developed countries. Tariff dispersion is also mitigated by reducing tariff rates. The difference of the average tariff rate between Korea and Australia is reduced to 38.5% from 59.8% by cutting tariff rates with the rules proposed in the second Draft Text. Korea needs to prepare the Country Schedule in advance to evaluate the potential outcome of the tariff cut following the Draft Text and to capture various voices from producers, consumers and other related institutions. For the preparation of the Country Schedule, Korea needs to decide minimum tariff cut items within a group of the commodity classified by tariff rates and this procedure requires discussion among producer and consumer groups.

Initial asset inequality and tariff formation: a cross-country analysis

Using cross-country evidence, it is found that a country’s initial asset inequality is positively and significantly associated with the formation of the average tariff rate, even after controlling for the Democracy Index and some endowment measures.

GROWTH OF INDUSTRIALIZED COUNTRIES AND TRADE OPENNESS

Previous studies have generally found evidence that countries with open trade systems have grown more rapidly than those that followed a protectionist path. There has been some evidence, however, that openness and growth have not been directly linked. The strength of this linkage was re-tested, controlling for some of the possible confounding factors involved in previous studies. The analysis was restricted to industrialized nations rather than including both industrialized and developing countries. Further, an empirically derived measure of openness was used rather than average tariff rates, or weighted tariff rates, or coverage by non-tariff barriers. The empirical measure was based on actual import levels, controlling for wealth, population size, and customs area membership, thus providing a relative measure of openness with more precision. The ensuing analyses indicated that for the industrialized countries, the linkage between trade openness and growth was weak and inconsistent, although there was no evidence that open trading systems hindered growth.

Trade Policy and the Southern Economy

The North American Free Trade Agreement (NAFTA) is part of a 50-year process of trade liberalization in the United States. From the end of the Civil War through World War II, however, average tariff rates were high by historical standards. The article explores the impact of “free trade” on regional economic performance—specifically, the pace of economic convergence between the American South and the rest of the United States. Econometric analysis suggests that trade liberalization speeded up convergence. Based on the authors' results, it is predicted that, on average, the South will benefit from NAFTA, although there may be some adverse distributional consequences.

Measuring and Comparing Progress in APEC

The challenge APEC now faces is to create a dynamic process for continued progress. In recent months, the term has become a code word among APEC officials for some tactical aspects of progress on APEC's liberalization agenda. This article explores ways of operationalizing the aggregate comparability and detailed comparability concepts in order to encourage productive co-operation in APEC. argue that the advantages of APEC's repeated game structure can be exploited by defining the contributions APEC expects from its members and by recognizing (positively or if necessary negatively) the efforts of individual economies. One conclusion is that a well-designed loop of information collection, dissemination and feedback could be helpful in stimulating substantive progress. With its Subic Bay summit in 1996, the Asia Pacific Economic Cooperation (APEC) forum has entered the operational phase of its ambitious agenda of building a regional community and abolishing regional trade and barriers. The Manila Action Plan for APEC (MAPA) unveils plans by each of APEC's 18 members for achieving free and open trade and investment by 2010 (developed countries) or 2020 (developing countries). A complex, 1,500-page document, MAPA represents a major step forward in the transparency of APEC and a beginning towards its substantive goals. But the hardest work lies ahead; most of the Individual Action Plans (IAPs) are vague on overall goals and short on specifics. Implementation, of course, is only in its very earliest stages. The challenge APEC now faces is to create a dynamic process for continued progress. This progress will have to involve new initiatives in trade and facilitation and in economic and technical co-operation. It will also require new approaches in the liberalization area, the focus of this article.1 Progress in liberalization could come, on one hand, through sectoral or other thematic agreements, such as the Information Technology Agreement (approved by APEC and subsequently the World Trade Organization [WTO] at their 1996 summits), that promote a common range of policy measures in all or most member economies. It could also come through incremental improvements in and the gradual implementation of the IAPs. In either case, it will be important to track progress towards the goals of the Bogor Declaration, since that vision offers a uniquely powerful rationale for regional co-operation. In recent months, the term has become a code word among APEC officials for some tactical aspects of progress on APEC's liberalization agenda. The term was first introduced by U.S. representatives in the days leading up to APEC's 1995 Osaka meetings. In U.S. Secretary of State Warren Christopher's words, We do not have to take identical steps, but the steps we take should produce comparable results. Each of us can take difficult steps if all of us are taking difficult steps.2 In this context, the term refers to the aggregate comparability of the contributions of APEC economies. The process behind MAPA identified further issues. Early on, it became clear that, despite the Osaka guidelines, APEC lacked a concrete framework for setting goals or measuring progress. Several senior officials meetings (SOMs), for example, dealt with streamlining the IAP submissions through the adoption of common indicators, such as templates for reporting average tariff rates. Despite these efforts, the final submissions are difficult to interpret or compare across economies. Thus, there is also need for what might be called detailed comparability, or a disaggregated framework for describing each economy's starting position and commitments. This article explores ways of operationalizing both concepts of comparability in order to encourage productive co-operation in APEC. APEC is novel among international trade fora in that its negotiations are ongoing; it has a repeated game structure. …

The timing of protectionism

The development of a new data set on the 1800–1990 average nominal tariff rates of five of the system's most important traders (Britain, France, the United States, Germany and Japan) permits a new empirical examination of alternative explanations of protectionism. Seven models, with various emphases on hegemony, business cycles, war shocks and economic growth, are used to generate nine schedules of expected changes in the direction of tariff rates. Correlations of the expected schedules with the observed directional shifts demonstrate clearly the timing superiority of explanations based on long wave and external shock emphases. Yet even the strongest performing models do less well at levels of analysis other than the system level. Greater model elaboration, it is concluded, is needed to better account for processes at work in different subsystems.

Tariff behavior in five European countries: Further evidence

Abstract Temporary movements in the average tariff rate for a country can lead to intertemporal substitution effects. A five-country model of tariff movements is estimated in a generalized system. The tariff formation process follows a random walk for the United Kingdom, Denmark, Sweden, and France, which implies that tariff changes can be viewed as permanent in those countries. However, in Switzerland the cumulative impulse responses to a tariff shock imply not only shock persistence, but shock magnification.

Quantitative assessment of tariff endogeneity: Interwar vs. postwar

The paper provides a quantitative assessment of the tariff endogeneity hypothesis in the macro context for the interwar and postwar U.S. economy. There is an almost unidirectional causality running from unemployment and trade deficit to the average tariff rate during the interwar period while more interactive relationships hold in the postwar period. Compared with the interwar era, there is a decline in the dependence of tariff on unemployment and trade deficit. But the individual effect of unemployment on tariff has increased and that of trade deficit has decreased. Furthermore, unanticipated shocks exert smaller and less persistent effects of tariff.

Tariff behavior in five European countries

Abstract This paper examines the time series properties of average tariff rates for Denmark, France, Sweden, Switzerland, and the United Kingdom. For all five countries the tariff series contains a unit root. However, a complete description of the tariff rate series for each country suggests that tariff changes may have quite different effects on macroeconomic variables, such as the trade balance, in each of the five countries studied.