Detailed Product Level Research Articles

Digitalization and cross-border tax fraud: evidence from e-invoicing in Italy

AbstractThe digitalization of transaction processes through tools such as electronic invoicing (e-invoicing) aims to improve tax compliance and reduce administrative costs. Another important aspect of digitalization is its potential to reduce tax fraud. We exploit the comprehensive introduction of e-invoicing in Italy in 2019 and examine the effect of increased domestic tax enforcement capabilities on cross-border value-added tax (VAT) fraud. As a proxy for this fraud, we make use of the discrepancy in trade data that are double-reported in both the importing and exporting country (trade data gap, TDG). We calculate the TDG for imports to Italy from all other EU countries at the most detailed product level. Our results suggest a significant decline in cross-border fraud in response to the introduction of mandatory e-invoicing, providing an important rationale for the application of this measure by other countries. Furthermore, we estimate that e-invoicing decreased the Italian VAT loss in 2019 by about € 2.2 billion to € 2.6 billion compared to 2018. In this context, we underpin the suitability of the TDG as an approach for the study of anti-fraud measures.

The effects of Indonesia’s technical barriers to trade on manufacturing exports: an empirical analysis using the pseudo-Poisson maximum likelihood method

PurposeThe purpose of this study is to investigate the effects of Indonesia’s technical barriers to trade (TBT) on manufacturing exports.Design/methodology/approachThis study uses the UNCTAD database to calculate the coverage ratio and frequency index of TBTs, which represent the restrictiveness of TBTs on imports. The effects of TBTs are estimated using the gravity model (Tinbergen, 1962) and the pseudo-Poisson maximum likelihood methodology (Santos Silva and Tenreyro, 2006, 2011).FindingsAn estimation on the manufacturing sector shows that TBT reduces Indonesia’s manufacturing exports. However, the effect of TBT is different in disaggregated manufacturing sector. TBT is found to reduce exports of chemicals and transportation but increase exports of metal and textiles. This finding supports the empirical evidence that TBT can create trade-impeding and demand-enhancing effects on trade flows. The negative effect of TBT on chemical and transportation exports implies that the cost of compliance is higher than the increasing demand rate. This finding suggests the need for policy evaluation and improvements for restrictive TBT. As Indonesia is still highly dependent on imported inputs, restrictive TBT can potentially reduce the productivity of the Indonesian manufacturing sector.Originality/valueThis study aims to investigate the effects of TBT in Indonesia, as a manufacturing-based economy that relies heavily on imported intermediate inputs. Furthermore, this study contributes to the literature by using country-specific techniques and aggregated and disaggregated manufacturing sectors as subjects for study. Meanwhile, previous studies use multi-country and multi-product approaches and focus on the aggregate sector. This study estimates the effects of TBT on the disaggregated sector, given its high share of imported inputs and reliance on export-oriented industries. TBT is constructed in a more detailed product level (HS-4 digit level) to provide more accurate results.

US-China Trade War: Is Winter Coming for Global Trade?

This paper uses the SMART Model to analyze the direct economic effects of the US-China tariff war on both China and the US. Based on the three lists of Chinese products subject to additional tariffs imposed under the US Section 301 investigation throughout 2018 and the tariff lists issued by China as a countermeasure, we simulate the trade creation/reduction effects, welfare effects, and trade diversion effects at the detailed product level. According to the simulation results, US imports from China and Chinese imports from the US will be greatly reduced by an estimated $91.46 and $36.71 billion, respectively. US imports will be diverted from China to other markets, specifically, Mexico, Japan and Germany, in most sectors. Chinese imports from the US will be mainly diverted to Brazil, Germany, Japan, Argentina, the United Kingdom and Canada. However, trade between the US and China cannot be completely transferred to alternative suppliers in other countries without additional costs or a loss of utility, which results in a substantial reduction in the total imports and welfare in both the US and China. The sectors with the highest welfare loss in the US are machinery and electrical products. In China, soybeans and automobiles are the most affected sectors and exhibit much higher welfare loss than other sectors. The trade war harms both sides’ welfare and could have further adverse effects on global value chains and the multilateral trading system.

The implications of re-exports for gravity equation estimation, NAFTA and Brexit

ABSTRACTThis paper illustrates the importance of taking into account re-exports. It shows that not taking into account re-exports causes estimates from the gravity model to be biased. It also considers the implications of re-exports for two current policy events. It is shown that the United States actually ran a net trade surplus in the North American Free Trade Agreement (NAFTA). Second, it is argued there may be additional costs for the UK economy from Brexit that are not addressed in earlier studies. This paper derives bilateral trade flows corrected for re-exports for a large number of countries at a detailed product level, using the World Input–Output Database (WIOD). Through a constrained non-linear optimization procedure, complete origin–destination matrices of re-exports are determined. Trade is subsequently restored to its most likely origin and destination.

An Analysis of the Impact of Sino-US Trade Friction Based on the Tariff Lists

With the implementation of Trump’s America First” Strategy, the United States has launched a series of trade frictions against China. So far, China and the U.S. have experienced multiple rounds of imposition escalation of additional tariffs. On April 3, the U.S. officially announced the list of Chinese goods worth US$50 billion to be imposed on a 25% tariff based on the results of a Section 301 Investigation”. On April 4, China announced the first corresponding list of products that the U.S. exports to China, marking the beginning of a tariff game between China and the U.S. On June 15, the U.S. adjusted the list and announced its final version of the $50 billion tariff list that is to be implemented, and China developed counter-measures in response. Both of the tariff lists of the two sides are separated into two sub-lists and are successively implemented on July 6 and August 23, covering $34 billion and $16 billion of goods respectively（refered to as List 1 and List 2 thereafter）. The two countries thus entered a tit-for-tat precision strike” stage. Since then, the U.S. has increasingly pushed Sino-US trade friction to a heated stage, making the Sino-US economic and trade relations and even the multilateral trading system gradually fall into the Trump trap”. Using the COMTRADE and TRAINS database with the WITS-SMART model, we simulate the trade and welfare effects of the trade friction on both countries, based on the lists of products subject to 25% additional tariffs announced by the U.S. and China at the 6-digit level of HS classification. Our analysis focuses on the two final product lists implemented by China and the U.S., namely List 1 and List 2, and simulates their effects on trade and welfare respectively. Then we conduct a comparative analysis of the preliminary lists announced in April with the two sub-lists implemented, to explore the different impact of the proposed actions and the actual implementation, and further discuss the adjustment and characteristics of the strategies of China and the U.S. in the trade friction. Our main conclusions are: （1）Concerning the trade effect, the bilateral trade between the two countries will be substantially reduced, and the decrease in the U.S. imports from China will be larger than that of China’s imports from the U.S.（2）Concerning the welfare effect, China’s overall welfare losses are more than 2.6 times that of the U.S.（3）Concerning the injury to the industries, mechanical and electrical industries are the most injured industries in the U.S. For China, the most affected industries are soybeans and automobiles.（4）Concerning the trade diversion, the U.S. imports from China will be deflected to markets such as Mexico, Japan and Germany, and China’s imports from the U.S. will be mainly deflected to Brazil, Germany and Japan.（5）From the comparison of the strategies, China’s counter-measures appear to be more focused than those of the U.S., but lack flexibility and efficiency. Therefore, for China, it is necessary to be prepared for a long-term and all-out trade war, and establish a more comprehensive trade friction policy response system. Compared with the existing research, the marginal contributions of this paper are as follows: （1）On the object research, the existing empirical research is based on hypothesized scenarios to simulate the effect of Sino-US trade friction, such as Cui et al.（2018）, while we directly use the tariff lists issued and implemented to systematically evaluate the effects of Sino-US trade friction. Moreover, we select the three corresponding tariff lists in the trade friction as our object of research, allowing a more comparable analysis on the effects and strategies between the two countries.（2）On the research content, this paper analyzes the trade reduction effect, trade diversion effect and welfare effect of Sino-US trade friction on the two countries, and discusses the adjustment and characteristics of the strategies in Sino-US trade friction by comparing the preliminary list issued with the final list implemented. The current discussions by domestic scholars on Sino-US economic and trade frictions focus on the political economic analysis. In contrast, this paper attempts to deepen the policy discussion through a more in-depth empirical analysis of economic effects, which can be a useful exploration. （3）On the research method, although the existing studies, including Li, et al.（2018）, Guo, et al.（2018）, Cui, et al.（2018）and Bollen and Rojas-Romagosa（2018）, have adopted the Computable General Equilibrium（CGE）model to simulate the impact of Sino-US trade friction, they are not based on the actual and detailed tariff lists issued by the two countries, but on assumptions such as a 45% tariff increase on the broad sectors. In contrast, based on the actual tariff lists issued by China and the U.S. at detailed product level, the quantitative analysis in this study not only helps to understand the international economic impact of Sino-US trade friction, but also has important practical implications for China’s strategy adjustment.

Do regional trade agreements really boost trade? Evidence from agricultural products

We evaluate the impact on trade of regional trade agreements (RTAs) using a panel data approach at the detailed product level which exploits exports to third destinations and imports from third origins as benchmarks. This method is robust to both endogeneity and heterogeneity across agreements and across products, and allows differentiation between the impacts of tariff provisions and non-tariff provisions. The analysis covers agricultural and food products for 74 country pairs linked by an agreement entered into force during the period 1998–2009. Our estimate of the mean elasticity of substitution across imports at product level is slightly below four. Counterfactual simulations suggest that RTAs have increased partners’ bilateral agricultural and food exports by 30–40 % on average, with marked heterogeneity across agreements. Also, RTAs are found to increase the probability of exporting a given product to a partner country although this impact is small. Finally, we found non-tariff provisions have no measurable trade impact.

Spatially explicit assessment of water embodied in European trade: A product-level multi-regional input-output analysis

Abstract Responsible water management in an era of globalised supply chains needs to consider both local and regional water balances and international trade. In this paper, we assess the water footprints of total final demand in the EU-27 at a very detailed product level and spatial scale—an important step towards informed water policy. We apply the multi-regional input-output (MRIO) model EXIOBASE, including water data, to track the distribution of water use along product supply chains within and across countries. This enables the first spatially-explicit MRIO analysis of water embodied in Europe’s external trade for almost 11,000 watersheds world-wide, tracing indirect (“virtual”) water consumption in one country back to those watersheds where the water was actually extracted. We show that the EU-27 indirectly imports large quantities of blue and green water via international trade of products, most notably processed crop products, and these imports far exceed the water used from domestic sources. The Indus, Danube and Mississippi watersheds are the largest individual contributors to the EU-27’s final water consumption, which causes large environmental impacts due to water scarcity in both the Indus and Mississippi watersheds. We conclude by sketching out policy options to ensure that sustainable water management within and outside European borders is not compromised by European consumption.

Impact of temporary trade barriers: Evidence from China

With a decrease in tariffs around the world, temporary trade barriers (TTBs) have increased dramatically to take their place. These TTBs are usually in the form of antidumping duties, countervailing duties and global safeguards. Recently, an increasing number of these TTBs have been targeted towards China. In this paper, I explore the impact of the US temporary trade barriers (TTBs) on Chinese exports. Using detailed product level data for the period 2002–2008, I find robust evidence of trade deflection i.e. the US trade barriers against China led to an increase in the growth of Chinese exports to other countries. However, I do not find any evidence of trade depression. The results are robust to a wide variety of specification and robustness tests. While I do not find any difference in the impact of TTBs across developed and developing countries, there is considerable heterogeneity in response to TTBs depending on the type of products involved. Specifically, I find that, while the US TTBs on non-steel products lead to an increase in Chinese exports of those products to third markets, there is a significant chilling effect in case of steel. Finally, most of the trade-deflection seems to be along the intensive margins i.e. an increase in exports to the existing third country markets rather than exports to new markets. If anything, the US TTBs on China seem to decrease Chinese exports to newer and more volatile markets.

The impact of trade preferences on multilateral tariff cuts: Evidence for Japan

Opposing theoretical predictions about the effects of trade preferences on multilateral tariff cuts point to the need for empirical analysis to determine whether preferential trade agreements promote or hinder multilateral trade liberalization. This paper examines the impact of Japan’s trade preferences on its multi-lateral tariff reductions. Using detailed product level data, we find that Japan’s Generalized System of Preferences (GSP) acted as a stumbling block for the country’s external tariff liberalization during the Uruguay Round of multi-lateral trade negotiations.

Entry Barriers to International Trade: Product versus Firm Fixed Costs.

Market size matters for exporters if firms must recover fixed costs. This paper uses the relationship between the extensive margins of exports and destination market size to evaluate whether fixed costs operate at the firm or at the product level. If fixed costs are at the firm level, multi-product firms have a cost advantage and dominate international trade. If fixed costs are at the product level, many firms export different varieties of the same product. Using detailed product level data from 40 exporting countries to 180 destination markets, the results indicate that entry barriers operate at the product level. Looking at firm entry within products across time and destinations, I find evidence of spillover effects that reduce fixed costs for product market rivals, increase firm entry and augment export revenues. The efficiency gains in production through lower product fixed costs outweigh the competition effects from more firm entry. Trade policies encouraging product entry, such as advertising products in destination markets through export promotion agencies, would result in more firm entry and generate higher export revenues.

A general equilibrium, ex-post evaluation of the EU–Chile Free Trade Agreement

This paper evaluates the impact on the Chilean economy of the EU–Chile Free Trade Agreement, in force since 2003, based on a computable general equilibrium (CGE) model. The evaluation method, inspired by structural decomposition methods, consists of double calibration of the model, to account for interactions between the agreement's impact and structural change in the Chilean economy. Trade flows are modeled at the detailed product level (six-digit level classification). The agreement is found to be slightly beneficial to Chile's economy on the whole, benefiting mainly unskilled labor, with gains concentrated in few sectors (fruits, wine, fisheries and seafood processing).

The Impact of Trade Preferences on Multilateral Tariff Cuts: Evidence for Japan

Opposing theoretical predictions on the effects of trade preferences on multilateral tariff cuts point to the need for empirical analysis to determine whether preferential trade agreements promote or hinder multilateral trade liberalization. This paper examines the impact of Japan’s trade preferences on its multi-lateral tariff reductions. Using detailed product level data, we find that Japan’s Generalized System of Preferences (GSP) acted as a stumbling block for the country’s external tariff liberalization during the Uruguay Round of multi-lateral trade negotiations.

Middle East and North African Integration: through the lens of Non-Tariff Measures

Non-Tariff Measures (NTMs) have recently become a central issue for economists and policy makers. Based on a new database developed by the World Bank on five Middle East and North African(MENA) countries at a very detailed product level, this article provides calculations of the average tariff equivalents (AVEs) of NTMs in these countries. A second contribution is the development of an original empirical model with detailed trade costs. This makes it possible to provide the assessment of these NTMs impacts as well as other trade costs ones on the trade of goods in these countries. This analysis is also extended to the trade of 15 service sectors, through the use of the updated GTAP database. Results show that NTMs are very significant in the selected MENA countries. The model also shows that NTMs are significantly trade reducing in almost all MENA countries, especially Sanitary and Phytosanitary(SPS) measures. NTMs in services are also significantly trade reducing, especially in Maghreb countries. The study shows that not all NTMs must necessarily been reduced or removed, but the

South Africa's Trade with Australia

everal international market selection models have been developed over the years to measure export potential for companies and countries. The models in question aim to identify those export markets offering the best opportunities for the exporting nation. That is, they attempt to select one or a few target markets from many. If the objective is to identify the best product categories to export to a given country, the models generally do not meet this objective. In order to address this objective, research was undertaken in respect of a particular destination country to analyze and compare the imports of a supplying (export) country in the context of the importing country's import profile with the purpose of identifying those products with the best export potential. In support of this market demand approach, this article reports on a time-series analysis of Australia's imports from South Africa compared with those from the rest of the world from 2001 to 2009. The research concludes that the proposed approach provides additional and unique insights at a detailed product-level which should prove valuable in the process of evaluating the export potential between the two countries.

Heterogeneous Firms and Import Quality: Evidence from Transaction-Level Prices

A key emerging insight in international economics is that the scope for quality differentiation can help to explain patterns in export prices at the level of products or firms. In this paper, a unified theoretical framework of firm heterogeneity in cost and quality is brought to bear on an expansive data set of U.S. import transaction prices collected by the Bureau of Labor Statistics (BLS). The higher moments of the price distribution are used to identify the scope for quality differentiation at the detailed product level highly differentiated products account for about half of U.S. import value. The product classification is then used to evaluate two claims in the nascent firm-level trade quality literature. First, the positive link between exporter capability and price is found to depend on the nature of the product: productive exporters simultaneously specialize in high-priced varieties in quality differentiated goods and low-priced varieties in more homogeneous goods. Second, a novel time series test documents firm sorting into export markets according to output quality.

Heterogeneous Firms and Import Quality: Evidence from Transaction-Level Prices

A key emerging insight in international economics is that the scope for quality differentiation can help to explain patterns in export prices at the level of products or firms. In this paper, a unified theoretical framework of firm heterogeneity in cost and quality is brought to bear on an expansive data set of U.S. import transaction prices collected by the Bureau of Labor Statistics (BLS). The higher moments of the price distribution are used to identify the scope for quality differentiation at the detailed product level; highly differentiated products account for about half of U.S. import value. The product classification is then used to evaluate two claims in the nascent firm-level trade quality literature. First, the positive link between exporter capability and price is found to depend on the nature of the product: productive exporters simultaneously specialize in high-priced varieties in quality differentiated goods and low-priced varieties in more homogeneous goods. Second, a novel time series test documents firm sorting into export markets according to output quality.

The evolution of family level sales forecasts into product level forecasts: Modeling and estimation

It is frequently the case that sales forecasts are available at the detailed product level for only a relatively short time horizon. For the rest of the forecast horizon, only aggregate sales forecasts at the product family level are available. The problem addressed in this paper is how to fit a forecast simulation model to a history of these aggregate and disaggregate forecasts. Our approach to develop such a model is to combine a forecast update model with a forecast disaggregation model. The forecast update model is called the Martingale model of forecast evolution. The parameters of the two models must be estimated from historical forecast data. It is this statistical parameter estimation problem that occupies the major part of our investigation. We recommend an estimation technique based on the method of moments.

Binding Overhang and Tariff-Cutting Formulas

Trade negotiations deal with cuts in bound duties, which differ substantially from applied preferential duties, and from MFN applied duties. Based on WTO’s Consolidated Tariff Schedules (CTS) database and on national sources, this paper proposes a systematic assessment of ad valorem-equivalent bound duties at the detailed product level, for almost all WTO members. Fully consistent with the assessment of applied protection provided in the MAcMap-HS6 database, this work allows the full structure of protection—bound, MFN applied, preferential applied duties—to be accurately assessed. We thus provide the first worldwide assessment of the binding overhang, i.e. the gap between bound and applied MFN tariffs. We also assess the likely applied-protection impact of an agreement in the Doha Round.

Binding Overhang and Tariff-Cutting Formulas

Trade negotiations deal with possible cuts in bound duties, which differ substantially from applied preferential duties, and even from MFN applied duties. Based on WTO's Consolidated Tariff Schedules (CTS) database and on national sources, this paper proposes a systematic assessment of ad valorem-equivalent bound duties at the detailed product level, for almost all WTO members. Fully consistent with the assessment of applied protection provided in the MAcMap-HS6 database (Bouet et al., 2004), this work allows the full structure of protection-bound, MFN applied, preferential applied duties - to be accurately assessed. We are thus able to provide with the first ever worldwide assessment of the binding overhang, i.e. the gap between bound and applied MFN tariffs. We also assess the likely applied-protection impact of an agreement in the Doha Round, based on the Harbinson Proposal for agricultural products, and on the Girard Proposal for nonagricultural products. In all cases, we show the difference between bound and applied protection to be key in understanding both the structure of protection worldwide, and the possible impact of liberalisation scenario cutting bound duties, as uses to be the case in multilateral liberalisations.

Multilateral Agricultural Trade Liberalisation: The Contrasting Fortunes of Developing Countries in the Doha Round

An applied general equilibrium model is used to assess the impact of multilateral trade liberalisation in agriculture, with particular emphasis on developing countries. We use original data, and the model includes some specific features such as a dual labour market. Applied tariffs, including those under preferential regimes and regional agreements, are taken into account at the detailed product level, together with the corresponding bound tariffs on which countries negotiate. The various types of farm support are detailed, and several groups of developing countries are distinguished. Simulations give a contrasted picture of the benefits developing countries would draw from the Doha development round. The results suggest that previous studies have neglected preferential agreements and the binding overhang (in tariffs as well as domestic support), and have treated developing countries with a high level of aggregation and been excessively optimistic about the actual benefits of multilateral trade liberalisation. Regions like sub-Saharan Africa are more likely to suffer from the erosion of existing preferences. The main gainers of the Doha Round are likely to be developed countries and Cairns Group members.