MFN Tariffs Research Articles

Negotiating over the rules of origin in regional trade agreements in Asia

AbstractIn regional trade agreements (RTAs), member countries choose a common rule of origin (RoO) for each product. This study examines the factors that influence RoOs in four ASEAN‐plus‐one RTAs, which are agreements between ASEAN and four individual countries. One unique feature is that ASEAN as a whole negotiates with a plus‐one country, which may dilute the interests of individual ASEAN countries at large. Our findings are summarised as follows. First, the more restrictive RoOs are set in the products where plus‐one countries are less competitive against most ASEAN countries. Second, the more restrictive RoOs are likely to be imposed in products that plus‐one countries protect with higher most favoured nation tariffs. These two results reflect the bargaining power among a plus‐on country and ASEAN countries and indicate that plus‐one's preference influences RoOs more strongly. Third, we find contrasting results between intermediate and final products. RoOs are likely to be less restrictive in intermediate products and more restrictive in final products when plus‐one countries have higher export competitiveness or when the majority of ASEAN countries have higher MFN tariffs.

A comparative analysis of EU and US trade policies towards least developed countries and the African Growth and Opportunity Act beneficiaries

AbstractMotivationThe European Union (EU) and the US have specific trade preference programmes in place directed towards developing countries in general and, primarily in the case of the EU, towards least developed countries (LDCs) in particular. This article examines the relative merits of these programmes.PurposeThe article compares the trade policies of the EU and the US with respect to LDCs and the countries eligible for the US African Growth and Opportunity Act (AGOA) and examines the relative success of the two donors’ trade policies vis‐à‐vis these two groups of beneficiaries in terms of increasing imports from them.Approach and methodsEconometric evidence from a gravity model is used to compare the effects of EU and US preferential trade policy on imports from the beneficiary countries. First, regressions are carried out using total EU and US imports as dependent variables and, second, EU and US duty‐free imports are used.FindingsThe descriptive part of the article shows that (a) a larger share of EU imports benefits from duty‐free MFN tariffs; (b) the EU offers preferences on all imports from the LDCs (except arms and ammunition), while the US extends preferences to three quarters of all imports; (c) EU preferences are better utilized; and (d) the EU imports more goods duty free. The econometric analysis shows that EU trade policy towards the LDCs and the AGOA beneficiaries has generated approximately twice as much in imports as US policy, when imports of mineral fuels are excluded from the analysis.Policy implicationsEU trade policy is found to outperform US trade policy in terms of generating imports from the LDCs and the AGOA beneficiaries. Hence, if any trade policy ought to be copied by other countries, as suggested by some observers, it should be EU trade policy rather than US trade policy.

Virtual protectionism: Overview of MFN tariffs and bound tariffs in South America

Virtual protectionism: Overview of MFN tariffs and bound tariffs in South America

Why breakup? Looking into unsuccessful free trade agreement negotiations

In this first attempt to systematically analyze why countries (not) sign FTAs, we differentiate between country pairs that initiated negotiations but did not reach conclusion from pairs that did not initiate negotiations. By comparing successful and unsuccessful negotiations, we can have a better understanding why countries decided (not) to pursue FTAs. In explaining the outcome of FTA negotiations, the paper sheds light onto negotiation resources from three perspectives: resource allocation, resource diversion and resource requirement. By conducting a systematic comparison of 25 FTA negotiations conducted by Singapore, the study finds that FTA negotiation tends to be unsuccessful when (1) negotiating parties do not have diplomatic missions in the partner country (resource allocation); (2) negotiating parties conduct multiple FTA negotiations in parallel (resource diversion); and (3) negotiation becomes complicated due to the significant difference in MFN tariff between the two parties (resource requirement).

The Preferential Trade Conundrum and the Multilateral Market Access Negotiations in Agriculture

Regional trade agreements have increasingly become important as a medium for effecting trade liberalization. The trend is not expected to recede. There is not to suggest that multilateral trading system under the WTO has to be relegated. Regional trade agreements may be a good avenue to pursue market access reforms, but they do have an obvious limitation in making a foray into rule-making. They rely rather heavily on multilateral trade rules and on the expectation that these fundamental trade rules are implemented so as to build upon them within the preferential setting. This is evident when one looks at the treatment of subsidies, regulatory measures, safeguards and other trade remedy instruments within these regional trade agreements. This article examines the situation of exports and imports in ten major agricultural trading countries or territories to assess the share of preferential trade in the overall trade profile. While the situation varies across the group, a significant share of trade continues to originate in or destined for countries under (MFN) Most-favoured Nation terms. In a number of regional trade agreements, including those involving the ten major countries, various sensitive agricultural sectors like dairy, meats, sugar, cereals have either been exempted from tariff elimination or preferential tariff treatment has been offered through a minor reduction in high MFN tariffs or tariff rate quotas. Tariff reforms for a number of such sensitive agriculture sectors have proven to be difficult partly because of the linkage between tariff policies and governmental internal policies and subsidies granted to such sensitive sectors. This linkage hinders commitments on tariff liberalization for the relevant sensitive sectors, especially in a preferential setting where domestic subsidy reforms might not be feasible. In order to exploit the synergy between regional trade agreements and the multilateral trading system and negotiations, it has been suggested in this article to consider reforms of sensitive agricultural sectors within the multilateral negotiations where both tariff liberalization and subsidy reforms may be pursued together.

A STRATEGIC MANAGEMENT MODEL FOR ECONOMIC DEVELOPMENT The Feitoria Prime Market Model – The Competitiveness Concept: MFN Tariff The bilateral trade opportunities Portugal – Poland and Portugal – Ukraine

The paper presents an upgrade of the strategic management model for economic development, the Feitoria Prime Market Model (Feitoria Model), developed by Botelho & Kulishov (2018) which has an innovation: the incorporation of the concept of competitiveness of products in markets, the Most-Favored Nation Tariff (MFN Tariff). The Feitoria Model identifies new markets for companies to increase the number of markets to place their product portfolio. Feitoria Model is based on the comparative advantage concept of Ricardo (1817) and incorporates economic and political dimensions in order to avoid unstable economies and the MFN tariff in order to compare the competitiveness of products in multiple markets. The study presents the bilateral trade opportunities, Portugal – Poland and Portugal – Ukraine. The methodology presented below is configured confronting the potential trade to effectively verified among the countries and uses a trade database 2013 – 2017 period extracted from the UN COMTRADE free database.

Peeling away the layers: Impacts of durable tariff elimination

We demonstrate that durable MFN tariff elimination affects trade patterns through several layers, and magnitudes of effects are sizable. The WTO Information Technology Agreement's (ITA) unique setting allows us to overcome the challenges associated with identifying effects of non-discriminatory trade policies due to two reasons: (i) ITA constitutes a quasi-natural experiment of several “passive” signatories joining the agreement as an unavoidable part of pursuing a larger policy objective, and (ii) ITA's partial coverage of the IT sector provides a natural control group for identification based on cross-product variation. Our analysis finds novel nonlinear impacts of tariff liberalization: Complete tariff elimination results in large additional trade gains – over and above tariff reductions – especially for intermediate goods. The commitment to durable tariff elimination, through WTO bindings, adds another two layers, boosting both imports and exports more than equivalent unilateral reforms. This commitment spurned development of a downstream IT export sector in “passive” signatories.

Peeling Away the Layers: Impacts of Durable Tariff Elimination

We demonstrate that durable MFN tariff elimination affects trade patterns through several layers, and magnitudes of effects are sizable. The WTO Information Technology Agreement’s (ITA) unique setting allows us to overcome the challenges associated with identifying effects of non-discriminatory trade policies due to two reasons: (i) ITA constitutes a quasi-natural experiment of several “passive” signatories joining the agreement as an unavoidable part of pursuing a larger policy objective, and (ii) ITA’s partial coverage of the IT sector provides a natural control group for identification based on cross-product variation. Our analysis finds novel nonlinear impacts of tariff liberalization: Complete tariff elimination results in large additional trade gains - over and above tariff reductions - especially for intermediate goods. The commitment to durable tariff elimination, through WTO bindings, adds a further two layers, boosting both imports and exports more than equivalent unilateral reforms. This commitment spurned development of a downstream IT export sector in “passive” signatories.

Peeling Away the Layers: Impacts of Durable Tariff Elimination

We demonstrate that durable MFN tariff elimination affects trade patterns through several layers, and magnitudes of effects are sizable. The WTO Information Technology Agreement’s (ITA) unique setting allows us to overcome the challenges associated with identifying effects of non-discriminatory trade policies due to two reasons: (i) ITA constitutes a quasi-natural experiment of several “passive” signatories joining the agreement as an unavoidable part of pursuing a larger policy objective, and (ii) ITA’s partial coverage of the IT sector provides a natural control group for identification based on cross-product variation. Our analysis finds novel nonlinear impacts of tariff liberalization: Complete tariff elimination results in large additional trade gains - over and above tariff reductions - especially for intermediate goods. The commitment to durable tariff elimination, through WTO bindings, adds a further two layers, boosting both imports and exports more than equivalent unilateral reforms. This commitment spurned development of a downstream IT export sector in “passive” signatories.

Peeling Away the Layers: Impacts of Durable Tariff Elimination

We demonstrate that durable MFN tariff elimination affects trade patterns through several layers, which generates non-linear impacts. First, complete tariff elimination results in a large additional trade gains over and above tariff reductions. Second, commitment to durable tariff elimination, through WTO bindings, further boosts both imports and exports of ITA members. The unique setting of the WTO Information Technology Agreement (ITA) allows us to identify these effects of non-discriminatory trade policies because (i) ITA constitutes a quasi-natural experiment as several “passive” signatories joined it as an unavoidable part of pursuing of a larger policy objective, and (ii) ITA's partial coverage of the IT sector provides a natural control group for cross-product identification. Commitments under the ITA spurned development of a downstream IT export sector in “passive” signatories.

Did Anti-Dumping Duties Really Restrict Import?: Empirical Evidence from the US, the EU, China, and India

This paper studied the effects of anti-dumping measures on the imports to investigate whether the trade restriction effect of an anti-dumping duty is dominant. Our results indicate that a 1% increase in the anti-dumping duties decreases the import of the targeted product by about 0.43~0.51%. The actual statistics, however, show that the total import of the targeted products increased by about 30 percent while an anti-dumping duty was in force. That indicates that an anti-dumping duty is just a temporary import relief. This paper also investigated whether an anti-dumping duty is terminated in the case that the injury would not be likely to continue or recur if the duty were removed. The hazards model estimates show that increase in market share, MFN tariff rate, and dumping margin decrease the hazard of termination of an anti-dumping duty, but the increase in value added increases the hazard of termination. Generally speaking, this result indicates that the WTO member countries have regulated the overuse of an anti-dumping measure. The findings of this paper show that there is a country- and industry-wise heterogeneous characteristic in the effect as well as termination of an anti-dumping duty.

Economic Effects of Anti-Dumping Duties: Protectionist Measures or Trade Remedies?

This paper studied the effects of anti-dumping measures on the imports to investigate whether the trade restriction effect of an anti-dumping duty is dominant in the US, the EU, China, and India from 1996 to 2015. Our results indicate that a 1% increase in the anti-dumping duties decreases the import of the targeted product by about 0.43~0.51%. The actual statistics, however, show that the total import of the targeted products increased by about 30 percent while an anti-dumping duty was in force. That indicates that an anti-dumping duty is just a temporary import relief. This paper also investigated whether an anti-dumping duty is terminated in the case that the injury would not be likely to continue or recur if the duty were removed. The increase in market share, MFN tariff rate, and dumping margin turns out to decrease the hazard of termination of an anti-dumping duty, but the increase in value added increases the hazard of termination. Generally speaking, this result indicates that the WTO member countries have regulated the overuse of an anti-dumping measure. It also implies that anti-dumping duties have been used as a tool for trade remedy. The findings of this paper show that there is a country- and industry-wise heterogeneous characteristic in the effect as well as termination of an anti-dumping duty. To conclude, an anti-dumping duty is not necessarily a protectionist measure if it is effectively controlled by the WTO rules. In this sense, the WTO member countries need to introduce a more transparent mechanism and due process.

Total Factor Productivity and Most Favored Nations Tariffs: Evidence from Croatia

Abstract One of the most important topics in empirical trade research is the link between productivity and trade liberalization. In this paper we will focus on the effect of MFN tariffs in the total factor productivity of Croatian firms over the period 2003-2012. This period is characterized by an increased openness toward European Union for Croatian firms. The aim of this paper is to present evidence on the negative link between productivity and tariffs by using the Levinsohn and Petrin (2003) method to estimate productivity of firms. Then we will use TFP as a dependent variable for firm characteristics and trade policy indicator (MFN tariffs). The results are in line with most other studies, confirming the negative relationship between TFP and tariffs. The results show that exporting firms have a higher productivity than non-exporting. We also conclude that up to a certain age productivity increases and then decreases.

Estimating the Effects of Non-Discriminatory Trade Policies within Structural Gravity Models

We propose a simple method to identify the effects of unilateral and non-discriminatory trade policies on bilateral trade within a theoretically-consistent empirical gravity model. Specifically, we argue that structural gravity estimations should be performed with data that include not only international trade flows but also intra-national trade flows. The use of intra-national sales allows identification of the effects of non-discriminatory trade policies on the importer side (e.g. most favored nation tariffs) and on the exporter side (e.g. export subsidies), even in the presence of exporter and importer fixed effects. An important byproduct of our approach is that it can be used to recover estimates of the export-supply elasticity and of the import-demand elasticity. We demonstrate the effectiveness of our techniques in the case of MFN tariffs and Time to Export as representative determinants of trade on the importer and on the exporter side, respectively. Our methods can be extended to quantify the impact on trade of any country-specific characteristics as well as any non-trade policies.

Could tariffs be pro-cyclical?

Conventional wisdom says that tariffs are counter-cyclical. We analyze the relationship between business cycles and applied MFN tariffs using a disaggregated product-level panel dataset covering 72 countries between 2000 and 2011. Strikingly, and counter to conventional wisdom, we find that tariffs are pro-cyclical. Further investigation reveals that this pro-cyclicality is driven by the tariff setting behavior of developing countries; tariffs are acyclical in developed countries. We present evidence that pro-cyclical market power drives the pro-cyclicality of tariffs in developing countries, providing further evidence of the importance of terms of trade motivations in explaining trade policy.

Brexit: Breaking Away – Would it Pay?

SummaryIn the event of a Brexit the UK would have to redefine its trade relationship with the EU and develop its own agricultural policy. We analyse the impacts of a UK–EU Free Trade Arrangement (FTA); a WTO MFN tariff rates scenario; and a UK Trade Liberalisation scenario (UK TL). In each scenario the effects of three different levels of direct payments to farmers are estimated: current levels, 50 per cent reduction and no direct payments. In the FTA and WTO scenarios, UK prices for agricultural products would increase due to the higher trade facilitation costs and the UK's loss of access to EU preferential import regimes, with positive impacts on producers but negative on consumers or users. In the UK TL scenario, prices for animal products tend to decline, while crop prices show an increase relative to the status quo. The effects on farm incomes reflect these changes in prices but incomes ultimately are strongly dependent on choice of agricultural policy with regard to direct payments. Full abolition of direct payments generally more than offsets the positive effects of output price increases on farm incomes. Direct payments of 50 per cent of current levels have more diverse impacts on farm incomes.

Do Prices Determine Vertical Integration?

A number of theories in organizational economics and industrial organization suggest that vertical integration, while costly, increases productivity. It follows from firms’ maximizing behavior that higher prices in the product market ought to induce more integration. Trade policy provides a source of exogenous price variation to assess this prediction: higher tariffs should lead to higher prices and therefore to more integration. We construct firm- level vertical integration indices for a large set of countries and industries and exploit variation in applied MFN tariffs to examine the impact of tariffs on firm boundaries. The empirical results provide strong support for the view that higher output prices generate more vertical integration. Our estimates of the average price elasticity of vertical integra- tion are in the range 0.4-2.

MFN Tariff Rates and Carbon Emission: Evidence from Lower-Middle-Income Countries

The paper empirically investigates whether developing countries may use trade policy as an alternative to environmental policies in order to control carbon emission. It measures the effectiveness of the existing ‘Most Favored Nations’ (MFN) tariff rates applicable to lower-middle income countries and for countries sorted on the basis of manufacturing-to-trade shares, in lowering carbon emission. By applying a fixed effects panel regression method over 16 years, it is found that the MFN tariff rate helps these economies to reduce carbon emission substantially. In addition, the role of foreign direct investment as purveyor of clean products is explored at the cross-country level. The results, at least on the ground of better environmental standards, indicate the need to re-evaluate the choice for protection under the domain of multilateral trade negotiations.

Trade Policy Flexibilities and Turkey: Tariffs, Anti‐dumping, Safeguards and WTO Dispute Settlement

AbstractThe commitment to lower import tariffs and to maintain tariffs at low levels entails political‐economic trade‐offs. Empirical work examining the relationship between such commitments and the ‘flexibilities’ that policymakers exercise to get around them is still relatively nascent, especially for emerging economies. This paper provides a rich, empirically based assessment of ways that Turkey exercised trade policy flexibilities during the global economic crisis of 2008–11. First, and despite multilateral and customs union commitments that might limit changes to its applied tariffs, Turkey exercised flexibilities during 2008–11 by making changes to both its applied MFN and preferential tariffs that could affect nearly 9 per cent of its manufacturing imports. Second, Turkey's cumulative application of temporary trade barrier (TTB) policies – that is, anti‐dumping, safeguards and countervailing duties – is estimated to impact an additional 4–6 per cent of Turkey's manufacturing imports by 2011. Other surprising results include Turkey's lengthy extensions to the duration of previously imposed anti‐dumping and safeguards beyond expected removal dates, conversion of product coverage from one TTB policy to another, extensive coverage of upstream and downstream segments of important industries and potential deepening of discriminatory preferences already inherent in existing preferential trade agreements.

Australian Trade Policy Strategy Contradictions

AbstractAustralia’s Trade Policy Review by the WTO in 2011 was positive about Australia’s openness and its progress in removing residual barriers to trade. But it glosses over the fact that Australia’s current strategy of supporting the multilateral system while signing, negotiating and concluding preferential agreements is not consistent. The paper focuses on the question of Australia’s role in the multilateral system as it prosecutes preferential agreements, and examines ways of multilateralising some of those preferences, especially in a broader regional setting and under the WTO. One priority is to multilateralise the preferences in trade agreements – by reducing the MFN tariffs and extending the preferential access that some investment and services providers enjoy. Another priority is to get domestic regulations and reforms right so that there is no discrimination between foreign and domestic firms, let alone between foreign firms from different countries.