Most-favored Nation Tariffs Research Articles

Intra‐ and extra‐regional trade costs: A comparative approach to Latin‐American performance

AbstractThe world expansion of trade in manufactured goods has been more dynamic than production over the last 25 years. The greater trade openness was due more to the growth of extra‐regional trade than to intra‐regional trade. Regions and trade agreements performed heterogeneously. Using a structural gravity model, we obtain that different mechanisms of trade liberalisation complemented each other, through the reduction of Most Favoured Nation (MFN) tariffs, the expansion and deepening of existing plurilateral agreements and the incorporation of new deeper agreements. The contribution derived from the reduction of MFN tariffs stands out, followed in importance by the component of preference for openness and trade facilitation. The contribution of the preferential channel via preferential trade agreements has been more important for extra‐regional than intra‐regional trade. For Latin America, heterogeneity is the fundamental characteristic, from the protectionism of Argentina and Brazil to a better openness performance of the countries of Central America and the Caribbean, and the members of the Andean Community (CAN) with an intermediate behaviour. Mexico, Colombia, Chile and Peru, economies from different regions, are the most open in Latin America. The concept of open regionalism is highlighted: without non‐discriminatory trade openness, there is no regionalism that can significantly reduce trade costs.

Do preferential trade agreements favor the liberalization of trade with non-members? The case of the Andean Community

The theoretical literature has not reached a consensus on the effect of PTAs on multilateral liberalization. Empirical studies on this topic have been limited and, like theoretical studies, their results vary. The objective of this study is to find the effect of the Andean Community of Nations on the multilateral liberalization of Peru, by analyzing the variations in the Most Favored Nation (MFN) tariffs applied to non-members as a consequence of the preferential tariff reductions applied by Peru to the members of this PTA. The units of analysis are the tariff lines disaggregated to 6 digits of the Harmonized System for the period 1992-2010. Results show that, for the entire study period, the Andean Community generated a building block. We divided the sample into two sub-periods: 1992-2001 and 2002-2010. For the first period the results show a building block effect; however, for the second half the results changed, and a stumbling block is found. Other variables are also added to observe their effects on changes in external tariffs, such as preferential imports, which, when they present a sizeable preferential margin, cause a reduction in MFN tariffs for the entire sample. Based on these results, we found that the Andean Community did not represent an impediment to multilateral liberalization in Peru.

Preferential trade agreements and MFN tariffs: Global evidence

We study the effects of countries’ import composition on multilateral liberalization using a global tariff database that covers the 2000–2011 period. Employing a theoretically motivated empirical approach and instrumental variable strategy, we provide evidence that greater preferential trade agreement (PTA) import shares induce tariff cuts on non-member countries. Our baseline estimates imply that a 10 percentage point increase in the share of imports from PTA partners, or alternatively a 1 percentage point PTA-induced decline in applied tariffs, lowers most-favored nation (MFN) tariff rates by about 0.4 percentage points. This effect is driven by countries that negotiate deeper preferential trade deals. PTAs that span more policy fields are prone to lead to more inefficient trade diversion, which creates a stronger incentive to subsequently cut MFN tariffs. At the same time, our results are remarkably consistent across other subsamples emphasized in the literature, including high- and low-tariff importers, poorer and richer economies as well as large and small countries.

Quantitative Analysis of Multiparty Tariff Negotiations

We develop a model of international tariff negotiations to study the design of the institutional rules of the GATT/WTO. A key principle of the GATT/WTO is its most‐favored‐nation (MFN) requirement of nondiscrimination, a principle that has long been criticized for inviting free‐riding behavior. We embed a multisector model of international trade into a model of interconnected bilateral negotiations over tariffs and assess the value of the MFN principle. Using 1990 trade flows and tariff outcomes from the Uruguay Round of GATT/WTO negotiations, we estimate the model and use it to simulate what would happen if the MFN requirement were abandoned and countries negotiated over discriminatory tariffs. We find that if tariff bargaining in the Uruguay Round had proceeded without the MFN requirement, it would have wiped out the world real income gains that MFN tariff bargaining in the Uruguay Round produced and would have instead led to a small reduction in world real income relative to the 1990 status quo.

The Long and Short (Run) of Trade Elasticities

We propose a novel approach to estimate the trade elasticity at various horizons. When countries change Most Favored Nation (MFN) tariffs, partners that trade on MFN terms experience plausibly exogenous tariff changes. The differential effects on imports from these countries relative to a control group â?? countries not subject to the MFN tariff scheme â?? can be used to identify the trade elasticity. We build a panel dataset combining information on product-level tariffs and trade flows covering 1995-2018, and estimate the trade elasticity at short and long horizons using local projections (JordA , 2005). Our main findings are that the elasticity of tariff-exclusive trade flows in the year following the exogenous tariff change is about â??0.76, and the long-run elasticity ranges from â??1.75 to â??2.25. Our long-run estimates are smaller than typical in the literature, and it takes 7-10 years to converge to the long run, implying that (i) the welfare gains from trade are high and (ii) there are substantial convexities in the costs of adjusting export participation.

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.

The effects on intraregional agricultural trade of ending NAFTA's market access provisions

AbstractThis paper explores the possible effects on agriculture of ending the market access provisions of the North American Free Trade Agreement (NAFTA). This paper considers two hypothetical scenarios: one revolving around a fallback to most‐favored‐nation (MFN) tariff rates and the other considering the additional effect of increased transaction costs in intraregional trade. Results from a computable general equilibrium model indicate that applying MFN tariff rates to U.S.–Canada and U.S.–Mexico agricultural trade would lead to a 14.43% reduction in these trade flows, while a scenario also featuring higher transaction costs would bring an even larger reduction (21.25%). In both scenarios, almost every agricultural product experiences a reduction in bilateral trade, with U.S. agricultural exports to Mexico undergoing some of the largest proportionate decreases. Many sectors within North American agriculture would have lower output, including fruit and nuts, vegetables, oilseeds and vegetable oils, and processed foods in Canada; fruit, vegetables, and beef in Mexico; and poultry meat, pork, beef, and dairy products in the United States.

The impact of the new protectionist stance in US trade policy on selected German companies in Mexico

ABSTRACTPrevious studies on the impact of the new protectionist stance of the United States have focused mainly on the imposition of the controversial border tax. This research advances the understanding of the possible impacts of the tightening of the rules of origin and the imposition of the most-favored nation tariffs on manufacturing companies. The findings show a negative impact from the protectionist measures on businesses by increasing costs per unit and decreasing the gross margin. The results suggest that those additional costs could be passed on to the final buyers, raising the price level by more than previously assumed.

NOT ALL GOODS ARE CREATED EQUAL: TARIFF CONCESSIONS IN THE KOREA–CHINA FREE TRADE AGREEMENT

In this paper, we use a multinomial logit model and identify the important factors in determining the staging categories of Korean tariff concessions in the Korea–China free trade agreement (FTA). We find that most-favored-nation (MFN) tariff rates and whether a product is agricultural or not are the most influential determinants of tariff concessions in the FTA. The results also show that the effects of the determinants are heterogeneous over industries: the influence of the Chinese import share is more pronounced for agricultural products than for manufactured goods, while that of MFN tariffs is less prominent for agricultural products. The latter result implies that quite a few Korean agricultural products are heavily protected in the FTA, despite their relatively low MFN rates.

Regionalism and falling external protection in high and low tariff members

This paper provides evidence that the reduction in applied most-favoured nation (MFN) tariffs resulting from a decrease in preferential tariffs is restricted to (or significantly larger in) high-tariff members of preferential trade agreements (PTAs). This heterogeneous impact is observed only when the share of preferential imports increases, leading to a decline in tariff revenue. This makes countries which tend to heavily depend on tariff revenue as a source of government funding more likely to reduce their MFN tariffs, which is also observed in the data. These results that are consistent with a mechanism operating through trade deflection and the associated loss of tariff revenue therefore lend support to the building bloc view of regionalism in countries applying high external tariffs before the agreement. In contrast, driven by other factors, the impact in low-tariff countries remains unclear with either insignificant effects or tariff substitution.

Utilization of Preferential Tariff under ASEAN Free Trade Area (AFTA): Case of Malaysia

Reducing numbers of tariff lines to 0% and increase in intra-regional trade are often indicators of success of ASEAN Free Trade Area (AFTA). With more members liberalizing their economies and actively reducing the Most Favoured Nation (MFN) rates, the preferential tariff under AFTA would have a minimal impact on trade patterns unless the preferential tariff treatment is effective. Based on the value of Certificate of Origin (COO) and its export to ASEAN countries, this paper plans to estimate and analyse the utilization of tariffs under AFTA in the case of Malaysia for the period of 2007-2011 to examine the effectiveness of preferential tariffs under AFTA. Analysis is expanded with a “MFN proxy” by excluding Singapore. The results show that the utilization rates remain low and this suggests that preferential tariff rates are only used for the similar products and there will always be a limited level of utilization as some product lines were liberated under MFN tariffs.

Trade creation, trade diversion, and the general equilibrium effects of regional trade agreements: a study of the European Community–Turkey customs union

This paper presents an industry-level analysis of trade flows in order to estimate the trade effects of Turkey’s customs union with the European Community (EC). The paper is able to distinguish between trade creation and trade diversion by employing tariff data on each good to measure the impact of not only the tariff level but also the difference between tariffs applied to imports from Europe and the most-favored nation tariffs applied to imports from other non-preferential trading partners. The paper estimates the general equilibrium effects of the customs union in addition to the effects of eliminating tariffs on the EC’s exports to Turkey. It concludes that the customs union has generated more than twice as much trade creation as trade diversion but that the overall impact of the customs union has been relatively small.

LEGISLATED PROTECTION AND THE WORLD TRADE ORGANIZATION

Tariff bindings and administered protection are two characteristics of the World Trade Organization (WTO) that are little understood. Tariff bindings place a ceiling on tariffs that is not always reached, whereas administered protection provides all industries with some minimum import protection, effectively creating a floor for protection. How do these policies affect applied most favored nation (MFN) tariff rates that are enacted through the legislature? I model tariffs determined by a dynamic legislative process and show that low applied MFN tariffs are less likely with tariff bindings and more likely with administered protection than under purely legislated protection.

Preferential Trade Agreements and Unilateral Liberalization: Evidence from CAFTA

AbstractThere is no consensus in the literature on whether preferential trade agreements help or hinder trade liberalization toward non-members. We examine the link between preferential trade liberalization and tariffs imposed against non-member countries for the case of CAFTA-DR. Using product data at the 6-digit HS level, we find that products with larger reductions in preferential tariffs experienced larger increases (or smaller decreases) in most-favored nation tariffs applied against non-members. However, we also uncover some interesting dynamics regarding the relationship between preferential liberalization and tariffs imposed against non-members. When we split the sample period into two sub-periods, we find an initial negative relationship between changes in preferential and most-favored nation tariffs during the first half of the sample period, followed by a positive relationship during the second half, although the evidence on the latter is not as strong. The results thus provide the first evidence of an initial stumbling block effect of preferential trade liberalization on unilateral liberalization, as well as (weaker) evidence of a subsequent building block effect.

Post-Doha Trade Policy Options for a Small Country

This paper uses a partial equilibrium model of two small countries, within a large world economy, implementing reciprocal tariff cuts on each other’s exports in a regional trade agreement (RTA) and compares the effects with unilateral most favoured nation (MFN) tariff cuts. The reciprocal cuts are shown to be more likely beneficial to a country if the partner country’s trade is larger. The welfare effects of a country’s own tariff cut on imports are also compared to the effects on its welfare of the partner country’s tariff cut on its exports. If tariff levels are low, the latter is seen to be larger than the former. Implications of the analysis are that, if multilateral trade liberalisation is unlikely, then small countries should seek to form RTAs with countries larger than themselves. In addition, to assure that they have something to offer in such arrangements, they should not go too far in unilaterally reducing their MFN tariffs.

Third-country Effects of Regional Trade Agreements

Does regionalism negatively impact non-members? To answer this question, we examine the effect of regional trade agreements (RTAs) on imports from non-members and the tariffs that they face. Using data from six RTAs in Latin America and Europe, we do not find evidence that implementation of the regional agreements is associated with trade diversion from third countries to regional members. Using detailed industry data on preference margins and most-favoured nation (MFN) tariffs for three trade agreements in Latin America over 12 years, we find that greater preference margins do not significantly reduce imports from third countries. We also look at the effect of preferences on external tariffs. We find evidence that preferential tariff reduction tends to precede the reduction of external MFN tariffs in a given sector, offering evidence of tariff complementarity. Overall, the results suggest that regionalism does not significantly harm non-members.

Optimal tariffs of preferential trade agreements and the tariff complementarity effect

PurposeThe purpose of this paper is to evaluate and contrast the welfare effects of free trade agreements (FTAs) and customs unions (CUs) on member and non‐member countries when tariffs of both members and non‐members are endogenously determined. It also aims to provide sufficient conditions under which both types of preferential trade agreement (PTA) are likely to lower tariffs on non‐members relative to that under most favored nation (MFN).Design/methodology/approachThe paper employs a three country Cournot oligopoly model of trade with segmented markets.FindingsIt is shown that under symmetry CU members enjoy higher welfare relative to that under an FTA or MFN. Furthermore, the non‐member country gains from the formation of a PTA so long as the PTA's external tariff falls below a certain threshold. However, for FTA members to necessarily gain, their external tariff needs to be greater than this threshold but smaller than twice their MFN tariffs. Outside this tariff range, welfare effects of FTAs are ambiguous in the absence of further assumptions. The paper also isolates sufficient conditions under which a PTA member is less likely to impose a positive tariff on the non‐member relative to that under MFN.Originality/valueUnlike existing literature, we do no assume demand linearity to obtain our main welfare results and use this assumption only for illustrative purposes. Another contribution of the paper is to provide sufficient conditions under which a PTA member is less likely to impose a positive tariff on the non‐member relative to that under MFN.

Why Has North Korea Responded Positively to the Nuclear Talks in 2007?

IntroductionI have repeatedly pointed out the adverse impact of numerous U.S. economic sanctions on North Korea's trade. I have written, for instance, that the large trade deficit, unless compensated somehow, is not sustainable.1 Further, since China and were the only two steady importers of North Korean products from 2000 to 2005, if one or both countries turned against North Korea by joining the economic sanctions, it would be difficult for North Korea not to feel the impact. And so it came to be. Japan rapidly tightened its economic relations with North Korea during the past year or two, I wrote in 2007, a total ban of imports from North Korea, over the issues of kidnapping and nuclear weapons, leaving China as the only country that has a key influence on North Korea's trade. Prospects are that North Korea's exports may decline, making North Korea's trade deficit issue even more difficult.2 Even with these premonitions, it was a pleasant surprise to see the way in which North Korea responded to the nuclear talks later in 2007.The objective of this paper is to explore the economic reasons behind North Korea's positive response to the nuclear talks in 2007, by hypothesizing that the North Korean leaders altered their approach partly because of the adverse impact of economic sanctions on North Korea's trade that had reached an unsustainable stage, and partly because of a greater calculation of benefits and costs by the North Korean leaders since the collapse of the Soviet Union, the process of which began in 1989.Key Economic Sanctions against North KoreaThe economic sanctions that have been imposed against North Korea since the beginning of the Korean War in 1950 are chronologically explained elsewhere by me.3 Among the many sanctions imposed on North Korea are three that currently have a direct impact on North Korea's trade. One is the U.S. denial of a most-favored nation (MFN) trade status on North Korea's exports, which was imposed on September 1, 1951. Because of the widespread use of the MFN tariffs, these are known as Normal Trade Relations (NTR) tariffs. Without MFN status, tariffs on North Korean exports to the United States can be so high that it would be impossible for North Korea to even consider exporting anything to the United States.Another important sanction was levied when North Korean agents blew up Korean Air 858 on November 29, 1987, when the plane was on its way from Baghdad to Bangkok. The explosion killed 115 passengers and crew members. On January 20, 1988, North Korea was placed on a list of countries that support international terrorism, on the basis of the U.S. Export Administration Act of 1979. The importance of this sanction is that placement on the list made it impossible for North Korea to borrow development funds from international financial institutions, including the World Bank and the International Monetary Fund.4The third key economic sanctions may be termed collectively the U.S.-led Proliferation Security Initiative, announced by President George W. Bush in May 2003, which is designed to interdict weapons of mass destruction shipments to and from countries of proliferation concern, such as North Korea.5 Ever since President Bush labeled North Korea, Iran, and Iraq as an axis of evil in his State of the Union address on January 29, 2002, there had been a gradual tightening of sanctions until 2007. The October 2002 discovery of North Korea's nuclear program, and North Korea's subsequent announcement that it was renewing the program, broke the terms of the 1994 Agreed Framework, and led to a rapid downturn in the relations between North Korea and the United States. The worsening relations were followed by a broad tightening of North Korea's illegal financial transactions. The broad tightening culminated in Banco Delta Asia's termination of business dealings with North Korea as of February 16, 2006. Banco Delta Asia had long been suspected of handling North Korea's illicit activities overseas, such as laundering of counterfeit U. …

Incidence du processus multilatéral sur la viabilité des accords préférentiels: le cas euro-méditerranéen

Les pays signataires de l'Accord sur l'Agriculture de l'Uruguay Round (AAUR) ont dû réduire les droits sur leurs importations de produits agricoles, en application de la clause de la nation la plus favorisée (MFN). Or, nombre de ces pays ont conclu des accords commerciaux bilatéraux leur permettant de bénéficier de préférences tarifaires. C'est le cas des pays méditerranéens avec l'Union européenne (UE), dans le cadre notamment des accords euro-méditerranéens. La baisse des tarifs MFN initiée par l'AAUR qui risque de s'amplifier à l'issue des prochaines négociations, induit pour ces pays une érosion de leurs préférences qui peut avoir une répercussion négative sur leurs exportations agricoles. Nous analysons ici, les conséquences probables, sur les produits des pays méditerranéens, d'une réduction future des droits MFN de l'Union européenne.

Implications of the Uruguay Round for Kenya

This paper studies the implications of the Uruguay Round for Kenya`s own trade regime and its external trading environment. The analysis indicates that Kenya did not undertake significant liberalization commitments under the Uruguay Round. There are however, several effects on Kenya`s external trading environment due to most-favored nation tariff cuts, erosion of preference margins, and changes in food prices. These effects are determined using simple computational techniques in a partial equilibrium framework. Overall, the results indicate that the effect on Kenya`s balance of payments in the medium-term may be negative but modest, and can be offset by pursuit of appropriate structural adjustment policies.