Discriminatory Tariffs Research Articles

A Study of Global Trade War and Its Impact on Indian Economy

A Study of Global Trade War and Its Impact on Indian Economy

Formation of climate coalitions and preferential free trade: the case for participation linkage

We study the endogenous formation of climate coalitions linked to a preferential free trade arrangement. In a multi-stage, micro founded strategic trade and participation game, coalition and fringe countries dispose of a discriminatory tariff on dirty imports as well as emission permits imposed on domestic producers. Permits are traded on a common permit market inside the coalition and on local markets outside, respectively. We provide an analytical solution for the general equilibrium and the policy game, in the three country case, while the participation game is solved by Monte Carlo simulation. Moreover, conditional probabilities are computed for the transition to coalitions of various sizes induced by free trade. Under various regimes analyzed, we find that preferential free trade can create strong incentives for building effective climate coalitions in terms of depth and breadth. This result even holds if fringe countries are given the option of trade cooperation as a retaliation devise and is driven by a favorable shift in the coalition’s terms of trade. As a policy implication, negotiations on international climate treaties and free trade arrangements should be interlinked.

Uniform versus discriminatory tariffs when competition mode is endogenous

AbstractWe examine the welfare implications of two tariff regimes when firms have a forward‐looking view on trade policy. Discriminatory tariffs lead to Cournot competition, whereas uniform tariffs lead to diverse competition modes. If exporters are identical in production costs, all the trading countries are better off under the uniform rather than discriminatory tariff regime, which suggests a possibility that countries reach an agreement on the most‐favored nation (MFN) as a preferred tariff regime. For asymmetric costs among exporters; however, the competition mode determined endogenously under the uniform tariffs does matter for the welfare comparison. If Cournot competition emerges, then each country's preference is consistent with conventional wisdom. That is, the importing country and high‐cost exporters prefer a discriminatory tariff while low‐cost exporters have a uniform tariff regime. However, if the uniform regime leads to either Bertrand or asymmetric competition mode, then the cost gap between exporters would be the determinant factor. Only when the cost gap is sufficiently small, the uniform tariff, required by the MFN clause of the World Trade Organization, can be beneficial to all trading countries.

Tariff discrimination for co-existence of domestic and foreign firms with increasing marginal costs

When foreign exporters and domestic firms are allowed to produce under asymmetrically increasing marginal costs, the high-cost exporter is handicapped, whereas the low-cost exporter is subsidized in a discriminatory tariff regime. Thus, the profit of the high-cost (low-cost) exporter is smaller (larger) under discriminatory tariffs than under uniform ones. Regardless of the domestic firm type, total output, consumer surplus, low-cost exporter profits, and social and global welfare are always greater under discriminatory tariffs than under uniform ones. Even when exporters and low- and high-cost domestic firms coexist, our main results hold, while both types of domestic firm prefer uniform tariffs to discriminatory ones.

Uniform versus discriminatory tariffs in increasing marginal costs and endogenous competition

By allowing exporters to produce under asymmetric increasing marginal costs, we investigate the impact of tariff discrimination when considering exporters' endogenous choice of competition mode. When considering endogenous competition mode, discriminatory tariffs lead to Cournot competition, whereas uniform tariffs lead to diverse modes of competition. The discriminatory (uniform) tariffs can obtain Pareto superiority from the perspective of consumers surplus, social and global welfare if product differentiation is either high or low (intermediate). Contrast to previous results, since the importing country tends to impose a lower (higher) tariff on the efficient (inefficient) exporter, the inefficient exporter always prefers the uniform tariffs while the efficient exporter's preference for tariff regime varies for any degree of product differentiation. Thus, with increasing marginal costs for any degree of product differentiation, there is a possibility that the preferences for tariff regimes change in the same direction for the exporters' profits, consumers surplus, social and global welfare.

Optimal tariffs with endogenous vertical structure: Uniform versus discriminatory tariffs

Using the export-rivalry model, we examine the welfare impact of two tariff regimes when firms’ vertical structure is endogenously determined via the strategic behavior of each firm. First, with discriminatory tariffs, if the degree of imperfect substitutability is sufficiently low, the rent-shifting effects of vertical separation becomes less important and firms chooses vertical integration to enjoy lower tariffs, and vice versa if the degree of imperfect substitutability is sufficiently high. However, an asymmetrical vertical structure, i.e., low (high)-cost firm chooses vertical separation (integration), emerges only in the uniform tariffs. Thus, the existence of firms’ diverse vertical structure between tariff systems can arise. Second, although firms are better off if they choose vertical separation, each firm chooses vertical integration in the discriminatory tariffs (i.e., prisoners’ dilemma). Third, if firms choose vertical integration in the discriminatory tariffs but vertical separation in the uniform ones, they prefer the uniform tariffs as far as cost differential between firms is not large; and the global welfare is greater in the discriminatory than in the uniform tariffs.

Sequential tariffs with increasing marginal costs

AbstractThis study examines the superiority of the discriminatory and uniform tariff regimes under both simultaneous and sequential arrangements in terms of social and global welfare by considering asymmetrically increasing marginal costs among exporters. Under Cournot competition, the importing country has an incentive to manipulate the tariff structure using a sequential tariff arrangement, which implies that it prefers to impose tariff on a low‐cost exporter first and a high‐cost exporter later. Sequential discriminatory (uniform) tariffs can achieve Pareto superiority from the perspective of consumer surplus, and social and global welfare if product differentiation is low (high). It is mainly because high‐cost (low‐cost) exporters are handicapped (subsidized) under alternative tariff regimes. In contrast to previous research, our analysis suggests the possibility that preferences for tariff regimes will change in the same direction for consumer surplus, social welfare, and global welfare.

Optimal Tariffs, Increasing Marginal Costs and Endogenous Delegation: Uniform vs. Discriminatory Tariffs

Optimal Tariffs, Increasing Marginal Costs and Endogenous Delegation: Uniform vs. Discriminatory Tariffs

Uniform versus Discriminatory Tariffs in Increasing Marginal Costs and Endogenous Competition

Uniform versus Discriminatory Tariffs in Increasing Marginal Costs and Endogenous Competition

Observation of a Venice in Lockdown. Tourism, A Venetian Pharmakon: Unique Remedy, Addictive Poison and Easy Scapegoat

Venice was one of the first cities in Europe to be in lockdown. The article proposes to observe this unique moment “out of tourism” from the angle of pharmacology. The concept of pharmakon is borrowed from the philosopher Bernard Stiegler as a tool for analysing tourism from its ambivalence, at once a remedy, poison and scapegoat. The in-situ observation of the one hundred days of the first lockdown relates to places, people and stories that have become visible: nature, mendicanti (beggars), pendolari (commuters) and public space. As the effects of over-tourism disappeared, this moment out of tourism made manifest the causes of Venice’s heavy dependence on tourism, until then little discussed, such as the property market, tariff discrimination and tourism intermediation. These observations offer a different perspective on an over-tourism whose mordi fuggi (those who “bite and run”) would be the main cause and which the city wishes to limit through the introduction of a city entrance tax.

Optimal tariffs and firm technology choice: An environmental approach

AbstractThis paper analyzes environmental concerns by a government in a setting of rent‐extracting strategic trade policy with endogenous firm investment into production technologies. The simple analysis reinforces the importance of investment incentives caused by tariffs in general and shows that the resulting implications for the optimal tariff decision can be completely different between traditional tariff considerations and an environmentally conscious government. We show that an importing country in a dynamic setting with endogenous firm technology choices prefers to impose discriminatory tariffs both ex post and ex ante when emissions matter, while—as previously found in the literature—a commitment to uniform tariffs is optimally chosen when environmental concerns do not play a role.

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.

“Nash-in-Nash” tariff bargaining

We provide an equilibrium analysis of the efficiency properties of simultaneous bilateral tariff negotiations in a three-country model of international trade. We consider the setting in which discriminatory tariffs are allowed, and we utilize the “Nash-in-Nash” solution concept of Horn and Wolinsky (1988). We allow for a general family of political-economic country welfare functions and assess efficiency relative to these welfare functions. We establish a sense in which the resulting tariffs are inefficient and too low, so that excessive liberalization occurs from the perspective of the three countries.

Preferential and multilateral liberalization: Evidence from Latin America’s use of tariffs, antidumping and safeguards

I test the predictions of Bagwell and Staiger’s (1999) theory of the effects of preferential liberalization on import protection imposed against non-member countries. In contrast to the existing literature, which has (for the most part) focused on investigating whether external tariffs rise or fall due to preferential trade liberalization, by testing the predictions of a specific model in a way that closely follows the theory, I am able to examine the channels through which those effects take place. Importantly, and unlike most existing studies, I analyze not only tariffs but also the temporary trade barrier (TTB) policies of antidumping and safeguards. I focus on Latin America and find strong support for the theoretical predictions of Bagwell and Staiger (1999). First, there is evidence of tariff complementarity: i) a larger reduction in the preferential import protection leads to a larger reduction in protection against non-members; ii) the more consumption increases, the more external protection decreases with the fall in preferential protection; and iii) the more imports from the rest of the world fall, the more external protection decreases with a preferential protection cut. Furthermore, I also find evidence consistent with the punishment effect and the tariff discrimination effect, which arise when enforcement difficulties are incorporated into the theory. Finally, the overall results point toward a building block effect of preferential liberalization.

Trade and Tax Evasion in Indonesia

Based on an analysis of trade data between Indonesia and Singapore at the six-digit level of classification, we find evidence of import tax evasion: exports from Singapore to Indonesia are under-reported to Indonesian Customs, and the evasion increases in line with duty rates. Interestingly, evasion appears to have more to do with value-added tax, which is imposed on almost all imported goods. We also examine whether tariff discrimination under free trade agreements can result in an increase in goods from other countries being imported via Singapore and then re-exported to Indonesia, potentially violating the rules of origin (ROO). Finally, we find that the presence of non-tariff barriers designed to protect national industries may also motivate smuggling.

The Single Window and the TFA: ASEAN’s Best Chance at a Common Rule of Law

Abstract “Trade facilitation for the ASEAN Economic Community,” reads the mission statement of the ASEAN Single Window (ASW). This moved closer to becoming reality on 1 January 2018 when four of the six pilot Member States – Singapore, Malaysia, Indonesia and Vietnam, officially implemented the use of the Single Window’s first functional module: the electronic exchange of preferential certificates of origin. This is a monumental landmark of an occasion – especially given ASEAN’s reputation as an ineffective, disintegrated alliance. It had been work in progress for so long (the Protocol to establish the ASW was signed in 2013, negotiations commenced much earlier) that sceptics, not few to begin with, were increasingly doubtful of success. But it has happened, which gives the Member States a much needed boost in credibility that they will take trade facilitation seriously. The true test, however, lies ahead. Investors and business operators continue to be frustrated by inefficient customs procedures and weak rule of law which are costing businesses even more than discriminatory tariffs. The WTO’s 2015 World Trade Report estimated that the Trade Facilitation Agreement (TFA), in which most of the ASEAN Member States are also participating, would cut trade costs globally by between 9% and 21% when implemented. By geography, the South East Asian countries other than Singapore leaned in the 21% region. This article identifies the Rule of Law to be a critical common denominator and offers to illustrate how Member States must maximise the involvement of multiple stakeholders, from civil service employees to the private sector, to develop and strengthen the regional Rule of Law to in turn optimise ASEAN’s involvement in the Single Window and TFA.

Internet Sales Taxes and the Discriminatory Burden on Remote Retailers An Economic Analysis

[enter Abstract Body]In the wake of South Dakota v. Wayfair et al. some commentators are calling for an Internet Sales Tax (IST) to “close the tax loophole” and “level the playing field” between internet sellers and local retail stores. This view is fatally flawed and based on a number of fundamental misconceptions about both modern retail and basic economics. First, the proposed IST is not a tax on “internet” retail sales, but rather a tax on remote small and micro enterprises that are already struggling to compete in a retail environment dominated by national retail chains, such as Amazon, Walmart, Target, or Home Depot. These mega retailers combine the use of state-of-the-art logistics and internet-enabled processes with local presence, and as such are already subject to sales tax liabilities. Second, the IST, if enacted, would be a discriminatory tariff on remote retailers, who would face significant compliance costs without reaping any benefits of being local, and without incurring any costs for local municipalities through their presence. Third, we deflate popular myths floated by the pro-IST coalition of local governments and local retail interests, including the flawed arguments that remote out-of-state retailers (i) are dominating the retail space; (ii) are responsible for the decline of family-owned brick-and-mortar retail stores, and (iii) deprive states and municipalities of billions of much-needed tax dollars. Finally, we provide an economic rationale for the simple truth that IST, if implemented, would harm, not help, the U.S. economy in the short- and long-term. We conclude that the current tax system is working as it should: businesses with a local presence and capabilities–imposing local costs, reaping local benefits, and reaching local consumers – are getting taxed as they should. Imposing such costs on remote retailers would be discriminatory and harmful for the U.S. economy.

Internet Neutrality: A Battle Between Law and Ethics

In 2016, the Telecom Regulatory Authority of India issued the Prohibition of Discriminatory Tariffs for Data Services Regulations. It favours the principle of internet neutrality. This principle suggests that all data on the internet should be treated equally without discrimination by user, content, site, etc. The objective of this paper is to justify the idea that internet neutrality cannot ensure equality in the ethical sense. Net neutrality can only maintain technological equality. The author proposes the argument that technological equality is not the same as ethical equality. Treating all content, which is not homogenous, equally leads to unethical activities. It hampers an individual’s relationship with his or her society and, thereby, blocks the foundation for social justice. Accordingly, the neutrality principle ignores the idea of social justice and fails to protect human rights. Hence, it cannot be ethically justifiable in its present form.

MFN vs Tariff Discrimination in the Presence of Cross Ownership

AbstractWe develop a three‐country two‐firm model to examine the superiority of most favored nation (MFN) vs tariff discrimination in global welfare by taking into account the cross ownership between exporters. We obtain several interesting results as follows. First, given cross ownership of financial interests and linear demand, the government of the importing country will impose a lower (higher) tariff on the low‐cost (high‐cost) firm and the global welfare under tariff discrimination will be higher than that under MFN, regardless of whether the mode of competition is Cournot or Bertrand competition, when the magnitude of cross ownership is relatively large compared with the cost difference. Second, given the cross ownership of corporate control and linear demand, the global welfare under tariff discrimination will be identical to that under MFN.

Discriminatory vs. uniform tariffs with international technology licensing

This paper introduces technology licensing between rival firms into a three-country model to examine how an international technology licensing may upset the welfare ranking between a discriminatory tariff policy and a uniform tariff policy. It is found that a discriminatory tariff policy is inferior to a uniform tariff policy in terms of the social welfare of the importing country or the welfare of the world as a whole if the cost disadvantage of the licensor firm is high. This result is robust even if the licensor firm can engage in R&D investment in the long-run.