Tariff Evasion Research Articles

Tariff evasion in agriculture: the role of non-tariff measures

AbstractThis study investigates the impacts of non-tariff measures (NTMs) on tariff evasion in agriculture. We find that sanitary and phytosanitary standard measure of tolerance limits for residues and restricted use of substances significantly reduces tariff evasion. We also find that this dampening impact occurs via price underreporting rather than quantity underreporting or product misclassification. Heterogeneous analysis shows that this impact exists for developing countries but not for developed countries. These findings highlight the importance of accounting for NTMs’ impacts on tariff evasion in agricultural trade policy analysis.

Beyond tariff evasion: bypass effect of FTAs to circumvent technical barriers

Beyond tariff evasion: bypass effect of FTAs to circumvent technical barriers

Reducing tariff evasion: The role of trade facilitation

Can simplifying customs procedures reduce tariff evasion? We measure tariff evasion as the mis-representation of import values in response to increasing tariffs. In a dataset covering 121 countries and the whole set of HS6 product categories in 2012, 2015, and 2017, we show that simplifying border procedures, that is trade facilitation, reduces tariff evasion. Holding tariff rate constant at its mean, improving a country’s overall trade facilitation performance from the 25th percentile to the median reduces tariff evasion by almost 20%. The moderating effect is especially due to improving the pre-shipment legal certainty of customs procedures. Among the potential mechanisms, improving trade facilitation performance is effective in reducing tariff evasion due to under-reporting of import prices, as well as in countries with weaker control of corruption. The results suggest that countries can gradually implement trade facilitation reforms to cost-effectively minimize tariff evasion.

Tariff Evasion, the Trade Gap, and Structural Trade

Tariff Evasion, the Trade Gap, and Structural Trade

Tariff evasion with endogenous enforcement

I show theoretically and empirically that when the expected punishment for evading increases with the tariff rate, evasion via under-reporting may decrease when the tariff rate rises. Total evasion does not necessarily decrease, as importers use alternative ways to evade duties.

Tariff Evasion with Endogenous Enforcement

Tariff Evasion with Endogenous Enforcement

Trade policy changes, tax evasion and Benford's law

This paper draws attention to import duty evasion as a margin through which firms adjust to changes in trade policy. This margin is different from the other forms of adjustment, as it can be employed very fast and thus it may constitute the initial reaction to the shock before a slower adjustment through the other channels takes place. The study also proposes a new method of detecting tax evasion in international trade, based on deviations from Benford's law. It applies the method in the context of an unexpected policy change in Turkey that increased the cost of import financing. The results are consistent with an immediate increase in tax evasion in the affected import flows, which dies down a year later. A standard approach to detecting tariff evasion, based on “missing trade”, confirms these conclusions.

Tariff evasion in global trade data

ABSTRACTWe find evidence of pervasive tariff evasion in the global data on trade from 1988 to 2015. Using over 35 million observations of data on import and export flows at the HS6 product category level, we find evidence of substantial underreporting of imports relative to export data on average and particularly when tariffs on product categories are high. These effects are stronger in more corrupt destination countries, as measured by the World Bank's Worldwide Governance Indicators [World Bank. 2016. Worldwide Governance Indicators. September 25, 2016]. In addition, evidence of tariff evasion increases significantly in economic downturns. We document these patterns in the global data and explore the welfare effects of this evasion by (1) putting a lower bound on the extent to which there are revenue losses from tariff evasion, and by (2) estimating the effects of corruption as measured by this indicator on global trade in a simple gravity model. We estimate that in total, revenue losses from tariff evasion are currently likely to exceed 400 to 670 million USD globally per year, and find that the effects of corruption on trade flows are ambiguous overall but change from weakly positive (‘grease the wheels’) to largely negative over the years in our sample.

Misreporting trade: Tariff evasion, corruption, and auditing standards

AbstractOfficial international trade statistics report commerce between every pair of countries twice: once for the importing country and once for the exporter. In principle, the two values differ only by transport costs, but as has long been recognized, they also differ systematically with product‐level tariffs. We aggregate across products to construct a dataset of annual aggregate bilateral trade, separately for the importer and exporter reports. With these data, we show that the reporting differences also vary systematically with country characteristics aside from tariffs: incomes, auditing standards, corruption, and trade agreements.

Tariff evasion in machinery production networks: Evidence from East Asia

We estimate the effects of tariff rates on bilateral tariff evasion in international production networks, namely parts and components and final products, focusing on intra-regional trade in East Asia during 1996–2011. Our results reveal that tariff evasion is prevalent in 7 of the 12 East Asian countries studied, particularly in non-high-income importers. Specifically, the tariff evasion of parts and components increases by 1.10%–1.55% compared with that of final products (0.55%–0.96%), with a one-percentage-point increase in the tariff rate. Moreover, the responsiveness of the unit price gap to the tariff level is greater for parts and components than for final products. Finally, we investigate the nonlinear issue and tariff evasion of the misclassification of imported products and obtain robust results. Our findings provide relevant economic implications for policy makers regarding the severity of tariff evasion because machinery production networks are crucial factors driving intra-regional trade in East Asia.

과세가격 결정에 있어서 매매계약서와 상업송장의 역할

Among the factors determining customs duties, the standard of assessment is the most controversial due to the asymmetry of information. Importers themselves are required to calculate and to pay the amount of customs duties of goods imported. But the additional tax collection can be imposed on the self-declared the customs duties to rectify the mistakes or errors of the importers. The cases have been reviewed with regards to the customs valuation. And the findings are the main cause of the tariff evasion was the omission of taxation price. The purpose of this paper is to re-evaluate the importance of role of the trade documents such as sales contract and commercial invoice because their importance is beyond the simple requirement as transactional evidence. The proper trade documents would enable importers to pay the correct customs and to avoid the post-taxation. Also efficiency in predictability and price competitiveness can be enhanced by reducing the number of additional examination and collections.

Machinery Production Networks and Import Tariff Evasion

In this paper we followed Fisman and Wei’s (2004) approach to estimate the effects of import tariff rates on import tariff evasion. We focus on East Asian countries import of machinery products and our main objective is to test if the trade realized inside production networks (intra-regional) is less prone to import tariff evasion than imports from countries outside it (inter-regional). In this study we considered the differences in tariff evasion between intra and inter-regional imports;parts and components and final products;and the heterogeneity between electric machinery and transport equipment. The data provide evidences that intra-regional imports are less prone to tariff evasion than inter-regional imports.Besides this, we identify differences in the channels employed to evade tariff. The results suggest that underreport of quantities was the main channel employed in intra-regional imports tariff evasion, while inter-regional import tariffs were evaded through unit price misreport.JEL:F14, K42, H26

WTO accession and tariff evasion

This study documents some unintended consequences of the World Trade Organization (WTO) membership by providing evidence on displacement of tariff evasion driven by the WTO accession process. The analysis focuses on the WTO Customs Valuation Agreement (CVA) which limits the discretion of customs officials when it comes to assessing the price of imports. While prior to the WTO accession customs officials are free to use their own judgment or apply minimum or reference prices, after their country joined the WTO they are mandated to accept the invoice price issued by the exporter. If customs officials enjoy discretion with respect to assessing the import price, they may assist importers with tariff evasion in exchange for bribes. Removing such discretion limits their ability to facilitate misrepresentation of import prices. Using data on 15 countries which joined the WTO between 1996 and 2008, we find a positive relationship between underreporting of import prices and the tariff rate, which is expected as the incentive to evade increases with the tariff rate. Importantly, this relationship disappears after a country joins the WTO. This result is consistent with the CVA closing one channel for corrupt behavior. However, we also find that changes to customs valuation procedures induce importers to seek alternative ways of tariff evasion, such as underreporting of quantities and product misclassification. The overall level of evasion remains unchanged.

Missing Imports and Tariff Evasion in Malawi: Do Tax Rates Matter?

The study analyzed 2013 bilateral trade data between Malawi and each of the following three trading partners; Mozambique, South Africa and China. Using data from the World Integrated Trade Solution (WITS), the study employed a simple Ordinary Least Squares (OLS) model to estimate the impacts of tax rates on tariff evasion and conducted some robustness checks. We found that tax rates applicable to Mozambique and South African Imports reduce the evasion gap. This is interpreted to mean that other countries' exports to Malawi are declared as originating from Mozambique and South Africa in order to enjoy the preferential rates of duty due to the bilateral trade agreements that exist between each of the two countries and Malawi. We also found out that tax rates have a positive significant effect on tax evasion of Chinese imports. Consequently, the paper established that higher tax rates induced tax evasion.

Tariff evasion in sub-Saharan Africa: the influence of corruption in importing and exporting countries

Multilateral organizations recommend sub-Saharan African (SSA) countries to increase international trade in order to attain sustainable economic growth. The benefits of trade can be hampered, however, by tariff evasion. Using trade data from 2008–2014 of 31 SSA countries, we examine how the association between tariff rates and value and quantity gaps (which are indicative of tariff evasion) is enhanced by corruption in both importing and exporting countries (SSA countries are referred to as importing countries, and their trade partners from outside SSA are referred to as exporting countries). Results of a series of tests show that corruption levels in both sides of the trade partnership reinforce the (positive) association between tariff rates and value and quantity gaps. This indicates that counteracting tariff evasion in SSA is a co-responsibility between trade partners.

Political Connections and Tariff Evasion Evidence from Tunisia

Are politically connected firms more likely to evade taxes? This paper presents evidence suggesting firms owned by President Ben Ali and his family were more prone to evade import tariffs. During Ben Ali's reign, evasion gaps, defined as the difference between the value of exports to Tunisia reported by partner countries and the value of imports reported at Tunisian customs, were correlated with the import share of connected firms. This association was especially strong for goods subject to high tariffs, and driven by underreporting of unit prices, which diminished after the revolution. Consistent with these product-level patterns, unit prices reported by connected firms were lower than those reported by other firms and declined faster with tariffs than those of other firms. Moreover, privatization to the Ben Ali family was associated with a reduction in reported unit prices, whereas privatization per se was not.

The price disparity analysis revisited: An application to pork imports in Japan

The effect of tariff evasion on price formations is relevant in understanding the welfare consequence of illicit trades. Previous empirical studies demonstrate that tax evasion reduces the effects of tariffs on equilibrium prices, but admit an alternative explanation: traders bore the incidence. This paper aims to refine the price disparity analysis to allow for that explanation. An application considers the market for imported pork parts in Japan to exploit the variation in tariff rates over time and across products. Using novel data on monthly wholesale prices on narrowly-defined pork products from 2001 through 2012, I find that a widespread evasion nullified safeguard tariffs almost fully. An alternative identification strategy corroborates the evidence on widespread evasion: An upper bound estimate on the total amount of tariffs evaded is 5.5 times as much as the collected revenue. Additionally, the result indicates that a tougher enforcement reduces evasions.

Chinese Networks and Tariff Evasion

AbstractChinese networks are known to act as trade catalysts by enforcing contracts and providing market information. This paper shows they also play a role in import‐tariff evasion. As illegal trade activities occur outside the law, market information is scant and formal contract enforcement institutions are non‐existent. This renders networks the more important for the matching of illicit‐minded traders, identification of corrupt customs agents and enforcement of informal contracts. In this paper, we find robust evidence that Chinese networks, proxied by ethnic Chinese migrant populations, increase tariff evasion, that is, the tariff semi‐elasticity of China’s missing trade.

Tariff evasion and rules of origin violations under the Canada‐U.S. Free Trade Agreement

Abstract Using product‐level data on trade between Canada and the U.S., this paper presents evidence of tariff evasion and violation of the rules of origin occurring under the Canada‐U.S. Free Trade Agreement (CUSFTA). It shows that more imports go unreported at the destination country when tariffs are higher. Consistent with the tariff evasion hypothesis, this result implies that the trade creation effect of a free trade agreement may in fact be due to less underreporting. Further, this paper shows that the larger Canadian tariff preference margin for the U.S. is associated with more goods originating in third countries being transshipped through the U.S. territory for re‐export. The preference margin is also positively correlated with the value of excess imports from the U.S., which qualify for preferential treatment. Both results suggest the presence of persistent violations of CUSFTA’s rules of origin.

Trade protection and tax evasion: Evidence from Kenya, Mauritius, and Nigeria

We examine the effect of trade protection rates on evasion in three African countries Kenya, Mauritius, and Nigeria. In capturing the effect of trade protection on tariff evasion, we use a much improved measure of trade protection (MAcMap-HS6 2001 and 2004). For two of these countries, this dataset allows the novelty of using variation in trade protection across product, time, and trading partners leading to significantly refined estimates of evasion elasticity relative to existing studies on tariff evasion. We find a robust evidence for positive elasticity of evasion with respect to tariffs in Kenya and Nigeria with relatively weaker evidence for Mauritius. Our results match the rankings of countries in institutional quality. Greater responsiveness of evasion to the level of tariffs is established in Nigeria (comparatively weak institutional quality) vis-à-vis Kenya, and in Kenya vis-à-vis Mauritius (comparatively good institutional quality). This pattern is preserved even when focusing on same set of trading partners and same set of imported products for the three countries. This result is robust to controlling for protection on related products (that creates incentives/ opportunities for evasion) and also for degree of differentiation of the product and some other characteristics.