The Empirical Landscape of Trade Policy Chad P. Bown and Meredith A. - PowerPoint PPT Presentation

The Empirical Landscape of Trade Policy Chad P. Bown ∗ and Meredith A. Crowley † ∗ World Bank & CEPR and † Cambridge May 2015 CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 1 / 44

What do we know about trade policy in the 21st Century? Three broad themes 1. Heterogeneity in the form and restrictiveness of border barriers across countries and industrial sectors. 2. History repeats itself Border restrictions on imports target the same class of problem (macroeconomic difficulty, adjustment to entry of new countries, etc.) or the same industries. 3. Local preferences over domestic policy sometimes clash with commitments to free/freer trade. Substitution of domestic policy measures for border barriers to restrict trade versus the optimal choice of local policies to satisfy local preferences. CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 2 / 44

Outline of our chapter Document the extensive heterogeneity in ad valorem import tariffs. Applied MFN rates across countries and products (cross-sectional). WTO tariff binding rates across countries and products(cross-sectional). Inter-temporal variation in applied rates on products. Cross-sectional variation due to Preferential Trade Agreements. Document the usage of other border barriers. Specific tariffs. Temporary tariff barriers (antidumping, safeguards, etc). Quotas (quotas, price undertakings, VERs). Describe the challenges that behind the border (domestic) policies pose to the world trading system. Case study discussions of policy conflicts (domestic subsidies, consumer policies, supply-side policies). CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 3 / 44

Empirical Literature using MFN tariffs Absence of the WTO - i.e., optimal tariffs: Broda, Lim˜ ao and Weinstein (2008) Impact of GATT/WTO accession negotiations or multilateral rounds: Bagwell and Staiger (2011), Ludema and Mayda (2013) Impact of preceding preferential liberalization: Lim˜ ao (2006, 2007), Karacaovali and Lim˜ ao (2008), Estevaderordal, Freund and Ornelas (2008) Impact of real exchange rates, business cycles, and other aggregate-level shocks: Irwin (2012), for the Great Recession, see Kee, Neagu and Nicita (2013), Rose (2013), Gawande, Hoekman and Cui (2015), and Foletti, Fugazza, Nicita and Olarreaga (2011) “Exogenous” unilateral liberalization (India): Topalova and Khandelwal (2010), Bown and Tovar (2011) Aggregation and trade restrictiveness: Anderson and Neary (1992, 1994, 1996), Kee, Nicita and Olarreaga (2008, 2009), Feenstra (1995) Applied MFN rates, binding rates, and water: Beshkar, Bond and Rho (forthcoming), Nicita, Olarreaga, and Silva (2014), Handley (2014) Quantification: Ossa (2014) CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 4 / 44

Fig 1: Geographic Coverage of the Empirical Exercise In 2013 these economies comprise: The sample consists of: 83% of the world’s population, 31 countries: 91% of world GDP, The G20 economies and 80% of world imports, and developing countries with populations > 40 million 79% of world exports. CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 5 / 44

Roadmap of the talk Theme 1: Heterogeneity 1. Heterogeneity in the restrictiveness of border barriers Cross-sectional variation across countries and sectors. CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 6 / 44

Table 1a: MFN Ad Valorem Import Tariffs, 2013 Country/territory MFN WTO Bind- Cover- Cover- Max- Coef- applied bind- ing age of age of imum ficient rate, ing cover- applied binding MFN of vari- simple rate, age duties rates > applied ation aver- simple > 15% 15% rate (ap- age aver- plied) age (1) (2) (3) (4) (5) (6) (7) G20 High-income Australia 2.7 10.0 97.0 0.1 13.4 140.0 151 Canada 4.2 6.8 99.7 6.8 7.3 484.0 470 European Union 5.5 5.2 100.0 5.1 4.8 511.0 172 Japan 4.9 4.7 99.6 3.7 3.7 736.0 400 Saudi Arabia 4.8 11.2 100.0 0.2 1.1 298.0 172 South Korea 13.3 16.6 94.6 10.4 20.5 887.0 402 United States 3.4 3.5 100.0 2.7 2.7 350.0 266 Columns (1), (2), and (6) are ad valorem rates, and columns (3), (4), and (5) are shares of import products. Coefficient of variation in column (7) defined as standard deviation of tariff line duty rates divided by the simple tariff line level average of all duty rates. CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 7 / 44

Table 1b: MFN Ad Valorem Import Tariffs, 2013 Country/territory MFN WTO Bind- Cover- Cover- Max- Coef- applied bind- ing age of age of imum ficient rate, ing cover- applied binding MFN of vari- simple rate, age duties rates > applied ation aver- simple > 15% 15% rate (ap- age aver- plied) age (1) (2) (3) (4) (5) (6) (7) G20 Emerging Argentina 13.4 31.9 100.0 36.0 97.8 35.0 71 Brazil 13.5 31.4 100.0 36.2 96.4 55.0 73 China 9.9 10.0 100.0 15.6 16.4 65.0 77 India 13.5 48.6 74.4 19.0 71.5 150.0 125 Indonesia 6.9 37.1 96.6 1.7 90.7 150.0 139 Mexico 7.9 36.2 100.0 15.7 98.7 210.0 211 Russia 9.7 7.7 100.0 10.1 2.1 441.0 113 South Africa 7.6 19.0 96.1 20.7 39.6 > 1000 207 Turkey 10.8 28.6 50.3 13.6 28.9 225.0 220 Columns (1), (2), and (6) are ad valorem rates, and columns (3), (4), and (5) are shares of import products. Coefficient of variation in column (7) defined as standard deviation of tariff line duty rates divided by the simple tariff line level average of all duty rates. CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 8 / 44

Table 1c: MFN Ad Valorem Import Tariffs, 2013 Country/territory MFN WTO Bind- Cov- Cov- Max Coef- applied bind- ing erage erage MFN ficient rate ing cover- applied binding applied of vari- rate age duties rates > rate ation > 15% 15% (1) (2) (3) (4) (5) (6) (7) Devel., other* Bangladesh 13.9 169.2 15.5 41.2 15.1 25.0 67 Burma 5.6 84.1 17.8 5.0 14.6 40.0 120 Colombia 8.8 42.1 100.0 2.1 98.0 98.0 89 DR Congo 11.0 96.2 100.0 28.5 98.9 20.0 54 Egypt 16.8 36.9 99.3 19.2 70.7 > 1000 850 Ethiopia † 17.3 ** ** 50.8 ** 35.0 68 Iran † 26.6 ** ** 45.7 ** 400.0 106 Kenya 12.7 95.1 14.8 41.4 14.8 100.0 94 Nigeria 11.7 118.3 19.1 39.0 19.1 35.0 68 Pakistan 13.5 60.0 98.7 36.0 94.9 100.0 83 Philippines 6.3 25.7 67.0 3.2 56.0 65.0 107 Tanzania 12.8 120.0 13.3 41.8 13.3 100.0 94 Thailand 11.4 27.8 75.0 25.5 66.0 226.0 143 Ukraine 4.5 5.8 100.0 2.7 3.8 59.0 114 Vietnam 9.5 11.5 100.0 24.8 27.7 135.0 120 DR of the Congo (2010); Egypt (2012); Ethiopia † (2012); Iran † (2011) CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 9 / 44

Fig. 2: Avg. Applied MFN Tariffs and Tariff Bindings by industry and country group in 2013 CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 10 / 44

Fig. 3: Applied MFN Tariff Peaks in 2013 by industry and country group Notes: A tariff peak is defined as an HS-06 product with an applied MFN tariff greater than 15 percent. CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 11 / 44

Figure 4: Tariff Escalation: Applied MFN Tariffs in 2013 by End Use Categories, Industry and Country Group Notes: End use categories for each HS06 product taken from the BEC, with mixed use goods dropped. CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 12 / 44

Roadmap of the talk Theme 1: Heterogeneity 1. Heterogeneity in the restrictiveness of border barriers Cross-sectional variation across countries and sectors. Inter-temporal variation in border barriers. CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 13 / 44

Table 2a: MFN Ad Valorem Import Tariffs Selected Economies in 1993, 2003 and 2013 GATT WTO Simple average applied membership membership MFN tariff for year year 1993 2003 2013 G20 High-income Australia 1948 1995 8.8 4.2 2.7 Canada 1948 1995 9.0 5.1 3.7 European Union ** 1995 7.0 4.4 4.4 Japan 1955 1995 4.4 3.2 3.0 Saudi Arabia NM 2005 12.1* 6.0 4.6 South Korea 1967 1995 11.7* 11.6 12.2 United States 1948 1995 5.6 3.7 3.5 Notes: *data for that year not available and so chosen as the closest available year. **Different European Union member states became GATT Contracting Parties in different years. Ad valorem equivalent rates of tariffs applied as specific duties are omitted from the calculations. CPB & MAC (WB, CEPR & Cambridge ) The Empirical Landscape of Trade Policy May 2015 14 / 44