DATA DAY Direct Measures of Protection

1. DATA DAYDirect Measures of Protection

2. Market Access • Beyond obvious negotiations purposes… • Information on market access conditions allows exporters to: • Evaluate the competitiveness of the product with respect to suppliers from other countries under different tariff schemes • Select markets/market segments in which the product has the best prospects • Adapt, where necessary, the product to conform to the target market’s import regulations

3. Information on market access conditions allows trade promotion agencies to: • Evaluate the actual prospects for market access for a given product and destination • Compare obstacles to market access in the different markets

4. Information on market access conditions allows trade analysts and policy makers to: • Evaluate the cost of foreign and domestic protection • Simulate the gains associated with various scenarios of trade liberalisation • Compare the benefits of multilateralism versus regionalism

5. Measurement of protection has come to the forefront of the policy debate for three reasons: • Until very recently direct evidence on protection - tariffs - was not reflecting the actual protection. • Non-tariff measures play an increasing role as tariffs are progressively phased out. • Indirect (econometric) evidence on protection lead to order of magnitudes hardly matching the direct measures: trade costs • We focus here on tariffs

6. Issues to be tackled when using tariffs • Measurement of protection • Bound, applied, preferential duties • Ad valorem equivalents of specific tariffs • Tariff quotas • TRQ rents • Erosion of preferences • Differences among developing economies • Modelling liberalisation scenarios at the detailed level • Exceptions and sensitive products

7. Different types of tariffs • Tariff scheme defined at the tariff line level • More detailed than the HS6, differ from one country to another. • Series of different instruments grouped under the term 'tariff'. • Specific tariff: t. • Ad valorem duty: t • P = P*(1+ t) = P*+t • Compound tariff: ad valorem + specific • Mixed duty: conditional choice between ad valorem and specific • Technical duty: based on alcohol content, sugar content... • Tariff quotas

8. Different tariff levels • Bound tariff: commitment at the WTO, tariff can be higher if and only if compensations are conceded to partners (or because of additional duties levied under certain circumstances). Generally equal or below (MFN applied). • Most Favoured Nation (MFN) tariff. • -> Binding overhang. • Preferential tariff below the MFN. • -> Preferential margin. • WTO definition: MFN == applied protection • Economic literature: Preferential tariff == applied protection

9. Discriminatory tariffs • According to the GATT a country should not discriminate among trading partners (members of the WTO). • Two exceptions. • Regional agreements that liberalise a 'substantial part' of their bilateral trade. More generally Preferential Trade Agreements (PTAs). • Specific schemes favouring development (unilateral preferences). • de facto discrimination: specific tariffs (ad valorem equivalent will be a function of the unit value). Different tariff lines by entry port or season, etc.

10. For each individual tariff line k, importer s and exporter r, the picture is: Bound I Binding overhang MFN II Preferential margins Applied III Actual protection Policy simulations can not rely on averages of (MFN) tariffs k = 1,2…10,000 while i = 1,2, …50 On the top of this, tariff lines combine instruments

11. The trade-off between information and tractability • Every country reports policy instruments at the tariff line level • Some countries report trade at the tariff line level • Tariff lines nomenclatures are specific to countries • The bridge between instruments reported is the HS6 (some 5,000 products) • HS6 trade reported by the majority of countries • Mirror data for non reporters • Individual country study: tariff line • Multi-country: scenarios modelled at the HS6 level • AVE of specific tariffs • AVE of tariff quotas • Quota rents calculated

12. Need to aggregate instruments and to average tariff lines • Algorithm when choice is proposed at tariff line level • if V>$130 then t=(x% + $y) else t=65% • V is not observable ! • Need to aggregate instruments • x% on line 1234567890 and y% on line 1234567891 • into z% on position 123456 • Need to transform specific tariffs into AVEs • $x per ton • into y% • Need to calculate AVEs of TRQs • 30% for the x first tons (in quota tariff rate) • 230% for the additional tons (out of quota tariff rate)

13. From European Trade Policy in 2001... G.S.P L.D.C. East Timor Afghanistan C.F.D.. Myanmar Yemen A.C.P. C.A.C.M. Cambodia Bangladesh Honduras Brunei Andorra Tonga Nepal Maldives Panama El Salvador Australia Lesotho Cape Verde Togo Guatemala Nicaragua Bhutan Samoa New Zealand Botswana Japan Costa Rica Ethiopia Ctrl. Afr. Rep. Senegal Laos Sao Tome Hong Kong Korea, Rep. Andean Group Bolivia Zambia Tuvalu Angola Burkina Faso Ecuador Singapore Colombia Peru Venezuela Kiribati Madagascar Benin U.S. Canada Sudan Solomon Isl. Eq. Guinea Uganda E.E.A. Malawi Vanuatu Mali Gambia Comoros Haiti Guinea-Bissau Norway Burundi Cuba Somalia Niger Rwanda Tanzania W.T.O. Macao Liechtenstein Guinea Mauritania Pakistan Eritrea Iceland Chad Liberia Sierra Leone Mozambique Djibouti Mexico Paraguay E.F.T.A. Switzerland Zimbabwe South Africa Suriname St. Lucia Kenya Seychelles Argentina Dominica Congo Barbados Qatar Bahrain Malaysia Nauru Dominican Rep. Antigua Namibia Bulgaria Thailand Gabon Cook Isl. Swaziland Congo Dem.Rep. Jamaica Hungary U.A.E Czech Rep. Romania Cameroon Kyrgyzstan Trinidad Guyana Palau Mauritius Poland Albania St. Vincent Indonesia Chile Slovakia Micronesia Ghana Grenada Latvia Tokelau Uruguay Marshall Isl. Ivory Coast Nigeria India Estonia Kuwait Slovenia Brazil Papua Montserrat Belize Mongolia Bermuda Niue St. Kitts Yugoslavia Morocco Israel Macedonia Bahamas Fiji Sri Lanka Egypt Malta Taiwan Uzbekistan Philippines Turkey Cyprus Anguilla Euromed Belarus Turkmenistan Oman Tunisia Russia Iran Georgia Syria Lithuania Palestinian auth. Jordan Algeria Vietnam Libya Kazakhstan Lebanon Gibraltar Greenland Iraq Aruba Ukraine Bosnia & Herzegovina Tajikistan Korea, Dem. Rep. China Armenia Moldova Azerbaijan Croatia Saudi Arabia Note: An underlined country's name signals a bilateral agreement with the EU.

14. ToEU Trade Policy in 2004 Palau Micronesia EPA/Caribbean G.S.P EPA/Pacific Marshall Isl. Bahamas EPA/CA Tonga Nauru Cook Isl. Niue Barbados Dominica St. Vincent Trinidad Guyana EBA Tuvalu Sao Tome Kiribati Haiti Bahrain Grenada Bilat. Agreem. Jamaica Australia Laos Samoa Vanuatu Eq. Guinea Belize Antigua Suriname Yemen Andorra Afghanistan St. Lucia St. Kitts Singapore Chad Dominican Rep. Somalia Chinese Taipei Bhutan Bangladesh Ctrl. Afr. Rep. Cape Verde Cambodia Solomon Isl. Bolivia Liberia Maldives Congo Togo Nicaragua E.E.A. W.T.O. Cameroon Panama Senegal Costa Rica Eritrea Guinea Myanmar * Gabon Norway El Salvador Mauritania Nepal Peru Liechtenstein Korea, Rep. Ethiopia Niger Gambia Iceland Mozambique Guatemala Ecuador Sudan Djibouti Switzerland Sierra Leone Angola Colombia Venezuela Congo DR Papua Benin Mali U.S. Romania Comoros Zambia Malawi Tanzania Pakistan Honduras Guinea-Bissau Fiji Uganda Burundi Lesotho G.S.P /Drugs New Zealand Rwanda Madagascar Burkina Faso Japan Uruguay Kenya Mauritius Namibia Cuba TDCA Hong Kong Seychelles Ghana Nigeria Botswana Mongolia Canada Zimbabwe Côte d’Ivoire Swaziland South Africa Bulgaria EPA/ESA Brunei EUCAA EPA/WA Qatar India EPA/SADC Chile Iraq Hungary EU enlargement Santa Helena Georgia MEUFTA Poland China Macao Indonesia U.A.E Brazil Bosnia & Herzegovina Mexico Paraguay Slovakia Lithuania Kuwait Malaysia Kyrgyzstan Estonia Montserrat Armenia Czech Rep. Norfolk Islands Croatia Thailand Slovenia Yugoslavia Macedonia Philippines Cyprus Malta Latvia New Caledonia Turks & Caicos Islands Albania Morocco Israel Tokelau GSP/Labor rights Turkey Falklands Isl. St Pierre & Miqu Argentina Egypt Tunisia Anguilla Sri Lanka Korea, Dem. Rep. Oman Turkmenistan Libya Russia Iran Bermuda Uzbekistan Syria Euromed Moldova Jordan Algeria Kazakhstan Lebanon Guam Vietnam Gibraltar Greenland Belarus Sandw. Isl. Christmas Isl. Ukraine Tajikistan Cocos Islands Antarctica EUPAAA Aruba Bouvet Islands Azerbaijan Netherlands Antilles Pitcairn Saudi Arabia Palest. Auth Cayman Islands French Polyn. McDonald Isl. Mariana Islands Wallis & Futuna Virgin Islands US Minor outl. Islands Mayotte East Timor

15. Tokelau Falklands Isl. US Trade Policy in 2004 Anguilla New Caledonia Micronesia AGOA Palau Iraq Libya Marshall Isl. Gabon Mauritania Switzerland Andorra St Pierre & Miqu Zambia U.A.E Botswana Cook Isl. Nigeria Mongolia Nauru Turkmenistan Sao Tome Mali ATPA Brunei Bolivia New Zealand Chad Mozambique Niue Cape Verde Sierra Leone Peru Ecuador Kuwait Malta Maldives Chinese Taipei Congo DR Cameroon Colombia Pakistan W.T.O. Seychelles Mauritius Ghana Macedonia Senegal South Africa Czech Rep. Guinea Qatar Norway Georgia Brazil Gambia Kenya Fiji Romania Congo China Ethiopia Niger Togo Estonia Iceland Korea, Rep. Philippines Djibouti Rwanda Côte d’Ivoire Poland Cyprus Liechtenstein Angola Papua Suriname Venezuela Namibia Malawi Benin E.U. Malaysia Tanzania Bulgaria Tunisia Thailand Cuba Uganda Swaziland Paraguay Macao Guinea-Bissau Lesotho Myanmar Madagascar Armenia Bahrain Japan Australia Zimbabwe Kiribati Latvia Eq. Guinea Egypt Nepal Burkina Faso NAFTA Ctrl. Afr. Rep. Slovenia Chile Bilateral FTA Oman Solomon Isl. Israel Argentina Bhutan Hungary Canada India Lithuania Turkey Russia Cambodia Morocco Belarus Burundi Singapore Mexico Tuvalu Kyrgyzstan Sri Lanka Uruguay Indonesia Ukraine Albania Slovakia Hong Kong Kazakhstan St. Vincent St. Kitts El Salvador Norfolk Islands USPFTA Lebanon Bangladesh Barbados Nicaragua Tonga Panama Haiti Costa Rica Christmas Isl. Yugoslavia CAFTA Tajikistan Somalia Croatia Dominican Rep. USJFTA Belize Antigua Honduras G.S.P Bosnia & Herzegovina Grenada Yemen Trinidad Guatemala Moldova Jordan Jamaica St. Lucia Comoros Dominica Korea, Dem. Rep. Liberia Guyana Aruba Samoa Vanuatu Algeria Bermuda Netherlands Antilles Bahamas Santa Helena Guam Montserrat Gibraltar Greenland C.B.I. Eritrea Vietnam Palest. Auth Cocos Islands Antarctica Uzbekistan Wallis & Futuna Mayotte Bouvet Islands Laos East Timor Azerbaijan US Minor outl. Islands Pitcairn Sandw. Isl. Syria Sudan Saudi Arabia Cayman Islands French Polyn. McDonald Isl. Afghanistan Mariana Islands Iran Turks & Caicos Islands Virgin Islands

16. Available databases • National statistics • USITC interactive tariff and trade dataweb • TARIC (EU) • International statistics: • TRAINS in WITS • MAcMap • CTS (Consolidated Tariff Schedule) • IDB (Integrated Database System) • CAMAD (Common Analytical Market Access Database), launched in 2005 (WTO, UNCTAD, ITC) • Preferences taken into account? • TRAINs on CD • GTAP 5 vs GTAP 6 • MAcMap

17. New analytical approaches • Detailed databases of tariffs • Used in CGE models • Used in partial equilibrium models • Shock tariffs at the tariff line level • Use the model at the tariff line level (partial equilibrium) • Use the model at the tariff line level (frontier of research in CGE) • Alternatively aggregate to the sector level (CGE) • Issue of aggregation • Issue of endogeneity • AVEs of NTBs calculated at the HS6 level • Border effects cleaned from tariffs • An example (multi-region sectoral CGE)...

18. TRAINS (in WITS) United Nations COMTRADEHS6 CAMAD: - WTO - UNCTAD - ITC IDBCTS MMP on line (TL) BACIHS6 MAcMap HS6 joint with CEPII MMP for GTAP MIRAGE GTAP GTAP6 LINKAGE...

19. Liberalisation scenarios 5,000 products MAcMaps 163 Countries 208 partners 5,000 products Raw data of protection Tariff line level Partial equilibrium Tariff line level modelling CTS database Agreggated data of protection (GTAP sectors) Baseline 2025 GTAP database excepted protection Welfare Trade Factor incomes Terms of trade Custom revenues 15 years MIRAGE R regions I sectors

20. Objectives and scope of MAcMap • Fully harmonised & exhaustive picture of world wide protection • Actual impact of tariff reduction. • Bound >= MFN (applied) >= applied (preferential) • New Applied rate = Min [New Bound rate, Current protection] • Exhaustive coverage • all reporting countries (importers) • all partners • all products at the most disaggregated level

21. MAcMap Methodology : The Reference Group • Clustering on countries (real GDP per capita, trade openness) • 5 reference groups • Group of exporters : Computation of unit values, ERGUV. • Group of importers : weights for the MAcMap methodology of aggregation (limits the endogeneity problem).

22. Example of weighting EU Trade weight US Brazil Ref. Group A Japan Ref. Group Weight Australia Other Ref. Group A ’s countries

23. Conclusion • The direct approaches conclude to limited protection for most countries and sectors • Hardly fits the evidence provided by comparing trade to benchmark • Hardly fits the perception of exporters • There must be some “hidden protection” and/or NTBs not taken into account in EAVs • Success of the “indirect” approaches • There are two indirect approaches: • Deviation from expected trade patterns • Deviations from the LOP

24. Actual deviations are due to trade costs • Trade costs include all costs incurred in getting a good to a final user other than the marginal cost of producing the good itself: • Transportation costs (both freight costs and time costs) • Policy barriers (tariffs and non-tariff barriers) • Additional taxes • Information costs • Contract enforcement costs • Costs associated with the use of different currencies • Legal and regulatory costs • Local distribution costs (wholesale and retail).