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A classification of trade barriers1. Taxonomy2. Breakdown of effects
Equivalence and non-equivalence of tariffs & QRs1. Perfect competition2. Monopoly3. World price volatility4. QR administration: licence allocation and efficiency
QRs: incidence & measurement issues1. QR cost estimates: a few examples2. Quality upgrading3. Using the gravity equation to assess the effect of QRs
Trade barriers
“Dissipative” barriers
QuotasVERs Contingent tariffs:• antidumping• countervailing• safeguard clauses
Sanitary &Phytosanitary standards
Technical Barriers to Trade
Price undertakings
Noncontingent tariffs:
• MFN• Preferential
“Foreign-capture” barriers
“Domestic-capture” barriers
Quantitative Restrictions (QR)
A Classification of trade barriers1. Taxonomy
Non-tariff barriers (NTB)
World price
Quantities
Prices
Domestic demand
Marginal cost
World price plus tariff
Tariff A B DC
Equivalence and non-equivalence of tariffs & QRs1. Perfect competition
Tariff under competition
Quantity imported
World price
Quantities
Prices
Domestic price
Domestic demand
Quota
Marginal cost
AB DC
Residual (after-quota) demand
Equivalence and non-equivalence of tariffs & QRs1. Perfect competition
Quota under competition
World price
Quantities
Prices
Domestic demand
Marginal cost
Marginal revenue
Equivalence and non-equivalence of tariffs & QRs2. Monopoly
Tariff under monopoly
World price plus tariff
Tariff A B DC
Quantity imported
World price
Quantities
Prices
Domestic price
Domestic demand
Marginal cost
B
Residual (after-quota) domestic demand
Quota
AC D
Equivalence and non-equivalence of tariffs & QRs2. Monopoly
Quota under monopoly
Source: Kee, Nicita & Olarreaga 2006a
(a) Ad-valorem equivalent of core NTBs, by GDP/capita of using country
(b) AVE of agricultural price-support measures
Use of Non-Tariff Barriers (NTBs)
Low world price
Quantities
Prices
Domestic demand
Tariff
Marginal cost
Equivalence and non-equivalence of tariffs & QRs3. World price volatility
Tariff at low price
Quantities
Prices
High world price
Domestic demand
Tariff
Marginal cost
Equivalence and non-equivalence of tariffs & QRs3. World price volatility
Tariff at high price
Low world price
Quantities
Prices
Domestic price
Domestic demand
Marginal cost
Quota
Equivalence and non-equivalence of tariffs & QRs3. World price volatility
Quota at low price
Quantities
Prices
High world price = domestic price
Domestic demand
Marginal cost
Quota (not binding)
Equivalence and non-equivalence of tariffs & QRs3. World price volatility
Quota at high price
Actual imports
Source: Kee, Nicita & Olarreaga 2006a
Overall protection: OTRI and MA-OTRI
i i i ik k kk k
M M T
Define Overall Trade Restrictiveness Index (OTRI) as uniform tariff that gives same level of imports as all current barriers:
OTRI Existing barriers (tariffs + AVE of NTBs)
OTRI and MA-OTRI by level of income
(a) OTRI (b) MA-OTRI
Source: Kee, Nicita & Olarreaga 2006a
Overall protection: OTRI and MA-OTRI in agriculture
“Third-country” tariff-quota2.2 m tons @ 75 ECU/ton
ACP quotatariff-free857,700 tons
EU OST quotaprice support854,000 tons
Dom. Rep.BelizeIvory CoastCameroon
90,000 tons“F.A. countries”:• Costa Rica 23.4%• Columbia 21%• Nicaragua 3%• Venezuela 2%
Other countries50.6% - 90,000 tons
Exporting country breakdown
Licence allocation breakdown (by type of operator)
Category A: 66.5%“Dollar” importers
Category B: 30%ACP/OST importers
Category C: 3.5%New entrants
Primary importers 57%
Custom clearers/ripeners 43%
QRs: incidence and measurement issues2. Using the gravity equation to assess the effect of QRs
Bananas
SEU
SACP
S$
Q$ = 2.65
p* + t
pEU
p*
Million tons
€/ton
QACP = 0.85
(a) (tariff-quota)
QEU
DEU
S$(t)
SEU
SACP
S$
Q$ = 2.65
p* + t
pEU
p*
Million tons
€/ton
QACP = 0.85
(a) (tariff-quota)
QEU
DEU
S$(t)Total rents
Rents to US companies
Rents to European companies
Rent-sharing
pEU
SACP + SEUSACP
S$
tPG
(b) (tariff only at rate tPG)
pEU
SEUSACP
S$
tPG
Q$ < 2.65QACP > 0.8
(b) (tariff only at rate tPG)
SACP + SEU
+ S$ (tPG)
S$ (tPG)
QEU
DEU
DEU
Million tons
€/ton
€/ton
€75/t in-quota tariff
SEU
SACP
S$
Q$ = 2.65
tPG
p* + t
pEU
p*
Million tons
€/ton
QACP = 0.85
(a) (tariff-quota)
QEU
DEU
S$(t)
“Tariffication” of a quota: EU bananas
PG estimates compared Table 5a. Raboy’s estimates Raboy 1999 2000 2001 2002 Average
Internal price 624 656 614 631
External price
US 542 598 549 563
Norway 546 589 747 627
EU MFN 542 583 612 579
Price gap
IP-US 82 58 65 68
IP-Norway 78 67 -133 4
IP-EU MFN 82 73 2 52
Table 5b. Borrel and Bauer’s estimates Borrel-Bauer 2000
Internal price 624
External price 560
Price gap 64
Table 5c. NERA’s estimates NERA 1999 2000 2001 2002 Average
Internal price 506 538 550 488 521
External price 246 260 286 255 262
Price gap 260 278 264 233 259
The gravity model of international trade
Large country
Large country
Large country
Small country
Close by
Distant
Distant
Distant
0 1 2 3
4 5 6 7
8
ln ln ln ln
ln 1
.
ijt it jt ijt
ijt i j
ijt ijt
X Y Y d
t I I t
Q u
1 if quota applies
0 otherwiseQ
Regression estimates
ˆˆln 0.642i ii QV X Q
(1.1)
ˆ 0.642
0.642ˆ
ˆ ˆ0.526 (which implies ln 0.642)
ˆ ˆ
i ii Q
i ii Q
X
Q Q
XNQ NQ
V Vee
V Ve
Trade-reduction effect of the quota:
ˆ ˆ
1 0.526 0.474 i.e. -47%ˆ
NQ Q
NQ
V V
V
Estimating the price effect of QRs: bananas 2. Interpreting the gravity estimates: trade-reduction effect of QR
Estimating the price effect of QRs: bananas 2. Interpreting the gravity estimates: tariff equivalent of QR
Use again regression estimates
ˆˆln 1.324ln 1t i iiV X t
so
(0.1) 0
ˆln 1.324ln 1
ˆtV
tV
. Combine this with what we had from previous slide 0.642 1.324 ln 1 t
and get 0.4851 1.624t e so that t = 0.624. Thus, the estimated ad-valorem equivalent of the quota, in percentage terms, is 62.4%. Applied to a unit value of €496/ton, this gives a specific-tariff equivalent of €310 per ton.
“Tariffication” of a quota: EU bananas
Gravity estimation
Gravity regression results, 08/02/05Dep. var.: trade value Huber Huber
log (1+t), applied -1.261(-2.69)
log (1+t), unconstrained -1.136(-2.12) *
log (1+t), constrained -1.485(-2.15) *
MFN quota dummy -0.515 -0.459(-3.28) ** (-2.3) *
Framework Agr. dummy 0.395 0.387(1.42) (1.39)
ACP dummy 0.993 0.998(4.73) ** (4.74) **
Ivory Coast*time trend 0.157 0.156(2.51) * (2.49) *
Cameroon*time trend 0.26 0.258(3.64) ** (3.6) **
log distance -1.269 -1.271(-20.89) **(-20.92) **
log importer's GDP 0.729 0.723(2.71) * (2.69) **
log exporter's GDP 0.251 0.252(1.19) (1.2)
log importer's exch. rate -0.034 -0.035(-0.39) (0.41)
log exporter's exch. rate 0.086 0.085(2.79) ** (2.77) **
Constant -321.06 -11.742(-2.55) * (-1.51)
Observations 6'970 6'983 R-squared 0.62 0.62Cook-Weisberg chi-sq.Implied tariff equiv. (€/ton) 221 158With €75/ton in-quota tariff 296 233Implied elasticity of substitutionAll tariffs 2.26QR-constrained market 2.14Unconstrained market 2.49
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