Peeling away the layers: Impacts of durable tariff elimination

Abstract

We demonstrate that durable MFN tariff elimination affects trade patterns through several layers, and magnitudes of effects are sizable. The WTO Information Technology Agreement's (ITA) unique setting allows us to overcome the challenges associated with identifying effects of non-discriminatory trade policies due to two reasons: (i) ITA constitutes a quasi-natural experiment of several "passive" signatories joining the agreement as an unavoidable part of pursuing a larger policy objective, and (ii) ITA's partial coverage of the IT sector provides a natural control group for identification based on cross-product variation. Our analysis finds novel nonlinear impacts of tariff liberalization: Complete tariff elimination results in large additional trade gains -over and above tariff reductions -especially for intermediate goods. The commitment to durable tariff elimination, through WTO bindings, adds a further two layers, boosting both imports and exports more than equivalent unilateral reforms. This commitment spurned development of a downstream IT export sector in "passive" signatories. JEL-Codes: F130, F140, F150, L630.

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“…The result is consistent with other evidence suggesting that even small nonzero tariffs pose a burden for trade due to the costs associated with it. Gnutzmann-Mkrtchyan and Henn (2018) find that setting tariffs to zero provides trade gains in addition to tariff reductions. The intuition stems from the fact that across the board zero tariffs reduce incentives to, e.g., under-value the imports and miscategorize the product code to one with a lower tariff rate.…”

Theoretical concepts of trade policy development and analysis: Evolution and modern challenges in the context of the international trading system transformation

“…Henn argues prove that zeroing duties on such products leads to additional gains in trade, especially for intermediate goods. Later it has a great impact on both exports and imports [Gnutzmann-Mkrtchyan, Henn, 2018]. American researcher Ch.…”

Digital Trade Rules in Preferential Trade Agreements: Is There a WTO Impact?

“…While it is undisputed that digital trade flows have rapidly grown over the last years, finding a comprehensive data source which covers multiple years and countries presents a challenge. To construct our variable, we rely on a dataset kindly shared by Gnutzmann‐Mkrtchyan and Henn (2018) on the trade of products included in the ITA. For each PTA member, we sum its imports and exports of ITA products to compute its total trade in ITA products.…”