Trade Policy Analysis in the Presence of Duty Drawbacks
Duty drawback schemes, which typically involve a combination of duty rebates and exemptions, are a feature of many countries' trade regimes. They are used in highly protected developing economies as a means of providing exporters with imported...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2002/05/5135133/trade-policy-analysis-presence-duty-drawbacks http://hdl.handle.net/10986/17424 |
| Summary: | Duty drawback schemes, which typically
involve a combination of duty rebates and exemptions, are a
feature of many countries' trade regimes. They are used
in highly protected developing economies as a means of
providing exporters with imported inputs at world prices,
thus increasing their competitiveness, while maintaining the
protection on the rest of the economy. In China, duty
exemptions have been central to the process of trade reform
and have led to a tremendous increase in processed exports
using imported materials. Despite the widespread use and
importance of duty drawbacks, these new trade liberalization
instruments have been given relatively little attention in
empirical multilateral trade liberalization studies. The
paper presents an empirical multi-region general equilibrium
model, in which the effects of policy reform are
differentiated based on the trade orientation of the firms.
The model is useful for analyzing trade liberalization in
the presence of duty drawbacks, assessing whether countries
should introduce or abolish these types of arrangements, and
evaluating the impact of improved duty drawback system
administration. The author's analysis shows that
failure to account for duty exemptions in the case of
China's recent WTO accession will overstate the
increase in China's trade flows by 40 percent, welfare
by 15 percent, and exports of selected sectors by as much as
90 percent. The magnitude of the bias depends on the level
of pre-intervention tariffs and the size of tariff cuts-the
larger the initial distortions and tariff reductions, the
larger the bias when duty drawbacks are ignored. The bias in
the estimates of China's real GDP, trade flows, and
welfare changes due to WTO accession increases more than
three times when China's pre-intervention tariffs are
raised from their 1997 levels to the much higher 1995
levels. These results suggest that trade liberalization
studies-focusing on economies in which protection is high,
import concessions play an important role, and planned
tariff cuts are deep-must treat duty drawbacks explicitly to
avoid serious errors in their estimates of sectoral output,
trade flows, and welfare changes. |
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