Can Duty Drawbacks Have a Protectionist Bias? Evidence from MERCOSUR
Duty drawback (or rebate) systems, reduce or eliminate the duties paid on imported intermediate goods, or raw materials used in the production of exports. When a firm imports an intermediate product for use in the production of an export good, tari...
| Main Authors: | , , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/01/1121139/can-duty-drawbacks-protectionist-bias-evidence-mercosur http://hdl.handle.net/10986/19729 |
| id |
okr-10986-19729 |
|---|---|
| recordtype |
oai_dc |
| spelling |
okr-10986-197292021-04-23T14:03:44Z Can Duty Drawbacks Have a Protectionist Bias? Evidence from MERCOSUR Cadot, Olivier de Melo, Jaime Olarreaga, Marcelo ANTI-TRADE AVERAGE TARIFF BARGAINING MODEL COMMON MARKET CONSTANT RETURNS TO SCALE CONSUMER GOODS CONSUMER PRICES CONSUMER SURPLUS CONSUMERS CONVERGENCE CUSTOMS CUSTOMS UNION DEMAND ELASTICITIES DIFFERENTIATED PRODUCTS DIMINISHING RETURNS DISCRIMINATORY TARIFF DOMESTIC CONSUMPTION DOMESTIC MARKET DUTY DRAWBACKS ELASTICITY ELASTICITY OF SUPPLY EMPIRICAL ANALYSIS ENDOGENOUS TARIFF FORMATION EQUILIBRIUM EXISTING TARIFFS EXPORT BIAS EXPORT GOODS EXPORT INDUSTRIES EXPORT SECTOR EXPORT SUPPLY EXPORTERS EXPORTS EXTERNAL PROTECTION EXTERNAL TARIFF EXTERNAL TARIFFS FACTOR MARKETS FINAL GOODS FUTURE RESEARCH HIGH TARIFFS IMPORT DEMAND IMPORTED INPUTS IMPORTED INTERMEDIATE IMPORTED INTERMEDIATES INCENTIVE EFFECTS INCENTIVE SYSTEMS INCOME INDUSTRIAL PRODUCTION INDUSTRY TRADE INPUT USE INPUT-OUTPUT TABLES INTERMEDIATE GOODS INTERMEDIATE IMPORTS INTERMEDIATE PRODUCTS INTERNAL TRADE INTRA- REGIONAL TRADE INTRA-REGIONAL TRADE LABOR MARKET Duty drawback (or rebate) systems, reduce or eliminate the duties paid on imported intermediate goods, or raw materials used in the production of exports. When a firm imports an intermediate product for use in the production of an export good, tariff payments on the imported intermediate good are either waived (duty drawback), or returned to the producer once the final product is exported (rebate). These incentive systems are often justified on the grounds that they tend to correct the anti-trade bias imposed by high tariff levels. The problem with this line of reasoning is that it assumes that tariffs are predetermined policy variables; if they were, the easiest way to reduce their anti0trade bias would be to eliminate them. But this is rarely done because existing levels of protection correspond to a political economy equilibrium, difficult to modify in the presence of lobbying pressures. The authors show that in a political economy setting, where tariffs and duty drawbacks are endogenously chosen through industry lobbying, full duty drawbacks are granted to exporters that use imported intermediate goods in their production. This in turn decreases their incentives to counter-lobby against high tariffs on their inputs. Indeed, under a full duty drawback regime, tariffs on intermediate goods are irrelevant to exporters, because they are fully rebated. In equilibrium, higher tariffs will be observed on these goods. Creating a regional trading block, alters the incentives by eliminating duty drawbacks on intra-regional exports, which leads to lower tariffs for goods that intra-regional exporters use as inputs. Evidence from MERCOSUR suggests that eliminating duty drawbacks for intra-regional exports, would lead to increased counter-lobbying against protection of intermediate products. The authors estimate that without this mechanism, the common external tariff would have been 3.5 percentage points (25 percent) higher on average. 2014-08-26T20:48:52Z 2014-08-26T20:48:52Z 2001-01 http://documents.worldbank.org/curated/en/2001/01/1121139/can-duty-drawbacks-protectionist-bias-evidence-mercosur http://hdl.handle.net/10986/19729 English en_US Policy Research Working Paper;No. 2523 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Latin America & Caribbean South America ARGENTINA Brazil Chile |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ANTI-TRADE AVERAGE TARIFF BARGAINING MODEL COMMON MARKET CONSTANT RETURNS TO SCALE CONSUMER GOODS CONSUMER PRICES CONSUMER SURPLUS CONSUMERS CONVERGENCE CUSTOMS CUSTOMS UNION DEMAND ELASTICITIES DIFFERENTIATED PRODUCTS DIMINISHING RETURNS DISCRIMINATORY TARIFF DOMESTIC CONSUMPTION DOMESTIC MARKET DUTY DRAWBACKS ELASTICITY ELASTICITY OF SUPPLY EMPIRICAL ANALYSIS ENDOGENOUS TARIFF FORMATION EQUILIBRIUM EXISTING TARIFFS EXPORT BIAS EXPORT GOODS EXPORT INDUSTRIES EXPORT SECTOR EXPORT SUPPLY EXPORTERS EXPORTS EXTERNAL PROTECTION EXTERNAL TARIFF EXTERNAL TARIFFS FACTOR MARKETS FINAL GOODS FUTURE RESEARCH HIGH TARIFFS IMPORT DEMAND IMPORTED INPUTS IMPORTED INTERMEDIATE IMPORTED INTERMEDIATES INCENTIVE EFFECTS INCENTIVE SYSTEMS INCOME INDUSTRIAL PRODUCTION INDUSTRY TRADE INPUT USE INPUT-OUTPUT TABLES INTERMEDIATE GOODS INTERMEDIATE IMPORTS INTERMEDIATE PRODUCTS INTERNAL TRADE INTRA- REGIONAL TRADE INTRA-REGIONAL TRADE LABOR MARKET |
| spellingShingle |
ANTI-TRADE AVERAGE TARIFF BARGAINING MODEL COMMON MARKET CONSTANT RETURNS TO SCALE CONSUMER GOODS CONSUMER PRICES CONSUMER SURPLUS CONSUMERS CONVERGENCE CUSTOMS CUSTOMS UNION DEMAND ELASTICITIES DIFFERENTIATED PRODUCTS DIMINISHING RETURNS DISCRIMINATORY TARIFF DOMESTIC CONSUMPTION DOMESTIC MARKET DUTY DRAWBACKS ELASTICITY ELASTICITY OF SUPPLY EMPIRICAL ANALYSIS ENDOGENOUS TARIFF FORMATION EQUILIBRIUM EXISTING TARIFFS EXPORT BIAS EXPORT GOODS EXPORT INDUSTRIES EXPORT SECTOR EXPORT SUPPLY EXPORTERS EXPORTS EXTERNAL PROTECTION EXTERNAL TARIFF EXTERNAL TARIFFS FACTOR MARKETS FINAL GOODS FUTURE RESEARCH HIGH TARIFFS IMPORT DEMAND IMPORTED INPUTS IMPORTED INTERMEDIATE IMPORTED INTERMEDIATES INCENTIVE EFFECTS INCENTIVE SYSTEMS INCOME INDUSTRIAL PRODUCTION INDUSTRY TRADE INPUT USE INPUT-OUTPUT TABLES INTERMEDIATE GOODS INTERMEDIATE IMPORTS INTERMEDIATE PRODUCTS INTERNAL TRADE INTRA- REGIONAL TRADE INTRA-REGIONAL TRADE LABOR MARKET Cadot, Olivier de Melo, Jaime Olarreaga, Marcelo Can Duty Drawbacks Have a Protectionist Bias? Evidence from MERCOSUR |
| geographic_facet |
Latin America & Caribbean South America ARGENTINA Brazil Chile |
| relation |
Policy Research Working Paper;No. 2523 |
| description |
Duty drawback (or rebate) systems,
reduce or eliminate the duties paid on imported intermediate
goods, or raw materials used in the production of exports.
When a firm imports an intermediate product for use in the
production of an export good, tariff payments on the
imported intermediate good are either waived (duty
drawback), or returned to the producer once the final
product is exported (rebate). These incentive systems are
often justified on the grounds that they tend to correct the
anti-trade bias imposed by high tariff levels. The problem
with this line of reasoning is that it assumes that tariffs
are predetermined policy variables; if they were, the
easiest way to reduce their anti0trade bias would be to
eliminate them. But this is rarely done because existing
levels of protection correspond to a political economy
equilibrium, difficult to modify in the presence of lobbying
pressures. The authors show that in a political economy
setting, where tariffs and duty drawbacks are endogenously
chosen through industry lobbying, full duty drawbacks are
granted to exporters that use imported intermediate goods in
their production. This in turn decreases their incentives to
counter-lobby against high tariffs on their inputs. Indeed,
under a full duty drawback regime, tariffs on intermediate
goods are irrelevant to exporters, because they are fully
rebated. In equilibrium, higher tariffs will be observed on
these goods. Creating a regional trading block, alters the
incentives by eliminating duty drawbacks on intra-regional
exports, which leads to lower tariffs for goods that
intra-regional exporters use as inputs. Evidence from
MERCOSUR suggests that eliminating duty drawbacks for
intra-regional exports, would lead to increased
counter-lobbying against protection of intermediate
products. The authors estimate that without this mechanism,
the common external tariff would have been 3.5 percentage
points (25 percent) higher on average. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Cadot, Olivier de Melo, Jaime Olarreaga, Marcelo |
| author_facet |
Cadot, Olivier de Melo, Jaime Olarreaga, Marcelo |
| author_sort |
Cadot, Olivier |
| title |
Can Duty Drawbacks Have a Protectionist Bias? Evidence from MERCOSUR |
| title_short |
Can Duty Drawbacks Have a Protectionist Bias? Evidence from MERCOSUR |
| title_full |
Can Duty Drawbacks Have a Protectionist Bias? Evidence from MERCOSUR |
| title_fullStr |
Can Duty Drawbacks Have a Protectionist Bias? Evidence from MERCOSUR |
| title_full_unstemmed |
Can Duty Drawbacks Have a Protectionist Bias? Evidence from MERCOSUR |
| title_sort |
can duty drawbacks have a protectionist bias? evidence from mercosur |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2001/01/1121139/can-duty-drawbacks-protectionist-bias-evidence-mercosur http://hdl.handle.net/10986/19729 |
| _version_ |
1764440456227192832 |