Transcript Fig. 19.7

Figure 13.1
Tariff-inclusive price
Single good, small country
Import tariff:
Welfare loss
Revenue gain
Distribution issues (producers gain/lobby)
Domestic producer subsidy
Welfare loss (though less than tariff)
Revenue cost
Distribution issues (producers gain/lobby)
Quotas
Equivalent to tariff in protection terms
(if no uncertainty)
Revenue cost
Distribution even more toward producers/importers
Uncertainty makes tariffs and quotas non-equivalent.
Tariff leaves quantity of imports uncertain
Quota leaves domestic price uncertain
Export subsidy
Welfare loss
Revenue cost
Distribution issues
If downward sloping world demand curve then
may be terms of trade cost
Whole economy: uniform import tariff = uniform export tax
These are the static effects.
Arguably more important in the long-run are:
Dynamic effects: Infant industry argument
(learning by doing, Horndal effect)
Competitive pressure argument
(Productivity only way to survive)
And
Problem of rent-seeking and corruption
associated with discretionary trade restrictions
Source: IMF WEO 07
Tariff Structures and Effective Protection
The nominal tariff rate, t, is
p  p
t
p
(13.1)
Where
p′ is the tariff-inclusive price
p is the free trade price
Tariff Structures and Effective Protection
The effective tariff rate, g, is
v  v
g
v
(13.2)
Where
v′ is the value added per unit of output,
inclusive of the tariff
v is the value added per unit of output
under free trade
Table 13.1
Small positive effects reflect:
1.
Monopolistic intermediaries meant that
only about half the price increase passed to farmers
2.
India acts as monopsonistic buyer of raw cashews
(Terms of trade loss from additional output)
3.
Weak supply response – little new planting
(Maybe due lack of confidence that policy will stick).
Figure 13.3
Free trade bad for the poorest?
• Panagariya’s six fallacies (World Economy, 2005)
• Surprising facts neglected in the debate about Doha
• No obvious political bias—some strange bedfellows
• (Oxfam and the IMF MD both sign up to most of them)
• Relates to current discussion about rising food prices
and the poor.
http://www.blackwell-synergy.com/doi/pdf/10.1111/j.14679701.2005.00734.x?cookieSet=1
Panagariya’s six fallacies
1.
2.
3.
4.
5.
6.
Agricultural border protection and subsidies are largely
a rich country thing
Rich country subsidies and protection …hurt the
poorest countries most
…hurt the poor rural households in the poorest
countries
…constitute the principal barrier to the development of
the poorest countries
Agricultural protection reflects double standards and
hypocrisy in the rich countries
Benefits of aid to the poorest countries are more than
offset by the losses from developed countries
Panagariya’s six fallacies
Implications:
A Doha round fully liberalizing trade could badly damage
the poorest countries
Though it would be good for middle income countries
And for the world as a whole,
The poorest countries would need to be compensated for
this loss
Different groups
• Least Developed Countries
– Most of Africa, Afghanistan, Bangladesh,
Cambodia, Nepal etc.
• Cairns Group
– With strong comparative advantage in Ag
– Argentina, Brazil, Chile, Colombia, Costa
Roca, Indonesia, Malaysia, Philippines, South
Africa, Thailand and Uruguay
• Other developing countries
– (mixed bag includes India, China….)
Panagariya’s six fallacies
1.
2.
3.
4.
5.
6.
Agricultural border protection and subsidies are largely
a rich country thing
Rich country subsidies and protection …hurt the
poorest countries most
…hurt the poor rural households in the poorest
countries
…constitute the principal barrier to the development of
the poorest countries
Agricultural protection reflects double standards and
hypocrisy in the rich countries
Benefits of aid to the poorest countries are more than
offset by the losses from developed countries
O
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IS
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AN
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S
IN
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R
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A
ID
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BR
A
PH
TH I
A
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ZE
IP
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N
140
120
100
Bound tariff
80
% of goods duty free
60
40
20
0
20
40
60
Bound and Actual Tariffs
70
60
Actual
50
40
30
20
10
0
0
50
100
Bound
150
200
Panagariya’s six fallacies
1.
2.
3.
4.
5.
6.
Agricultural border protection and subsidies are largely
a rich country thing
Rich country subsidies and protection …hurt the
poorest countries most
…hurt the poor rural households in the poorest
countries
…constitute the principal barrier to the development of
the poorest countries
Agricultural protection reflects double standards and
hypocrisy in the rich countries
Benefits of aid to the poorest countries are more than
offset by the losses from developed countries
The Key Step in the Argument
• Poorest countries already have free access under EBA
• And therefore they benefit from measures that raise
internal EU prices (such as export subsidies)
• Importing LeastDCs also benefit from EU’s export and
output subsidies (as they both lower the world price)
• Lower import price; higher export price for LeastDCs
• (But what about Cotton?)
EU output subsidies lower world price
• EU is large enough to affect the world price
• So exporters in the rest of the world selling their
agricultural produce at the world price are made worse
off by the EU output subsidy.
• Importers in ROW benefit from EU output subsidy
• For simplicity the figure shows things as if only an output
subsidy exists – in fact there are also tariffs and export
subsidies
EU
ROW
EU export subsidies raise the internal
EU price above world price
• This benefits EU producers…
…but also exporters from LeastDCs who can sell directly
into the EU market without tariffs
• It also lowers the world price, which is good for food
importers in ROW
• Losers are other exporters from outside the EU
EU
ROW
At least in the short-run
• Many of the poorest countries are net importers of food and of
agricultural products
• (But what about Cotton?)
Yes, it’s an exception
EU doesn’t produce it, so no big production subsidies
And it is an important export of some LeastDCs
• Another caveat:
regulatory, sanitary and phytosanitary (plant health) requirements
represent significant barriers
• On the other hand:
it’s not just the EU’s “Everything but Aid” initiative: US “Africa Growth
and Opportunity Act” (among other regionally focused initiatives) also
provides duty free access for a lot.
Many LICs are net importers of food
Many LICs are net importers of agric
prods
In the longer run
• Importers can become exporters
• Maybe quite quickly…
• Dynamic effects need to be taken into a/c
• But internal conditions and policies key to ability
of LeastDCs to take advantage
Panagariya’s six fallacies
1.
2.
3.
4.
5.
6.
Agricultural border protection and subsidies are largely
a rich country thing
Rich country subsidies and protection …hurt the
poorest countries most
…hurt the poor rural households in the poorest
The
other “fallacies are a bit rhetorical,
countries
making
thethegeneral
that
…constitute
principal point
barrier to
the overdevelopment of
the poorest countries
concentration
on trade liberalization
Agricultural
reflects double
standards and
could
leadprotection
to a backlash
in countries
hypocrisy in the rich countries
where the most crucial barriers to
Benefits of aid to the poorest countries are more than
growth
non-trade
offset by are
the losses
from developed countries
World Bank Global Economic Prospects 2005
Trading blocs in the global South
Regional preference within Africa?
•
Africa's non-oil exports are concentrated in a few products, none of them
important regional imports.
•
There is relatively little intra-African trade and the mismatch between African
exports and imports cannot quickly change.
•
Moreover, intra-African trade is highly concentrated, geographically, with
almost no trade between East and West Africa.
•
This finding makes less compelling the arguments that regional trade can
help overcome problems of small domestic markets.
•
Giving preference to imports from other African countries risks making your
own exports uncompetitive in the world market
•
In short, regional trade agreements seem to present Africa with a "lose-lose"
situation.
Yeats, 1998
Nunn QJE 2008