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In-bond Diversion

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  • Pierre-Louis Vezina
  • Lorenzo Rotunno

Abstract

We show that the US in-bond system of imports may be used by firms to illegally avoid trade barriers, a practice known as in-bond diversion.� Digging into official Chinese and Mexican trade statistics, we uncover traces of US quota-hopping in-bond diversion by Chinese exports of textiles and apparel.� This is because the illicit scheme involves declaring Chinese exports bound for Mexico but diverting them to the US market while in transit, thus creating a gap between Chinese and Mexican reports.� Using the phaseout and removal of US quotas at the end of the Multifibre Agreement as a policy experiment, as well as variation in quota bindingness across products, we show that quota-bound products were associated with larger trade gaps which shrunk following the quota removals.� We also find that quotas were associated with larger shares of US imports aimed for transit warehouses, confirming the use of the in-bond system for illegal quota hopping.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 664.

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Date of creation: 05 Jul 2013
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Handle: RePEc:oxf:wpaper:664

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Keywords: Textile and apparel; illegal trade; trade barriers;

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  1. Alan Sule & Honoré Bo E. & Hu Luojia & Leth-Petersen Søren, 2014. "Estimation of Panel Data Regression Models with Two-Sided Censoring or Truncation," Journal of Econometric Methods, De Gruyter, vol. 3(1), pages 1-20, January.
  2. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
  3. Narciso, Gaia & Smarzynska Javorcik, Beata, 2008. "Differentiated Products and Evasion of Import Tariffs," CEPR Discussion Papers 6804, C.E.P.R. Discussion Papers.
  4. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers dp0701, Centre for Economic Performance, LSE.
  5. Pushan Dutt & Daniel Traca, 2010. "Corruption and Bilateral Trade Flows: Extortion or Evasion?," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 843-860, November.
  6. Irene Brambilla & Amit K. Khandelwal & Peter K. Schott, 2010. "China's Experience under the Multi-Fiber Arrangement (MFA) and the Agreement on Textiles and Clothing (ATC)," NBER Chapters, in: China's Growing Role in World Trade, pages 345-387 National Bureau of Economic Research, Inc.
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