Welfare Effects of Tariff Reduction Formulas
AbstractWTO negotiations rely on tariff reduction formulas. It has been argued that formula approaches are of increasing importance in trade talks, because of the large number of countries involved, the wider dispersion in initial tariffs (e.g. tariff peaks) and gaps between bound and applied tariff rates. This paper resents a two country intra-industry trade model with heterogeneous firms subject to high and low tariffs. We examine the welfare effects of applying three different tariff reduction formulas proposed in the literature i) a proportional cut, ii) the Swiss formula and iii) a compression formula. No single formula dominates for all conditions. The ranking of the three tools depends on the degree of product differentiation in the industry, and the achieved reduction in the average tariff.
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Bibliographic InfoPaper provided by EconWPA in its series International Trade with number 0506006.
Length: 20 pages
Date of creation: 30 Jun 2005
Date of revision:
Note: Type of Document - pdf; pages: 20
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Welfare; monopolistic competition; intra-industry trade; wto trade liberalization; formula approaches;
Other versions of this item:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F15 - International Economics - - Trade - - - Economic Integration
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