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Trade policy analysis in the presence of duty drawbacks

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  • Ianchovichina, Elena

Abstract

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
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Suggested Citation

  • Ianchovichina, Elena, 2004. "Trade policy analysis in the presence of duty drawbacks," Journal of Policy Modeling, Elsevier, vol. 26(3), pages 353-371, April.
  • Handle: RePEc:eee:jpolmo:v:26:y:2004:i:3:p:353-371
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    References listed on IDEAS

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    1. Ianchovichina, Elena, 2002. "Trade policy analysis in the presence of duty drawbacks," Policy Research Working Paper Series 3312, The World Bank.
    2. Harrison, W Jill & Pearson, K R, 1996. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Computational Economics, Springer;Society for Computational Economics, vol. 9(2), pages 83-127, May.
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    4. Malcolm, Gerard, 1998. "Adjusting Tax Rates in the GTAP Data Base," GTAP Technical Papers 315, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    5. Elena Ianchovichina & Will Martin, 2004. "Impacts of China's Accession to the World Trade Organization," World Bank Economic Review, World Bank Group, vol. 18(1), pages 3-27.
    6. Panagariya, Arvind, 1992. "Input tariffs, duty drawbacks, and tariff reforms," Journal of International Economics, Elsevier, vol. 32(1-2), pages 131-147, February.
    7. Olivier Cadot & Jaime de Melo & Marcelo Olarreaga, 2015. "The Protectionist Bias of Duty Drawbacks: Evidence from Mercosur," World Scientific Book Chapters,in: Developing Countries in the World Economy, chapter 15, pages 359-380 World Scientific Publishing Co. Pte. Ltd..
    8. Terrie L. Walmsley & Thomas W. Hertel, 2001. "China's Accession to the WTO: Timing is Everything," The World Economy, Wiley Blackwell, vol. 24(8), pages 1019-1049, September.
    9. Ianchovichina, Elena, 2001. "Trade Liberalization in China’s Accession to WTO," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 421-445.
    10. Ianchovichina, Elena, 2004. "Trade policy analysis in the presence of duty drawbacks," Journal of Policy Modeling, Elsevier, vol. 26(3), pages 353-371, April.
    11. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685.
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    Cited by:

    1. Abbott, Philip & Bentzen, Jeanet & Tarp, Finn, 2006. "Vietnam’s Accession to the WTO: Lessons from Past Trade Agreements," MPRA Paper 61679, University Library of Munich, Germany.
    2. Ianchovichina, Elena, 2004. "Trade policy analysis in the presence of duty drawbacks," Journal of Policy Modeling, Elsevier, vol. 26(3), pages 353-371, April.
    3. Elena Ianchovichina & Terrie Walmsley, 2005. "Impact of China's WTO Accession on East Asia," Contemporary Economic Policy, Western Economic Association International, vol. 23(2), pages 261-277, April.
    4. To, Minh Thu & Lee, Hiro, 2014. "Assessing the impacts of deeper trade reform in Vietnam in a general equilibrium framework," MPRA Paper 82271, University Library of Munich, Germany.
    5. Emiko Fukase & Will Martin, 2016. "Agro-processing and horticultural exports from Africa," WIDER Working Paper Series 174, World Institute for Development Economic Research (UNU-WIDER).
    6. Lim, Jamus Jerome & Saborowski, Christian, 2010. "Estimates of trade-related adjustment costs in Syria," Journal of Policy Modeling, Elsevier, vol. 32(6), pages 843-864, November.
    7. Zhang, Jian & Fung, Hung-Gay, 2006. "Winners and losers: Assessing the impact of Chinese Yuan appreciation," Journal of Policy Modeling, Elsevier, vol. 28(9), pages 995-1009, December.
    8. Abbott, Philip & Bentzen, Jeanet & Tarp, Finn, 2009. "Trade and Development: Lessons from Vietnam's Past Trade Agreements," World Development, Elsevier, vol. 37(2), pages 341-353, February.
    9. Stephen Tokarick, 2006. "Does Import Protection Discourage Exports?," IMF Working Papers 06/20, International Monetary Fund.
    10. Betina Dimaranan & Elena Ianchovichina & Will Martin, 2009. "How will growth in China and India affect the world economy?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(3), pages 551-571, October.
    11. Elena Ianchovichina & Maros Ivanic & Will Martin, 2010. "The growth of China and India: implications and policy reform options for Malaysia," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(2), pages 117-141, November.
    12. Houssein Boumellassa & Hugo Valin, 2009. "Vietnam's Accession to the WTO: Expost Evaluation in a Dynamic Perspective," Economie Internationale, CEPII research center, issue 118, pages 13-42.
    13. Ianchovichina, Elena & Ivanic, Maros & Martin, Will, 2009. "Implications of the growth of China and India for the other Asian giant : Russia," Policy Research Working Paper Series 5075, The World Bank.
    14. Hung-Gay Fung & Jian Zhang, 2007. "An Assessment of the Closer Economic Partnership Arrangement Between China and Hong Kong," Chinese Economy, Taylor & Francis Journals, vol. 40(2), pages 36-50, April.
    15. Ghosh, Madanmohan & Rao, Someshwar, 2010. "Chinese accession to the WTO: Economic implications for China, other Asian and North American economies," Journal of Policy Modeling, Elsevier, vol. 32(3), pages 389-398, May.
    16. Abbott, Philip & Bentzen, Jeanet & Huong, Thi Lan & Tarp, Finn, 2007. "A Critical Review of Studies on the Social and Economic Impacts of Vietnam’s International Economic Integration," MPRA Paper 29789, University Library of Munich, Germany.
    17. L. Alan Winters & Shahid Yusuf, 2007. "Dancing with the Giants: China, India, and the Global Economy," World Bank Publications, The World Bank, number 6632.
    18. Mariel, Katharina & Minner, Stefan, 2015. "Strategic capacity planning in automotive production networks under duties and duty drawbacks," International Journal of Production Economics, Elsevier, vol. 170(PB), pages 687-700.
    19. Miria Pigato, 2009. "Strengthening China's and India's Trade and Investment Ties to the Middle East and North Africa," World Bank Publications, The World Bank, number 2626.
    20. Terrie L. Walmsley & Thomas W. Hertel & Elena Ianchovichina, 2006. "Assessing The Impact Of China'S Wto Accession On Investment," Pacific Economic Review, Wiley Blackwell, vol. 11(3), pages 315-339, October.
    21. Elena IANCHOVICHINA & Will MARTIN, 2006. "Trade Impacts of China's World Trade Organization Accession," Asian Economic Policy Review, Japan Center for Economic Research, vol. 1(1), pages 45-65.
    22. Terrie L. Walmsley & Thomas Hertel & David Hummels, 2014. "Developing a GTAP-based multi-region, input–output framework for supply chain analysis," Chapters,in: Asia and Global Production Networks, chapter 2, pages 16-80 Edward Elgar Publishing.

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