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GTAP Resource #1313

"Direct Measure of Protection: A Rehabilitation"
by Bouët, Antoine


Abstract
There is now a consensus on the evidence that improving market access is still an « unfinished business » (WTO, 2002). Protection levels remain high and induced distortions are sizeable. The dispersion of national protection levels across sectors is a first determinant of the magnitude of these distortions; regional agreements and trade preferences reinforce this uneven market access across exporters. But what is the precise impact of such barriers remains an avenue for research: contrary to what is suggested by figures circulated the true level of protection is largely unknown: preferences are intricate and policies are permanently adding to the “spaghetti bowl”; the precise impact of these preferences remains unclear; the degree of bounding may matter; there might be a substitution between protection instruments, etc. This is why the profession should pay attention to a reliable measure of protection levels.

Recent developments in the literature on protectionism have emphasized the use of indirect measures, such as border effect (see Head & Mayer, 2001, for example) or residuals of gravity equations (see Wall, 1999, for example)… This is a very useful avenue of research, because it allows to capture non tariff barriers. At the same time, it is generally too aggregated to provide useful information for policy purposes, and what is exactly captured remains subject to scrutiny. Against this background, this paper aims at rehabilitating direct measures of protection. Arguments in favour of a measurement of protection at the most detailed level are considered in a first section. A quantitative assessment of each argument is provided based on an exhaustive analysis of protection. A second section departs from the measurement of protection and addresses the structure of trade policies.

1- Tackling arguments in favour of a detailed approach

Using the MAcMaps information system (Bouët, Fontagné, Mimouni et Pichot, 2002), and relying on recent improvements of this system, we extensively examine traditional arguments in favour of detailed approaches to evaluating trade policies.

- i) Protection should be measured on a bilateral basis. We compare the level of national global protections (for all products, suppliers and instruments) using bilateral versus MFN tariffs. This provides a crude estimation of the degree of discrimination in international trade. Incidentally, it sheds light on the measurement error introduced in studies that do not address this issue (Messerlin, 2001 ou Francois Mc Donald et Nordström, 1995).

- ii) Protection should not be aggregated using national imports. We use imports of reference groups of countries as weights. We then test this principle against levels of national global protection obtained with simple means, national imports weighted means, medians of distribution. Lastly we compare hierarchies of protection, using a rank correlation analysis.

- iii) Shocks of trade liberalisation should be simulated at the most detailed level. We compare the impact of a scenario of trade liberalisation on sectoral average protection, when the shock is applied at different levels of aggregation: GTAP, SH2, SH4, SH6, tariff lines.


2- Inside trade policies: new evidence of distorsive policies

Protection is not only a figure: x%. Trade policies are structured in order to reap the benefits of loopholes in the agreements. Tariff reduction has led to non tariff barriers in the past. Then, the cancellation of non-tariff barriers and the process of re-tariffication have led to a complex system of tariff quotas and to highly discriminatory specific tariffs. The reduction in tariffs is now leading to an increased use of anti-dumping, noticeably by developing countries. Lastly, Rounds of tariff reduction have not succeeded in erasing tariff peaks that are highly distorsive. In total, there may be substitution or complementarity between instruments.

- i) Tariff peaks are generally underestimated. We provide a new and systematic measure of the importance of tariff peaks of which coverage and frequency indices are not the adapted measures. We substitute 15% tariff to the observed tariff for each tariff line having an ad valorem equivalent of all instrument above 15% (or the Ad Valorem Equivalent). In a second step we calculate a new average for the sector or the country using this new set of tariffs. The importance of tariff peaks is provided by the comparison of the two figures.

- ii) Instruments may be substitute or complements. We estimate correlation between protectionist instruments (ad valorem tariff, specific tariff, quota tariff rate) for a selected sample of countries.

- iii) There are idiosyncrasies in the structures of protection of similar countries. We try to identify similarities or idiosyncrasies in the national structures of trade policies by using a correlation analysis. We try to construct groups of countries of which protection is similar. Since similar countries highlight idiosyncrasies, we conclude that factor endowments and the related Stolper-Samuelson effect do not fully explain trade policies. There is room for an approach in terms of political economy addressing the determinants of these idiosyncrasies.

References

Bouët A., L. Fontagné, M.Mimouni & X. Pichot, 2002, « MAcMaps : une mesure bilatérale et désagrégée de l’accès au marché. », in Economie internationale, 89-90, 39-64.

Francois, J., B. MacDonald et H.Nordström, 1995, Assessing the Uruguay Round, in W.Martin et L.A.Winters, The Uruguay Round and the developing countries, World Bank Discussion Papers, 307, The World Bank, Washington D.C.

Head K. & T. Mayer, 2001, “Border effect and fortress Europe.”, CEPII Working Paper, n°6, Sept.

Messerlin, P., 2001, Measuring the cost of protection in Europe, Wash. D.C., Institute for International Economics.

Wall H.J., 1999, “Using the gravity model to estimate the costs of protection ?”, Review of the Federal Reserve Bank of Saint-Louis, Jan-Feb.

WTO, 2002, “Market Access: an unfinished business?”, WTO publication, Geneva.


Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Version:
Created: Bouët, A. (5/17/2003)
Updated: Bacou, M. (9/22/2003)
Visits: 4,176
No keywords have been specified.


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