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GTAP Resource #1590

"Duty drawbacks, competitiveness and growth: Should China reform its duty drawback system?"
by Ianchovichina, Elena

Duty drawbacks have been popular as an indirect tax incentive for foreign investment and an instrument to correct the anti-export bias of otherwise highly protected economies. Despite their wide use, duty drawbacks have been given relatively little attention in the literature. This paper reviews the literature and analyzes duty drawback policy of a protected economy in the presence of domestic tax distortions. The theoretical findings suggest that domestic tax distortions play an important role in determining the welfare effects of a change in duty drawback policy. In general, it is impossible to estimate qualitatively and quantitatively the welfare impact of a change in duty drawbacks without a systematic empirical framework. The paper describes duty drawbacks in China, which are a key feature of the country’s export processing system, and uses a global applied general equilibrium model with duty drawbacks (GTAP-DD) and the GTAP database in order to assess different reform options for China’s duty exemption system after its accession to the WTO. It concludes that the duty exemption system should not be abolished prior to China’s WTO accession as it will lead to welfare losses, a decline in exports, with the negative impact on the exports of some key manufacturing sectors such as apparel exceeding 60 percent. In general, the removal of duty exemptions at average tariff levels above 7 percent is not recommended because of the negative impact this will have on key export processing sectors. However, a removal of duty exemptions after China meets its WTO commitments will not harm China’s welfare.

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Conference paper
Date: 2004
Created: Ianchovichina, E. (5/21/2004)
Updated: Ianchovichina, E. (11/28/2006)
Visits: 3,803
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