## _wp0620

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### Introduction and policy implication
- The purpose of this paper is to demonstrate that a country’s own pattern of import protection—its tariff structure—acts as a tax on its export sector and, thus, frustrates its goal of increasing export earnings.
- Developing countries frequently complain that barriers (e.g., tariffs) applied against their exports in rich-country markets make it difficult for them to increase their export earnings. However, developing countries have not fully embraced the notion that their own pattern of import protection may be retarding their export performance.
- Tariff reductions work as an “export-promotion” strategy—a strategy that developing countries could pursue independent of the policy stance of rich countries. That is, reducing their import restrictions is a policy option that developing countries could implement to improve incentives to export.

### Major findings
- Import tariffs in many developing countries hamper their ability to export.
  - For the 26 developing countries studied in this paper, import tariffs are equivalent to about a 12½ percent tax on a country’s exports, on average.
  - 7 countries had export-tax equivalents in excess of 16 percent.
  - 4 countries had export-tax equivalents in excess of 25 percent.
  - Taking into account nontariff barriers is likely to raise this average rate of taxation.
- Tariff barriers in many developing countries discourage their exports to a greater extent than rich-country tariffs.
  - Certainly, tariffs applied by industrial countries reduce exports from developing countries, but developing countries’ own tariff (and nontariff) barriers introduce quantitatively larger export disincentives.
- Tariff reductions would increase exports, but whether they raise real income depends on how the reductions are structured.
  - Simulations demonstrate that selective tariff reductions in which high-tariff sectors are exempt from cuts may actually leave some countries worse off, even although exports increase.

### Channels through which tariffs act as a tax on exports
- Effects on relative prices of goods
  - Tariffs on imports create a disincentive to export by directly raising the domestic price of imports relative to exports, or equivalently, by reducing the price of exports relative to imports.
  - As shown by Lerner (1936), there exists a symmetry, or an equivalence, between the effects of an import tariff and an export tax on domestic relative prices.
- Mechanisms: how import tariffs discourage exports
  - Import tariffs raise the domestic price of imports and induce consumers to substitute toward nontraded (home) goods, lowering the relative domestic price of exports and causing a real appreciation that shifts production away from exports.
  - Tariffs alter primary factor prices (wages and rentals on capital). Example logic: if import-competing production is capital-intensive, higher tariffs raise the rental rate on capital; if capital is mobile across sectors, this raises export-sector costs and reduces export output. Tariffs can lower wages; net effect on sectoral costs depends on factor intensities.
  - Tariffs raise costs of imported and domestic intermediate inputs used by exporters; for a given export price, higher intermediate-input costs reduce export output.

### Empirical magnitudes and cross-country estimates
- Simple average export-tax equivalent (based on applied tariff rates for the sample of twenty-six developing countries, 2001): 12.6 percent.
- For more than half the countries considered, import tariffs result in an implicit tax on exports in excess of ten percent.
- Illustrative country export-tax equivalents (rates in percent, "Real income constant" column unless otherwise noted):
  - Tunisia: 33.6
  - India: 31.0
  - Morocco: 26.7
  - Egypt: 26.2
  - Romania: 18.4
  - Bangladesh: 18.2
  - Thailand: 16.5
  - Tanzania: 14.1
  - China: 12.1
  - Peru: 10.9
  - Mozambique: 10.8
  - Sri Lanka: 10.4
  - Malawi: 9.8
  - Philippines: 9.7
  - Albania: 9.4
  - Colombia: 9.3
  - Zambia: 8.6
  - Brazil: 8.1
  - Argentina: 8.0
  - South Africa: 6.2
  - Uruguay: 5.5
  - Malaysia: 5.0
  - Botswana: 3.7
  - Madagascar: 3.6
  - Singapore: 0.0
- Duty-drawback schemes often do not fully remove the bias against exports because: (i) they can be costly to administer; (ii) they reduce government revenue (requiring revenue compensation that may be distortionary); and (iii) they do not reverse relative price changes (lower relative price of exports or higher price of domestic inputs) induced by tariffs.
- Evidence from prior studies summarized:
  - Schiff and Valdes (1992): average indirect tax on agriculture from industrial protection ≈ 22 percent; direct protection of importables ≈ 18 percent; direct taxation of exportables ≈ 16 percent; total increase in relative price of importables to exportables ≈ 40 percent.
  - Clements and Sjaastad (1984): on average, 66 percent of import protection acted as a tax on exporters in seven Latin American countries.
  - Manzur and Subramaniam (1995) (Malaysia, 1989): tariff-equivalent of import restrictions ≈ 18 percent; nominal assistance to exporters ≈ 1 percent; net implicit tax on exporters ≈ 9 percent.

### Role and impact of non-tariff barriers (NTBs)
- NTBs (quantitative restrictions, licensing, port charges, transport costs, customs practices, regulation, and informal barriers) increase export disincentives but are hard to quantify due to data limitations.
- Example findings:
  - Moldova: average import tariff ≈ 5.2 percent in 2002, but informal barriers were equivalent to a tax on exports of around 25 percent.
- Simulated inclusion of NTBs (using ad-valorem equivalents from Kee, Nicita, and Olarreaga (2004)) for two illustrative countries:
  - Tunisia: export-tax equivalent rises from 33.6 to 34.3 when NTBs included.
  - Tanzania: export-tax equivalent rises from 14.1 to 38.7 when NTBs included (assumptions: NTBs affect 5 percent of total output and 1 percent of total imports; rents accrue to domestic residents).

### Relative importance: rich-country barriers vs. developing-country barriers
- Global-model simulations (GTAP) on effects on real income of developing countries:
  - Rich-country tariff barriers ≡ 11.5 percent tax applied against all developing-country exports.
  - Developing-country tariff barriers ≡ 16.8 percent tax applied against their own exports.
- Interpretation: Both rich- and developing-country tariff barriers restrain developing-country exports, but developing countries’ own barriers have a proportionately greater adverse effect because their tariffs are higher.

### Simulated tariff-cutting scenarios and export outcomes
- Three illustrative tariff-cutting scenarios (to affect applied rates despite binding overhang):
  - Scenario 1: high tariff reduced by 20 percent; low tariff reduced by 10 percent.
  - Scenario 2: high tariff reduced by 40 percent; low tariff reduced by 10 percent.
  - Scenario 3: high tariff unchanged; low tariff reduced by 10 percent (approximates exempting a sensitive high-tariff sector).
- Key simulation results:
  - Export-tax equivalents fall more under deeper cuts and when high tariffs are cut proportionately more than low tariffs.
  - Some countries see export-tax equivalents increase under Scenario 3 (reducing only low tariffs): Tunisia, Egypt, Romania, Bangladesh, Sri Lanka, Malawi, and Brazil. Mechanism: reducing the low tariff reduces output in that sector, releases labor that partly moves into the high-tariff sector, exacerbating protection costs there and raising the implicit export tax.
- Percentage change in value of exports (relative to 2001) under scenarios (selected countries, Scenario 1 / Scenario 2 / Scenario 3 / Elimination of all tariffs):
  - Tunisia: 2.3 / 4.6 / 0.7 / 17.7
  - India: 5.8 / 10.0 / 4.0 / 45.1
  - Morocco: 4.7 / 8.7 / 1.7 / 29.0
  - Bangladesh: 8.1 / 16.2 / 1.1 / 46.0
  - China: 2.3 / 3.2 / 3.0 / 19.5
  - Tanzania: 4.0 / 6.6 / 2.9 / 28.1
  - Brazil: 2.5 / 5.0 / 0.1 / 12.7
  - Peru: 1.7 / 2.7 / 1.7 / 13.3
  - (Complete country-level results are provided in the source tables.)
- Importance of imported intermediate inputs for export sectors (ratio of imported intermediate input costs to value of output, and percentage change in imported intermediate input costs if all tariffs eliminated; selected entries):
  - Tunisia: exports of primary products ratio 0.10; exports of manufactured products ratio 0.29; elimination of all tariffs → primary export imported input costs: -18.0 percent; manufactured export imported input costs: -10.7 percent.
  - India: 0.13 / 0.20; -23.3 percent / -15.8 percent.
  - Bangladesh: 0.55 / 0.31; -13.0 percent / 3.2 percent (manufactured export imported input costs rise because expanded production increases demand for imported intermediates more than price falls).
  - China: 0.19 / 0.30; -8.9 percent / -3.7 percent.
  - Brazil: 0.37 / 0.35; -5.9 percent / -0.7 percent.
- Aggregate effects of tariff elimination (GTAP simulations, developing-country exports):
  - If developing countries eliminate their own tariffs, value of their exports rises by 14.1 percent; volume of exports rises by 12.9 percent.
  - If rich countries eliminate tariffs against exports from developing countries, developing-country exports increase by 4.0 percent in value and 2.6 percent in volume.
  - If both rich and developing countries eliminate tariffs, developing-country exports increase by 20.1 percent in value and 22.4 percent in volume.
  - Conclusion: elimination of developing-country tariffs delivers a much larger proportional expansion in developing-country exports than relying solely on rich-country liberalization.

### Policy implications and recommendations
- Import protection creates an anti-export bias through at least three channels: (1) lowering domestic relative price of exports; (2) altering wages and rental rates that increase export-sector costs; (3) raising costs of imported intermediate inputs used by exporters.
- Reducing import barriers (tariffs) is an effective export-promotion strategy because it ameliorates the implicit tax on exports introduced by tariffs.
- Policy design matters:
  - Uniformly reducing all tariffs and cutting high tariffs proportionately more than low tariffs is most effective at improving export incentives and real incomes.
  - Tariff-reduction schemes that exempt high-tariff or "sensitive" sectors can leave countries worse off; in some cases exempting the high-tariff sector raises the export-tax equivalent and can lower real income despite export expansion.
- Tariff cuts can be pursued unilaterally by developing countries and do not depend on actions by rich countries; nevertheless, combined liberalization by both rich and developing countries yields the largest gains for developing-country exports.

*Source: _wp0620 - References*

### References................................................................................................24

### _wp0620 - References

### Introduction and policy implication
- The purpose of this paper is to demonstrate that a country’s own pattern of import protection—its tariff structure—acts as a tax on its export sector and, thus, frustrates its goal of increasing export earnings.
- Developing countries frequently complain that barriers (e.g., tariffs) applied against their exports in rich-country markets make it difficult for them to increase their export earnings. However, developing countries have not fully embraced the notion that their own pattern of import protection may be retarding their export performance.
- Tariff reductions work as an “export-promotion” strategy—a strategy that developing countries could pursue independent of the policy stance of rich countries. That is, reducing their import restrictions is a policy option that developing countries could implement to improve incentives to export.

### Major findings
- Import tariffs in many developing countries hamper their ability to export.
  - For the 26 developing countries studied in this paper, import tariffs are equivalent to about a 12½ percent tax on a country’s exports, on average.
  - 7 countries had export-tax equivalents in excess of 16 percent.
  - 4 countries had export-tax equivalents in excess of 25 percent.
  - Taking into account nontariff barriers is likely to raise this average rate of taxation.
- Tariff barriers in many developing countries discourage their exports to a greater extent than rich-country tariffs.
  - Certainly, tariffs applied by industrial countries reduce exports from developing countries, but developing countries’ own tariff (and nontariff) barriers introduce quantitatively larger export disincentives.
- Tariff reductions would increase exports, but whether they raise real income depends on how the reductions are structured.
  - Simulations demonstrate that selective tariff reductions in which high-tariff sectors are exempt from cuts may actually leave some countries worse off, even although exports increase.

### Channels through which tariffs act as a tax on exports
- Effects on relative prices of goods
  - Tariffs on imports create a disincentive to export by directly raising the domestic price of imports relative to exports, or equivalently, by reducing the price of exports relative to imports.
  - As shown by Lerner (1936), there exists a symmetry, or an equivalence, between the effects of an import tariff and an export tax on domestic relative prices.

*Source: _wp0620 - References*

### Appendix I reviews the logic in detail. Appendix I also provides a simple equation that shows

### _wp0620 - Appendix I reviews the logic in detail. Appendix I also provides a simple equation that shows

### Mechanisms: how import tariffs discourage exports
- Import tariffs raise the domestic price of imports and induce consumers to substitute toward nontraded (home) goods, lowering the relative domestic price of exports and causing a real appreciation that shifts production away from exports.
- Tariffs alter primary factor prices (wages and rentals on capital). Example logic: if import-competing production is capital-intensive, higher tariffs raise the rental rate on capital; if capital is mobile across sectors, this raises export-sector costs and reduces export output. Tariffs can lower wages; net effect on sectoral costs depends on factor intensities.
- Tariffs raise costs of imported and domestic intermediate inputs used by exporters; for a given export price, higher intermediate-input costs reduce export output.

### Empirical magnitudes and cross-country estimates
- Simple average export-tax equivalent (based on applied tariff rates for the sample of twenty-six developing countries, 2001): 12.6 percent.
- For more than half the countries considered, import tariffs result in an implicit tax on exports in excess of ten percent.
- Illustrative country export-tax equivalents (rates in percent, "Real income constant" column unless otherwise noted):
  - Tunisia: 33.6
  - India: 31.0
  - Morocco: 26.7
  - Egypt: 26.2
  - Romania: 18.4
  - Bangladesh: 18.2
  - Thailand: 16.5
  - Tanzania: 14.1
  - China: 12.1
  - Peru: 10.9
  - Mozambique: 10.8
  - Sri Lanka: 10.4
  - Malawi: 9.8
  - Philippines: 9.7
  - Albania: 9.4
  - Colombia: 9.3
  - Zambia: 8.6
  - Brazil: 8.1
  - Argentina: 8.0
  - South Africa: 6.2
  - Uruguay: 5.5
  - Malaysia: 5.0
  - Botswana: 3.7
  - Madagascar: 3.6
  - Singapore: 0.0
- Duty-drawback schemes often do not fully remove the bias against exports because: (i) they can be costly to administer; (ii) they reduce government revenue (requiring revenue compensation that may be distortionary); and (iii) they do not reverse relative price changes (lower relative price of exports or higher price of domestic inputs) induced by tariffs.
- Evidence from prior studies summarized:
  - Schiff and Valdes (1992): average indirect tax on agriculture from industrial protection ≈ 22 percent; direct protection of importables ≈ 18 percent; direct taxation of exportables ≈ 16 percent; total increase in relative price of importables to exportables ≈ 40 percent.
  - Clements and Sjaastad (1984): on average, 66 percent of import protection acted as a tax on exporters in seven Latin American countries.
  - Manzur and Subramaniam (1995) (Malaysia, 1989): tariff-equivalent of import restrictions ≈ 18 percent; nominal assistance to exporters ≈ 1 percent; net implicit tax on exporters ≈ 9 percent.

### Role and impact of non-tariff barriers (NTBs)
- NTBs (quantitative restrictions, licensing, port charges, transport costs, customs practices, regulation, and informal barriers) increase export disincentives but are hard to quantify due to data limitations.
- Example findings:
  - Moldova: average import tariff ≈ 5.2 percent in 2002, but informal barriers were equivalent to a tax on exports of around 25 percent.
- Simulated inclusion of NTBs (using ad-valorem equivalents from Kee, Nicita, and Olarreaga (2004)) for two illustrative countries:
  - Tunisia: export-tax equivalent rises from 33.6 to 34.3 when NTBs included.
  - Tanzania: export-tax equivalent rises from 14.1 to 38.7 when NTBs included (assumptions: NTBs affect 5 percent of total output and 1 percent of total imports; rents accrue to domestic residents).

### Relative importance: rich-country barriers vs. developing-country barriers
- Global-model simulations (GTAP) on effects on real income of developing countries:
  - Rich-country tariff barriers ≡ 11.5 percent tax applied against all developing-country exports.
  - Developing-country tariff barriers ≡ 16.8 percent tax applied against their own exports.
- Interpretation: Both rich- and developing-country tariff barriers restrain developing-country exports, but developing countries’ own barriers have a proportionately greater adverse effect because their tariffs are higher.

### Simulated tariff-cutting scenarios and export outcomes
- Three illustrative tariff-cutting scenarios (to affect applied rates despite binding overhang):
  - Scenario 1: high tariff reduced by 20 percent; low tariff reduced by 10 percent.
  - Scenario 2: high tariff reduced by 40 percent; low tariff reduced by 10 percent.
  - Scenario 3: high tariff unchanged; low tariff reduced by 10 percent (approximates exempting a sensitive high-tariff sector).
- Key simulation results (selected outcomes):
  - Export-tax equivalents fall more under deeper cuts and when high tariffs are cut proportionately more than low tariffs.
  - Some countries see export-tax equivalents increase under Scenario 3 (reducing only low tariffs): Tunisia, Egypt, Romania, Bangladesh, Sri Lanka, Malawi, and Brazil. Mechanism: reducing the low tariff reduces output in that sector, releases labor that partly moves into the high-tariff sector, exacerbating protection costs there and raising the implicit export tax.
- Percentage change in value of exports (relative to 2001) under scenarios (selected countries, Scenario 1 / Scenario 2 / Scenario 3 / Elimination of all tariffs):
  - Tunisia: 2.3 / 4.6 / 0.7 / 17.7
  - India: 5.8 / 10.0 / 4.0 / 45.1
  - Morocco: 4.7 / 8.7 / 1.7 / 29.0
  - Bangladesh: 8.1 / 16.2 / 1.1 / 46.0
  - China: 2.3 / 3.2 / 3.0 / 19.5
  - Tanzania: 4.0 / 6.6 / 2.9 / 28.1
  - Brazil: 2.5 / 5.0 / 0.1 / 12.7
  - Peru: 1.7 / 2.7 / 1.7 / 13.3
  - (Complete country-level results are provided in the source tables.)
- Importance of imported intermediate inputs for export sectors (ratio of imported intermediate input costs to value of output, and percentage change in imported intermediate input costs if all tariffs eliminated; selected entries):
  - Tunisia: exports of primary products ratio 0.10; exports of manufactured products ratio 0.29; elimination of all tariffs → primary export imported input costs: -18.0 percent; manufactured export imported input costs: -10.7 percent.
  - India: 0.13 / 0.20; -23.3 percent / -15.8 percent.
  - Bangladesh: 0.55 / 0.31; -13.0 percent / 3.2 percent (manufactured export imported input costs rise because expanded production increases demand for imported intermediates more than price falls).
  - China: 0.19 / 0.30; -8.9 percent / -3.7 percent.
  - Brazil: 0.37 / 0.35; -5.9 percent / -0.7 percent.
- Aggregate effects of tariff elimination (GTAP simulations, developing-country exports):
  - If developing countries eliminate their own tariffs, value of their exports rises by 14.1 percent; volume of exports rises by 12.9 percent.
  - If rich countries eliminate tariffs against exports from developing countries, developing-country exports increase by 4.0 percent in value and 2.6 percent in volume.
  - If both rich and developing countries eliminate tariffs, developing-country exports increase by 20.1 percent in value and 22.4 percent in volume.
  - Conclusion: elimination of developing-country tariffs delivers a much larger proportional expansion in developing-country exports than relying solely on rich-country liberalization.

### Policy implications and recommendations
- Import protection creates an anti-export bias through at least three channels: (1) lowering domestic relative price of exports; (2) altering wages and rental rates that increase export-sector costs; (3) raising costs of imported intermediate inputs used by exporters.
- Reducing import barriers (tariffs) is an effective export-promotion strategy because it ameliorates the implicit tax on exports introduced by tariffs.
- Policy design matters:
  - Uniformly reducing all tariffs and cutting high tariffs proportionately more than low tariffs is most effective at improving export incentives and real incomes.
  - Tariff-reduction schemes that exempt high-tariff or "sensitive" sectors can leave countries worse off; in some cases exempting the high-tariff sector raises the export-tax equivalent and can lower real income despite export expansion.
- Tariff cuts can be pursued unilaterally by developing countries and do not depend on actions by rich countries; nevertheless, combined liberalization by both rich and developing countries yields the largest gains for developing-country exports.

*Source: Author’s calculations.*

### REFERENCES

### _wp0620 - REFERENCES

### Trade policy and agriculture
- Bautista, R. M., and Alberto Valdes, 1993, “The Relevance of Trade and Macroeconomic Policies For Agriculture,” in The Bias Against Agriculture: Trade and Macroeconomic Policies in Developing Countries, ed. by R.M Bautista and A. Valdes (Washington: International Center for Economic Growth and International Food Policy Research Institute).
- Lerner, Abba, 1936, “The Symmetry Between Import and Export Taxes,” Economica, Vol. 3, No. 11 (August).
- Manzur, Meher, and Alamelu Subramaniam, 1995, “Who Pays For Protection in Malaysia?: A New General Equilibrium Approach,” Journal of Economic Integration, Vol. 10, (September), pp. 372–85.
- Schiff, Maurice, and Alberto Valdes, 1992, The Political Economy of Agricultural Pricing Policy, Volume 4, A Synthesis of the Economics in Developing Countries (Baltimore, Maryland: Johns Hopkins University Press).
- Valdes, Alberto, 1986, “Exchange Rates and Trade Policy: Help or Hindrance to Economic Growth,” in Agriculture in a Turbulent World Economy, Proceedings of the Nineteenth International Conference of Agricultural Economists, Gower.

### Methodology, data, and modeling
- Cassing, James, and Stephen Tokarick, 2005, “Tariffs and Distortions in the Presence of Growth,” IMF Working Paper 05/12 (Washington: International Monetary Fund).
- Clements, Ken, and Larry Sjaastad, 1984, How Protection Taxes Exporters, Thames Essay No. 39 (London: Trade Policy Research Center).
- Dimaranan, Betina V., and Robert A. McDougall, 2002, Global Trade, Assistance, and Production: The GTAP5 Data Base, Center for Global Trade Analysis, Purdue University.
- Mansur, Ahsan, and John Whalley, 1984, “Numerical Specifications of Applied General Equilibrium Models: Estimation, Calibration, and Data,” in Applied General Equilibrium Analysis, Herbert Scarf and John Shoven (Cambridge: Cambridge University Press) pp. 69–127.
- Kee, Hiau Looi, Alessandro Nicita, and Marcelo Olarreaga, 2004, “Ad-Valorem Equivalents of Non-Tariff Barriers” (Washington: World Bank).
- Ianchovichina, Elena, 2004, “Trade Policy Analysis in the Presence of Duty Drawbacks,” Journal of Policy Modeling, Vol. 26, pp. 353–71.

### Regional and empirical studies
- Porto, Guido, 2005, “Informal Export Barriers and Poverty,” Journal of International Economics, Vol. 66, pp. 447–70.
- World Bank, 2004, “Trade Patterns and Policies: Doha Options To Promote Development,” Global Economic Prospects (Washington: World Bank) pp. 76–78.
- Yeats, Alexander, Amjadi Azita, Ulrich Reincke, and Francis Ng, 1996, “What Caused Sub-Saharan Africa’s Marginalization in World Trade?” Finance & Development, Vol. 33 (December), pp. 38–41

*Source: _wp0620 - REFERENCES.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2006/_wp0620.pdf_