Another CGE example: Steel Safeguards

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Another CGE example Steel Safeguards

• Often industry seeking protection doesnt want
  economy wide effects of protection known.
• Congress has often written safeguard laws to
  focus on injured industry and not the overall
  effects.
• However not all in Congress agree example of
  steel safeguards Committee wanted to know
  economy wide effects of safeguards after they
  were introduced.
• So what were the benefits to the steel industry
  and closely related industries of the safeguards,
  and what were the likely costs to steel users?
• Use economic welfare or income effects.

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The political economy dimension?

• Economic welfare is really the tip of the iceberg
  and often not relevant in economic policy debates
• The welfare triangles, which measure the possible
  net gains to society, are small compared to the
  income or revenue rectangles, which capture the
  income flows diverted by the distortionary
  policy
• When looking at the political economy one needs
  to look at whos giving up how much, and whos
  gaining how much.

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The U.S. Steel Safeguard Tariffs Example

• Estimated welfare impact the tip
• Central case (Es 10) -41.6 million
• Underlying est. income changes in mil. rest
  of iceberg
• Tariff revenue 649.9
• Labor income -386.0
• Capital income -294.3
• Iron and steel ind. 239.5
• Other pos. affected ind. 67.4
• Indus where K income declines -601.2
• Net GDP - 30.4
• Another way to think about it is
• All the political action surrounded how the pie
  was carved up not by how much bigger the pie
  might have been.

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Example of Econometric Analysis
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Approach

• Industry experts summarize US and world markets
• Develop questionnaire to collect original data on
  perceived barriers and efficiencies of logistics
  services across countries.
• Economists combine economic data and
  questionnaire data to empirically examine
  potential economic impact.

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Pretty pictures are helpful
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Regression summary
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Importance of active, independent research
agendas for staff

• Must keep research skills up to date
• Contribute to academic and international research
  community
• Recognition as leading researchers
• 2 examples that resulted in APEC, OECD, and World
  Bank contributions
• Staff research, not Commission findings.

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Major research efforts NTMs/Trade Costs

• What are the potential gains from NTMs and trade
  facilitation?
• What are the potential tools for finding out
  about the gains? How well do they work?
• Inventories of policies and practices
• Simple numerical measures
• Statistical and econometric tools
• Simulation methods
• Surveys
• For what purposes might policymakers use
  quantification?
• What are some possible next steps for learning
  more?

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Some estimates of potential gains

• Andriamananjara et al. (2004)
• Global welfare gains from eliminating certain
  NTMs approximately 90 billion
• Walkenhorst and Yasui (2005)
• Lowering trade transactions costs by 1 percent
  would improve global welfare by 40 billion
• Wilson, Mann, and Otsuki (2005)
• Consider improvements in ports, customs,
  regulation, and service sector infrastructure in
  countries with below-average performance (halfway
  to global median)
• Global merchandise trade would increase by 377
  billion (9.7 percent)

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How much of the markup is due to NTMs?

• A global estimate (Anderson and Van Wincoop
  (2004)
• The typical cost increase from exporting
  factory to importing retailer might be 170
• Markups 21 transportation, 44 border related
  trade barriers, 55 retail and wholesale margins
• They can be higher (Tempest (1996))
• Barbie dolls cost USD 1 ex-factory in China, USD
  2 leaving Hong Kong, and retail for USD 10 in the
  United States
• Total markup 900 (shipping and handling)

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A general form?

• Pk Pk-1 ck tk rk
• Where ck transport, warehousing, and other
  logistics costs (incl. wholesaling and retailing)
• tk government taxes, tariffs and fees
• rk quasi-rents accruing to owners of goods
• And ck MCk Xk rck
• (Best-practice marginal costs plus X-inefficiency
  costs plus quasi-rents accruing to logistics
  service providers)

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Stages of import port logistics
Source Londoño-Kent and Kent (2003)
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ESTIMATING THE PRICE EFFECTS OF NON-TARIFF
MEASURES

• Dean, Feinberg, Ferrantino, Ludema, Signoret
• IATRC summer symposium, Bonn, June 2006
• Abstract As multilateral negotiations focus
  more on reductions and removal of non-tariff
  barriers, the importance of quantifying the
  impact of these barriers has increased. While
  progress has been made recently, direct estimates
  of the impact of NTMs on prices has not been
  possible. This paper makes two contributions.
  First, price effects of NTMs are estimated
  directly, for many products in many countries.
  Second, explicit data on NTM incidence are drawn
  from two complementary databasesUNCTAD TRAINS
  data and a new NTM database compiled by the
  USITC. A simple differentiated product model of
  retail prices is developed to specify the direct
  relationship between NTMs and prices. From this
  model, a price gap specification is derived and
  estimated using retail price data for about 115
  cities and 47 consumer products from the EIU
  CityData for 2001. The estimation yields both
  cross-country averages and country-specific
  estimates of the effects of NTMs, for more than
  60 countries and four product groups in which NTM
  protection is of major importance fruits and
  vegetables, bovine meats, processed food, and
  apparel.

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Independent research but something policy
makers would like to hear