Table 2. Developed country tariff escalation pre- and post-Uruguay Round. Pre-Uruguay Round tariffs. Post-Uruguay Round tariffs. Industrial products excluding ...
WorldDevelopment, VoL 25, No. 10, pp. 1701-1716, 1997 © 1997 Elsevier Science Ltd All rights reserved. Printed in Great Britain 0305-750X/97 $17.00 + 0.00
Pergamon PII: S0305-750X(97)00064-8
Impacts of Tariff Escalation on the Environment: Literature Review and Synthesis J O Y E. H E C H T *
I U C N / T h e W o r l d C o n s e r v a t i o n Union, Washington, DC, U.S.A. Summary. - - Writers on trade and environment often claim that tariff escalation harms the environment. It skews exports toward raw materials and away from processed goods, so to the extent that primary production degrades the environment more than processing, it will harm exporting countries. This paper reviews the literature on tariff escalation and the environment, focusing on: (a) impact of escalating tariffs on the allocation of production and processing between exporters and importers; (b) comparison of the environmental impacts of primary production and processing; (c) impact of increased income from removing tariff escalation on environmental protection expenditures; (d) Environmental impact of decreased transport of freight. It concludes that tariff escalation is not likely to be a significant source either of economic distortion or of environmental harm. © 1997 Elsevier Science Ltd
Key words - - tariff escalation, trade, environment
1. PROBLEM STATEMENT Writers on trade and environment have argued that tariff escalation is a source of environmental harm to exporting countries (Repetto, 1994; WTO, 1995; French, 1993). "Tariff escalation" refers to a pattern of import duties which rise with the level of processing of the goods purchased. The argument advanced is that such duties shift the economic activity of exporting countries toward primary production and away from processing. This leads to excess extraction of natural resources, with consequent degradation of the resource base. This paper reviews the available literature related to this hypothesis, to assess whether it is well founded. The term "tariff escalation" usually refers to duties imposed by importers. These may be countered by deescalating export duties or trade barriers imposed by exporters to protect their processing industries. The literature frequently considers tariff escalation and deescalation jointly, since the sets of policies typically occur in tandem. Arguments for liberalizing escalating tariffs are more likely to receive support if simultaneous changes in both sets of policies are advocated, than if one side is asked to change unilaterally. This paper will therefore consider literature touching on both escalating import barriers and deescalating export barriers. Those who suggest a link between tariff escalation and the environment do not elaborate on exactly how the elimination of escalating import tariffs would
affect the distribution of primary production and processing, nor on how those two activities affect the environment in either importing or exporting countries. To analyze the proposed link, therefore, we must work backward to the distinct hypotheses which would have to underlie it for the outcome to be as suggested. Four hypotheses will be considered in this paper. These are summarized in Figure 1; the description below refers to each hypothesis by the number given to it in the diagram. - - Hypothesis 1: The first hypothesis concerns the impact of tariffs on economic activity. Tariff escalation increases the price of imported processed goods relative to raw materials, compared with prices not distorted by escalating tariffs. This increases import demand for raw materials and decreases demand for processed goods. The result is that raw material exporters may undertake relatively more primary production and less processing than they would otherwise. Thus the global location of primary production and processing is skewed, with processing disproportionately occurring in importing rather *The work on which this paper is based was carried out in 1996 under contract to the Environment Directorate of the Organisation for Economic Cooperation and Development, which also provided valuable editorial comments. The author is, however, fully responsible for the content and conclusions of the paper. Final revision accepted: April 14, 1997.
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WORLD DEVELOPMENT
1702 TARIFF CHANGE
Hypotheses
ECONOMIC CHANGE
Hypotheses
rn,ro'l't-~.s~2 >>>>>
Elimination of tariff escalation
>>>>> increased demand for
processed
shiR away from primary production and towards processing in exporting countries
ENVIRONMENTAL IMPACT
direct environmental improvement (if processing is less harmful than primary production)
nvrm'ur,sm 3 >>>>> increased income
increased expenditure on environmental protection
HgrorHEs~S 4 >>>>> changed transport pattern
increased pollution from transport
goods
Figure 1. Hypothesized links between tariff escalation and the environment.
than in exporting countries. The removal of escalating tariffs would lead to a shift away from primary production and toward processing in exporting countries, with consequent increases in income. - - H y p o t h e s i s 2: The second hypothesis concerns the impact of economic activity on the environment. Those who argue that tariff escalation is a source of environmental harm focus only on harm to exporters, and do not consider impacts on importers. They implicitly assume that primary production harms the exporters' environments more than processing would. If this assumption is correct, the shift toward processing described in hypothesis 1 will have a positive environmental impact in exporting countries. - - H y p o t h e s i s 3: The third hypothesis stems from arguments about the impact of economic growth on environmental protection. Processing produces more value added than primary production; thus the geographic distribution of productive activity under escalating tariffs constrains income in exporting countries. Research has shown, however, that willingness to pay for environmental protection increases with income. The constrained income attributable to tariff escalation may therefore inhibit demand for a clean environment. Over time this pattern might be reversed if tariff escalation were removed. - - H y p o t h e s i s 4: A fourth hypothesis concerns
the impact of transportation on the environment. Primary products are much bulkier and heavier than processed ones per unit of value. Thus the pattern of exports prevalent with escalating tariffs is expected require more kilometer-tons of transport than would the shipping of processed goods. Since transportation is a source of substantial harm to the environment, the removal of escalating tariffs should benefit the environment. This paper discusses each of the suggested hypotheses separately: - - Section 2 reviews the literature on the impact of escalating and deescalating tariffs on the location of production and the magnitude of trade. This section considers hypothesis (1), which relates to how eliminating escalating tariffs would affect the structure of production and processing. - - Section 3 addresses hypothesis (2), the impact of production and processing on the environment, by reviewing a variety of empirical work on the environmental impacts of primary production and of public policy in specific export sectors. - - Section 4 considers hypothesis (3), the possible impact of tariff liberalization-engendered income increases on willingness-to-pay for environmental protection. - - Section 5 considers hypothesis (4), reviewing
IMPACTS OF TARIFF ESCALATION ON THE ENVIRONMENT some evidence on environmental impacts of increased transport demand due to trade liberalization. - - Finally, Section 6 summarizes the conclusions of the literature review.
2. HYPOTHESIS 1: IMPACTS OF TARIFF ESCALATION ON THE DISTRIBUTION OF PRODUCTION (a) The two views The first hypothesis is that under an escalating tariff structure exporters' output is skewed toward raw materials and importers' output is skewed toward processing. Table 1 shows more specifically how certain activities are thought to be distorted because of tariff escalation. The key question, then, is this: If we eliminated tariff escalation, would exporters increase exports of processed goods while decreasing production of raw materials? Or would they increase processed exports while maintaining or increasing their total production of raw materials? Irrespective of whether primary production or processing causes greater environmental harm, the former outcome would have to be less harmful to the environment than the latter. Therefore we deduce that those who argue that tariff escalation is harmful must be assuming that the former outcome would result from eliminating it. Conceptually, which of these outcomes occurs depends on what replaces escalating tariffs. One possibility is that they would be replaced with a uniform tariff; that is, one with the same rate at all stages of processing, at an overall level roughly equivalent to the escalating tariffs. As discussed below, however, Yeats (1984) has shown that a uniform tariff would not necessarily remove the bias created by tariff escalation. It could still have a stronger negative impact on processed goods than on primary product because of the higher price elasticity
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of demand for the former. Thus this is not a helpful alternate assumption. A second possibility is that the escalating tariffs would be replaced with no tariffs at all; this freetrade alternative is assumed in much of the literature discussed below. Replacement with free trade would mix two different effects on output. One is the price effect of removing all tariffs, which should increase demand across all processing stages. The second is what we might call the "escalation" effect, attributable to the fact that tariffs were formerly progressive rather than neutral; when tariffs are removed this effect should increase demand for processed relative to primary imports. A theoretical third alternative would be to replace escalating tariffs with a "neutral" tariff structure. We will define a neutral tariff structure by two criteria. First, it does not change the shares of primary and processed goods in exports relative to the free-trade situation; thus it would eliminate the bias created by both escalating and neutral tariffs. A set of pairs of tariff rates meeting this criterion could be identified based on data about the price elasticity of demand for each good. If, in fact, demand for primary product is inelastic and demand for processed goods is elastic, then the neutral tariff would be deescalating. Second, among the pairs of tariff rates meeting the first criterion, the one of interest would be the one which maintains constant the total value of exports of raw materials and processing combined. Relative to escalating tariffs, it would thus eliminate the escalation bias without changing overall demand for exports from the country in question. The comparison between escalating and neutral tariffs would show us the "pure" effect of tariff escalation without any price effect; in contrast the comparison between escalating tariffs and free trade incorporates both price and escalation effects. Since the claim of French, Repetto and WTO is that the escalation of tariffs hurts the environment, not that the existence of any tariffs hurts the environment, we must compare escalating with neutral tariffs rather
Table 1. Impact of tariff escalation Activities
Hypothesized distortion due to tariff escalation
Exporters: Produce primary product exported raw Produce primary product which they process and export Produce primary product which they process for their own use Import processed goods
Too high Too low (no hypothesized) distortion)
Importers: Import primary product which they process for their own use Import processed goods Produce primary product which they process for their own use Export processed goods
Too high Too low (no hypothesized distortion)
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WORLD DEVELOPMENT
than with free trade to test that claim. (Admittedly, the removal of escalating tariffs in favor of free trade is a more likely, as well as more efficient, policy change than their replacement with neutral tariffs; however, it does not isolate the impact of escalation of rates.) The first suggested outcome (French, 1993; Repetto, 1994; WTO, 1995), that the elimination of tariff escalation leads to a decrease in primary production by exporters, is consistent with a shift to neutral tariffs. According to this view, primary producers will respond to increased demand for imported processed goods by shifting resources into processing and away from primary production. (Implicit in this view is an assumption that some resource constraint - - perhaps capital or skilled labor prevents them from increasing both activities, but that shifting resources from one activity to the other is possible.) Their primary exports will go down and their processed exports will rise. Because value added is greater from processing than from primary production, this shift would maintain or increase exporters' net revenues. Importers' production of raw materials should increase to compensate for the decline in exporters' output. If importers and exporters have the same ratio of inputs to outputs in processing, total demand for raw materials will not change. Therefore processing activity must shift away from importers and towards exporters. The environmental effects of these shifts in economic activity depend on (i) whether primary production or processing is more harmful to the environment and (ii) whether the environmental effects of the two activities are uniform across countries. Hypothesis 2 treats these questions. The second suggested outcome, that eliminating tariff escalation will lead to an increase in primary production, is consistent with a shift to free trade. -
-
The increase in demand for imported processed goods will create an increase in total demand for exporters' primary product. The share of processed goods in total exports might rise, but the net effect on primary production would still be an increase. This would create an increase in world output of both primary and processed product, rather than holding them constant. The environmental impact of such an increase will depend on the environmental policies in effect in all producing and processing countries.
(b) Magnitude of current tariff escalation Before considering the literature on the impacts of tariff escalation, it is useful to look at how much tariffs actually escalate. Tables 2 and 3 provide summary tariff escalation data for developed countries and for Asia. They suggest two useful points. First, most of the tariffs involved are fairly low, even prior to the Uruguay Round, and many rates have been reduced to zero. While there is still tariff escalation, it dropped substantially after the Uruguay Round; moreover, at the low tariff levels involved, this change is not likely to have a major impact on trade (Yeats, 1997, personal communication). Second, the Asian data show that tariff escalation by developing countries is higher than that of developed countries in many cases. This is a trend observed in many studies of tariff escalation, both pre- and postUruguay Round.
(c) Literature on tariff escalation The literature on the impacts of tariff escalation largely - - and often implicitly - - assumes that
Table 2. Developed country tariff escalation pre- and post-Uruguay Round Pre-Uruguay Round tariffs
Post-Uruguay Round tariffs
Industrial products excluding petroleum raw material semi-processed finished
2.1 5.4 9.1
0.8 2.8 6.2
Tropical industrial products raw material semi-processed finished
0.1 6.3 6.6
0.0 3.4 2.4
Natural resource-based products excluding petroleum raw material semi-processed finished
3.1 3.5 7.9
2.0 2.0 5.9
Source: Adapted from GATT (1994) Table II.5, p. 15
chain
85.1
16.3
71.7
7.5
Percentage of chains escalating Average primary and processed stages tariff differences (%)
Source: Based on Safadi and Yeats (1993, Table 5, p. 17)
7.0
88.9
3.5 6.3
0.0 5.7
final Petroleum
0.0 0.3
0.06.3 0.7-9.9
primary final
0.0-9.7 8.G55.7
O&2.0 0.C38.2
O&91.4 O&30.3
O&5.8 1.45.8
o.fk30.0 o&60.0
0.~10.0 O&l 8.5
8.8
86.7
5.5 15.7
1.0-13.7 19.9-25.7
9.0
80.4
0.0 4.0
0.0-10.0 0.G24.8
1sk6.9 2.0-30.0
0.0-30.0 0.5-30.0
0.0-160.0 5.tk58.4 5.045.9 2O.tX24.1
0.0-26.7 8.3-44.3
Malaysia
12.tk20.0 22.4-3 1.1
Korea
11.5
78.3
0.0 3.9
o.cM.0 0.0-25.5
0.0-0.0 0.0-l 1.8
o.ck10.0 0.0-30.0
0.0-l .2 5.942.1
New Zealand
16.0
78.3
10.0 22.0
0.0-50.0 8.3-50.0
O&20.0 30.0-42.9
0.0-50.0 O&50.0
10.~50.0 20.0-50.0
Philippines
of pre-Uruguay Round tariffs on primary andfinal goods in Asia
0.0-7.9 8.7-18.6
O&5.0 0.048.0
6SL30.0 35.ck49.1
Japan
Table 3. Ranges
Indonesia
O.&l .3 0.0-8.3
Australia
O&2.0 2.0-l 6.1
primary
primary final A.micultural Products primary final Fibers primary final
Meat, Fish and Poultry
Processing
0.4
17.0
0.0 10.0
o.CO.o 0.0-0.0
18.7
67.4
25.0 29.2
0.0-35.0 00-62.8
5.C44.4 30.0-92.9
0.0-54.8 0.C60.0
O.&o.0 O&3.3 0.0-0.0 O.W.8
20.060.0 60.0-60.0
Thailand
0.040 o.cuLo
Singapore
5 8
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WORLD DEVELOPMENT
escalating tariffs will be replaced with no tariffs. For the most part, it focuses on the share of developing and developed countries in trade, without distinguishing between primary and processed goods. While much of the research discussed below is not recent and therefore reflects pre-Uruguay and even pre-Tokyo Round tariff structures, the conclusions nevertheless shed some light on the current situation. One of the earliest but most useful works (for our purposes) is Golub and Finger (1979). They compared the magnitude and effect of deescalating developing country export taxes with escalating developed-country import tariffs. Their model is based on estimates of six factors; demand for processed goods in developed and developing countries and supply of raw materials and processed goods in developed and developing countries. (Because they do not want to assume that all countries are price takers, they do not base their analysis on effective rates of protection.) They analyzed the impact of removing each set of tariffs separately, and the impact of removing both import and export tariffs simultaneously. Their results are summarized in Table 4. These results show that removing the developed country import duties would sharply increase processing in developing countries, and slightly decrease it in developed countries. Removing only the developing-country export duties - - those which protect processing - - not surprisingly leads to sharply decreased processing in the developing world and slightly increased processing in the developed world. Removing both sets of duties benefits developing countries substantially, though not as much as a simple removal of import duties. These results confirm the anticipated impact of removing all tariffs discussed above. Under any of the three scenarios, primary production in the developing world increases, due to the price effect of tariff removal. When all tariffs are removed, exporters' (developing countries') processing activ-
ity rises, importers' processing declines, and world consumption of processed goods rises. Yeats (1984) considered in more detail the methodology for analyzing the extent of bias created by escalating tariffs. Working from the definition of effective protection, he showed that the impact of any particular set of tariffs depends not only on their nominal or effective rates, but also on the price elasticity of demand for the good at each stage of processing. If demand for processed goods is more elastic than demand for raw materials (as it usually is), then even a uniform import tariff structure would lead to bias against imported processed goods relative to imported raw materials. If demand were much less price-elastic for processed goods than for raw materials, then an apparently escalating tariff structure could still lead to a net bias in favor of processed goods rather than raw materials. Thus estimates of the impact of escalating nominal or effective tariffs on the distribution of production must take into account the elasticity of demand for each good in addition to the tariff rate. Laird and Yeats (1987) used Yeats (1984)'s result in analyzing the impact of developing country import tariffs on south-south trade, attempting to determine whether developing country policies create the same biases against processing activities by exporters as do developed country policies. Their approach differed from other studies, in that to calculate average tariffs for product groups, they weighted the nominal tariffs by potential free trade in the absence of any tariffs, rather than by actual trade data. This approach permitted them to incorporate Yeats's finding about the importance of demand elasticities in their calculation of average tariffs. Looking at 19 commodity processing chains, they found that developing countries generally had far higher import tariff escalation than developed countries. Laird and Yeats then assessed the impact of preferential removal of developing country import tariffs in favor of other developing countries,
Table 4. Impacts of removing escalating and deescalating tariffs Overall effect of:
Removing DC import taxes Removing LDC export taxes Removing all taxes
% change in final consumption
% change in primary production
% change in processing
change in LDC expo~ revenue
LDC+DC
LDC
DC
LDC
DC
LDC
DC
$M
%change
.7
-2.2
1.2
1.3
.4
23.0
-3.8
1615.5
16.3
.0
-1.6
.3
2.7
-1.3
-14.7
2.9
-412.7
-4.3
.7
-3.8
1.5
4.0
-.9
8.3
-.9
1202.8
12.1
Source: From Golub and Finger (1979, Tables 3, 4, and 5).
IMPACTS OF TARIFF ESCALATION ON THE ENVIRONMENT considering this a likely element of a development strategy based on collective self-reliance. Assuming perfectly elastic supply, the share of developing country goods in overall (non-petroleum) less developed countries (LDC) imports rose 3.2 percentage points; with unitary elasticity it rose 2.1 percentage points. With perfectly elastic supply, this increase entailed a rise of almost four percentage points in the share of processed goods in total (nonpetroleum) trade among developing countries. The largest increases in trade of processed goods occurred in textiles, rubber and leather; in contrast, tariff preferences had little impact on processing of food products. Laird and Yeats focused on the amount of processing by developing countries and its share in total developing country output. They did not consider however, either the amount or the share of exported primary production under each scenario. Therefore it is hard to draw conclusions from their analysis about the allocation of LDC economic activity between primary production and processing, and thus the likely net impacts on the environment. Clark (1985) also looked at developed and developing country tariff escalation, comparing GSP and MFN tariffs on oilseeds and vegetable oils. Comparing ad valorem tariff averages calculated using actual trade data, he found that GSP beneficiaries faced overall lower tariffs than MFN beneficiaries in six out of eight developed country markets. Tariffs escalated substantially in almost all of the markets. For soyabeans and soyabean oil, developing country importers showed much higher, though less steeply escalating rates than developed countries. Clark then modeled the impact of a removal of all major importing country tariffs. His model takes into account the fact that developing countries will lose from this because they no longer benefit from preferential GSP tariffs, while at the same time they gain from the overall removal of tariffs. The former factor can divert trade to former MFN beneficiaries, who are now in a better position relative to former GSP beneficiaries. The latter factor will create new trade as importers' purchases shift from domestic production to imports. He found that the combined impact of these two factors on developing country exports was marginal; assuming infinitely elastic export supplies, the change in value of exports was less than 1.5% of the base period. The paper does not disaggregate impacts on primary and processed goods from the removal of tariff escalation; however the overall results suggest that neither will be very large. The resulting impacts on the environment may be correspondingly small. Yeats (1987) provided summary data on the magnitude of escalating trade barriers against developing countries in 1985, for 16 product groups. His data highlight differences between developed
1707
and developing-country tariffs and between tariff and non-tariff barriers. Average tariffs imposed by developed countries were based on MFN and GSP rates, as actually applied. They were almost all below 10% for both primary and processed goods. The only higher values were for processed vegetables, fruit, tobacco, and sugar, where the highest rate is 20%. Tariffs imposed by developing countries, based on MFN rates as applied by some 30 countries, were almost all at least twice those of developed countries, and often substantially more. All tariffs escalated, though those of developing countries escalated more steeply. Thus all tariffs were probably creating a bias against trade in processed goods, those of developing countries most heavily. In contrast, Yeats found non-tariff barriers (NTBs) more prevalent among developed than developing countries, and they often declined with level of processing. While NTBs may create significant biases with respect to processing, the data show too much variation to generalize about their impact. Safari and Yeats (1993) focused on the impacts of trade barrier escalation in intra-Asian trade, as an input into discussion of a possible Asian multilateral trade agreement. They found that Asian importers were more biased against processed goods than the European Union (EU), and that tariff escalation was important in most processing chains and countries. In addition, non-tariff barriers contributed to discrimination against processed goods, particularly in the foods, feeds, and agricultural materials sectors. The authors feel that the Asian trade barriers probably have a significant restrictive effect on intra-Asian trade in processed goods, but do not quantify the resulting concentration on raw materials. The Uruguay Round reduced some tariff escalation, though not all, according to GATT (1994). This paper suggests a simple approach to identifying the direction of change in tariff escalation, based on looking at change in the "tariff wedge"; that is, the change in absolute difference between nominal tariffs on processed and primary goods. This method shows the direction (albeit not the magnitude) of tariff changes, without having to estimate effective rates of protection under old and new tariffs, which would be very difficult when many rates change at once. Table 5 applies this approach to the pre- and post-Uruguay Round tariffs imposed by developed countries on goods imported from developing countries. It suggests that, on the whole, developed country tariff escalation dropped with the Uruguay Round. For a few goods however, the intermediate to final stage wedge has increased, meaning an increase in tariff escalation. Amjadi et al. (forthcoming) have looked more specifically at OECD tariff protection against exports from sub-Saharan Africa. Their paper highlights the complexity of current tariff structures, and
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WORLD DEVELOPMENT Table 5. Developed country tariff escalation, using wedge method Pre-Uruguay Round tariff
Post-Uruguay Round
One-stage Two-stage wedge wedge
tariff
Absolute Change in reduction two-stage One-stage Two-stage in tariffs wedge wedge wedge
Industrial products excluding petroleum raw material 2.1 semi-processed 5.4 finished 9.1
3.3 3.7
7.0
0.8 2.8 6.2
2.0 3.4
5.4
1.3 2.6 2.9
-1.6
Tropical industrial products raw material semi-processed finished
6.2 6.5
6.5
0.0 3.4 2.4
3.4 -1.0
2.4
0.1 2.9 4.2
-4.1
4.8
2.0 2.0 5.9
0.0 3.9
3.9
1.1 1.5 2.0
-0.9
O.1 6.3 6.6
Natural resource-based products excluding petroleum raw material 3.1 semi-processed 3.5 0.4 finished 7.9 4.4 Source: Adapted from GATT (1994 Table 11.5, p. 15).
the need to consider tariff escalation patterns in the context of other overlapping tariff structures. They find that existing preference schemes eliminate tariffs on more than 97% of African exports to the EU, whereas competitors Korea and Taiwan face MFN tariffs on their exports. They also point out that OECD tariff barriers against Africa are lower than those faced by the Asian newly industrialized countries (NICs) when they began their export-led growth, suggesting that tariffs are not a key constraint on growth in Africa. For 19 major commodity chains, the authors calculate the preference margins from which Africans, facing no EU duties, benefit relative to other exporters facing MFN rates. These range from zero for unwrought nickel and tin and unrefined copper to 12.5% for coconut, palm kernel, soya bean, and cotton seed oil. The preferences escalate across processing chains, which should make Africa relatively more attractive as a location for processing than competitors paying MFN rates. The authors point out, however, that other factors may undercut these preferences. The growing regional trade agreements among OECD countries provide for duty-free trade among their members. This eliminates the preference margins which African countries (and other LDCs) enjoy under schemes such as the GSP or Lom6 Convention. Where developing countries do not receive preferences, they face MFN rates, which place them at a significant and escalating disadvantage relative to competitors within the regional trade agreements. About one-half of developing country exports of MFN-dutiable products are not covered by preference schemes. In particular, the authors anticipate
that this will place agricultural products, foodstuffs, shoes, textiles and clothing at a significant disadvantage in OECD markets protected by free trade agreements. The tariffication of non-tariff barriers (NTBs) under the Uruguay Round may also undercut preferences to African exporters. While the NTBs are not necessarily escalating, they are so large as to overwhelm both existing preferences and the competition from free trade agreement members. For example, estimates of wheat protection are between 155% and 495% in most of the countries cited; sugar protection is above 150%; dairy protection is between 300% and 500%. Moreover, the stockpiling of production which has occurred in the EU due to protectionism will make it possible for European exporters to undercut African producers in their domestic markets. While these are not tariff escalation issues, where they occur they are likely overwhelm either the harm caused by escalating tariffs or the benefits from escalating preferences.
(d) Tariff escalation and shipping costs Several works have raised the issue of a relationship between tariff escalation and transport costs at different levels of processing (Lipsey and Weiss, 1974; Yeats, 1976; Finger and Yeats, 1976; Jansson and Shneersen, 1978; Yeats, 1981; Madeley, 1992). (Note that this issue is different from the environmental impacts of transportation, which are discussed below.) At issue is whether shipping costs increase or decrease with the level of processing of goods carried, and if they increase, how the resulting
IMPACTS OF TARIFF ESCALATION ON THE ENVIRONMENT
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Table 6. Estimated impact on income of removal of tariff escalation, by region.
Sub-Saharan Africa East Asia and Pacific South Asia Europe Latin America and Caribbean Lower and Middle Income Countries
Income per capita (al
Share of exports in income (b)
Exports per capita (c)
Increase in exports (d)
Income/capita w/out TE (e)
340 600 330 2400 2180 840
0.29 0.31 0.09 0.29 0.15 0.24
98 196 29 696 327 201
Il 22 3 84 39 24
351 622 333 2484 2219 864
(a), (b) Data from World Bank (1992) (c)=(a)*(b) (d)=(c)*.121, using Golub and Finger (1979)'s 12.1% predicted increase in the value of exports if tariff escalation were removed. (e)=(a)+(d)
bias against processing compares with the bias created by escalating tariffs. Since processed goods are generally lighter and less bulky than raw materials, one might expect that countries which can export processed goods will save on transportation, and thus that tariff escalation would have the additional harmful effect of forcing raw material producers into a higher transport-cost bracket. Many developing countries however, find that as they move into processing, their ad valorem shipping costs go up, not down. This is related to the institutional structure of the shipping industry. Marine shipping is carried out in two main types of vessels, liners and tramps. Liners are ships which run on set routes and schedules, picking up and delivering freight for a variety of customers. They offer their customers the ability to transport small loads of less than a full boatload, and, if needed to handle fragile or perishable processed cargo. Tramps, in contrast, are chartered by a customer who can fill the whole vessel and determine its route and schedule. Tramp vessels generally handle bulk goods such as grains and seeds, unprocessed ores, and other raw materials. Developing country exporters of processed goods often depend on the liners, because of the nature and the size of their shipments. The liner companies are organized into shipping conferences, which organize their routes and schedules jointly so as to avoid competition, prevent new entries into the market, and limit public access to price information (Yeats, 1981, pp. 31-38). Both because they handle small and noncontainerized loads, and because they are organized so as to prevent competition, liner prices are high. As a result, shipping costs faced by developing countries often rise when they move into exporting processed goods. This constitutes a separate source of bias which will affect the impact on production of eliminating tariff escalation. Yeats (1977) (personal communication) calculated
the costs of bringing goods to the United States from a number of countries, and compared the results with detailed data on post-Kennedy Round tariff escalation developed by UNCTAD. Comparing costs faced by the same exporter for shipping primary and processed goods to the United States, he found that they dropped with processing for 13 product-country pairs and increased for 28 pairs. In a few sectors the growth in transport costs exceeded tariff escalation, totally outweighing the benefits of removing escalating tariffs. Yeats (1981) provides additional data showing sharply increasing transport costs across processing stages for selected developing country exports. The overall decline in tariffs and the reduced tariff escalation of the Uruguay Round suggest that shipping effects may be more pronounced now than they were when these papers were published. Amjadi and Yeats (1995) and Amjadi et al. (forthcoming) support this view. They have compared the average rate of shipping costs from Africa to the United States with average post-Uruguay Round tariffs. Applying the concept of effective rates of protection to shipping costs, the authors find that effective transport rates on processed goods exceed nominal rates for almost all product lines for which data were available. This means that the protection on inputs must be lower than on processed goods; thus escalating shipping costs continue to be a barrier to export of processed goods.
(e) Conclusions
The available evidence on tariff escalation allows us to draw several conclusions: Removing both escalating and deescalating tariffs and replacing them with free trade should lead to increases in both raw materials production and processing by exporters. This counters the first hypothesis. -
-
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- - No research focuses solely on the escalation effect, controlling for price effect; therefore it is not possible to determine whether this would lead to a reduction in primary production and an increase in processing. - - The overall magnitude of developed country tariffs has dropped significantly over the past 20 years. While many tariffs still escalate, the rates are low enough that they probably are not a significant deterrent to export of either primary or processed goods, especially in light of the much greater magnitude of other tariff barriers. Therefore neither removing escalating tariffs nor replacing them with neutral tariffs is likely to have a significant impact on the distribution of economic activity. - - Import duties imposed by developing countries are higher and more steeply escalating than those of developed countries; thus tariff escalation may still constitute a barrier to exports of processed goods within the developing world. Other elements in prevailing trade regimes may create a bias against developing country exports of processed goods. These include (i) rising price elasticity of demand with level of processing, which creates a bias against processed imports even with no tariffs, (ii) regional trade agreements which undercut preferences previously granted to developing countries by establishing tariff rates among members which are equal to or lower than GSP or other preferential rates, (iii) tariffication of non-tariff barriers under the Uruguay Round, which will create very high levels of protection that completely overwhelm the impacts of tariff escalation and may keep developing countries entirely out of the market, and (iv) shipping costs which continue to create escalating barriers against developing country exports greater than those created by tariffs. These other barriers are typically greater than existing tariff escalation, further suggesting that reducing tariff escalation is not likely to lead to major changes in the distribution of economic activity. -
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3. HYPOTHESIS 2: EMPIRICAL EVIDENCE ON SECTORAL ENVIRONMENTAL IMPACTS We have considered what is known about how tariff escalation affects the location of primary production and processing. The next question is how the location of primary production and processing activities affects the environment. To address this issue, we would have look at the literature on a number of distinct questions. First, we would want to compare the environmental impact of primary processing with that of processing activities. We would have to make this
comparison separately for each commodity for which tariffs escalate. There is no a priori reason to assume that we can generalize across commodities - - even though those who advance hypothesis (2) implicitly do just that. Making such a comparison would be difficult, because the types of environmental impacts would be different. Primary production will affect the long-term sustainability of the resource base, through deforestation, soil erosion, habitat destruction, and so on. Quantifying such impacts can be very difficult, both for lack of data and for lack of accepted methods for using them. Commodity production may also lead to water pollution from agrochemical runoff. This is conceptually easy to quantify, but practically very difficult to measure. Processing activities, in contrast, will result in water and air pollution rather than in destruction of the resource base. These point-source impacts can be quantified more easily, but it is not clear how to compare them with natural resource sustainability. Because these data are relatively accessible, environmental impact work often focuses exclusively on point source pollution. Second, we would need to look at how location affects the environmental impact of each stage in processing a specific commodity. Several factors might cause impacts to vary based on location: - - The ambient environment. The same level of harvesting or pollution will have different impacts depending on the absorptive capacity of the environment. - - Differences in relative prices, which lead to different technology mixes in production. - - The environmental policy context. Production of a given level of output (at any stage of the chain) will be carried out differently, with differing environmental impact, depending on the country's environmental protection requirements. In general, such regulation is more stringent in developed countries than in developing ones. The availability of up-to-date pollution control technology; this also is likely to favor developed countries over poorer ones. Properly to analyze the importance of location in environmental impact, we would need to search the literature on each these factors separately, since works which shed light on how any one of them influences the environmental impact of production will not consider the others as well. Fully investigating these broad questions about the environmental impacts of commodity production and processing would be tantamount to reviewing all of the available literature on the environmental impacts of economic activity and environmental policy. Such an effort is beyond the scope of this review. Moreover, while systematic data on industrial pollution are available in the West, such data are not often available -
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IMPACTS OF TARIFF ESCALATION ON THE ENVIRONMENT for developing countries, nor are data on natural resource degradation due to primary production available anywhere in the world. We will, therefore, take a somewhat different approach, using a small set of sectoral studies to draw some conclusions and suggest factors to consider in future research.
(a) C o m m o d i t y case studies A series of U N C T A D case studies on the environmental impacts of commodity production and processing suggests a set of factors which may play into the impacts of tariff escalation. While these cases are not focused on trade barriers, they highlight the importance of analyzing tariff changes in light of the broader economic, policy, and ecological context of the producing country. The studies consider bauxite in Indonesia (UNCTAD, 1994), rice in Thailand and the Philippines (Witte et al., 1993), coffee in Costa Rica and El Salvador (Segura and Reynolds, 1993), cocoa in Nigeria (Akande, 1993), cocoa and coffee in Cameroon (CIBLE, 1993), cocoa and coffee in Brazil (May et al., 1993), cocoa, coffee, and rice in C6te d'Ivoire (Seudieu, 1993), and rubber (Goldthorpe, 1993); in addition there is a synthesis by the UNCTAD secretariat (UNCTAD, 1993). Each study reviews the environmental impacts of raw material production and processing, the importance of the commodity to the economy, the impact of the national environmental policy on the commodity, and trends in world markets for the commodity. (The rubber study does not focus on a specific country, so it addresses only environmental effects.) The cases show that primary production is not necessarily worse for the environment than processing, so decreases in primary production are not always beneficial. Whether a given crop is beneficial in a particular location depends on the alternative; where the forest is destroyed to plant crops, cultivation may be considered harmful, but frequently the alternative is other crops that are much harder on soil and water resources. Predicting a decrease in primary output due to the elimination of tariff escalation, therefore, would not always allow us to predict benefit to the environment; nor will the reverse be true. A comparison of coffee-growing in Costa Rica, El Salvador and Brazil suggests how complex the impact of primary production can be. In Costa Rica (Segura and Reynolds, 1993), some beans are grown by small farmers using traditional practices, while new cultivation is on large plantations. The traditional method is to intersperse coffee with other trees providing shade, soil conservation and enrichment, wildlife habitat, etc. The resulting agroecosystem is fairly close to natural forest in terms of the
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environmental services it provides. Plantations offer higher yields, but require extensive use of agrochemicals, do not incorporate shade trees, and offer fewer environmental services. New cultivation would replace natural forest with plantations, harming the environment. In E1 Salvador (Segura and Reynolds, 1993), almost all natural forest is already gone and all coffee is grown in plantations. El Salvadoran coffee plantations do use shade trees, unlike the Costa Rican ones. The coffee plantations are the only area in the country providing forest-like ecosystem services. An expansion of coffee production would therefore be of net benefit to the environment, by increasing the "forested" area. Finally, Brazilian coffee growing has followed migratory cycles of forest destruction, planting, soil degradation, and moving to a new site (May et al., 1993). The time period involved is long enough to pose an intergenerational problem whose cost is too distant to motivate more sustainable practices. Expanded production will replicate the cycle and therefore harm the environment. The differences between Brazil, El Salvador, and Costa Rica highlight the need to understand local production systems in order to predict the impact of tariff changes on the environment. The cases point to the need to define more clearly the environmental impacts of interest. All of the cases address certain direct impacts of commodity production and processing; water pollution, land degradation, air pollution, worker health. Some studies also consider such impacts as energy use, leaching from discarded byproducts, greenhouse gas production, or carbon fixation. Any comparative work must first ensure that all research addresses the same set of impacts. A related problem is to find ways of comparing the different environmental impacts of production and processing; water pollution with loss of forest habitat, sedimentation of waterways with air pollution, and so on. Some of the UNCTAD cases prioritize the different forms of environmental harm they describe, which is a first step towards defining a way to compare impacts. For example, the study of rice in Thailand and the Philippines (Witte et aI., 1993) ranks environmental effects in the follow order, without justifying the choice of ranking system: pesticide use and pollution, water supply, biodiversity loss, use of non-renewable energy, depletion of mineral resources, soil toxicity, methane emissions. The ranking is clearly subjective, though. While this a start, it is not sufficient to permit comparison of impacts, comparison of commodities, or international comparisons. The cases highlight the importance of fluctuations in world markets in determining output levels, technology choice, and environmental impacts.
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Sharp drops in world prices for rice and coffee led to changes in both production technology and output, with marked impacts on the environment (Witte et al., 1993; Segura and Reynolds, 1993; May et al., 1993). In the face of such massive and recent price uncertainty, producers might not respond to much smaller changes from the removal of tariff escalation. This suggests that research on the impacts of tariff escalation should focus on goods whose world prices are stable, so the marginal output changes due to tariff escalation are observable; elsewhere, tariff escalation simply will not be important. The cases shed some light on the relative impact of domestic environmental policy on production and processing. The countries studied have few environmental controls on primary production to address such concerns as clearcutting for cultivation, the use of agroforestry techniques to prevent soil erosion, or pesticide use. On processing, environmental protection is more effective in some countries; for example, in Brazil secondary coffee processing must comply with fairly stringent pollution controls (May et al., 1993). In contrast, primary processing of both coffee and cocoa is often carried out by small-scale farmers who discharge unregulated wastes onto land and into water. This suggests that there will be a difference between "traditional" and "modem" sectors with regard both to government's ability to regulate environmental impact and to producers' ability to absorb the costs of environmental protection. These factors, in influencing the potential effectiveness of environmental policy, will also affect the environmental impact of increases in output generated by changes in tariff policy. A related issue concerns access to pollution control technology. Two cases discuss this issue explicitly. In Indonesia, the major bauxite processing plant was purchased in Japan, equipped with Japanese pollution control equipment which far exceeded the requirements under Indonesian law (UNCTAD, 1994). In Brazil, where secondary coffee processors were held to stringent pollution control requirements, a domestic pollution control equipment industry developed, and was in fact exporting to the European Union (May et al., 1993). This suggests that case studies on tariff escalation should look at where processors purchase their equipment, and how easily they can access equipment which will effectively protect the environment. The cases highlight the utility of being able to compare the experiences of different countries with the same product. Further exploration of hypothesis (2) should employ a case study approach which considers several primary producers of each product, in order to identify and understand the importance of the key contextual factors in the environmental impact of tariff policy.
(b) The forestry sector." Impacts of deescalating export barriers The case of the forestry sector is particularly interesting for understanding the environmental impact of deescalating export barriers, because of Southeast Asian producing country efforts to ban primary exports. Barbier (1994) and WTO (1995) provide the context, with overviews of the environmental issues related to trade in forest products. Bourke (1988) has analyzed the impact of trade barriers on developing country trade in forest products. Using data on post-Tokyo Round tariffs of developed and ASEAN countries, he pointed out significant escalation in tariffs, with typical ASEAN rates substantially higher than those of developed countries. He suggests a number of features of the wood-processing sector which may reinforce escalating tariffs in keeping out less developed countries. Raw material extraction and primary processing are typically more labor-intensive than secondary processing, giving labor-surplus developing countries a comparative advantage. Primary products tend to be more standardized, so price and supply availability play a key role in international markets. In contrast, processed goods are more specialized, their production tolerances are narrow and quality requirements higher, and their design, packaging and promotion are more important. These factors call for greater skill in production and marketing, which may be less available in developing than in developed economies. Although Bourke still argues that tariff escalation is a source of bias, his points suggest that even if tariffs were neutral, developing countries might not have a comparative advantage in processing activities. Bourke also discusses the impact of deescalating forest product export duties in Southeast Asia. Philippine law phased out all log exports by 1976. The controls contributed to an 87% decline in documented exports over 1970-84, but they apparently did not lead to increases in processing; 1984 sawntimber, veneer, and plywood exports were below 1970 levels. In Peninsular Malaysia, bans in log exports have similarly been followed by declines in exports of sawntimber, veneer and plywood. Repetto and Gillis (1988) have looked at the impact of Indonesian forest and industrial development policy on the production of both primary and processed goods, and on degradation of forest resources. Indonesia increased log export duties from 10% to 20% in 1978, and then banned all exports in 1985. The increase in effective protection of processing after 1978 led to growth in plymills, but they were considerably less efficient than their competitors. In plywood production, wood value recovery rates were substantially below Asian averages. In sawmilling, value added was actually
IMPACTS OF TARIFF ESCALATION ON THE ENVIRONMENT negative 15%; however this was made up for by 20% tax savings relative to exporting logs, so producers continued sawing timber at public expense. As these patterns created no incentive for efficient log use in the mills, protection actually increased forest degradation. The imposition of the log export ban in 1985 amounted to granting infinite effective protection to processing. Initially, harvests declined because domestic processing capacity did not exist. But, the ban stimulated plans for huge increases in processing capacity. With dedicated input supply, there is little incentive to operate the new mills efficiently, so this strategy may be expected to accelerate forest degradation. Vincent and Binkley (1992) have found similar results in Peninsular Malaysia, which imposed increasingly strict restrictions on log exports during 1972-85. Prior to this protection, the wood-processing industry had low or negative rates of effective protection. After 1972, domestic log prices lagged behind the region while investment in new mills rose, stimulated by effective protection of sawnwood which the authors estimated at 272%. Primary processing capacity grew to exceed the sustainable yield from the forests, but secondary processing capacity such as furniture-making was not growing as fast. In response, the government introduced high export taxes on veneer and sawnwood in 1990, to protect secondary processors. Vincent and Binkley anticipate effects similar to the protection of primary processing, with resulting inefficiency and forest degradation. These studies show that deescalating export barriers lead to high rates of protection and the development of inefficient, resource-degrading processing industries. The fact that deescalating export barriers hurt the environment does necessarily mean that escalating import barriers protect it; the policies are not perfect inverses, so we cannot deduce the effects of one set of barriers from evidence about the other. Nevertheless, these results do show that the processing technology used by exporting countries is less efficient and more environmentally harmful than that of their competitors. This suggests that, at least in some cases, a concentration of primary production in exporting countries and processing in importing countries would be better for the environment than a less distorted pattern.
(c) Conclusions While a set of case studies cannot be considered representative, they do suggest several conclusions: - - The environmental impact of primary production is highly dependent on the context in which it occurs and the alternate activities on the land; thus
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we cannot generalize about whether a decrease in primary production in a specific sector would benefit or harm the environment. In general, the relative environmental impacts of primary and processing activities in a given country are hard assess, since different and often non-comparable environmental impacts are involved. The commodity studies suggest that where any environmental controls are in effect, they will typically be on processing and not on primary production, suggesting that processing might be the less harmful activity. Where processing is done in the unregulated informal sector or there are no environmental controls, however, it may be very harmful to the environment. To the extent that more developed importing countries have more stringent environmental controls, all activity will be less harmful in importing countries than in exporters. The Indonesian forestry case is something of a special case. Here the increase in processing caused an increase in primary production due to inefficient technology; thus the harmful environmental impact was not from the processing activity itself, but it is induced through primary production. -
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4. HYPOTHESIS 3: THE GROWTH ARGUMENT The tariff escalation literature suggests that removal of escalating trade barriers should lead to income growth in developing countries. Willingness to pay for environmental protection is known to increase with income. Thus removing tariff escalation could lead developing countries to "purchase" public policies which lead to a cleaner environment. Without venturing into the debate over the impact of income on environmental protection, we can ask whether increased willingness to pay for the environment is likely to result from the elimination of tariff escalation. Many writers argue that additional income could be used for environmental cleanup, implying that it therefore will be. Unless the change in tariffs however, were conditioned on such use of the ensuing revenues (which is improbable), this is insufficient; the resulting increase in income must be large enough that people voluntarily spend some of it on the environment. Whether this is the case depends, in turn, on two factors; the absolute amount of the income increase and the initial incomes of the countries affected. The seminal work relating environmental protection to income is by Grossman and Krueger (1993, 1995). They looked at the relationship between ambient air quality and per capita income in a set of developed- and developing-country cities. They regressed pollution data against GDP per capita, city location, neighborhood where air
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quality data were collected, trade intensity of the country, population density at the air sample site, and other variables. They found that ambient quantities of sulphur dioxide increased with per capita GDP up to $4,000-$5,000, and decreased thereafter. Grossman and Krueger interpret this to mean that when incomes exceed that level, people begin demanding public policies to reduce sulphur dioxide emissions. Golub and Finger (1979), discussed above, provide enough data for a simple estimate of whether the removal of tariff escalation is sufficient to bring developing country incomes up to Grossman and Krueger's $4,000 to $5,000 turning point. Table 6 provides data on 1990 per capita income and share of exports for low to middle-income developing countries by region (World Bank, 1992). Golub and Finger predict a 12.1% increase in developing country export revenue from the removal of all escalating tariffs. The table calculates the impact of this increase on income. In no part of the world would the elimination of tariff escalation bring any of the developing countries even close to Grossman and Krueger's turning point for willingness to pay for air pollution control measures. Golub and Finger's 12.1% increase is based on Kennedy Round tariffs; with the much lower Uruguay Round rates the resulting increases in income would be even lower. Therefore the income growth attributable to removing tariff escalation is apparently insufficient to generate increased environmental protection.
5. HYPOTHESIS 4: TRANSPORTATION AND THE ENVIRONMENT One argument for why tariff escalation harms the environment concerns the environmental impact of transport. The argument assumes that the elimination of tariff escalation would cause primary producers to begin processing their own goods. Then instead of shipping bulky raw materials they would ship less bulky processed goods. This would call for fewer transport-kilometers per unit of final output, and thus lower vehicle emissions (French, 1993; WTO, 1995). No published work specifically addressing the impact of tariff escalation on transport could be found, however, Gabel and R611er (1992)'s study of transportation-induced environmental effects of European trade liberalization suggests a methodology applicable to tariff escalation. They estimate the volume of imports into France, the United Kingdom, Italy, and former West Germany from nine origins and for 29 industries. The volume of imports is regressed on economy size, proxies for human and physical capital in production, an indicator of research and development intensity, a measure of economies of scale, a measure of product differ-
entiation, the rate of growth of demand, and a measure of transport costs. An ordinal variable ranging from 0 to 3 represents non-tariff barriers (NTBs). A second trade-barrier variable measures the EU common external tariff; the analysis does not attempt to estimate the degree of protection against imports of specific products from individual sources. Applying the regression results, they estimate the importance of the NTBs by setting that variable to zero and solving for the volume of trade. They then calculate the change in kilometers of transport, by comparing goods transported from each source to each destination with and without the NTBs. Finally, assuming that the NTB change will not change the share of each transportation mode, they calculate the increased kilometrage by sea, road, rail, and inland waterway. This analysis shows substantial increases in distances traveled for all industry sectors and from all destinations, which means that transport growth due to trade liberalization may indeed be a cause for environmental concern. Somewhat mitigating this is the fact that by far the greatest increase is in sea travel, which is likely to generate less harm than other modes of transport. On the other hand, within the EU rail travel is expected to increase much less than road travel, which is a cause for concern. This method could be adapted to address the transport implications of tariff escalation, particularly if the analysis focused on a single industry at a time. The variable for demand growth would be adjusted to incorporate the impact of changes in escalating tariffs; as in our other discussions, the anticipated change in demand would depend on whether escalating tariffs were replaced with a neutral tariff structure or simply eliminated. The regressions would then be estimated for major importers and exporters of raw materials and processed goods. The independent variables for transportation cost could take into account changing shipping costs based on the level of processing, for additional realism. (See the discussion of this issue in Section 2.4.) If the data were available, this might be a useful way to approximate the transportation effects of tariff escalation. Mode choices will have major impacts on the environmental effects of increased transportation demand. While the extensive literature on that issue is beyond the scope of this review (see, for example, Button, 1993 and OECD, 1988), a few points are worth noting. First, the exports of countries affected by tariff escalation will be transported primarily by ship. Consequently, the change in environmental impact from a change in trade policy should be relatively minor compared to other environmental harm from transport, or compared to the harm estimated from European trade liberalization (though not necessarily minor compared to environmental
IMPACTS OF TARIFF ESCALATION ON THE ENVIRONMENT harm from shipping overall). Second, increased road transport in the developing world due to eliminating tariff escalation will be more harmful than in the developed world, because developing country truck fleets are more polluting and worse maintained, roads are worse, accident rates are higher, and so on. These points should be factored into any analysis of the environmental effects of tariff escalation-induced changes in transport demand. On the whole, if we expect escalating tariffs to be replaced with free trade, then all economic activity will increase, with consequent increases in all modes of transport. The environmental impact due to transport, therefore, is likely to be negative.
6. CONCLUSIONS This review of the impacts of tariff escalation on the environment suggests that they are not significant. With respect to the first hypothesis, concerning the impact of escalating and deescalating trade barriers in economic output, we may say several things: - - There has been no analysis of the impact of replacing escalating tariffs with neutral ones, so we cannot isolate the pure effect of the fact that tariffs escalate. While in the past escalating import duties may have significantly affected output and the distribution of production, they have decreased substantially with the Uruguay Round and are now fairly low in most sectors. Therefore eliminating tariff escalation is not likely to have a significant effect on the distribution of primary production and processing. - - The overall impact of tariff escalation on production is even less important when it is placed in the context of the complex mix of trade agreements, preference schemes, and tafiffication of non-tariff barriers influencing the global distribution of production. While some barriers, such as those imposed by free trade agreements, escalating shipping costs or the lack of comparative advantage, do constrain the ability of -
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countries now specialized in primary production to move into processing, on balance the impact of escalating tariffs in the framework of the broader distortions of the world trade system is likely to be negligible. With regard to the second hypothesis, the environmental impacts of primary production and processing, the case study evidence and the prevailing patterns of pollution control legislation suggest that processing activities will tend to cause more environmental harm in developing, primary-exporting countries than in developed, primary-importing countries. All else being equal, this would imply that the any distortions that might be caused by tariff escalation would be of net benefit to the global environment rather than the reverse. The evidence also largely refutes the third and fourth hypotheses. While at some levels increased incomes might lead to greater willingness to pay for environmental protection, the removal of escalating tariffs will not increase incomes enough to achieve that outcome. With regard to transportation, the removal of escalating tariffs is likely to increase all demand for shipping, with consequent environmental harm, rather than reducing transport demand. These conclusions suggest that tariff escalation is not a significant source either of distortion in the economic system or of damage to the environment, so efforts to address possible environmental impacts of trade should focus elsewhere. But, this generalization should be made with a significant caveat. In any specific context the economic and environmental impacts of escalating tariffs depend on a wide range of other factors in the natural, economic, social, policy, and trade context. The impacts of tariff changes will be country-specific, product-specific, and perhaps even specific to the trade in a single good between a single exporter-importer pair of countries. Thus while we can conclude that on the whole tariff escalation is not an important cause of economic distortion or environmental harm, we must approach the impact of changes in the trade barriers confronted by any single country from an empirical grounding in the context of that country.
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Bourke, I. J. (1988), Trade in forest products: a study of the barriers faced by the developing countries. FAO Forestry Paper 83, Food and Agriculture Organization, Rome. Button, K. (1993) Transport, the Environment and Economic Policy. Edward Elgar Publishing, Hants, Great Britain. CIBLE (1993) L'impact de la culture du cacao et du caf6 sur l'environnement. CNUCED/COM/18, UNCTAD, Geneva. Clark, D. P. (1985) Protection and developing country exports: The case of vegetable oils. Journal of Economic Studies 12(5), 3-18. Finger, J. M. and Yeats, A. J. (1976) Effective protection by transportation cost and tariffs: A comparison of magnitudes. Quarterly Journal of Economics 90(1), 169-176. French, H. (1993) Costly Trade Offs: Reconciling Trade and the Environment. Worldwatch Paper 113, Worldwatch Institute, Washington DC. Gabel, H. L. and R611er, L.-H. (1992) Trade liberalization, transportation and the Environment. The Energy Journal 13(3), 185-206. General Agreement on Tariffs and Trade (1994) The results of the Uruguay Round of multilateral trade negotiations. GATT, Geneva. Goldthorpe, C. C. (1993) Natural rubber and the environment: A review. UNCTAD/COM/21, UNCTAD, Geneva. Golub, S. and Finger, J. M. (1979) The processing of primary commodities: Effects of developed-country tariff escalation and developing-country export taxes. Journal of Political Economy 83(3), 559-577. Grossman, G. and Krueger, A. (1993) Environmental impacts of a North American Free Trade Agreement. In The Mexico-US Free Trade Agreement, ed. P. Garger. MIT Press, Cambridge MA. Grossman, G. and Krueger, A. (1995) Economic growth and the environment. Quarterly Journal of Economics 110(2), 353-377. Jansson, J. and Shneersen, D. (1978) The effective protection implicit in liner rate shipping. Review of Economics and Statistics 60, 569-573. Laird, S. and Yeats, A. (1987) Empirical evidence concerning the magnitude and effects of developing country tariff escalation. The Developing Economies 25(2), 99-120. Lipsey, R. and Weiss, M. Y. (1974) The structure of ocean transport charges. Explorations in Economic Research 1, 178. Madeley, J. (1992) Trade and the Poor." The impact of international trade on developing countries. St. Martin's Press, New York. May, P. H., Vegro, C. L. R. and Menezes, J. A. (1993) Coffee and cocoa production and processing in Brazil. UNCTAD/COM/17, UNCTAD, Geneva. OECD (1988) Transport and the Environment. OECD, Paris.
Repetto, R. (1994), Trade and sustainable development, Paper prepared for the United Nations Environment Program. UNEP, New York. Repetto, R. and Gillis, M. (1988) Public Policy and the Misuse of Forest Resources. Cambridge University Press, Cambridge. Safadi, R. and Yeats, A. (1993) Asian trade barriers against primary and processed commodities. Policy Research Working Paper WPS 1174, International Economics Department, The World Bank, Washington DC. Segura, O. B. and Reynolds, J. (1993) Environmental impact of coffee production and processing in E1 Salvador and Costa Rica. UNCTAD/COM/20, UNCTAD, Geneva. Seudieu, D. O. (1993) L'impact de la production et de la transformation du caf6, du cacao et du riz sur l'environnement en C6te d'Ivoire. UNCTAD/COM/24, UNCTAD, Geneva. UNCTAD Secretariat (1993) Experiences concerning environmental effects of commodity production and processing: synthesis of case studies on cocoa, coffee and rice. TD/B/CN.I/15, UNCTAD, Geneva. UNCTAD Secretariat (1994) Environmental aspects of bauxite and aluminum production in Indonesia. UNCTAD/COM/39, UNCTAD, Geneva. Vincent, J. R. and Binkley, C. S. (1990) Forest based industrialization: A dynamic perspective. In Managing the World's Forests, ed. N. P. Sharma. Kendall/Hunt Pub., Dubuque, IA. Witte, R., van Elzakker, B. and van Mansvelt, J. D. (1993) Rice and the environment environmental impact of rice production, rice development and options for sustainable rice development in Thailand in the Philippines. UNCTAD/COM/22, UNCTAD, Geneva. World Bank (1992) World Development Report 1992: Development and the Environment. Oxford University Press, New York. World Trade Organization Committee on Trade and the Environment (1995) Environmental benefits of removing trade restrictions and distortions. WT/CTE/W/I, WTO, Geneva. Yeats, A. J. (1976) Effective protection for processed agricultural commodities: a comparison of industrial countries. Journal of Economics and Business 29( 1), 3139. Yeats, A. J. (1981) Shipping and Development Policy: An Integrated Assessment. Praeger, New York. Yeats, A. J. (1984) On the analysis of tariff escalation: Is there a methodological bias against the interest of developing countries? Journal of Development Economics 15, 77-88. Yeats, A. J. (1987) The escalation of trade barriers. In The Uruguay Round: A Handbook for the Multilateral Trade Negotiations, eds. J. M. Finger and A. Olechowski. The World Bank, Washington CD. Yeats, A. J. (1997) Personal communication, discussion of April 1, 1997
