The Protectionist Bias of Duty Drawbacks and the New Regionalism

Olivier Cadot (), Jaime de Melo () and Marcelo Olarreaga ()

No 2559, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In a political-economy setting where tariffs and duty drawbacks are endogenously chosen through industry lobbying, it is shown that full duty-drawbacks are granted to exporters who use imported intermediates in their production. This in turn decreases their incentives to counter-lobby against high tariff on their inputs. In equilibrium, higher tariffs will be observed on these goods. The creation of a regional block will change the political equilibrium. Duty-drawbacks will be eliminated on intra-regional exports, which in turn will lead to lower tariffs for goods used as inputs by intra-regional exporters. Evidence from Mercosur suggests that the elimination of duty-drawbacks for intra-regional exports, led to increased counter-lobbying by users of intermediate products. In its absence the common external tariff would have been on average 3.5 percentage points (25 percent) higher.

Keywords: Duty-Drawbacks; Mercosur; New Regionalism; Political-Economy (search for similar items in EconPapers)
JEL-codes: F11 F13 F15 (search for similar items in EconPapers)
Date: 2000-09
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