Essays in Honour of Peter Lloyd, Volume I
Edited by Sisira Jayasuriya
Chapter 3: Are uniform tariffs optimal?
3. 1. Are uniform tariﬀs optimal? Mary Amiti* INTRODUCTION Tariﬀs rates vary widely along the production chain. Most industries are characterized by escalating tariﬀs where tariﬀs are lowest on raw materials and increasing as one goes up the value chain. Dividing the value chain into ﬁrst stage, semi-processed and fully processed, World Bank ﬁgures indicate that 48 out of 86 countries had escalating tariﬀs in their industrial products between 1994 and 2000.1 For example, in 2000 Mauritius had an average tariﬀ rate of 3.1 per cent on the ﬁrst stage, 4 per cent on semi-processed and 44.4 per cent on the ﬁnal stage. Some countries had uniform tariﬀ rates; for example, Chile had an average tariﬀ rate of 9 per cent on all production stages; and other countries had a mix of increasing and then decreasing tariﬀ rates from one stage to the next. Bolivia was the only country to report, on average, de-escalating tariﬀs with a 10 per cent tariﬀ rate on the ﬁrst stage and semi-processed, and 9.3 per cent on ﬁnal goods. Given these large disparities in tariﬀ rates, this raises the question of how to proceed with tariﬀ reform. A guiding principle for tariﬀ reform in developing countries in the 1970s and 1980s has been the ‘concertina theorem’, which involves reducing tariﬀs on those goods with the highest tariﬀs ﬁrst (Michaely et al., 1991). This idea dates back to Meade (1955) who concluded that the welfare gains will...
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