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Streamlining of NAFTA Tariffs: Benefits for Washington State Aaron Hayman and Paul Storer PNREC, Tacoma, May 2008

Streamlining of NAFTA Tariffs: Benefits for Washington State Aaron Hayman and Paul Storer PNREC, Tacoma, May 2008. Motivation: Results for Alberta. Ballantyne, Hoffman, and Mirus (2004) Annual savings of $80 million for Alberta Changes are minor and administrative

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Streamlining of NAFTA Tariffs: Benefits for Washington State Aaron Hayman and Paul Storer PNREC, Tacoma, May 2008

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  1. Streamlining of NAFTA Tariffs: Benefits for Washington State Aaron Hayman and Paul Storer PNREC, Tacoma, May 2008

  2. Motivation: Results for Alberta • Ballantyne, Hoffman, and Mirus (2004) • Annual savings of $80 million for Alberta • Changes are minor and administrative • We want to measure these benefits for regions in the United States

  3. August 2007 NAFTA MeetingGlobe and Mail, Aug. 17 • “Mr. Emerson said a key topic next week will be more talks on changing rules of origin on goods from third countries to broaden the number of duty-free products included under NAFTA.” • “‘It will cover billions of dollars in trade, so it's actually a very material initiative that most people never think about but it's of fundamental importance and it will greatly enhance the scope of NAFTA,’ he said.”

  4. Rules of OriginANNEX 401-101 • 8412.10-8412.80A change to subheading 8412.10 through 8412.80from any other heading; or • A change to subheading 8412.10 through 8412.80 from subheading 8412.90, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: • (a)60 percent where the transaction value method is used, or • (b)50 percent where the net cost method is used. • Products Include • Reaction engines other than turbo-jets: • Hydraulic power engines and motors, linear acting "cylinders"

  5. Ballantyne et al Proposal: • Eliminate Rules of Origin if: • Canada and United States both have tariffs of zero for non-NAFTA countries Or: • Both countries have a tariff of 5% or less for non-NAFTA countries Or: • Canadian and U.S. tariffs are within 2 percentage points of each other.

  6. Our Approach • Look at U.S. states (beginning with Washington) • Focus on the first case of both 0% MFN and 0% Normal Trading Relationship • Identify 0/0 6-digit HS codes • Measure trade volumes for these HS codes

  7. Estimated BenefitsWashington State • WA exports to Canada in 2006: $5.4Billion • Pick 0-0 HS6 codes out of Top-50 HS6 codes: $1.53 Billion, almost 25 percent by volume of WA exports to Canada. • PV of benefits from streamlining: between $95.3 million and $765 million

  8. Number of Free 6 Digit Lines by Product Category

  9. Limitations & Extensions • Streamlining is limited by inconsistent HS8 and HS10 tariff codes. • Eliminating rules of origin and tariffs would allow border personnel to focus on more serious threats. • The number of 0/0 HS6 codes could be expanded with little loss in tariff revenue.

  10. Cumulative Share of U.S. Duties (Source: USITC Dataweb)

  11. Suggestions for Future Work • Evaluate costs of rules of origin • Increased use of customs brokers in response to border security may lower the cost of rules of origin • Evaluate benefits of previous liberalizations of rules of origin.

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