The Value of Tariff Preferences for the Developing Countries: Australian Experience (original) (raw)

The extent to which the developing countries would benefit from any prospective t a r 3 preferences in the markets of the developed countries is uncertain and several economists have produced estimates purporting to show that the gains would not be substantial [6, PP. 358-9, 381-31, [4], [7] .I These studies are based on various assumptiom concerning the relevant elasticities of demand and sUPP~Y for the exports of the developing countries. In the present paper the fundamental procedure is reversed in that I seek to use data relating to actual imports of products into Australia under the Australian t a r 8 preference scheme for the developing countries, in order to estimate the effects of these preferences. Section I sketches the main features of the scheme and discusses how the real value of the preference margins is affected by other preferential rates. Section I1 presents and discusses the estimates from a trend model of the net increase in the value of imports from the developing countries attributable to the scheme. Limitations of the data and the small number of observations forced me to curtail drastically the scope of the study.2 The model used in Section I1 is very crude. It is a simple trend model that cannot take into account directly the effects of the preferences on the prices (and hence on the quantities) of imports of a particular good from different sources. The only effect of the scheme I estimate from this model is the net change in the f.0.b. value of developing countries' *My colleagues Professor Arndt, Hazel Richter, Paul Luey and Sir Leslie Melville helped this study with their valuable suggestions. Dr W. M. Corden, Oxford University, suggested several points, especially on the value of the Australian scheme as a model for other countries. I wish also to acknowledge my gratitude to Mrs Audrey Cornish and Mrs Beverley Gothe for their assistance and to the Commonwealth Bureau of Census and Statistics and the Departments of Trade and Industry, and Customs and Excise for supplying data. Flgures In square brackets relate to references listed at the end of the article. Originally I had hoped to use an econometric model of Australian trade in the products subject to the preferences. This would have enabled me to estimate simultaneously the effect of these preferences on the quantities and unit f.0.b. values of imports from the developing countries and of trade diverted from third-party countries. This model is derived and discussed in another paper [S]. 1 A 2 THE ECONOMIC RECORD MARCH Numerical code: 1. Value of imports from LDCs at LDC preferential rate. 2. Value of imports from LDCs at rates prater than LDC preferential rate. 3. Value of imports from LDCs at rates I n s than or equal to LDC preferential rate. 4. Value of imports from non-LDCs.