Peeling Away the Layers: Impacts of Durable Tariff Elimination

Abstract

We demonstrate that durable MFN tariff elimination affects trade patterns through severallayers, which generates non-linear impacts. First, complete tariff elimination results in a largeadditional trade gains over and above tariff reductions. Second, commitment to durable tariffelimination, through WTO bindings, further boosts both imports and exports of ITAmembers. The unique setting of the WTO Information Technology Agreement (ITA) allowsus to identify these effects of non-discriminatory trade policies because (i) ITA constitutes aquasi-natural experiment as several 'passive' signatories joined it as an unavoidable part ofpursuing of a larger policy objective, and (ii) ITA's partial coverage of the IT sector providesa natural control group for cross-product identification. Commitments under the ITA spurneddevelopment of a downstream IT export sector in 'passive' signatories.

Keywords: Economic integration, World Trade Organization, Non-discriminatory Trade Policies, MFN Tariff Elimination, Information Technology Agreement, Trade Policy Certainty, Global Value Chains, Product-Level Data, Country and Industry Studies of Trade

JEL Classification: F13, F14, F15, L63