UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

The political economy of the tariff : Canada in the Kennedy Round Barkman, Patricia 1989

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata

Download

Media
831-UBC_1989_A6_7 B36.pdf [ 6.47MB ]
Metadata
JSON: 831-1.0097418.json
JSON-LD: 831-1.0097418-ld.json
RDF/XML (Pretty): 831-1.0097418-rdf.xml
RDF/JSON: 831-1.0097418-rdf.json
Turtle: 831-1.0097418-turtle.txt
N-Triples: 831-1.0097418-rdf-ntriples.txt
Original Record: 831-1.0097418-source.json
Full Text
831-1.0097418-fulltext.txt
Citation
831-1.0097418.ris

Full Text

THE POLITICAL ECONOMY OF THE TARIFF: CANADA IN THE KENNEDY ROUND by PATRICIA BARKMAN A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE i n THE FACULTY OF GRADUATE STUDIES Department of Agricul t u r a l Economics We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA September 1989 • P a t r i c i a Barkman, 1989 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of A g r i c u l t u r a l Economics The University of British Columbia Vancouver, Canada Date October 12, 1989 DE-6 (2/88) ABSTRACT Several studies have been conducted on the p o l i t i c a l economy of the t a r i f f setting process. Although the r e s u l t of these studies have been i n d i v i d u a l l y informative they have been c o l l e c t i v e l y inconclusive. This i s attributable both to the d i f f i c u l t y i n developing a model which e f f e c t i v e l y describes r e a l l i f e , and the ensuing problem of attaining the appropriate data once a model i s developed. A new model for explaining the t a r i f f s etting process, which i s based largely on these e a r l i e r works, i s developed for t h i s thesis. This model tests three separate hypotheses which influence the t a r i f f setting process. They are: 1) industry pressure groups 2) the comparative disadvantage of an industry 3) the minimization of displacement cost This model for t a r i f f determination i s applied to both nominal and e f f e c t i v e rates of protection and changes i n t a r i f f s . The goal i s to i d e n t i f y a p a r t i c u l a r hypothesis which explains the t a r i f f structure and changes i n t a r i f f s . This analysis i s conducted for pre-Kennedy Round nominal and ef f e c t i v e t a r i f f s and changes i n t a r i f f s that resulted from these negotiations. The Kennedy Round offers an interesting case for measuring changes i n the determination of t a r i f f s as i t was i n t h i s round of negotiations that Canada was given exemption from the l i n e a r reduction strategy designed out for these t a l k s . This unique role gave Canadian negotiators a certain amount of manouverability with which to streamline t h e i r strategy for reductions. To measure changes i n t a r i f f s a unique variable i s constructed from t a r i f f item data o u t l i n i n g concessions given by Canada i n the Kennedy Round. The .constructed variable i s the r a t i o of commodity items i n an industry s i g n i f i c a n t l y affected by these negotiations and t o t a l imports for that industry. As such, i t i s a measure of the breadth of t a r i f f concessions i n an industry. This variables allows for the retesting of previous hypotheses which measure the size of t a r i f f concessions. This thesis gives a cross sectional analysis of 100 standard i n d u s t r i a l c l a s s i f i c a t i o n industries using ordinary least squares regression techniques. The r e s u l t s support the hypothesis that the structure of t a r i f f s i n Canada p r i o r to the Kennedy Round was a function of comparative disadvantage variables. This h i s t o r i c a l development was l i k e l y a function of broad national p o l i c y interests. The results for t a r i f f changes, as measured by the breadth of concessions, reveal l i t t l e change i n the motives behind negotiators i n the Kennedy Round. Although special interests were inspired by the opportunity to negotiate i n these talk s the eventual outcome shows an ov e r a l l maintenance of the pre-round determination of t a r i f f s . i i i T A B L E OF CONTENTS Chapter 1 Introduction 1 1.1 Background 2 1.2 Problem Statement 5 1.3 Objectives and Proceedures 6 1.4 Thesis Outline 7 Chapter 2 The P o l i t i c a l Economy of T a r i f f Protection 9 2.1 Canadian Studies 9 2.1.1 Early Literature 9 2.1.2 Caves 10 2.1.3 Helleiner 19 2.1.4 Saunders 21 2.1.5 Baldwin and Gorecki ......23 2.1.6 Wylie ' 27 2.2 U.S. Studies 29 2.2.1 Pincus 30 2.2.2 Ray 31 2.2.3 Cheh 33 2.2.4 Lavergne 34 2.2.5 Krueger 35 2.2.6 Tullock, Brock and Magee, Findlay and Wellisz 36 2.2.7 Feenstra and Bhagwati 37 2.3 Synthesis 3 7 Chapter 3 Trade L i b e r a l i z a t i o n . 41 3.1 The L i b e r a l i z a t i o n Norm 42 3.1.1 The GATT 42 3.1.2 The Kennedy Round 43 3.1.3 Canada and the Kennedy Round ....45 3.1.4 "At the Talks" 48 3.1.5 A Summary of the Kennedy Round 52 3.2 New Protectionism - A Note on Nontariff Barriers 53 Chapter 4 Data and Regression Plan 57 4.1 Introduction to the Database 57 4.2 The Regression Plan.... 64 4.2.1 The T a r i f f Structure 64 4.2.2 T a r i f f Changes 66 4.2.3 The Explanatory Variables 67 4.2.3.1 Interest Group Variables 67 4.2.3.2 Competitive Disadvantage 72 iv 4.2.3.3 Displacement Cost Variables 75 4.3 Descriptive Analysis of Data 78 Chapter 5 Testing the P o l i t i c a l Economy Model 80 5.1 Results for T a r i f f Levels 81 5.2 Results for T a r i f f Change 87 Chapter 6 Summary, Conclusions and Caveats.. 93 Bibliography 98 Appendix A - L i s t of Variables and Definitions 102 B  TableBl: Data used to estimate the determinants of the t a r i f f structure and the Kennedy Round changes i n the t a r i f f structure..104 - TableB2: Summary s t a t i s t i c s for 100 standard i n d u s t r i a l c l a s s i f i c a t i o n industries measured i n terms of t a r i f f l e v e l and Kennedy Round concessions 112 v LIST OF TABLES Table 2.1 Summary of Sign Estimates Determining the E f f e c t i v e Rate of T a r i f f Protection i n Canada 28 Table 4.1 Summary of Hypothesized Signs... 78 Table 5.1 Determinants of the T a r i f f Structure i n 100 4-digit Canadian Manufacturing Industries 84 Table 5.2 Determinants of Kennedy Round T a r i f f Rate Changes i n 100 4-digit Canadian Manufacturing Industries 89 v i LIST OF FIGURES Figure 4.1 Frequency of T a r i f f Schedule Cuts 63 Figure 4.2 Frequency of T a r i f f of Changes i n Average T a r i f f Between 1966 and 1979 for CITC Commodity Groupings 63 v i i CHAPTER 1 INTRODUCTION The study of p o l i t i c a l economy i s "an economics that includes an adequate analysis of government action and of the mechanisms and p r e v a i l i n g philosophies of p o l i t i c a l l i f e " (Schumpeter, p.22) . The structure of protection and changes i n protection provide a useful case study of the p o l i t i c a l economic process, as protection represents a very special form of government intervention. Comparing the structure of protection with changes that occur during negotiations also reveals how p r e v a i l i n g philosophies change over time. This thesis w i l l explain the structure of protection i n Canada before the Kennedy Round of the General Agreement of T a r i f f s and Trade (GATT) and the changes i n protection as a r e s u l t of the Kennedy Round. The aim i s to i d e n t i f y the p o l i t i c a l economic interests which have dominated the decision making process of these negotiations. This thesis incorporates e a r l i e r work on the subject of the Canadian t a r i f f structure by Caves (1976), Helleiner (1977), Saunders (1980), and Baldwin and Gorecki (1985). Along with a re-examination of these studies using a uniform database, t h i s thesis 1 2 w i l l expand on e a r l i e r works by developing a new variable to measure t a r i f f changes. This variable was constructed as a measure of the breadth of t a r i f f concessions which were given i n the Kennedy Round of the GATT negotiations. The model developed for t h i s thesis outlines three primary hypotheses which describe d i f f e r e n t p r i n c i p l e s l i k e l y to influence decision makers i n the t a r i f f setting process. 1) Pressure groups - where governments respond opportunistically to el e c t o r a l support. 2) Comparative disadvantage - where governments respond to the needs of less competitive industries. 3) Displacement costs - where governments respond to the needs of declining industries. These hypotheses are not unambiguously d i s t i n c t , as national e f f o r t s to protect internationally disadvantaged or declining industries may be a function of the interests such industries provoke. They are distinguished, however, because the behaviour that motivates the protection of comparative disadvantage industries may exceed p o l i t i c a l leverage. As such, even though interest groups are generally endogenous i n the decision making process they may s t i l l be overruled by some other p r i n c i p l e s for decision making. 1.1 Background Under the auspices of the GATT, several negotiating rounds 3 have taken place, each with the goal of systematically reducing t a r i f f s . The sixth round of these negotiations, the Kennedy Round, conducted between 1962 and 1967, stands out as the most comprehensive move to reduce t a r i f f s world wide since the beginning of the GATT. The Kennedy Round was to achieve i t s objectives within the GATT t r a d i t i o n that welfare gains from trade were best made i n a m u l t i l a t e r a l environment. At the same time, trade p o l i c y was to ensure that there were no s i g n i f i c a n t reductions i n income to any s i g n i f i c a n t sector of the community. This meant that trade l i b e r a l i z a t i o n , as a means of exploiting comparative advantage, was only limited by the potential harm i t can impose on re a l incomes i n a community. Understanding the p o l i t i c a l motives underlying the decision making process and the subsequent forces a f f e c t i n g trade l i b e r a l i z a t i o n are important i f major changes i n t h i s area are to come about. An h i s t o r i c a l view of the Canadian t a r i f f sheds some l i g h t on the p o l i t i c a l process that provoked the present structure of protection. Canadian development, l i k e that of most other i n d u s t r i a l nations, has been supported by t a r i f f s . Over the hundred years s t a r t i n g i n 1850 the t a r i f f l e v e l shows r e l a t i v e s t a b i l i t y with only intermittent, extreme increases. Such extremes were generally motivated by economic hard times, and thus r e f l e c t c e r t a i n motives for t a r i f f implementation. Through the l e g i s l a t i v e process t a r i f f reductions occurred slowly over time, u n t i l the consolidated forum of the GATT. In general, t a r i f f l e v e l s were somewhat lower by 1950 than they had 4 been i n the post national policy days of the l a t e nineteenth century. For the f l e d g l i n g Canadian economy, t a r i f f s were implemented as a means to enhance development. Without t a r i f f s between Canada and the United States: the Canadian economy would have developed as a fragment of a larger economy, trade would have moved i n response to economic and geographical forces and, lacking a separate economic foundation, the p o l i t i c a l structure of the country would gradually have become enmeshed with the U.S. (Helleiner, 1980 p.9) The argument against t a r i f f s i s that they have been a " d i v i s i v e rather than a cohesive force" (Helleiner, p.10) i n Canadian development by i n h i b i t i n g e f f i c i e n t production a c t i v i t i e s and thereby creating an economic gap between Canada and the U.S. I n e f f i c i e n t production capacity i n Canada i s viewed as a d i r e c t result of trade barriers and as such has become a major concern for trade p o l i c y makers. In summary, the p r i n c i p a l elements of the t a r i f f s etting process i n the early stages of Canadian development included B r i t i s h preference, r e c i p r o c i t y with the U.S., revenue needs, protection for secondary manufacturing, and regional pressures. The motives behind these h i s t o r i c a l determinants of t a r i f f s . a n d how they have changed over time are what has inspired t h i s research. 5 1.2 Problem Statement A problem statement addresses the analytic issue which a thesis proposes to answer. Describing the p o l i t i c a l economy of protection a n a l y t i c a l l y i s the problem to be addressed i n t h i s thesis. This description involves an i d e n t i f i c a t i o n of several analytic variables which act as proxies for r e a l l i f e behaviour. Extensive research has been conducted on the subject, however with very l i t t l e conclusive evidence on the explaination of the structure of protection. This i s largely due to the fact that a p o l i t i c a l economic interpretation can often be provided for any r e s u l t . This means that there can be no right or wrong answer, only speculation. This thesis w i l l , once again, address the problem of explaining the structure of protection in Canada, but with the added feature of a unique variable which defines changes i n protection. This new measure of changes i n protection i s developed as an alternative to more standard measures of change which are often characterized by measurement problems. This thesis i s conducted with the objective that a more descriptive measurement of t a r i f f changes w i l l help c l a r i f y the decision making process. Understanding t h i s process i s integral to finding a solution to the economic problems generated by protection. 1 1 In t h i s thesis, protection refers primarily to t a r i f f protection, n o n t a r i f f protection, as part of the analytic framework, i s largely neglected. This i s due primarily to the fact that nontariff b a r r i e r s are d i f f i c u l t to measure and thus may not generate any conclusive information to an analysis of the structure 6 1.3 Objectives and procedures The analysis of the p o l i t i c a l economy of the t a r i f f structure in Canada has not been e n t i r e l y conclusive both as a r e s u l t of the very complex nature of the f i e l d and the r e s t r i c t i o n s imposed by the available data. This thesis focuses on one aspect of these s h o r t f a l l s - the data. Through a meticulous analysis of the t a r i f f reduction process, a new variable measuring t a r i f f change i s developed i n order to re-test the processes behind t a r i f f changes. The determinants of change associated with the Kennedy Round of the GATT are examined by i d e n t i f y i n g the structural variables associated with these t a r i f f changes. As well as measuring t a r i f f changes t h i s thesis w i l l analyze the structure of protection p r i o r to the Kennedy Round negotiations. This w i l l establish the i n i t i a l determinants of protection with which to compare the structure of change. As noted e a r l i e r , t h i s study draws much of i t s a n a l y t i c a l framework from e a r l i e r work on the p o l i t i c a l economy of Canadian t a r i f f s by Caves (1976), Helleiner (1977), Saunders (1980) and Baldwin and Gorecki (1985). An extensive analysis of the p o l i t i c a l economy of U.S. t a r i f f s by Lavergne (1983) i s also an important source for t h i s work. The data used i n t h i s research, i s made up of a combination of Kennedy Round t a r i f f concession data published by the of protection. 7 Department of Regional and Industrial Expansion (DRIE) and structural data published by S t a t i s t i c s Canada. The sample includes 100 manufacturing industries from S t a t i s t i c s Canada 4-d i g i t Standard Industrial C l a s s i f i c a t i o n . The major research technique i s ordinary least squares regression analysis. Each of the aforementioned works i s an analysis of the t a r i f f structure. Helleiner, Baldwin and Gorecki, and Lavergne added to t h e i r work an analysis of changes i n t a r i f f s . As a measure of change these studies use the difference between the average nominal and e f f e c t i v e rates of protection between years as a measure of t a r i f f change. This thesis w i l l compare t h i s measure of change with the new variable. 1.4 Thesis outline This thesis w i l l consist of s i x chapters including the introduction. Chapter 2 i s a review of the l i t e r a t u r e on the determinants of t a r i f f protection. This includes analysis of both Canadian and U.S. l i t e r a t u r e on the p o l i t i c a l economy of t a r i f f s . This chapter w i l l evaluate these findings i n terms of each other keeping i n mind the variance i n p o l i t i c a l and economic influences between countries. Chapter 3 looks at trade l i b e r a l i z a t i o n , with p a r t i c u l a r interest i n the Kennedy Round of the GATT. This includes a look at the casual journalism of the day to i d e n t i f y any pr e v a i l i n g philosophies which may have influenced the negotiations. This 8 chapter concludes with a b r i e f description of the new protectionism which was born out of l i b e r a l i z a t i o n . Chapter 4 introduces the data base and the unique measure of changes i n t a r i f f protection. The model for analysis i s described i n t h i s chapter and the performance variables of interest to t h i s research are introduced. The summary section of t h i s chapter gives a descriptive comparison of the performance variables for three d i s t i n c t industry groups. Chapter 5 uses the performance variables to explain the structure of t a r i f f s and the changes i n t a r i f f s . The res u l t s for explaining the t a r i f f structure are outlined i n the f i r s t section followed by an analysis of results for t a r i f f changes. Chapter 6 w i l l o f f e r a summary and conclusions to t h i s research including.any q u a l i f i c a t i o n s and caveats. 9 CHAPTER 2 THE POLITICAL ECONOMY OF TARIFF PROTECTION This chapter reviews recent l i t e r a t u r e on the p o l i t i c a l economy of t a r i f f s i n Canada and the U.S. Each of these studies i s characterized by an analysis of the p o l i t i c a l economy of the t a r i f f setting process. This chapter i s divided into 3 sections. The f i r s t section looks at recent studies of the determinants of the Canadian t a r i f f structure. This analysis i s followed by a review of studies r e f e r r i n g to the determination of t a r i f f s i n the U.S. The f i n a l section of t h i s chapter summarizes the findings of these studies paying attention to how the determinants of t a r i f f s i n Canada d i f f e r from those i n the U.S. 2.1 Canadian Studies 2.2.1 Early Literature W.A. MacKintosh (1939) believed that the pattern of protection i n Canada was the re s u l t of bargaining among regions. He took a normative approach, i n which government plays an 10 exogenous role, to his analysis which traced the r o l e of p o l i t i c s i n t a r i f f determination. MacKintosh noted a general c o n f l i c t i n the negotiation process among sectoral interests i n the economy. He also recognized the growing interplay between t a r i f f and nontariff barriers and the e f f e c t t a r i f f s had. on resource a l l o c a t i o n and income d i s t r i b u t i o n . Later works on the subject, such as those described below, r e f l e c t the pioneering work of MacKintosh, however, these studies treat government as an endogenous factor influencing an economy's structure and performance. Wilgress (1950) suggested that the structure of t a r i f f s i n the early stages of Canadian development r e f l e c t e d a pattern of pr e f e r e n t i a l treatment with the B r i t i s h . He writes that, i n the e a r l i e s t stages of Canadian economic development the motivations of p o l i t i c i a n s was to ensure the growth of a strong i n d u s t r i a l economy. If t h i s required p r o t e c t i o n i s t measures then they were openly granted - domestic development was the key. He also noted an h i s t o r i c a l l y protected manufacturing sector while freer trade i n natural resources was promoted. 2.1.2 Caves Richard Caves (1976), i n his paper "Economic models of P o l i t i c a l Choice: Canada's T a r i f f Structure", examines the p o l i t i c a l decision making process that has generated t a r i f f s on Canadian secondary manufactured goods. Throughout h i s analysis 11 Caves maintains that the structure of the t a r i f f r e f l e c t s the structural t r a i t s of industries. Caves posits three "economic models of p o l i t i c a l choice" which he uses to describe the Canadian t a r i f f structure. These models are l i s t e d and discussed below along with the r e s u l t s . (1) The Adding Machine Model In t h i s model governments act to maximize the p r o b a b i l i t y of re-election. The government's u t i l i t y function acts as an adding machine t o t a l l i n g votes attained from d i f f e r e n t p o l i c i e s . P o l i c i e s are accepted or rejected based on t h e i r vote-getting potential. The primary axiom within which t h i s model operates i s that "labour has votes" (Caves p.283). T a r i f f s a f f e c t income d i s t r i b u t i o n and since wage income i s more evenly dispersed among individuals than non-wage income we expect labour intensive (wage income) industries to win the highest t a r i f f rates. This i s i n keeping with the Heckscher-Ohlin theorem which implies that a t a r i f f on a r e l a t i v e l y labour intensive good w i l l r a i s e the r e a l wage rate i n the economy. Caves adds that a t a r i f f often harms the general public through higher prices while benefiting income recipients of given industries. The public's loss tends to exceed the income gain ( t a r i f f + deadweight loss), and the number of consuming voters tends to exceed the number of benefiting voters. T a r i f f s w i l l be 12 high i n labour intensive industries as voters i n these industries are generally better organized. Consumers on the other hand often f a i l to perceive t h e i r losses or f i n d countering action too costly. With t h i s i n mind i t seems certain that an industry's access to t a r i f f s i s dependent upon what i t can o f f e r the government i n terms of e l e c t o r a l support. The adding machine model posits value added per worker (VPW), four firm s e l l e r concentration (CR4), transport costs (TRN), minimum e f f i c i e n t scale (MSC), and geographic dispersion (GEG) as the major determining variables i n the l e v e l of industry t a r i f f s . Caves states that i f value added per worker i s low then the industry i s generally considered labour intensive - lower value added per worker implies more workers benefit by a t a r i f f that insulates a given amount of value from import competition. For his study Caves uses value added per worker (VPW) as a determinant of the size of t a r i f f . I f VPW i s high he expects the t a r i f f to be low. E l e c t o r a l support i s measured as a combination of geographic dispersion and d i f f u s i o n of enterprises. These variables act as a proxy for industry decentralization. Caves sees decentralized economic a c t i v i t y as holding more weight when the votes are t a l l i e d than variables such as industry s i z e . Diffusion of enterprises i s measured using concentration r a t i o s which are an inverse measure of an industry's dispersion among enterprises. Caves uses CR4, the percentage of an industry's shipments accounted for by the largest four firms i n 1968. CR4 i s predicted 13 to be negatively related to t a r i f f s . Caves uses TRN, the weighted average of r a i l and truck shipping costs per d o l l a r s worth of product between Cleveland and Chicago as an additional measure of dispersion. I f transport costs are high a greater dispersion of firms i s expected i n order that the industry may avoid such costs, t h i s does not include industries whose customers are geographically concentrated. Caves states that high TRN, which means dispersion of industries, implies t a r i f f - g e t t i n g power. Caves also relates geographic dispersion and economies of scale. This hypothesis assumes that scale i s less than optimal i n Canada (partly due to t a r i f f s ) , and US firms' plant s i z e i s correlated to minimum e f f i c i e n t scale. MSC, shipments by the Canadian industry i n 1967, expressed i n units of average shipments per plant i n the corresponding U.S. industry are used as a measurement of diseconomies of scale. The smaller the r a t i o the greater the diseconomies of scale i n Canada. Protection w i l l buy votes "where the Canadian market can sustain a large number of plants that are of e f f i c i e n t scale" thereby increasing p r o f i t potential (Caves 1976 p.285). GEG, the percentage of employees located outside of Quebec and Ontario i n 1963 i s also used to represent decentralization i n the sense that i t defines more l o c a l i z e d industries which tend to dominate the region. Generally speaking, Ontario and Quebec industries rarely dominate a region and each w i l l compete with the other for p o l i t i c a l favours. Caves expects a po s i t i v e 14 relationship between GEG and t a r i f f s . In summary, the predicted signs for the adding machine model are summarized, negative for VPW and CR4, and p o s i t i v e for MSC, TRN and GEG. (2) The interest group model This model explores the access of inter e s t groups to the tariff-making process i n Canada. Caves develops two major aspects of the interest group model. The f i r s t incorporates the costs and benefits of seeking and obtaining protection. The big issue here i s the free r i d e r problem i n which a firm can hold back i t s contribution to lobbying a c t i v i t i e s and "free r i d e " on t a r i f f protection obtained by industry. This problem i s expected to increase with the number of s e l l e r s who may benefit from protection. Caves predicts a posit i v e r e l a t i o n between CR4 and t a r i f f s as concentrated industries have less of a free r i d e r problem. Alternatively, he presents the p o s s i b i l i t y of a negative relationship between CR4 and t a r i f f s . The l o g i c i s that entrepreneurs generate broad-based support for protection. MSC measures diseconomies of scale or non concentrated industry. Caves also suggests that opposition to t a r i f f by buyers i n the market i s dependent upon t h e i r own concentration and a b i l i t y to lobby. This leads to the implication of a negative relationship between BCR, a buyer concentration variable and t a r i f f s . The more 15 concentrated the buyers of raw materials are the more able they are to lobby against t a r i f f s . Incentives to lobby are another important issue i n the interest group model. These incentives are a function of the net increase i n p r o f i t s derived from t a r i f f s and the responsiveness of the p o l i t i c a l process to lobbying. Generally speaking the p o l i t i c a l process i s more receptive i f the industry i n question i s , or has been, exposed to economic adversity. Caves predicts a positive structural r e l a t i o n between an industry's propensity toward economic adversity and t a r i f f s . In describing the str u c t u r a l t r a i t s of t a r i f f s Caves also includes the growth rate, GRO. The t a r i f f i s expected to be negatively related to GRO. NSP, one minus the industry s p e c i a l i z a t i o n r a t i o , i s also used i n t h i s model as a measure of d i v e r s i f i c a t i o n . The relationship between t a r i f f s and NSP i s predicted negative. An industry i s more vulnerable to import competition when i t i s not d i v e r s i f i e d . Value added per worker and MSC, a measure of economies of scale are repeated i n t h i s model. F i n a l l y , "an industry i s more vulnerable to import competition, the less natural protection i t enjoys from transportation costs, TRN" (Caves p.289). A l l the signs are predicted negative except for the sign on CR4 which i s predicted to be weakly po s i t i v e . (3) The national p o l i c y model. This model states that t a r i f f protection for Canadian manufacturing has been incorporated i n national policy from the 16 e a r l i e s t stages of Canadian economic development. The t a r i f f structure generally r e f l e c t s a preference for domestic i n d u s t r i a l i z a t i o n while promoting P r a i r i e settlement and a national transport system. Caves considers what structural t r a i t s of manufacturing industries might make them "a t t r a c t i v e or unattractive" to a n a t i o n a l i s t i c goals. Goals should adhere to the development of a balanced economy with a l l sectors represented (Young 1957 p.45). Caves describes t a r i f f s as a p o l i c y instrument used to help develop a balanced economy. Adhering to the law-of-one-price domestic prices equal prices of imports plus the t a r i f f . This allows domestic industry to compete i n varied markets assuming t h e i r goods are equal substitutes. Caves predicts that t a r i f f s are proportional to the productivity advantages that foreign industries enjoy over t h e i r protected Canadian counterparts. RPR i s used to represent r e l a t i v e U.S. Canada value added per worker and i s expected to increase as t a r i f f s increase. Middle-class jobs might also be s i g n i f i c a n t i n terms of n a t i o n a l i s t i c preferences. This i s measured by NPC, the proportion of non-production workers i n the labour force multiplied by average wages per non-production worker. Caves also employs VRT, value added i n an industry divided by the value of i t s shipments, 1967. This measures the depth of the i n d u s t r i a l process and i s expected to be p o s i t i v e l y related to t a r i f f rates. VPW, GRO, MSC and GEG are also used' i n t h i s model with the same predicted signs as previously sp e c i f i e d . 17 (4) S t a t i s t i c a l Procedures and Results Caves conducts his analysis of the Canadian t a r i f f structure on a cross sectional basis. He assumes long run equilibrium with the p o s s i b i l i t y of only random displacement of any independent variable. Despite the fact that the Canadian t a r i f f has undergone changes over the past century Caves assumes that the structure has changed l i t t l e over time (Young 1957, p.48-54). Even where rates have changed many times as a r e s u l t of sectoral s h i f t s i n p o l i t i c a l power these, s h i f t s are considered only marginal i n the long run. The e f f e c t i v e rate of protection (ERP) and the nominal rate of protection (NRP) are used as the dependent variables. Caves considers e f f e c t i v e rates to be a better measure of the true cost of resource a l l o c a t i o n and the "true proportional i n f l a t i o n s of payments to Canadian factors permitted by t a r i f f s " (Caves p.292). The sign results of the three models are displayed i n Table 2.1. The results for the dependent variable ERP give the interest group model the best s t a t i s t i c a l value based on s i g n i f i c a n t variables and correct signs. CR4 i s signed negative i n support of the hypothesis that governments are less l i k e l y to protect concentrated, powerful industries. The national policy model has moire correct signs then the interest group model but lower s t a t i s t i c a l significance. The adding-machine model has too many wrong signed, s i g n i f i c a n t variables to make i t a good model. Upon examination of the c o e f f i c i e n t s Caves found MSC to be 18 the most important explanatory variable for t a r i f f rates. CR4 and TRN are the next most s i g n i f i c a n t . VPW i s s i g n i f i c a n t i f CR4 i s excluded from the model. The explanatory value of VRT and GEG varies with the model s p e c i f i c a t i o n . With the variable VPW deleted from the model CR4, TRN and MSC are p a r t i c u l a r l y robust. The equations run with the dependent variable NRP show an o v e r a l l s i m i l a r i t y with those run with ERP as the dependent variable. Coefficients s i g n i f i c a n t for ERP are generally s i g n i f i c a n t for NRP although NRP's regression c o e f f i c i e n t s are much smaller - Caves associates this' with the smaller variance of the nominal t a r i f f series. In summary, Caves work emphasizes the prevalence of economic goals i n the p o l i t i c a l context. Although h i s s t a t i s t i c a l tests y i e l d weak resu l t s , subject to many q u a l i f i c a t i o n s broad support i s given to the inte r e s t group model. He attributes the success of the interest groups to: a more continuous mechanism of adjustment of the t a r i f f structure (which) may have emerged i n the l a s t four decades with the r i s e of administrative t a r i f f -making and negotiated international t a r i f f reductions. By taking t a r i f f changes out of the parliamentary arena t h i s s h i f t may increase the scope for accommodation among pressure groups by making the process less v i s i b l e to the general public, (p.292) Of a l l international t a r i f f negotiations to date the Kennedy Round was by far the most comprehensive i n terms of s i g n i f i c a n t t a r i f f cuts. As such i t i s possible to t e s t Caves view that "the scope for accommodation among pressure groups" has indeed increased over the past four decades as the process becomes less 19 v i s i b l e to the general public. This thesis w i l l t e s t whether the Kennedy Round negotiated t a r i f f reductions support Caves inter e s t group model for the p o l i t i c a l economy of t a r i f f s . 2.1.3 Helleiner Helleiner (1977) develops an alternative to Caves' in t e r e s t group model with two primary differences. F i r s t Helleiner attempts to incorporate certain international p o l i t i c a l influences into the other purely Canadian influences of the model, and, secondly, he changes certain domestically i n f l u e n t i a l variables. Helleiner believes that the exclusion of foreign country influences i n Caves' model i s a major flaw. He points to the p r i n c i p l e s of r e c i p r o c i t y and non-discrimination which lead to GATT bargaining v i a reciprocal granting of concessions among dominant suppliers of p a r t i c u l a r products. Helleiner states that t h i s has,led to an imbalance i n the power of negotiators as those most able to make (valuable) concessions are the ones who gain access to foreign markets. A major consequence of t h i s i s that t a r i f f cuts i n manufactured products i n which less developed countries are most competitive are often lowest. Helleiner believes t h i s i s because less developed countries have l i t t l e to bargain with and developed countries have more to fear. The two variables most frequently used to predict the less developed countries (LDC) share of developed countries' imports are the average wage and the extent to which value added r i s e s 20 with scale. The hypothesis i s that i f the weak bargaining strength of the LDC influences the t a r i f f structure i n Canada i t w i l l manifest i t s e l f i n high t a r i f f l e v e l s for those industries which are unskilled and labour-intensive, and have c h a r a c t e r i s t i c a l l y small increases i n value added per person. Helleiner uses wages (W) as the independent variable used to represent the aforementioned hypothesis as compared with Caves value added per worker variable. He predicts a negative correlation between nominal t a r i f f s and wage rates. Helleiner also tests value added per worker (T) and a measure for economies of scale (E) (because of the ro l e of low scale industries i n LDCs). He proxies the free r i d e r problem by concentration (M) and the proportion of the work force employed in small firms (F) . Both variables are p o s i t i v e l y correlated with t a r i f f l e v e l s . A unique variable in Helleiner's study i s a measure for natural resources. In the case of resource-intensive manufactured imports the threat to Canadian processing motivates high t a r i f f s for these resources. At the same time, however, Canada's resource intensive export industries may not need protection. Helleiner states that perhaps the dominating influence of resource exporting industries i n Canada may have led to r e l a t i v e l y free trade i n a l l resource related products and that t h i s has generated the sector approach i n the current GATT negotiations. Helleiner measures the determinants of t a r i f f s f or 1961 and 1970. The sign results are given i n table 2.1. These years are used by him as benchmarks for pre and post Kennedy round data. He also estimates equations for the absolute changes i n both nominal and e f f e c t i v e rates between 1961 and 1970. Unskilled labour i n t e n s i t y i s the most s i g n i f i c a n t explanatory variable i n Helleiner's models for the determination of t a r i f f s . The model explaining changes i n t a r i f f support the hypothesis that CR4, natural resource intensity and the proportion of an industry's labour employed i n small firms determine change. 2.1.4 Saunders Saunders (1980) investigates the p o l i t i c a l economy of ef f e c t i v e t a r i f f protection i n Canada's manufacturing sector. He asks what market structure c h a r a c t e r i s t i c s are consistent with p o l i t i c a l pressure to maintain high e f f e c t i v e t a r i f f s . In his introduction Saunders supports the view that the combination of small market size and high l e v e l s of e f f e c t i v e protection i n Canada contribute to weak productivity performance i n Canadian manufacturing. This occurs because of the t a r i f f ' s e f f e c t on domestic prices and through the encouragement of American subsidiaries i n Canada. Saunders uses e f f e c t i v e t a r i f f protection as the dependent variable. He associates i t with foreign ownership (FSE), export shares (EXP), unit transportation costs (TRN), r e l a t i v e Canada / U.S. labour productivity (ZQ), the r a t i o of value added per employee i n Canada with that of the U.S. (RPR) and s e l l e r concentration (C468). Other variables i n Saunders model are an industry's cost disadvantage r a t i o (CDRU), an employees to assets r a t i o (LABC), a measure of scale (MABU), value of shipments (SC) , and MABU / SC (MESCD). The s e l l e r concentration industries are more l i k e l y to be correlated with t a r i f f s i f foreign ownership i s r e l a t i v e l y low. Saunders' work i s largely an extension of that of Caves (1976) and Helleiner (1977). The c l e a r innovation i s the use of two-stage-least-squares (2SLS) estimation procedure i n order to account for the interactive relationship between the variables FSE, EXP, ZQ and C4 68 and the e f f e c t i v e rate of protection. He sets up a l i n e a r s p e c i f i c a t i o n using e f f e c t i v e t a r i f f s as the dependent variable. Saunders finds that r e l a t i v e labour productivity and exports as a share of t o t a l output s i g n i f i c a n t l y influence t a r i f f s i n the ordinary least squares analysis. Concentration and foreign ownership increase i n significance when 2SLS analysis i s used, productivity and export shares remain s i g n i f i c a n t . A l l of Saunders* interest group variables ( l i k e those i n Caves models) were i n s i g n i f i c a n t and often wrong signed. Labour productivity i s signed negative meaning that industries which are r e l a t i v e l y i n e f f i c i e n t (when compared to t h e i r U.S. counterpart) receive e f f e c t i v e protection. EXP i s negatively signed supporting the view that industries which export a large proportion of t h e i r t o t a l shipments do not lobby for protection. CR4 supports the narrow based inter e s t group model while the negative sign on FSE suggests that governments do not protect foreign subsidiaries. Table 2.1 gives a synopsis of Saunder's analysis. 2.1.5 Baldwin and Gorecki Baldwin and Gorecki (1985) explain the t a r i f f s etting process i n p o l i t i c a l economic terms by measuring the benefits of t a r i f f s against the costs. The benefits of a t a r i f f , which they relate to t h e i r industry's cost disadvantage, are weighted against the costs of organizing for p o l i t i c a l support. Baldwin and Gorecki use S t a t i s t i c s Canada data for the years 1966 and 1970. This i s the period which "spans the implementation of the Kennedy Round t a r i f f cuts". They describe t h e i r work as an extension of other Canadian studies on the subject using a more extensive data base and a model which combines past work with a more general focus on the s p e c i f i c a t i o n . Baldwin and Gorecki model the t a r i f f s e t t i n g process within the standard demand and supply framework used i n economic analysis. Producers or factors of production demand certain rights while the governing p o l i t i c a l party i s the supplier. The t a r i f f l e v e l emerges from a process that maximizes the benefits received by rent-seekers minus t h e i r lobbying costs. Both costs and benefits are a function of the t a r i f f l e v e l . The benefits curve accruing to an industry i s assumed to depend upon two c h a r a c t e r i s t i c s of an industry's supply curve: i t s cost disadvantage and the e l a s t i c i t y of supply. As the cost disadvantage of an industry increases, the maximum quasi-rents from a prohibitive t a r i f f increase. The position and slope of the cost curve depends upon the government's willingness to grant protection and the rent-seekers a b i l i t y to organize. Lobbying costs are an increasing function of the t a r i f f , and are dependent upon the ease with which industries can organize (and overcome the free r i d e r problem). Lobbying costs are also assumed to vary inversely with the l e v e l of the t a r i f f being sought. Baldwin and Gorecki divide t h e i r l i s t of variables into 3 groups: those that represent benefits of t a r i f f s to producers, those that r e f l e c t cost of lobbying a c t i v i t i e s and those that attempt to catch the government's willingness to grant protection. Competitive disadvantage variables are used on the understanding that these industries need protection i n order to remain i n the market. These industries benefit more from protection and are thus associated with a higher t a r i f f l e v e l . To capture the concept of comparative advantage Baldwin and Gorecki use factor intensity variables (EVA, RAW, RD). Cost disadvantage i s measured by the degree to which economies of scale are u t i l i z e d (RELSIZ, MES, RELDIV) and trade flows (EXP, TARFD). A measure of productivity (RELWAG) and cost differences (RELPROD) between Canada and the U.S. i s also considered as a proxy for competitive disadvantage. The l i k e l i h o o d of benefits from t a r i f f s i s also measured by e l a s t i c i t y of supply i n an industry-. That i s , the more quickly an industry i s able to adjust production i n a more competitive environment affects the greater w i l l be the benefits form freer trade. Baldwin and Gorecki measure industry adversity (VAR) and lack of growth (GRO) as a gauge of supply i n e l a s t i c i t y . An industry's a b i l i t y to adapt - i t s resource mobility - i s measured by d i v e r s i t y (DIV) and value added small plant per Targe plants (CDR). Baldwin and Gorecki note that the benefits of protection can be dissipated i f foreign r e t a l i a t i o n r e s u l t s . Multinationals are most l i k e l y to appreciate the benefits of free trade so foreign ownership may be negatively related to t a r i f f protection. Contrary to t h i s i s the argument that t a r i f f s have led to foreign investment by multinationals and short run adjustments for these firms would be costly. The percentage of imports from U.S. made by foreign controlled firms (PERFOR) and the percentage of domestic sales accounted for by foreign owned firms (FO) are used to separate these opposing influences. Product d i f f e r e n t i a t i o n or e l a s t i c i t y of demand i s incorporated into the model with an advertising to sales r a t i o (AD). The cost side of t a r i f f protection - the private costs of organizing - Baldwin and Gorecki measure using MES, RELSIZ, C0N4, and a working owners to c a p i t a l r a t i o (WKOWN). Public acceptance of the t a r i f f i s measured by PRODGOOD, a dummy variable for consumer goods producers versus non-consumer goods producers. The extent to which broad-based or narrow-based support a f f e c t s the t a r i f f making process i s measured using several variables. Broad based support i s measured by the number of salary and wage earners in an industry (SIZE), the market share of multiplant establishments (MPLNT), and a regional dummy (REG). Narrow-based support or special interests are measured by EVA, FO, MES, and RCR. In the instances where the same variable may a f f e c t the rent-seeking process for more than one reason Baldwin and Gorecki express the need for caution i n the interpretation. They use the ef f e c t i v e t a r i f f rate (ERP) as the dependent variable rather than nominal t a r i f f s , since e f f e c t i v e rates measure the potential "percentage increase in factor payments created by t a r i f f protection". A summary of t h e i r r e s u l t s i s given i n table 2.1. In general, t h e i r results point to the influence of competitively disadvantaged industries i n the structure of protection. This i s captured i n r e l a t i v e productivity, export intensity, r e l a t i v e wages and the regional variable. Broad-based voter support also appears to be important while variables intending to capture narrow based support show l i t t l e success. The determinants of t a r i f f changes i n the Kennedy Round show that "cuts were largest where the benefits from existing t a r i f f s were l e a s t " (Baldwin and Gorecki 1985 p.47). As i n the structure model broad based interests are given further support however, i n terms of constituency support as opposed to "s i z e " support. "This suggests a p o l i t i c a l process that was trading o f f numbers of votes for greater geographical coverage." (Baldwin and Gorecki p.48) 27 2.1.6 Wylie In a paper work e n t i t l e d "The National Policy T a r i f f s : 1900 and 1910" P.J. Wylie (1988) conducts an empirical analysis of early Canadian t a r i f f s . He develops two models for t a r i f f determination i n Canada in the early 1900*s. The f i r s t model, which he c a l l e d the national p o l i c y model, stated that t a r i f f s were meant to promote i n d u s t r i a l development. As such, they should vary with variables such as economic and population growth maximization, desired trade flow r e - d i r e c t i o n and optimal r e t a l i a t i o n to t a r i f f s on domestic exports, especially the U.S. The second model i s the captured state model i n which t a r i f f s should vary with the potential p r o f i t a b i l i t y of protection to industry members, the cost of lobby organization and potential for p o l i t i c a l influence. This model i s based on the theory of public choice. Although the results of Wylie's work were generally inconclusive the analysis did point to high t a r i f f s i n c a p i t a l and s k i l l intensive industries with high, value added. His study also points, a l b e i t weakly, to the effectiveness of lobbying when costs of c o l l e c t i v e action are lowest. In summary, these t a r i f f s begin to r e f l e c t a high l e v e l of t a r i f f adaptation to the p o l i t i c a l and economic environment - the increasing force of interest groups. They also point to a s t r i k i n g difference i n the interests of turn of the century 28 TABLE 2.1: SUMMARY OF SIGN ESTIMATES DETERMINING THE EFFECTIVE RATE OF TARIFF PROTECTION IN CANADA: 1 Independent Variable Caves Var N=29 A-M I -G N-P . Helleiner Var 1961 N=87 1970 Saunders Var N OLS =45 2SLS Baldwin Gorecki Var and N 1966 i =108 j 1970 j Concentration - a b i l i t y to lobby, no free-rider CR4 - * M + F + C468 + - RCR . * _ • i Labour intensity - t a r i f f and income distribution VPW + + * . * U - * R + • _ * + LABC + -• EVA WAGE . * . * _ * 1 _ * 1 Dispersion of enterprises -vulnerability to imports TRN _ * • TRN - REG INTRA . * _ * _ * 1 Decentralization - ina-b i l i t y to lobby GEG _ * -Buyer concentration -offset industry lobby BCR + PRODG . * _ * % of sales accounted for by foreign owned firms FSE + . * FO + * Middle class jobs -Broad-based national policy NPC + MPLNT SIZE + * + * . *! Canada/U.S. productivity - comparative advantage RPR + ZQ - - RELPR RELWAG . * . * 1 + *! Natural resource vari-able - comparative ad. N + * - RAW + * j Value added/shipments thick industrial process VRT + VAS + * i Export sales ratio -competitive disadvantage EXP . * . * EXP CDR -Cost competitiveness -ut i l i z a t i o n of scale MSC - * * - * E + - MESCD - + MES i Specialization - vulnera-b i l i t y to imports NSP - AD - * Growth - troubled in-dustry GRO - + GSI + + GR _ * i nontariff barriers -i i TARFD + * + * i * S t a t i s t i c a l l y significant p o l i t i c a l economy forces where s k i l l intensive rather than labour intensive industries receive protection. 2.2 U.S. studies The studies can be distinguished by two d i s t i n c t approaches to the analysis of U.S. t a r i f f s . The work of Pincus, Ray, Cheh and Levergne, l i k e the studies of Canadian t a r i f f s described i n section 2.1, involves developing a simple model for the p o l i t i c a l economy of t a r i f f s . This i s i n contrast to Krueger, Tullock, Brock and Magee, Findlay and Wellisz, and Feenstra and Bhagwati who bring into the standard trade model a p o l i t i c a l l y determined variable. In so doing they t r y to incorporate the cost of rent seeking i n order to get a more general equilibrium measure of the 1* costs of protection. 2.2.1 Pincus Pincus (1975) measures econometrically the effectiveness of pressure groups i n determining the structure of t a r i f f s . He analyzes the 1824 U.S. T a r i f f Act, which raised duties s l i g h t l y , assuming that d i f f e r e n t duties passed by congress were influenced by pressure from interested economic groups. Pincus then postulates that i t i s the c h a r a c t e r i s t i c s of industry that determine the concomitant costs and benefits of protection. As such, greater group e f f o r t w i l l occur with fewer individuals to reap benefits i f benefits are more concentrated. The intensity of the group e f f o r t s i s dependent upon geographical dispersion of individuals (as information costs increase with distance p a r t i c u l a r l y i n pre-1900's). Pincus develops a model to explain nominal duties where t a r i f f s are a function of the size of the change i n value added as a r e s u l t of the t a r i f f , the number of inputs i n the industry and the rates of duty on each, the number of potential pressure groups and t h e i r d i s t r i b u t i o n , and congressional variables l i k e senators and representatives. Pincus's regression results showed the t a r i f f structure was generally r e f l e c t i v e of s p e c i f i c economic interests rather than general p r i n c i p l e s . I t appears that the most intense pressure for protection came from industries with lower proportional incomes, higher i n d u s t r i a l concentration of output and geographic concentration. In his concluding remarks Pincus contrasts the s t r u c t u r a l foundation of t a r i f f s i n 1824 with that of the early 1900's. In 1824 the pattern of protection reflected a transformation from early stages of commerce and agriculture to manufacturing and t h i s more f a i t h f u l l y represents pressure group successes. Measures of contemporary protection are complicated by nontariff b a r r i e r s such as quotas, subsidies and tax credits. 31 2.2.2 Ray E.J. Ray (1981) develops a model for the determination of t a r i f f b arriers to trade across industries i n the U.S. using 1970 trade data. He adds to his analysis the incidence of n o n t a r i f f barriers, what determines them, and t h e i r increasing r o l e i n protection. He-suggests that t a r i f f s and n o n t a r i f f b a r r i e r s are biased towards industries i n which the U.S. has a comparative disadvantage i n world trade. That i s , subject to p o l i t i c a l constraints, trade r e s t r i c t i o n s are consistent with p r o f i t maximization for those seeking protection. Using estimates of t a r i f f and nontariff r e s t r i c t i o n s i n the U.S., Ray helps to support the hypothesis that nontariff r e s t r i c t i o n s are replacing recent t a r i f f concessions. The study also postulates that both t a r i f f and n o n t a r i f f barriers are biased toward industries i n which the U.S. i s at a comparative disadvantage and away from comparative advantage industries. T a r i f f s were found to be biased toward industries which are l o w - s k i l l intensive and away from c a p i t a l intensive industries and unrelated to product heterogeneity, concentration and geographic dispersion of domestic production f a c i l i t i e s . Nontariff barriers, on the other hand, are found i n industries with homogeneous products and r e l a t i v e l y c a p i t a l intensive techniques of production, and less concentrated production. In general these structural t r a i t s are found i n industries i n which production f a c i l i t i e s are distributed i n r e l a t i o n to population 32 d i s t r i b u t i o n and thus voting power in Congress. Ray focuses on the p o l i t i c a l economy variables that influence trade r e s t r i c t i o n using the fundamental approach that industries p r o f i t maximize subject to p o l i t i c a l constraints. That i s , demand for protection i s dependent upon an industry's potential gains from protection. These benefits are then weighted against the costs of obtaining these benefits through the p o l i t i c a l process. Ray explains that the p o l i t i c a l process i s c r u c i a l i n determining the industries most successful i n obtaining r e s t r i c t i o n s . The costs to the general public of t a r i f f protection are a r t i f i c i a l l y high product prices, misallocation of productive resources, and waste i n terms of administrative costs of implementing and maintaining p r o t e c t i o n i s t programs (Ray 1987, p.108). In general these costs are broad based. Benefits tend to be associated with industry interest groups which are more responsive to trade policy than consumers. In his analysis Ray found a p o s i t i v e c o r r e l a t i o n between low s k i l l e d labour intensive industry and t a r i f f s while the presence of c a p i t a l intensive middle-skilled, unionized labour was correlated with nontariff b a r r i e r s . The low-skilled labour intensity c o rrelation with t a r i f f s Ray loosely attributes to the upper bounds on t a r i f f changes since WWII. In other words low-s k i l l e d industries have h i s t o r i c a l l y been protected by t a r i f f s and these t a r i f f s have survived several moves toward reductions. Public support for the "poor struggling industry" along with regional employment concerns may also be a factor i n the maintenance of t a r i f f s i n these industries. This i s unlike middle-skilled industries who have been forced to lobby for new kinds of protection (nontariff barriers) as a r e s u l t of losing other measures ( t a r i f f ) of protection. This study suggests that t h e i r lobby e f f o r t s have been successful. 2.2.3 Cheh In a study e n t i t l e d "A Note on T a r i f f s , Nontariff Barriers and Labour Protection i n U.S. Manufacturing" (1984), J.H. Cheh tests empirically whether a l l U.S. trade r e s t r i c t i o n s , both t a r i f f and nontariff, protect labour i n manufacturing industries. Cheh's analysis departs from previous works by using nontariff b a r r i e r s e x p l i c i t l y i n the t o t a l protection measure. Chehs 1 empirical results support the hypothesis that nominal t a r i f f rates for U.S. manufacturing vary p o s i t i v e l y with labour intensity. This i s only true however when nontariff b a r r i e r s are not included i n the measure of protection. Cheh ca r r i e s the analysis further by taking into account the s k i l l mix of the labour force to find a posi t i v e c o r r e l a t i o n between un s k i l l e d labour and nominal t a r i f f s but not with nontariff b a r r i e r s or ef f e c t i v e rates. This supports Ray (1981). Cheh's study was c r i t i c i z e d by J . Stone (1986) on the grounds that his res u l t s are sensitive to an extreme observation and that an inappropriate measure of labour i s used i n the res u l t s for ef f e c t i v e protection. 34 2.2.4 Lavergne Lavergne (1981), i n a comprehensive study of the p o l i t i c a l economy of t a r i f f s i n the United States examines the l e v e l of t a r i f f s i n 1964, 1972 and 1979 and how i t has changed over time. One important feature of t h i s work i s the incorporation of a regional dimension of t a r i f f protection into a p o l i t i c a l economy model of t a r i f f protection. Lavergne emphasizes the importance of estimates regarding the changes i n t a r i f f l e v e l and the use of nominal t a r i f f s simply because of data quality at that l e v e l . Lavergne i d e n t i f i e s the variables which seem to have affected the evolution of the U.S. t a r i f f structure during both the Kennedy Round and the Tokyo Round. The general conclusion i s that industries with many employees, with increasing threat from foreign competition, and which were r u r a l l y located had the least reduction i n t a r i f f s . Already highly protected industries seem also to have been spared considerable reductions i n t a r i f f s . Lavergne also found that the s p e c i f i c t a r i f f s are reduced less than ad valorem t a r i f f s . Lavergne emphasizes the h i s t o r i c a l p u l l from t a r i f f s for four reasons: 1) the cost associated with change; 2) status quo " p r i v i l e g e s " ; 3) the desire to avoid displacement costs; 4)the use of t a r i f f cutting formulas ( l i k e the Kennedy Round 50% across the board). Lavergne i d e n t i f i e d variables having a s i g n i f i c a n t impact on the evolution of the U.S t a r i f f structure. Changes i n the nominal rate of protection during the Kennedy Round are determined primarily by t o t a l employment i n an industry, an industry's import sales r a t i o , and the t a r i f f l e v e l before the concessions were made. The preceding studies are grouped as analyses about the p o l i t i c a l economy of protection. The following U.S. studies are distinguished by t h e i r attempt to bring a p o l i t i c a l l y determined variable into a standard trade model. 2.2.5 Krueger Anne Krueger, i n "The P o l i t i c a l Economy of the Rent-Seeking Society" (1974) argues that rent-seeking a c t i v i t i e s are often competitive and resources are devoted to competing for rents. The primary focus of her paper i s on the costs of competitive rent-seeking (lobbying) as well as the effects of t a r i f f s upon production, trade and welfare. In general the e f f e c t s of t a r i f f s are well known, but the rent seeking costs are not. Using empirical analysis Krueger analyzes the e f f e c t s of competition for import licenses under a quantitative r e s t r i c t i o n of imports and concludes that the rents associated with import licenses can be large. Rent-seeking a c t i v i t y , as opposed to productive a c t i v i t y , results i n welfare costs which are "equal to the t a r i f f equivalent plus the additional cost of rent-seeking a c t i v i t y " (Krueger p.299) . This means that many approaches to the measurement of the costs of protection w i l l often underestimate the true cost. 36 2.2.6 Tullock, Brock and Magee, Findlay and Wellisz Tullock (1967), pre-dates Kreuger, with the argument that various interest groups i n society a c t i v e l y seek to promote rents a r i s i n g from t a r i f f s while others w i l l seek to prevent them i f they see adverse a f f e c t s . Each of these a c t i v i t i e s absorbs valuable resources i n the attainment of t h e i r goal. Brock and Magee (1978 and 1980) developed the use of game theory to describe the interaction between p r o - t a r i f f and a n t i -t a r i f f forces. The model then predicts the behaviour of lobbies and governments i n such a system. Findlay and Wellisz (1980) incorporate Tullock's l i t e r a t u r e into t h e i r own work adding that t a r i f f seeking does r e s u l t i n a decline i n welfare, assuming labour i s the only input involved i n ta r i f f - s e e k i n g (or opposing) a c t i v i t i e s . They expand on the work of Brock and Magee with the development of a general equilibrium model based on the aforementioned p o l i t i c a l process. The model determines the welfare losses associated with t a r i f f seeking while incorporating the i n e f f i c i e n c y and dead weight losses of standard analysis. Ultimately, the e f f i c i e n t t a r i f f generates enough income to s a t i s f y the lobby groups while minimizing welfare cost to society. 2.2.7 Feenstra and Bhagwati Feenstra and Bhagwati (1980) model the lobbying a c t i v i t i e s of labour (labour being the intensively used factor i n import competing industry) as a game between labour and the government. The actions of the government are determined j o i n t l y by i t s desire to maximize s o c i a l welfare and i t s willingness to grant t a r i f f s given ex i s t i n g p o l i t i c a l pressure. They add to previous analyses by deriving an e f f i c i e n t t a r i f f where labour lobbies for a t a r i f f and government responds by granting some t a r i f f protection but also by using t a r i f f revenues to compensate labour d i r e c t l y . This acts l i k e a bribe to labour so they w i l l accept a lower t a r i f f i n order to save welfare costs of lobbying. 2.3 Synthesis of Canadian and U.S. studies The key aim of any research on the subject of the p o l i t i c a l economy of t a r i f f s i s to c l a r i f y the influence of a l l variables that p o t e n t i a l l y contribute to determining the t a r i f f structure. Perhaps the most s t r i k i n g truth to come out of these studies i s the d i f f i c u l t y i n achieving t h i s goal. Results vary from one study to the other with only marginal r e c o n c i l i a t i o n of the differences. However, some trends emerge. Caves notes the growing role of interest group variables i n the determination of t a r i f f s i n Canada. He finds these interests centred i n industries competitively disadvantaged by diseconomies of scale or lack of concentration - government supports broad 38 interests or, the "small guy". Helleiner takes a closer look at the interest group model. He delves into the negotiation process and how the imbalance of power among nations affects the outcome. He states that LDCs lose out i n negotiations because they have less to bargain with. This shows up i n the p o s i t i v e c o r r e l a t i o n between low wage labour and t a r i f f s i n developed countries. Negotiators protect developed countries comparative disadvantage. Saunders focuses on an investigation of Canada's weak productivity performance i n manufacturing r e l a t i v e to the U.S. His results point to the willingness of governments to support competitively disadvantaged industries (with low r e l a t i v e productivity) and i t s unwillingness to protect foreign owned subsidiaries. Contrary to Caves, Saunders finds narrow-based interests and t a r i f f s p o s i t i v e l y correlated. Baldwin and Gorecki expand on these e a r l i e r works with the addition of several explanatory variables and a larger sample size. They incorporate the costs and benefits of acquiring t a r i f f protection into t h e i r analysis. The results of t h i s work support the view that governments support competitively disadvantaged industries and broad based interest groups. Wylie's work reinforces these e a r l i e r studies stating that the determinants of modern day protection r e f l e c t executive decision making. He adds that t h i s i s i n contrast with e a r l i e r determinants which were a r e f l e c t i o n of national p o l i t i c a l and economic variables; more d i v e r s i f i e d interest groups were yet to come into t h e i r own. Helleiner and Baldwin and Gorecki also described the determinants of t a r i f f changes during the Kennedy Round. Helleiner measures change between 1961 and 1970, while Baldwin and Gorecki use 1966 and 1970. Helleiner's results point to the success of narrow interests such as the lobbying a b i l i t y of concentrated industries i n escaping t a r i f f cuts. He also found natural resource based industries giving greater concessions i n the Kennedy Round. Baldwin and Gorecki state that t a r i f f cuts were largest i n cost disadvantaged areas. At the same time, broad-based interests and a l t r u i s t i c considerations helped to maintain existing t a r i f f s . The U.S. studies reviewed i n t h i s thesis, l i k e the Canadian studies, emphasize the role of. interest groups i n the determination of t a r i f f s . Canadian studies suggest, however, that interest group success in t a r i f f determination has developed from a national p o l i t i c a l base to a more fragmented system of economic and p o l i t i c a l needs. At the same time these pressure groups may be more broadly based i n Canada to s a t i s f y wider objectives than those i n the U.S. U.S. objectives tend to r e f l e c t more diffused "personal" interests (ie. more fragmented pressure groups). For Canada t h i s broader interest was necessary i n order to sustain and develop beside an economy as large as the U.S. (Young 1957). In general these interests focus on industries less able to compete i n international markets and with a predominance of low s k i l l e d labour. The force of the status quo i n t a r i f f negotiations also presents i t s e l f as a strong determinant of both Canadian and U.S. t a r i f f changes. The manufacturing sector as generally the most protected sector i n both the Canadian and the U.S. economies. Finished products (labour intensive, high value added) are more protected than semi-finished products. 41 C H A P T E R 3 T R A D E L I B E R A L I Z A T I O N The expected economic benefit from t a r i f f reduction i s that i t w i l l stimulate e f f i c i e n t production through r a t i o n a l i z a t i o n of industry. The s o c i a l drawback of trade l i b e r a l i z a t i o n i s i t s impact on employment, at least i n the short run. The private drawback of l i b e r a l i z a t i o n i s i t s impact on p r o f i t margins. How do the drawbacks of l i b e r a l i z a t i o n i n t e r f e r e with the p o l i t i c a l process? This chapter w i l l address t h i s question by introducing Canada's role i n the Kennedy Round of the GATT negotiations and the emerging p o l i t i c a l process. The f i r s t section focuses on the " l i b e r a l i z a t i o n norm". I t i s divided into four subsections. The f i r s t subsection describes the GATT, the primary i n s t i t u t i o n of trade l i b e r a l i z a t i o n . The second and t h i r d subsections follow through with d e t a i l on the Kennedy Round of the GATT and Canadian interests i n these negotiations. This i s followed by a summary of the outcome of the negotiations as described i n the journalism of the day. This chapter closes with a look at the "new protectionism" as an offshoot of l i b e r a l i z a t i o n . 42 3.1 The L i b e r a l i z a t i o n Norm 3.1.1 The GATT The wave of t a r i f f reductions which culminated i n the Kennedy Round began i n 1934 with an amendment to the Smoot-Hawley T a r i f f Act. Under t h i s new amendment authority was provided for the reduction of t a r i f f s . Via the Smoot-Hawley Act of 1930, a prot e c t i o n i s t wall had been b u i l t around the U.S. economy large l y i n response to the 1929 stock market crash. Most other developed countries of the free world, including Canada, reciprocated U.S. action with similar acts of protectionism. The i n s t i t u t i o n a l network for t a r i f f reductions i s the General Agreement on T a r i f f s and Trade (GATT); an international treaty backed by a secretariat organization a f f i l i a t e d with the United Nations. The primary objective of the GATT i s that world trade should be free of r e s t r i c t i o n s including t a r i f f s , quotas and other types of impediments to trade. Its goal i s a " t r u l y open international marketplace based on common, f a i r r ules" (Curtis & Vastine 1971, p.4). The GATT treaty also recognizes the imperfection of actual world commerce and thus acts as an authority for enforcing order and s t a b i l i t y by means of i t s ground rules. These rules o f f e r provisions for negotiating potential and trade c o n f l i c t (Curtis and Vastine 1971, p.4-5). The preamble to the GATT treaty outlines goals of trade b a r r i e r reductions as a means of achieving economic growth and increased incomes. At the same time, however, the GATT signatories recognized that f u l l employment and domestic s t a b i l i z a t i o n took precedence over l i b e r a l i z a t i o n (Finlayson and Zacher, 1981, p.570). I t follows that the success of l i b e r a l i z a t i o n was a di r e c t function of the economic well being of i t s signing members. In other words, the growing t r a d i t i o n of trade l i b e r a l i z a t i o n spurred on by the GATT often comes into c o n f l i c t with national interests. The ensuing conundrum of double-sided objectives resulted the GATT negotiations. 3.1.2 The Kennedy Round of the GATT Negotiations Under the GATT treaty seven t a r i f f negotiating rounds have been conducted of which the Kennedy Round, conducted between 1962 and 1967, was the sixth. Issues such as trade problems i n ag r i c u l t u r a l products, problems of developing countries and those which arise when market oriented economies attempt to trade with c e n t r a l l y planned economies would be brought into the limelight for the f i r s t time since the negotiating rounds began. The four key p r i n c i p l e s of the Kennedy Round are: 1) Universality: a l l products included, a l l countries welcome, 2) Global Reciprocity: m u l t i l a t e r a l trade and comparative advantage, 3) Provisions of developing nations: commercial p o l i c y must r e f l e c t development needs, 44 4) Most favoured nation clause. (The Canadian Financial Post Sept '65) P o l i t i c a l l y , the Kennedy Round attempted to encompass the economic forces of the 1960's. These forces included the " A t l a n t i c i s t s " , who encouraged the idea of an A t l a n t i c community which would be drawn together by reduced t a r i f f s . The spectre of Soviet imperialism and the threat of Communism could be kept at bay by a strengthened A t l a n t i c community which would be f a c i l i t a t e d by successful Kennedy Round negotiations. The negotiations also offered r e l i e f from the growing fear of breach between those European countries within the common market and those outside. Relations between developed and developing economies would also be enhanced by less c o l o n i a l , more equitable relations. The Kennedy Round o f f i c i a l l y opened i n 1962 with the Trade Expansion Act which allowed the President of the U.S. unprecedented power to abolish t a r i f f s on a l l categories of imports. Thus, the U.S. agenda of l i b e r a l i z a t i o n was put into action with l e g i s l a t i v e support. As a means of f u l f i l l i n g the goals of the GATT, member nations i n the Kennedy Round took a new approach to negotiations. Rather than maintain the previous negotiating strategy of r e c i p r o c i t y on an item by item basis the Kennedy Round would take on a new l i n e a r negotiating strategy. The U.S. strategy was for 50% across-the-board reductions i n t a r i f f s . The aim was that v i a t h i s process negotiations would be move along more quickly and be more concise and e f f e c t i v e . This i s i n contrast with the tedious, item-by-item techniques of e a r l i e r stages of the GATT. Beyond being time consuming, that procedure had placed smaller countries at a special disadvantage i n negotiations as they generally had less to of f e r and thus less leverage i n bargaining. Despite early public support, however, the comprehensive nature of the Kennedy Round, combined with recurring c o n f l i c t s of interests, made a simple and rapid solution to the talks nearly impossible. The U.S. congress had granted the president f i v e years within which he had the power to negotiate U.S. t a r i f f s . The Kennedy Round ended almost to the minute at the end of t h i s f i v e year period with the results, at least on the surface, only approaching t h e i r o r i g i n a l objectives. The o r i g i n a l goal of the Kennedy Round for 50% across the board, was reduced, es p e c i a l l y by exceptions i n agriculture motivated lar g e l y by the EEC, to approximately 35%, on average. 3.1.3 Canada and the Kennedy Round In 1964, 69% of Canada's imports and 54% of i t s exports were from the U.S. (1/5 of U.S. t o t a l trade). 2 The structure of trade between Canada and the U.S. i s characterized by a U.S. export surplus while Canadian exports to the U.S. constitute largely 2 This has increased, largely due to the Autopact Agreement between Canada and the U.S. 46 primary and semi-processed goods (Preeg p.187). Detailed, pre-Kennedy Round Canadian exports to the U.S. included iron ore, unfinished lumber, wood pulp, petroleum, natural gas, newsprint and basic papers, primary aluminum and nickel and copper. Seventy-five percent of t o t a l Canadian imports from the U.S. included chemicals, t e x t i l e s , iron and s t e e l , machinery, transport equipment, precision instruments and miscellaneous manufacturing. This structure emphasizes the imbalance i n duty payments from high Canadian t a r i f f s (mostly on manufactured goods) to low U.S. payments (mainly on primary goods). The average duty paid on U.S. exports to Canada was 17-25% while the average duty on Canadian exports to U.S. was only 3.4% (Preeg p.187). This structure of trade with the U.S. inspired the Canadian stance i n the negotiations and t h e i r unwillingness to accept lin e a r reductions. Negotiators feared severe losses by Canada i f i t was forced to comply to the general reduction rule. At the same time they f e l t that countries which export a wide range of manufactured goods would benefit considerably from the negotiations and t h i s would be unfair. Canada fought for, and was subsequently given, exemption from the 50% li n e a r reduction strategy of the Kennedy Round with the explanation that: " i t s (Canada's) heavy dependence on a g r i c u l t u r a l exports required i t s exclusion from the l i n e a r negotiations. I t added (without any reasoned public explanation) that i t s proximity to, and extensive trade r e l a t i o n s with the United States precluded i t s cutting t a r i f f s as deeply as the United States cut U.S. t a r i f f s " (Dam, 1970, p.72 as ci t e d i n Blais p.14). The proximity to the U.S. argument must have been convincing as the small share of a g r i c u l t u r a l exports i n Canadian farm based exports (near 10%) almost invalidates the former argument. Ultimately, Canada went to the negotiations with the intent of finding a balance of advantages based on trade concessions of equivalent value, not excluding appropriate, equal l i n e a r reductions. The costs and benefits of trade would be equal while simultaneously improving the r e l a t i v e position of the Canadian economy through an overall expansion i n trade. 3 As a smaller trading partner among the GATT countries, Canada took on a less active role than most i n the trade t a l k s . One major position taken by Canada was that t a r i f f and nontariff barriers on a g r i c u l t u r a l products should be reduced. Canada's role as a GATT signatory enabled i t to take a free ride on many of the concessions given throughout the ta l k s . This was allowed v i a the most favoured nation p r i n c i p l e of the GATT which meant that a t a r i f f reduction made to one country must apply to a l l . Conversely, Canada was expected to give concessions which were considered equivalent to the value of free rides which they received. 4 Was Canada able to use i t s role i n trade negotiations to develop i t s own unique pattern of protection? "Wake up Canada i t ' s time to trade"; e d i t o r i a l , Canadian Business 37:23 Jan 1964. 4 Slater, D.W., "Canada and the Kennedy Round", Canadian Banker, 1967. 48 Evidence of greater benefits to Canada i n these talk s has been attributed to u t i l i z a t i o n of t h e i r special status. By value, 29% of non a g r i c u l t u r a l dutiable imports from Canada received cuts of over 50% as against 1.5% for Western Europe and Japan (Laverenge p.123). At the same time general concessions made between Canada and the U.S. were almost equal. (Preeg p. 239) 3.1.4 "At the Talks" The zeal of the U.S. i n i t i a t i v e i n the Kennedy Round was only marred by the lack of enthusiasm of other participants i n the process. This was a function of the p o l i t i c a l c o n f l i c t s that entered the free trade arena. Reactions from the European Economic Community (EEC) were lukewarm, B r i t a i n was s t i l l negotiating to enter EEC -the Kennedy Round was not a p r i o r i t y to them and Canada was not happy with the way things are heading. In October of 1962, Canada entered the Kennedy Round on the defensive p a r t i a l l y due to unsuccessful attempts at a pre-round meeting with the U.S. This attitude developed despite early concessions made by the U.S. which were important to Canada's trade position. Concessions included some a g r i c u l t u r a l products (bread, hay, grapefruit juice, pecan nuts, and a variety of f i e l d seeds, edible o f f a l of beef and veal) , wood and paper products and base metals. On the defensive, Canada fought for special consideration i n the negotiations. At the same time B r i t a i n did not get into EEC thus s t i r r i n g 49 up more c o n f l i c t . This was c r u c i a l as the U.S. and the EEC held 80% of world trade i n the mid s i x t i e s - good relations between the two were important for the success of the t a l k s . In early 1963, the U.S. was s t i l l f i g h t i n g vehemently for massive reductions i n world trade b a r r i e r s ; however the EEC was refusing to budge on the common external t a r i f f which t i e d i t together economically. Canada's enthusiasm was beginning to wane with the defeat of Diefenbaker and an ensuing election c a l l . I t seemed the U.S. was growing lonely i n i t s push for freer trade. The talks continued, however, and while Canada was committed to the l i b e r a l i z a t i o n of trade, "across-the-board" was not a suitable p o s s i b i l i t y for concessions. The desire to access cereal, meat and dairy product markets, while protecting a vulnerable manufacturing sector, inspired t h i s position. The fear that major concessions i n manufacturing would be detrimental to the Canadian economy was a big issue for Canadian negotiators. The thinking was that major reductions would open doors to tough competition from south of the border. The "made in Canada" i n i t i a t i v e could not be threatened. (At the time of the Kennedy Round negotiations manufactured goods made up a small percentage, i n comparison with other countries, of Canadian exports.) Canadian clothing manufacturers were a p a r t i c u l a r l y favoured industry for protection during the Kennedy Round. In fact, Canada wanted l i b e r a l i z a t i o n i n trade of t e x t i l e s and clothing among other GATT countries but f e l t i t was. too open i n the past to make 50 major concessions i t s e l f . Negotiators f e l t that Canada was more l i k e a special category country l i k e A u s t r a l i a and New Zealand. By the summer of 1964, Canada was granted exemption from the 50% across-the-board l i n e a r strategy. In October of 1964, each country submitted a l i s t of items which they intended to exclude from bargaining. Subsequently, the negotiations became overwhelmed with discussions of exceptional items. Canada was concerned about the inclusion of lead, zinc, ground f i s h f i l l e t s and some glass products on the U.S. exceptions l i s t . The European exceptions of f e r r o - a l l o y s , aluminium and some paper products were also disappointing to Canadians. The Kennedy Round seemed to be growing into a potential flop for Canada as many of the "exceptions" were major Canadian raw materials exports. Rather than submit an exceptions l i s t , Canada submitted a l i s t of items which i t was w i l l i n g to negotiate with. To a large extent t h i s l i s t included a g r i c u l t u r a l products with which i t was eager to deal. Unfortunately, talks i n t h i s area were very slow, the end r e s u l t being a consensus to approach a g r i c u l t u r a l products from the sector l e v e l . At the same time, the EEC was holding on to p r o t e c t i o n i s t measures i n agriculture. Canada was concerned as farm trade l i b e r a l i z a t i o n was a major feature of i t s approach i n the t a l k s . Also, i f the EEC backed out of the t a l k s because the U.S. would not "lighten up" about agriculture issues, Canadian trade potential i n i n d u s t r i a l products would be threatened. The grain trade, a v i t a l issue to Canada, was also confronted with problems. Basically, negotiators wanted to esta b l i s h a base price for grain and a new method of import lev i e s f or financing development aid. The EEC however, was i n favour of low prices (while maintaining high internal prices) - Canada had i t s hopes set on a higher base price than the EEC pr i c e . By June 1965, even U.S. interest was waning (largely due to reduced enthusiasm on the part of the President). Pr o t e c t i o n i s t influences too, were being f e l t in Washington while negotiators were growing t i r e d of c o n f l i c t s of interest. Near the end of the negotiations Canada-U.S. talks were d i f f i c u l t . The problem was mainly due to interpretation of rec i p r o c i t y . Canada did, however, agree to a 9% incidence binding on machinery, an anti-dumping agreement - important to U.S. exporters to Canada, and a balance of concessions i n a g r i c u l t u r a l exports. Canadian t a r i f f cuts were made on $1.4 b i l l i o n of imports from the U.S. while U.S. concessions were given on $1.25 b i l l i o n of Canadian imports (Preeg p.188). In the f i n a l analysis, Canada, admittedly, did not fare too badly i n the t a l k s . Sticking to i t s guns, and negotiating only in areas i n which i t enjoyed a comparative advantage, Canada made few costly concessions. Areas of advantage included lumber, wood products, pulp and paper, n i c k e l , aluminium, lead, zinc and a variety of chemicals. (Financial Post Nov, 66). The major headlines at the close of the talks reported: "Ottawa prepares to support industry with d i r e c t assistance plan and loans" "Farmers won't be any r i c h e r " " T a r i f f changes wrinkle brows i n pulp and paper industry" " E f f i c i e n t steelmakers poised for new export opportunities" "Rich markets open for chemical firms" 3.1.5 A Summary of the Kennedy Round Canada's involvement i n the Kennedy Round of the GATT negotiations was part of a m u l t i l a t e r a l commitment to freer trade. At the same time i t was an opportunity for speical interests to gather and do ba t t l e with trading partners (the U.S. being the most s i g n i f i c a n t ) . During these negotiations Canada fought for, and received, exemption from the lin e a r , across-the-board concession rule agreed upon by other leading signatories of the GATT. This meant that although t h e i r concessions must r e f l e c t , i n value, those concessions which they were given they need not necessarily be homogeneous across a l l industries or a l l commodities. In fact none of the signatories gave equal l i n e a r concessions on a l l commodities (as the exception clause allowed) but t h i s was even more so for Canada given i t s granted status. Canadian negotiators fought for protection i n manufacturing industries, p a r t i c u l a r l y i n clothing and footwear, and m u l t i l a t e r a l concessions i n areas where a comparative advantage was enjoyed. This included some agriculture products, wood and paper products, base metals, and some chemicals. In the end, the vulnerable t e x t i l e s , clothing and footwear industries maintained some protection, areas that didn't would be poised for assistance from Ottawa. The agriculture sector was not e n t i r e l y successful i n i t s bid for a more open market and a base price on grain. Negotiators were successful i n obtaining access to cereals, feed, f i e l d seeds and some meats however prices i n grain were kept low much to the disappointment of P r a i r i e farmers. The pulp and paper industry, an area of advantage for Canada, was granted p a r t i a l concessions except for some paper products which were presented as part of the EEC's exceptions l i s t . Steelmakers and chemical industries were successful i n t h e i r bid for freer trade although some chemicals feared the future impact. Areas that did not receive major concessions that Canada wanted, aside from agriculture, were aluminum, nick e l , lead, some glass products and salmon - generally semi-processed goods which Canada was e f f i c i e n t i n producing. 3.2 New protectionism - A Note on Nontariff Barriers (NTB's) Nontariff barriers have grown into an important feature of protection largely out of the growth of t a r i f f l i b e r a l i z a t i o n . NTBs have grown more rapidly since the Kennedy Round and as such were only a secondary issue i n these negotiations. This section outlines these post-Kennedy Round trade r e s t r i c t i o n s as they impede the " l i b e r a l i z a t i o n norm". T a r i f f s have survived as a means of protection due to t h e i r 54 o v e r a l l scope and s t i l l remain a substantial form of aid to a i l i n g industry. Other forms of protection, however, have grown out of the t a r i f f reduction era i n order to replace the subsequent losses of protection. Special measures of protection which have grown i n recent years include r e t a l i a t o r y measures and quantitative r e s t r a i n t programs. Retaliatory measures protect domestic production against unfair competition. This includes anti-dumping duties and o f f s e t duties to neutralize foreign subsidies. During the Kennedy Round a new anti-dumping code was adopted to strengthen the requirements of A r t i c l e 6. Quantitative r e s t r a i n t s such as quotas have indeed increased over the period 1965-1975. GATT A r t i c l e 10 c a l l s for the a b o l i t i o n of quotas however t h i s norm does not apply to a g r i c u l t u r a l products. Beyond protection as a means of supporting domestic industry internal aid has also played a r o l e . Internal aid includes d i r e c t f i n a n c i a l aid, tax advantages, public contracts and technical aid. Direct f i n a n c i a l aid such as operating grants which grew substantially between 1960 and mid-1970. Operating grants were targeted primarily at agriculture and some manufacturing industries. (Approximately 3% of GDP i n Canada). Tax advantages cost 1-2% of Canadian GDP and have been r e l a t i v e l y stable at t h i s mark for the 1960-1975 period. This type of aid has been directed primarily toward investment, research and development, and agriculture. Public contracts and 55 technical aid make up about .5% of GDP and, as such play a marginal role i n aid to industry. In summary, the 20 years a f t e r the mid-1960's the average t a r i f f dropped from 9% to 4%. In the meantime quantitative r e s t r i c t i o n s increased in number and d i r e c t f i n a n c i a l aid grew from 1.8% to 3.1% i f GDP while tax breaks and public contracts have maintained s t a b i l i t y . The "new p r o t e c t i o n i s t " school of thought (Balassa, Nelson, World Bank) proposes that t a r i f f s are replaced by nontariff barriers thereby l i m i t i n g the impact of trade l i b e r a l i z a t i o n . Andre B l a i s agrees to a c e r t a i n extent, maintaining that, although NTB's are growing, they s t i l l do not outstrip the reductions i n protection brought on by decreased t a r i f f l e v e l s . The trend has, on the contrary, been increased trade. Between 1965 and 1970 and between 1970 and 1975 the t o t a l GDP share of imports and exports increased on an average of 5.5%. The structure of nontariff protection resembles t a r i f f protection with the exception of agriculture which has h i s t o r i c a l l y low t a r i f f s but currently high NTB's. Beneficiaries of government programs include agriculture, t e x t i l e s and clothing as the most favoured industries. Mining, shipbuilding, aeronautics, the s t e e l industry and the computer industry are also given substantial assistance. In general, the t e r t i a r y sector of the economy i s neglected. Declining industries are also major ben e f i c i a r i e s of government aid. The state appears to favour domestic c a p i t a l 56 somewhat, p a r t i c u l a r l y i n areas related to national security (Blais 1985, p.64). Regional development was also favoured during the 1960's. In summary i t must be stated that n o n t a r i f f b a r r i e r s can no longer be considered, i n s i g n i f i c a n t i n t h e i r impact, or directed at the attainment of some special national goal which should be accepted by the international community. They are now used precisely for the same purposes as were the t a r i f f s and other trade r e s t r i c t i v e devices for which GATT was established to reduce. (Robert Baldwin 1975 as cited i n Biggs p.73) 57 CHAPTER 4 DATA AND REGRESSION PLAN This chapter describes the data used i n t h i s thesis and the plan for analyzing the results of l i b e r a l i z a t i o n . I t i s divided into 3 sections. The f i r s t section introduces the variable used to describe the breadth of t a r i f f changes res u l t i n g from the Kennedy Round trade negotiations. The procedure used to construct t h i s variable i s described i n d e t a i l . The following section introduces the regression plan, i t i s divided into 3 subsections. The f i r s t two sections introduce the model for the determination of the 1966 Canadian t a r i f f structure and the model for Kennedy Round changes i n i t . The f i n a l subsection outlines the explanatory variables. These variables are distinguished by three seperate categories. The f i n a l section of t h i s chapter gives a descriptive analysis of data used i n t h i s study.' The industries are divided into three groups based on t h e i r anticipated approach to Kennedy Round negotiations. The mean values of each variable i n each grouping are compared. 58 4.1 Introduction to the Database The Kennedy Round of the GATT negotiations, (1962-1967), was perhaps the most comprehensive move toward free trade i n the history of the GATT. A goal of 50% across-the-board concessions was to be met during t h i s round of ta l k s . After f i v e years of negotiations, which ended no sooner than the eleventh hour, o v e r a l l reductions approximated 35% with a long l i s t of exceptions. The reductions were expected to be f u l l y i n force by 1972.5 Recall that the primary objectives of t h i s thesis are to determine the 1966, pre-Kennedy Round, structure of protection and the Kennedy Round concessions in i t - An examination of these objectives w i l l help establish whether interests i n the negotiations reinforced, l e f t untouched or undermined the e x i s t i n g structure of protection. This section describes the construction of a new variable which defines t a r i f f changes. In order to tes t the breadth, or coverage, of t a r i f f changes a variable i s constructed which measures the proportion of an industry s i g n i f i c a n t l y affected by Kennedy Round t a r i f f concessions. That i s , once i t has been established that a commodity grouping within an industry has given concessions, the proportion of these commodities that make up a l l the commodities i n an industry i s calculated. This establishes the extent to 5 H.G. Johnson, "The Kennedy Round", The Journal of World Trade Law, 1967., p.477-478. 59 which an industry was s i g n i f i c a n t l y affected by the Kennedy Round negotiations. The industries are i d e n t i f i e d by the S t a t i s t i c s Canada 4-digit "Standard Industrial C l a s s i f i c a t i o n " (SIC). This measure of the breadth of t a r i f f changes i s compared with that used by other studies, which i s a measure of the size of change i n t a r i f f s . The size of t a r i f f changes i s calculated as the difference between the average t a r i f f between two years, the average t a r i f f being calculated as the proportion of duties co l l e c t e d to value dutiable. As noted e a r l i e r , t a r i f f changes are often measured at the industry l e v e l alone using summary s t a t i s t i c s on dutiable values and duties collected. The average duty i s calculated as a r a t i o of duty collected over dutiable for each industry. The problem with t h i s measure i s that i t may encompass changes i n the average t a r i f f l e v e l that are attributable to forces other than changes in t a r i f f s . Referring to table Bl i n appendix B i t i s noted that the average nominal t a r i f f increased from 1966 to 1978, thus taking c r e d i b i l i t y away from t h i s measure. Perhaps other forces such as changes i n market shares among high t a r i f f and low t a r i f f commodities within an industry are being picked up i n the measurement. In t h i s work, average duty, as the r a t i o of duty collected over dutiable, i s also calculated but at the less aggregated commodity l e v e l where i t i s expected to be more accurate primarily because i t does not encompass t h i s aforementioned problem. The Department of Regional Industrial Expansion (DRIE) published a complete l i s t i n g of concessions given under the Most Favoured Nation t a r i f f i n the Kennedy Round. The concessions are described by commodities and c l a s s i f i e d by a t a r i f f item number. T a r i f f items with a 5 or greater percentage point reduction i n ad valorem t a r i f f s are i d e n t i f i e d . Non ad valorem t a r i f f s are simply i d e n t i f i e d as having been subject to change. Figure 4.1 gives a d i s t r i b u t i o n of t a r i f f items among changes ranging from 2.5% to 17.5% with increments of 2.5 between the margins. T a r i f f items subject to change ..(5% or greater f o r ad valorem t a r i f f s ) are then matched to the Canadian Industrial Trade C l a s s i f i c a t i o n (CITC). This i s done using a S t a t i s t i c s Canada concordance of t a r i f f items and commodity codes. This t r a n s i t i o n i s complicated by the lack of a simple one-to-one t r a n s i t i o n from t a r i f f item to CITC. In the case where more than one t a r i f f item i s associated with only one CITC that CITC item i s i d e n t i f i e d as being affected by the Kennedy Round concessions. I f one t a r i f f item i s related to more than one CITC each associated CITC i s referenced as subject to change. Trade data on the CITC commodities i d e n t i f i e d as subject to t a r i f f cuts was then co l l e c t e d i n order to calculate the r a t i o of dutiable to duty collected i n 1966 and 1979. T a r i f f and other industry data for 1966 are used to describe the t a r i f f structure before the implementation of Kennedy Round concessions. Although the talks were near ing t h e i r end by 1966 changes were not put into place before t h i s year. Data for 1979 describes both the t a r i f f and the structural nature of industry a f t e r the f u l l implementation of Kennedy Round concessions. The change between 1966 and 1979 i s the result of Kennedy Round concessions. The end mark may include more than just Kennedy round changes but the changes, though not i n s i g n i f i c a n t , were small i n comparison. This data was then used to assess whether the entire commodity c l a s s i f i c a t i o n saw a greater than 4% change as a r e s u l t of the reductions i n the Kennedy Round. 6 Four percent was chosen as a natural break between i n s i g n i f i c a n t and s i g n i f i c a n t concessions. Figure 4.2 shows the frequency of commodity items at d i f f e r e n t levels of average t a r i f f change among commodities. A l l commodities with a 4% or greater decrease i n average t a r i f f between 1966 and 1979 are then c l a s s i f i e d to one industry using 1970 4-digit Standard Industrial C l a s s i f i c a t i o n , (SIC) and then aggregated into SIC. The aggregated import data i s then used to measure the proportion of t o t a l industry imports that received t a r i f f reductions. That i s , trade data, aggregated by SIC, for CITC item imports associated with Kennedy Round concession are measured against t o t a l industry imports for a measure of the extend to which an industry's imports are affected by change. This r a t i o i s used as a dependent variable i n the determination of the structure of Kennedy round t a r i f f change. Construction of the variable i s summarized step by step: Trade data for each CITC item (numbering approximately 600) includes data on t o t a l imports, dutiable imports, and duty collected for both the U.S. and the world for 1966 and 1979. 62 1) t a r i f f items are i d e n t i f i e d as having given a 5% or greater concession i n the Kennedy Round 2) Using DRIE concordance each t a r i f f item i s i d e n t i f i e d by CITC 3) C o l l e c t CITC trade data to calculate duty c o l l e c t e d / dutiable values 4) compare duty collected / dutiable values between 1966 and 1979 ( i e . Kennedy Round concessions) for each commodity 5) i f t h i s r a t i o i s 4% or greater the CITC i s considered s i g n i f i c a n t l y affected by the concessions - t h i s i s now a binary proposition, i f duty col l e c t e d / dutiable i s less than 4% the r a t i o i s given the status of i n s i g n i f i c a n t , s i g n i f i c a n t i f the r a t i o i s 4% or greater 6) S t a t i s t i c s Canada concordance i s used to group CITC commodities by SIC industry 7) grouped by industry a l l . s i g n i f i c a n t CITC commodity import data i s aggregated to determine what proportion they make up of the t o t a l industry imports The end r e s u l t i s a continuous variable over a l l 102 SIC industries which describes the extent to which an industry was s i g n i f i c a n t l y affected by changes i n the Kennedy Round. This variable i s used as the dependent variable i n a model for the determination of t a r i f f changes. The following section outlines the model. Figure 4.1: Frequency of T a r i f f Schedule Cuts. 80 *8 Z<i 11 -Ve,H$ «ol •«! .oS - a * .ot . 0 ? .08 .o«l a a !>.|0 Figure 4.2: Frequency of Changes i n Average T a r i f f Between 19 and 1979 for CITC Commodity Groupings. ill 141 10 64 4.2 The Regression Plan This model for explaining the structure of t a r i f f s and t a r i f f changes w i l l consolidate the works of Caves (1976), Helleiner (1977), Saunders (1980) and Baldwin and Gorecki (1985). I t w i l l focus on the possible changes i n the s t r u c t u r a l determinants of t a r i f f s . The data base builds on work done by Baldwin and Gorecki. This section w i l l outline the model used to analyze both the determinants of the t a r i f f structure and the Kennedy Round changes i n i t . 4.2.1 The t a r i f f structure What determined the pre-Kennedy Round (1966) structure of protection? The pre-Kennedy Round t a r i f f structure was l a r g e l y a r e f l e c t i o n of the national p o l i c y t a r i f f s designed to protect manufacturing and exploit comparative advantage, as discussed i n section 2.3. After the national policy t a r i f f s and before the Kennedy Round the only comprehensive move toward t a r i f f change came with the opening round of the GATT i n 1947. The pre-Kennedy Round nominal rates of protection (NRP) and e f f e c t i v e rates of protection (ERP) are described using 1966 measures. Although these negotiations began i n 1963 and ended i n 1966 none of the negotiated reductions were made u n t i l a f t e r the talks were completed so that 1966 t a r i f f levels are a v a l i d measure of pre-Kennedy Round reductions. This thesis uses a measure of nominal t a r i f f s especially constructed for t h i s work. To construct t h i s measure data on the t o t a l imports per SIC industry was required. This data was not available at the aggregate SIC l e v e l so i t was coll e c t e d for the less aggregated, commodity l e v e l . This trade data was then matched to the SIC and t o t a l l e d for industry aggregates. The r a t i o of duty c o l l e c t e d over dutiable imports (a common measure of average t a r i f f s ) i s used as our measure of nominal protection. This variable resembles that used by Baldwin and Gorecki but does not r e p l i c a t e exactly. The variations probably l i e with differences i n concordances. This measure of nominal protection i s i d e n t i f i e d as BPNRP and w i l l be compared with that available from S t a t i s t i c s Canada and used by Baldwin and Gorecki, BGNRP. T a r i f f protection varies among industries i n terms of nominal rates ( l e g i s l a t e d rates) and e f f e c t i v e rates. ERP implies t o t a l protection accorded to an industry, that i s , including t a r i f f s on purchased inputs and f i n a l output. For t h i s reason i t i s considered a superior measure to NRP. The problem with ERP i s that i t may be measured badly since the law-of-one-price must be used to i n f e r the net protection on inputs. For the sample of industries used i n t h i s paper the c o e f f i c i e n t of correlation between ERP for 1970 and BPNRP for 1966 i s .69 for BGNRP, 1966, i t i s .78. 66 4.2.2 T a r i f f Changes What determined the Kennedy Round concessions? This question i s p a r t i c u l a r l y interesting for the Kennedy Round as i t was i n t h i s round of negotiations that Canada was allowed special negotiating status. With t h i s status, i t must be asked whether the variables which explained the pre-Kennedy Round structure of protection i n Canada were replaced • by a new set of underlying p r i n c i p l e s for t a r i f f determination. The alternative i s that the pri n c i p l e s which motivated decision makers i n the early days of Canadian development were those that determined the Kennedy Round t a r i f f changes. To describe the concessions made by Canada during the Kennedy Round three measures w i l l be used. F i r s t l y changes i n nominal protection w i l l be explained as the difference between 1966 and 1978 nominal t a r i f f s . Secondly changes i n e f f e c t i v e protection w i l l be explained as the difference between 1966 and 1978 ef f e c t i v e protection l e v e l s . These years should encompass the Kennedy Round concessions without overlapping with Tokyo Round concessions (which were not being implemented u n t i l 1982). The t h i r d measure of concessions i s the r a t i o of t o t a l imports (per industry) influenced by Kennedy Round reductions (as determined by observing actual t a r i f f items) to the t o t a l number of imports for that industry. This measure was described i n section 4.1. The greater the coverage of the Kennedy Round cuts on an industry, the greater w i l l be the r a t i o of Kennedy Round imports to t o t a l 6 7 imports. This thesis w i l l also incorporate n o n t a r i f f b a r r i e r s into the model for t a r i f f determination. As noted i n section 3.4, NTBs may not have been as large a factor i n the Kennedy Round negotiations as they were i n the Tokyo Round however they were present and deserve note. As an independent variable i n the model NTB's are measured using a dummy variable equal to 1 i f an industry has measurable NTBs accorded to i t , 0 i f otherwise. 4.2.3 The Explanatory Variables This section w i l l outline the variables used to explain the structure of t a r i f f s and t a r i f f changes i n Canada. The variables are categorized into groups representing d i f f e r e n t influences on the t a r i f f structure. 4.2.3.1 Interest Group Variables Interest groups can be d i f f e r e n t i a t e d by t h e i r capacity to command el e c t o r a l support (which no doubt varies over time) and t h e i r capacity to furnish sophisticated technical information. Interest groups i n Canada play a role not only i n i n i t i a t i n g trade issues but also i n providing an important information flow for p o l i t i c i a n s . They also l i n k the government with the electorate, however, "some interests intervene i n the p o l i c y process with far greater resources than others" (Protheroe p.35). 68 The following variables represent an industry's a b i l i t y to lobby for, or against, t a r i f f protection for both broad and narrow interests. This i s done by considering the costs, as well as the benefits, of organization. Where available, 1966 data i s used, otherwise 1970 data i s used to approximate 1966. The four firm s e l l e r concentration r a t i o (CR4) for 1970 i s used as a proxy for 1966 concentration l e v e l s . This variable i s a proxy for the costs of seeking protection. More concentrated industries may fi n d i t easier to organize themselves into a cohesive lobby force as they are a small group with common interests. They are more able to overcome the "free r i d e r " problem and thus more l i k e l y to lobby for protection (Caves, Helleiner, Saunders, B&G, & Lavergne). The potential for "free r i d e r s " discourages others from investing both time and money into the pursuit of rents. If t h i s i s so CR4 should have a positive sign on the c o e f f i c i e n t . An alternative hypothesis i s that more dispersed enterprises hold more weight when protection votes are t a l l i e d (Caves 1976). In t h i s case t a r i f f s would be negatively correlated with CR4. A variable for regional location may actually capture t h i s e f f e c t more d i r e c t l y . Canadian census value added over the number of production workers for 1966, VPW, represents value added i n an industry. Low value added per worker i n an industry i s often associated with labour intensity. I f we assume, as did Caves (1976), that labour has votes, then i t i s expected that labour intensive industries w i l l win the highest rates of protection. At the same time, a 69 p o s i t i v e strategy of t a r i f f protection i n a country has often been to protect high value added industries from competition. This helps to sustain the "thick" productive process. In t h i s case the hypothesized sign w i l l be negative. LP70, the average wage i n each industry i n 1970 i s also a proxy for labour intensity. Lower wages are associated with labour intensive industries and these industries are expected to lobby for protection. The sign prediction for both VPW and LP70 i s negative. Broad based interests are approximated using a dummy variable, REG, which has a value of 1 i f an industry i s regional and 0 i f otherwise. I t i s compared with Caves' and Saunders* transportation variable (TRN). TRN measures an industry's transport costs. I f transport costs are high they act as a natural b a r r i e r to trade. These industries w i l l not need to invest energy into achieving other protection measures thus a negative relationship i s predicted between t a r i f f s and REG. A r a t i o of research and development personnel to a l l wage and salary earners for 1970, RD70, i s also used as an interest group variable. A po s i t i v e relationship between RD70 and t a r i f f s i s predicted on the grounds that i t i s i n the interests of the government to protect fast growing, high technology industries. The p o s s i b i l i t y of a negative relationship implies that industries investing i n a l o t of research and development w i l l develop a comparative advantage. This i s noted with the competitive disadvantage variables. Labour's share of t o t a l variable costs i n 1970, LSHARE, i s used to represent the importance of labour i n production and i t s subsequent a b i l i t y to lobby for protection. A greater share of labour i n the production process i s expected to lead to greater industry protection. EMPL, i s the t o t a l number of employees i n each industry for 1966. I t represents the size of an industry i n terms of the number of people i t employs. The more people an industry employs the more influence they may have at the p o l l s . The predicted sign i n t h i s case i s p o s i t i v e . A dummy variable for consumer '(0) versus nonconsumer goods (1) measure the extent to which an industry's output i s sold to other industries or f i n a l consumers. I f there i s a c o l l e c t i v e preference among the electorate for manufactured consumer goods governments may fee l encouraged to support these industries, thus a negative relationship between PRODGOOD and t a r i f f s i s expected. The extent of foreign ownership i n an industry i s measured by FO70. On the one hand, governments do not protect foreign owned firms, on the other, foreign controlled subsidiaries may lobby for higher t a r i f f s i n order to protect t h e i r subsidiary status. As such, the expected relationship between foreign ownership and protection could be either negative or pos i t i v e . This variable was very successful i n Saunder's study. Nominal t a r i f f s for 1966, T66, are measured against the change i n t a r i f f s . This i s to evaluate how much the pre-Kennedy Round pattern of protection i s correlated with the changes in protection. High i n i t i a l rates of duty are expected to be associated with smaller cuts. Negotiators want to reduce the impact of change on an industry and maintain the status quo. This variable i s expected to be s i g n i f i c a n t l y p o s i t i v e . 7 An alternative hypothesis i s that when percentage cuts are given the cut i s greater on the larger i n i t i a l t a r i f f - i n t h i s case the sign on T66 w i l l be pos i t i v e . One interesting variable used by both Baldwin and Gorecki, and Lavergne, i s a union variable used to represent labour lobbying strength. This unionization variable i s not available for t h i s study. I t was i n s i g n i f i c a n t i n B&G's Canadian study while Lavergne 1s U.S. study found t h i s variable s i g n i f i c a n t at a 90% l e v e l . 4.2.3.2 Competitive Disadvantage Variables These variables represent the extent to which firms are unable to compete with foreign competition and thus require protection. For example, i f an industry i s characterized by a high r a t i o of imports to t o t a l sales, and high t a r i f f s , i t i s 7 Young (1957) suggests that when t a r i f f revisions are on the table there seems to be an overriding tendency for the law of i n e r t i a to take over. This means that industries that have been given a substantial degree of protection are l i k e l y to maintain i t on the grounds that elimination of the t a r i f f may cause undue pain to the industry, (p.125) Wilgress (1963) dated the 1960 Canadian t a r i f f structure back to 1907. This structure was engineered by the then Minister of Finance, Mr. W.S. Fie l d i n g i n response to infant industry pressure and a twist of l i b e r a l i z a t i o n sentiment. 72 expected to suffer greatly from a reduction i n t a r i f f s and the threat of further import competition. As noted i n the introduction t h i s group of variables r e f l e c t s government's predisposition to protect these areas. This predisposition often goes beyond interest group pressure to r e f l e c t some seasoned p r i n c i p l e s . These p r i n c i p l e s are l i k e l y to r e f l e c t d i f f e r e n t levels of education and information and as such f a l l under a much broader scope of interests. EXP70, measures the r a t i o of exports to domestic output for 1970. This variable i s used as a measure of an industry's competitiveness on the world market. EXPR70 i s expected to be negatively related to protection as exporting firms do not require protection. This variable was used by Saunders, Baldwin and Gorecki, and Lavergne with marginal success. EXP70 could also overlap as an interest group variable as h i s t o r i c a l l y exporters tend to represent l i b e r a l i z a t i o n interests with strong e f f e c t i v e lobbies. Imports over domestic output f o r 1970 i s a proxy for an industry's competitiveness i n world markets. Industries with a r e l a t i v e l y high import r a t i o are presumably less competitive and thus i n greater need of protection. The expected sign i s positive as government w i l l support these vulnerable industries. As an interest group importers are expected to lobby for t a r i f f s . Average wage per industry for 1970, LP70, i s a proxy for competitive disadvantage i n an industry. Lower average wage i s associated with greater labour intensity which i s i n turn associated with cost disadvantaged industry. As such, labour intensive industries are expected to receive protection. The sign on the c o e f f i c i e n t i s predicted negative. The r a t i o of the value of outputs over the value of inputs, TFPT70, i s used as a proxy for industry p r o f i t a b i l i t y . I t i s expected to be negatively related to t a r i f f s as p r o f i t a b l e industries are not i n need of protection. RELSIZ, a r a t i o of average Canadian plant size i n an industry to U.S. minimum e f f i c i e n t scale i s used as a measure of the u t i l i z a t i o n of economies of scale i n Canada as compared with the U.S. Both Helleiner and Saunders use a s i m i l a r variable but f i n d i t i n s i g n i f i c a n t , t h i s variable was, however, successful i n Caves interest group model. Baldwin and Gorecki use a s i m i l a r variable but for a d i f f e r e n t sample of industries. Some of the RELSIZ measures used i n t h i s study are from t h e i r work, others are calculated for t h i s study. Caution i s required with t h i s variable because of problems i n matching U.S. and Canadian industry data. As an approximation for the e l a s t i c i t y of demand, the r a t i o of advertising to sales for 1977, ADV77, i s used. This i s a structural variable not expected to change rapidly over time and, as such, i s used to describe advertising over sales for 1966. The more i n e l a s t i c the demand curve, the greater w i l l be the potential quasi-rents from t a r i f f protection. Advertising can act as a natural protector from import competition r e l i e v i n g the need for other forms of protection. The sign on the c o e f f i c i e n t for ADV77 i s predicted negative. Baldwin and Gorecki suggest an alternative hypothesis which states that a more e l a s t i c demand curve i s associated with incentive to lobby for t a r i f f s . Thus there i s a positive relationship predicted between t a r i f f s and advertising. An industry's u t i l i z a t i o n of product economies of scale i s also a proxy for comparative disadvantage. RELDIV/ a measure of plant d i v e r s i t y r e l a t i v e to the number of industry products i s a reverse measure of scale economies. E f f i c i e n t firms, which u t i l i z e economies of scale, are less i n need of protection. Caves and Baldwin and Gorecki use t h i s variable; however, both f i n d i t i n s i g n i f i c a n t . The relationship between d i v e r s i t y and t a r i f f protection i s expected to be p o s i t i v e . The r a t i o of research and development to t o t a l sales i s also used as a reverse proxy for disadvantage i n industry. Where the proportion of research and development i s high, industries are expected to be successful and not i n need of protection. The predicted sign on the c o e f f i c i e n t for RD70 i s negative. VPW, value-added-per-worker, i s also used i n t h i s model as i t defines quantities of low wage labour. The prediction i s that industries employing large amounts of l o w - s k i l l , low-wage labour have a stronger claim to protection. VASH, value added i n an industry divided by the . value of i t s shipments, 1966. This measures the depth of the i n d u s t r i a l process and i s p o s i t i v e l y related to t a r i f f rates. 75 4.2.3.3 Displacement Cost Variables These variables model where and when suffering w i l l occur i f t a r i f f s are reduced. That i s , governments may avoid reducing t a r i f f s i n these industries because the cost of adjustment for factors of production i s high. This i s distinguished from the comparative disadvantage model for protection about which industries are most l i k e l y to suffer from t a r i f f reductions. Industries with a slow output growth rate are not well able to absorb the shock of losing protection. The variable GROWTH, measures growth of employment between 1970 and 1979. This variable measures growth aft e r the Kennedy Round. A more ideal measure would be growth before the negotiations, however, t h i s data i s not available. Perhaps consideration for anticipated growth by negotiators may influence t a r i f f l e v e l s and t a r i f f changes and thus legitimize the variable. High growth industries are better able to absorb increases i n competition and thus reductions i n t a r i f f s . In short, productivity growth i n Canadian industries between 1970 and 1979 i s also an interesting measure of our negotiators shrewdness i n picking "winners". T a r i f f cuts would be more serious i f they affected industries i n depressed areas such as the P r a i r i e s and the Maritimes. Limited job opportunities i n these regions make plant closures much more pa i n f u l . The sign on the REG c o e f f i c i e n t i s predicted to be positive i n t h i s case. Low wage labour may have d i f f i c u l t y adjusting to job loss as they have less transferable s k i l l s . If 76 t h i s i s so t a r i f f s should be p o s i t i v e l y correlated with LP70. A summary of predicted signs for these models of the t a r i f f structure and t a r i f f change are displayed i n table 4.1. A l l the signs predicted for t a r i f f structure are expected to be reversed for t a r i f f changes. The scope of t a r i f f changes i s expected to be inversely related to the t a r i f f l e v e l s . I f the change i n t a r i f f s i n an industry i s high i t i s expected to be characterized by comparative advantage, with strong lobbies for freer trade. Conversely, i f the change i s small c h a r a c t e r i s t i c s associated with comparative disadvantage should be observed. 4.3 Descriptive Analysis of the Data This section takes a closer look at some of the performance variables i n order to observe t h e i r relationship with t a r i f f s and t a r i f f changes. The performance variables are grouped into 3 categories based on the nominal t a r i f f rate and the Kennedy Round r a t i o described i n section 4.1. A d i v i s i o n i s made between industries considered s i g n i f i c a n t l y impacted by the concessions and those not s i g n i f i c a n t l y affected by the cuts. Industries with a r a t i o of 38% or greater Kennedy round imports to t o t a l imports are grouped with the former. This group makes up 34% of the t o t a l sample of industries. They are the "conceded" industries. This data i s displayed i n table B2 of the appendix. The remaining portion of the sample - industries not s i g n i f i c a n t l y affected by the concessions - i s divided again into 77 low t a r i f f and high t a r i f f industries. A ten percent average t a r i f f was picked as a feasible d i v i s i o n point. Low t a r i f f , low concession industries are c l a s s i f i e d as "not on the table" industries. High t a r i f f , low concession industries are the "protected" group. Variables of each of these groups are compared with each other and with sample mean. S t a t i s t i c s for the "not on the table" group should reveal cha r a c t e r i s t i c s associated with highly competitive, successful industries. They are not on the table because they have never needed protection. Change in t o t a l factor productivity between 1970 and 1979 i s by far the lowest for t h i s group implying that t h i s group has not gone through " r a t i o n a l i z a t i o n " over the period. The group conceding the most protection shows the greatest change in productivity between the two years while the protected group f a l l s i n the middle just above the mean value. Perhaps pressure to r a t i o n a l i z e f a l l s on "protected" industries despite continued protection. Concentration i s about equal for each group, possibly discounting the hypothesis that big industry pressure groups lobby for, and receive protection. Conversely, dispersed industry has not distinguished i t s e l f as a favourite for protection. "Not on the table" industries share the largest proportion of import competition - a good motivation to maintain competitiveness. They also export a greater share of t h e i r t o t a l production, have the highest wages on average, and by far the largest firms. The lowest average wage and the lowest average Table 4.1 Summary of hypothesized signs j Variable NMT66 TARIFF j j (EFT66) CONCESSIONS Interest Group: | CR4 + (") -(+) ! VPW -(+) +(-) LP70 - + REG - + RD70 + -LSHARE + -PRODGOOD - + FO + (") -(+) EMPL + -T66 -(+) | Comparative i Disadvantage: j EXP70 — + IMP70 - + LP70* - + TFPT70 + -RELSIZE - + ADV - + RELDIV - + VPW* - + RD70* - + VASH — + Displacement costs: GROWTH — + REG* + j j NTBD + ! * Also appear i n interest group model value added f a l l s on the "protected" industries. Lower wage labour and low value added per employee are c h a r a c t e r i s t i c s often associated with industries that are less productive industries i n need of protection. The "protected" industries employed, on average, the lowest number of workers which does not support the "power of numbers" theory of protection. The "not on the table" industries shipped the greatest value of goods for both 1966 and 1979 however the value shipments for the "conceded" group r e l a t i v e to t h i s group grows over the period. The "conceded" group also showed the highest grow rate. This could imply that the Kennedy Round concessions were successful i n forcing otherwise less successful industries to " r a t i o n a l i z e " i n order to become more competitive. 80 CHAPTER 5 TESTING THE POLITICAL ECONOMY MODEL This chapter analyzes the results of the model for the p o l i t i c a l economy of t a r i f f determination outlined i n Chapter 4. The f i r s t section gives the results for t a r i f f l e v e l s . The following section analyzes the results for the changes i n t a r i f f s . The estimates for t h i s study are derived using ordinary least squares (OLS). OLS estimators measure the influence of a given independent variable on the dependent variable. There exists, however, the p o s s i b i l i t y of a reciprocal e f f e c t between the dependent and an independent variable. This w i l l have the e f f e c t of favourably biasing that independent variable. No attempt i s made to correct for t h i s e f f e c t i n the regression analysis; however, notice i s given to the potential problems. T a r i f f s affect value added per worker i n an industry by reducing that industry's e f f i c i e n c y . Low e f f i c i e n c y gives incentive to lobby for further protection i n order to avoid competition. A si m i l a r argument should explain the simultaneous relationship between t a r i f f s and factor productivity. The p r o f i t a b i l i t y variable i s l i k e l y to increase as a r e s u l t of t a r i f f s which protect economic rents and, as such, be correlated 81 with t a r i f f s . T a r i f f s may also a f f e c t foreign ownership by encouraging firms to jump t a r i f f walls. Low t a r i f f s also have the impact of eliminating small i n e f f i c i e n t producers from the market and thereby increasing concentration l e v e l s . The consistency of the OLS estimators over continuous testing, however, lends support to the robustness of the OLS estimates. The problem of c o l l i n e a r i t y between two or more independent variables i s considered i n t h i s thesis using a cor r e l a t i o n matrix of the variables. I f the correlation between variables was greater than .5, the variables are considered correlated. The only relationship noted to have a potential problem i s that between value added per worker, VPW, and wages, LP70. This w i l l be considered i n analyzing the res u l t s . Given that t h i s i s a cross sectional analysis, the problem of heteroscedasticity i s also considered. Heteroscedasticity occurs when the conditional variance of the dependent variable increases as the independent variable increases. This has the eff e c t of reducing the e f f i c i e n c y of the OLS estimates. In order to correct for the p o s s i b i l i t y of heteroscedasticity, the HETCOV option on the OLS command i n Shazam i s used. L i t t l e change was noted on the regressions tested so i t i s considered not a great problem. 5.1 Results for the T a r i f f Level Regressions The r e s u l t s for 1966 t a r i f f l e v e l s are reported i n table 5.1 82 with the estimated c o e f f i c i e n t s and one-tailed t s t a t i s t i c s for each model. The t s t a t i s t i c s indicate the l e v e l of significance for each estimate. The estimates are described mildly s i g n i f i c a n t i f the t s t a t i s t i c i s greater than 1. (In a one-tailed t test, the calculated t value for a 90% l e v e l of significance i s 1.289.) The estimate i s s i g n i f i c a n t i f the t s t a t i s t i c i s between 1.289 and 2 and highly s i g n i f i c a n t i f i t i s 2 or greater. Equations numbered 1 to 6 i n table 3 p a r t i a l l y r e f l e c t models tested by Caves, Helleiner, Saunders, and Baldwin and Gorecki. The models are tested using both NRP and ERP measures as the dependent variable i n equations 1 to 4, and ERP i n equations 5 and 6. Equations numbered 7 and 8 resulted from testing the models outlined i n chapter 4. The results reported for 7 and 8 are those which resulted a f t e r i n s i g n i f i c a n t variables were removed from the model. The results show the variables to be f a i r l y consistent i n terms of predicted signs with the exception of value added per worker, VPW, for each model. Equations 1 through 4 give greater success, i n terms of the regression c o e f f i c i e n t s , to the nominal rate of protection. This i s only s l i g h t l y contrary to the work of Caves and Helleiner whose measures both show ERP and NRP fluctuating among models for top position. The interest group variables were at least p a r t i a l l y successful i n describing t a r i f f s . For a l l the models, CR4 i s successful only i n Caves' "interest group" model; with a negative relationship to t a r i f f s , as i n Caves' r e s u l t s . This implies that 83 governments are r e l u c t a n t t o support b i g b u s i n e s s . They favour the i n t e r e s t s of more broadly based p r e s s u r e groups. Another i n t e r p r e t a t i o n i s t h a t concentrated i n d u s t r i e s tend not t o be those i n need of p r o t e c t i o n . The v a r i a b l e r e p r e s e n t i n g value added per worker f l u c t u a t e s from negative t o p o s i t i v e depending on the model s p e c i f i c a t i o n . T h i s c o u l d be due t o i t s c o l l i n e a r r e l a t i o n s h i p with wages. As long as wages are i n the model, VPW i s s t r o n g l y s i g n i f i c a n t and p o s i t i v e l y signed. T h i s i s i n c o n s i s t e n t with the hypothesized s i g n f o r VPW. I t does, however, support Caves' " N a t i o n a l P o l i c y " model hypothesis t h a t governments p r o t e c t i n d u s t r i e s t h a t r e i n f o r c e the n a t i o n ' s s e l f esteem. That i s , i n d u s t r i e s t h a t are i n t e n s i v e i n p h y s i c a l and human c a p i t a l . Average wage i s c o n s i s t e n t l y s u c c e s s f u l i n e x p l a i n i n g t a r i f f l e v e l s , t h a t i s , the higher the wage, the lower the l e v e l of p r o t e c t i o n . T h i s r e i n f o r c e s H e l l e i n e r ' s hypothesis t h a t i n d u s t r i e s of advantage i n developing c o u n t r i e s l o s e out a t the ba r g a i n i n g t a b l e . The comparative advantage of developing c o u n t r i e s i s p r i m a r i l y i n low wage labour. I t i s a l s o p o s s i b l e t h a t the n a t i o n a l p r e f e rence toward e q u i t y and a d a p t a b i l i t y maintains t a r i f f s i n low wage i n d u s t r i e s . The v a r i a b l e measuring l e v e l s o f r e s e a r c h and development (RD70) i n an i n d u s t r y i s s i g n i f i c a n t and p r o p e r l y signed f o r nominal p r o t e c t i o n l e v e l s t o support the comparative disadvantage model. TABLE 5.1: Determinants of the Tariff Structure in 100 4-digit Canadian Manufacturing Industries: 1966 Equation number Dependent variable Constant CR4 VPW LP70 RD70 REG PRODG FO70 EMPL XSH70 MSH70 TFPT70 RELSIZ ADV77 RELDIV GROWTH VASH R2 R2(adj) 1 NRP 0.19 -0.0006 (1.704) -0.0053 (2.19) 0.0153 (0.934) -0.0097 (1.695) 1.355 (2.614) -0.0119 (0.293) 0.0008 (0.553) ERP 0.24 -0.0006 (1.125) -0.0009 (0.250) -0.0394 (0.912) -0.0079 (0.912) 1.081 (1.362) -0.0608 (0.973) 0.0005 (0.238) NRP 0.32 -0.0002 (0.745) -0.0235 (4.043) -0.235 (2.040) -0.0067 (1.290) ERP 0.36 -0.0001 (0.199) -0.0296 (3.212) -0.0263 (1.087) -0.0084 (1.010) ERP ERP 0.95 0.47 -0.0003 (0.488) 0.0037 0.0148 (0.9763) (3.148) -0.0566 (4.754) -0.0443 (1.767) -0.0009 (2.020) -0.1026 (2.667) 0.0808 (0.701) -0.0150 (1.876) 0.1761 0.1340 0.2521 0.1565 0.1134 0.0691 0.2207 0.1210 -0.0008 (0.380) 0.2109 0.1461 -0.0403 (1.714) -0.0170 (0.693) 0.0003 (0.405) -0.0226 (0.189) -0.0026 (0.328) -0.0834 (1.393) 0.3122 0.2434 NRP -0.0201 (3.710) -0.0004 (3.456) -0.0402 (2.882) 0.0192 (1.400) -0.0758 (3.456) -0.0681 (2.323) 0.1205 (2.271) -0.0129 (2.646) ERP 0.4528 0.4041 0.1519 (4.135) -0.4467 (4.253) -0.5393 (2.407) -0.7731 (1.761) -0.5439 (1.161) -0.7725 (1.169) -0.7280 (0.929) -0.8310 (1.571) -0.1124 (1.981) 0.3929 0.3239 Note: Numbers in brackets are t s t a t i s t i c s The dependent variable NRP is BPNRP 85 The variabless defining the degree of natural protection (REG) i s negatively signed, and s i g n i f i c a n t for a l l the structure models i n which i t appears. Industries that are naturally protected are less i n need of t a r i f f protection. Groups not i n t h i s p o sition w i l l lobby for "unnatural" protection. This r e s u l t compares favourably with Caves, Saunders, and Baldwin and Gorecki but d i s c r e d i t s the displacement cost argument for REG. The variable i d e n t i f y i n g producer good industries i s p o s i t i v e l y correlated with t a r i f f s and s i g n i f i c a n t i n equation 7. This contradicts the hypothesis that there i s a c o l l e c t i v e preference of governments to protect manufactured consumer goods. The variable representing foreign ownership i s s i g n i f i c a n t l y negatively related to t a r i f f s i n equations 5 and 8. This contrasts with Saunder's re s u l t s . The negative relationship means that governments do not protect foreign industries. Also, as an interest group, they may lobby for lower t a r i f f s to i n v i t e i n t r a firm trade. The competitive disadvantage variables were also only p a r t i a l l y successful i n explaining t a r i f f s . Exports and imports are both negatively and s i g n i f i c a n t l y correlated with t a r i f f s i n equations 7 and 8. As predicted, exporting firms are generally more successful and less protected. This i s supported by both Saunders and Baldwin and Gorecki. The negative relationship between imports and t a r i f f s i n equations 7 and 8 does not support the comparative disadvantage argument. The variable RELSIZ i s negative and s i g n i f i c a n t i n 86 determining nominal t a r i f f l e v e l s . This variable i s assumed to capture r e l a t i v e e f f i c i e n c y and, as such, supports the hypothesis that small r e l a t i v e size industries are more l i k e l y to be protected. The variable TFPT70, measuring p r o f i t a b i l i t y , i s s i g n i f i c a n t l y positive i n equation 7 for nominal rates of protection. This implies that economic rents enhance an industry's a b i l i t y to lobby for t a r i f f s . This i s contrary to the comparative disadvantage argument. Relative d i v e r s i t y i s a reverse measure of scale economies i n Canada. This r a t i o i s negatively signed and s i g n i f i c a n t i n equation 8 implying that industries that are not scale advantaged w i l l tend to be favoured for protection. ADV77 i s s i g n i f i c a n t i n equations 1 and 2 but has the wrong sign. GROWTH and EMPL are both i n s i g n i f i c a n t . Equation number 7 i s the most successful at explaining the v a r i a t i o n i n nominal t a r i f f s . This model broadly supports other descriptions of the t a r i f f structure in Canada. In general, t a r i f f s i n Canada support industries which are competitively disadvantaged. This i s indicated by RELSIZ, TFPT70, REG and EXP70, and LP70. Broadly based interests such as consumers and labour also appear to be more successful than narrowly based interests i n influencing t a r i f f s . The model which best explains e f f e c t i v e protection i s displayed i n equation 8. This i s d i f f e r e n t from the model explaining NRP. VPW, LP70, REG, and FO70 are s i g n i f i c a n t supporting the interest group model for protection. VPW and LP70 87 also overlap as representing the competitively disadvantaged; however, the d i s t i n c t i o n i s somewhat subtle i n the end. The r e l a t i v e success of EXP70, RELDIV and VASH also reinforces the comparative disadvantage model. 5.2 Results for models of t a r i f f change As a signatory member of the GATT, Canada receives concessions under the most favoured nation p r i n c i p l e . Exempt from the l i n e a r formula of reductions set out for the Kennedy Round Canadian negotiators gave concessions they considered " f a i r and equitable". At the same time, negotiators were confined by t h e i r m u l t i l a t e r a l commitment for freer trade and the r e s t r i c t i o n s of the existing t a r i f f structure. This section w i l l e s tablish which p o l i t i c a l economic variables were favoured within the setting. This model analyzes changes using the Kennedy Round dutiable imports/total imports (KRD/MW66) as a measure of the impact of change. This i s compared with the standard measure of t a r i f f change; which subtracts protection i n year t from protection i n year t-x, where x i s the time span of change. This i s calculated for both ERP and BGNRP. The r e s u l t i n g variables are defined as DERP and DNRP respectively. A summary of t h i s analysis i s given i n table 5.2. In terms of explaining the t o t a l v a r i a t i o n i n change, the results betweeen tthe three variables for change are very similar. The stronger performance by DERP and DNRP must be largely 88 attributed to the strength of ERP and NRP i n explaining t h e i r respective models. This correlation i s not surprising, given that ERP and NRP are used to calculate DERP and DNRP. In terms of signs of c o e f f i c i e n t s t h i s analysis did reveal considerable v a r i a t i o n , t h i s w i l l be discussed l a t e r . Analysis of equation 3 alone does o f f e r some interesting r e s u l t s . Value added per worker, VPW i s negatively signed and s i g n i f i c a n t . This supports the hypothesis that countries are more l i k e l y to protect industries which they consider important to the well being of the economy, i n that they embody an intensive i n d u s t r i a l process. At the same time, Canadian t a r i f f p o l i c y i s protecting the countries comparative disadvantage with the c a p i t a l r i c h U.S. economy. The negative relationship could also indicate that as an interest group variable labour has not been a successful lobby. This i s supported by Baldwin and Gorecki (1985), whose variable representing labour intensity, EVA (which i s a reciprocal measure to VPW), was p o s i t i v e l y correlated with t a r i f f changes. The negative sign on the c o e f f i c i e n t for RELSIZ also suggests that i n e f f i c i e n t , low scale industries would expect to see an increase in import competition as a resu l t of negotiations. These concessions may have f u l f i l l e d an agenda of reducing t a r i f f s i n i n e f f i c i e n t industries. By the 1960's, "the conscious use of commercial p o l i c y to e f f e c t r a t i o n a l i z a t i o n for the problem ridden Canadian manufacturing industry" (Protheroe p.17) had 89 TABLE 5.2: Determinants of Kennedy Round T a r i f f Rate Changes i n 100 4-digit Canadian Manufacturing Industries j Equation j number 1 i i 2 1 l * l i 3 j Dependent DERP DNRP KRD/MW66 j variable VPW 0.0015 -0.0226 (1.474) (2.205) LP70 0.0035 -0.0002 0.0399 (0.555) (0.054) (1.216) REG 0.0204 (1.278) PR0DG00D -0.0133 -0.0140 (0.931) (2.290) RELSIZ 0.0192 0.0060 -0.0418 (3.623) (2.855) (1.725) FO70 0.0004 0.0000 0.0036 (1.563) (0.678) (2.912) XSH70 0.0378 0.0225 0.0638 (1.230) (1.888) (0.438) MSH70 0.0661 -0.4335 (1.514) (2.226) GROWTH 0.0146 (2.572) BGNRP66 0.4760 (7.647) BPNRP66 2.5620 (5.032) ERP66 0.7156 (10.534) NTBD -0.0738 -0.0139 -0.2580 | | (3.510) (3.614) (2.753) J R 2 0.5894 ' 0.4895 0.4105 | J R 2 ( a d j ) j 0.5427 0.4379 0.3509 j Note: Numbers in brackets are t s t a t i s t i c s The dependent variables DERP and DNRP measure change between 1966 and 1978 for e f f e c t i v e and nominal protection respectively 90 inspired an advocacy for freer trade. I t appears that t h i s may have been a factor i n the Kennedy Round. At the same time that high value added industries were maintaining protection, the sign on the c o e f f i c i e n t for labour indicates that low wage industries were spared from major concessions. LP70 i s p o s i t i v e l y signed, however weakly s i g n i f i c a n t . Low wage industries may also have been favoured for equity and adaptability reasons. Baldwin and Gorecki support t h i s with t h e i r results which point to some altruism i n the negotiation agenda despite the tenancy to favour, high value added industries. The variable FO70 i s p o s i t i v e l y correlated with t a r i f f s concessions. This implies that governments were unwilling to support foreign subsidiaries, preferring national interests and the "made i n Canada" objective. I t i s also possible that the interest groups representing foreign owned firms successfully lobbied for freer borders to f a c i l i t a t e trade between subsidiaries and head o f f i c e . The negative relationship between imports and Kennedy Round concessions indicates that negotiators were tryi n g to protect import competing firms. I f the threat of foreign competition v i a imports i s large, i t i s l i k e l y a. comparatively disadvantaged industry i n need of protection and, i n turn, threatened by major concessions. This i s p a r t i c u l a r l y true of the clothing and footwear industries, where the threat of competition i s omnipresent. The c o e f f i c i e n t on GROWTH i s p o s i t i v e l y signed, indicating that negotiators picked winners i n the concessions. That i s , slow growth industries may have suffered more from reductions i n t a r i f f s than other industries. I f growth patterns endure over time, then the variable on future growth ( i . e . , 1970-1979) indicates that negotiators maintained protection i n slow growth industries. This i s also supported by Baldwin and Gorecki. There i s a strong positive c o r r e l a t i o n between t a r i f f concessions and the existing t a r i f f structure. This indicates that the higher the t a r i f f i n an industry, the greater the concession given i n the Kennedy Round. This i s d i f f e r e n t from the e a r l i e r hypothesis that existing t a r i f f s make a strong case for the maintenance of t a r i f f s . It i s , however, consistent with the explanation that concessions made in high t a r i f f industries should be r e l a t i v e l y high compared with those made i n low t a r i f f industries. In short, the p o s i t i v e relationship between the Kennedy Round concessions and 1966 nominal t a r i f f l e v e l s indicates that, despite i t s manouverability i n the negotiations Canada could not escape i t s m u l t i l a t e r a l commitment to reduce t a r i f f s . This included some high t a r i f f industries. The negative sign on the c o e f f i c i e n t for NTB's appears to imply that NTB industries escaped l i g h t l y i n the Kennedy Round; that i s , NTB's and t a r i f f s went together rather than being substitutes. This re s u l t i s contrary to the hypothesized relationship. NTB's are d i f f i c u l t to measure and t h e i r incidence may vary s i g n i f i c a n t l y among industries. This may account for the apparent contradiction as i t i s more l i k e l y that an industry may accept NTBs as a more subtle form of protection i n order to avoid public objection to high nominal t a r i f f s . Comparison of the results for KRD/MW66 and DERP shows interesting differences. The s i g n i f i c a n t variables common to equations 1 and 3 are VPW, RELSIZ, FO70 and MSH70. Of the 4 variables the signs for VPW, RE1SIZ and MSH are opposing. As such, equation 1 reveals few concessions given i n competitively disadvantaged industries, which contradicts, to a certain degree, the results using KRD/MW66. The contrast between the results could be the r e s u l t of the fact that the two variables measure s l i g h t l y d i f f e r e n t things. As explained i n section 4.1, they may show d i f f e r e n t r e s u l t s , whereas KRD/MW66 measures the breadth of change i n protection DERP and DNRP measure the size of the change. The simple correlation c o e f f i c i e n t for KRD/MW66 and DERP i s .07 while that for KRD/MW66 and DNRP i s .14. A closer observation of the data pointed to a few anomalies, however the results changed very l i t t l e when these anomalies were removed from the sample. The choice of which variable i s most appropriate measure of t a r i f f changes i s l e f t to the d i s c r e t i o n of the reader. 93 CHAPTER 6 SUMMARY, CONCLUSIONS AND CAVEATS This chapter provides a summary of t h i s thesis along with conclusions and caveats. The purpose of t h i s thesis has- been to study the p o l i t i c a l economy of the t a r i f f setting process. The focus has been to explain the determinants of the t a r i f f structure i n Canada p r i o r to the Kennedy Round of the GATT negotiations and to explain the determinants of changes in t a r i f f s that occurred as a r e s u l t of the Kennedy Round of the GATT negotiations. Considerable work has been conducted on the subject with varied r e s u l t s . This study focused primarily on e a r l i e r studies of the p o l i t i c a l economy of Canadian t a r i f f s , however, note i s also given to several U.S. studies. A b r i e f summary of the Canadian surveys points to a number of explanations for the determination of t a r i f f s . • . '. Caves (1976) notes the growing role of interest group variables i n explaining t a r i f f s . Helleiner (1977) takes a closer look at the inte r e s t group model emphasizing the unfortunate role of less developed countries i n the negotiation process. Saunders (1980) ignores the interest group hypothesis and investigates 94 Canada s weak productivity performance r e l a t i v e to the U.S. He concludes that t h i s i s a major determinant of t a r i f f s . Baldwin and Gorecki (1985) support Saunders work with an analysis which incorporates an extensive l i s t of variables used to measure the r e a l world. Comparing the results for Canadian t a r i f f s and U.S. t a r i f f s suggests that although t a r i f f s i n both countries are a function of pressure group interest these interests are often more broadly placed i n Canada. This broader inte r e s t was needed to sustain and develop a strong east-west economy. This thesis has extended previous work on the subject with pa r t i c u l a r focus on the Kennedy Round of the GATT negotiations. This was the s i x t h round of the GATT negotiations conducted between 1962 and 1967. In t h i s round Canada was allowed exemption from the l i n e a r rule of t a r i f f concessions which most other countries excepted. This gave them a l i t t l e manouverability i n the negotiations. According to the journalism of the day, t e x t i l e manufacturers used t h i s manouverability to lobby for protection, while wood, paper products, s t e e l industries, and agriculture interests lobbied for l i b e r a l i z a t i o n . The headlines at the close of the talk s revealed that i n the end these interests were only p a r t i a l l y met. The vulnerable clothing and t e x t i l e industry gave some concessions while other areas such as some agriculture industries were unsuccessful i n there bid for open markets. Analysis of Kennedy Round was conducted using nominal and 95 e f f e c t i v e rates of protection to determine the t a r i f f structure and a unique measure of the breadth of concessions to determine change. This unique variable, which measures the impact of Kennedy Round concessions on Canadian industry, was constructed from data for d i f f e r e n t t a r i f f items which were subject to concessions i n these negotiations. This variable was used to re-test previous hypotheses on the magnitude of t a r i f f concessions. Chapter 4 has given a review of three primary considerations which might influence the determination of t a r i f f s . They have been developed as follows: 1) pressure group influence 2) the comparative advantage of an industry 3) the minimization of displacement costs As such these models were not mutually exclusive, which made i t d i f f i c u l t to pin down the results, however they do hold some individual merit. The variables testing each group of hypotheses were l i s t e d i n table 4.1 with a summary of hypothesized signs. These hypotheses were tested simultaneously to f i n d out i f one p a r t i c u l a r hypothesis would stand out i n the r e s u l t s . This did. not occur and the results point primarily to comparative disadvantage variables as influencing t a r i f f l e v e l s and t a r i f f changes. L i t t l e d i r e c t evidence was given to the strength of pressure groups i n t a r i f f determination. The pressure group variables that were s t a t i s t i c a l l y s i g n i f i c a n t were, for the most part, variables also hypothesized to r e f l e c t the more general 96 motives of a concerned government. Displacement cost avoidance variables showed weak res u l t s systematically undermining the s o c i a l welfare hypothesis and the associated interest groups. The importance of comparative disadvantage variables i n the determination of t a r i f f s and changes i n t a r i f f s reveals l i t t l e new knowledge of the t a r i f f setting process. This i s largely due to the fact that many of these variables are subject to a number of interpretations, each with i t s own v a l i d i t y and merit. Perhaps a more f r u i t f u l analysis would control very c a r e f u l l y for comparative disadvantage. One very strong result i n t h i s thesis points to the importance of exis t i n g t a r i f f l e v e l s i n describing changes i n t a r i f f s . Greater r e l a t i v e cuts given by high t a r i f f industries implies that despite i t s manouverability i n the negotiations Canadian concessions were given i n high t a r i f f areas, maybe even following an equal l i n e a r formula. This reveals a general move i n the dire c t i o n of t a r i f f l i b e r a l i z a t i o n despite the conservatism revealed i n the p o l i t i c a l economy of t a r i f f changes, as they lar g e l y r e f l e c t the p o l i t i c a l economy of the t a r i f f structure. This move toward l i b e r a l i z a t i o n may have been countered, however, by the growth of nontariff barriers i n the early 1970 s. Table 5.2 points to some interesting results for the measure of the breadth of concessions compared to the size of concession (measured as the difference i n average t a r i f f - calculated at the 97 industry l e v e l - between two years). Three of the variables s i g n i f i c a n t for both changes i n e f f e c t i v e protection and the breadth variable show opposing signs. These variables measure value added per worker, scale u t i l i z a t i o n and industry imports. The implications of these result provide an interesting base for further research. The results of t h i s thesis could also be complimented with the incorporation of the pr i n c i p l e s of international negotiations into the model for the p o l i t i c a l economy of the t a r i f f s e tting process. In summary, i t appears as though the casual journalism on the Kennedy Round negotiations emphasized the need for Canada to defend i t s position as a small economy beside the large, d i v e r s i f i e d U.S. economy. This view was part of a National Policy t r a d i t i o n which denied the more economic, effects of t a r i f f s (eg. misallocation of resources). The results of the Kennedy Round concessions reveal that in general t h i s view was maintained. The concessions made i n the Kennedy Round were made i n order to minimize the "domestic p o l i t i c a l disruption" as a r e s u l t of trade l i b e r a l i z a t i o n . In the end, industries threatened by import competition were the most l i k e l y to maintain t a r i f f protection i n the face of general l i b e r a l i z a t i o n . 98 B I B L I O G R A P H Y Baldwin, John R. and Gorecki, Paul K., "The Determinants of the Canadian T a r i f f Structure Before and After the Kennedy Round: 1966, 1970", Economic Council of Canada, Discussion Paper No.280, 1985. Balassa, Bela, " T a r i f f Protection i n Indu s t r i a l Countries: An Evaluation", Journal of P o l i t i c a l Economy, p.573-94, 1973. Bhagwati, Jagdish N., (editor), Import Competition and Response. Chicago: University of Chicago Press, 1982. Biggs, Margaret, The Challenge: Adjust or Protect?, Ottawa: The North-South I n s t i t u t e , 1980. Bl a i s , Andre, A P o l i t i c a l Sociology of Public Aid to Industry, Toronto: University of Toronto Press, 1985. Brock, William, and Stephen Magee, "The Economics of Special Interest P o l i t i c s : The Case of T a r i f f s " , American Economic  Review. 68:246-250, 1978. Caves, Richard E., "Economic Models of P o l i t i c a l Choice: Canada's T a r i f f Structure", Canadian Journal of Economics, 1976. Cheh, John H. , A Note on T a r i f f s , and Nontariff Barriers and Labour Protection i n U.S. Manufacturing Industries," Journal of  P o l i t i c a l Economy. A p r i l 1976, 84, 389-94. Copeland, Brian, "Strategic Interaction Among Nations: Negotiable and Non-negotiable Trade Barriers", Dept. of Economics, University of B r i t i s h Columbia, Discussion Paper No. 86-22, 1986. Corden, W.M., Trade Policy and Economic Welfare, Oxford: Clarendon Press, 1974. Curtis T.B., and J.R. Vastine, The Kennedy Round and the Future of American Trade. New York: Preager, 1971. Dauphin, Roma, Impact of Free Trade i n Canada, Ottawa: Economic Council of Canada, 1978. Editor, "Wake up Canada i t ' s time to trade", Canadian Business 37:23, Jan., 1964. 99 Evans, John W., The Kennedy Round i n American Trade Policy, Cambridge MA: Harvard University Press, Cambridge, Mass.,1971. Feenstra, Robert C. and Jagdish N. Bhagwati, " T a r i f f Seeking and the E f f e c i e n t T a r i f f " , i n Bhagwati, Jagdish N. , (ed.), Import  Competition and Response, Chicago: University of Chicago, 1982. Findlay, R. and S. Wellisz, "Endogenous T a r i f f s , the P o l i t i c a l Economy of Trade Rest r i c t i o n s and Welfare", i n Bhagwati, Jagdish N., (ed.), Import Competition and Response, University of Chaicago, 1982. Finlayson, Jock A., Zacher, Mark W.,"The GATT and the regulation of trade b a r r i e r s : regime dynamics and functions", International Organization. 35,4, Autumn 1981. Gujarati, Damodar, Basic Econometrics. New York: McGraw-Hill Book Company, 1978. Hazledine, Tim, "Why the Free-trade Gain Numbers D i f f e r So Much: Analysis of an encompassing general equilibrium model", Dept, of A g r i c u l t u r a l Economics, University of B r i t i s h Columbia, 1989. Helleiner, G.K., "The P o l i t i c a l Economy of Canada's T a r i f f Structure: an a l t e r n a t i v e model", Canadian Journal of Economics. May 1977, 10, 318-26. Helleiner, G.K. et a l . , Protectionism or I n d u s t r i a l Adjustment?. Paris: A t l a n t i c I n s t i t u t e for International A f f a i r s , A p r i l 1980. Johnson, Harry G., "The Kennedy Round", The Journal of World Trade  Law. 477-478. Sept., 1967. Krueger, A.O., "The P o l i t i c a l Economy of the Rent Seeking Society", American Economic Review LXIV, 291-303, 1974. Lavergne, Real P., The P o l i t i c a l Economy of U.S. T a r i f f s : An  Emperical Analysis. Don M i l l s Ontario: Academic Press Canada, 1983. Marvel, Howard P. and Ray, Edward J . , "The Kennedy Round: Evidence on the Regulation of International Trade i n the United States", American Economic Review, Vol.73, No. 1, March 1983. Nelson, Douglas R., The P o l i t i c a l Economy of the New Protection, Washington: The World Bank, 1981. Pearson, Charles and Salembier, Trade, Employment and Adjustment. Montreal: The I n s t i t u t e for Research on Public Policy, 1983. 100 Pestieau, C. , The Canadian T e x t i l e Policy: A Sectoral Trade  Adjustment Strategy?. Ottawa: Canadian Economic Policy Committee, 1976. Pincus, J . J . , "Pressure groups and the Pattern of T a r i f f s " , Journal of P o l i t i c a l Economy. LXXXIII -4, 757-78, 1975. Preeg, Ernest, Traders and Diplomats. Washington D.C: The Brookings I n s t i t i u t i o n , 1970. Protheroe, David R., Imports and P o l i t i c s : Trade Decision Making  i n Canada, Montreal: The I n s t i t u t e for Research on Public Policy, 1964. Ray, Edward J . , The Impact of Special Interests of P r e f e r e n t i a l T a r i f f Concession by the U.S., Review of Economics and  S t a t i s t i c s . 1987. Ray, Edward J . , and Marvel, Edward, "The Pattern of Protection i n the I n d u s t r i a l i z e d World", Review of Economics and S t a t i s t i c s . LXVII, 1985. Saunders, Ronald S., "The P o l i t i c a l Economy of E f f e c t i v e T a r i f f Protection i n Canada's Manufacturing Sector", Canadian Journal  of Economics. X l l l - 2 , p.340-48. Schumpeter, J.A., History of Economic Analysis. New York: Oxford University Press, 1954. Shutt, H., The Myth of Free Trade. London: B a s i l Blackwell Ltd., 1985. Slater, D.W., "Canada and the Kennedy Round", Canadian Banker. 43-50, Oct., 1966. Spero, Joan E., The P o l i t i c s of International Economic Relations. New York: St. Martins Press, 1985. Stone, Frank, Canada, the GATT and the International Trade  Systems. Ottawa: The I n s t i t u t e of Research and Public Policy,1984. Stone, Joe A., "A Conmment on T a r i f f s , Nontariff Barriers, and Labour Protection i n U.S. Manufacturing Industries," Journal  of P o l i t i c a l Economy. LXXXVI, 959-62, Oct. 1978. Tullock, Gorden, "the Welfare Cost of T a r i f f s , Monopolies, and Theft", Western Economic Journal. 5: 224-232, 1967. Whalley, John, Research Coordinator, Canada United-States Free Trade, Toronto University of Toronto Press, 1985. 101 Wilgress, L.D., Canada's Approach to Trade Negotiations. The Canadian Trade Committee, 1963. Wylie, P.J., "The P o l i t i c a l Economy of the National Po l i c y T a r i f f s : 1900 & 1910", Dept. of Economics, Trent University, Working Paper, A p r i l , 1988. Young, J.H., Canadian Commercial Policy. Ottawa: Royal Commission on Canada's Economic Prospects, 1957. 102 Appendix A L i s t of Variables and Definitions ADV* i s the advertising/sales r a t i o for the industry for 1977. CR4* i s the four-firm s e l l e r concentration index: the proportion of industry shipments accounted for by the four largest firms. ERP* i s e f f e c t i v e rate of protection i n an industry. I t i s calculated to take into account exports, i n d i r e c t taxes and subsidies. EMPL i s the number of wage and salary earners employed i n an industry, 1966. EXP70* i s the proportion of domestic shipments that i s exported, 1970. FO70* i s the proportion of industry shipments accounted for by foreign-owned firms. An enterprise i s defined as foreign controlled i f there i s e f f e c t i v e foreign control, 1970. GROWTH i s the rate of growth of industry shipments, 1970-1979. KRDMW i s the r a t i o of dutiable imports i n an industry affected by the Kennedy Round concessions divided by the t o t a l number of imports i n 1966. See section 4.1. LP70* i s the average wage i n an industry, 1970. LSHARE* i s labour share of t o t a l variable cost, average 1979-1970. NRP i s the nominal rate of protection; defined as the duties co l l e c t e d i n an industry divided by the value of dutiable imports. PRODG* i s a dummy variable that takes on a value of one for industries that s e l l primarily to other industries, 0 otherwise REG* i s a dummy variable that takes on a value of one for regional industries, 0 otherwise. RELDIV* i s a measure of plant d i v e r s i t y r e l a t i v e to the number of industry products. RELSIZ* i s a measure of Canadian r e l a t i v e s i z e disadvantage: the RD70* -103.. r a t i o of average plant si z e i n Canada to the estimate of U.S. minimum e f f i c i e n t scale for the same industry. Minimum e f f i c i e n t scale i s the average size i n shipments of the largest U.S. plants which account for the top 50 per cent of industry shipments. i s the percentage of research a development personnel to a l l wage and salary personnel, 1970. TFP470* i s a measure of r e l a t i v e t o t a l factor productivity i n an industry. See Baldwin and Borecki (1979). TFPT70* i s the input/output r a t i o i n an industry, 1970. VASH i s the r a t i o of value added to sales, 1966. VPW i s the r a t i o of value added i n an industry to the number of wage earners i n an industry, 1966. * variables from the Baldwin and Gorecki data base APPENDIX 8 104 TABLE Bl: Data used to estiiate the deteninants of the t a r i f f structure and the Kennedy Round changes in the t a r i f f structure SIC KRDNU66 ERP66 ERP70 ERP78 BPNRP66 BGKRP66 BGNRP70 BGNRP78 CR4 RELSIZ RELDIV 1011 1012 1020 1031 1032 1040 1050 1060 1071 1072 10B1 1083 1091 1093 1620 1720 1740 1810 1820 1831 1832 1852 1860 1872 1880 1891 1894 2310 2391 2431 2441 24S0 2511 2513 2520 2543 2560 2593 2640 2660 2680 2710 2720 2731 2732 2733 0.07 0.17 0.38 0.09 0.1 0.03 0.68 0.23 0.1 0.89 0.11 0.11 0 0 0.26 0.01 0 0.12 0.68 0.51 0.85 0 0.7 0 0 0.28 0 0 0.21 0 0.16 0 0 0 0.69 0.99 0.45 1 0.99 0.98 0 0.55 0.87 0.55 0 0.91 0.11 0.3 0.09 0.09 0.09 0.56 0.27 0.18 0.07 0.17 0.07 0.07 0.06 0.44 0.21 0.18 0.38 0.27 0.31 0.23 0.23 0.23 0.41 0 0.08 0.28 0.22 0.31 0.39 0.28 0.28 0.28 0 0 0.19 0.23 0 0.07 0.26 0.2 0.22 0.04 0.15 0.03 0.03 0.03 0.09 0.21 0.06 0.07 0.07 0.27 0.27 0.18 0.02 0.08 0.05 0.05 -0.04 0.31 0.21 0.14 0.34 0.2 0.27 0.18 0.18 0.2 0.41 0.01 -0.1 0.19 0.26 0.29 0.47 0.23 0.23 0.23 0 0 0.17 0.16 0.15 0.09 0.18 0.16 0.14 0.03 0.18 0.19 0.19 0.19 0.03 0.24 0.02 0.01 0.01 -0.01 0.16 0.12 0.04 0.11 0.1 0.1 0.03 0.19 0.24 0.2 0.28 0.27 0.18 0.24 0.24 0.24 0.32 0.17 -0.08 0.13 0.31 0.29 0.36 0.24 0.24 0.24 0 0 0.14 0.17 0.18 0.05 0.14 0.17 0.1 0.02 0.13 0.16 0.16 0.16 0.05 0.12 0.09 0.09 0.12 0.19 0.08 0.07 0.05 0.17 0.08 0.05 0.08 0.31 0.17 0.08 0.25 0.19 0.19 0.17 0.33 0.22 0.26 0.23 0.11 0.17 0.17 0.24 0.31 0.26 0.26 0.25 0.01 0.01 0.15 0.21 0.09 0.2 0.22 0.21 0.17 0.12 0.17 0.2 0.1 0.18 0.05 0.12 0.12 0.09 0.09 0.17 0.09 0.06 0.08 0.11 0.07 0.05 0.09 0.22 0.16 0.07 0.24 0.18 0.17 0.18 0.18 0.22 0.25 0.06 0.11 0.19 0.17 0.24 0.27 0.23 0.23 0.23 0.17 0.2 0.11 0.11 0.1 0.1 0.1 0.05 0.09 0.08 0.08 0.08 0.07 0.09 0.04 0.05 0.07 0.06 0.07 0.04 0.25 0.13 0.07 0.23 0.16 0.18 0.16 0.16 0.17 0.23 0.07 0.04 0.14 0.21 0.22 0.3 0.22 0.22 0.22 0.01 0.01 0.12 0.1 0.1 0.08 0.16 0.14 0.17 0.08 0.14 0.13 0.13 0.13 0.02 0.1 0.04 0.05 0.05 0.04 0.07 0.03 0.05 0.08 0.07 0.02 0.06 0.06 0.18 0.07 0.21 0.17 0.12 0.15 0.15 0.17 0.18 0.16 0.04 0.12 0.22 0.2 0.24 0.2 0.2 0.2 0.01 O.Ot 0.12 0.11 0.09 0.08 0.16 0.14 0.11 0.07 0.12 0.11 0.11 0.11 54.8 37.1 39.9 41.6 60.2 29.8 70.1 29.5 68.1 32.6 52.7 78.5 45.9 94.2 61.7 77.6 24.6 93.4 38.1 82.7 42.8 78.2 42.5 34.3 83.9 82 47.1 24.9 35 12 8 13.1 56.1 21.6 50.1 44.3 42.3 88 43.2 15.7 28.6 36.1 99.6 44.2 56.7 41 0.56747 0.69827 0.28028 0.59199 0.63864 0.62393 0.50685 0.36594 0.2685 0.68693 0.53291 0.58474 0.61264 0.46152 1.00775 1.13555 0.49279 0.95911 0.52085 0.32658 0.51685 0.27387 0.38714 0.S9362 8.63592 0.35241 0.12395 0.51243 0.3197 0.30768 0.88091 0.62283 3.46395 1.98664 1.01137 1.28399 1.38183 0.62871 0.25244 0.61627 0.22986 0.90845 0.67641 1.13989 1.69491 0.74621 0.38 0.63 0.57 0.37 0.433 6.51 0.65 0.41 0.743 0.79 0.46 0.885 0.88 0.78 0.34 0.59 0.687 0.45 0.574 0.39 0.51 0.55 0.76 0.44 0.59 0.54 0 0.69 0.61 0.54 0.65 0.41 0:78 0.5 0.64 0.86 0.74 0.86 0.51 0.52 0.84 0.64 0.82 0.8 0.87 0.65 List of variable nates and descriptions in appendix 1 Oata used to estuate the deteriinants of the t a r i f f structure ( c o n f ) 105 SIC KRDHW66 ERP66 2870 0 0.01 2910 . 0.03 0.07 2920 0 0.1 2940 0 0.11 2960 0.21 0.01 2970 0.86 0.31 3010 0.19 0.1 3020 0.79 0.11 3041 0 0.09 3042 0.54 0.09 3050 0.07 0.12 3060 0.53 0.16 3070 0.2 0.18 3080 0 0.06 3110 0 0 3160 0.48 0.08 3180 0.02 0.08 3210 0.01 0 3230 0 0 3241 0.19 0.12 3242 1 0.12 3243 1 0.12 3250 0.07 0 3260 0.76 0.11 3270 0.56 0.12 3310 0.62 0.21 3320 0.12 0.17 3330 0.83 0.22 3340 0.24 0.18 3350 0.43 0.1 3360 0.72 0.13 3380 0 0.18 3391 0.18 0.17 3511 0.21 0.12 3512 0.06 0.12 3520 0 0.03 3541 0 0.12 3542 0 0.12 3550 0 0.08 3570 0 0.05 3591 0.22 0.04 3730 0 0.05 3740 0.67 0.17 3750 0 0.23 3760 0.7 0.23 3770 0.82 0.3 3781 0 0.06 3782 0 0.06 3783 0 0.06 3791 0 0.04 3911 0.1 0.03 3912 0.66 0.03 3914 0 0.03 ERP78 BPNRP66 0.02 0.05 0.13 0.1 0.11 0.06 -0.07 0 0.1 0.08 0.13 0.06 0.03 0.07 0.05 0.1 0.17 0.12 0.07 0.05 0.13 0.07 0.08 0.19 0.09 0.12 0.17 0.09 0.12 0.17 0.09 0.07 0.09 0.12 0.08 0.17 0.15 0.17 0.23 0.03 0.02 0.07 -0.12 -0.06 0 0.11 0.09 0.15 0.06 -0.07 0.11 -0.03 -0.02 0 -0.08 -0.11 0.02 0.11 0.09 0.04 0.11 0.09 0.23 0.11 0.09 0.22 -0.05 -0.04 0.02 0.05 0.05 0.17 0.03 0.07 0.12 0.14 0.13 0.19 0.11 0.12 0.19 0.15 0.09 0.22 0.1 0.03 0.2 0.04 0.05 0.13 0.11 0.11 0.19 0.18 0.22 0.17 0.1 0.14 0.14 0.1 0.12 0.17 0.1 0.12 0.07 0.03 0.01 0.04 0.06 0.11 0.09 0.06 0.11 0.09 -0.03 -0.04 0.05 0.04 0.06 0.09 0.01 0.01 0.07 0.07 0.11 0.05 0.08 0.05 0.12 0.2 0.19 0.17 0.06 0.12 0.15 0.2 0.15 0.23 0.07 0.07 0.05 0.07 0.07 0.06 0.07 0.07 0.05 0.03 0.06 0.13 0.03 0.03 0.07 0.03 0.03 0.16 0.03 0.03 0.16 8GNRP70 BGNRP78 ,0.05 0.04 0.05 0.06 0.07 0.05 0.08 0.06 0.06 0.09 0.06 0.1 0.05 0.03 0.04 0.1 0.03 0.05 0.1 0.08 0.07 0.1 0.08 0.07 0.1 0.1 0.09 0.1 0.1 0.09 0.09 0.08 0.07 0.14 0.11 0.09 0.14 0.13 0.13 0.07 0.05 0.03 0 0.01 0 0.09 0.12 0.09 0.1 0.09 0.08 0.02 0.01 0 0.02 0.02 0.02 0.13 0.12 0.1 0.13 0.12 0.1 0.13 0.12 0.1 0.02 0.01 0.01 0.11 0.09 0.08 0.1 0.04 0.06 0.16 0.13 0.12 0.15 0.11 0.12 0.17 0.13 0.09 0.17 0.12 0.08 0.13 0.1 0.08 0.13 0.11 0.1 0.13 0.1 0.11 0.13 0.08 0.1 0.1 0.09 0.1 0.1 0.09 0.1 0.03 0.03 0.02 0.09 0.06 0.08 0.09 0.06 0.08 0.05 0.03 0.01 0.08 0.08 0.08 0.05 0.03 0.03 0.05 0.06 0.06 0.13 0.08 0.06 0.13 0.12 0.12 0.13 0.11 0.09 0.18 0.15 0.12 0.07 0.06 0.05 0.07 0.06 0.05 0.07 0.06 0.05 0.05 0.05 0.06 0.07 0.06 0.06 0.07 0.06 0.06 0.07 0.06 0.06 RELSIZ RELOIV 22.7 0.84883 0.84 76.2 1.57609 0.29 76.6 1.42927 0.65 51 0.23682 0.65 89.7 0.63185 0.55 84.2. 1.05168 0.72 55.3 2.38836 0.51 43.7 2.39428 0.56 17.6 0.64372 0.81 39 0.74166 0.65 43 3.97303 0.5 16.4 0.10229 0.71 28.6 0.43216 0.39 7.3 0.9218 0.76 70.6 0.33238 0.38 54.2 0.05704 0.7 82.7 2.36278 0.45 72.1 0.36702 0.54 93.4 1.61149 0.35 36.9 0.47589 0.65 47.1 0.61068 0.79 69.9 0.60642 0.46 46.2 0.25801 0.73 79.3 0.51424 0.45 61.7 0.1594 0.53 44.5 0.32148 0.37 62.7 0.25991 0.4 43.5 0.63508 0.66 62.3 0.1765 0.65 55.9 0.48482 0.69 55.5 0.55535 0.35 83.9 1.93939 0.42 77.3 0.73972 0.51 40.9 0.81304 0.75 67.4 0.36709 0.74 79.5 4.11485 0.91 41 1.22022 0.86 41.3 2.80278 0.84 44.8 8.46153 0.88 87.7 0.3563 0.54 77.4 1.43776 0.63 57.8 0.46747 0.67 29.6 0.1319 0.35 39.7 0.58889 0.68 75.7 1.36697 0.29 45.3 0.16452 0.22 70.5 0.3082 0.92 49.4 0.91905 0.5 60.5 0.85949 0.32 55.2 0.66052 0.89 54.5 0.28089 0.56 76.7 0.16327 0.72 79.1 0.12313 0.89 Oata used to estiaate the deterninants of the t a r i f f structure ( c o n f ) 106 TFPT70 TFP470 LC66 1011 1.061 1.024 41433 1012 1.067 1.042 12012 1020 1.137 1.064 32504 1031 1.196 1.112 32383 1032 1.238 1.125 6522 1040 1.11 1.046 30175 1050 1.145 1.039 7552 1060 1.115 1.073 11378 1071 1.258 1.058 9918 1072 1.18 1.076 40226 1081 1.305 1.173 17731 1083 1.108 0 5036 1091 1.259 1.143 12126 1093 1.759 1.325 10627 1620 1.268 1.169 41712 1720 1.163 1.098 6194 1740 1.18 1.136 35633 1810 1.094 1.066 29451 1820 1.215 1.104 16609 1831 1.209 0.931 12600 1832 1.104 1.061 23000 1852 1.169 1.011 863 1860 1.2 1.134 6385 1872 1.125 1.037 3166 1880 1.252 1.182 4563 1891 1.201 1.176 1501 1894 1.217 1.042 4898 2310 1.181 1.093 14139 2391 1.161 1.112 5700 2431 1.179 1.118 60043 2441 1.197 1.126 51826 2450 1.164 1.105 14331 2511 1.06 1.026 2745 2513 1.07 0.995 92983 2520 1.059 0.957 27611 2543 1.2 1.072 509 2560 1.215 1.134 6549 2593 1.112 1.107 1350 2640 1.247 1.215 7620 2660 1.217 1.142 22073 2680 1.265 1.156 2326 2710 1.131 1.082 135053 2720 1.16 1.228 2770 2731 1.164 1.115 14064 2732 1.124 1.071 12994 2733 1.161 1.103 8908 CVAC66 LP70 MSH70 XSH70 : : : : : : : : : ========= == === ===; 255243 7.347 0.058 0.072 38793 4.78 0.008 0.01 98427 3.992 0.189 0.528 193796 5.536 0.167 0.037 30000 4.124 0.275 0.074 263418 6.424 0.016 0.043 85176 7.508 0.032 0.303 94075 6.076 0.011 0.035 57984 5.497 0.05 0.073 237726 5.596 0.009 0.008 98668 5.259 0.146 0.052 50579 6.866 0.362 0.245 156851 6.498 0.006 0.002 230569 9.188 0.005 0.011 284848 7.279 0.204 0.042 23912 6.044 0.354 0.137 110606 . 4.463 0.231 0.038 114212 5.279 0.254 0.053 61829 5.338 0.176 0.011 91000 7.348 0.283 0.073 90000 5.375 0.289 0.073 3852 5.842 0.355 0.871 36132 5.545 0.127 0.018 11897 4.745 0.023 0 20906 7.249 0 0 7748 5.783 0.124 0 20582 5.427 0 0 43726 4.359 0.028 0.006 32000 5.486 0.378 0.035 184989 4.552 0.092 0.029 190354 4.515 0.055 0.057 42425 4.092 0.07 0.037 11702 7.952 0 1.37 390390 6.433 0.131 0.711 105843 6.544 0.184 0.252 2900 6.342 0.019 0.031 22150 5.54 0.027 0.035 7000 6.788 0 0 41833 6.387 0.054 0.098 94362 5.969 0.038 0.032 9245 4.6 0.067 0 1100261 8.727 0.083 0.676 24036 8.135 0.018 0.136 66422 6.456 0.051 0.017 29449 7.284 0 0 52136 6.555 0.012 0.002 HSHARE SIZET70 ADV77 0.09 0.91 5527.863 0 0.136 0.864 3626.509 0 0.198 0.802 1869.515 0 0.179 0.821 3067.83 0.03 0.184 0.816. 2354.233 0.03 0.117 0.883 2640.449 0.01 0.113 0.887 9969.184 0.04 0.076 0.924 1158.838 0.01 0.277 0.723 4670,699 0.02 0.365 0.635 308.751 0.01 0.253 0.747 1953.418 0.04 0.032 0.968 14164.25 0 0.255 0.745 1256.772 0.05 0.413 0.587 47656.73 0.06 0.288 0.712 8302.113 0.01 0.19 0.81 2549.521 0 0.337 0.663 1574.114 0.01 0.248 0.752 28977.01 0 0.365 0.635 2485.541 0 0.254 0.746 27348.09 0.01 0.261 0.739 4545.469 0.01 0.31 0.69 935.328 0 0.209 0.791 5887.113 0.01 0.328 0.672 254.408 0.01 0.288 0.712 5946.402 0.01 0.239 0.761 1790.526 0.01 0.384 0.616 920.635 0 0.36 0.64 1312.569 0.02 0.187 0.813 2856.565 0.01 0.327 0.673 1180.067 0.01 0.311 0.689 869.966 0.01 0.302 0.698 830.292 0.01 0.316 0.684 433.409 0 0.278 0.722 718.004 0 0.293 0.707 4193.441 0 0.234 0.766 1854.785 0.01 0.326 0.674 356.029 0 0.296 0.704 2313.647 0.01 0.384 0.616 1705.445 0.01 0.346 0.654 651.421 0.01 0.364 0.636 377.304 0 0.272 0.728 50842.27 0 0.128 0.872 11043.25 0.02 0.295 0.705 1921.145 0 0.266 0.734 7944.727 0 0.218 0.782 3757.506 0 Data used to estiiate the deteninants of the t a r i f f structure (cont'l 107 SIC TFPT70 TFP470 LC66 CVAC66 LP70 HSH70 XSH70 ISHARE NSHARE SIZET70 ADV77 3ss:s=:=: : : : : : : : : : : ""=="= : : : : : : : : : : : : : : : : : : : 2870 1.227 1.113 9700 58803 7.76 0.115 0.008 0.643 0.357 259.602 0.01 . 2910 1.203 1.058 80205 648228 8.623 0.193 0.174 0.261 0.739 54980.06 0 2920 1.078 0 7966 60996 8.476 0.231 0.154 0.175 0.825 15870.7 0 2940 1.181 1.115 24205 117780 7.439 0.261 0.148 0.384 0.616 2272.752 0 2960 1.108 0 8175 41499 7.716 -0.787 1.839 0.152 0.848 4889.098 0 2970 1.061 1.027 7665 59903 7.887 0.078 0.227 0.114 0.886 6060.617 0 3010 1.184 1.098 11861 72471 8.22 0.106 0.097 0.362 0.638 2859.388 0 3020 1.258 1.103 33189 229188 8.417 0.012 0 0.343 0.657 4722.93 0 3041 1.242 1.131 7100 30000 6.2 0.059 0 0.409 0.591 392.426 0 3042 1.217 1.118 46000 308000 7.35 0.063 0.006 0.2 0.8 1673.26 0 3050 1.177 1.088 26921 158614 7.203 0.203 0.101 0.267 0.733 2424.245 0 3060 1.294 1.165 25000 144000 7.005 0.324 0.16 0.442 0.558 589.786 0.03 3070 1.222 1.135 7432 50312 6.824 0.089 0.027 0.283 0.717 1701.429 0.01 3080 1.235 1.131 23011 1US08 6.998 0 0 0.496 0.504 222.199 0 3110 . 1.123 1.041 24248 140615 7.624 0.832 0.688 0.277 . 0.723 2103.544 0.02 3160 1.216 1.1 3879 25977 7.038 0.437 0.174 0.259 0.741 2792.615 0 3180 1.697 1.087 6600 84000 9.446 0.551 0.306 0.303 0.697 16771.57 0 3210 1.061 1.035 48015 291725 8.466 0.54 0.575 0.451 0.549 6802.328 0 3230 1.129 1.1 65953 613021 9.747 0.572 0.597 0.069 0.931 255005 0.01 3241 1.13 1.018 3960 19409 6.232 0.023 0.021 0.306 0.694 697.91 0 3242 1.19 1.117 4700 22181 5.234 0.171 0.006 0.214 0.786 1176.539 0 3243 1.147 1.084 2040 13863 7.223 0.1 0.005 0.257 0.743 2135.344 0 3250 1.166 1.072 59730 377273 7.965 1.05 1.089 0.286 0.714 9020 0 3260 1.179 1.098 10298 65366 7.785 0.151 0.116 0.193 0.807 26033.45 0 3270 1.1 0.831 35246 165842 7.657 0.025 0.024 0.451 0.549 4217.391 0 3310 1.295 1.141 8842 62138 6.334 0.301 0.043 0.233 0.767 2936.944 0.02 3320 1.197 1.087 20497 123821 6.692 0.199 0.037 0.283 0.717 12945.63 0.02 3330 1.237 1.11 4000 25500 6.118 0.361 0.088 0.257 0.743 1509.166 0.01 3340 1.107 0 9615 60581 6.344 0.366 0.101 0.16 0.84 16150.19 0.03 3350 1.149 1.02 55500 330000 7.219 0.298 0.18 0.41 0.59 5718.945 0 3360 1.177 1.004 34428 257121 7.451 0.283 0.076 0.351 0.649 4938.68 0.01 3380 1.226 1.093 14317 117147 7.767 0.034 0.073 0.178 0.822 29855.82 0 3391 1.187 1.007 3570 29529 6.496 0.202 0.075 0.224 0.776 6122.152 0.01 3511 1.224 1.2 6390 30494 6.478 0.145 0.02 0.477 0.523 804.732 0.01 3512 1.329 1.147 4092 23814 5.975 0.507 0.018 0.455 0.545 933.991 0.01 3520 1.422 1.317 1343 14895 8.769 0.016 0.105 0.261 0.739 19214.59 0 3541 1.288 1.208 4300 47419 6.513 0 0.035 0.353 0.647 531.366 0 3542 1.135 0.61 4800 71129 7.326 0 0.036 0.434 0.566 1354.169 0 3550 1.269 1.122 12798 107035 7.499 0 0 0.237 0.763 1267.626 0 3570 1.144 1.029 4838 31020 7.489 0.402 0.547 0.274 0.726 4665.66 0.01 3591 1.346 1.069 1343 14895 7.568 0.491 0.174 0.217 0.783 3167.094 0 3730 1.183 1.085 5503 71744 8.938 0.53 0.362 0.128 0.872 8569.539 0.01 3740 1.602 1.328 10075 181136 7.571 0.162 0.054 0.331 0.669 3571.75 0.06 37S0 1.29 1.183 7167 95744 7.165 0.062 0.005 0.215 0.785 2142.193 0.03 3760 1.427 1.224 5349 112105 8.613 0.003 0.003 0.214 0.786 2779.044 0.09 3770 1.604 1.288 4809 73205 6.603 0.091 0.012 0.335 0.665 3082.523 0.1 3781 1.325 1.249 2070 29000 8.615 0.428 0.033 0.179 0.821 5246.938 0.01 3782 1.191 1.029 12200 174000 8.58 0.563 0.768 0.217 0.783 10146.5 0.01 3783 1.096 1.021 15300 230000 9.711 0.273 0.099 0.152 0.848 25513.02 0.01 3791 1.232 1.151 1S92 12736 7.816 0.036 0.07 0.216 0.784 2033.808 0.02 3911 1.29 1.173 11900 105200 7.727 0.654 0.356 0.337 0.663 2572.442 0.03 3912 1.289 1.185 2041 13434 6.26 0.452 0.041 0.213 0.787 1788.552 0.03 3914 1.136 1.07 4(92 15095 5.296 0.255 0.035 0.295 0.705 1362.905 0.03 Data used to estiiate the deterainants of the t a r i f f structure ( c o n f ) 10.8 RD70 F070 PROOG REG GROWTH 1011 3.37 13.8 0 1 5.07 1012 3.37 12.8 0 1 4.98 1020 1.21 35 0 1 5.88 1031 5.99 63.7 0 1 3.73 1032 5.99 30.1 0 1 5.82 1040 1.14 30.8 0 1 4.49 1050 12.76 48.8 0 1 3.66 1060 0.76 19.5 0 0 4.51 1071 1.58 71.8 0 0 3.98 1072 1.58 21.9 0 1 3.39 1081 7.99 79.5 0 1 4.53 1083 7.99 33 0 0 8.85 1091 2.22 52.5 0 1 5.37 1093 2.22 30.9 1 4.28 1620 10.4 88.5 1 0 4.36 1720 0 0.8 0 4.36 1740 0.62 25.4 1 0 3.93 1810 0.43 0 1 0 2.98 1820 4.01 27.9 1 0 2.6 1831 3.5 100 1 0 4.56 1832 3.5 53.2 1 0 4.09 1852 3.5 33 0 4.07 1860 0 64.1 1 0 6.67 1872 0 3.4 1 1 4.21 1880 0 96.4 1 0 7.28 1891 3.86 66.9 1 0 4.01 1894 3.86 19.9 0 0 5.01 2310 0 20.6 0 0 2.93 2391 0 22.7 0 0 3.93 2431 0 13.9 0 0 4.48 2441 0 4.8 0 0 4.21 2450 0 3.6 1 0 3.6 2511 0.1 18.3 1 0 7.08 2513 0.1 30.5 1 1 6.99 2520 1.32 39.7 1 1 4.64 2543 0.04 13.6 1 0 51.39 2560 0 3.1 1 1 5.61 2593 0.27 20.6 1 0 14.51 2640 1.37 53.4 0 0 5.33 2660 0.08 15.9 0 0 3.82 2680 0 19.1 1 0 3.91 2710 12.74 47.5 1 0 5.07 2720 7.48 54.7 1 0 6.59 2731 1.02 42.3 1 0 3.68 2732 1.02 36.3 1 0 4.74 2733 1.02 55.1 0 1 4.46 LOUDUH NTBD KRSVS66 HUVS66 KRDVS66 ZZZ1 : r : ; ; : : r : :== = r—: : ==zr==z= 27 1 0 0.017 0.057 0.004 6.7 0 0 0.005 0.011 0.002 18.3 0 0 0.023 0.112 0.042 16.5 1 0 0.009 0.214 0.019 4 0 0 0 0.073 0.008 31.8 0 0 0.039 0.015 0 5.6 0 0 0 0.011 0.007 8.9 1 0 0.206 0.008 0.002 6.6 1 0 0.001 0.094 0.01 34 0 0 0.001 0.007 0.007 11.2 1 0 0.034 0.079 0.009 0.7 1 0 0.533 0.488 0.053 14.3 1 0 0 0.009 0 9.4 0 0 0 0.003 0 27.8 0 0 0.432 0.112 0.029 3.3 1 0 0.007 0.293 0.004-20.5 0 1 0 0.102 0 16.4 0 1 0.427 0.352 0.044 8.6 0 1 0.507. 0.301 0.205 2.4 0 1 0.93 0.216 0.111 3.6 0 1 0.439 0.279 0.237 0.5 0 1 0 0.048 0 3.7 0 1 0.793 0.202 0.141 2 0 1 0 0.022 0 2.7 0 1 0 0 0 1 0 1 0.05 0.212 0.059 2.6 0 1 0 0 0 7.3 0 1 0 0.026 0 3.2 0 1 0.746 0.076 0.016 34.8 0 1 0.257 0.057 0 30.7 0 1 0 0.042 0.007 8.4 0 1 0 0.01 0 1.5 1 0 0 0 0 49 1 0 0 0.041 0 14.8 0 0 0.121 0.097 0.067 0.3 0 0 0 0.071 0.07 3.5 0 0 1.259 0.065 0.03 0.6 0 0 0 0.033 0.033 4.7 0 0 0.901 0.06 0.059 12.9 0 0 0.673 0.03 0.03 1.4 0 0 0 0.074 0 73.5 0 0 0.56 0.018 0.01 1.9 0 0 0 0.02 0.017 8.3 0 0 0.062 0.051 0.028 8.2 0 0 0 0 0 5.4 0 0 0.363 0.01 0.009 Oita used to tstiiate the deteriinants of the t a r i f f structure ( c o n f ) c R070 F070 PROOS REG GROWTH EHPL LOUOUH NTBO KRSVS66 HUVS66 KR0VS66 2870 0.26 1.7 1 1 4.68 6.3 0 0 0 0.06 0 2910 5.95 1S.6 1 0 5.65 46 1 0 0.063 0.202 0.006 2920 0 26.5 1 0 5.04 4.8 0 0 0 0.261 0 2940 0.95 38.1 1 1 3.67 13 1 0 0 0.114 0 2960 3.12 91.8 1 0 6.82 4.9 1 0 0.785 0.362 0.078 2970 38.89 50.6 1 0 3.14 4.2 0 0 0.38 0.047 0.041 3010 1.79 58.5 1 0 5.27 7.2 0 0 0.449 0.095 0.018 3020 1.18 15.7 1 1 3.66 21 0 0 0 0.021 0.016 3041 2.62 1.4 1 0 6.49 4.3 0 0 0 ' 0,071 0 3042 2.62 59.3 1 0 5.42 25.3 0 0 0.229 . 0.061 0.033 3050 0.96 39.1 1 0 4.68 16.4 0 0 0.231 0.18 0.012 3060 1.47 46.7 1 0 4.96 14.3 0 0 1.55 0.351 0.187 3070 7.73 44 1 0 3.87 5.4 0 0 0.217 0.058 0.012 3080 2.22 6.1 0 1 4.03 13.2 1 0 0 0 0 3110 43.49 37.2 1 0 4.66 14.5 1 0 0.008 0.818 0 3160 5.04 60.7 1 0 6.49 2.7 0 0 0.204 0.81 0.392 3180 61.49 93.7 1 0 3.74 10.1 0 0 0 0.575 0.01 3210 77.28 87.5 0 0 3.69 33.9 1 0 0.377 0.389 0.005 3230 5.7 99.6 1 0 6.86 42.5 1 0 0 0.176 0 3241 1.39 39.6 1 1 9.44 2.5 1 0 0.526 0.139 0.026 3242 1.39 40.1 1 1 7.83 3 0 0 0.049 0.152 0.152 3243 1.39 59.7 1 1 12.54 0.5 0 0 1.412 0.052 0.052 3250 3.4 91 1 o 6.24 34.8 1 0 0.157 1.239 0.092 3260 0.1 78.2 1 0 5.73 6.1 0 0 0.652 0.134 0.101 3270 0 25.4 0 0 3.76 19.4 0 1 0.395 0.118 0.066 3310 . 6.2 70.4 0 1 3.72 6 0 0 0.442 0.341 . 0.21 3320 10.01 62.1 1 o 3.7 13.7 0 0 0.064 0.202 0.024 3330 0 57.2 0 0 5.23 2.6 0 0 1.121 0.247 0.205 3340 26.48 74.2 1 o 2.47 7.1 0 0 0.008 0.214 0.051 3350 132.48 50.9 1 0 4.21 38.5 0 0 1.014 0.352 0.152 3360 16.64 87.5 I 0 4.34 24.3 0 0 0.549 0.26 0.186 3380 3.52 44.3 1 o 4.08 9.1 0 0 0 0.037 0 3391 8.83 98.4 1 o 5.3 2.5 0 0 0.238 0.119 0.022 3511 1.62 15.5 I 1 4.13 3.5 0 0 0.594 0.142 0.03 3512 1.62 79.8 I 0 2.94 2.4 1 0 0.328 0.69 0.044 3520 3.94 76.4 I 0 5.62 4 1 0 0 0.009 0 3541 0.51 25.4 1 1 3.8 2.7 1 0 1 0 0 3542 0.51 27.8 1 1 4.54 2.4 1 0 1 0 0 3550 0 44.2 I 1 4.31 7.3 1 0 0 0 0 3570 7.14 96.7 I o 3.92 3 1 0 0 0.233 0 3591 10.13 97.6 1 0 5.98 0.9 1 0 0.457 1.05 0.229 3730 24.44 91.3 < ) 0 7.8 4 1 0 0 0.561 0 3740 52.58 86.8 I ) o 5.2 11.6 0 0 0.193 0.135 0.091 3750 21.29 76.5 1 ) 1 4.24 7.9 0 0 0 0.054 0 3760 18.42 87.5 1 ) o 4.6 S.6 0 0 0.566 0.027 0.019 3770 4.09 91.3 1 o 5.15 4.7 0 0 1.153 0.05 0.041 3781 25.76 93.3 1 o 4.86 1.5 1 0 0 0.582 0 3782 25.76 85.3 [ 0 5.84 8.7 1 0 0 0.33 0 3783 25.76 79.6 I 0 6.27 9.3 1 0 0 0.262 0 3791 26.92 78.5 I 0 $.76 1.3 0 0 0 0.046 0 3911 11.72 88.2 1 I 0 5.03 11 1 0 0.208 1.175 0.123 3912 11.72 90.7 1 0 5.53 1.4 0 0 0.315 0.675 0.449 3914 11.72 W.4 1 I 0 3.93 3.1 0 0 0 0.163 0 Data used to estiiate the deterainants of the t a r i f f structure ( c o n f ) SIC HU66 VS66 1011 100606.0 1749900 1012 2781.26 255100 1020 38284.86 342800 1031 99927.09 466000 1032 4880.067 67000 1040 19135.02 1249400 1050 3589 333700 1060 4672.503 609200 1071 10539.37 112500 1072 3841 516800 1081 16230.88 205800 1083 50389.89 103200 1091 2521.12 277800 1093 1116.536 336100 1620 67315.33 603300 1720 20024.33 68300 1740 22203.26 217900 1810 104887.3 297700 1820 42673.56 141900 1831 37203.01 172000 1832 64705.18 232000 1852 518 10700 1860 19641.38 97100 1872 648 29100 1880 0 67700 1891 4284.957 20200 1894 0 33200 2310 2236.656 85300 2391 7897.262 104000 2431 24085.21 423100 2441 18174.29 433200 2450 1013.395 102100 2511 0 26300 2513 39051 962100 2520 25351.00 261400 2543 539 7600 2560 2741 42100 ' 2593 461 14000 2640 4425 74300 2660 6275 207100 2680 1490.5 20200 2710 42689.22 2337800 2720 918 47000 2731 8187 161400 2732 0 216400 2733 1519 151600 Oata used to estimate the deteninants of the t a r i f f structure (cont') SIC HU66 VS66 2870 4497 74900 2910 257941.1 1277700 2920 55812.60 214000 2940 24928.7 217900 2960 64528.4 178300 2970 13496 284300 3010 14218.84 149500 3020 9969.349 482700 3041 3466 49000 3042 42365.50 700000 3050 72233 400400 3060 91168.61 260000 3070 7135.843 122100 3080 0 186100 3110 303568.4 371100 3160 53312.6 65800 3180 178215.2 310000 3210 227229 584200 3230 485103.6 2753500 3241 5270 38000 3242 10171 67000 3243 1614 31000 3250 1102117. 889600 3260 30772.75 230000 3270 35502 302000 3310 44958.02 132000 3320 66254.79 328000 3330 14313 58000 3340 51183.62 239400 3350 224207.4 637000 3360 120775.8 465100 3380 13102.6 353000 3391 8114 68000 3511 6448.892 45300 3512 26925.16 39000 3520 1396.125 158000 3541 0 48000 3542 0 44000 3550 0 273800 3570 16742.60 72000 3591 34447.69 32800 3730 110223.4 196600 3740 41459.8 306000 3750 11685.52 218000 3760 6577.002 243000 3770 6149.727 122400 3781 33164.49 57000 3782 119477.3 362000 3783 123017.6 470000 3791 1723.7 37600 3911 274906.5 234000 3912 19431.28 28800 3914 7271.932 44500 Table 82: Summary s t a t i s t i c s for 100 standard industrial c l a s s i f i c a t i o n industries measured in terms of t a r i f f level and Kennedy Round concessions SIC DTFPT CR470 IHP70 EXP70 LP70 LSHARE MSHARE SIZET70 Lc66 CVAc66 SUMMARY STATS FOR LOW TARIFF (<1U), LOW (OR NO) KR CONCESSION INDUSTRIES N=35 "NOT ON THE TABLE" AVERAGE 0.027457 57 0.238057 0.304828 7.403314 0.257657 0.742342 13750.98 21503.11 148480.1 MAXIMUM 0.208 93.4 1.05 1.839 9.747 0.496 0.968 255005 92983 648228 MINIMUM -0.137 7.3 -0.787 0 5.259 0.032 0.504 222.199 1343 11702 VARIANCE 0.006579 418.9182 0.100746 0.178333 1.270283 0.012873 0.012873 1.8E+09 5.5E+08 2.5E+10 STAN DEV 0.081115 20.46749 0.317405 0.422295 1.127068 0.113459 0.113459 42580.44 23421.27 157366.2 SUMMARY STATS FOR HIGH TARIFF (>10%), LOW KR (OR NO) CONCESSION INDUSTRIES N=31 "PROTECTED" AVERAGE 0.064096 50.19677 0.142064 0.069677 6.151322 0.295838 0.704161 6638.938 14194.22 78093.64 MAXIMUM 0.214 94.2 0.551 0.871 9.446 0.643 0.883 47656.73 60043 284848 MINIMUM -0.235 8 0 0 4.092 0.117 0.357 254.408 863 3852 VARIANCE 0.008766 678.1512 0.018143 0.024559 2.113501 0.011073 0.011073 1.1E+08 2.2E+08 5.9E+09. STAN DEV 0.093628 26.04133 0.134698 0.156713 1.453788 0.105229 0.105229 10710.04 14880.85 76611.79 SUMMARY STATS FOR HIGH KR CONCESSION (KRD/MW66 > 37%) INDUSTRIES N=29 "CONCEDED" AVERAGE 0.081205 52.21764 0.144205 0.103176 6.762058 0.275705 0.724294 6081.769 19366 126652.7 MAXIMUM 0.504 99.6 0.452 0.676 8.727 0.451 0.887 50842.27 135053 1100261 MINIMUM -0.07 15.7 0 0 3.992 0.113 0.549 308.751 509 2900 VARIANCE 0.011135 391.5591 0.017271 0.021939 1.125150 0.007265 0.007265 96528673 6.1E+08 3.6E+10 STAN DEV 0.105526 19.78785 0.131420 0.148120 1.060731 0.085239 0.085239 9824.900 24656.10 189856.9 SUMMARY STATS FOR ALL INDUSTRIES N=100 AVERAGE 0.055970 52.22058 0.172931 0.160166 6.663892 0.270225 0.710166 8763.449 18147.78 116901 MAXIMUM 0.504 99.6 1.05 1.839 9.747 0.643 0.968 255005 135053 1100261 MINIMUM -0.235 7.3 -0.787 0 3.992 0.032 0.357 222.199 509 2900 VARIANCE 0.009326 498.1522 0.048806 0.088446 1.740656 0.010648 0.010648 7.2E+08 4.8E+08 2.4E+10 STAN DEV 0.096575 22.31932 0.220921 0.297399 1.319339 0.103190 0.103190 26748.47 21828.73 153574.8 

Cite

Citation Scheme:

        

Citations by CSL (citeproc-js)

Usage Statistics

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
http://iiif.library.ubc.ca/presentation/dsp.831.1-0097418/manifest

Comment

Related Items