• International Trade
  • International Organisations
  • Political Economy
  • Industrial Economics
Politicized Trade: What Drives Withdrawal of Trade Preferences? joint with Martin Gassebner.
Economics Letters, Volume 167, June 2018, Pages 10-13

Abstract: While it is well understood that industrialized countries use aid to grant political favors, little research covers alternative channels such as trade policy towards developing countries. We analyze eligibility investigations and revoking of U.S. General System of Preferences (GSP) benefits to see whether political friends of the U.S. get a favorable treatment. While countries politically aligned with the U.S. are equally likely to be investigated, they are significantly less likely to have their benefits suspended.  (JEL F13, F14, F55, F63)
Working paper version.

The Silent Success of Customs Unions, joint with Hinnerk Gnutzmann.
Canadian Journal Of Economics, forthcoming.

Abstract: Membership in customs unions (CU) has proliferated in past decades; globally, 81 countries are now part of a CU. Much of this growth has been driven by countries upgrading their links from a free trade agreement (FTA) to CU. At the same time, the rapid formation of new FTAs among countries that had no prior agreement in place has largely overshadowed this growth, making CUs the silent success of regional integration. Using the canonical regionalism model, augmented to allow for political bias towards firm interests, we investigate the endogenous choice of trade agreement. We show that CUs are the most politically viable trade agreement, since they are rent-creating. But CU is also consistent with member social welfare maximization: as long as trade with the rest of the world does not cease entirely, a CU leads to higher social welfare than either FTA or no agreement. These gains come at the expense of third-country welfare. If past trends continue, one can expect more FTAs to be upgraded to CU with associated adverse consequences for outsiders. (JEL F55, F15)

Does Safeguards Need Saving? Lessons from the Ukraine – Passenger Cars Dispute, joint with Simon Lester.
World Trade Review, Vol. 16, Issue 2, April 2017, pp. 227-251.

Abstract: The Panel Report in Ukraine – Passenger Cars provides an opportunity to revisit an old debate over the role of safeguard measures in the WTO. With regard to the legal findings, the panel followed the established jurisprudence in this area, and found a number of violations of the Safeguards Agreement. With regard to the economics, we delve more deeply into the economic and political background of the safeguards investigation. Ukraine was hit by the economic crisis shortly after its WTO accession that significantly liberalized import tariffs on passenger cars. Next, we offer a de novo look at the injury and causation issues in this case, and discuss the challenges of an industry reliant on offshored production that sees a safeguard as a mechanism to attract FDI for production. We conclude with an assessment of the operation of the WTO’s safeguards regime, along with some tentative suggestions for reform. Overall, our examination of the economic analysis by the investigating authority and the legal review by the WTO panel raises questions about particular aspects of the domestic and WTO processes, but concludes that the system worked well in this case.

Peeling Away the Layers: Impacts of Durable Tariff Elimination, joint with Christian Henn.
Under revision for Journal of International Economics

Earlier version: The Layers of the Information Technology Agreement Impact

Abstract: We demonstrate that simple but durable tariff elimination affects trade patterns through several layers, and magnitudes of effects are sizable. We focus on the WTO’s Information Technology Agreement (ITA) because it provides a unique opportunity to study complete, durable, and nondiscriminatory tariff elimination in a global value chain setting. Tariff reductions have non-linear impacts. Complete tariff elimination results in a large premium in terms of trade gains, especially for intermediate goods. A second nonlinearity results from commitment to durable tariff elimination, with ITA members’ imports and exports rising more than under equivalent unilateral reforms. ITA commitment effects spurned development of a downstream IT export sector in a subgroup of countries which acceded to ITA as by-product of a larger policy objective and was previously devoid of a large IT sector. Within this subgroup, countries with low remoteness, higher education levels, and better institutions and business environments experienced the largest export expansions.

The Cost of Borders: Evidence from the Eurasian Customs Union, joint with Hinnerk Gnutzmann.

Abstract: How strongly can trade facilitation benefit trade? We study the most comprehensive trade facilitation measure possible – complete elimination of customs points – within the Eurasian Customs Union EACU). The EACU abolished internal customs controls between its members in two stages, which makes it possible to identify the effect of border elimination. We find that most of the trade impact is driven by the non-tariff costs rather than changes in MFN tariffs. Removal of the internal customs controls increased the intra-CU by 65% and hurt trade with the MFN partners to a similar extent. While the trade gain for the members is largely driven by the nal goods trade and at the expense of the MFN partners, the intermediates trade is affected much less. This finding suggests that international fragmentation of production limits the scope for trade diversion from regional trade agreements. (JEL F14, F15, F55)

The Trade Effect of GSP Removal: Evidence from Belarus, joint with Hinnerk Gnutzmann.

Abstract: Under the Generalized Scheme of Preferences (GSP), rich countries grant unilateral trade preferences to developing countries. We study the EU’s withdrawal of GSP preferences from Belarus in 2007 to understand how the GSP a ects export patterns. The withdrawal caused a signi cant drop in trade for a ected products (26%-29% trade decline) and some trade reduction at the extensive margin. However, there is little evidence of a GSP e ect on total trade. This is due to the fact that the main exports of Belarus were not eligible for the GSP program. (JEL F13, F14, O19)

Determining Harmonised Trade Policy: Evidence from the Eurasian Customs Union

Abstract: How do member states determine the Common External Tariff (CET) in a Customs Union? While a large theoretical literature studies the incentives faced by governments when negotiating the CET, empirical evidence is so far scant. This paper studies a large panel data set of tariff data from the Eurasian Customs Union and demonstrates the importance of \emph{mutual protectionism}: member states bargain to expand to their partners the protection of goods that were protected nationally. Moreover, there is almost no evidence of exercising bargaining power to keep keep the CET down for goods where one of the member states would see large tariff increases. Thus countries bargain for mutual protection, rather than mutual liberalisation concessions. I show that the mutual protectionism finding emerges using three methodologies: analysis of variance using unique explanatory power of each variable, determining the Shapley value from analysis of variance and finally OLS regression. Furthermore, I develop a simple model to explain the mutual protectionism effect. (JEL F55, F15)