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Liberalizing U.S. Trade with the Eastern Bloc: What are the consequences?
JOURNAL
OF COMPARATIVE
13,49 l-507 ( 1989)
ECONOMICS
Liberalizing U.S. Trade with the Eastern Bloc: What Are the Consequences?’ Jo&
A.
M~NDEZ
Arizona State University, Tempe, Arizona 85287-3806 AND
J. ROUSSLANG
DONALD
U.S. International Trade Commission, Washington, D.C. 20436, and George Washington University Received July 18, 1988; revised March 13, 1989 Mindez,
Josh A., and Rowslang,
Donald
J.-Liberalizing
U.S. Trade with the Eastern
Bloc: What Are the Consequences? This paper provides estimates of the trade and welfare consequences of removing the high discriminatory tariffs that the United States imposes against imports from the Soviet Union and its allies. These imports are now taxed at Smoot-Hawley rates. The estimates of the trade effects exceed those of previous studies, in part because the recent “Tokyo Round” of multilateral trade concessions has increased the tariff discrimination against the non-MFN (Most Favored Nation) suppliers. The study is the first to assess the welfare consequences of eliminating this discrimination. It is estimated that the overall annual gain to the United States would be about $1.8 billion and that the annual gain to the communist suppliers would be between $1.2 billion and $1.7 billion. 0 1989 Academic F’ress, Inc.
Journal of Economic Literature Classification Numbers: 124, 422, 42 1.
1. INTRODUCTION The recent thaw in United States-Soviet relations has led to renewed interest in liberalizing U.S. trade with communist countries. In the United States, as hostile attitudes have subsided, the desire to use trade policy to punish the Soviet Union and its allies has diminished. For its part, the Soviet Union has recently expressed interest in obtaining more liberal access to United States ’ The views expressed in this paper are our own and do not necessarily reflect those of the U.S. International Trade Commission or any of its commissioners. We thank an anonymous referee for helpful comments and Andy Parks for his excellent research assistance. 491
0147-5967189 $3.00 Copyright 0 1989 by Academic Press, Inc. All rights of reproduction in any form reserved.
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markets2 Such accesswould allow the Soviet Union to earn additional foreign exchange and import more Western technology and products, thus helping them implement economic reforms under perestroika, particularly those aimed at modernizing the capital stock. Without more capital goods, modernization efforts appear to be in danger of failing.3 The first step in liberalizing United States trade with the Eastern Bloc would be to eliminate the high discriminatory tariffs against important from these countries.4 These imports are taxed at the column 2 rates of the U.S. Tariff Schedule, whereas imports from most other countries are taxed at the lower column 1 rates, the nondiscriminatory rates afforded to Most Favored Nation (MFN) trading partners.5 The purpose of the column 2 rates is to inflict economic damage on the Soviet Union and its allies and, in some cases, to influence their behavior. For instance, Poland was exempted from these rates in 1960, but was subjected to them again from 1982 to 1987 when the United States wanted to bring pressure to bear on the Polish government to lift martial law, free political dissidents and resume talks with leaders of Solidarity. The column 2 tariff rates are those established by the Trade Act of 1930, better known as Smoot-Hawley (S-H). These high tariffs were levied against imports from communist countries by Section 5 of the Trade Agreements Extension Act of 195 1. Specifically, the Act denies these countries the benefits of trade agreement concessions that have been made since the S-H rates were established. Such concessions have lowered the trade weighted ad valoremequivalent tariff rates faced by MFN trading partners from the 50% to 60% levels reached in the early 1930’s under S-H to about 5.4% today.6 The discrimination against communist exports will grow even further when concessions from the most recent round of multilateral tariff negotiations, the Uruguay Round, are implemented. * Secretary Gorbachev was scheduled to inaugurate a U.S.-Soviet trade fair during his December, 1988 visit to the United States. The main purpose of the fair was to expose U.S. consumem to Soviet products. The Soviet Union had already expressed interest in joining the GATT prior to this visit (see McIntyre, 1987). 3 See U.S. Central Intelligence Agency ( 1988). 4 The countries that are subject to these high tariffs are listed under headnote 3 (d) of the Tariff Schedule of the United States. Currently, these countries are Albania, Bulgaria, Cuba, Czechoslovakia, the German Democratic Republic (East Germany), Estonia, those parts of Indochina under Communist control (including Vietnam), North Korea, the Kurile Islands, Latvia, Lithuania, Mongolia, Southern Salchalin, the Soviet Union, and Tanna Tuva. See U.S. International Trade Commission (1987a). ’ The term “MFW is something of a misnomer, since the United States provides still more favorable rates to many countries, such as under the Generalized System of Preferences, the Caribbean Economic Recovery Act, special column 3 rates for the least-developed countries, and the free-trade agreement with Israel. 6 These are trade-weighted average rates on dutiable imports. See US. International Trade Commission ( 1987b).
U.S. TRADE
WITH EASTERN
BLOC
493
Price
dI
I Q,
I Q,
I Qo
I II QT, 41%
m
Quantity
FIG. 1. The market for U.S. imports of a single good from communist suppliers
In deciding whether to grant MFN treatment for communist countries’ exports, policymakers should consider the economic welfare consequences for the United States and for the communist suppliers. The purpose of this paper is to evaluate these consequences. We also provide estimates of the effects on United States bilateral trade with the communist suppliers. Our study is the first to assessthe welfare consequences. Although previous studies have examined the trade effects, they cover periods before the tariff concessions under the Tokyo Round were implemented and thus fail to account for the increased tariff discrimination that these concessions bring against imports from communist countries.’ The next section provides geometric and algebraic descriptions of our model. The model is applied in Section 3, and the results and concluding comments are given in Section 4. 2. THE MODEL 2A. Geometric Presentation We assume imports from the communist suppliers are imperfect substitutes for imports from other countries and competing domestic output. Figure 1 ‘See the studies by Bayard et al. (1981), Raffel, Rubin, and Teal (1979), Wolf (1975 and 1972), Elias and Searing ( 1974), and Jelacic ( 1974).
494
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depicts the effects of granting MFN treatment to communist suppliers for a particular commodity. The vertical axis measures the f.o.b. price of exports in the communist supplier’s port before international transport costs. This is the value on which the ad valorem United States tariff is applied. The curve Scs is the communist country’s supply to the United States, Sr is its total supply to all countries, and Dus is the U.S. demand for these exports absent any tariffs. The MFN tariff shifts this demand downward to Dbs, and the SH tariff shifts it down further to Dbs. With no tariff, QO is the quantity of United States imports and POis their price. With the MFN tariff, the price paid by U.S. consumers rises to P3, the price received by communist suppliers falls to PI [ = P3/( 1 + I, )] and the quantity imported falls to Q, . With the S-H tariff, the price paid by consumers rises to P4, the price received by communist suppliers falls to P2 [ = P4/( 1 + t2)], and the quantity imported falls to Q2. Granting MFN treatment causes United States consumeis to gain trapezoid P,baP, in economic rent in the market for the communist exports. The reduction in the price of these exports will cause United States demands for competing domestic output and for imports from the rest of the world to shift inward. If the domestic output supply curve slopes upward, there will be a loss in rents to domestic producers, but this loss will be exactly offset by a gain in rents to United States consumers in this market.’ To the extent that the supply of competing imports from the rest of the world slopes upward, there will be a corresponding gain in rents to United States consumers in this market. However, the shift in United States demand is unlikely to have any appreciable effect on the price in this market, so we shall henceforth ignore these potential gains. The change in United States tariff revenue is rectangle dfbc, minus rectangles P3caP4 and P2edPI. This revenue change can be positive or negative, depending on the elasticities of the curves Sus and Dus. The change in United States welfare is rectangle P2edPI minus trapezoid dfba, which can also be positive or negative. The communist exporters gain economic rents both in the United States market and in their other export markets because, as they shift exports to the United States in response to elimination of the discriminatory tariffs, the price they receive in their other markets is bid upward, imposing losseson consumers in these markets. With no United States tariff on their exports, their total world exports would be QTo and they would receive the price PO. With the MFN rates, their total exports would be QTI, and they would receive the price P, . With the S-H rates, their total exports are QT2 and they receive the price * Morkre and Tarr ( 1980) provide a good exposition of this result. It should be noted that the reduction in competing U.S. output is smaller than the increase in imports from communist suppliers, both because the lower price to consumerS expands total consumption of these goods and because there is some displacement of competing imports from other countries.
U.S.
P2. Thus, communist nomic rents.
TRADE
WITH
EASTERN
suppliers would
BLOC
gain trapezoid
495
P&I P, in eco-
2B. The Equations This section provides the equations needed to measure the gain in rents to consumers in the United States markets for communist exports, the change in United States tariff revenue, and the gain to communist suppliers that would occur if MFN treatment were granted to communist exports. The derivations of these equations involve some tedious algebraic manipulations that we have relegated to the appendix. For each product, the gain to United States consumers, trapezoid P3baP4 in Fig. 1, is given as USCG = ( P4 - P3)( Qi + Q2)/2. P4 and QZ are the observed price and quantity. The values for PS and Q1 cannot be observed, however, and must be imputed using the tariff rates and estimates of the elasticities of United States demand and communist supply to the United States market. Using constant-elasticity forms of supply and demand equations, USCG can be calculated using the equation USCG = l/[r-ed(e+d _ f’(l-d/k+n) _ f/(e+n) + 11, (1) where V is the value of United States imports from communist suppliers inclusive of the S-H duty, r is the ratio ( 1 + tl )/( 1 + t2), e is the elasticity of the communist export supply to the United States market, and -n is the elasticity of the United States demand for these exports. The change in tariff revenue, in Fig. 1, rectangle dtbc minus rectangles P2edP,andP3caP,,isgivenasdT=(P3-PP1)(Q2-Q1)-[(PI-P2)+(P4 - P3) ] QZ. Again, data for some of these variables are available (P2, P4, and Q2), but values for the remaining variables (PI, P3, and Q, ) must be imputed. Thus, we calculate dT using the equation (2) dT = V{ [t,/( 1 + t,)]r e(l-nl/(e+n) + [I/( 1 + t,)]rel’e+“) - r-n/(e+n)}. The net welfare gain for the United States is USCG + dT. The gain to communist suppliers, trapezoid P2gh PI in Fig. I, is CSG = (P, - P2)( Qr2 + Qr1)/2, which we estimate using the equation CSG = V,[r- nl(e+n) + r-n(eT+l)l(e+n) _ r-ern/(e+n) _ 11/2 9 (3) where VT is the value of total communist exports and er is the elasticity of the communist export supply to the world. 3. APPLYING
THE MODEL
The first step in applying the model is to obtain the needed demand and supply elasticities. To estimate the effects that granting MFN treatment to communist exports would have on United States trade, tariff revenue and
496
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economic welfare, we need the disaggregate elasticities of the communist export supplies to the United States market and of the United States demand for these exports. To estimate the gains to communist suppliers, we need these parameters and in addition the elasticities of the communist export supplies to the world. Reliable estimates are not available for any of these elasticities and an attempt to construct them would require considerable resources.’ In particular, supply elasticities are notoriously difficult to estimate.
3a. Estimating the TradeEfects In light of the difficulties in obtaining reliable estimates of the elasticities, we follow the previous studies which, with the exception of Bayard et al. ( 198 1)) all adopted a constant-market-shares approach. lo Specifically, to calculate the increase in United States imports from the communist countries, we assume that for each product category, United States imports from them would account for the same share of U.S. imports from all non-OECD countries as they do for a control group of other OECD countries. To create the control group, we omit OECD countries that share a common border with the communist suppliers and thus might be expected to have stronger trading ties with them than would the United States even absent United States tariff discrimination. The members we chose for our control group are Canada, France, the United Kingdom, Belgium, Netherlands, Luxembourg, Spain, Portugal, Australia, New Zealand, and Japan. Using this group, we calculate
QI = QnCQJCQn,
(4)
where Qn is the quantity of United States imports from non-communist, nonOECD countries, and CQc and CQ,, are the quantity of control group imports from communist suppliers and other non-OECD suppliers, respectively. We calculate (4) for the 3-digit categories of the SITC, the most disaggregate level for which the needed data are available on a comprehensive basis. The most important difference between our constant-market-shares analysis and that of the previous studies is that we use the ratio of imports from 9 Although disaggregate import demand elasticities are available for U.S. imports from all countries, these elasticities are likely to be much lower than those facing communist import suppliers, because they fail to account for substitution possibilities between communist exports and those of other countries. lo In their study of the effects of granting MFN treatment for U.S. imports from China, Bayard et al. ( 198 1) used the disaggregate elasticities of U.S. demand for imports from all countries to represent the import demand elasticities facing China. They assumed Chinese export supplies to the United States were perfectly elastic. They estimated that the tariff change would result in only a modest increase in imports from China, about 26%, whereas these imports actually grew dramatically. From 1980, when the tariff change occurred, to 1987, China’s share of total U.S. imports grew over five-fold and its rank went from 58th largest import supplier to 12th largest supplier. The growth in these imports would undoubtedly have been much greater were it not for the quota restrictions on apparel imports. (See U.S. International Trade Commission, 1988.)
U.S. TRADE
WITH EASTERN
BLOC
491
communist suppliers to imports from non-OECD countries to construct our counterfactual state, whereas the previous studies used the share of imports from communist suppliers in total imports. We chose our approach after examining trade patterns of the United States, our control group and the group of communist suppliers. Using cross-section regressions for trade by 3digit SITC category in 1986, we found that the pattern of communist country exports resembles that of non-OECD countries more closely than that of the OECD countries; the correlation coefficients were .27 and .20, respectively. We also found that United States imports from the rest of the world and our control group imports from the rest of the world are less highly correlated than United States imports from non-OECD countries and the control group imports from non-OECD countries; the correlation coefficients were .90 and .99, respectively. Implicit in our approach is the assumption that the tariff changes will not appreciably affect the ratio CQJ CQ” or the quantity Qn . In fact, they should cause some communist exports to shift from the control group to the United States, lower the ratio CQc/CQn, and displace some U.S. imports from nonOECD countries, that is, reduce Q,,. Thus, if the control group accurately reflects United States trade patterns absent the S-H rates, our method will tend to overstate the increase in U.S. imports from communist suppliers that would accompany elimination of these rates. The percent overstatement should be small, however. In most instances, the increase in U.S. imports from communist suppliers would be small relative to total communist exports to all countries, so if this increase is accomplished in part by an expansion of the total communist export supply and the remainder by shifts from their exports to other countries, the decline in the ratio CQJ CQ” would be small. Also, QI would be small relative to Q,,, so the percent reduction in Qn would be small even if the entire increase in United States imports from communist suppliers displaced imports from the non-OECD suppliers.
3b. Estimating theElasticities Although data constraints prevent us from constructing a comprehensive set of disaggregate estimates for n and e, we can obtain a range for one of these elasticities for each product using a method developed by Learner ( 198 1) that requires data only for price and quantity.” To apply this method, we first run the time series regression ln(quantity)
= a + b ln(price)
+ u,
(5)
where the error term u is assumed to satisfy the usual requirements for leastsquares regressions. If the least-squares estimate of b is negative, it is an at” This assumesthat historical precedent is useful for determining output responsesfor nonmarket economies, just as it is for market economies.
498
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tenuated estimate of the elasticity of demand (-n), and the maximum likelihood estimate of the true demand elasticity must lie within the range b/ [ t2/ (t’ +f)] < --II < b < 0, where t is the l-statistic for the coefficient b and f is the degrees of freedom. If the least-squares estimate of b is positive, then it is an attenuated estimate of the supply elasticity (e), and the maximum likelihood estimates of the true supply elasticity must lie within the range 0 < b < e < b/[t2/(t2 + f)]. We applied Eq. (5 ) to annual data for 1978 through 1987 for United States imports in the 7-digit TSUSA categories, the most disaggregate data available. Because the full responses of supply and demand to price changes are likely to take more than one year, the estimates from (5) might understate the longrun elasticities we need to determine the complete effects of eliminating the S-H rates. Nevertheless, these estimates should contain some information about the relative size of the long-run demand and supply responses, and this ratio is all that matters for our welfare calculations. Therefore, we use these estimates to construct the ratios e/n. Our regressions provide a range rather than a point estimate for each elasticity for each TSUSA category. We need the elasticity estimates for the SITC categories for which we have the projected post-liberalization trade flows. To construct the ratio e/n for SITC categories, we divide the average of the midpoints of the ranges for e by the average of the midpoints of the ranges for Q from the regressions for the TSUSA categories within the SITC category.‘* We used only those regressions that were statistically significant at the 90% level I3 and for which the Durbin-Watson statistic indicated that we could not reject the hypothesis that serial correlation was absent at the 90% level of significance. When the regressions failed to yield a satisfactory estimate for either a supply or a demand elasticity for an SITC category, we used the corresponding estimate for a similar class of product. After calculating the ratios e/n, we combined them with the long-run changes in United States imports from communist suppliers obtained from Eq. (4). We then used the equation Q,/Q2 = y-enl(e+n) (6) to impute ranges for the long-run elasticities e and n, Equation (6) is derived as Eq. (A8) in the appendix. We lack sufficient data to estimate the elasticity of the total communist export supply (eT). For most product categories, this supply is likely to be much less elastic than the communist supply to the United States market, so I* Data on quantity and value needed to apply l?q. (5) were available for 288 7-digit TSUSA categories. Results of the individual regressions are available from the authors on request. I3 Since there is only one dependent variable in (5), the t-test for statistical significance of the coefficient for the price term is equivalent to the F-test for the significance of the regression equation.
U.S. TRADE
WITH EASTERN
BLOC
499
that estimates of e provide little information about the size of er . Accordingly, we use a range of values for the latter supply elasticity in our welfare calculations. Even if er were known, calculating the gain to communist suppliers is problematic because their schedule might not accurately reflect true resource costs. This does not appear to be a serious problem, however, because our method should still provide a reasonably good approximation of the gain even if communist state planners fail to allocate resources efficiently. This is true because the higher price the communist suppliers would receive for their original volume of exports to all countries would make up the bulk of their total gain. The additional producer’s surplus on the increase in their exports is likely to be of secondary importance. The smaller the increase in the total quantity of communist exports, the smaller will be the error that arises from inaccurate measurement of the economic costs involved in the supply response. For instance, if they supply only a fixed quantity, the benefits to communist suppliers would consist entirely of the higher price for their exports, regardless of the resource cost involved in producing them. It should be noted that the total exports of the communist suppliers are likely to increase by much less than their exports to the United States, since the tariff change would induce them to shift some of their current exports away from other countries toward the United States.
3c. Measuring Average TariflRates It is well known that using trade weights leads to understatement of the average tariff rate for an aggregate commodity group to which more than one tariff rate applies, because higher tariffs discourage imports and thus get a lower weight. This is probably not a serious problem for estimating the averages of MFN tariff rates, because these rates are fairly low and they tend to be similar within each group. This is undoubtedly a serious problem for estimating the averages of S-H rates on communist exports, however. Therefore, since our estimates of projected imports from communist suppliers are available only for 3-digit SITC categories and not for individual tariff lines, we used MFN trade weights to obtain the averages of S-H rates within an SITC category.14 To measure the average of the S-H tariffs across SITC categories, we used the projected imports as weights. I4 An alternative method would be to use simple arithmetic averages of the S-H rates. However, import volumes vary widely among tariff categories. Since the MFN trade volumes are at least related to the sires of U.S. demands acrosstariff lines, they should provide better weights. Although our weighting system can lead to inaccuracies in the averages of the S-H rates, there is no reason to expect that it leads to a systematic bias in the ratios of MFN rates to the S-H rates, which is all that matters for our welfare calculations.
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4. THE RESULTS 4a. The Trade Eflects To avoid an unwarranted appearance of precision and at the same time provide descriptive information, we have aggregated the results of our calculations up to groups of 2-digit SITC categories. Our main purpose in using detailed data is to improve the accuracy of our aggregate estimates rather than to provide disaggregate results. The SITC groups do not cover all 2-digit SITC categories, because we project no post-liberalization imports in a number of these categories. Table 1 shows, for each SITC group, the trade-weighted averages of the MFN and S-H rates, United States imports from the communist suppliers in 1986, and the projected increase in these imports after the S-H rates are eliminated and full adjustment to the new rates occurs. Even for the aggregate categories presented in Table 1, these results are subject to substantial error. Our estimates predict large percentage increases in imports in most categories, with an overall increase of almost 14 fold. Although the percentage increases seem dramatic, they are largely the result of the small beginning base. Indeed, it is somewhat misleading to look at the percentage increases, because the S-H rates prohibit entirely imports from communist suppliers for many disaggregate categories. For these categories, even very small amounts of post-liberalization imports from communist suppliers would constitute infinite percentage increases. The increases are substantially greater than those predicted by the earlier studies that used a constant-market-shares approach. These studies predicted aggregate increases that ranged from 0 to 19% (Jelacic, 1974), to 103 to 252% (Elias and Searing, 1974). The most recent of these studies (Raffel, Rubin, and Teal, 1977) predicted an increase of only 30 to 40%.15 Three reasons probably account for the bulk of the difference. First, as noted above, we use the ratio of imports from communist suppliers to imports from non-OECD countries to compare import patterns between the United States and our control group of other developed countries, whereas the previous studies compared the shares of communist suppliers in total imports. Using 1986 trade data and our control group, we found that the latter method yields a projected increase in aggregate United States imports from our group of communist suppliers that is only about 60% as great as the one we obtained using our method. Second, the United States share of total world imports Is It seems clear that the earlier studies greatly underestimated the effects of the S-H rates. For instance, between 1974 and 1986, U.S. imports from the Soviet Union and its Eastern European allies subject to the S-H rates for the entire period (East Germany, Czechoslovakia, Bulgaria, and Albania) grew by only 40% in nominal terms, whereas U.S. imports from Hungary and Romania (which received MEN treatment beginning in 1978 and 1975, respectively) Brew over five-fold.
U.S.
TRADE
WITH TABLE
THE
Emcrs
EASTERN 1
STATES IMFQRTSFROM COMMUNIST SUPPLIERS OF GRANTING THEM MFN TREATMENT
ON UNITED
tariff ratesa (percent ad valorem equivalents)
U.S.
SITC no. 00-o 1 02 03 04-05 06-09 II-12 21-25 26 21 28 29 32-34 41-43,51 52-53 54 55 56-59 61 62 63 64 65 66 67 68-69 71 72 73 81 82 83-84 85 86 89 93 94
Total
501
BLOC
Description
Cal. 1
Cal. 2
Meat, live animals Dairy products Fish Cereals, fruits, vegetables Sugar, coffee, tea, misc. foods Beverages and tobacco Crude mat. (hides, rubber, wood) Textile fibers Crude fertilizer and minerals Ores and metal scrap Crude animal and veg. mat. Coal, petroleum, gas Fats, oils, organic chemicals Inorganic chemicals, dyes Drugs Cosmetics Fertilizer, explosives, plastic Leather and leather manuf. Rubber manufactures Cork and wood manufactures Paper and paperboard Textile yam and fabrics Nonmetal mineral manufactures Iron and steel Nonferrous and misc. metals Nonelectrical machinery Electrical machinery Trans. vehicles and equip. Indoor utilities equip. Furniture Hand bags and apparel Footwear Instruments, watches, clocks Misc. manufactures Special transactions Zoo animals, pets
2.4 9.4 4.5 12.6 4.9 4.9 0.8 6.4 2.1 3.4 5.2 0.6 9.2 8.6 6.4 5.3 7.3 4.4 4.1 5.1 2.6 11.9 8.6 4.8 3.8 3.1 3.4 4.5 8.6 4.2 19.6 10.5 2.1 6.5
6.8 33.9 11.4 29.7
19.6 35.0 9.5 28.7 10.4 18.8 26.4 1.5 43.7 25.5 29.4 44.3 31.9 31.4 14.0 35.2 27.6 43.5 49.6
15.0
4.3
21.2 35.9 35.9 34.3 52.7 48.1 47.4 26.5 6.3 76.7 1.2 20.9
3.9
22.9
1.0
Imports from communist suppliers (in $millions)b Actual 2.9 2.9 2.6 9.9 1.4 41.4 17.1
1.0 1.0 22.0 3.8 112.8 121.5 .l 3.6 .8 97.5
1.1 11.1 4.8 7.0 5.5 22.7 30. I 92.6 24.2 7.7 1.8 1.0 5.4 11.9 9.4 1.3 12.2 6.1 .I 705.7
Projected 263.3
13.4 206.0 61.2 137.3 139.3 104.7 17.1 24.9 23.4 19.5 3064.9 207.8 3.8 17.3 12.0
119.7 5.8 78.0 84.0 89.1 99.7 637.5 291.2 930.0 402.3 463.6 777.5 83.6 364.4 232.0 115.6 81.7 298.2 57.0 1.2 9812.3
Sources. U.S. Bureau ofthe Census “COMPRO/US” and “COMPRO/UN” computerized data bases, and authors’ calculations. ’ The average for each SITC group is constructed using MFN trade as weights. The overall averages are constructed using the projected imports as weights. b Actual and projected imports are for 1986.
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from our group of communist suppliers has declined since the periods covered by the previous studies, in part as a result of further trade liberalization under the Tokyo Round of multilateral trade negotiations. In 1974, United States imports accounted for 5% of total OECD imports from these countries and 17% percent of OECD imports from all countries, whereas in 1986 the corresponding figures were 2.8% and 25%. This means that in the latter year there was greater opportunity for diverting communist exports from other countries to the United States in response to removing the S-H rates. Finally, United States imports from our group of communist suppliers has declined relative to total United States imports, from about .4% in 1974 to less than .2% in 1986. This means the opportunity for diverting United States demand away from imports from other countries toward imports from the communist suppliers has increased. 46. The Welfare Consequences Table 2 shows the ratio of the elasticities e/n, the gains to United States consumers, the changes in tariff revenue and the total gains to the United States for each of our SITC groups. We find that granting MFN treatment to communist suppliers would cause imports from these countries to expand to such an extent that tariff revenue on these imports would actually increase for every one of the SITC groups. The total gain in consumer’s surplus would be almost three times as great as the total revenue gain. Based on 1986 trade flows, the total gain to the United States would be about $1.8 billion. Table 3 shows the gains to the communist suppliers. These gains depend crucially on the elasticities of the communist suppliers’ exports to the world, er’s, parameters for which we have no reliable estimates. We therefore present calculations for a reasonable range of values for these parameters, eT = 0 and eT = 4 for each SITC group, based on estimates in the literature. l6 The results indicate that the gains to communist suppliers would range from $1.2 billion to $1.7 billion. 4c. Summary of Results Our results indicate that the S-H rates are an important impediment to imports from the Soviet Union and those of its allies that are still subject to these rates. We estimate that removing these rates would allow these suppliers to increase their share of total United States imports from its current level of about .2% to about 2.8%. We also find that these tariffs impose substantial I6 This covers the range of country export supply elasticities in the disequilibrium models, which allow for lagged responses of export supply to price changes, in Goldstein and Khan ( 1978 ) and Haynes and Stone ( 1983), and the simultaneous equations estimates of export supply elasticities in Dunlevy ( 1980).
U.S. TRADE
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BLOC
503
TABLE 2 THE WELFARE CONSEQUENCES FOR THE UNITED STATES OF GRANTING TREATMENT TO EXFQRTS OF COMMUNIST COUNTRIES
SITC no.
Description
00-o 1 02 03 04-05 06-09 11-12 21-2s 26 27 28 29 32-34 41-43,51 52-53 54 55 56-59 61 62 63 64 65 66 61 68-69 71 72 13 81 82 83-84 85 86 89 93 94
Meat, live animals Dairy products Fish Cereals, fruits, vegetables Sugar, coffee, tea, misc. foods Beverages and tobacco Crude mat. (hides, rubber, wood) Textile fibers Crude fertilizer and minerals Ores and metal scrap Crude animal and veg. mat. Coal, petroleum, gas Fats, oils, organic chemicals Inorganic chemicals, dyes Drugs Cosmetics Fertilizer, explosives, plastic Leather and leather manuf. Rubber manufactures Cork and wood manufactures Paper and paperboard Textile yarn and fabrics Nonmetal mineral manufactures Iron and steel Nonferrous and misc. metals Nonelectrical machinery Electrical machinery Trans. vehicles and equip. Indoor utilities equip. Furniture Hand bags and apparel Footwear Instruments, watches, clocks Misc. manufactures Special transactions Zoo animals, pets
Total
Ratio (44 (per=nt) 1.6 1.6 1.6 1.3 1.3 1.3 1.2 0.7 0.9 0.6 0.6 1.6 0.6 0.7 0.4 0.9 0.7 2.2 2.2 1.8 1.0 0.6 0.6 0.4 1.3 1.7 0.5 0.7 1.1 0.9 0.7 1.1 0.4 0.9 0.9 0.9 1.10
Gain to U.S. Consumers
MFN
Change in Net welfare tariff revenue change (in $millions)
7.3 2.6 8.9 7.1 11.8 32.5 5.9 1.8 I.0 2.1 2.0 17.2 46.4 0.3 1.5 2.6 23.3 1.3 6.6 17.6 12.7 13.4 111.8 9.6 141.5 90.7 55.8 102.9 21.1 84.0 29.1 11.1 1.5 421.5 0.2 0.8
6.3 0.9 9.4 6.7 7.0 3.7 0.5 1.2 0.5 0.9 1.2 18.4 19.9 0.3 1.4 0.7 6.0 0.1 1.9 4.6 2.4 13.5 67.2 14.8 31.8 13.3 19.3 40.6 8.4 18.2 49.3 11.3 2.5 93.9 5.8 0.4
13.6 3.5 18.3 13.8 18.8 36.2 6.4 3.0 1.5 3.6 3.2 35.6 66.3 0.6 2.9 3.3 29.3 1.4 8.5 22.2 15.1 26.9 179.0 24.4 173.3 104.0 75.1 143.5 29.5 102.2 79.0 22.4 4.0 514.6 6.0 1.2
1308.4
484.2
1792.6
Source. Authors’ calculations. ’ The average ratio using projected imports from communist suppliers as weights.
504
MENDEZ
AND ROUSSLANG TABLE 3
THE GAINS TO COMMUNIST SUPPLIERS FROM GRANTING MFN TREATMENT FOR THEIR EXFQRTS TO THE UNITED STATES(IN $MILLIONS)
Elasticity of the communist export supply SITC No. 00-01 02 03 04-05 06-09 1 l-12 21-25 26 27 28 29 32-34 41-43,51 52-53 54 55 56-59 61 62 63 64 65 66 67 68-69 71 72 73 81 82 83-84 85 86 89 93 94
Description Meat, live animals Dairy products Fish Cereals, fruits, vegetables Sugar, coffee, tea, misc. foods Beverages and tobacco Crude mat. (hides, rubber, wood) Textile fibers Crude fertilizer and minerals Ores and metal scrap Crude animal and veg. mat. Coal, petroleum, gas Fats, oils, organic chemicals Inorganic chemicals, dyes Drugs Cosmetics Fertilizer, explosives, plastic Leather and leather manuf. Rubber manufactures Cork and wood manufactures Paper and paperboard Textile yam and fabrics Nonmetal mineral manufactures Iron and steel Nonferrous and misc. metals Nonelectrical machinery Electrical machinery Trans. vehicles and equip. Indoor utilities equip. Furniture Hand bags and apparel Footwear Instruments, watches, clocks Misc. manufactures Special transactions Zoo animals, pets
Total Source. Authors’ calculations. a Less than $0.05 million.
eT = 0
eT = 4
0.2 0.2 1.4 1.9 1.9 8.4 74.6 58.2 5.2 59.6 4.0 55.1 189.4 2.1 4.9 2.7 70.9 0.8 0.8 13.9 17.4 10.6 148.0 40.7 103.2 98.7 79.2 140.5 0.4 5.6 0.4 0.2 2.8 17.1 a a
0.2 0.2 7.8 2.2 2.1 10.8 80.6 74.6 5.7 72.0 5.1 55.5 283.0 2.6 6.7 4.0 93.1 1.0 0.8 16.8 22.2 15.2 238.8 46.8 125.1 123.0 121.8 197.1 0.5 8.7 0.5 0.2 3.0 33.3 c? r?
1227.0
1661.0
U.S.
TRADE
WITH
EASTERN
BLOC
505
economic costs on both the United States and the communist suppliers. Based on 1986 trade flows, we estimate that the overall welfare cost to the United States is about $1.8 billion and that the cost to the communist suppliers is between $1.2 billion and $1.7 billion. APPENDIX: DERIVATION As shown in Fig. 1, we have
OF THE EQUATIONS
P3 = Pl( 1 + t,)
(Al)
and p4
=
P2(
where PI (P2) is the price received by H) duty rates are in force, P3 ( P4) is the when MFN (S-H) rates are in force, rate. The quantity sold with the MFN rates ( Q2) are related as
1+
t.42)
t21,
communist suppliers when MFN (Sprice paid by United States consumers t, is the MFN rate and t2 is the S-H rates ( Q, ) and that sold with the S-H
QIIQz =
(f’,lP4)-”
(A3)
Ql/Qz =
(p,lp2Y,
(A4)
and
where --y1 is the elasticity of United States demand for communist exports and e is the elasticity of the communist supply to the United States. We also have
QTIIQTZ=
eT>
(A5) where Qrr and Qr2 are communist exports to the world with the MFN and S-H rates, and er is the elasticity of the total communist export supply. Combining (Al ) through (A4) and denoting the ratio ( 1 + tl )/( 1 + r2) as r yields (f’1/P2)
PI/P2 = r-m+@,
(Ah)
p31p4 = rel@+n),
(A7)
and Q,/Q2
= y-en/(e+n)a
(‘48)
The gain to United States consumers from replacing the S-H rates with the MFN rates (trapezoid P,baP, in Fig. 1) is CG = (P4 - P3)(Q, + Q2)/2. Combining Eqs. (A6) through (A8), this expression can be written as USCG = v[ r-ed(e+d - f(l-nMe+n) _ fv(e+n) + 11, (A9)
506
MENDEZ
AND ROUSSLANG
where V is the current volume of imports from communist suppliers valued at the consumer price inclusive of the S-H tariff. The change in United States tariff revenue from this tariff change (in Fig. 1, rectangle dfbc minus rectangles P3caP4 and P2edPI) is dT = (P3 - P,)(Q, - Qz) - (PI - P2)Q2 - (P4 - P3)Q2. Combining Eqs. (A6) through (A8), this equation can be written
dT= v{[t,l(l
+ [ l/( 1 + t,)] f-l(e+n)- r-nl(e+n)}. + t,)l f( l-n)/(e+n) (AlO)
The net welfare change for the United States is given as CG + TR. The gain in rents to communist suppliers (trapezoid P2gh PI in Fig. 1) is CSG = (PI - P2)(QT2 + Qr,)/2. Using (A5) and (A6), we can write this gain as CSG = VT[r- n/(e+n) + r-~(eT+lv(e+~) - r-eT~l(e+ro - 1]/2, (All) where Vr is the current value of communist the world.
suppliers’ exports to the rest of
REFERENCES Bayard, Thomas, James Orr, Joseph Pelzman, and Jorge Perez-Loper, “MFN Treatment of Imports from China: Effects on U.S. Employment.” J. Policy Modeling 3:361-373, 1981. Dunlevy, James A., “A Test of the Capacity Pressure Hypothesis Within a Simultaneous Equations Model of Export Performance.” Rev. Econ. Stat. 62: 13 l-l 35, Feb. 1980. Elias, Andrew, and Searing, Matjorie E., “A Quantitative Assessment of U.S. Constraints on Trade with Eastern Europe and USSR.” In Hardt, John P., Ed., Reorientation and Commercial Relations of the Economies of Eastern Europe, pp. 599-66 1. Joint Econ. Comm., U.S. Congress. Washington, D.C.: U.S. Govt. Printing Office, 1974. Goldstein, Morris, and Khan, Mohsin, “The Supply and Demand for Exports: A Simultaneous Approach.” Rev. Econ. Stat. 60~275-286, May 1978. Haynes, Stephen E., and Stone, Joe A., “Specification ofSupply Behavior in International Trade.” Rev. Econ. Stat. 64~626-632, Nov. 1983. Jelacic, John E., Impact of Granting Most Favored Nation Treatment to the Countries of Eastern Europe and the People’s Republic of China. Washington, D.C.: U.S. Tariff Commission, 1974. Learner, Edward E., “Is It a Supply Curve or Is It a Demand Curve? Partial Identification through Inequality Constraints.” Rev. Econ. Stat. 63:319-327, Aug. 198 1. McIntyre, Joan F., ‘Soviet Efforts to Revamp the Foreign Trade Sector.” In Gorbachev’s Economic Plans, Vol. 2, pp. 489-503. Comp. of Papers, Joint Econ. Comm., U.S. Congress, Washington, D.C.: U.S. Govt. Printing Office, Nov. 1987. Morkre, Morris, and Tarr, David, Efects of Restrictions on United States Imports. U.S. Fed. Trade Commission, Washington, D.C.: U.S. Govt. Printing Office, 1980. Raffel, Helen, Marc Rubin, and Robert Teal, “The MFN Impact on U.S. Imports from Eastern Europe.” In East European Economies Post-Helsinki, pp. 1396-1427. Joint Econ. Comm., U.S. Congress, Washington, D.C.: U.S. Govt. Printing Office, 1977. U.S. Central Intelligence. Agency, “Gorbachev’s Economic Program: Problems Emerge.” Washington, D.C.: U.S. CIA, Document DDE1900-187-88, 1988. U.S. biternational Trade Commission, Tart~Schedules of the United States, Annotated, 1987. Washington, D.C.: U.S. Inter. Trade Commission, 1987a.
U.S. TRADE
WITH EASTERN
BLOC
507
U.S. International Trade Commission, Value of US. Imports for Consumption, Duties Collected and Ratio of Duties to Values. Washington, DC.: U.S. Inter. Trade Commission, 1987b. U.S. International Trade Commission, 53d Quarterly Report to the Congress and the Trade Policy Committee on Trade Between the United States and the Nonmarket Economy Countries During 1987. Washington, DC.: U.S. Inter. Trade Commission, 1988. Wolf, Thomas A., The Quantitative Impact of Liberalization of United States Unilateral Restrictions on Trade with the Socialist Countries of Eastern Europe. U.S. State Dept. Research Study, Washington, D.C., Feb. 1972. Wolf, Thomas A., “The Impact of Formal Western Restraints on East-West Trade: An Assessment of the Existing Quantitative Research.” In Hardt, John P., Ed., Tartx Legal and Credit Constraints on East European Commercial Relations. Carleton, Ottowa, Ontario, Canada: Institute of Soviet and East European Studies, 1975.
OF COMPARATIVE
13,49 l-507 ( 1989)
ECONOMICS
Liberalizing U.S. Trade with the Eastern Bloc: What Are the Consequences?’ Jo&
A.
M~NDEZ
Arizona State University, Tempe, Arizona 85287-3806 AND
J. ROUSSLANG
DONALD
U.S. International Trade Commission, Washington, D.C. 20436, and George Washington University Received July 18, 1988; revised March 13, 1989 Mindez,
Josh A., and Rowslang,
Donald
J.-Liberalizing
U.S. Trade with the Eastern
Bloc: What Are the Consequences? This paper provides estimates of the trade and welfare consequences of removing the high discriminatory tariffs that the United States imposes against imports from the Soviet Union and its allies. These imports are now taxed at Smoot-Hawley rates. The estimates of the trade effects exceed those of previous studies, in part because the recent “Tokyo Round” of multilateral trade concessions has increased the tariff discrimination against the non-MFN (Most Favored Nation) suppliers. The study is the first to assess the welfare consequences of eliminating this discrimination. It is estimated that the overall annual gain to the United States would be about $1.8 billion and that the annual gain to the communist suppliers would be between $1.2 billion and $1.7 billion. 0 1989 Academic F’ress, Inc.
Journal of Economic Literature Classification Numbers: 124, 422, 42 1.
1. INTRODUCTION The recent thaw in United States-Soviet relations has led to renewed interest in liberalizing U.S. trade with communist countries. In the United States, as hostile attitudes have subsided, the desire to use trade policy to punish the Soviet Union and its allies has diminished. For its part, the Soviet Union has recently expressed interest in obtaining more liberal access to United States ’ The views expressed in this paper are our own and do not necessarily reflect those of the U.S. International Trade Commission or any of its commissioners. We thank an anonymous referee for helpful comments and Andy Parks for his excellent research assistance. 491
0147-5967189 $3.00 Copyright 0 1989 by Academic Press, Inc. All rights of reproduction in any form reserved.
492
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markets2 Such accesswould allow the Soviet Union to earn additional foreign exchange and import more Western technology and products, thus helping them implement economic reforms under perestroika, particularly those aimed at modernizing the capital stock. Without more capital goods, modernization efforts appear to be in danger of failing.3 The first step in liberalizing United States trade with the Eastern Bloc would be to eliminate the high discriminatory tariffs against important from these countries.4 These imports are taxed at the column 2 rates of the U.S. Tariff Schedule, whereas imports from most other countries are taxed at the lower column 1 rates, the nondiscriminatory rates afforded to Most Favored Nation (MFN) trading partners.5 The purpose of the column 2 rates is to inflict economic damage on the Soviet Union and its allies and, in some cases, to influence their behavior. For instance, Poland was exempted from these rates in 1960, but was subjected to them again from 1982 to 1987 when the United States wanted to bring pressure to bear on the Polish government to lift martial law, free political dissidents and resume talks with leaders of Solidarity. The column 2 tariff rates are those established by the Trade Act of 1930, better known as Smoot-Hawley (S-H). These high tariffs were levied against imports from communist countries by Section 5 of the Trade Agreements Extension Act of 195 1. Specifically, the Act denies these countries the benefits of trade agreement concessions that have been made since the S-H rates were established. Such concessions have lowered the trade weighted ad valoremequivalent tariff rates faced by MFN trading partners from the 50% to 60% levels reached in the early 1930’s under S-H to about 5.4% today.6 The discrimination against communist exports will grow even further when concessions from the most recent round of multilateral tariff negotiations, the Uruguay Round, are implemented. * Secretary Gorbachev was scheduled to inaugurate a U.S.-Soviet trade fair during his December, 1988 visit to the United States. The main purpose of the fair was to expose U.S. consumem to Soviet products. The Soviet Union had already expressed interest in joining the GATT prior to this visit (see McIntyre, 1987). 3 See U.S. Central Intelligence Agency ( 1988). 4 The countries that are subject to these high tariffs are listed under headnote 3 (d) of the Tariff Schedule of the United States. Currently, these countries are Albania, Bulgaria, Cuba, Czechoslovakia, the German Democratic Republic (East Germany), Estonia, those parts of Indochina under Communist control (including Vietnam), North Korea, the Kurile Islands, Latvia, Lithuania, Mongolia, Southern Salchalin, the Soviet Union, and Tanna Tuva. See U.S. International Trade Commission (1987a). ’ The term “MFW is something of a misnomer, since the United States provides still more favorable rates to many countries, such as under the Generalized System of Preferences, the Caribbean Economic Recovery Act, special column 3 rates for the least-developed countries, and the free-trade agreement with Israel. 6 These are trade-weighted average rates on dutiable imports. See US. International Trade Commission ( 1987b).
U.S. TRADE
WITH EASTERN
BLOC
493
Price
dI
I Q,
I Q,
I Qo
I II QT, 41%
m
Quantity
FIG. 1. The market for U.S. imports of a single good from communist suppliers
In deciding whether to grant MFN treatment for communist countries’ exports, policymakers should consider the economic welfare consequences for the United States and for the communist suppliers. The purpose of this paper is to evaluate these consequences. We also provide estimates of the effects on United States bilateral trade with the communist suppliers. Our study is the first to assessthe welfare consequences. Although previous studies have examined the trade effects, they cover periods before the tariff concessions under the Tokyo Round were implemented and thus fail to account for the increased tariff discrimination that these concessions bring against imports from communist countries.’ The next section provides geometric and algebraic descriptions of our model. The model is applied in Section 3, and the results and concluding comments are given in Section 4. 2. THE MODEL 2A. Geometric Presentation We assume imports from the communist suppliers are imperfect substitutes for imports from other countries and competing domestic output. Figure 1 ‘See the studies by Bayard et al. (1981), Raffel, Rubin, and Teal (1979), Wolf (1975 and 1972), Elias and Searing ( 1974), and Jelacic ( 1974).
494
MBNDEZ
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depicts the effects of granting MFN treatment to communist suppliers for a particular commodity. The vertical axis measures the f.o.b. price of exports in the communist supplier’s port before international transport costs. This is the value on which the ad valorem United States tariff is applied. The curve Scs is the communist country’s supply to the United States, Sr is its total supply to all countries, and Dus is the U.S. demand for these exports absent any tariffs. The MFN tariff shifts this demand downward to Dbs, and the SH tariff shifts it down further to Dbs. With no tariff, QO is the quantity of United States imports and POis their price. With the MFN tariff, the price paid by U.S. consumers rises to P3, the price received by communist suppliers falls to PI [ = P3/( 1 + I, )] and the quantity imported falls to Q, . With the S-H tariff, the price paid by consumers rises to P4, the price received by communist suppliers falls to P2 [ = P4/( 1 + t2)], and the quantity imported falls to Q2. Granting MFN treatment causes United States consumeis to gain trapezoid P,baP, in economic rent in the market for the communist exports. The reduction in the price of these exports will cause United States demands for competing domestic output and for imports from the rest of the world to shift inward. If the domestic output supply curve slopes upward, there will be a loss in rents to domestic producers, but this loss will be exactly offset by a gain in rents to United States consumers in this market.’ To the extent that the supply of competing imports from the rest of the world slopes upward, there will be a corresponding gain in rents to United States consumers in this market. However, the shift in United States demand is unlikely to have any appreciable effect on the price in this market, so we shall henceforth ignore these potential gains. The change in United States tariff revenue is rectangle dfbc, minus rectangles P3caP4 and P2edPI. This revenue change can be positive or negative, depending on the elasticities of the curves Sus and Dus. The change in United States welfare is rectangle P2edPI minus trapezoid dfba, which can also be positive or negative. The communist exporters gain economic rents both in the United States market and in their other export markets because, as they shift exports to the United States in response to elimination of the discriminatory tariffs, the price they receive in their other markets is bid upward, imposing losseson consumers in these markets. With no United States tariff on their exports, their total world exports would be QTo and they would receive the price PO. With the MFN rates, their total exports would be QTI, and they would receive the price P, . With the S-H rates, their total exports are QT2 and they receive the price * Morkre and Tarr ( 1980) provide a good exposition of this result. It should be noted that the reduction in competing U.S. output is smaller than the increase in imports from communist suppliers, both because the lower price to consumerS expands total consumption of these goods and because there is some displacement of competing imports from other countries.
U.S.
P2. Thus, communist nomic rents.
TRADE
WITH
EASTERN
suppliers would
BLOC
gain trapezoid
495
P&I P, in eco-
2B. The Equations This section provides the equations needed to measure the gain in rents to consumers in the United States markets for communist exports, the change in United States tariff revenue, and the gain to communist suppliers that would occur if MFN treatment were granted to communist exports. The derivations of these equations involve some tedious algebraic manipulations that we have relegated to the appendix. For each product, the gain to United States consumers, trapezoid P3baP4 in Fig. 1, is given as USCG = ( P4 - P3)( Qi + Q2)/2. P4 and QZ are the observed price and quantity. The values for PS and Q1 cannot be observed, however, and must be imputed using the tariff rates and estimates of the elasticities of United States demand and communist supply to the United States market. Using constant-elasticity forms of supply and demand equations, USCG can be calculated using the equation USCG = l/[r-ed(e+d _ f’(l-d/k+n) _ f/(e+n) + 11, (1) where V is the value of United States imports from communist suppliers inclusive of the S-H duty, r is the ratio ( 1 + tl )/( 1 + t2), e is the elasticity of the communist export supply to the United States market, and -n is the elasticity of the United States demand for these exports. The change in tariff revenue, in Fig. 1, rectangle dtbc minus rectangles P2edP,andP3caP,,isgivenasdT=(P3-PP1)(Q2-Q1)-[(PI-P2)+(P4 - P3) ] QZ. Again, data for some of these variables are available (P2, P4, and Q2), but values for the remaining variables (PI, P3, and Q, ) must be imputed. Thus, we calculate dT using the equation (2) dT = V{ [t,/( 1 + t,)]r e(l-nl/(e+n) + [I/( 1 + t,)]rel’e+“) - r-n/(e+n)}. The net welfare gain for the United States is USCG + dT. The gain to communist suppliers, trapezoid P2gh PI in Fig. I, is CSG = (P, - P2)( Qr2 + Qr1)/2, which we estimate using the equation CSG = V,[r- nl(e+n) + r-n(eT+l)l(e+n) _ r-ern/(e+n) _ 11/2 9 (3) where VT is the value of total communist exports and er is the elasticity of the communist export supply to the world. 3. APPLYING
THE MODEL
The first step in applying the model is to obtain the needed demand and supply elasticities. To estimate the effects that granting MFN treatment to communist exports would have on United States trade, tariff revenue and
496
MENDEZ
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ROUSSLANG
economic welfare, we need the disaggregate elasticities of the communist export supplies to the United States market and of the United States demand for these exports. To estimate the gains to communist suppliers, we need these parameters and in addition the elasticities of the communist export supplies to the world. Reliable estimates are not available for any of these elasticities and an attempt to construct them would require considerable resources.’ In particular, supply elasticities are notoriously difficult to estimate.
3a. Estimating the TradeEfects In light of the difficulties in obtaining reliable estimates of the elasticities, we follow the previous studies which, with the exception of Bayard et al. ( 198 1)) all adopted a constant-market-shares approach. lo Specifically, to calculate the increase in United States imports from the communist countries, we assume that for each product category, United States imports from them would account for the same share of U.S. imports from all non-OECD countries as they do for a control group of other OECD countries. To create the control group, we omit OECD countries that share a common border with the communist suppliers and thus might be expected to have stronger trading ties with them than would the United States even absent United States tariff discrimination. The members we chose for our control group are Canada, France, the United Kingdom, Belgium, Netherlands, Luxembourg, Spain, Portugal, Australia, New Zealand, and Japan. Using this group, we calculate
QI = QnCQJCQn,
(4)
where Qn is the quantity of United States imports from non-communist, nonOECD countries, and CQc and CQ,, are the quantity of control group imports from communist suppliers and other non-OECD suppliers, respectively. We calculate (4) for the 3-digit categories of the SITC, the most disaggregate level for which the needed data are available on a comprehensive basis. The most important difference between our constant-market-shares analysis and that of the previous studies is that we use the ratio of imports from 9 Although disaggregate import demand elasticities are available for U.S. imports from all countries, these elasticities are likely to be much lower than those facing communist import suppliers, because they fail to account for substitution possibilities between communist exports and those of other countries. lo In their study of the effects of granting MFN treatment for U.S. imports from China, Bayard et al. ( 198 1) used the disaggregate elasticities of U.S. demand for imports from all countries to represent the import demand elasticities facing China. They assumed Chinese export supplies to the United States were perfectly elastic. They estimated that the tariff change would result in only a modest increase in imports from China, about 26%, whereas these imports actually grew dramatically. From 1980, when the tariff change occurred, to 1987, China’s share of total U.S. imports grew over five-fold and its rank went from 58th largest import supplier to 12th largest supplier. The growth in these imports would undoubtedly have been much greater were it not for the quota restrictions on apparel imports. (See U.S. International Trade Commission, 1988.)
U.S. TRADE
WITH EASTERN
BLOC
491
communist suppliers to imports from non-OECD countries to construct our counterfactual state, whereas the previous studies used the share of imports from communist suppliers in total imports. We chose our approach after examining trade patterns of the United States, our control group and the group of communist suppliers. Using cross-section regressions for trade by 3digit SITC category in 1986, we found that the pattern of communist country exports resembles that of non-OECD countries more closely than that of the OECD countries; the correlation coefficients were .27 and .20, respectively. We also found that United States imports from the rest of the world and our control group imports from the rest of the world are less highly correlated than United States imports from non-OECD countries and the control group imports from non-OECD countries; the correlation coefficients were .90 and .99, respectively. Implicit in our approach is the assumption that the tariff changes will not appreciably affect the ratio CQJ CQ” or the quantity Qn . In fact, they should cause some communist exports to shift from the control group to the United States, lower the ratio CQc/CQn, and displace some U.S. imports from nonOECD countries, that is, reduce Q,,. Thus, if the control group accurately reflects United States trade patterns absent the S-H rates, our method will tend to overstate the increase in U.S. imports from communist suppliers that would accompany elimination of these rates. The percent overstatement should be small, however. In most instances, the increase in U.S. imports from communist suppliers would be small relative to total communist exports to all countries, so if this increase is accomplished in part by an expansion of the total communist export supply and the remainder by shifts from their exports to other countries, the decline in the ratio CQJ CQ” would be small. Also, QI would be small relative to Q,,, so the percent reduction in Qn would be small even if the entire increase in United States imports from communist suppliers displaced imports from the non-OECD suppliers.
3b. Estimating theElasticities Although data constraints prevent us from constructing a comprehensive set of disaggregate estimates for n and e, we can obtain a range for one of these elasticities for each product using a method developed by Learner ( 198 1) that requires data only for price and quantity.” To apply this method, we first run the time series regression ln(quantity)
= a + b ln(price)
+ u,
(5)
where the error term u is assumed to satisfy the usual requirements for leastsquares regressions. If the least-squares estimate of b is negative, it is an at” This assumesthat historical precedent is useful for determining output responsesfor nonmarket economies, just as it is for market economies.
498
MBNDEZ
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ROUSSLANG
tenuated estimate of the elasticity of demand (-n), and the maximum likelihood estimate of the true demand elasticity must lie within the range b/ [ t2/ (t’ +f)] < --II < b < 0, where t is the l-statistic for the coefficient b and f is the degrees of freedom. If the least-squares estimate of b is positive, then it is an attenuated estimate of the supply elasticity (e), and the maximum likelihood estimates of the true supply elasticity must lie within the range 0 < b < e < b/[t2/(t2 + f)]. We applied Eq. (5 ) to annual data for 1978 through 1987 for United States imports in the 7-digit TSUSA categories, the most disaggregate data available. Because the full responses of supply and demand to price changes are likely to take more than one year, the estimates from (5) might understate the longrun elasticities we need to determine the complete effects of eliminating the S-H rates. Nevertheless, these estimates should contain some information about the relative size of the long-run demand and supply responses, and this ratio is all that matters for our welfare calculations. Therefore, we use these estimates to construct the ratios e/n. Our regressions provide a range rather than a point estimate for each elasticity for each TSUSA category. We need the elasticity estimates for the SITC categories for which we have the projected post-liberalization trade flows. To construct the ratio e/n for SITC categories, we divide the average of the midpoints of the ranges for e by the average of the midpoints of the ranges for Q from the regressions for the TSUSA categories within the SITC category.‘* We used only those regressions that were statistically significant at the 90% level I3 and for which the Durbin-Watson statistic indicated that we could not reject the hypothesis that serial correlation was absent at the 90% level of significance. When the regressions failed to yield a satisfactory estimate for either a supply or a demand elasticity for an SITC category, we used the corresponding estimate for a similar class of product. After calculating the ratios e/n, we combined them with the long-run changes in United States imports from communist suppliers obtained from Eq. (4). We then used the equation Q,/Q2 = y-enl(e+n) (6) to impute ranges for the long-run elasticities e and n, Equation (6) is derived as Eq. (A8) in the appendix. We lack sufficient data to estimate the elasticity of the total communist export supply (eT). For most product categories, this supply is likely to be much less elastic than the communist supply to the United States market, so I* Data on quantity and value needed to apply l?q. (5) were available for 288 7-digit TSUSA categories. Results of the individual regressions are available from the authors on request. I3 Since there is only one dependent variable in (5), the t-test for statistical significance of the coefficient for the price term is equivalent to the F-test for the significance of the regression equation.
U.S. TRADE
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BLOC
499
that estimates of e provide little information about the size of er . Accordingly, we use a range of values for the latter supply elasticity in our welfare calculations. Even if er were known, calculating the gain to communist suppliers is problematic because their schedule might not accurately reflect true resource costs. This does not appear to be a serious problem, however, because our method should still provide a reasonably good approximation of the gain even if communist state planners fail to allocate resources efficiently. This is true because the higher price the communist suppliers would receive for their original volume of exports to all countries would make up the bulk of their total gain. The additional producer’s surplus on the increase in their exports is likely to be of secondary importance. The smaller the increase in the total quantity of communist exports, the smaller will be the error that arises from inaccurate measurement of the economic costs involved in the supply response. For instance, if they supply only a fixed quantity, the benefits to communist suppliers would consist entirely of the higher price for their exports, regardless of the resource cost involved in producing them. It should be noted that the total exports of the communist suppliers are likely to increase by much less than their exports to the United States, since the tariff change would induce them to shift some of their current exports away from other countries toward the United States.
3c. Measuring Average TariflRates It is well known that using trade weights leads to understatement of the average tariff rate for an aggregate commodity group to which more than one tariff rate applies, because higher tariffs discourage imports and thus get a lower weight. This is probably not a serious problem for estimating the averages of MFN tariff rates, because these rates are fairly low and they tend to be similar within each group. This is undoubtedly a serious problem for estimating the averages of S-H rates on communist exports, however. Therefore, since our estimates of projected imports from communist suppliers are available only for 3-digit SITC categories and not for individual tariff lines, we used MFN trade weights to obtain the averages of S-H rates within an SITC category.14 To measure the average of the S-H tariffs across SITC categories, we used the projected imports as weights. I4 An alternative method would be to use simple arithmetic averages of the S-H rates. However, import volumes vary widely among tariff categories. Since the MFN trade volumes are at least related to the sires of U.S. demands acrosstariff lines, they should provide better weights. Although our weighting system can lead to inaccuracies in the averages of the S-H rates, there is no reason to expect that it leads to a systematic bias in the ratios of MFN rates to the S-H rates, which is all that matters for our welfare calculations.
500
MENDEZ
AND
ROUSSLANG
4. THE RESULTS 4a. The Trade Eflects To avoid an unwarranted appearance of precision and at the same time provide descriptive information, we have aggregated the results of our calculations up to groups of 2-digit SITC categories. Our main purpose in using detailed data is to improve the accuracy of our aggregate estimates rather than to provide disaggregate results. The SITC groups do not cover all 2-digit SITC categories, because we project no post-liberalization imports in a number of these categories. Table 1 shows, for each SITC group, the trade-weighted averages of the MFN and S-H rates, United States imports from the communist suppliers in 1986, and the projected increase in these imports after the S-H rates are eliminated and full adjustment to the new rates occurs. Even for the aggregate categories presented in Table 1, these results are subject to substantial error. Our estimates predict large percentage increases in imports in most categories, with an overall increase of almost 14 fold. Although the percentage increases seem dramatic, they are largely the result of the small beginning base. Indeed, it is somewhat misleading to look at the percentage increases, because the S-H rates prohibit entirely imports from communist suppliers for many disaggregate categories. For these categories, even very small amounts of post-liberalization imports from communist suppliers would constitute infinite percentage increases. The increases are substantially greater than those predicted by the earlier studies that used a constant-market-shares approach. These studies predicted aggregate increases that ranged from 0 to 19% (Jelacic, 1974), to 103 to 252% (Elias and Searing, 1974). The most recent of these studies (Raffel, Rubin, and Teal, 1977) predicted an increase of only 30 to 40%.15 Three reasons probably account for the bulk of the difference. First, as noted above, we use the ratio of imports from communist suppliers to imports from non-OECD countries to compare import patterns between the United States and our control group of other developed countries, whereas the previous studies compared the shares of communist suppliers in total imports. Using 1986 trade data and our control group, we found that the latter method yields a projected increase in aggregate United States imports from our group of communist suppliers that is only about 60% as great as the one we obtained using our method. Second, the United States share of total world imports Is It seems clear that the earlier studies greatly underestimated the effects of the S-H rates. For instance, between 1974 and 1986, U.S. imports from the Soviet Union and its Eastern European allies subject to the S-H rates for the entire period (East Germany, Czechoslovakia, Bulgaria, and Albania) grew by only 40% in nominal terms, whereas U.S. imports from Hungary and Romania (which received MEN treatment beginning in 1978 and 1975, respectively) Brew over five-fold.
U.S.
TRADE
WITH TABLE
THE
Emcrs
EASTERN 1
STATES IMFQRTSFROM COMMUNIST SUPPLIERS OF GRANTING THEM MFN TREATMENT
ON UNITED
tariff ratesa (percent ad valorem equivalents)
U.S.
SITC no. 00-o 1 02 03 04-05 06-09 II-12 21-25 26 21 28 29 32-34 41-43,51 52-53 54 55 56-59 61 62 63 64 65 66 67 68-69 71 72 73 81 82 83-84 85 86 89 93 94
Total
501
BLOC
Description
Cal. 1
Cal. 2
Meat, live animals Dairy products Fish Cereals, fruits, vegetables Sugar, coffee, tea, misc. foods Beverages and tobacco Crude mat. (hides, rubber, wood) Textile fibers Crude fertilizer and minerals Ores and metal scrap Crude animal and veg. mat. Coal, petroleum, gas Fats, oils, organic chemicals Inorganic chemicals, dyes Drugs Cosmetics Fertilizer, explosives, plastic Leather and leather manuf. Rubber manufactures Cork and wood manufactures Paper and paperboard Textile yam and fabrics Nonmetal mineral manufactures Iron and steel Nonferrous and misc. metals Nonelectrical machinery Electrical machinery Trans. vehicles and equip. Indoor utilities equip. Furniture Hand bags and apparel Footwear Instruments, watches, clocks Misc. manufactures Special transactions Zoo animals, pets
2.4 9.4 4.5 12.6 4.9 4.9 0.8 6.4 2.1 3.4 5.2 0.6 9.2 8.6 6.4 5.3 7.3 4.4 4.1 5.1 2.6 11.9 8.6 4.8 3.8 3.1 3.4 4.5 8.6 4.2 19.6 10.5 2.1 6.5
6.8 33.9 11.4 29.7
19.6 35.0 9.5 28.7 10.4 18.8 26.4 1.5 43.7 25.5 29.4 44.3 31.9 31.4 14.0 35.2 27.6 43.5 49.6
15.0
4.3
21.2 35.9 35.9 34.3 52.7 48.1 47.4 26.5 6.3 76.7 1.2 20.9
3.9
22.9
1.0
Imports from communist suppliers (in $millions)b Actual 2.9 2.9 2.6 9.9 1.4 41.4 17.1
1.0 1.0 22.0 3.8 112.8 121.5 .l 3.6 .8 97.5
1.1 11.1 4.8 7.0 5.5 22.7 30. I 92.6 24.2 7.7 1.8 1.0 5.4 11.9 9.4 1.3 12.2 6.1 .I 705.7
Projected 263.3
13.4 206.0 61.2 137.3 139.3 104.7 17.1 24.9 23.4 19.5 3064.9 207.8 3.8 17.3 12.0
119.7 5.8 78.0 84.0 89.1 99.7 637.5 291.2 930.0 402.3 463.6 777.5 83.6 364.4 232.0 115.6 81.7 298.2 57.0 1.2 9812.3
Sources. U.S. Bureau ofthe Census “COMPRO/US” and “COMPRO/UN” computerized data bases, and authors’ calculations. ’ The average for each SITC group is constructed using MFN trade as weights. The overall averages are constructed using the projected imports as weights. b Actual and projected imports are for 1986.
502
MBNDEZ
AND
ROUSSLANG
from our group of communist suppliers has declined since the periods covered by the previous studies, in part as a result of further trade liberalization under the Tokyo Round of multilateral trade negotiations. In 1974, United States imports accounted for 5% of total OECD imports from these countries and 17% percent of OECD imports from all countries, whereas in 1986 the corresponding figures were 2.8% and 25%. This means that in the latter year there was greater opportunity for diverting communist exports from other countries to the United States in response to removing the S-H rates. Finally, United States imports from our group of communist suppliers has declined relative to total United States imports, from about .4% in 1974 to less than .2% in 1986. This means the opportunity for diverting United States demand away from imports from other countries toward imports from the communist suppliers has increased. 46. The Welfare Consequences Table 2 shows the ratio of the elasticities e/n, the gains to United States consumers, the changes in tariff revenue and the total gains to the United States for each of our SITC groups. We find that granting MFN treatment to communist suppliers would cause imports from these countries to expand to such an extent that tariff revenue on these imports would actually increase for every one of the SITC groups. The total gain in consumer’s surplus would be almost three times as great as the total revenue gain. Based on 1986 trade flows, the total gain to the United States would be about $1.8 billion. Table 3 shows the gains to the communist suppliers. These gains depend crucially on the elasticities of the communist suppliers’ exports to the world, er’s, parameters for which we have no reliable estimates. We therefore present calculations for a reasonable range of values for these parameters, eT = 0 and eT = 4 for each SITC group, based on estimates in the literature. l6 The results indicate that the gains to communist suppliers would range from $1.2 billion to $1.7 billion. 4c. Summary of Results Our results indicate that the S-H rates are an important impediment to imports from the Soviet Union and those of its allies that are still subject to these rates. We estimate that removing these rates would allow these suppliers to increase their share of total United States imports from its current level of about .2% to about 2.8%. We also find that these tariffs impose substantial I6 This covers the range of country export supply elasticities in the disequilibrium models, which allow for lagged responses of export supply to price changes, in Goldstein and Khan ( 1978 ) and Haynes and Stone ( 1983), and the simultaneous equations estimates of export supply elasticities in Dunlevy ( 1980).
U.S. TRADE
WITH EASTERN
BLOC
503
TABLE 2 THE WELFARE CONSEQUENCES FOR THE UNITED STATES OF GRANTING TREATMENT TO EXFQRTS OF COMMUNIST COUNTRIES
SITC no.
Description
00-o 1 02 03 04-05 06-09 11-12 21-2s 26 27 28 29 32-34 41-43,51 52-53 54 55 56-59 61 62 63 64 65 66 61 68-69 71 72 13 81 82 83-84 85 86 89 93 94
Meat, live animals Dairy products Fish Cereals, fruits, vegetables Sugar, coffee, tea, misc. foods Beverages and tobacco Crude mat. (hides, rubber, wood) Textile fibers Crude fertilizer and minerals Ores and metal scrap Crude animal and veg. mat. Coal, petroleum, gas Fats, oils, organic chemicals Inorganic chemicals, dyes Drugs Cosmetics Fertilizer, explosives, plastic Leather and leather manuf. Rubber manufactures Cork and wood manufactures Paper and paperboard Textile yarn and fabrics Nonmetal mineral manufactures Iron and steel Nonferrous and misc. metals Nonelectrical machinery Electrical machinery Trans. vehicles and equip. Indoor utilities equip. Furniture Hand bags and apparel Footwear Instruments, watches, clocks Misc. manufactures Special transactions Zoo animals, pets
Total
Ratio (44 (per=nt) 1.6 1.6 1.6 1.3 1.3 1.3 1.2 0.7 0.9 0.6 0.6 1.6 0.6 0.7 0.4 0.9 0.7 2.2 2.2 1.8 1.0 0.6 0.6 0.4 1.3 1.7 0.5 0.7 1.1 0.9 0.7 1.1 0.4 0.9 0.9 0.9 1.10
Gain to U.S. Consumers
MFN
Change in Net welfare tariff revenue change (in $millions)
7.3 2.6 8.9 7.1 11.8 32.5 5.9 1.8 I.0 2.1 2.0 17.2 46.4 0.3 1.5 2.6 23.3 1.3 6.6 17.6 12.7 13.4 111.8 9.6 141.5 90.7 55.8 102.9 21.1 84.0 29.1 11.1 1.5 421.5 0.2 0.8
6.3 0.9 9.4 6.7 7.0 3.7 0.5 1.2 0.5 0.9 1.2 18.4 19.9 0.3 1.4 0.7 6.0 0.1 1.9 4.6 2.4 13.5 67.2 14.8 31.8 13.3 19.3 40.6 8.4 18.2 49.3 11.3 2.5 93.9 5.8 0.4
13.6 3.5 18.3 13.8 18.8 36.2 6.4 3.0 1.5 3.6 3.2 35.6 66.3 0.6 2.9 3.3 29.3 1.4 8.5 22.2 15.1 26.9 179.0 24.4 173.3 104.0 75.1 143.5 29.5 102.2 79.0 22.4 4.0 514.6 6.0 1.2
1308.4
484.2
1792.6
Source. Authors’ calculations. ’ The average ratio using projected imports from communist suppliers as weights.
504
MENDEZ
AND ROUSSLANG TABLE 3
THE GAINS TO COMMUNIST SUPPLIERS FROM GRANTING MFN TREATMENT FOR THEIR EXFQRTS TO THE UNITED STATES(IN $MILLIONS)
Elasticity of the communist export supply SITC No. 00-01 02 03 04-05 06-09 1 l-12 21-25 26 27 28 29 32-34 41-43,51 52-53 54 55 56-59 61 62 63 64 65 66 67 68-69 71 72 73 81 82 83-84 85 86 89 93 94
Description Meat, live animals Dairy products Fish Cereals, fruits, vegetables Sugar, coffee, tea, misc. foods Beverages and tobacco Crude mat. (hides, rubber, wood) Textile fibers Crude fertilizer and minerals Ores and metal scrap Crude animal and veg. mat. Coal, petroleum, gas Fats, oils, organic chemicals Inorganic chemicals, dyes Drugs Cosmetics Fertilizer, explosives, plastic Leather and leather manuf. Rubber manufactures Cork and wood manufactures Paper and paperboard Textile yam and fabrics Nonmetal mineral manufactures Iron and steel Nonferrous and misc. metals Nonelectrical machinery Electrical machinery Trans. vehicles and equip. Indoor utilities equip. Furniture Hand bags and apparel Footwear Instruments, watches, clocks Misc. manufactures Special transactions Zoo animals, pets
Total Source. Authors’ calculations. a Less than $0.05 million.
eT = 0
eT = 4
0.2 0.2 1.4 1.9 1.9 8.4 74.6 58.2 5.2 59.6 4.0 55.1 189.4 2.1 4.9 2.7 70.9 0.8 0.8 13.9 17.4 10.6 148.0 40.7 103.2 98.7 79.2 140.5 0.4 5.6 0.4 0.2 2.8 17.1 a a
0.2 0.2 7.8 2.2 2.1 10.8 80.6 74.6 5.7 72.0 5.1 55.5 283.0 2.6 6.7 4.0 93.1 1.0 0.8 16.8 22.2 15.2 238.8 46.8 125.1 123.0 121.8 197.1 0.5 8.7 0.5 0.2 3.0 33.3 c? r?
1227.0
1661.0
U.S.
TRADE
WITH
EASTERN
BLOC
505
economic costs on both the United States and the communist suppliers. Based on 1986 trade flows, we estimate that the overall welfare cost to the United States is about $1.8 billion and that the cost to the communist suppliers is between $1.2 billion and $1.7 billion. APPENDIX: DERIVATION As shown in Fig. 1, we have
OF THE EQUATIONS
P3 = Pl( 1 + t,)
(Al)
and p4
=
P2(
where PI (P2) is the price received by H) duty rates are in force, P3 ( P4) is the when MFN (S-H) rates are in force, rate. The quantity sold with the MFN rates ( Q2) are related as
1+
t.42)
t21,
communist suppliers when MFN (Sprice paid by United States consumers t, is the MFN rate and t2 is the S-H rates ( Q, ) and that sold with the S-H
QIIQz =
(f’,lP4)-”
(A3)
Ql/Qz =
(p,lp2Y,
(A4)
and
where --y1 is the elasticity of United States demand for communist exports and e is the elasticity of the communist supply to the United States. We also have
QTIIQTZ=
eT>
(A5) where Qrr and Qr2 are communist exports to the world with the MFN and S-H rates, and er is the elasticity of the total communist export supply. Combining (Al ) through (A4) and denoting the ratio ( 1 + tl )/( 1 + r2) as r yields (f’1/P2)
PI/P2 = r-m+@,
(Ah)
p31p4 = rel@+n),
(A7)
and Q,/Q2
= y-en/(e+n)a
(‘48)
The gain to United States consumers from replacing the S-H rates with the MFN rates (trapezoid P,baP, in Fig. 1) is CG = (P4 - P3)(Q, + Q2)/2. Combining Eqs. (A6) through (A8), this expression can be written as USCG = v[ r-ed(e+d - f(l-nMe+n) _ fv(e+n) + 11, (A9)
506
MENDEZ
AND ROUSSLANG
where V is the current volume of imports from communist suppliers valued at the consumer price inclusive of the S-H tariff. The change in United States tariff revenue from this tariff change (in Fig. 1, rectangle dfbc minus rectangles P3caP4 and P2edPI) is dT = (P3 - P,)(Q, - Qz) - (PI - P2)Q2 - (P4 - P3)Q2. Combining Eqs. (A6) through (A8), this equation can be written
dT= v{[t,l(l
+ [ l/( 1 + t,)] f-l(e+n)- r-nl(e+n)}. + t,)l f( l-n)/(e+n) (AlO)
The net welfare change for the United States is given as CG + TR. The gain in rents to communist suppliers (trapezoid P2gh PI in Fig. 1) is CSG = (PI - P2)(QT2 + Qr,)/2. Using (A5) and (A6), we can write this gain as CSG = VT[r- n/(e+n) + r-~(eT+lv(e+~) - r-eT~l(e+ro - 1]/2, (All) where Vr is the current value of communist the world.
suppliers’ exports to the rest of
REFERENCES Bayard, Thomas, James Orr, Joseph Pelzman, and Jorge Perez-Loper, “MFN Treatment of Imports from China: Effects on U.S. Employment.” J. Policy Modeling 3:361-373, 1981. Dunlevy, James A., “A Test of the Capacity Pressure Hypothesis Within a Simultaneous Equations Model of Export Performance.” Rev. Econ. Stat. 62: 13 l-l 35, Feb. 1980. Elias, Andrew, and Searing, Matjorie E., “A Quantitative Assessment of U.S. Constraints on Trade with Eastern Europe and USSR.” In Hardt, John P., Ed., Reorientation and Commercial Relations of the Economies of Eastern Europe, pp. 599-66 1. Joint Econ. Comm., U.S. Congress. Washington, D.C.: U.S. Govt. Printing Office, 1974. Goldstein, Morris, and Khan, Mohsin, “The Supply and Demand for Exports: A Simultaneous Approach.” Rev. Econ. Stat. 60~275-286, May 1978. Haynes, Stephen E., and Stone, Joe A., “Specification ofSupply Behavior in International Trade.” Rev. Econ. Stat. 64~626-632, Nov. 1983. Jelacic, John E., Impact of Granting Most Favored Nation Treatment to the Countries of Eastern Europe and the People’s Republic of China. Washington, D.C.: U.S. Tariff Commission, 1974. Learner, Edward E., “Is It a Supply Curve or Is It a Demand Curve? Partial Identification through Inequality Constraints.” Rev. Econ. Stat. 63:319-327, Aug. 198 1. McIntyre, Joan F., ‘Soviet Efforts to Revamp the Foreign Trade Sector.” In Gorbachev’s Economic Plans, Vol. 2, pp. 489-503. Comp. of Papers, Joint Econ. Comm., U.S. Congress, Washington, D.C.: U.S. Govt. Printing Office, Nov. 1987. Morkre, Morris, and Tarr, David, Efects of Restrictions on United States Imports. U.S. Fed. Trade Commission, Washington, D.C.: U.S. Govt. Printing Office, 1980. Raffel, Helen, Marc Rubin, and Robert Teal, “The MFN Impact on U.S. Imports from Eastern Europe.” In East European Economies Post-Helsinki, pp. 1396-1427. Joint Econ. Comm., U.S. Congress, Washington, D.C.: U.S. Govt. Printing Office, 1977. U.S. Central Intelligence. Agency, “Gorbachev’s Economic Program: Problems Emerge.” Washington, D.C.: U.S. CIA, Document DDE1900-187-88, 1988. U.S. biternational Trade Commission, Tart~Schedules of the United States, Annotated, 1987. Washington, D.C.: U.S. Inter. Trade Commission, 1987a.
U.S. TRADE
WITH EASTERN
BLOC
507
U.S. International Trade Commission, Value of US. Imports for Consumption, Duties Collected and Ratio of Duties to Values. Washington, DC.: U.S. Inter. Trade Commission, 1987b. U.S. International Trade Commission, 53d Quarterly Report to the Congress and the Trade Policy Committee on Trade Between the United States and the Nonmarket Economy Countries During 1987. Washington, DC.: U.S. Inter. Trade Commission, 1988. Wolf, Thomas A., The Quantitative Impact of Liberalization of United States Unilateral Restrictions on Trade with the Socialist Countries of Eastern Europe. U.S. State Dept. Research Study, Washington, D.C., Feb. 1972. Wolf, Thomas A., “The Impact of Formal Western Restraints on East-West Trade: An Assessment of the Existing Quantitative Research.” In Hardt, John P., Ed., Tartx Legal and Credit Constraints on East European Commercial Relations. Carleton, Ottowa, Ontario, Canada: Institute of Soviet and East European Studies, 1975.