The Impact of the Andean Trade Preference Act Twelfth ... - USITC

Technical Notes to Chapter 3:Partial Equilibrium AnalysisThis section presents the methodology used to estimate the impact of ATPA on the U.S.economy in 2005. 359 The economic effects of ATPA duty reductions 360 were evaluated witha comparative static analysis. Since ATPA tariff preferences were already in effect in 2005,the impact of the program was measured by comparing the market conditions currentlypresent (duty-free entry for eligible products entered under ATPA provisions) with those thatmight have existed under full tariffs (i.e., no ATPA tariff preferences). Thus, the analysisprovides an estimate of what the potential costs and benefits to the U.S. economy wouldhave been if ATPA had not been in place during 2005. However, the material on welfare anddisplacement effects, in the section titled “Analytical Approach” in chapter 1and in thisappendix, discusses the impact of ATPA in terms of duty reductions, rather than the“removal” of duty eliminations already in place. 361 The effects of a duty reduction and a dutyimposition are symmetrical and lead to results that are equivalent in magnitude but oppositein sign. 362 Thus, the discussion is framed with respect to the implementation of dutyreductions simply for clarity.A partial equilibrium framework was used to model three different markets in the UnitedStates, namely, the markets for ATPA products, competing non-ATPA (foreign) products,and competing domestic products. These three markets are depicted in panels a, b, and c offigure C-1. In the model, imports from ATPA beneficiaries, imports from non-ATPAcountries, and competing domestic output are assumed to be imperfect substitutes for eachother, and each is characterized by a separate market where different equilibrium prices exist.The ATPA and non-ATPA import demand curves, D a and D n , and the demand curve fordomestic output, D d , are all assumed to be downward sloping with a constant elasticity ofdemand. 363 It is assumed that the ATPA import supply curve to the U.S. market, the non-ATPA import supply curve, and the domestic industry supply curve, S a , S n , and S d , are allhorizontal, that is, perfectly elastic. The assumption of perfectly elastic supply curves greatlysimplifies computation, although it leads to an upward bias in the estimates of the welfareand domestic displacement effects on the U.S. economy. 364359 As discussed in chapter 1, the term “ATPA” refers to ATPA as amended by ATPDEA.360 Although the term “duty reduction” is used, the methodology employed in the analysis for this reportapplies equally to a duty elimination (which is a duty reduction in the full amount of the duty).361Most comparative static analyses are used to evaluate the effects of an event that has not alreadyhappened— such as a proposed tariff elimination. This comparative analysis evaluates the effects of an eventthat has already happened—ATPA duty elimination has been in effect since 1992. The method described inthis section can be used in either situation.362 This is technically true only if income effects are negligible. Given the small U.S. expenditure ongoods from ATPA countries, income effects are likely to be negligible for the products under consideration.See R. Willig, “Consumer’s Surplus Without Apology,” American Economic Review, 66 (1976), pp. 589-597.363 The subscripts a, n, and d refer to ATPA imports, non-ATPA imports, and U.S. domestic output,respectively.364Since ATPA imports account for a very small share of U.S. domestic consumption in most sectors,even the upper estimates were very small. Assuming upward-sloping supply curves would have resulted ineven lower estimates.C-3