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

The change from full tariffs to duty-free treatment for ATPA imports causes the importsupply curve, S a , in panel a to shift down to S a N by the amount of the ad valorem tariff, t.Thus, the equilibrium price in the U.S. market for ATPA imports decreases from P a to P a N,whereas the quantity imported increases from Q a to Q a N. The relationship between the pricewith the tariff (P a ) and the tariff-free price (P a N) is P a = P a N(1+t). The decrease in the price ofATPA imports leads to a decrease in demand for similar goods from other countries anddomestic U.S. producers. Thus, the demand curves for both non-ATPA imports and domesticoutput, D n and D d , shift back to D n N and D d N, respectively. Since the supply curves in bothof these markets are assumed to be perfectly elastic, the equilibrium prices do not change.The equilibrium quantity supplied in each market decreases from Q n and Q d to Q n N and Q d N,respectively.The impact of ATPA on the U.S. economy was measured by examining the welfare effectsof the tariff reduction in the market for ATPA imports and the domestic displacement effectsof a decrease in demand in the competing U.S. market. The displacement of non-ATPAcountry imports because of ATPA tariff preferences was not estimated because the focus ofthe analysis was on the direct effects of ATPA provisions on the United States.The decrease in the tariff for ATPA imports leads to an increase in consumer surplus forthese products. This is measured by the trapezoid P a abP a N in panel a. There also is anaccompanying decrease in the tariff revenue collected from ATPA imports. This is measuredby the area of the rectangle P a acP a N in panel a.The net welfare effect of ATPA is equal to the increase in consumer surplus plus thedecrease in tariff revenue—the trapezoid P a abP a N minus the rectangle P a acP a N in panel a, thatis, triangle abc. 365 The dollar amount by which ATPA imports displace U.S. output ismeasured by the rectangle Q d NdeQ d in panel c.Given the above assumptions and the additional assumption of constant elasticity demandcurves, the markets for the three goods are described by the following three equations:ε aa(1) (Q a /Q a N) = (P a /P a N)ε na(2) (Q n /Q n N) = (P a /P a N)ε da(3) (Q d /Q d N) = (P a /P a N)Given that P a = P a N(1+t), these can be restated365Welfare effects typically include a measure of the change in producer surplus. The change in producersurplus for ATPA producers was not considered in this analysis because the focus of the analysis was on thedirect effects of ATPA provisions on the United States.C-5