The Layers of the IT Agreement's Trade Impact

Inserting tariffs directly into the gravity equation breaks the ITAs impact down into four layers. Import demand elasticities are found to be non-linear: Tariff reduction (layer 1) has relatively small impacts, while complete tariff elimination (layer 2) has high impacts, especially for intermediate goods. Beyond that, ITA accession has positive non-tariff effects on both imports (layer 3) and exports (layer 4). These commitment effects suggest that higher trade policy certainty affects investment and sourcing decisions in favour of signatories: Their ITA exports performed better relative to other ICT and machinery exports, unlike non-members. But "passive signatories" — which joined mainly as a by-product of a larger policy objective — reaped the most benefits. Featuring a smaller ITA sector upon accession, their final good exports increased also in absolute terms due to downstream GVC integration. However, such impacts are strongly heterogeneous with respect to countries' geographical remoteness, education levels, business environment and institutions. China stands out with especially strong post-accession export increases, also extending to intermediate goods.

 

No: ERSD-2015-01

Authors: Christian Henn and Arevik Gnutzmann-Mkrtchyan

Manuscript date: February 2015

Key Words:

tariffs, trade policy certainty, value chains, fragmentation, WTO Information Technology Agreement, gravity equation, product-level trade, non-linearity.

JEL classification numbers:

F13, F14, L63.

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Disclaimer 

This is a working paper, and hence it represents research in progress. The opinions expressed in this paper are those of its authors. They are not intended to represent the positions or opinions of the WTO or its members and are without prejudice to members’ rights and obligations under the WTO. Any errors are attributable to the authors.

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