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Goods and Tariffs

An effective trade policy is central to the integration of developing countries in the international economic system and their growth. Tariff policy is the centerpiece of trade policy in a market system. Tariffs are, with very few exceptions, the only acceptable policy tool for  protection under the GATT/WTO; and they are superior to alternative instruments of protection, such as quotas, licenses and technical barriers to trade. Although many developing countries have reformed and generally lowered their levels of protection during the past decade or so, many, especially among the least developed countries, are still far from having completed this process. Tariffs in these countries remain on average at moderate to high levels and are often highly dispersed, creating a skewed structure of effective protection.

Many trade economists tend to advise developing countries to adopt a less differentiated, and possibly uniform tariff. What are the underpinnings of such advice? Is this advice based on theory or simply on practical considerations? These and other related questions are eloquently analyzed in a recent paper (PDF - 66 k) by David Tarr in the context of trade reform in Russia. The case made, however, is of general applicability to all developing and transition economies. The paper also includes a comprehensive bibliographic section on this topic.

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