Are Preferential Tariffs Utilized? Evidence from Australian Imports, 2000-9

Abstract

Preferential tariff rates are often not utilized by qualified beneficiaries. Two reasons are complex rules of origin and erosion of preference margins as a result of multilateral trade liberalization. Our paper contributes to this research by providing evidence from high-quality disaggregated customs data of the utilization rate for Australia's preferential trading arrangements in the period 2000-9. A pattern of low ratios of imports receiving preferential tariff treatment to the total value of bilateral imports applies to all six of Australia's PTAs. Over half of Australian imports from New Zealand, the Pacific Island Forum economies, Thailand and Chile claimed preferential treatment in 2000, but all had lower utilization rates by 2009. This is primarily because of the increasing number of zero MFN tariff lines. Where MFN tariffs are positive, preferential tariffs are utilized and preferred trading partners pay lower customs duties. Positive utilization rates indicate that tariff preferences do have an impact, and at a minimum the exporters claiming the preferential tariff rate are better off than they would be in its absence, but by themselves utilization rates shed no light on the size of the impact on trade flows or on economic wellbeing.preferential tariffs, trade liberalization, preference erosion