An Economy-wide Analysis of Impacts of WTO Tiered Formula for Tariff Reduction on Taiwan

In this study we use Taiwan as a case study to provide an economy-wide analysis of impacts on Taiwan of WTO tariff reduction schemes with different combinations of thresholds and reduction rates. The model we utilized in this study is Taiwan General Equilibrium Model with a WTO module (TAIGEM-WTO, hereafter) that is a multi-sectoral computable general equilibrium (CGE) model of the Taiwan's economy derived from Australian ORANI model (Dixon, Parmenter, Sutton and Vincent, 1982). Simulation results show that results are more sensitive to the scheme of tariff-reduction (i.e., Category 1, 2, and 3) than the tiered levels (i.e., A, B, C, and D) and as a strategy we should pay more attention to the arguments related to the amounts of tariff-reduction. Moreover, changes in nominal average tariff rates are more sensitive and shocks to the economy are more severe when we change the tariff reduction categories rather than the tiered levels. This conclusion also applies to the tiered reduction case when only sensitive products are considered. Finally, simulations with sector's bound rate calculated using arithmetic means have bigger effects than those using import values as weights. Therefore, sector's bound rate using import values as weights would be preferred.