MSU Agricultural, Food, and Resource Economics
Recent World Trade Organization negotiation rounds have focused on import tariff escalation, which occurs when import tariffs increase as the processing level increases. Although typically researched as a trade policy used by developed countries to protect their agro-processing sector, this research examines the effects of import tariff escalation when used by a developing country. Specifically, this thesis examines import tariff escalation (and the value-added tax) applied by Mozambique to imports of maize and maize flour from South Africa. Using econometrically estimated domestic supply and demand elasticities for each region, this thesis uses a spatial, partial equilibrium model to maximize social welfare subject to material balances and price constraints to model the changes in prices and export quantities due to a removal of import tariff escalation, the value-added tax, and a simulated 'free' trade environment. Although data availability was limited and thus decreased the statistical validity of the econometrically estimated elasticities, sensitivity tests indicated the models robustness to small changes in the elasticities. The model simulations indicated the removal of the VAT had very little effect of changes in prices or export quantities, while considerable changes were found in the simulated removal of import tariff and the 'free' trade simulation.