A Policy Toolkit for Trade and Advocacy

Who Should Read the Toolkit

  • You are a project manager or spokesperson working in an NGO or think tank that helps to promote free trade or to bring about policy changes in trade related issues. You want to inform the public through media and certain project regarding the harms of trade.
  • You are a scholar or a policy analyst in an NGO, think tank or University and your research interest lies in trade related issues and wants to use that in sparkling real policy changes. The prices of your basic goods such as diary products, meat, and vegetables make it hard for your locals to survive. Yet, when you look at prices over in a bordering country they seem much lower that what you pay yourself. This toolkit will aid in your understanding in how tariffs affect these prices, and give you ways to calculate the welfare loss to your populace.
  • You are student who believes in the benefits of free trade and oversees trade protectionism as a major problem hampering the economic and social development in your country. As this situation continues, the national government and interests groups would levy more restrictions on free trade. You need to make the case that such decision is premature and will harm the interests of general public and sustainable development of the country. And you want to seek the support and resources you need for a free trade campaign through Atlasfreetrade.org.
  • You are a business owner and one of your goals is to reduce your costs so you can better compete, and expand your company. Many of the intermediate goods that go into your final products are imported from foreign countries. You can utilize this toolkit to help figure out the costs of your inputs before tariffs, and lobby for changes in your countries tariff policies.

Why Advocate for Free-Trade

  • Trade is an engine of economic growth. Free trade enables different individuals and regions to specialize and compete, leading to greater productivity, lower prices and more innovation. Competition from trade has blessed families around the world with lower prices, more choice, and better quality. Because of trade, consumers pay lower prices for food, clothing, shoes, electronics, and cars, which translate directly into higher real incomes. This web of interactions also fosters peace by creating a basis for global interdependence through the mutual benefits of trade. Because of freer trade global merchandise trade has soared to 240 times the 1950 level. Elimination of tariffs and other protective barriers has created economic benefits to developing countries of $200 billion per year and lifted at least 500 million people out of poverty over the past 15 years.
  • Advocacy in free trade is a strategy to influence policy makers when they draft laws and regulations, distribute resources, and make decisions that will affect the wellbeing of individuals. It can be reached through varies channels including direct discussions with the policy makers, delivering messages through media or strengthening individuals and local organization. The significant impact on trade policies can only be achieved through changes in the beliefs and actions of individuals, households and institutions that are in power.
  • A quarter of a century has passed since Michael Walker and the Fraser Institute first partnered with Milton and Rose Friedman on the Economic Freedom of the World (EFW) project. The sole objective of this project was to clearly define and measure the consistency of institutions and policies affecting economic freedom for a large set of countries and territories. On Oct 31st 2013, Atlas will launch its first Global Free Trade initiative www. atlasfreetrade.org. You can track the country indexes on free trade through the Index map and join Atlas free trade campaign to fight against trade barriers and make our world a better place to live in.

What is a Policy Advocacy Toolkit

This toolkit is a training guide designed to familiarize you with free trade advocacy concepts and techniques. The focus lies upon giving you the assets to evaluate the impact of trade barriers upon the welfare of your population. We build you a framework for identifying trade barriers, formulating the loss in welfare to your domestic consumers and producers, and effectively building your case for change in your region.
At Atlas we do not take a direct role in advocacy, but rather to play a supporting role, or to help bring parties together who have shared interests in creating policy change.

Effects from Barriers to Trade

Barriers to Trade are measures that influence the quantity or price of goods, services, or capital that travel across boundaries.  The most common of these barriers is tariff — a tax imposed by government on imported goods to protect domestic industry from competition.  Tariff increases the price of an imported goods by either adding a tax as a percentage of the value of the goods, such as a 10% tariff, or they increase the price of a good by a fixed amount, called an Ad Valoreum tariff.  An Ad Valoreum tariff is a fixed amount added onto the price of a good when imported, which means either an amount per good imported or a set amount for a large quantity, such as a $1000 Ad Valoreum tariff for 100 of the imported good.

Another type of trade barrier is Non-Tariff Barrier, which include quotas on the number of goods imported, and regulations.  However estimation of the cost from Non-Tariff Barriers is more complex and the focus of this Toolkit will be on Tariff barriers.

Tariffs, acting as a tax on imported goods, negatively effect consumers and domestic producers.

•As the price increases on imported goods the consumers have to pay a higher price, meaning you have less money to spend on other items, creating a loss in welfare.
•Domestic producers overall also suffer from the increase in tariffs, contrary to popular thought.  The producers protected by the tariff may benefit, however all of the domestic producers not protected must now pay higher prices for the components that they use to make their own goods.  Tariffs then make the not protected industries less competitive, hurting your economy.

Now that you understand the negative effects from tariffs it is important for you to be able to calculate the impact from them on your country.

Steps for Calculating the Effect and Rates of Tariffs in Your Country

Step 1- Find the Data

– Tariff rates for the specific country and industry:

The most beneficial would be the Most Favored Nation tariff rate (MFN), which is the rate that a country imposes on all other World Trade Organization members.  Good sources are your government’s sites or local scholarly publications.  Also a very useful tool is the WTO Tariff Profile for your individual country, which can be accessed from this page

http://stat.wto.org/TariffProfile/WSDBTariffPFHome.aspx?Language=E

–  Total value of the good(s) imported per year, the Gross Domestic Product (GDP) per capita, and the total population:

A valuable site to find this data would be your governments website, the World Bank which can be accessed from this page http://data.worldbank.org/country.

The International Trade Centre also provides very through data on imports,

http://legacy.intracen.org/marketanalysis/Default.aspx, however you need to register for a free membership first.

To save the hassle of converting currencies it would be beneficial to find the value of imports and GDP per capita in the same currency.For currency conversion: http://www.xe.com/

Step 2- Calculate the Tariff Effect

The determinant of the effect of a Tariff, or the price paid by domestic consumers and producers, is the Tariff Revenue (TR).

Tariff Revenue (TR) is equal to the Tariff Rate (T) times the Value Imported of the Good (V)

TR=T*V

Example: Ghana Diary Tariff

Value Imported of Dairy in Ghana (2012) = 176,472,445.51 GHS

Tariff Rate on Dairy Products (MFN) = 20.0%

Tariff Revenue = Tariff Rate*Value Imported

TR = 176,472,445.51 GHS * 20.0%

TR = 35,294,490 GHS

Step 3- Calculate the Trade Weighted Average Tariff over Multiple Products

What is Trade Weighted Average Tariff: A situation could arise where you wish to know the effects from tariffs on a wide range on products all at once, such as on items you regularly purchase at the store.  This could also pertain to when you want to research a specific group of people, who tend to by a particular basket of goods.  A group like this would be children, who have a basket of goods containing food, clothing and toys.

In order to calculate the average of the multiple tariffs on these items you have to weight each tariff in relation to the volume of imports they each affect.  Therefore a tariff on a good that has a larger volume of imports will be weighted more in the tariff average, while a tariff on a good that has a low volume of imports will be weighted less.

How to calculate Trade Weighted Average Tariff of certain good or a basket of goods: Once you acquire the weighted tariff over the multiple products you can multiply it by the overall imports of those products to find the impact on society.

T1=Tariff Rate for Good One V1=Volume Imported of Good One

T2= Tariff Rate for Good Two V2=Volume Imported of Good Two

T3= Tariff Rate for Good Three V3=Volume Imported of Good Three

– Trade Weighted Average Tariff Rate = (T1V1+T2V2+T3V3)/(V1+V2+V3)

– Trade Weighted Average Tariff Rate *Volume of Imports of all Goods = Tariff Revenue of all Goods

Example:  South Africa Trade Weighted Average Tariff on food products (Cereals, Dairy, and Coffee and Tea)

V1 = Value Imported of Cereals (2012) = 10,530,550,610 ZAR T1 = Tariff Rate on Cereals (MFN) = 9.6%

V2 = Value Imported of Dairy Products (2012) = 1,440,767,970 ZAR T2 = Tariff Rate on Dairy Products (MFN) = 13.1%

V3 = Value Imported of Coffee and Tea Products (2012) = 1,647,918,080 ZAR T3 = Tariff Rate on Coffee and Tea (MFN) = 8.1%

-> Trade Weighted Average Tariff Rate = (T1V1+V2+T3V3)/(V1+V2+V3) à Trade Weighted Average Tariff Rate

= ((9.6%*10,530,550,610 ZAR) + (13.1%*1,440,767,970 ZAR) + (8.1%*1,647,918,080 ZAR)) /

(10,530,550,610 ZAR + 1,440,767,970 ZAR + 1,647,918,080 ZAR) à Weighted Overall Tariff Rate = (1,010,932,860 ZAR + 188,740,610 ZAR + 133,481,370 ZAR) / (13,619,236,660 ZAR) à Trade Weighted Average Tariff Rate = (1,333,154,840 ZAR) / (13,619,236,660 ZAR) à Trade Weighted Average Tariff Rate = 0.098 = 9.8%

Step 4- Overall effect of Tariffs on an Economy and Individual

The first step would be to find the overall impact of tariffs, over all goods in the economy, on your nation.  For this you will need to find the trade weighed average of all imports, available on the WTO Tariff Profile page mentioned above. Then you need to find the total value of all imports into your nation in a given year.  By multiplying the trade weighted tariff average by the total value of imports you get the total tariff revenue.  This tariff revenue is the loss to all consumers and producers in the economy.

To find the effects for each individual, or per capita, take the overall tariff revenue and divide it by the total population.

P =Population

TR = Tariff Revenue

TR/P = Overall Effects per Person

Example: Effects of Tariffs on the Overall South African Economy and on Individuals

Population of South Africa  = 51.19 million

Total Value of Imports (2012) = 831,042,671,470 ZAR

Trade Weighted Average Tariff = 5.9%

Overall Tariff Revenue = Total Value of Imports*Trade Weighted Average Tariff

TR = 831,042,671,470 ZAR*5.9%

TR = 49,031,517,600 ZAR

Overall Effects per Person = Overall Tariff Revenue/Population

Overall Effects per Person = 49,031,517,600 ZAR / 51,190,000 People

Overall Effects per Person = 957.84 ZAR per Year

Step 5- How to Calculate the Price of a Good without the Tariff

The price of an item before a tariff is important to know, as it is a figure that the general population can easily grasp.

The original price of a good is affected by the tariff, resulting in the after tariff price. This means that the tariff rate is not a percentage of the after tariff price, so a 7% tariff is not equal to 7% of the after tariff price.  The 7% tariff is equal to 7% of the original price.

Po = Price Before the Tariff             Pt = Price After Tariff             T = Tariff Rate

Po(1+T) = Pt à Po = (Pt/(1+T))

Example: Price of Milk in the United States without a Tariff

Tariff Rate = 19.1 % = 0.191  Price After Tariff = $2.99 Po(1+T) = Pt

Po = (Pt/(1+T))

Price Before the Tariff = $2.99 / (1 + 0.191)

Po = $2.99 / 1.191

Price of Milk before the Tariff in the U.S. = $2.51

How to Conduct Your own Research

A key step beyond looking up the facts on imports and prices would be to conduct research in your own community.  This would give you the greatest sense of how tariffs affect your society and everyday life.

While you cannot personally conduct economy wide studies, you can sample the people around you, especially the prices of the goods that they buy. To perform this task you would create a survey that asks for the prices of specific goods people buy, such as milk, fruit, and vegetables.  You should provide this survey to as many people as possible, and once you get at least ten to twenty responses you can calculate the average prices for the goods you selected.  You would calculate the average price by adding up the answers of cost of a specific good, say a gallon of milk, and divide by the number of answers.  So if you get twenty responses you add up the twenty prices of milk and then divide by twenty to get the average cost.

With the average cost of the item calculated you then look up the tariff rate from your countries WTO Tariff Profile at http://stat.wto.org/TariffProfile/WSDBTariffPFHome.aspx?Language=E.  Once you acquire the tariff rate that your country applies you can follow Step 5 above to calculate what the price of the good would cost to the average citizen before the tariff.  In the United States case every gallon of milk costs $0.48 more because of a tariff, this over time has a large affect on people.

Or taking the example from Step 2 one can calculate the effect that a single tariff has on the overall Economy.  To perform this step you would need to acquire the tariff rate and the value of imports in a given year of a specific good.  From the example above one can say the price on Ghanaian people from the government tariff on Dairy product totals around 35,294,490 GHS per year.  Or Ghanaian people are spending 16,208,806.41 USD than what they should have due to the government’s tariff on dairy products.

While the example focused on Ghana, one can use Step 2 for any tariff in any country, and laid out below is a sample way to conduct further research on the impacts of a tariff:

You probably want to do more research to make the case that lower tariff rate on diary product would benefit Ghanaian people:

–  What is the tariff rate on dairy products of other countries in the region?

Such information is available on WTO database:

You may find the average tariff rate on dairy products for Nigeria, Guinea, Algeria, Togo and South Africa are 18.8%, 12.9%, 22.4%, 16.3% and 13.1% (source:http://stat.wto.org/TariffProfile/WSDBTariffPFView.aspx?Language=E&Country=DZ,GN,NG,TG,ZA)

Therefore, you conclude the 20.0% tariff rate imposed on dairy products in Ghana remains one of the highest in the region.

– You could also try to gather more information on the demand and supply of dairy products in Ghana and Africa in general

-> One easiest way of doing that is to Google a series of key words such as: Ghana –Dairy Products-Consumption- 2013
-> You would usually get stories or reports written by industry related agencies or experts. For instance, one article from Kurt Davis Jr., an experienced private equity investor with experience in Sub-Saharan Africa and North Africa, has a recent article on African milk consumption. This might provide you with more data and insights to make your case (source: http://www.africa.com/blog/dairy-consumption-in-africa-part-1/)

For instance he wrote:

“Kenya leads the pack with 120 liters per capita annually for milk consumption, which is 89 liters below the recommended amount from the World Health Organization (WHO). Uganda, Tanzania, and Rwanda record anemic annual per capita consumption numbers of 53 liters, 42 liters, and 38 liters, respectively. Ethiopia consumes a measly 20 liters per capita, which is 180 liters below the recommended 200 liters.”

-> You may conclude: African consumption of milk and dairy products remains far below the level recommended by World Health Organization. You may further assume that this might correlate to a higher mortality rate of children under five and overall livelihood of the population. For more information and experts’ views, you can conduct interviews with some authorities from Universities, local health care groups, or hospitals.

He also wrote:

“According to the Dairy Development Manager for the Dairy Development Authority (DDA), Dr. Robert Wangoola, Uganda produces between 1.5 billion and 1.8 billion liters of milk annually, but only 10 percent to 15 percent of the milk is processed. With consumption levels hovering around 11-15 liters per capita annually in Ghana and Nigeria, capacity has yet to even be tested, particularly for the processed milk, which is a major differentiating factor.”

-> You may conclude: the annual consumption level of milk in Ghana is around 11-15 liters per capita, even lower than other countries in the region and significantly lower than the WHO standard. You may calculate the consumption in dollars per capita annually multiplying 11-15 liters to the average price of milk in the country.  In some countries where such data is not available from government database, you may conduct some field research by gathering price information from local super markets or grocery stores.

-> You may also want to find out the factors that have contributed to lower consumption: You can conduct some interviews with local consumers to learn about what proportion of their monthly/annual expenses are spent on milk or diary product and if they think the price for milk of acceptable health standard is reasonable in the country.  You may also conduct an interview with local or foreign expert in trade and agriculture to develop the better solutions to improve consumers’ benefits in dairy consumption through trade and capacity building.

How to Spread the Message

While calculating the costs from trade barriers is an important step, the culmination of your work will be in spreading the message of the benefits from free trade.  At Atlas we feel this is best done at a regional level, where local individuals best understand the intricacies of their situation.

These following steps outline the possible routes you can take to spread the benefits of free trade, and inform your country of its costs:

  • If you have connections with local people in the media, or press send them your findings about the losses from tariff barriers.
  • Reach out to your community online through blogs or social media sites.
  • Send emails to your supporters with your results, and encourage them to spread the knowledge.
  • Commission for further studies to provide in depth knowledge on certain  trade policy for publication