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BRIEF January 29, 2020

The Upstream Tariff Simulator (UTAS)

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The Upstream Tariff Simulator (UTAS) helps policy makers assess the impact of tariff reforms on production costs and effective protection rates across a variety of sectors. Policy makers can use the simulator to understand how changing tariffs will impact firms operating in a particular country and sector.

How does UTAS work?

With UTAS, users can combine country-specific data across sectors with information on tariffs by HS code to quantify the impact of different tariff-reform scenarios. The tool can be operated in Microsoft Excel and allows users to specify different assumptions to gauge the impact of direct and indirect effects of tariff reforms.

What questions does UTAS help answer?

UTAS helps policy makers quantify the effects of tariff reforms on firms’ cost structures by seeking to answer three questions:

  • How much will the price of a particular input change in response to a tariff reform?
  • To what extent do indirect value-chain linkages need to be taken into account when assessing the price change of a particular intermediate input in response to a tariff reform?
  • How should different cost structures across sectors be taken into account in order to establish the impact of a tariff reform on a specific sector or industry?

UTAS provides a consistency framework that allows policy makers to address these questions in a coherent, flexible, and timely manner.

Why do upstream tariffs matter?

In modern production processes, the parts and components comprising a product are produced in multiple locations crossing borders multiple times before they are assembled into the final product. As a result, firms increasingly rely on imported inputs to produce a finished product.

For example, a car manufacturer relies on engines as an input, which may be produced by an upstream engine manufacturer. The engine manufacturer will, in turn, require steel from a steel producer further upstream. If governments introduced a tariff to protect steel manufacturing from international competition, the upstream engine manufacturer might need to pay more for steel. This could affect the costs of the car manufacturer if the engine manufacturer passes on the tariff-induced increase in the cost of steel by charging a higher price for engines.

When policy makers consider a change in the prevailing tariff structure, they will have to assess such direct and indirect effects on producers’ upstream costs along the value chain. This is complex, and depends on the competitive relationship between firms. To complicate things further, most production processes do not rely on one input alone, but instead require a whole range of inputs each affected by a different set of direct and indirect tariffs.

When value chains are global, tariffs can impact firms’ competitiveness in two ways. First, tariffs can increase the prices of imported inputs that are necessary to completing finished products. Second, tariffs levied on processed exports can reduce firms’ incentive to export.

Trade policy reform that reduces tariffs on upstream sectors can go a long way to improving firms’ competitiveness and helping them become more active in global value chains.

Resources

Download the UTAS package (.zip) 
This package includes the Microsoft excel-based tool together with a manual providing step-by-step instructions of how to operate the simulation tool.

Download Input-Output Tables (.zip) 
UTAS requires Input-Output tables to perform the simulations. UTAS can read Input-Output tables in either ISIC, NAICS or GTAP sector classification. This download includes Input-Output tables using GTAP classification for a set of countries.

Read the Methodology (.pdf) 
The methodology for simulating the effects of upstream tariffs is discussed in detail in this paper by Eberhard-Ruiz and Varela (2020)


Team Members

Gonzalo J. Varela
Senior Economist, World Bank Group
Andreas Eberhard
Economist, World Bank Group