Trade

Trade in MIRAGE-e 2 consists in two different Armington-like demand trees : one for final goods, one for intermediate goods. The separation between final and intermediade goods is done using the BEC classification, and allows to diffentiate between end use :

• The value of trade flow
• The tariff rate (due to aggregation)
• The NTM ad-valorem equivalent (due to aggregation)

Trade costs are of three different types in MIRAGE-e:

1. Tariffs
2. Purchasing of international transportation services
3. Non-tariff measures

Any trade cost is differentiated by end use (final versus intermediate consumption)

See The Transport Sector.

MIRAGE-e only uses information on the trade-restrictiveness of NTMs (no benefit is considered), using ad-valorem equivalents from:

• (Lionel Fontagné, Cristina Mitaritonna, José E. Signoret, 2016) in Services sectors
• (Hiau Looi Kee, Alessandro Nicita, Marcelo Olarreaga, 2009) in Goods.

It is hard to quantify what are the differences in treatment between flows within the EU and flows crossing the EU single market border. So far, we rely on different estimates:

• In goods: We use estimates of the EU frontier effect from (Vincent Aussilloux, Charlotte Emlinger, Lionel Fontagné, Houssein Guimbard, 2011)
• In services: We use estimates from (Koen G Berden, Joseph Francois, Saara Tamminen, Martin Thelle, Paul Wymenga, 2009) that evaluated the share of NTMs that were “actionnable” (i.e. likely to be reduced if there exist a political will) in the case of an EU-US trade agreement. We assume that all actionnable measures are absent between EU countries.

This reduction in trade costs between EU member states is implemented at the time of calibration.

Non-tariff measures (NTMs) can either be modelled as:

• an iceberg trade cost
• an export-tax equivalent (rent-generating)
• an import-tax equivalent (rent-generating)
• any split between the three alternatives

By default, in absence of specific knowledge about the best modelling assumptions, NTMs are assumed to be 1/3 iceberg, 1/3 export-tax equivalent, 1/3 import-tax equivalent.

In every region, the rents created by import-tax equivalent NTMs on imports and export-tax equivalents on exports are allocated to the representative household by a lump-sum transfer.

The different trade costs remain separated but are aggregated using “generalized” tariffs ($GnTariff^C_{i,r,s,t}$ and $GnTariff^{IC}_{i,r,s,t}$), export taxes ($GnTaxEXP^{C}_{i,r,s,t}$ and $GnTaxEXP^{IC}_{i,r,s,t}$) and iceberg trade costs ($GnTC^{C}_{i,r,s,t}$ and $GnTC^{IC}_{i,r,s,t}$). With the example of final goods :

• $ GnTC^C_{i,r,s,t} = 1 + tCost_{i,r,s,t} + shareNTM^{tCost}_{i,r,s}\left(tax{SER}^C_{i,r,s,t} + NTM^C_{i,r,s,t}\right) $
• $ GnTariff^C_{i,r,s,t} = Tariff^C_{i,r,s,t} + shareNTM^{Tariff}_{i,r,s} NTM^C_{i,r,s,t} $
• $ GnTaxEXP^C_{i,r,s,t} = tax{EXP}^C_{i,r,s,t} + tax{MFA}^C_{i,r,s,t} + shareNTM^{taxEXP}_{i,r,s} NTM^C_{i,r,s,t}$

Any trade policy scenario has therefore to be implemented directly on $Tariff^C_{i,r,s,t}$, $tCost_{i,r,s,t}$, $NTM^C_{i,r,s,t}$, $tax{SER}^C_{i,r,s,t}$ and $tax{EXP}^C_{i,r,s,t}$