The North American Industry Classification System (NAICS) spans 385 sectors and is the standard used by the US Bureau of Economic Analysis (BEA) in producing its I/O tables for the US economy. The advantage of NAICS is that it allows users to simulate the impact of upstream tariffs on a very detailed sector disaggregation. The disadvantage is that few countries will have I/O tables based on NAICS. However, policy makers may want to benchmark the impact upstream tariffs using a foreign I/O table as basis for their simulations to better reflect the input cost structure of industries operating at the technology frontier and with limited tariff distortion. In such cases, the use of a US I/O table with an NAICS sector disaggregation may come in handy.

The concordance table that is used to match NAICS sectors with HS product‐level codes is based on work by Pierce and Schott (2009) is available for download under the following link: <u>http://faculty.som.yale.edu/peterschott/sub_international.htm.</u>

## **<u>ISIC Revision 3 sectors</u>**

The International Standard Industrial Classification System (ISIC) covers 145 different sectors and is a widely used standard to classify productive activities. In countries that use specific classification systems, concordance tables between national and ISIC industry codes are often readily available. Users may therefore want to use national I/O tables as a basis for their simulations by first converting them into ISIC Rev. 3 classification.

The concordance table that is used to match ISIC sectors with HS product‐level codes is based on the ‘HS Combined to ISIC Rev3’ concordance table of the World Bank Integrated Trade Solution (WITS) software available here: https://wits.worldbank.org/product_concordance.html.

# 4.2) The UTAS simulation modules

UTAS includes four simulation modules that allow users to seek answers to four different policy questions related to the impact of tariffs on production costs. We discuss each in turn.

The _Tariff ranking_ module allows users to establish which tariff lines of the HS tariff schedule have a particularly large impact on the cost structure in a particular sector. Based on the concordance tables of the respective sector classification chosen by the user, this tool generates a ranking of tariff lines at the HS 6‐digit product level, where a top‐ranked product implies that the prevailing protection accorded to this product has a particularly large cost impact on a selected output sector. The module is therefore intended to provide policy makers with a quick overview of how the tariff schedule and production costs intertwine across different sectors. It does not, however, quantify the impact of a particular tariff on sector costs. This is left to the modules described below.

Second, the _Sim I_ module allows users to select a specific output sector i and analyze how a change in tariffs of sector i ’s ten most important input sectors would affect sector i ’s production costs. This is done in steps. A baseline upstream tariff for the selected sector i is first calculated in line with equation (1). The user can then consider an increase or a reduction in the tariffs on sector i ’s ten most important intermediate input sectors. UTAS subsequently calculates a new upstream tariff and a new effective protection rate based on the revised/simulated tariff schedule. The difference in the baseline and simulated figures is then used to establish the overall impact of the reform on sector i .

Third, rather than focusing on one priority sector alone, the _SIM II_ module allows policy makers to examine how revising a tariff on one or several intermediate input sectors affects costs and effective protection rates across all output sectors. The tool calculates baseline upstream tariffs and effective protection rates for all sectors based on the data uploaded to UTAS. Users can then modify the prevailing tariff on specific input sectors. New upstream tariffs and effective protection rates are subsequently calculated based on the simulated tariff schedule for all output sectors. The difference between baseline and simulated values is then used to assess the overall cost impact of the reform across different sectors.

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