# 5.3) Additional considerations

We highlight a series of additional practical considerations that UTAS users may find useful when planning their simulation exercises.

## Choice of modeling framework

The choice of modeling framework should be guided by two main considerations. First, for users predominantly interested in modeling the effects of a tariff reform on a few selected sectors, the choice of framework should consider the homogeneity and the tradability of these sectors. For tradable sectors that produce relatively homogeneous goods, the perfect pass‐through assumption of the product homogeneity is more suitable than for less homogeneous good that are more difficult to trade across borders (e.g. services). Second, data requirements are considerably higher for the product differentiation framework. Users are recommended to at least obtain domestic consumption shares for each sector before embarking on simulations under the product differentiation framework. This should also be combined with a careful sensitivity analysis based on alternative substitution and supply elasticities.

## Duty exemptions and duty drawback schemes

In many developing countries, duty on imported intermediate products is exempt to encourage exports. To ensure that the estimations in UTAS are accurate, the baseline tariff schedule should thus ideally reflect effective (i.e. actually collected) tariffs and not statutory (i.e. de jure) tariffs. An ‘effective’ tariff schedule can normally be constructed using customs transactions data, which report the amount actually collected for each transaction at the import stage. In some countries, however, exemptions are not granted at the import stage but in the form of duty drawback schemes for exporters. Data on such schemes are much more challenging to collect, making it more difficult to factor in drawback schemes. When comprehensive duty drawback schemes are in place, UTAS will most likely overestimate the size of upstream tariffs on downstream costs for exporting industries. Note, however, that in most developing countries duty drawback schemes tend to work imperfectly. There are also large implicit costs associated with using them. This diminishes the possibility of estimation bias in UTAS even when drawback schemes are in place pro‐forma.

## Preferential trade agreements

Preferential trade agreements (PTA) with one or various trading partners are among the most frequent trade reforms. UTAS does not explicitly allow for differential tariff treatment across countries. Instead it relies on the specification of an average effective tariff collected across all countries. To model the impact of a PTA, users will therefore have to establish the impact of the PTA on the average effective tariff for each product outside the UTAS environment. This can be done by assuming a constant import share from PTA‐affected trade partners and computing a corresponding pro‐rata reduction in the average tariff for each product on account of the PTA.<sup>16</sup>

## Restrictions of services trade

Trade restrictions of services trade are not explicitly considered in UTAS. Yet, if trade restrictions can be translated into ad‐valorem equivalents, they can, in principle, be considered in UTAS, but will require some prior manipulation of the pre‐set parameters of the tool. If this is done, UTAS will also consider services trade restrictions in calculating all trade‐related upstream costs on downstream sectors.

16 More advanced scenarios could also take into account trade diversion due to the PTA. This, however, would require knowledge on the substitution elasticity between the products of different origin.

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