degrees of aggregation (like a change of chapter) do not seem to have comparably strong effects. Of course these suggestive conclusions must be taken very cautiously as these instruments are in most cases used in combination with each other and their effects are only captured by dummy variables, making it difficult to draw inferences on their individual effects. However they are consistent with the casual observation that technical requirements can be easily manipulated by special interests, and suggest that broad reliance on a change of tariff classification as a one-size-fits-all origin criterion would be a more desirable direction to go.

# <u>Administrative Costs</u>

An alternative to the above is to use the R-index to carry out a non-parametric estimation of upper and lower bound estimates following inspiration from early work by Herin (1986) for EFTA. Table 4 summarizes the results of an exercise in Cadot et al. (2006b). By revealed preference, for headings with<sup>_u_</sup> _i_<sup>=</sup> 100% , the average _C_ preference margin,<sup>~~τ~~</sup> _i_<sup>, is an upper-bound,</sup> _cU_<sup>_C_</sup> , for compliance costs (as<sup>_c_</sup> _i_ cannot be greater than the preferential margin,<sup>τ</sup> _i_<sup>). Likewise, for headings with</sup><sup>_u_</sup> _i_<sup>=</sup> 0% , the preference margin gives a lower-bound estimate, _cL_<sup>_C_</sup> . For the remaining sectors with 0% <<sup>_u_</sup> _i_ < 100% , assumptions must be made. One could argue that, heterogeneity of firms notwithstanding, firms would be indifferent to exporting under the preferential regime. Then, an approximation of compliance costs would be given by the average rate of tariff preference computed for the remaining sectors, i.e. on the sample 0% <<sup>_u_</sup> _i_ < 100% . Applying this reasoning, we obtain the estimates in rows 1-3 in Table 4.

The R-index can then be used to breakdown the administrative cost component in total compliance costs. Ignore rents, i.e. (μ _i_ = 0 ) so that total compliance costs, _c_<sup>_C_</sup> , _D A_ are given by _ci_<sup>_C_</sup> = _ci_ + _ci_ , both expressed as a percentage of unit price. Assume that administrative costs would be negligible for firms on their participation constraint, i.e. for ( 0% <<sup>_u_</sup> _i_ < 100% ), provided that firms would also be confronted with low values of<sup>_r_</sup> _i_<sup>, i.e. values corresponding to a change of tariff classification at the</sup> subheading level, CS. This corresponds to<sup>_r_</sup> _i_ ≤ 2 (not much paperwork is involved in "proving" a change of subheading). Hence, calculating preference margins for utilization rates close to 100% (say<sup>_u_</sup> _i_<sup>=</sup> 95% or<sup>_u_</sup> _i_<sup>=</sup> 90% to be on the safe side when<sup>_r_</sup> _i_ ≤ 2 ), gives an upper bound of the distortionary component,<sup>_c_</sup> _i_<sup>_D_. These</sup> estimates are given in row 7.

As noted by Cadot et al., the rather large differences between the PANEURO and NAFTA estimates, especially when using unweighted data, suggest caution in interpreting these estimates since too much weight is probably given to outlier observations with small trade volumes. Nonetheless, the higher estimates for the EU are coherent with likely higher administrative costs (perhaps associated with certification), and ultimately with lower utilization rates.

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