– increases real resource costs for business.<sup>44</sup> He is careful to stress that the variable used – pricecost margins – is an imperfect measure as it captures only the net effect of policies, and that the results are only suggestive given the small sample size (a cross section of 18 countries).

Bradford (2005) is a more recent analysis of the impacts of distribution margins in eight OECD countries – defined as the ratio between the value of output in producer and consumer prices for 124 products. The focus is on deriving an estimate of the specific distribution margins (including wholesale/retail trade and transportation) by explicitly controlling for the impacts of trade barriers on producer prices. His estimates range from a low of around 60 (i.e., 60 cents to move a dollar worth of output measured at world prices) for Canada, the Netherlands, the UK and the US to a high almost 100 for Japan. He uses a CGE model for 4 of these countries to assess the welfare impacts of inflated margins, running an experiment in which margins are reduced to the lowest level observed in the sample for each of the 124 products. Bradford’s simulations suggest that inefficiencies in distribution reduce imports and impose substantial welfare costs, the magnitude of which is similar to that caused by border trade barriers. As is stressed in other CGE papers that analyze the impact of services policies, the extent to which inflated margins reflect excess costs or are captured by domestic agents as rents is important. In the 50-50 case (assuming half of the excess margin generates rents), the simulation generates an increase in real income (equivalent variation) of 1.7 percent.<sup>45</sup>

# _International maritime transport_

Another important intermediation service – especially for international trade in goods – is maritime shipping.<sup>46</sup> This remains an industry characterized by a toleration of imperfect competition, reflected in exemptions from antitrust law for liner conferences, cargo reservation schemes, restrictions on foreign ownership of ports, and bans on foreign participation in cabotage. In assessing the implications of imperfect competition in international shipping for the gains from trade in goods, Francois and Wooton -(2001b) have concluded that, at the extreme, monopolization of trade routes can lead to up to half the gains from trade liberalization being lost as shippers increase prices to take advantage of increased market power (which follows from tariff reductions). The basic idea here is that a chain of services is required to complete the transactions that turn exports into imports at the dock and goods in the store. “Bottleneck”

> conclusions.

> 44 Dee (2006) notes that although regulation may also create rents for incumbents, these are likely to become capitalized into the cost of land.

> 45 In a parallel paper, Bradford and Gohin (2006) calculate that a 10% reduction in Japan’s final goods distribution margins would benefit it as much as worldwide free trade would. In a finding similar to that of Konan and Maskus (2006), they also find that, compared to trade opening, reducing margins leads to smaller inter-sectoral production shifts and thus may engender less political opposition.

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