Piecemeal trade reform in partially
            liberalized economies : an evaluation for Turkey
Turkey undertook a major liberalization
            of trade policy in the 1980s. Import quotas disappeared, the
            Turkish lira was made convertible, and tariffs are generally
            lower. Those changes and the export subsidies that remain
            have removed the anti-export bias from Turkey's
            external incentive regime. Using a 40-sector computable
            general equilibrium model, the authors consider several more
            trade liberalization options available to the Turkish
            government. They conclude that uniformity of tariffs and
            export subsidies would substantially improve Turkey's
            welfare. Although the "Ramsey" optimal import
            taxation would call for non-uniform import taxes inversely
            proportional to the elasticity of import demand in each
            sector, the observed dispersion of tariff structure in
            Turkey is inconsistent with optimal departures from uniform
            protection. In fact, uniformity achieves an extremely high
            proportion of the benefits of full trade liberalization
            because, in the absence of a general anti-export bias, the
            principal distortion remaining in the trade regime derives
            from dispersion of the tariff and, especially the export
            subsidy structure. An increasing number of developing
            countries - including Chile, Indonesia, Mexico, and Poland -
            have in recent years undertaken extensive trade
            liberalization. It is no longer clear that these economies
            retain an anti-export bias in their trade regime. Perhaps
            the most important policy conclusion the authors reach is
            that one must be wary of advocating piecemeal reform of
            tariffs or export subsidies alone. Piecemeal
            across-the-board tariff reductions do not always improve
            welfare; they must generally be coordinated with reductions
            in export subsidies to ensure improved welfare. The authors
            counterfactually assume that Turkey's tariffs are at
            the 1985 level which reintroduces an anti-export bias of
            import tariffs. In this case, piecemeal tariff reduction to
            the 1989 level is beneficial. Even small export subsidies
            are not always beneficial, despite the rule of thumb that
            small export subsidies are a welfare-enhancing offset to the
            anti-export bias of import tariffs. Export subsidies in
            Turkey are highly dispersed, and piecemeal reductions in the
            export subsidies reduce that dispersion. When the authors
            counterfactually impose uniformity of tariffs and export
            subsidies, they note that small export subsidies are
            beneficial as a piecemeal policy for offsetting the
            anti-export bias. Policymakers in developing countries have
            occasionally applied export subsidies in individual sectors
            with high tariffs as a means of encouraging exports in a
            sector that may otherwise rely on the highly protected
            domestic market. The authors show that in Turkey high export
            subsidies in sectors with high tariffs are particularly
            counterproductive - because at the multisector level the
            distortion introduced by the export subsidy dominates the
            reduction in anti-export bias. Turkey's proposed policy
            of harmonizing its tariff to the European Community's
            (EC's) common external tariff would yield only small
            welfare changes. Harmonizing the EC tariffs will require
            lowering tariffs below already low levels, in the presence
            of export subsidies almost as large as the existing average
            effective tariff rate. However harmonizing to the EC tariff
            structure can be beneficial if at the same time export
            subsidies are removed or reduced.