# **4. Examples of Policy Issues that can be Addressed in TRIST**

As part of the process of development, countries tend to move towards more open economies and less reliance on customs duties as a source of revenue. An important issue in this transition is the short term adjustment costs in terms of fiscal revenue and domestic production and employment that can arise as low income countries liberalize their tariff schedules. A lack of knowledge of the likely magnitude of these adjustment costs can be a factor delaying the implementation of trade reforms. In this section, we will give some examples of how TRIST can be used to determine the likely size of these short term adjustment costs. We begin by focusing on the revenue implications and then move on to show how TRIST can be used to provide useful insights into the potential short-term impact of tariff reforms on domestic production and employment, poverty and trade diversion. In the following, we go through some examples of unilateral, bilateral and regional trade reforms that have been analyzed using TRIST.

# **4.1. The Core Focus of TRIST: Revenue Impact of Trade Reform**

TRIST has to date been developed for a range of countries, including many African countries and in particular countries participating in regional trade initiatives such as the Economic Community of Western African States (ECOWAS), the Southern African Development Community (SADC), the Southern African Customs Union (SACU), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA). We provide a few illustrative trade policy scenarios involving selected countries pertaining to one or more of these initiatives.

_Example 1: The COMESA Customs Union._ A pressing trade policy issue currently facing COMESA members is the impact of joining the customs union (CU). It is interesting to analyze what a customs union would imply for the revenue situation of different COMESA members. We choose three countries to analyze the impact of such a scenario, Malawi, Kenya and Zambia. The trade policy scenario is defined as follows: all the remaining non-zero intra-COMESA tariffs are set to zero. This implies assuming that a complete COMESA Free Trade Agreement (FTA) is put in place before the implementation of the customs union. Preferential tariffs with SADC members remain the same. The COMESA Common External Tariff (CET)<sup>17</sup> is applied to all remaining trading partners. However, in order to account for tariff exemptions, statutory tariffs in the CET schedule are multiplied by the current ratio of collection efficiency, i.e. the tariff revenue that has been collected divided by the revenue that should have been collected according to the current statutory rates.<sup>18</sup>

> elasticities, a 14.6 percent reduction when using the Kee et al (2004) estimated demand elasticities and a 14.3 percent reduction when using the SMART elasticities.

> 17 We use the COMESA CET schedule as of 24.10.2008.

> 18 To date, TRIST can only model tariff changes in a single importing market, whereas several importing markets simultaneously change when CETs are adjusted. We are currently working on extending TRIST in this respect.

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