To the extent that multilateral tariff reductions focus on indexed rates and not on applied rates, the effects of trade liberalization on revenues are mitigated, with African-linked rates tending to be significantly higher than applied rates (Baunsgaard et al., 2003). These results must be qualified. First, there is considerable uncertainty about supply elasticities and alternative elasticities between imports of preferential beneficiaries and imports from other countries. Second, although both studies focus only on exports, imports may also be affected by preference erosion (for example. B, the decline in clothing exports is leading to a decrease in textile imports). Third, the general equilibrium effects of preference erosion must be taken into account, as the exchange rate may very well depreciate in response to export losses. More importantly, multilateral liberalization leading to an erosion of preferences as a by-product is likely to result in overall welfare gains for current beneficiaries, although short-term adjustment costs may occur. Finally, to the extent that the effects of preference erosion constitute a permanent, often progressive and predictable shock, it can be effectively combated. Some net African food-importing countries could, of course, suffer trade losses. It is not clear whether and to what extent the increase in intra-SADC trade is due to South Africa`s accession to the SADC.
Where Xijt represents the country`s exports i to the country in the t-country, Cijt represents a series of variables that control the impact on bilateral trade, Dijt is a set of variables (binary) models designed to measure the incremental effect of the RTAs concerned, and μ is the notion of error. α, β and δ are coefficients to be estimated. A less common approach is to estimate the effects of diversion and trade on the basis of quantitative and price data at the detailed level of products and demand and supply elasticities required for partial balance analysis. See z.B. Krueger (1999c), Clausing (2001) and Romalis (2004). A “Hub and Spoke” structure refers to a number of commercial relations in which a dominant country (Hub) has at the same time separated RTAs with smaller countries (rays) which normally do not form RTAs between them – like a hub and spoke system in the air transport. Empirical studies indicate that appropriate support strategies reduce commercial revenue losses when they occur. First, trade liberalization must go hand in hand with increased indirect taxation. A two-year period has often been considered sufficient for the introduction of effective VAT in countries where the tax does not exist.
However, for countries with low tax administration, like many in Africa, the introduction of an effective VAT can take up to five years. Countries that already have VAT could mitigate revenue losses by improving their design. Second, an increase in personal and business income tax can allow both parties to derive revenue from increased income. Third, particular attention should be paid to strengthening the management of the broader tax system, for example by creating units for large taxpayers.