3 May 2016
Vladimir Sokolov (Higher School of Economics, Moscow)
Emerging from the Shadows: Entrance to the WTO and Change in the Composition of the Declared Imports
Using the detailed Russian customs data for 2011-2013 that contains over 32 million observations of custom declarations, we study how the country’s entrance to the World Trade Organization (WTO) in 2012 influenced the composition of goods declared for imports. We hypothesize that the decrease of import tariffs that followed the WTO entrance resulted not only in the increase of the volume of imports but also changed the composition of goods declared for imports. Using the Spark-Interfax index of firms’ transparency we apply the difference-in-difference methodology to a sample of firms that imported goods affected by the tariffs reduction. We find that nontransparent (treated) firms reported significantly lower shares of high-taxed imported goods in the pre-WTO high tariffs environment while in the post-WTO period their reporting shares of goods that enjoyed tariffs reduction are not significantly different from those of the transparent firms. This evidence suggests that in high and differential tariff environment that characterized Russia prior to the WTO entrance nontransparent importers had an incentive to misclassify the imported goods and declare them as simple products in order to pay lower tariffs. The reduction of import tariffs in the post-WTO period decreases the importers’ incentive to do such product misclassification leading to a decrease of so-called “grey” imports.
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