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Sem 5 Prep
← Intl TradeModern trade in the era of sustainability

Formulas for this chapter

Carbon border levy

Levy per unit = (importing carbon price - foreign carbon price) x embodied emissions per unit

Whenever a question gives a carbon price and an emissions intensity. The foreign carbon price is credited, so an exporter that already pays the full price faces no levy. Then convert to an ad valorem equivalent by dividing by the product price.

Importing carbon price
Price per tonne of carbon dioxide paid by the importing country's own producers
Foreign carbon price
Carbon price already paid in the exporting country, per tonne of carbon dioxide
Embodied emissions
Tonnes of carbon dioxide per unit of the traded good

Ad valorem equivalent of any border charge

Ad valorem equivalent % = charge per unit / price per unit x 100

To compare a carbon levy, a compliance cost or a delay with the tariffs in the rest of the course. It is the only way to say whether a non-tariff measure is large or small.

Charge per unit
Money cost imposed on one unit of the good at the border
Price per unit
Price of the good, in the same currency

Gravity model response to a change in trade costs

New trade / old trade = old t / new t

For any TradeTech or compliance-cost question. Because trade is inversely proportional to t, divide the old index by the new one. A 20 per cent fall in t gives a 25 per cent rise in trade, not 20.

t
Bilateral trade costs, in index form

Combining two gravity effects

Combined factor = (old t / new t) x (1 + growth in Y)

When trade costs and economic mass both change. The gravity equation is a product, so proportional changes multiply: 1.25 x 1.10 = 1.375, a 37.5 per cent rise, not 35 per cent.

t
Bilateral trade costs
Growth in Y
Proportional change in the relevant country's economic mass, as a decimal

Regressivity of a fixed compliance cost

Burden % = fixed cost per consignment / consignment value x 100

For the inclusivity lens. Compute it for a large and a small consignment and quote the gap in percentage points: the same rule can be a 0.5 per cent tariff for one exporter and an 8 per cent tariff for another.

Fixed cost
Documentation, verification or compliance cost, independent of shipment size
Consignment value
Value of one shipment
Step 1 of 23
The ideaTheory

The container that waited three weeks for a stamp

A shipment of garments is loaded, sailed and unloaded in eighteen days. Then it sits in a port for three weeks while paperwork is checked by hand.

Nothing about the ship, the road or the tariff changed. The cost of the paperwork was the binding constraint.

This session is about technology that attacks that cost, and about a new kind of paperwork, carbon accounting, that is being added at the same time. Check against your class slides.

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