Political economy of tariff unification: the case of Russia

During 2000–2001, the Russian government carried out a major reform of its tariff policy. The result was a partial liberalising tariff unification. The purpose of the reform was to generate additional budget revenues by limiting misclassification of higher-taxed imported goods as lower-taxed ones.

The author indicates that there are signs that the reform did in fact succeed in limiting import misclassification. The author states that the broader fiscal (as well as the overall welfare) consequences of the reform, however, are far from obvious and deserve special attention.

The paper points to three approaches to fight import misclassification:

• complete tariff unification
• partial tariff unification
• administrative control adoption.

The key findings of the paper are:

• administrative controls cannot solve the problem by themselves, as tariff misclassification typically proliferates in a corrupt administrative environment
• the most effective according to the author is complete tariff unification, as a single tariff rate eliminates any opportunity to profit through misclassification
• complete tariff unification requires a strong consensus among economic agents on tariff issues, and/or government immunity from private sector lobbying pressure, which is rarely the case in the real world
• the most reasonable option is partial tariff unification, as it allows some balancing among the interests of industrial lobbyists, the general population, and the government itself.

The paper reveals that the largest influence on Russian government tariff policy was the desire to increase budget revenues, followed by concern with the welfare of citizens. Political support and resource transfers from lobbying groups were the least influential factor.

The main conclusion of the paper is that there is still significant room for a further round of liberalising tariff unification, which may be a promising strategy to pursue during the adjustment period following Russia’s accession to the World Trade Organization.