Georgi T. Gabrielyan

Job Market Paper

Economics of Import Duty and Excise Tax Drawback

Abstract: A trade policy subsidizing both imports into and exports out of a country at tax- payers’ expense is counterintuitive. The wine drawback policy has done exactly that. In 2003, the United States changed import duty and excise tax drawback policy for table wine by allowing wines produced in the United States to be used as matching eligible exports for “substitution” drawback purposes. The implementation of the new wine drawback regulation has been controversial largely because wine imports that are matched with commercially interchangeable exports effectively pay only one per- cent of the wine excise tax in the United States. In the U.S. market, these imports compete with wines produced in the United States that pay the full excise tax. This paper examines the effects of this new trade policy on wine trade patterns. We show that the degree to which the import duty and excise tax drawback stimulates imports relative to exports depends on the volume of accumulated imports of wine not yet claimed by eligible exports at the time of importing compared to the expectations of future exports of commercially interchangeable wine. The wine drawback policy has at times mostly stimulated imports and at times mostly stimulated exports. This “anti- local” trade policy subsidizes trade relative to domestic consumption of domestically produced wine, with complex consequences within domestic industry. Results from our conceptual model and econometric estimation show that the wine drawback policy contributed significantly to growth in both wine imports and exports, especially for bulk wine.

PUBLICATIONS

​Matthews, William A., Gabrielyan, Georgi T., Daniel H. Putnam, and Daniel A. Sumner (2016). “The Role of California and Western US Dairy and Forage Crop Industries in Asian Dairy Markets” International Food and Agribusiness Management Review 19(2):147-161

Gabrielyan, Georgi T., and Daniel A. Sumner (2015).“Port Slowdown Impacts California Agriculture.” ARE Update 18(4): 9-11. University of California Giannini Foundation of Agricultural Economics