A Study On The Application Of Tariff Internalization Theory In China

Trade policy is not only one of the main policies of the government to adjust its international economic activities, but also the main component of its economic policies. The trade policy is fully researched within international trade theory. Trational international trade theory thinks that the free trade policy can increase the world welfare to the largest extent as well as that of the country who exerts this policy. In fact, thereality has a great difference with the opinon of the traditional theory. Trade protactism can be seen everywhere, the trade barriers are becoming more and more popular, the trade conflicts happen frequently, the free trade policy is seldomimplemented in reality. As the mutually beneficial and free international trade is nowadays gradually accepted, discriminatory regional trade agreement is becoming the barrier for the global free trade. When choosing the trade policy, the government intends to protect the industries at home by tarrifs and non-tarrif barriers. Traditional international trade policy hardly can explain the phenomenon, as a result, the economists began to analyse the international trade policy from new perspectives, which genenratethe political economic theory.The political economic theory about the international trade learns from the public choice theory of the new political economic theory. It analyses the maker, operation system and strict terms of the procession of theinternational trade policy. In addition, it reasonably explains and analyses the existence, form, structure and evolution of trade distorting policy in reality, which is called "Endogenous Tariff Theory".The existing Endogenous Tariff Theory mostly analyses the trade policy’s making processof the developed countries such as the United States from political economic point of view based on the western political system, with mucheconometric analysis. Because of the fundamental difference of the political system and policy decision mechanism betweenChinaand western countries, the endogenous tariffs theory can not be directly applicable to the analysis of China’s trade policies. Therefore, it has great theoretical and practical significance to analyze the applicability of Endogenous Tariff Theory in China.Tariff becomes the trade cost of goods and articles into or out of China, whichaffects the relationship between the domestic market price and the supply and demand of goods. Thisleads to the allocation of resources and the change of domestic industrial structure.. In addition, it affects the behaviors and benefits of importers and exporters, and its related countries through the cross-border flow of goods. Specifically, tariff policy plays its role in fiscal income, industrial structure adjustment andincome distribution that consequently affect the country’s political and economic aspects.In terms of the Chinese political system and government process, the main political features of trade policy is:the leadership of the Chinese Communist Party in policy making process, the leadership of the Chinese Communist Party as the core of China’s political life, theleadership of Chinese Communist Party in accordance with the "overall, coordinating all" principle, with the highest status and the core of the policy decision process in China. The party and the government forms essentially "principal-agent"., Economic policies in China are made jointly, managed separately and implemented coordinately by many executive departments, whichleads to the situation of each department acting on its own. The democratic centralism is the organizational principle of the Communist Party of China and the government. The ultimate aim of its implementation is to reach a consensus or unanimity, a kind of "collective rationali-ty".In terms of the decision-making mechanism, the core leadership in economy and decision-making departments is the CPC Central Financial Work Leading Group. Many critical economic policies and goals start from resolutions and directives issued in the name of the Political Bureau or CPC Central Financial Work Leading Group, go into the legal process, and turn into the final policy of administrative departments (State Council). The decision-making mechanism of Chinaion-making ocess, is a process that involvesmany executive departments, such as the Tariff Commission of the State Council, Ministry of Finance,Ministry of Commerce, customs, the national development and Reform Commission.In the course of formulating the tariff policy in China, the domestic interest groups and the international political and economic pressure have a certain impact on government decision-making. Domestic interest groups includethe central government, local governments, domestic enter-prises, consumers. There are several ways to express the benefits and demands. The firstone is to submit proposals to the competent department or the National People’s Congress, the CPPCC. The benefitsand the demands can also be voiced through administrative litigation or participation in the hearing. Other ways can be through the views of interest groups, or lobbying the government by submitting letter or report, or even directly; or through the news media or the pressure of collective action.In terms of the influence from the international politics and economy, with the globalization of world economy, traditional closed decision-making mechanism in the international trade is not suitable for Chinese economi development. China’s tariff policy making will be affected by the framework of the multilateral trading system and regional trade arrangements, and the agreements signed by major trading partners.Along with the deep research on Chinese trade political economy theory, some scholars try to improve the existing mature models, to establish a theoretical model of Chinese characteristics. The paper introduces international political and economic factors to develop the model established by Sheng Bin (2002) and analyzes the decision making of China’s trade policy.Based on the theoretical model analysis, this paper analyzes the factors that influence China’s nominal tariff and tariff protection rate through an empirical test of the theoreticalmodel drawing on the data from22different industries in China. The empirical results show that the overall size of the industry, state-owned enterprises, foreign-funded enterprises have different impacts on the nominal tariff and tariff effective protection rate, which proves that China’s interest groups have exerted influence to some degree in tariff policy making. Thus, it can be concluded that Endogenous Tariff theory is applicative in China nowadays.