The Equilibrium Under Destination-principled And Origin-principled BTA

Under the framework of GATT, export objects that allowed for border tax adjustment can only be indirect tax, while indirect tax is not allowed for border tax adjustments. Also, export objects that allowed for adjustments contain not only physical inputs but also chemical inputs. On the other hand, imports that allowed for border tax adjustment can only be indirect taxes, but here only contains the physical inputs, not chemical inputs. And, from the report of Experts on the dispute of European Union and the United States about the latter's Tax Law in 1972 "super fund amendments and enabling legislation," the import can not only be taxed directly but also be taxed indirectly. Thus, if China is to impose environmental tax for environmental protection, we can refund or exempt the tax borne by the inputs of exports, including not only physical inputs but also chemical inputs; imports can be taxed the same level as borne by the inputs of the same and like domestic products (only physical inputs).In that case, the tax borne by imports equals the amount of tax borne by inputs of the same and like domestic products. Consequently, it's consistent with "tax indirectly "under GATT Article 3,paragraph 2.Some studies show that when all products are levied the same tax rate, the change from the Origin to the Destination principle of BTA is neutral and will not affect the terms of trade. Because under the premise of flexibility of the exchange rate and price, when the change from the Origin to the Destination principle happens, the exchange rate and price will be self-adjusting then leaving trade flows unchanged. So changes in the tax base present neutral, and thus will not affect a country's trade.By introducing mathematical formulas, this paper depicts why two principles of BTA is equal in the following three situations:(1)fully competitive market, limited goods and factors supply and including transportation cost (2) imperfectly competitive market (3)money economy, with price and wage rigidity, and the exchange rate flexibility. In addition, it also depicts why the conversion of two principles of BTA is non-neutral in the following situations:such as a fixed exchange rate system, or non-uniform tax case. As a result, price, production and trade will be impacted that it will be impossible to achieve the balance. In addition, this paper compares the two situations:the affection on price and yield with border tax adjustment and without border tax adjustments, and existing foreign simulation results will be introduced to confirm the correctness of the theory.When it comes to the technical measures of border tax adjustments, we will need to consider the level of border tax adjustments as a reference for enforcement. When we implement the border tax adjustments, we should be not only subject to WTO and the SCM Agreement, but also to achieve economic effect, so the level of BTA is particularly important. This paper involves a detailed analysis of the carbon tax as an example of the technical level of BTA.The level should be the most available technology in the world. In addition, this paper includes further analysis of how to calculate CO2 emissions for each product, and how to carry out border tax adjustments for electricity as a special product.Unlike the United States and European countries, China has a managed floating exchange rate system.,which has led to the different impact of two principles of BTA on the allocation of resources. China's value-added tax and consumption tax is under the Destination principled BTA., namely, rebate tax for exports, and tax imports. Resources tax and environmental taxes (such as sewage charges) is under Origin principled BTA, which only contains the domestic production tax. So far, value-added tax is the only tax that can be regarded as the same for most goods, while the consumption tax, resources tax and environmental taxes are far different for different commodities.Therefore, according to the article's theory, for these three taxes, we can say the Destination principled BTA and Origin principled BTA t can bring different resource allocation.Then, for these three taxes, which principle of border tax adjustment is conducive to China's trade? The theory in this paper tells us that the Origin principle usually serve to decrease net exports(increase net imports) of any commodity which is taxed more heavily than the average. Conversely, the Origin principle usually serves increase net exports (decrease net imports) of any commodity which is taxed more lightly than the average.