Export Taxes, Industrial Policy and the Value Chain in China After WTO

Countries have long used import tari↵s as an instrument to stimulate or protect downstream industries; however, in the GATT/WTO era, tari↵s have fallen greatly worldwide. Has the WTO succeeded in limiting the prevalence of this class of industrial policy, or are governments still attempting to move downstream via other policy instruments? For countries with large raw materials endowments, one alternative to imposing import tari↵s on downstream industries is to impose export restrictions on upstream sectors. In this paper, I document such policy substitution in the case of an important recent WTO entrant: China. Defining China’s export taxes as the tax equivalent of its export VAT rebate policies and export duties, I find that declines in protection of downstream industries due to import tari↵ cuts associated with China’s WTO accession were partly o↵set by growth in export taxes on raw materials between 1999 and 2011. Rises in export taxes have been coordinated with changes in various other Chinese export policies, including prohibitions of exports via processing trade. I confirm that increases in export taxes are associated with declines in China’s exports in a↵ected industries and diversion of sales of raw materials to the domestic market.