Question

In 2017, Ukraine applied duties at rates between 0% and 60%, with an average rate of 10%. Imports into Ukraine are subject to a standard VAT (Value Added Tax) rate of 20%, levied on the sum of the CIF (Cost, Insurance, and Freight) value, duty, and excise duty if applicable. Some goods are subject to a reduced rate of 7%. In 2015, the current account deficit of the balance-of-payment amounted to only USD 204 million (0.2% of GDP), compared to a deficit of USD 4.6 billion (3.6% of GDP) in 2014. This improved situation was due to the fact that imports of goods during 2015 declined at a faster rate of 33.5% than the decline in exports of goods (-30.5%). The macroeconomics situation of Ukraine is expected to improve, according to The World Bank. Several policy makers have suggested the following trade reforms in an effort to promote growth and development in Ukraine:

1. Unilaterally taxing its wheat exports.

2. Forming a wheat-exporting cartel with Argentina, Australia and Canada, which are also major wheat exporters.

3. Choosing manufactures it could export (e.g. batteries), giving them a profitable home-market base protected by tariffs, and encouraging exports to other countries at competitive world prices.

In a short essay, comment on the merits and drawbacks of these proposed reforms (3 paragraphs).

Answer 1