Tariff Escalation and Invasive Species Risk

sDFG means that IFG is small relative to DFG and also that DI and I are large other things being
equal. Hence the contribution of IFG to the externality gets smaller relative to the contribution of
I as the share sDFG gets larger. The larger initial tariff escalation (τIFG /τI large) and the higher
pest risk for the raw input relative to the processed final good (ZI/ZIFG large), the more likely the
condition will be satisfied and welfare will be improved by a decrease in tariff escalation.

Other extensions

The argument of Costello and McAusland on ambiguous effects of unilateral trade liberalization
could be the basis to relax the sufficient conditions underlying propositions 2 and 3. The basic
argument is that the externality may not increase when imports increase because the higher IS
risk is applied to a lower land base corresponding to a lower D. This argument could be applied
in our context of tariff escalation. Sufficient conditions established in propositions 2 and 3 could
be relaxed somewhat to account for the decrease in D induced by a lower tariff on raw inputs.
The potentially higher β is applied to a lower basis and may reduce the total externality if the
decrease in D offsets the impact of higher raw imports on the externality.

The analysis provided in this paper would also hold with some IS-related environmental
policies initially in place as long as the policies are not optimal, that is, a cost in the production
of D is not internalized. Parameter zI can be policy dependent and as long as it is not equal to
zero the cost is not fully internalized or the pest associated with imports is not fully eliminated.⁷
4. Conclusions

Our paper investigated the interface between trade and IS risk, and the impact of tariff escalation
in agricultural and food-processing markets on IS hazard and associated externalities. Tariff
escalation in processed agro-forestry products increases the risk of IS by biasing trade flows
toward primary commodity flows and against processed-product trade. We show that reductions
⁷ Having zI =0 does not invalidate our results but makes them a mute point focusing exclusively on tariff escalation.

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