Trade Policy Production subsidies Available instruments Customs duties Import restrictions (global - MFN - quota) (attributed quota) Voluntary import restraints 4 3 2 1 Political ranking (democratic element) Finances TransparencyControl Published law or regulation Published administrative act Secret Budgetary expenditure State revenue Revenue for national producers Revenue for foreign producers Legislative and budgetary control Legislative control Discretionary powers (administration) Disretionay powers (administration) 2
Trade Policy Production subsidies Available instruments Customs duties Import restrictions (global - MFN - quota) (attributed quota) Voluntary import restraints Legal ranking (WTO) Allowed (subject to countervailing measures) Allowed up to the bound level (Schedules of tariff concessions) Prohibited subject to Exceptions Prohibited without Exception 3
What is a tariff ? A tariff is a customs duty or charge imposed by a government on the entry of goods into its territory. Usually, it is imposed when goods are cleared through customs for domestic consumption.
What are internal charges ? In GATT/WTO terms tariffs (ordinary customs duties) are different from internal taxes or charges such as sales tax, excise duty, or value-added taxes. It is permissible to impose internal taxes or charges on imported goods, so long as the amount of the tax or charge does not exceed that applied to like domestic goods. This requirement is often referred to as the national treatment principle (Article III of GATT 1994).
What are other duties and charges (ODCs)? GATT Article II:1(b) requires that goods that are subject to bound rates of duty shall be exempt from other duties and charges of all kinds in excess of the bound tariff rate. This requirement is necessary as the imposition of such charges, or their increase, tend to diminish the value of tariff bindings.
What are other duties and charges (ODCs)? In order to clarify the rights and obligations of Members in respect of other duties and charges, it has been agreed that such charges should be included in schedules of tariff concessions. This requirement is contained in the Understanding on the Interpretation of Article II:1(b) of GATT 1994. Where a duty or charge is included in a countrys schedule, it becomes bound at a maximum level. Any duty or charge omitted from a schedule may not be subsequently introduced.
Purpose of tariff government revenue economic development social objectives trade negotiating leverage
Why are tariffs better? Raise revenue for governments Imports can adjust to changes in demand and supply Rate of protection is known Allocation of access - transparency Rent-seeking costs minimised
Why are tariffs better? (contd) QRs –absolute protection –administrative mechanism –cost of protection benefits importers or exporters –incentive to import high value-added products –generally fixed by administration Tariffs –margin of protection –market mechanism –cost of protection benefits government –no particular incentive to import high value-added products –generally fixed by legislatures
Types of tariffs Ad valorem tariff Specific tariff or non-ad valorem tariff Alternative specific tariff Compound tariff Ad valorem equivalents (AVE)
Types of tariffs Ad valorem tariff: An ad valorem tariff is expressed as a percentage of the value for duty of goods imported. For example a duty of 10% means that the total duty payable on the goods would be 10% of the declared value of the goods. Value of the goods very important – under invoicing and over-invoicing where rates are high and if there are foreign exchange restrictions
Types of tariffs (contd) Specific tariff or non-ad valorem tariff: A specific tariff is expressed as a monetary amount per unit of quantity of the goods. Examples are: 5 cents per kilogram or $1.10 per litre Flat charge per unit or quantity of goods. –i.e. $500 per car or –5 cents per kg of sugar
Types of tariffs (contd) Alternative specific tariff: An alternative specific tariff uses either an ad valorem or a specific tariff, the rate payable being whichever rate returns the higher amount of duty.
Types of tariffs (contd) Compound tariff: A compound tariff combines a specific duty and an ad valorem tariff. In this case, both elements are payable. For example, 15 per cent plus $25 per tonne.
Types of tariffs (contd) Ad valorem equivalents (AVE): Where specific tariffs or compound tariffs are in force, it is often necessary to provide an AVE to enable tariffs to be compared or to measure compliance with an ad valorem tariff target. Specific tariffs, and mixed and compound tariffs are normally called non-ad valorem tariffs.
Types of tariffs (contd) Ad valorem equivalents (AVE): There are several ways to calculate an AVE for non-ad valorem Tariffs. Where data is available a relatively easy method is to express the amount of duty collected for the goods covered by the tariff line as a percentage of the value for duty of the goods. As an example, if the duty on a product was $3.50 per unit, and the total duty collected was $80,000 on imports of $175,000, the AVE may be calculated as: $80000/175000*100= 45.7%
AVEs Methodology to convert non-ad valorem duties (specific duties, compound duties etc.,) into ad valorem duties Easier to calculate ad-valorem duties, and more transparent Increases competition - specific duties tend to be immune to swings in world market prices. Even if world prices drop, exporter pays the same amount of duty The issue has been discussed extensively in the agriculture and NAMA negotiations – COMTRADE and IDB figures
Tariff bindings bound rates of duty unbound rates of duty ceiling bindings applied tariff rates
General Comments GATT/WTO rules do not specify which types of tariffs may be bound Most tariffs are bound on an ad valorem basis but examples of specific and alternative specific tariffs may also be found, reflecting national tariff practice. With the trend towards world trade liberalization, there has been a move away from the more complicated forms of tariffs in many countries. Trend reflected in WTO schedules of tariff concessions.
General Comments (contd) Ad valorem tariffs allow an easy comparison of rates between countries, or the changes to average tariffs within a particular country over a period of time. Non-ad valorem tariffs (specific tariffs, and mixed and compound tariffs) are less transparent than ad valorem duties and their protective effects are often hard to assess. In general, the protective effect of such tariffs increases as the cost of imported goods falls, compared with the effect of an ad valorem tariff.
General Comments (contd) Given the fact that it is mostly developing countries which produce cheap products, the impact of specific tariffs on their exports, are greater than on expensive products manufactured in developed countries. Thus, from developing countries point of view, they have more to gain if non-ad valorem tariffs are converted to ad valorem tariffs.
General Comments (contd) Alternative specific tariffs also lack clarity but they are particularly useful where the valuation of goods is often in dispute, for example, for used motor vehicles. Over the past decades, not only tariffs have been substantially reduced, but specific tariffs have also been eliminated considerably.
Tariff classification systems WTO members use the Harmonized Commodity Description and Coding System (HS) for tariff classification, in accordance with the International Convention of the World Customs Organization (WCO)
Customs valuation WTO recognizes that different methods of valuing goods for customs purpose may affect the amount of duty payable and thus, the value of tariff concessions. This issue is addressed in the WTO Customs Valuation Agreement.
Tariff schedules Tariff item number Description of product Base rate of duty (MFN treatment) Preferential rates Initial negotiating rights Other duties and charges (ODCs)
Traditional tariff negotiations Basic rules –substantial reduction of tariffs –reciprocity and mutuality –selective product-by-product negotiations (or bilateral item-by-item) –principle supplier rule –initial negotiating rights (INRs) –participation in MTN –multilateralization and assessment of bilaterally negotiated agreements –organization and procedures –statistics –role of developing countries –
Recent tariff negotiations New approaches - Formulae for general tariff cuts: –linear reduction formula –non-linear cut - harmonization formula (e.g. Swiss - Tokyo Round formula) –Tariff band approach
Recent tariff negotiations (contd) sectoral approach reduction targets (weighted average, zero) basic rules –differences to product-by-product negotiations –rules valid for both types of negotiations developing countries modalities can be specified for –reduction targets for product groups, and/or –on product by product basis
Renegotiations Renegotiations of bound concessions, modifications, and withdrawals (GATT Article XXVIII) –compensation –calculation of compensation –retaliation
Negotiating techniques Plurilateral and bilateral approaches of the multilateral tariff negotiations –plurilateral negotiations –bilateral negotiations
Negotiating techniques (contd) negotiating objective identification of key market and products –the effect of the MFN rule preparation of request list and concessions sought analysis of tariff requests received evaluation of offers received major suppliers –negotiations with substantial suppliers –minor suppliers
Negotiating techniques (contd) assessment of value of concessions offered –simple average reduction –trade weighted reduction revenue foregone data requirement and analysis
THE DDA NAMA NEGOTIATIONS Results of the Uruguay Round The Doha Mandate The Negotiating Issues
Tariffs Uruguay Round Reform Programme
Results 1986 1994 Binding Number of bound tariff lines Volume of bound trade Uruguay Round (1986 - 1994)
Results 1986 1994 Binding Number of bound tariff lines Volume of bound trade Developed countries 78 % 99 % 94 % 99 % Uruguay Round (1986 - 1994)
Results 1986 1994 Binding Number of bound tariff lines Volume of bound trade Developing countries 22 % 72 % 15 % 58 % Uruguay Round (1986 - 1994)
Sectoral Agreements in the Uruguay Round Zero for zeroHarmonization Agricultural equipmentChemicals Beer Construction equipment Distilled spirits Furniture Medical equipment Paper Pharmaceuticals Steel Toys
Special and Differential Treatment Developed countries reduce/eliminate barriers Developing countries lower levels of binding-ceiling bindings Special treatment for least developed GATT Part 4 Enabling Clause
The Doha Mandate Paragraph 16 of the Doha Ministerial Declaration (WT/MIN(01)/DEC/1): reduce or as appropriate eliminate tariffs including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation as well as non-tariff barriers in particular on products of export interest to developing countries
The Doha Mandate (cont'd) – Product coverage shall be comprehensive and without a priori exclusions The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants Including through less than full reciprocity in reduction commitments In accordance with the relevant provisions of Article XXVIII bis of GATT 1994 and the provisions cited in paragraph 50 of the Declaration
NAMA – Negotiating Issues The formula – Simple Swiss Formula with two co-efficients or a Swiss-type formula with variable co-efficients depending on the average tariff rates of Members Overwhelming support for the use of a simple swiss formula with two co-efficients Should co-effiecients be within sight of each other? Developed countries answer question in the affirmative, while most developing countries in the negative Proposals range from 5 to 30 per cent
NAMA – Other issues Paragraph 6 countries Treatment of unbound tariffs Flexibilities for developing countries – paragraph 8 LDCs, small economies etc Sectorals NTBs
Relevant NAMA Documents NGMA CHAIRS DRAFT – Amb. Girard TN/MA/W/35/Rev.1 GC CHAIRS DRAFT – Amb. Perez Castillo JOB(03)/150/Rev.1 MC CHAIRS DRAFT – Derbezs Text JOB(03)/150/Rev.2 Annex B of the August 2004 General Council WT/L/579; 2 August 2004 – Amb. Oshima Hong Kong Ministerial Declaration WT/MIN(05)/Dec; 22 December 2005 NGMA CHAIRS DRAFT JOB(06)/200/Rev.1; 26 June 2006 – Amb. Stephenson