3 Available instruments Trade Policy2Available instrumentsPolitical ranking (democratic element)FinancesTransparencyControl4Production subsidiesPublished law or regulationBudgetary expenditureLegislative and budgetary controlState revenueLegislative control3Customs dutiesPublished law or regulation2Import restrictions (global - MFN - quota) (attributed quota)Published administrative actRevenue for national producersDiscretionary powers (administration)1Voluntary import restraintsSecretRevenue for foreign producersDisretionay powers (administration)
4 Available instruments Trade Policy3Available instrumentsLegal ranking (WTO)Production subsidiesAllowed (subject to countervailing measures)Customs dutiesAllowed up to the bound level (Schedules of tariff concessions)Import restrictions (global - MFN - quota) (attributed quota)Prohibited subject to ExceptionsVoluntary import restraintsProhibited without Exception
5 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.
6 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).
7 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.
8 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 country’s schedule, it becomes bound at a maximum level. Any duty or charge omitted from a schedule may not be subsequently introduced.
9 Purpose of tariff government revenue economic development social objectivestrade negotiating leverage
10 Why are tariffs better? Raise revenue for governments Imports can adjust to changes in demand and supplyRate of protection is knownAllocation of access - transparencyRent-seeking costs minimised
11 Why are tariffs better? (cont’d) QRsabsolute protectionadministrative mechanismcost of protection benefits importers or exportersincentive to import high value-added productsgenerally fixed by administrationTariffsmargin of protectionmarket mechanismcost of protection benefits governmentno particular incentive to import high value-added productsgenerally fixed by legislatures
12 Types of tariffs Ad valorem tariff Specific tariff or non-ad valorem tariffAlternative specific tariffCompound tariffAd valorem equivalents (AVE)
13 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
14 Types of tariffs (cont’d) 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 litreFlat charge per unit or quantity of goods.i.e. $500 per car or5 cents per kg of sugar
15 Types of tariffs (cont’d) 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.
16 Types of tariffs (cont’d) 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.
17 Types of tariffs (cont’d) 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.
18 Types of tariffs (cont’d) 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%
19 AVEsMethodology to convert non-ad valorem duties (specific duties, compound duties etc.,) into ad valorem dutiesEasier to calculate ad-valorem duties, and more transparentIncreases competition - specific duties tend to be immune to swings in world market prices. Even if world prices drop, exporter pays the same amount of dutyThe issue has been discussed extensively in the agriculture and NAMA negotiations – COMTRADE and IDB figures
20 Tariff bindings bound rates of duty unbound rates of duty ceiling bindingsapplied tariff rates
21 General CommentsGATT/WTO rules do not specify which types of tariffs may be boundMost 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.
22 General Comments (cont’d) 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.
23 General Comments (cont’d) 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.
24 General Comments (cont’d) 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.
25 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)
26 Customs valuationWTO 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.
27 Tariff schedules Tariff item number Description of product Base rate of duty (MFN treatment)Preferential ratesInitial negotiating rightsOther duties and charges (ODCs)
28 Traditional tariff negotiations Basic rulessubstantial reduction of tariffsreciprocity and mutualityselective product-by-product negotiations (or bilateral item-by-item)principle supplier ruleinitial negotiating rights (INRs)participation in MTNmultilateralization and assessment of bilaterally negotiated agreementsorganization and proceduresstatisticsrole of developing countries
29 Recent tariff negotiations New approaches - Formulae for general tariff cuts:linear reduction formulanon-linear cut - harmonization formula (e.g. Swiss - Tokyo Round formula)Tariff band approach
30 Recent tariff negotiations (cont’d) sectoral approachreduction targets (weighted average, zero)basic rulesdifferences to product-by-product negotiationsrules valid for both types of negotiationsdeveloping countriesmodalities can be specified forreduction targets for product groups, and/oron product by product basis
31 RenegotiationsRenegotiations of bound concessions, modifications, and withdrawals (GATT Article XXVIII)compensationcalculation of compensationretaliation
32 Negotiating techniques Plurilateral and bilateral approaches of the multilateral tariff negotiationsplurilateral negotiationsbilateral negotiations
33 Negotiating techniques (cont’d) negotiating objectiveidentification of key market and productsthe effect of the MFN rulepreparation of request list and concessions soughtanalysis of tariff requests receivedevaluation of offers receivedmajor suppliersnegotiations with substantial suppliersminor suppliers
34 Negotiating techniques (cont’d) assessment of value of concessions offeredsimple average reductiontrade weighted reductionrevenue foregonedata requirement and analysis
35 THE DDA NAMA NEGOTIATIONS Results of the Uruguay RoundThe Doha MandateThe Negotiating Issues
40 Sectoral Agreements in the Uruguay Round Zero for zero HarmonizationAgricultural equipment ChemicalsBeerConstruction equipmentDistilled spiritsFurnitureMedical equipmentPaperPharmaceuticalsSteelToys
41 Special and Differential Treatment Developed countries reduce/eliminate barriersDeveloping countries lower levels of binding-ceiling bindingsSpecial treatment for least developedGATT Part 4Enabling Clause
42 The Doha MandateParagraph 16 of the Doha Ministerial Declaration (WT/MIN(01)/DEC/1):reduce or as appropriate eliminate tariffsincluding the reduction or elimination of tariff peaks, high tariffs, and tariff escalationas well as non-tariff barriersin particular on products of export interest to developing countries
43 The Doha Mandate (cont'd) Product coverage shall be comprehensive and without a priori exclusionsThe negotiations shall take fully into account the special needs and interests of developing and least-developed country participantsIncluding through less than full reciprocity in reduction commitmentsIn accordance with the relevant provisions of Article XXVIII bis of GATT 1994 and the provisions cited in paragraph 50 of the Declaration
44 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 MembersOverwhelming support for the use of a simple swiss formula with two co-efficientsShould co-effiecients be within sight of each other?Developed countries answer question in the affirmative, while most developing countries in the negativeProposals range from 5 to 30 per cent
45 NAMA – Other issues Paragraph 6 countries Treatment of unbound tariffs Flexibilities for developing countries – paragraph 8LDCs, small economies etcSectoralsNTBs
46 Relevant NAMA Documents NGMA CHAIR’S DRAFT – Amb. GirardTN/MA/W/35/Rev.1GC CHAIR’S DRAFT – Amb. Perez CastilloJOB(03)/150/Rev.1MC CHAIR’S DRAFT – Derbez’s TextJOB(03)/150/Rev.2Annex B of the August 2004 General CouncilWT/L/579; 2 August 2004 – Amb. OshimaHong Kong Ministerial DeclarationWT/MIN(05)/Dec; 22 December 2005NGMA CHAIR’S DRAFTJOB(06)/200/Rev.1; 26 June 2006 – Amb. Stephenson