MEASURES AFFECTING THE MOVEMENT OF GOODS The most traditional focus of a trade ministry is on those policy instruments that regulate the m...
MEASURES AFFECTING THE MOVEMENT OF GOODS The most traditional focus of a trade ministry is on those policy instruments that regulate the movement of goods at the border. Tariffs are the most obvious of these tools, but they are of diminishing importance in many markets. Other matters affecting the movement of goods, such as customs procedures and basic infrastructure, are increasingly critical determinants of countries’ export competitiveness. 1. Tariffs Apart from exceptional cases such as Hong Kong (China), virtually all countries impose tariffs on imports. Some also employ export taxes, but these tend to be applied only to raw commodities that are exported by certain developing countries. Countries sometimes impose additional taxes, fees and other charges on imports, such as those associated with the processing of merchandise by customs officials. For the sake of simplicity, only traditional tariffs on goods will be examined here. Tariffs have been the most important tool of trade policy for centuries, and in many countries they remain a significant source of government revenue.
The legal commitments that some developing countries now make to reduce or even eliminate tariffs, whether on a bilateral or multilateral basis, are a relatively recent development. During most of the GATT period (1947–1994) few of these countries were contracting parties to the agreement, and most of those that were in GATT made minimal commitments. Most of their tariffs were unbound (i.e. there were no upper limits placed on the levels of their tariffs), their bound tariffs typically had a great deal of “water” in them (i.e. the bound level was well above the actual level at which tariffs were applied), and they rarely signed on to the non-tariff agreements emerging from a GATT round. That all changed in the Uruguay Round (1986–1994), in which most developing countries made significant commitments. Those negotiations, which coincided with the pro-market Washington Consensus and transformed GATT into WTO, also introduced the “single undertaking” as the basis for multilateral negotiations. That rule requires that all WTO members sign on to all of the agreements that emerge from a negotiating round. Commitments have been even deeper for those countries that acceded to WTO after 1995. Beyond their multilateral commitments, many developing countries have negotiated RTAs with one or more of the major economies. These agreements generally provide for the phase-out of most tariffs imposed on qualifying imports from partners to the agreement. The net result is that average tariff rates today are much lower than they were in past generations, both for developed and developing countries, but those averages mask significant variations among countries. This can be appreciated from the data in tables 10 and 11, which show the average most favoured nation Table 10. Relationship between non-agricultural tariffs and income, 2014 (Average GDP per capita for non-oil developing countries) Sources: Average tariffs from WTO (2015); GDP per capita calculated from World Bank data at http://data.worldbank.org/ indicator/NY.GDP.PCAP.CD. Notes: Tariffs are simple averages for applied MFN rates. Data for some countries refer to 2013. Low MFN tariffs 5.0% or less Medium MFN tariffs 5.1–10.0% High MFN tariffs 10.1% or more Africa Income: $9 117 Number: 1 Income: $3 453 Countries: 9 Income: $1 230 Countries: 32 Americas Income: $4 588 Countries: 7 Income: $9 185 Countries: 16 Income: $11 170 Countries: 6 Asia and the Pacific Income: $31 126 Countries: 7 Income: $5 979 Countries: 13 Income: $2 385 Countries: 8 Total Income: $17 274 Countries: 15 Income: $6 731 Countries: 38 Income: $2 727 Countries: 46 III. INSTRUMENTS OF TRADE POLICY 25 (MFN) tariffs imposed by non-oil developing countries on non-agricultural and agricultural products. As a general rule, the data confirm an inverse relationship between duty rate and income: Tariff barriers tend to be higher in the poorer countries and lower in the richer countries. Incomes are more than six times greater in the countries where average tariffs on nonagricultural tariffs are 5 per cent or less, as compared to those where these tariffs are greater than 10; the income multiple is larger still (7.7 times) when it comes to tariffs on agricultural products. These observations speak to important issues in the debate over trade and development. The data tend to follow the sequence whereby countries appear to calibrate their market-opening initiatives to the pace of their development. A proponent of free trade might go on to argue a more direct causation: The countries that open their markets the most are the ones that reap the greatest benefits. That may be too great a leap to make on the basis of a small amount of data, however, especially when considering the spottiness of the apparent pattern. The correlation between wealth and openness is not supported, for example, by the observations for developing countries in the Americas. Incomes in that region show a positive relationship with tariffs; this is especially true for nonagricultural tariffs, where incomes in the high-tariff countries are more than twice as high as they are in the low-tariff countries. A few outliers account for some, but certainly not all, of the difference. While GDP per capita in the Bahamas is an impressive $22,897, the average applied MFN tariffs in that country are 37.3 per cent for non-agricultural goods and 21.8 per cent Table 11. Relationship between agricultural tariffs and income, 2014 (Average GDP per capita for non-oil developing countries) Source: Average tariffs from WTO (2015); GDP per capita calculated from World Bank data at http://data.worldbank.org/ indicator/NY.GDP.PCAP.CD. Notes: Tariffs are simple averages for applied MFN rates. Data for some countries refer to 2013. Low MFN tariffs 5.0% or less Medium MFN tariffs 5.1–10.0% High MFN tariffs 10.1% or more Africa Income: $9 117 Number: 1 Income: $4 187 Countries: 5 Income: $969 Countries: 36 Americas Income: $6 122 Countries: 1 Income: $7 570 Countries: 5 Income: $8 749 Countries: 24 Asia and the Pacific Income: $42 328 Countries: 5 Income: $2 402 Countries: 5 Income: $4 775 Countries: 17 Total Income: $32 411 Countries: 7 Income: $4 720 Countries: 15 Income: $4 234 Countries: 77 for agricultural products. By contrast, in Haiti ($829 per capita income) these average tariffs were 4.2 per cent and 8.2 per cent , respectively. Beyond reviewing a country’s own tariff profile, and considering whether changes should be made to it, a TPF should examine in depth the tariff barriers that the country faces in its exports to actual and potential partners. To start with, what kind of access does the country enjoy to these markets? Is that access on a simple MFN basis, or is it preferential? Are those preferences autonomous on the part of the partner country (e.g. through a programme such as the Generalized System of Preferences), or are they reciprocal (i.e. in an RTA)?7 Are the preferences comprehensive, or are important products and sectors excluded? [T]he constraints and problems that inhibit export growth … arise in production, in moving goods and services across the border, and in export markets. A trade policy framework must therefore identify and tackle the constraints and problems faced by exporters at every stage of this process of production and distribution of goods and services for export. Trade Policy Framework: Zambia (2016) TPFs that review the market access enjoyed by developing countries, and especially the least developed countries, typically find that tariff barriers in the markets of developed partners are low or even non-existent for many products. This has long been true for raw materials, and today many manufactured exports of developing countries are eligible for reduced26 TRADE POLICY FRAMEWORKS FOR DEVELOPING COUNTRIES: A MANUAL OF BEST PRACTICES duty or duty-free entry through either preferential programmes or RTAs. There may nonetheless remain some important exceptions to that general rule, either for products that the country now exports or that it might export in the future. These exceptions need to be identified, quantified and analysed. A TPF should also review the costs and benefits of seeking to reduce or eliminate these remaining tariff barriers, whether through the negotiation of new trade agreements or through improvements to a partner’s preferential trade programmes. Those improvements might also entail reforms to a programme’s rules of origin, which are often written in ways that are difficult for developing countries to meet. A TPF will sometimes find that it is in a country’s interest to undertake its own tariff reforms on an autonomous basis. That can be based on assessment of whether the existing tariffs act as an impediment to the establishment or operation of national industries, typically by raising the costs of the capital equipment or inputs that they need to import. The TPF for Zambia, for example, proposed that applied MFN tariffs on most goods should be maintained at the current rates (ranging from zero to 25 per cent ), but that consideration should be given to binding tariffs on capital goods at zero so as “to allow firms to invest in new plants and equipment” (p.53)
. If a TPF proposes that a country seek to reduce or eliminate a tariff imposed by a partner country, it should do so in the context of a larger plan. It is generally not practical to ask that a specific partner eliminate a tariff on a single product, unless there are special mechanisms in place that provide for just such a move.8 If the country concerned aims to negotiate for the elimination of certain tariff barriers, it will typically need to do so either in WTO negotiations or in an RTA. If the TPF goes in that direction, it ought to be comprehensive in identifying the country’s offensive and defensive interests in a negotiation. Offensive interests are those commitments that a country seeks from its negotiating partners, while its defensive interests are shown in the country’s reluctance to make concessions in sensitive areas. The offensive interests of a country will typically be concentrated in those sectors for which it is more competitive than its partner, but that partner’s barriers are relatively high. Conversely, these may be the very same areas in which the partner’s defensive interests are highest. To find some arrangement that satisfies both sides, negotiators must exercise the art of compromise. Before these negotiators can even begin, however, they must first know their own interests — as well as those of their partner — in detail. That requires, as a first step, that they be armed with the necessary data on trade and the tariffs that each side imposes. A TPF should not only conduct such a review for any negotiations that it may contemplate, but also make recommendations designed to ensure that the country can perform similar calculations in any negotiations in which it may be engaged in the future.
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