SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK SEATRANET ADVANCED COURSE NON AGRICULTURAL MARKET ACCESS (NAMA) Module TARIFFS AND TARIFF STRUCTURES SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Outline of Module The WTO and Tariffs What is a Tariff? Elements of Tariff Structure Tariffs in Modern Trade Policy Developing Countries and the WTO SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK The WTO and Tariffs SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK The WTO and Tariffs • The WTO is based on five easy to understand principles : - Trade Without discrimination - Freer trade, gradually, through negotiations - Predictability, through binding and transparency - Promoting fair competition - Encouraging development and economic reform SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Trade Without Discrimination • Most favoured Nation (MFN) treatment – Embodied in GATT Article – Must treat all WTO members the same or as well as the most favoured member – Prohibits discrimination at the border based on the source of a product SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Trade Without Discrimination • A few MFN exceptions are permitted - Goods imported under free trade agreements (Article XXIV) - General waivers (Article XXV) - Better access for developing countries - To counteract unfairly traded products SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Trade Without Discrimination • National Treatment – Embodied in GATT Article III – Equal Treatment for domestic and foreign after they have entered the market goods SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Trade Without Discrimination • A few National Treatment exceptions are permitted – Article XX provides for general exceptions based on public morals, human and animal health, etc – Article XXI provides for exceptions based on national security SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Predictability Through Binding and Transparency • Binding: Each WTO member publishes its schedule of bound tariffs – Subject to some specific exceptions a “bound” tariff is a contractual undertaking: It is the maximum tariff permitted based on the GATT Actual (“applied”) tariffs can be lower, however • Transparency is now a basic principle of many WTO agreements, but greatest source is through the Trade Policy Review SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK • Encouraging Development and Economic Reform Part IV of the GATT deals specifically with Trade and Development – The Enabling Clause provides for discrimination in favour of developing and least developed countries – Interests of developing countries are clearly taken into account in GATT agreements and individual articles 10 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Post Uruguay Round Tariffs Applied Non Agricultural Indonesia # lines Simple average Maximum % Duty free 15%  3x average 6275 8.4 170 19.9 13.3 0.5 Philippines 4916 6.8 30.0 3.9 9.7 0.3 Thailand EU 5866 15.5 80 1.2 31.2 4.0 8217 4.3 26.0 16.7 0.8 1.3 US 8447 3.6 48 31.1 3.2 7.8 51 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK More Agreements • An agreement liberalizing trade in Information Technology Products (ITA) was negotiated in 1997 • The ITA eliminated all tariffs on an MFN basis • Approximately 40 participants Indonesia was a charter member • The other primary form of liberalization has been through regional agreements (article XXIV) • Approximately 300 regional agreements exist today 52 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Developing Countries and the WTO 53 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Market Access in Developing Countries • No formal WTO definition of developing countries, rather an informal grouping – Least developed countries (LDCS) are those in the UN list • Part IV of the GATT deals with Trade and Development – Most relevant element is the non-reciprocity principal where Developed countries not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of developing countries 54 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Market Access in Developing Countries • The “Enabling Clause” is the most important provision • It is a framework text that was negotiated during the Tokyo Round and was confirmed by the Contracting Parties and is now a part of “GATT 1994” • The Clause is divided into four parts 55 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK The Enabling Clause Part • Part is the “Generalized System of Preferences” (GSP) – GSP provides for preferential tariff rates charged by developed countries to products originating in a developing country – The GSP provides unilateral preferences to products from developing countries 56 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK G.S.P • Developed countries unilaterally decide on country and product coverage as well as the extent of the preference and rules of origin • Programs are usually limited in time and end unless they are reviewed and re-approved • Also unilateral in the sense that no negotiation of benefit in exchange from preferred countries is required 57 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK • Enabling Clause Part Part provides differential and more favourable treatment for developing countries with respect to provisions of non-tariff measures that have been negotiated multilaterally 58 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Enabling Clause Part • Part provides for regional or global arrangements entered into amongst lessdeveloped parties for the mutual reduction or elimination of tariffs on products imported from one another – Best example is the “Global System of Trade Preferences” (GSTP) among developing countries – Originally agreed upon by 48 countries, a new negotiation was launched at UNCTAD XI and is currently being negotiated 59 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK GSTP • The agreement is open to all members of the Group of 77 • Components include tariffs, para tariffs, non tariff measures and sectoral agreements • Special treatment is provided for the least developed countries, but otherwise there is no difference in treatment • The original Agreement was not effective However, current negotiations have potential 60 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Enabling Clause Part • Part provides for special treatment for the least developed among the developing countries in the context of any general or specific measures in favour of developing countries – Provides for potential LDC preferences in all WTO agreements and particularly for tariff preferences – Developed countries currently provide duty free treatment for most LDC products 61 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Outcome of Hong Kong WTO Ministerial • Developed and Developing countries wishing to so shall – “Provide duty-free and quota free market access on a lasting basis, for all products originating from all LDC’s by 2008 or no later than the start of the implementation period in a manner that ensures stability, security and predictability.” 62 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Outcome of Hong Kong WTO Ministerial Cont • Developed countries given flexibility to originally provide such access for 97% of tariff lines, but, must progressively lead to compliance – Clearly some products of LDC interest may, at least initially, be excluded and some developed countries may limit access of specific products from specific countries 63 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Preferences Under Waiver • The WTO permits the waiving of specific obligations under exceptional circumstances (Article IX:3 of the WTO Agreement) – A waiver requires a three-fourths majority of Members – Waivers are for a fixed period of time and are reviewed on an annual basis 64 SOUTH EAST ASIA TRADE POLICY TRAINING NETWORK Preferences Under Waiver • Examples of waivers to provide preferential treatment include – the EC/France Trading arrangements with Morocco, – The U.S Caribbean Economic Recovery Act and the ACP-EC Partnership Agreement • A 1999-2009 waiver permits developing countries to provide preferential treatment to LDC’s 65