The Reduction In Tariffs Since Inception Of Gatt And Wto International Law Essay
There are a number of ways of looking at the WTO. It’s an organization for liberalizing trade. It’s a forum for governments to negotiate trade agreements. It’s a place for them to settle trade disputes. It operates a system of trade rules.
Essentially, the WTO is a place where member governments go, to try to sort out the trade problems they face with each other. The first step is to talk. The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. The bulk of the WTO's current work comes from the 1986-94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the “Doha Development Agenda” launched in 2001.
Where countries have faced trade barriers and wanted them lowered, the negotiations have helped to liberalize trade. But the WTO is not just about liberalizing trade, and in some circumstances its rules support maintaining trade barriers — for example to protect consumers or prevent the spread of disease.
At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations. These documents provide the legal ground-rules for international commerce. They are essentially contracts, binding governments to keep their trade policies within agreed limits. Although negotiated and signed by governments, the goal is to help producers of goods and services, exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives.
The system’s overriding purpose is to help trade flow as freely as possible — so long as there are no undesirable side-effects — because this is important for economic development and well-being. That partly means removing obstacles. It also means ensuring that individuals, companies and governments know what the trade rules are around the world, and giving them the confidence that there will be no sudden changes of policy. In other words, the rules have to be “transparent” and predictable.
This is a third important side to the WTO’s work. Trade relations often involve conflicting interests. Agreements, including those painstakingly negotiated in the WTO system, often need interpreting. The most harmonious way to settle these differences is through some neutral procedure based on an agreed legal foundation. That is the purpose behind the dispute settlement process written into the WTO agreements.
1.2 THE BENEFITS OF WTO
1. The system helps promote peace
Peace is partly an outcome of two of the most fundamental principles of the trading system: helping trade to flow smoothly, and providing countries with a constructive and fair outlet for dealing with disputes over trade issues. It is also an outcome of the international confidence and cooperation that the system creates and reinforces.
History is littered with examples of trade disputes turning into war. One of the most vivid is the trade war of the 1930s when countries competed to raise trade barriers in order to protect domestic producers and retaliate against each others’ barriers. This worsened the Great Depression and eventually played a part in the outbreak of World War 2.
Two developments immediately after the Second World War helped to avoid a repeat of the pre-war trade tensions. In Europe, international cooperation developed in coal, and in iron and steel. Globally, the General Agreement on Tariffs and Trade (GATT) was created.
Both have proved successful, so much so that they are now considerably expanded — one has become the European Union, the other the World Trade Organization (WTO).
How does this work?
Crudely put, sales people are usually reluctant to fight their customers. In other words, if trade flows smoothly and both sides enjoy a healthy commercial relationship, political conflict is less likely.
What’s more, smoothly-flowing trade also helps people all over the world become well off. People who are more prosperous and contented are also less likely to fight.
But that is not all. The GATT/WTO system is an important confidence-builder. The trade wars in the 1930s are proof of how protectionism can easily plunge countries into a situation where no one wins and everyone loses.
The short-sighted protectionist view is that defending particular sectors against imports is beneficial. But that view ignores how other countries are going to respond. The longer term reality is that one protectionist step by one country can easily lead to retaliation from other countries, a loss of confidence in freer trade, and a slide into serious economic trouble for all — including the sectors that were originally protected. Everyone loses.
Confidence is the key to avoiding that kind of no-win scenario. When governments are confident that others will not raise their trade barriers, they will not be tempted to do the same. They will also be in a much better frame of mind to cooperate with each other.
The WTO trading system plays a vital role in creating and reinforcing that confidence. Particularly important are negotiations that lead to agreement by consensus, and a focus on abiding by the rules.
2. Disputes are handled constructively
There could be a down side to trade liberalization and expansion. More trade means more possibilities for disputes to arise. Left to themselves, those disputes could lead to serious conflict. But in reality, a lot of international trade tension is reduced because countries can turn to organizations, in particular the WTO, to settle their trade disputes.
Before World War 2 that option was not available. After the war, the world’s community of trading nations negotiated trade rules which are now entrusted to the WTO. Those rules include an obligation for members to bring their disputes to the WTO and not to act unilaterally.
When they bring disputes to the WTO, the WTO’s procedure focuses their attention on the rules. Once a ruling has been made, countries concentrate on trying to comply with the rules, and perhaps later renegotiating the rules — not on declaring war on each other.
Around 300 disputes have been brought to the WTO since it was set up in 1995. Without a means of tackling these constructively and harmoniously, some could have led to more serious political conflict.
The fact that the disputes are based on WTO agreements means that there is a clear basis for judging who is right or wrong. Once the judgement has been made, the agreements provide the focus for any further actions that need to be taken.
The increasing number of disputes brought to GATT and its successor, the WTO, does not reflect increasing tension in the world. Rather, it reflects the closer economic ties throughout the world, the GATT/WTO’s expanding membership and the fact that countries have faith in the system to solve their differences.
Sometimes the exchanges between the countries in conflict can be acrimonious, but they always aim to conform with the agreements and commitments that they themselves negotiated.
3. Rules make life easier for all
Decisions in the WTO are made by consensus. The WTO agreements were negotiated by all members, were approved by consensus and were ratified in all members’ parliaments. The agreements apply to everyone. Rich and poor countries alike have an equal right to challenge each other in the WTO’s dispute settlement procedures.
This makes life easier for all, in several different ways. Smaller countries can enjoy some increased bargaining power. Without a multilateral regime such as the WTO’s system, the more powerful countries would be freer to impose their will unilaterally on their smaller trading partners. Smaller countries would have to deal with each of the major economic powers individually, and would be much less able to resist unwanted pressure.
In addition, smaller countries can perform more effectively if they make use of the opportunities to form alliances and to pool resources. Several are already doing this.
There are matching benefits for larger countries. The major economic powers can use the single forum of the WTO to negotiate with all or most of their trading partners at the same time. This makes life much simpler for the bigger trading countries. The alternative would be continuous and complicated bilateral negotiations with dozens of countries simultaneously. And each country could end up with different conditions for trading with each of its trading partners, making life extremely complicated for its importers and exporters.
The principle of non-discrimination built into the WTO agreements avoids that complexity. The fact that there is a single set of rules applying to all members greatly simplifies the entire trade regime.
And these agreed rules give governments a clearer view of which trade policies are acceptable.
4. Freer trade cuts the costs of living
Protectionism is expensive: it raises prices. The WTO’s global system lowers trade barriers through negotiation and applies the principle of non-discrimination. The result is reduced costs of production (because imports used in production are cheaper) and reduced prices of finished goods and services, and ultimately a lower cost of living.
There are plenty of studies showing just what the impacts of protectionism and of freer trade are. These are just a few figures:
Food is cheaper
When you protect your agriculture, the cost of your food goes up — by an estimated $1,500 per year for a family of four in the European Union (1997); by the equivalent of a 51% tax on food in Japan (1995); by $3 billion per year added to US consumers’ grocery bills just to support sugar in one year (1988).
Negotiating agricultural trade reform is a complex undertaking. Governments are still debating the roles agricultural policies play in a range of issues from food security to environmental protection.
But WTO members are now reducing the subsidies and the trade barriers that are the worst offenders. And in 2000, new talks started on continuing the reform in agriculture. These have now been incorporated into a broader work programme, the Doha Development Agenda, launched at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001.
Clothes are cheaper
Import restrictions and high customs duties combined to raise US textiles and clothing prices by 58% in the late 1980s.
UK consumers pay an estimated £500 million more per year for their clothing because of these restrictions. For Canadians the bill is around C$780 million. For Australians it would be A$300 annually per average family if Australian customs duties had not been reduced in the late 1980s and early 1990s.
The textiles and clothing trade is going through a major reform — under the WTO — that will be completed in 2005. The programme includes eliminating restrictions on quantities of imports.
If customs duties were also to be eliminated, economists calculate the result could be a gain to the world of around $23 billion, including $12.3 billion for the US, $0.8 billion for Canada, $2.2 billion for the EU and around $8 billion for developing countries.
The same goes for other goods
When the US limited Japanese car imports in the early 1980s, car prices rose by 41% between 1981 and 1984 — nearly double the average for all consumer products. The objective was to save American jobs, but the higher prices were an important reason why one million fewer new cars were sold, leading to more job losses.
If Australia had kept its tariffs at 1998 levels, Australian customers would pay on average A$2,900 more per car today. In 1995, aluminium users in the EU paid an extra $472 million due to tariff barriers.
One of the objectives of the Doha Development Agenda (DDA) is another round of cuts in tariffs on industrial products, i.e. manufactured and mining products. Some economists, Robert Stern, Alan Deardorff and Drusilla Brown, predict that cutting these by one third would raise developing countries’ income by around $52 billion.
Liberalization in telephone services is making phone calls cheaper — in the 1990s by 4% per year in developing countries and 2% per year in industrial countries, taking inflation into account.
In China, competition from a second mobile phone company was at least part of the reason for a 30% cut in the price of a call. In Ghana the cut was 50%.
The group of economists led by Robert Stern estimates that lowering services barriers by one third under the Doha Development Agenda would raise developing countries’ incomes by around $60 billion.
And so it goes on. The system now entrusted to the WTO has been in place for over 50 years.
In that time there have been eight major rounds of trade negotiations. Trade barriers around the world are lower than they have ever been in modern trading history. They continue to fall, and we are all benefiting.
5. It provides more choice of products and qualities
Think also of the things people in other countries can have because they buy exports from us and elsewhere. Look around and consider all the things that would disappear if all our imports were taken away from us. Imports allow us more choice — both more goods and services to choose from, and a wider range of qualities. Even the quality of locally-produced goods can improve because of the competition from imports.
The wider choice isn’t simply a question of consumers buying foreign finished products. Imports are used as materials, components and equipment for local production.
This expands the range of final products and services that are made by domestic producers, and it increases the range of technologies they can use. When mobile telephone equipment became available, services sprang up even in the countries that did not make the equipment, for example.
Sometimes, the success of an imported product or service on the domestic market can also encourage new local producers to compete, increasing the choice of brands available to consumers as well as increasing the range of goods and services produced locally.
If trade allows us to import more, it also allows others to buy more of our exports. It increases our incomes, providing us with the means of enjoying the increased choice.
6. Trade raises incomes
The WTO’s own estimates for the impact of the 1994 Uruguay Round trade deal were between $109 billion and $510 billion added to world income (depending on the assumptions of the calculations and allowing for margins of error).
More recent research has produced similar figures. Economists estimate that cutting trade barriers in agriculture, manufacturing and services by one third would boost the world economy by $613 billion — equivalent to adding an economy the size of Canada to the world economy.
In Europe, the EU Commission calculates that over 1989–93 EU incomes increased by 1.1–1.5% more than they would have done without the Single Market.
So trade clearly boosts incomes.
Trade also poses challenges as domestic producers face competition from imports. But the fact that there is additional income means that resources are available for governments to redistribute the benefits from those who gain the most — for example to help companies and workers adapt by becoming more productive and competitive in what they were already doing, or by switching to new activities.
7. Trade stimulates economic growth
This is a difficult subject to tackle in simple terms. There is strong evidence that trade boosts economic growth, and that economic growth means more jobs. It is also true that some jobs are lost even when trade is expanding. But a reliable analysis of this poses at least two problems.
First, there are other factors at play. For example, technological advance has also had a strong impact on employment and productivity, benefiting some jobs, hurting others.
Second, while trade clearly boosts national income (and prosperity), this is not always translated into new employment for workers who lost their jobs as a result of competition from imports.
8. The basic principles make life more efficient
Trade allows a division of labour between countries. It allows resources to be used more appropriately and effectively for production. But the WTO’s trading system offers more than that. It helps to increase efficiency and to cut costs even more because of important principles enshrined in the system.
Imagine a situation where each country sets different rules and different customs duty rates for imports coming from different trading partners. Imagine that a company in one country wants to import raw materials or components — copper for wiring or printed circuit boards for electrical goods, for example — for its own production.
It would not be enough for this company to look at the prices offered by suppliers around the world. The company would also have to make separate calculations about the different duty rates it would be charged on the imports (which would depend on where the imports came from), and it would have to study each of the regulations that apply to products from each country. Buying some copper or circuit boards would become very complicated.
That, in simple terms, is one of the problems of discrimination.
Imagine now that the government announces it will charge the same duty rates on imports from all countries, and it will use the same regulations for all products, no matter where they come from, whether imported or locally produced. Life for the company would be much simpler. Sourcing components would become more efficient and would cost less.
Non-discrimination is just one of the key principles of the WTO’s trading system. Others include:
transparency (clear information about policies, rules and regulations);
increased certainty about trading conditions (commitments to lower trade barriers and to increase other countries’ access to one’s markets are legally binding);
simplification and standardization of customs procedure, removal of red tape, centralized databases of information, and other measures designed to simplify trade that come under the heading “trade facilitation”.
Together, they make trading simpler, cutting companies’ costs and increasing confidence in the future. That in turn also means more jobs and better goods and services for consumers.
9. Governments are shielded from lobbying
One of the lessons of the protectionism that dominated the early decades of the 20th Century was the damage that can be caused if narrow sectoral interests gain an unbalanced share of political influence. The result was increasingly restrictive policy which turned into a trade war that no one won and everyone lost.
Superficially, restricting imports looks like an effective way of supporting an economic sector. But it biases the economy against other sectors which shouldn’t be penalized — if you protect your clothing industry, everyone else has to pay for more expensive clothes, which puts pressure on wages in all sectors, for example.
Protectionism can also escalate as other countries retaliate by raising their own trade barriers. That’s exactly what happened in the 1920s and 30s with disastrous effects. Even the sectors demanding protection ended up losing.
Governments need to be armed against pressure from narrow interest groups, and the WTO system can help.
The GATT-WTO system covers a wide range of sectors. So, if during a GATT-WTO trade negotiation one pressure group lobbies its government to be considered as a special case in need of protection, the government can reject the protectionist pressure by arguing that it needs a broad-ranging agreement that will benefit all sectors of the economy. Governments do just that, regularly.
10. The system encourages good government
The rules include commitments not to backslide into unwise policies. Protectionism in general is unwise because of the damage it causes domestically and internationally, as we have already seen.
Particular types of trade barriers cause additional damage because they provide opportunities for corruption and other forms of bad government.
One kind of trade barrier that the WTO’s rules try to tackle is the quota, for example restricting imports or exports to no more than a specific amount each year.
Because quotas limit supply, they artificially raise prices, creating abnormally large profits (economists talk about “quota rent”). That profit can be used to influence policies because more money is available for lobbying.
It can also provide opportunities for corruption, for example in the allocation of quotas among traders. There are plenty of cases where that has happened around the world.
In other words, quotas are a particularly bad way of restricting trade. Governments have agreed through the WTO’s rules that their use should be discouraged.
Nevertheless, quotas of various types remain in use in most countries, and governments argue strongly that they are needed. But they are controlled by WTO agreements and there are commitments to reduce or eliminate many of them, particularly in textiles.
Many other areas of the WTO’s agreements can also help reduce corruption and bad government.
Transparency (such as making available to the public all information on trade regulations), other aspects of “trade facilitation”, clearer criteria for regulations dealing with the safety and standards of products, and non-discrimination also help by reducing the scope for arbitrary decision-making and cheating.
Quite often, governments use the WTO as a welcome external constraint on their policies: “we can’t do this because it would violate the WTO agreements”.
UNFAIR IMPLEMENTATION OF WTO PRINCIPLES
A crucial issue in this debate is what we mean by fair. In general two interpretations seem to predominate:
'Negative' fairness: this means (potential) equal access for countries, equal status in trade disputes etc, i.e. no special treatment for anyone.
'Positive' fairness: actual equality between countries in negotiations, treatment etc. (Note this terminology is not suppose to indicate any preference but follows a distinction of Isaiah Berlin in reference to negative and positive forms of liberty)
Thus 'Negative' fairness is more about the rules and 'Positive' fairness is more about what actually happens. For example while all countries are entitled to have a representative on the General Council of the WTO many poor countries cannot always afford adequate representation .Similarly while all countries in theory negotiate on the level in reality there is a large difference between a country that can afford a large team of negotiators and experts and a poor country that can afford only one person. In both these cases the WTO is 'negatively' fair but is not 'positively' fair.
This is the case in general. The WTO is strongly committed to creating a level (free trade) playing field. WTO principles include 'Trade without Discrimination' and 'Promoting Fair Competition', and the WTO has rules to prevent unfair behaviour like dumping. If the WTO does explicitly favour any group it should only be poor and undeveloped countries that are being assisted. However there are several examples where the WTO (through design of policy or implementation or both) signally fails to even be 'negatively' fair and in fact favours a particular group (often the better off, developed countries). For example:
Agriculture - This is probably the most blatant violation of the WTO principles. WTO Agreement on Agriculture commits governments 'to improve market access and reduce trade-distorting subsidies in agriculture. However a combination of pressure when the agreement was written and manipulation since mean that the world market in agricultural commodities is not fair at all but is actually heavily slanted in favour of the rich northern countries. In particular while many poorer countries have liberalized and removed subsidies (sometimes with disastrous consequences) the US and the EU have not. For example in 1995 OECD countries spent $182 billion subsidising agriculture and a OECD report in 2000 put US, EU and Japan subsidy rates at $20,000 a farmer. For details and a more substantial analysis see the relevant section of the CAFOD article on Food Security and the WTO. Finally it is worth remarking that the AoA was actually supposed to be slanted towards worse off countries and to benefit them considerably. World commodity prices were supposed to rise and the EU and US proportion of the world market was supposed to drop thus benefiting Southern producers. Neither of these outcomes has been achieved and the benefits of the AoA seem dubious at best.
Multi-Fiber-Agreement (MFA) and the Agreement on Textiles and Clothing (ATC) - pre-WTO and from 1974-1994 clothing quotas were negotiated bilaterally and governed by the MFA. As is clear from the word quota the world of trade in clothing and textiles was most definitely not one of free trade. Given that it is often developing countries that wish to export textiles they were often the losers from this arrangement. The ATC is a transitional agreement running from 1994 to 2004 and is supposed to govern a changover period in which textiles and clothing are progressively incorporated into the GATT's framework. In doing so it perpetuates (but to a lesser extent) the protectionist legacy of the MFA.
2.0 HISTORY OF GATT
The General Agreement on Tariffs and Trade (GATT) is a multilateral accord, subscribed to by 115 governments. (However, 117 countries participated in the most recent negotiating round.) Together, these countries account for more than 90 percent of world trade. The basic aim of the GATT is to liberalize world trade and place it on a secure basis, contributing to economic growth and development.
Established in 1948, the GATT is the only multilateral organization that lays down agreed-upon rules for international trade. It also functions as the principal international body concerned with multilaterally negotiating the reduction of trade barriers and other measures that distort competition. So GATT is both a code of rules and a forum in which countries can discuss and resolve their trade disputes and negotiate to enlarge world trading opportunities.
The rules of the GATT are set out in the form of a contract. Nations that join the GATT, referred to as contracting parties, have an obligation to carry out the rules and have the right to seek action against other members who fail to keep the rules. The GATT is not a government, individual countries maintain their ability to determine how they will make national laws that conform to their international obligations under the accord. The GATT organization is headquartered in Geneva, Switzerland, and has a permanent staff to help interpret its trade rules, monitor members' policies, settle disputes and conduct trade negotiations.
Since its inception, countries have used the GATT to initiate rounds of negotiations to deal with the major problems of international trade. Over its history, the GATT has sponsored eight rounds of multilateral trade negotiations. The early rounds addressed key trade policy issues of their time, namely the reduction of tariffs on industrial goods and the establishment of clear rules for governmental regulation of world trade. Significant progress was made in both of these areas, but the rules provided special provisions for agriculture that limited the effectiveness of GATT disciplines.
In the 1960s, attempts were made to bring agriculture and other sectors beyond manufacturing under GATT discipline, as well as to address the emergence of nontariff barriers to trade. The Dillon Round (1 960-62) concluded without significant progress in agriculture, except that the United States gained duty-free bindings on soybeans, linseed, flaxseed, oilseed meal and cotton into the European Community (EC), which as of 1994 is referred to as the European Union (EU). These commitments from the EC were of tremendous importance to U.S. agriculture.
In 1963-67, the Kennedy Round attempted to liberalize trade in agriculture, and the differences between the two big players were clear: The United States wanted to bring agriculture under the rules applicable to industrial products; the EC wanted to exclude it. The round resulted in the creation of the International Wheat Council and some small tariff concessions on agricultural products.
In 1973-79, the Tokyo Round again tackled agriculture, and again the United States and the EC were on opposite sides. The United States wanted agriculture included under the same disciplines as the industrial sector; the EC wanted it separate. While no pact was reached on agriculture, the Tokyo Round achieved several codes on subsidies, import licensing and technical standards applicable to agricultural trade.
The Uruguay Round (1986-94) was the most ambitious round of GATT negotiations. It began in the face of an increasing number of serious problems with agricultural trade. Subsidy-induced overproduction by some countries led to an increased use of export subsidies, which were displacing efficient producers from their traditional export markets. At the same time, nontariff barriers were increasingly being used to distort trade. Other sectors of the world economy also needed international discipline, including services, patents (and other intellectual property rights) and textiles. Negotiators recognized that comprehensive trade reform was needed, with agriculture at the forefront.
After seven years of negotiations, the GATT reached an agreement on December 15,1993. With the approval of member governments, the agreement is scheduled to take effect in 1995. Formal signing of the agreement took place on April 15, 1994, in Marrakech, Morocco.
3.0 THE DIFFERENCE BETWEEN TARIFFS AND NON TARIFFS BARRIERS
Tariffs, which are taxes on imports of commodities into a country or region, are among the oldest forms of government intervention in economic activity. They are implemented for two clear economic purposes. First, they provide revenue for the government. Second, they improve economic returns to firms and suppliers of resources to domestic industry that face competition from foreign imports.
Tariffs are widely used to protect domestic producers’ incomes from foreign competition. This protection comes at an economic cost to domestic consumers who pay higher prices for import competing goods, and to the economy as a whole through the inefficient allocation of resources to the import competing domestic industry. Therefore, since 1948, when average tariffs on manufactured goods exceeded 30 percent in most developed economies, those economies have sought to reduce tariffs on manufactured goods through several rounds of negotiations under the General Agreement on Tariffs Round of negotiations were trade and tariff restrictions in agriculture addressed. In the past, and even under GATT, tariffs levied on some agricultural commodities by some countries have been very large. When coupled with other barriers to trade they have often constituted formidable barriers to market access from foreign producers. In fact, tariffs those are set high enough can block all trade and act just like import bans.
A tariff-rate quota (TRQ) combines the idea of a tariff with that of a quota. The typical TRQ will set a low tariff for imports of a fixed quantity and a higher tariff for any imports that exceed that initial quantity. In a legal sense and at the WTO, countries are allowed to combine the use of two tariffs in the form of a TRQ, even when they have agreed not to use strict import quotas. In the United States, important TRQ schedules are set for beef, sugar, peanuts, and many dairy products. In each case, the initial tariff rate is quite low, but the over-quota tariff is prohibitive or close to prohibitive for most normal trade. Explicit import quotas used to be quite common in agricultural trade. They allowed governments to strictly limit the amount of imports of a commodity and thus to plan on a particular import quantity in setting domestic commodity programs. Another common non-tariff barrier (NTB) was the so-called “voluntary export restraint” (VER) under which exporting countries would agree to limit shipments of a commodity to the importing country, although often only under threat of some even more restrictive or onerous activity. In some cases, exporters were willing to comply with a VER because they were able to capture economic benefits through higher prices for their exports in the importing country’s market.
3.1 NON-TARIFF BARRIERS
A is a tax imposed on foreign goods asthey enter a country; non-tariff barriers, on the other hand, are non-tax measures imposed by governments to favor domestic over foreign suppliers. Non-tariff barriers encompass a wide range of measures. Some have relatively an unimportant trade effects. For example, packaging and labeling requirements can impede trade, but usually only marginally. Other non-tariff measures such as quotas, voluntary export restraints, trade restraints under the Multifiber .Arrangement, non-automatic import authoriza- tions and variable import levies have much more significant effects. These “hard-core” non- tariff measures are designed to reduce imports and, thereby, benefit domestic producers. Non-Tariff Barriers:
All other restrictions on trade except tariffs are known as non-tariff barriers. These rules, regulations or policies are used for the same purposes (i.e. to restrict imports and protect local industries), however they cannot raise any revenue for the host country. Some of the common non-tariff barriers are quotas, quality standards, complex regulations, import license or import bans
BENEFITS OF TARIFFS
Tariff’s increase the cost of imports, leading to a decline in consumer surplus. For example, UK consumers have lost out from EU wide tariffs on agricultural products. Many agricultural goods are more expensive because of the high tariffs placed to protect EU farmers.It is hard to think of any benefits from tariff’s for consumers. Maybe in the long run consumers benefit from the protection of domestic industries if these industries use the tariffs to improve
Domestic Producers, who produce the good, will benefit from the introduction of tarrifs. This is because it makes their domestic production relatively more attractive compared to the imports. Agricultural tariffs have benefitted European farmers as they have been protected from cheaper competition.However, it is argued that the restriction of competition encourages inefficient firms. Therefore, in the long run, domestic firms may not make the necessary improvements that they would have done without tariffs.Also the introduction of tariffs usually leads to retaliation. Therefore, other countries will place tariffs on UK exports. Therefore, some exporting firms will lose out and sell less exports.
Tariffs on Government.
Tariffs will increase government revenue. However, it will be a small % of total tax revenue. If the tariff is too high then the UK may no longer import the good, so the government will not get any tariff revenue.
HOW TARIFF AND NON-TARIFF BARRIERS CAN AFFECT YOUR EXPORTS
Tariff and non-tariff barriers can affect your export business. In most countries, the governments impose these trade barriers and the general purpose behind them is to limit (or sometimes totally ban) the imports of some specific product. By imposing trade barriers, the governments are looking to achieve some or all of these economic targets.
" Encouraging domestic production
" Protecting local employees
" Increasing revenues
" Reducing consumption and reliance on exports
Whether they are able to achieve these targets or not, one thing is for sure, these trade barriers are going to hurt your business, if you are looking to export to that country. Read a little to get an idea of what tariff and non-tariff barriers are.
Both tariff and non-tariff barriers can ultimately hurt the national economy in the longer run, they provide shield to even those under performing industries and manufacturers who are not competitive at all, hence wasting the country resources and hurting consumers. World Trade Organization has been established in order to lower trade barriers all over the world, and to improve transparency and non-discrimination in international trade. 153 members have joined till now, although no member country has shown total commitment in implementing rules and regulations that are decided at various conferences. Still as an international exporter you should try to target those foreign markets where imports are not discouraged in government policies
4.04.0 Elimination of Non-Tariff Barriers: Mauritius
1Elimination of non-tariff barriers and of differing customs duties would enhance the transparency of Mauritius' trade regime. Such a regime might also play a greater role in attracting investment as more tariffs are bound, the gap between applied and bound rates narrows, and GATS scheduling increases, including perhaps in the context of introducing greater competition in service subsectors such as telecommunications. Overall, such adjustments could contribute to an improved exploitation of Mauritius' comparative advantages, and facilitate the transformation from an export- to an outward-oriented economy.
The trade liberalization process which started since the eighties has abolished most of the licenses for import and export of goods. Almost all legislated nontariff barriers in Mauritius have mostly been removed and generally no quotas are imposed on exports or imports. Since 2004 there have not been major changes in this area. The few products which require special permits or certificates are classified under the Consumer Protection Act. The main reasons for these permits are for environmental, phytosanitary, and national security reasons. The controlled products are regrouped in different schedules under the Consumer Protection Act. The First Schedule consists of general goods which include food items (fresh and frozen), vegetable inputs, salt, cement, infant formulas, petroleum oils, insecticides, herbicides, pesticides, chemicals, PVC Pipes, Plastic feeding bottles, Teats and soothers, Life Jackets, Motor-cyclists' helmets (crash helmets), Rough diamonds, Gold, Bakery and pastry equipment, Weighing machinery, Electric water heaters and immersion heaters, Public transport type, passenger motor vehicles, bus, dangerous chemicals, Syringes, Food additives. The second schedule concerns prohibited goods mainly for security and environmental reasons. They include explosives, Fire crackers, Motor vehicle rubber tires which, have been remolded, recapped or regrooved, Kerosene stoves, Ivory and Tortoise Shell, Underwater fishing guns, Sugar and chocolate confectionary and bubble/chewing gum in the form of cigarettes, Toy pistols and guns with projectiles, items containing ―Aerosols‖ using C.F.C‘s. The fourth schedule of the Consumer Protection Act also caters for the restrictions on the controlled goods which are quantitative in nature and has quota restrictions for products such as potatoes, table salt, gold and bakery and pastry equipment. Since 2004 there has been no changes regarding import permits for a number of products. Import permit are required according to the type of products being imported as discussed above (according to the Consumer Protection Act).
An insight from key informant‘s interviews indicates that Interviews indicated that NTBs are less of a problem regarding trade either in the SADC/COMESA region or in the rest of the world. Except for a few items which the government still controls, the gradual liberalization process is satisfactory. Compared to the previous survey in 2004 a few controlled goods have been liberalized. The Mauritius Chamber of Commerce which has the role to pinpoint the problems related to trade indicated that almost no issues have been raised as NTBs during the last two years. The only claims or problems which came up were related to the mismatch of signatures specimens on the certificates of origin at the customs level. As discussed previously this often causes delays in clearing goods and adds on to the charges as operators often have to provide bank securities.
Freight forwarders reported that, there is a major communication problem as regards facilities offered under SADC or COMESA trade regimes. Regarding trade with Mauritius (especially imports from SADC and COMESA), this concerns the preferential duties or the duty free status for a number of products. In fact traders are not aware that their products can be traded under the above regimes and do not know where to get certificates or origin. Efforts have to be made to ensure a better awareness amongst the traders in the region. This is probably the role of Chambers of Commerce, Ministries of Trade and other business associations. On the Mauritian side the communication between the institutions and the traders seems to be satisfactory. The process of issuing import and export licenses and phytosanitary or health certificates have become a routine exercise and do not constitute a hindrance to trade in general. Customs procedures have been simplified and operators seem to be satisfied.
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