NON-AGRICULTURAL NON-AGRICULTURAL MARKET ACCESSMARKET ACCESS

Edwini Kessieedwini.kessie@wto.org

Council and Trade Negotiations Committee Division, WTO

Trade PolicyTrade Policy

Production subsidies

Economic ranking (efficiency)

Available instruments

Customs duties

Import restrictions (global - MFN - quota) (attributed quota) Voluntary import restraints

Distortions

Production

+ Consumption

+ Price competition + Protection rent - to private sector (instead of tariff revenue) + legal uncertainty

1

2

3

4 + Protection rent transferred abroad + additional legal uncertainty

1

Trade PolicyTrade 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

Transparency Control

Published law or regulation

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 PolicyTrade 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 ?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 ?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 What are other duties and charges (ODCs)? 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 country’s schedule, it becomes bound at a maximum level. Any duty or charge omitted from a schedule may not be subsequently introduced.

Purpose of tariffPurpose of tariff

government revenueeconomic developmentsocial objectivestrade negotiating leverage

Why are tariffs better?Why are tariffs better?

Raise revenue for governmentsImports can adjust to changes in

demand and supply Rate of protection is knownAllocation of access - transparencyRent-seeking costs minimised

Why are tariffs better? Why are tariffs better? (cont’d)(cont’d)

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 tariffsTypes of tariffs

Ad valorem tariffSpecific tariff or non-ad valorem tariff Alternative specific tariffCompound tariffAd valorem equivalents (AVE)

Types of tariffsTypes of tariffsAd 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 Types of tariffs (cont’d)(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 litre

Flat charge per unit or quantity of goods. – i.e. $500 per car or –5 cents per kg of sugar

Types of tariffs Types of tariffs (cont’d)(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.

Types of tariffs (cont’d)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.

Types of tariffs Types of tariffs (cont’d)(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.

Types of tariffs (cont’d)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%

AVEsAVEs 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 bindingsTariff bindings

bound rates of dutyunbound rates of dutyceiling bindingsapplied tariff rates

General CommentsGeneral 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.

General Comments General Comments (cont’d)(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.

General Comments General Comments (cont’d)(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.

General Comments (cont’d)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.

Tariff classification systemsTariff 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 valuationCustoms 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 numberDescription of productBase rate of duty (MFN treatment)Preferential rates Initial negotiating rightsOther duties and charges (ODCs)

Traditional tariff negotiations 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 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 Recent tariff negotiations (cont’d)(cont’d)

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

Renegotiations of bound concessions, modifications, and withdrawals (GATT Article XXVIII)– compensation

– calculation of compensation

– retaliation

Negotiating techniquesNegotiating techniques

Plurilateral and bilateral approaches of the multilateral tariff negotiations– plurilateral negotiations

– bilateral negotiations

Negotiating techniques Negotiating techniques (cont’d)(cont’d) 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 Negotiating techniques (cont’d)(cont’d)

assessment of value of concessions offered

–simple average reduction

–trade weighted reductionrevenue foregonedata requirement and analysis

THE DDA NAMA NEGOTIATIONSTHE DDA NAMA NEGOTIATIONS

Results of the Uruguay Round

The Doha Mandate

The Negotiating Issues

TariffsTariffsUruguay Round Reform ProgrammeUruguay Round Reform Programme

Developed countries6 years: 1995-2000

Developing countries10 years: 1995-2004

TariffsAverage cut foragricultural products -36% -24%

Minimum cut perproduct -15% -10%

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 zero Harmonization Agricultural equipment Chemicals Beer Construction equipment Distilled spirits Furniture Medical equipment Paper Pharmaceuticals Steel Toys

Special and Differential Special and Differential TreatmentTreatment

Developed countries reduce/eliminate barriers

Developing countries lower levels of binding-ceiling bindings

Special treatment for least developed

GATT Part 4GATT Part 4Enabling ClauseEnabling Clause

The Doha MandateThe 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)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 IssuesNAMA – 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 issuesNAMA – Other issuesParagraph 6 countries

Treatment of unbound tariffs

Flexibilities for developing countries – paragraph 8

LDCs, small economies etc

Sectorals

NTBs

Relevant NAMA DocumentsRelevant NAMA Documents NGMA CHAIR’S DRAFT – Amb. Girard

TN/MA/W/35/Rev.1 GC CHAIR’S DRAFT – Amb. Perez Castillo

JOB(03)/150/Rev.1 MC CHAIR’S DRAFT – Derbez’s 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 CHAIR’S DRAFT

JOB(06)/200/Rev.1; 26 June 2006 – Amb. Stephenson