|(1)||Background : Tariffs
Tariffs are the most common kind of barrier to trade; indeed, one of the purposes of the WTO is to enable Member countries to negotiate mutual tariff reductions. Before we consider the legal framework that provides the discipline regarding tariffs, we must understand the definition of tariffs, their functions, and their component elements (rates, classifications, and valuations).
The WTO bans, in principle, all quantitative restrictions, but allows for the imposition of tariffs. It then attempts to reduce the barrier posed by tariffs in "tariff negotiations" among member countries, whereby they agree to "bind" themselves to maximum rates ("bound rates") for individual items (in principle following the tariff classification nomenclature) and negotiate for their progressive reduction.
This section analyses some of the basic economic issues associated with tariffs, specifically, why they are preferable to quantitative restrictions, and why it is desirable that they be reduced. This section then considers the importance of international tariff-reduction negotiations at the WTO.
Even after implementation of the Uruguay Round commitments, the EU tariff rate on some trucks remains high at 22 percent.
After the implementation of the Uruguay Round there will be high US tariffs on some items such as watch parts (maximum 2.16 dollars each (121 percent)), woolen fabrics (maximum 25 percent), glassware (maximum 38 percent), some ceramics (maximum 25 percent), and trucks (maximum 25 percent). Trucks, in particular, have very high tariffs as compared to passenger vehicles (2.5 percent).
After the implementation of the Uruguay Round, the internationally-competitive "textiles and textile products" sector will have, on average, high tariffs (between 16.3 percent and 35 percent). In addition, there will be high tariffs on some items such as automobiles (maximum 80 percent), glass fibers (maximum 25 percent), copper products (maximum 13 percent), and aluminum products (maximum 13 percent). The bound rate for electrical equipment is 62.4 percent, and the binding rate for industrial goods as a whole is 86 percent.
Korea's efforts to push forward liberalization, including dropping its 80 percent high-end bound rate for automobiles to a flat rate of eight percent in February 1999, is appreciated. However, taking into account its status in the current world trade system and the fact that, by participating in the OECD, Korea should be in a position to promote free-trade as a developed country, further steps toward trade liberalization is expected.
Tariffs on non-agricultural products remain at a high level after the implementation of the Uruguay Round. Items such as certain clothes (maximum 55 percent), automobiles (maximum 40 percent), electrical machinery (maximum 23 percent), and glass (maximum 23 percent) have high tariffs.
Australia began a unilateral program of phased-in tariff reductions in 1998, and effective rates will be either zero or 5 percent by 1 July 1996 excluding passenger cars, textiles, clothing, and footwear. As a result, with the implementation of the Uruguay Round offer, the average applied tariff rate will be 2.9 percent in 2001 according to Australia's government.
The Uruguay Round improved Indonesia's bound rate to 92 percent of its tariff items, a development that Japan welcomes. However, the bound tariff rates for the vast majority of items remain extraordinarily high, at levels of 30-40 percent. Effective tariff rates are also high, at an average of 27.8 percent for textiles and textile products, 30.6 percent for transportation equipment, and 26.1 percent for electric equipment.
In its "Individual Action Plan" for APEC, Indonesia made an explicit commitment to begin in 1995 to reduce effective tariffs of less than 20 percent to less than 5 percent by 2000, and those in excess of 20 percent to 20 percent by 1998 and to less than 10 percent by 2003.
After the implementation of the Uruguay Round commitment, the levels of tariffs in sectors such as transportation equipment (average 47.6 percent) and electronics (average 31.6 percent) are still high. Copper products (maximum 30 percent) and polyethylene (maximum 30 percent) also have high tariffs. Thailand has agreed to bind a relatively low percentage of its tariff goods. For example, only 15.7 percent of transportation equipment is bound while only about 70 percent of industrial goods as a whole is bound.
Even after implementation of its Uruguay Round commitments, the Philippines still has several high-tariff items, including textile products (maximum of 50 percent), watches and clocks (maximum of 50 percent), and electrical equipment (maximum of 50 percent). The percentage of bound items is only 66 percent of tariff lines.
We note, however, that the Philippines has been reforming its tariff structure since 1980 and has announced that it will enact a uniform effective tariff rate of 5 percent for all items except selected agricultural products by 2004.
|1||With regard to the scope of general MFN treatment, GATT Article I prescribes that MFN
treatment includes "customs duties and charges of any kind imposed on or in
connection with importation or exportation . . . ." and thus it deals with not only
tariffs on importation but also those on exportation.
|2||Article 3 of Japan's Tariff Rates Law defines a tariff as "a tax based on the
standard of assessment of prices or volume of imported goods," explicitly limiting
tariffs to import cargo.
|3||The GATT Article XI prescribes that "No prohibitions or restrictions other than
duties, taxes or other charges, . . . shall be instituted or maintained by any
Member" and therefore it clearly bans quantitative restrictions while leaving the
door open for tariffs.
|4||Customs Valuation Agreement states that "the primary basis for customs value
under this Agreement is "transaction value" as defined in Article 1…together
with Article 8…adjustments." This is an explicit affirmation that the price
actually paid is to be used as the basis for customs valuation. Article 2 of the Agreement
provides for the transaction prices of similar goods to be used in exceptional cases.
|5||In point of fact, it is difficult to gauge the net effect of tariffs in any strict
sense because different people will assign different values to the same profits in
absolute terms. We will therefore forgo further discussion here. We should note, however,
that this point becomes important in real-world discussions, consider "weighted
social welfare" later in this chapter.
|6||For an industry with an added-value rate of 25% (purchases parts for $75 and assembles
them into a finished good worth $100), a tariff of 25% on finished goods (resulting in a
domestic price of $125) will increase the costs that can be tolerated by the industry from
$25 to $50, which gives an effective protection rate of 100%.
|7||Common Effective Preferential Tariff in ASEAN. Malaysia estimated the average tariff
rate at 4.66 percent, and notified some companies of the application of a lower tariff
rate than finished goods tariff.