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Industrial Tariffs and non - tariff barriers (NTBs)

What is a tariff?

A tariff is a tax on imported products. Tariffs are considered a protectionist measure, as they increase the price of imported goods in a domestic market.

Lowering tariff barriers

The lowering of tariff barriers has been a central element of successive rounds of GATT - now WTO - negotiations but they remain in place across all industries in both developed and developing countries.

The Community is a customs union. All Member States are legally obliged to apply a common external tariff to goods imported from outside the EU. The rates in the common customs tariff represent WTO bindings and were agreed by the EU in multilateral trade negotiations.

Despite enormous progress towards reducing industrial tariffs since 1945, there is significant scope for further reductions and for increasing the certainty of trade through increased bindings and simplified tariff structures.

Tariff escalation

Tariff escalation remains prevalent in the tariff schedules of many countries. Tariffs escalate when they are imposed at increasingly higher levels on semi-processed and processed products. This escalation impedes developing countries which export unprocessed products and raw materials from   diversifying into downstream stages of processing.

Tariff peaks

Tariff peaks (tariffs in excess of 15%) in developed countries can be particularly restrictive. Even after full implementation of the Uruguay Round, bound tariffs still exhibit wide variations both between countries and between sectors. Average bound industrial tariffs are under 4% in Quad countries (EU, US, Canada, Japan), 14% in other OECD countries, and 39% in a representative sample of non-OECD countries. In OECD countries, tariff peaks remain in a number of sectors such as clothing and textiles, footwear and motor vehicles. In non-OECD countries tariffs in excess of 15% typically cover as much as three-quarters of tariff lines.

A number of countries still have relatively   few tariff bindings.   Some others maintain bound rates substantially above applied rates,   creating considerable uncertainty for traders.   As a result, even quite significant cuts in such bound rates will have little impact on market access.

Many countries continue to levy higher tariffs on consumer goods than on capital goods, transferring income from consumers to producers. In the EU, for example, tariffs on consumer goods are more than five times higher than on capital goods.

WTO Doha Development Agenda

Following the launch of the WTO Doha Development Agenda, these issues are being addressed in the multilateral negotiation on market access for non-agricultural products. Paragraph 16 of the Doha Ministerial Declaration states that:

"We agree to negotiations which shall aim, by modalities to be agreed, to 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. 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 below. To this end, the modalities to be agreed will include appropriate studies and capacity-building measures to assist least-developed countries to participate effectively in the negotiations."

The European Commission considers that:

"The negotiating mandate reflects the essential objective of reducing and where possible eliminating tariffs. It meets the aim of no a priori exclusions from the exercise, while focussing also on the reduction of peak tariffs and high tariffs, in both of which areas we have clear export interests, as do many other WTO members. The mandate also specifically recognises the need to take in account the interests of developing countries, in a number of ways, notably through targeting for reduction those products of export interest to developing countries, and the notion of ‘common but differentiated responsibility’ - the concept that the contribution of developing countries to the reduction exercise should be commensurate with their abilities and needs. In sum the mandate for tariff negotiations holds the prospect of bringing significant trade and growth gains for all WTO members."

For the purposes of the Doha Round the WTO General Council has set up a Trade Negotiations Committee (TNC) to which the chairmen of various negotiating groups report. The Group handling the negotiations on non-agricultural tariffs is the Negotiating Group on Market Access (NGMA). The fifth WTO Ministerial meeting in Cancun, Mexico on 10-14 September 2003 decided that the NGMA should agree the modalities (i.e. a road map) for a multilateral agreement leading to tariff reductions by December 2005 – the date of the WTO Ministerial meeting in Hong Kong.

A representative cross-section of proposals on tariffs have been submitted by WTO members. All the texts contain a range of ideas in which a formula-approach has emerged as a common thread. The submissions can be viewed on the WTO online Documents  website page (to use key search prompt, enter TN/MA in the document symbol box, press search button).

It is estimated by the Tinbergen Institute that a fifty percent cut in applied industrial tariffs by all WTO countries could yield  approximately $200 billion global income gain per year.

UK aims remain unchanged. Our overarching objective in the negotiations is substantial reduction and where possible elimination of industrial tariffs to give significantly improved access to third-country markets, and to provide a stimulus to trade between developing countries.

Non-tariff barriers (NTB's)

At Doha in November 2001 WTO members also agreed inter alia to negotiations aimed at the reduction or elimination of non-tariff barriers. As with tariffs a representative number of proposals, including one from the EC, have been submitted. A basic difficulty in approaching NTBs is that they are defined by what they are not since they consist of all barriers to trade, other than tariffs, that alter the prices of goods and levels of trade. Also NTBs cannot be exhaustively defined. In his "Elements" Paper the NGMS Chairman has proposed that all NTBs identified will be considered categorising them into those a) to be dealt with in the negotiating group; b) to be dealt with under other DDA issues; c) relate to but are not covered by other DDA issues and fall to other WTO bodies; and, d) not covered by DDA issues but fall to other WTO bodies.; and, d) not covered by DDA issues but fall to other WTO bodies. In all cases there should be at least a report back to the group on progress made.

Benefits of trade liberalisation

Trade liberalisation has the potential to enhance prosperity across the world. Barriers to trade are costly. Trade barriers in the form of tariffs distort domestic markets, pushing up the prices faced by consumers and insulating inefficient sectors from competition. They penalise foreign producers and encourage the inefficient allocation of resources both domestically and globally. Reducing tariffs will help overcome these problems.

The UK has as much to gain from further liberalisation as others. Reductions in tariffs will help us build on the strong trading base we have already developed. It is in our interests to see that the achievements of the post-war era are not reversed, and that the process of liberalisation continues.

UK interested parties who wish to be kept informed of significant developments as the negotiations progress over the next three years are invited to send an e-mail to phil.walker@dti.gsi.gov.uk giving an electronic address.

Contact:

Bob Box
Tel: 020 7215 5057
Fax: 020 7215 2234
Email: robert.box@dti.gsi.gov.uk

Colin Wray
Tel: 020 7215 5059
Fax: 020 7215 2234
Email: colin.wray@dti.gsi.gov.uk