TOPIC 2 TARIFF MEASURES FACULTY OF INTERNATIONAL BUSINESS 1 READING MATERIAL • Chapter 8 (Frenstra and Tayloy, 2017. Worth Publisher, Fouth edition) •WTO, Detailed Presentation of Tariffs and Tariff Negotiations FACULTY OF INTERNATIONAL BUSINESS 2 STRUCTURE 1. A brief of the WTO 2. Tariff under WTO 3.
The Gains from the trade 4. Import tariffs for a small country 5. Import tariffs for a large country FACULTY OF INTERNATIONAL BUSINESS 3 1. A BRIEF OF THE WTO What is WTO? The World Trade Organisation (WTO) is the only global organisation dealing with the rules of trade between nations Source: WTO website Headquarter: Geneva, Switzerland Website: www.org FACULTY OF INTERNATIONAL BUSINESS 4 1.
A BRIEF OF THE WTO What is WTO? Number of members: 164, representing 98% of world trade Source: WTO website International trade law Bilateral trade agreements Regional trade agreements Multilateral trade agreements FACULTY OF INTERNATIONAL BUSINESS 5 1. A BRIEF OF THE WTO Position of WTO law International law Co-existence Co-operation FACULTY OF INTERNATIONAL BUSINESS 6 1. A BRIEF OF THE WTO Position of WTO law National law WTO law FACULTY OF INTERNATIONAL BUSINESS 7 1. A BRIEF OF THE WTO The origin of the WTO 7 negotiation 1/1948 1/1/1995 rounds GATT WTO Marrakesh Agreement FACULTY OF INTERNATIONAL BUSINESS 8 1.
A BRIEF OF THE WTO Functions of the WTO - Facilitate the implementation, administration, and operation of the WTO Agreement - Provide the forum for negotiations among its members - Settle the disputes - Review trade policies - Cooperate with other organisations - Technical assistance to developing countries (Article III of the WTO agreement) FACULTY OF INTERNATIONAL BUSINESS 9 1. A BRIEF OF THE WTO Institutional structure of the WTO - 70 bodies Ministerial Conference - 34 standing bodies General Council Council for Trade- Committees on Council for Trade related Aspects of Council for Trade Trade and relating in Goods Intellectual in Services. Issues Property Rights FACULTY OF INTERNATIONAL BUSINESS 10 1. A BRIEF OF THE WTO Institutional structure of the WTO The body concerned shall be deemed to have decided by consensus on a matter submitted for its consideration, if no member, present at the meeting when the decision is taken, formally objects to the proposed decisions.
Source: Article IX:1 of the WTO Agreement FACULTY OF INTERNATIONAL BUSINESS 11 1. A BRIEF OF THE WTO Institutional structure of the WTO - Explain articles: Decide by a three-fourths majority of the Members. - Amend articles: Decide by a three-fourths majority of the Members - Waive obligation of a member: Consensus. If not, decide by a three-fourths majority of the Members FACULTY OF INTERNATIONAL BUSINESS 12 1.
A BRIEF OF THE WTO Principles of the WTO Rules Principles FACULTY OF INTERNATIONAL BUSINESS 13 1. A BRIEF OF THE WTO Principles of the WTO • Trade without discrimination • Freer trade: gradually, through negotiation • Predictability through binding and transparency • Promoting fair competition • Encouraging development and economic reform FACULTY OF INTERNATIONAL BUSINESS 14 1. A BRIEF OF THE WTO Trade without discrimination Most-Favoured-Nation National Treatment (MFN) Treatment Obligation Obligation FACULTY OF INTERNATIONAL BUSINESS 15 1. A BRIEF OF THE WTO Trade without discrimination Most-Favoured-Nation National Treatment (MFN) Treatment Obligation Obligation Equal treatment Equal treatment between domestic and between countries foreign goods FACULTY OF INTERNATIONAL BUSINESS 16 1.
A BRIEF OF THE WTO MFN …any advantage, favour, privilege or immunity granted by any [Member] to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other [Member] (Article 1 – GATT 1994) FACULTY OF INTERNATIONAL BUSINESS 17 1. A BRIEF OF THE WTO MFN Meaning: Prohibits discrimination between like products originating in, or destined for, different countries Covering: Covers not only “in law” (de jure), but also “in fact” (de facto) discrimination FACULTY OF INTERNATIONAL BUSINESS 18 1. A BRIEF OF THE WTO MFN Any advantage, favour, privilege or immunity: Immediately and Unconditionally Like product FACULTY OF INTERNATIONAL BUSINESS 19 1. A BRIEF OF THE WTO MFN Any advantage, favour, privilege or immunity: FACULTY OF INTERNATIONAL BUSINESS 20 1.
A BRIEF OF THE WTO MFN Any advantage, favour, privilege or immunity: • Customs duties; • Any duties and charges imposed on importation or exportation; • Any duties and charges imposed in connection with importation or exportation; • Any duties and charges imposed on the international transfer of payments for imports and exports; • The method of levying such duties and charges; FACULTY OF INTERNATIONAL BUSINESS 21 1. A BRIEF OF THE WTO MFN Any advantage, favour, privilege or immunity: • The rules and formalities in connection with importation and exportation; • Internal taxes or other internal charges (covered in Article III.2); • Laws, regulations and requirements affecting internal sale, offering for sale, purchase, transportation, distribution or use of any product (covered in Article III. FACULTY OF INTERNATIONAL BUSINESS 22 1. A BRIEF OF THE WTO MFN Any advantage, favour, privilege or immunity: Important note: the advantage granted to other country, it means that if a member grants an advantage to a non-member or a member of the WTO, this member must grant that advantage to all WTO member.
FACULTY OF INTERNATIONAL BUSINESS 23 1. A BRIEF OF THE WTO MFN Any advantage, favour, privilege or immunity: Japan and China export cars to Vietnam. Vietnam imposes a 20% tariff on Japanese cars and a 10% tariff on Chinese cars. Does Vietnamese government break the MFN principle of the WTO, and what should Vietnam do, if: a) Vietnam and Japan are the WTO members, China is not b) Vietnam and China are the WTO members, Japan is not c) Vietnam is not a WTO member, Japan is a WTO member, China is negotiating to participate the WTO FACULTY OF INTERNATIONAL BUSINESS 24 1.
A BRIEF OF THE WTO MFN Immediately and Unconditionally Advantage Country A Advantage Country B FACULTY OF INTERNATIONAL BUSINESS 25 1. A BRIEF OF THE WTO MFN Like product •The physical characteristic of products • The end-use of products • Preferences of customers • Classification by using HS code FACULTY OF INTERNATIONAL BUSINESS 26 1. A BRIEF OF THE WTO MFN Like product FACULTY OF INTERNATIONAL BUSINESS 27 1. A BRIEF OF THE WTO MFN Important note: Each WTO member must grant all other members immediately and unconditionally the best treatment it gives to any trading partners FACULTY OF INTERNATIONAL BUSINESS 28 1.
A BRIEF OF THE WTO MFN Exception - Marrakesh Agreement Art. IX:3 - Waiver - GATT Art. XX - General exception - GATT Art XXI - Security exception - GATT Art. XXIV:5 - FTA and custom union - Enabling clause - 1979 decision - GATT Art.
I:2-4 - Historical Preferences - GATT Art. IV (c) - Cinematographic Films - GATT Art.XXIV:3 - Frontier Traffic FACULTY OF INTERNATIONAL BUSINESS 29 1. A BRIEF OF THE WTO MFN Advantages: Larger market access Lower export cost due to lower tariff barriers Help in making product competitive Receive benefits of economy of scale Increase the country’s economic growth FACULTY OF INTERNATIONAL BUSINESS 30 1. A BRIEF OF THE WTO MFN Reviewing questions: Assumption: Vietnam and China are WTO Members.
Kazakhstan is not a Member. Vietnam is imposing a 20% ad valorem tariff on imported apple from WTO Members. However, after negotiation, Vietnamese government decides to impose a 0% tariff on imported apple from China. VN must charge 0% on apples imported from all other WTO members? 2.
VN charge 10% on apples imported from Kazakhstan, and charge 0% on apples imported from other WTO members? 3. VN charge 10% on apples imported from other WTO members, and charge 0% on apples imported from Kazakhstan? 4. Assume that VN cannot reach an agreement on 0% tariff on apples imported from China, but agree to remove some import procedures for China’s apples. Do VN have to apply the same to other WTO members immediately? FACULTY OF INTERNATIONAL BUSINESS 31 1.
A BRIEF OF THE WTO National treatment The products of [Members] shall not be subject, directly or indirectly, to internal taxes or other internal charges, of any kind in excess of those applied, directly or indirectly, to like domestic products. [and] shall be accorded treatment no less favorable than that accorded to like products in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use FACULTY OF INTERNATIONAL BUSINESS 32 1. A BRIEF OF THE WTO National treatment Tariff Tax FACULTY OF INTERNATIONAL BUSINESS 33 1. A BRIEF OF THE WTO National treatment - Time for NT application: goods are imported into territory of any other contracting party - Meaning: No discrimination against imports on the internal market Foreign goods must not be discriminated against vis - a - vis domestic goods + Domestic taxation non – discriminating + Domestic regulation non - discriminating FACULTY OF INTERNATIONAL BUSINESS 34 1.
A BRIEF OF THE WTO National treatment Exception - Marrakesh Agreement Art. IX:3 - Waiver - GATT Art. XX - General exception - GATT Art XXI - Security exception - GATT Art. III:10 and Art.
IV- Cinematographic Films - GATT Art.III:3 - Grandfathering - GATT Art. III: 8a - Government procurement - GATT Art.III:8b - Production Subsidies - GATT Art.III:9 - Prejudicial effect of internal price control measures FACULTY OF INTERNATIONAL BUSINESS 35 1. A BRIEF OF THE WTO National treatment Exception - Forming FTA - Deal with the unfair trade - Market access for developing countries FACULTY OF INTERNATIONAL BUSINESS 36 1. A BRIEF OF THE WTO National treatment Case study Assumption: Alba, Vanin, Medatia and Tristat are WTO members and Ruritat is not.
Could Vanin impose a sale tax of 12% on domestically produced electric goods while applying a higher rate of 15% for electric goods originating from Tristat? 2. Could Alba prohibit advertisement of foreign beef in Alba’s supermarket chains? FACULTY OF INTERNATIONAL BUSINESS 37 1. A BRIEF OF THE WTO Freer trade: gradually, through negotiation • Freer: barriers coming down through negotiation • The WTO encourages fair trade by disciplining barriers related to: + Tariffs + Import bans or quotas + Other issues Tariff measures Non – tariff measures FACULTY OF INTERNATIONAL BUSINESS 38 1. A BRIEF OF THE WTO Predictability through binding and transparency What is binding? “Binding” means setting a fixed upper limit on tariffs and other commitments + Provides stability and predictability + Can be changed only after negotiations with trading partners NOTE: 100% of agriculture products of developed countries have bound tariff rates.
FACULTY OF INTERNATIONAL BUSINESS 39 1. A BRIEF OF THE WTO Predictability through binding and transparency •The WTO discourages the use of less visible and less predictable barriers (e. Quotas) • It encourages transparency through requirements to disclose policies and practices and notify WTO of changes. • Governments and the WTO conduct trade policy reviews => Foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are “bound” in the WTO FACULTY OF INTERNATIONAL BUSINESS 40 1.
A BRIEF OF THE WTO Promoting fair competition • Rules to establish what is considered fair and unfair competition (e. Dumping and subsidies are considered unfair competition.) • Rules to establish how governments can respond to trade disputes. • Specific agreements, such as that on agriculture, aim to support fair competition. FACULTY OF INTERNATIONAL BUSINESS 41 1.
A BRIEF OF THE WTO Encouraging development and economic reform WTO rules and mechanisms provide: − Giving them more time to adjust, greater flexibility, and special privileges. − Extend Special and Differential Treatment FACULTY OF INTERNATIONAL BUSINESS 42 2. TARIFF UNDER WTO 2. Definition and types of tariffs 2.
Difference between tariffs and other charges 2. Bound tariffs versus Applied tariffs 2. Tariff peak and tariff escalation 2. Tariff schedule and the harmonized system 2.
GATT/WTO tariff negotiation FACULTY OF INTERNATIONAL BUSINESS 43 2. TARIFF UNDER WTO 2.