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Third World exports still face major tariff barriers

An UNCTAD/WTO joint study on the post-Uruguay Round tariff environment for developing country exports reveals that despite substantial trade liberalization under the Uruguay Round, the problem of high tariffs on products of export interest to developing countries is still widespread.

by Chakravarthi Raghavan


GENEVA: Despite substantial trade liberalization from the Uruguay Round, there are an important number of products and sectors of export interest to the developing countries, where peak tariffs, relatively high effective protection and significant tariff escalation will persist in major industrial countries, even after all agreed concessions are implemented, and all Generalized System Of Preferences (GSP) concessions are taken into account.

In presenting this assessment for the Commission on Trade in Goods and Services (17-21 November), an UNCTAD/WTO joint study on the post-Uruguay Round tariff environment for developing country exports underlines that tariff issues and reductions are still important for any future trade negotiations at the WTO, and that there is a need for greater transparency of tariff structures in these markets, in the application of specific duties or combined with ad valorem duties.

An overview

Towards this end, the study recommends that the on-going work at the WTO on translating post-Uruguay Round concessions into the new 1996 Harmonized System (HS) nomenclature should be concluded rapidly, and countries should provide information on ad valorem equivalents of specific rates currently being applied and resulting from the Uruguay Round.

In an overview, the study says that the dynamics of the effects of the Uruguay Round concessions will soon become transparent in trade statistics. Thus far, data is available only for 1995 or 1996 - a maximum of two years from implementation - and even then at an insufficient level of disaggregation to capture most particularly peak duty products.

A preliminary review of the data for broader product definitions including high tariff products, tends to show that there have been substantial trade increases in some areas in major markets, and in particular, selected developing country markets.

"But this is by no means a general trend," the study says. "There are several products and sectors where tariffs are particularly high and where trade has stagnated or even regressed between 1990 and 1996 - sometimes contrary to the general trend of rapid growth of overall import demand."

This has been the case of imports of beef and groundnut products into the US and shoe imports into Japan. In the EU, a significant reduction in imports of beef with bones, other meat, and a number of cereals has complemented the absence of significant imports of several other products from developing countries.

It is not yet possible to attribute these to tariff changes as a result of the Uruguay Round, and many other factors enter into account - in particular export capacities of developing countries and competitive strength and divergent economic growth in major markets. Other market access conditions, for example, sanitary and phytosanitary problems of many developing countries and the way in which corresponding import restrictions are still applied by many importing countries, may provide some explanations as to why the beef trade is flowing to one major market, while there are no exports to others.

In addition to the four Quad countries (US, EU, Canada and Japan), the study has also focused on four major developing country markets - Brazil, China, South Korea and Malaysia - which are major export destinations for developing countries and have some of the most dynamic developing country markets.

Peak tariffs, for the study, are those above 12% ad valorem rates - rates which may provide substantial effective rates of protection to domestic producers of up to 50%.

While as a result of the Uruguay Round, average tariff levels of many countries have been substantially reduced to low levels, the widespread belief that tariffs are no longer a major problem of international trade or for the trade of developing countries is not true, the study notes.

Problems of high tariffs are still widespread, and even after full implementation of Uruguay Round concessions, and taking account of the GSP concessions, a substantial number of high tariffs still remain and provide high levels of protection.

Both the frequency and tariff levels, the study says, are a matter of concern.

The Quad countries

In the Quad countries, about 10% of the tariff universe of these countries will continue to exceed the level of 12% ad valorem rates - effectively applied rates for imports from developing countries - after full implementation of the Uruguay Round and subtracting all presently applied tariff suspensions and GSP concessions.

The Quad countries maintain an extremely large variation of tariff rates, with tariff peaks reaching in extreme cases as high as 350% - with the majority of tariff peaks in the 12-30% range. One-fifth of US peak tariffs, one-quarter of those of the EU, 30% of Japan's and one-seventh of Canada's exceed 30%.

In the EU, in the agriculture and fishery product group of the 2,726 HS tariff line items, 1,273 have tariff peaks - 572 in the 12-19% range, 334 in the 20-29% range, 334 in the 30- 99% range, 31 in the 100-299% range and 2 in the above 300% range.

In industrial products as a whole, of the 7,771 HS lines, 27 are in the 12-19% range, 7 in the 20-29% range, and 8 in the 30-99% range. Motor vehicles (184 lines) account for 15% of tariff peaks, and chemicals, plastics and rubber products (1,596 lines) account for 21 peaks. Of the 967 lines in textiles, 3 are in the 12-19% range, and 3 of the 82 lines in footwear are similarly in this range.

In the case of Japan, 718 or 80.5% of the 1,890 HS lines in agriculture and agricultural products have high tariff peaks - 204 in the 12-19% range, 307 in the 20-29% range, 132 in the 30-99% range, 53 in the 100-299% range and 22 with above 300% tariffs.

In the leather, textiles, clothing and footwear sector, of the 2,410 tariff lines, 70 have 12-19% tariff peaks, 51 have 20-29% tariff peaks, 25 have 30-99% tariff peaks, 14 have 100- 299% tariff peaks and 9 have above 300% tariffs. 33 leather and leather products, 9 textile products, 27 clothing products and one footwear item have a 12-19% range; 13 leather and leather products and 38 footwear products have 20-29% tariffs, 12 leather and leather products and 13 footwear products have 30-99% tariffs; 2 textile items and 12 footwear items have 100-299% tariffs and 9 footwear items more than 300%.

The US and Canada's product lines

In the US, of the 1,779 agricultural and fishery products, 334 or 36.6% face tariff peaks - 139 in the 12-19% range, 70 in the 20-29% range, 99 in the 30-99% range, 15 in the 100- 299% range and 11 above 300% range.

In the US, of the total of 8,123 lines of industrial products (including leather and leather products, footwear, textiles and clothing), some 579 or 63.4% face tariff peaks.

Of the 1,814 leather and leather products, footwear, textiles and clothing HS line items, 524 face peak tariffs - 374 in the 12-19% range, 110 in the 20-29% range and 40 in the 30-99% range.

In Canada, of the 1,429 items under the agricultural and fishery products sector, 164 face tariff peaks - 65 in the 12- 19% range, 10 in the 20-29% range, 21 in the 30-99% range and 68 in the 100-299% range.

In the industrial sector of the 6,791 items, 413 have tariff peaks - 374 in the 12-19% range, 39 in the 20-29% range.

Within this broad group, of the 1,209 leather, textiles and clothing items, 347 face tariff peaks - 320 in the 12-19% range, and 27 in the 20-29% range. 10 leather and product items, 177 textile items, 120 clothing items and 13 footwear items have 12-19% range of tariffs; 7 textile items, 5 clothing and 15 footwear items face 20-29% tariffs.

Developing countries, the study notes, apply rates above 12% ad valorem more frequently than the Quad countries, but they have fewer extremely high rates. The proportion of peak tariffs range from 8% in South Korea to 10% in Malaysia, 60% in Brazil and 70% in China.

At the end of the Uruguay Round implementation period, no MFN tariffs will exceed 100% in Korea, and no rates above 20% in Brazil, once the Mercosur Common External Tariff has been implemented. Malaysia's will be 30% or more for one-third of all peaks, and this is also the case for half of China's. But China is in the process of negotiating entry into the WTO and for a progressive liberalization of tariff and non-tariff measures.

In the agricultural sector, the most important areas with the highest frequencies and rates are the major agricultural staple foods - in particular meat, sugar, milk, butter and cheese and cereals, as also tobacco products and cotton. The tariffication of the agricultural Quantitative Restrictions (QRs) has resulted in extremely high rates - in most cases above 30%, and up to 30% and more for MFN trade above the tariff quotas.

Under the Uruguay Round, these tariff quotas were intended to safeguard traditional trade flows and create new minimum opportunities for the trade of all WTO members.

"While several of these do create new trading opportunities, a number of them lack dynamism or are limited in their use. Frequently, the volume of the tariff quotas does not increase during implementation, and quotas are often allocated mainly to traditional partners or accessible under preferential arrangements. This risks pre-empting trading opportunities and leaves little room for imports from new comers.

"Products benefiting from tariff quotas are often narrowly defined, exclude standard trade qualities, or are provided for industrial use. There are important cases where tariff quotas carry peak rates or even rates exceeding the 30%."

The food industry

The food industry is a major area where tariff protection will remain frequent and high in the major developed country markets, even after the implementation of Uruguay Round concessions.

Tariff peaks and a range of additional measures extend far beyond the immediate first processing stages to the industry as a whole and its large variety of products.

Beyond the stages of immediate processing industries, the EU food industry accounts for about 30% of all tariff peaks - with rates ranging from 12 to 100%. There are also cases of additional duties to compensate processing industries for higher prices of agricultural inputs. Products subject to particularly high rates include cereal and sugar-based products, fruit preparations, canned fruit juices and so on.

In the US, the food industry accounts for one-sixth of all tariff peaks, mainly falling in the 12-100% range. The US applies a widespread system of combined MFN and tariff quota rates, together with safeguards consisting of additional duties which rise progressively if import prices are below a threshold level.

Examples of such products include orange juice (31%), peanut butter (132%), and tobacco products (350%).

In Japan, the food industry accounts for 40% of all tariff peaks throughout the various branches. Major product examples include margarine, canned meat and meat preparations, chewing gum and other sugar confectionary, cocoa powder and chocolate, pasta and other cereal products, preserved fruit and vegetables, fruit juices, coffee and tea syrups and extracts, cigarettes, smoking tobacco and so on.

High tariffs in clothing and textile imports

In the US, the EC and Canada, large proportions of clothing and textile imports are subject to high tariffs. Most tariff peaks are in the 12-30% range, with some exceptions like some woollen and synthetic clothing that are subject to 32% in the US.

These high tariffs are coupled with quota restrictions for the moment.

On the other hand, there are a number of textile products of major importance for developing country exports whose MFN or GSP rates are being substantially reduced and set to zero - such as printed cotton fabrics in the US.

The EU's GSP benefits are generally limited to a 15% margin of the MFN rates and subject to several country-sector limitations. Japan has very few and relatively low peak tariffs in these two sectors and does not apply QRs to developing country exports.

Footwear of various types is still protected by high tariffs in most developed countries - with post-Uruguay Round rates to reach about 160% in Japan (for a pair of leather shoes valued at US$25); 37.5 to 58% for certain rubber, plastic and textile shoes in the US; and 18% in Canada. GSP benefits are limited in this sector, and MFN rates remain valid. The US excludes footwear and leather products from its GSP. Japan grants a reduction of half of the MFN duty within the limits of binding tariff quotas for travel and leather goods and footwear. But these are usually exhausted soon after quotas are opened.

In the automotive, transport equipment and electronics sectors, with the exception of Japan and South Korea, the countries reviewed maintain a high level of tariff protection for one or other branch of the transport industry. Most developing countries maintain high tariff protection with rates above 100% in their automobile industry. In the developed countries the protection is more selectively applied - 25% for trucks in the US; 22% for trucks and 16% for buses in the EU; 25% for ships and boats including fishing vessels in Canada.

While LDC exports will generally face no tariffs in the EU, Japan and the US, as a result of Lom‚ (and its extension to all LDCs) in the EC, and the GSP concessions in others, significantly high tariffs will face the LDC exports of textiles and clothing, leather and leather products, and footwear (all of which remain outside the GSP schemes).

The UNCTAD/WTO study also notes that as a result of tariff escalation, many processed products face a much higher effective rate of protection (ERP) along the processing chain.

Tariff escalation

It cites a recent UN Food and Agriculture Organization (FAO) study which shows that tariffs and tariff escalation will present an important problem for diversifying exports of developing countries. While food exports are a major export industry of the developing world, the exports are largely concentrated in the first stage of processing, and more advanced processed products account for only 5% of agricultural exports of LDCs and 16.6% for developing countries as a whole, as against 32.5% for the developed countries. According to the FAO, tariff escalation is probably one of the major constraints to vertical diversification of agricultural products by developing countries.

The UNCTAD/WTO study, in examining the ERPs in the production chain - from raw materials, through successive stages to the final consumer product - in leather goods and cotton shirts, points to some methodological problems of estimation because of difficulties in translating estimated magnitudes into trade and resource allocation effects as well as data problems for input/output coefficients.

Subject to these caveats, the study finds ERPs are relatively low for the final stage of shoe production in the EU and US - with 9 and 12% respectively. But ERP for men's leather shoes reaches 32% in Canada and 28% within the tariff quota in Japan and 260% for MFN rates above the tariff quotas.

The study also finds no homogenous pattern of increase of effective protection by stages in the shoe industry. Effective protection doubles in the US and Canada from the stage of the leather industry to that of footwear production - from 7 to 12% and 15 to 32% respectively. It rises even more steeply in Malaysia from 16 to 44%. But about the same level of protection is accorded in South Korea. In the EU, protection is more pronounced for the leather industry than for shoe production.

The non-linearity of effective protection along with the processing chain is even more pronounced for cotton shirts. Effective protection ranges from 7% in Japan and 35% in the US (among developed countries), 20% in South Korea and 38% in Malaysia. Effective protection is relatively high at the first stage of entry to industry. Spinning is protected at rates of 25 and 28% in US and Canada, 40% in South Korea, and almost 70% in Malaysia - and compared to 14% in the EU and only 6% in Japan. ERPs for the weaving stage is relatively low and fairly similar. (SUNS4087)

Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS)from which the above article first appeared.

 


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