Tariffs to Trade in Goods Dr. Juan C. Ochoa Postdoctoral Fellow, University of Oslo Faculty of Law/Norwegian Centre for Human Rights Oslo, 12 Sept. 2013
Tariffs to trade in goods Contents Customs Duties on Imports... 4 Definition:... 4 Types:... 6 Purposes:... 6 Regulation under WTO law:... 6 Negotiations on the reduction of Customs Duties... 7 Basic rules governing tariff negotiations... 7 Tariff bindings:... 8 Schedule of concessions:... 8 Rules on tariff concessions under WTO... 10 Imposition of customs duties:... 10 Other Duties and Charges on Imports... 15 1. Definition:... 15 2. WTO Rules... 15 Special cases:... 16 Customs Duties and Other Duties and Charges on Exports... 17 1. Definition... 17 2. Purposes:... 17 3. WTO Rules... 17
Tariffs to trade in goods Include: Customs duties, Other duties and charges Tariffs are a type of restriction to imports Which type? What CDs and other duties and charges have in common?
Customs Duties on Imports Definition: Not defined in any multilateral agreement on trade in goods. Financial charge or tax on imported goods, due because of their importation (Bossche et al., at 430) The obligation to pay the charge accrues at the moment and by virtue of the importation, not because an internal event. o To determine this, the characteristics of the measure and the circumstances of the case need to be considered o Relevant case: China Auto Parts, AB report, 2009, paras. 158-166
Types of restrictions to market access for goods and services from other countries Border restrictions Tariffs Internal restrictions Taxes (to be studied) Includes: Customs duties, Other duties and charges Non-tariffs barriers: residual category Regulations (to be studied) Includes: Quantitative restrictions Other non-tariff barriers Affect trade in goods and services Relevant distinction as different rules apply to different types of restrictions
Types: Ad valorem: calculated based on the value of the concerned good; Non ad-valorem: can be specific, compound, mixed or other custom duties. Specific: based on unit of quantity such as weight, length, area, volume or number of the concerned good. Compound: A duty comprising an ad valorem duty to which a specific duty is added or subtracted, Mixed duty: duty that can be either an ad valorem duty or a specific duty, subject to an upper and/or a lower limit. Purposes: 1. Source of revenue for govs. 2. Used to protect and/or promote domestic industries. They make the like domestic products relatively cheaper. Regulation under WTO law: Not prohibited under WTO law WTO has encouraged the conversion of non-tariff external restrictions into customs duties ( tariffication ) Why?
However Art. XXVIII bis of the GATT 1994 calls upon WTO Members to negotiate to bound custom duties and to progressively reduce them through rounds of negotiation (Bossche et al., at 445). Guzman et al., at 167: Although encouraged to do so, WTO Members are not obliged to bind all of their product lines Negotiations on the reduction of Customs Duties Have taken place in the context of Rounds of trade negotiations. The first five under the GATT 1947 focused on the reduction of tariffs. The subsequent rounds had a broader agenda. The Doha round was started in Nov. 2001. Which is the main area of the current impasse of this round? Basic rules governing tariff negotiations At 429: 1) the principle of reciprocity and mutual advantage; and 2) the most-favoured nation treatment obligation. Is there an agreed method to measure reciprocity? If not, how many Members do it?
Does the principle of reciprocity apply in tariff negotiations btw. developed and developing country Members? Tariff negotiations are governed also by the MFN treatment obligation set out in Art. 1:1 of the GATT 1994. Any tariff reduction a Member grants to any country as the result of tariff negotiations with that country must be granted to all other Members, immediately and unconditionally. Various approaches to tariff negotiations: Product-by-product approach. Formula approach; Sectorial approach. Since the 1963-1967 Kennedy Round, multilateral tariff negotiations have been primarily conducted on the basis of a formula approach. Tariff bindings: At 438: It is a commitment not to raise the customs duty on a certain product above an agreed level. Schedule of concessions: The tariff bindings of a member are set out in that Member s Schedule of Concessions.
At 439: Each Member of the WTO has a schedule, except when the Member is part of a custom union, in which case the Member has a common schedule with the other members of the custom union. Custom union: type of a preferential trade agreement in which members eliminate tariffs and other barriers within the members territory and establish substantially the same duties and regulation for goods coming from third countries. At 439: Pursuant to Art. II:7 of the GATT 1994, the Schedules of Members are an integral part of the GATT 1994. Within each country schedule customs duties vary on a product-by-product basis. Most schedules are structured according to the Harmonized System. In EC Chicken Cuts (2005), AB considered that the Harmonized System is relevant for the purpose of interpreting tariff commitments in the Members Schedules (para. 199) Whose obligation is to ensure that the scope of the tariff concession is unambiguous? The importing Member, the one which writes the tariff schedule. Relevant case: EC-Customs Classification of Chicken Cuts
Rules on tariff concessions under WTO The schedule of concessions gives the multilaterally agreed tariff ceiling for the country and product in question. WTO Members are under an obligation to keep their applied rates at or below the level of their bound rates (GATT 1994, Article II:1). WTO Members can attach terms or conditions in their tariff concessions (GATT 1994, Art. II:1(b) Are there limits to these terms and conditions? Can customs duties actually applied by a country be lower than the tariff binding? Imposition of customs duties: It may require three determinations to be made: 1. Determination of the proper classification of the imported good; 2. Determination of the customs value of the imported good. 3. Determination of the origin of the imported good.
1. Customs classification Not specifically addressed by WTO law. Specific Specific rules on classification can be found in the Int l Convention on the Harmonized Commodity Description and Coding System ( HS Convention ). It is an international commodity classification system. In it, each commodity group has a six-digit HS code. It is revised every four to six years. WTO Members are not obliged to adopt this system. Although the HS is not a WTO agreement, AB ruled in EC Chicken Cuts (2005) and confirmed in China Auto Parts (2008) that the HS is relevant for the interpretation of WTO Schedules and the tariff bindings contained therein. 2. Determination of the customs value of the imported good Relevant to ad valorem customs duties. Relevant WTO rules: 1) Art. VII of GATT 1994; 2) Note Ad Article VII; and 3) WTO Agreement on the Implementation of Art. VII of GATT 1994, referred as the Customs Valuation Agreement, which is part of Annex 1A to the WTO Agreement. Clearer provision: WTO Agreement on the Implementation of Art. VII of GATT 1994, Art. 1.1:
The customs value of imported goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to the country of importation adjusted in accordance with the provisions of Article 8. Arts. 2-7 of the Customs Valuation Agreement provide methods for determining the customs value whenever it cannot be determined under the provisions of Art. 1. These methods are: Transaction value of identical or similar goods (Arts. 2 and 3) Deductive value method (Art. 5) Computed value method (Art. 6) Fall-back method (Art. 7) These methods are to be applied in the above order. The transaction value must be adjusted. According to Art. 8.1 of the Customs Valuation Agreement: several costs and values must be added t to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the goods. They include: commissions and brokerage, except buying commissions; the cost of packing whether for labour or materials; royalties and licence fees related to the goods being valued that the buyer must pay, the value of any part of the proceeds of any subsequent resale, disposal or use of the According to Art. 8.2 of the Customs Valuation Agreement:2, each Member is free to include or exclude from the customs value, in whole or in part, of the following:
(a) the cost of transport of the imported goods to the port or place of importation; (b) loading, unloading and handling charges associated with the transport of the imported goods to the port or place of importation; and (c) the cost of insurance. Art. 8.4 of the Customs Valuation Agreement adds that: No additions shall be made to the price actually paid or payable in determining the customs value except as provided in this Article. 3. Determination of origin Why is it important? Methods commonly used by WTO Members to determine origin: Method of value added Origin determined according to where a specified percentage of the value of the good was added.
Method of change of tariff classification Did the tariff classification changed as a result of processing in the concerned country? Method of qualifying processes Did particular technical manufacturing or processing operation relating to the good take place in the concerned country? Neither the GATT 1947 nor the GATT 1994 have specific rules on the determination of origin of imported goods. The Agreement on Rules of Origin, which is part of Annex 1A to the WTO Agreement, was adopted. Distinguishes btw.: o non-preferential rules of origin: those applied re. all other WTO Members except those parties to preferential trade agreements with the importing State and o preferential rules of origin: those applied to goods coming from parties to preferential trade agreements non-preferential rules of origin: o non-preferential rules of origin: The Agreement provides for a work programme on the harmonisation of these rules. This work is still on-going. Art. 2 of the Agreement set a list of disciplines for rules of origin applicable until the Harmonization Work Programme is completed.
Art. 3 f the Agreement provides certain requirements to be applied after the Harmonization Work Programme is completed. Annex II to the Agreement provides in the form of a common Declaration for some disciplines applicable to preferential rules of origin. They resemble those set for non-preferential trade. Other Duties and Charges on Imports 1. Definition: Form a residual category. Financial charges or taxes other than ordinary custom duties, which are levied on imported products and are due because of their importation. Ill-defined by WTO AB (AB, Chile Price Band, 23 Oct. 2002, para. 273). Examples in WTO case law: an import surcharge i.e. a duty imposed on an imported product in addition to the ordinary custom duty, a statistical tax, etc. 2. WTO Rules Members may impose only other duties and charges on imports that 1) have been properly recorded in their Schedules by 15 April 1994; and 2) at a level that does not exceed the level recorded in their Schedules (GATT 1994, Art. II: 1(b), second sentence and the Understanding on the Interpretation of Art. II:1(b) of the GATT).
Measures exempted from the Rule: 1) a financial charge equivalent to an internal tax on the like domestic product imposed consistently with Art. III:2 of the GATT 1994; 2) WTO consistent anti-dumping or countervailing duties; and 3) fees or other charges commensurate with the cost of the services rendered (GATT 1994, Art. II:2). The last requirement is also reflected in Art. VIII:1(a) of the GATT 1994. For examples of these charges, see Art. VIII:4. Special cases: Agriculture: Tariffs on agricultural products are subject to special rule in the Agreement on Agriculture. Information technology Products In Dec. 1996 a number of WTO member agreed to completely eliminate duties on IT products covered by the Information Technology Agreement.
Customs Duties and Other Duties and Charges on Exports 1. Definition It is a financial charge or tax on exported products, due because of their exportation. Types: customs duty or another duty or charge. Largely fell into disuse in the mid-19 th century. 2. Purposes: A source of revenue for govs. Used to protect or promote domestic industries. By imposing them, exportation is commercially less attractive and goods are less likely to be exported, thus reserving them for use by domestic industries. Re. agricultural products, they can be used to safeguard, in times of int l scarcity, domestic supply of food products at affordable prices. 3. WTO Rules Neither the GATT 1994 nor any other multilateral agreement on trade in goods prohibits or specifically regulate export duties. However, there are some general GATT obligations which also apply to export duties.
MFN treatment obligation Some Members have agreed to bindings with regard to their export duties. It is the subject of debate whether Art. II(a) of the GATT 1995 also applies to, and thus provides protection for, bindings re. customs duties on exports. This provision refers to commerce, not only to imports. + some WTO accession protocols specifically regulate them. Best known example: Protocol on the Accession of China. Protocol on the Accession of Russia: agreed on maximum level for its export duties. Relevant case: China Raw Materials, AB report 2013.