A Review of Tariff Profiles

A Review of Tariff Profiles of Commonwealth Countries
Article by Bansari Nag

Tariffs or import custom duties play a crucial role in trade negotiations. Tariff rates are one of the most important indicators of trade liberalization. Countries negotiate both at multilateral as well as regional/bilateral level to reduce tariffs so that trade volume between partner countries increases. During the earlier WTO negotiations, members have committed to bind tariff rates and slash them gradually for deeper trade penetration. Tariff Binding is a commitment not to increase a rate of duty beyond an agreed level. However, several developing countries have not yet bound all their tariff rates as they would like to keep the leverage of rising tariffs in case of emergency. Tariffs are defined against the products (as identified by code numbers for each product, popularly known as tariff lines). The average tariff rates are calculated either by simple or trade weighted (giving importance to the level of imports for each product) averaging method. Along with the average rates, number of tariff lines attract zero or low duties are also important information to understand the openness of a country. Similarly, what percentage of tariff lines have higher (>15%) duties provide the information about the degree of restriction in a country. Most of the times, duties are defined in the form of ad valorem (duty calculated on the basis of value of import; usually a percentage of the value). However, non-ad-valorem duties are also not uncommon. There is existence of ‘specific duties’ in many countries both in developing as well as developed countries. All these information together provide a picture about the state of liberalization in a country. This article culls out information about the Commonwealth states on all those issues. Table 1-3 below provides summary information of the tariff profiles of the Commonwealth Nations.

Summary tariffs are reported in the form of overall average duties of all tariff lines, especially for agricultural goods and industries. Bound rates imply the level of customs duty committed to by a WTO member (during the multilateral negotiations) beyond which it cannot be raised. Incase of unbound tariff lines the member country is free to increase the customs duty to any level.

The average duties are reported in four formats: Simple average, duty free lines, duties greater than 15% and non-ad valorem duties (as percentage of all related lines). For every subsection as mentioned above, the data is available for applied duties as well as for bound rates (possible ceiling to which country commits to increase duty in emergency).

It is observed that binding coverage is less among African members of Commonwealth in general. However, several LDCs (especially in Pacific islands) have 100% coverage. If the tariff lines are unbound the country can increase its tariffs indefinitely. Hence, binding of lines provide a first level indicator of tariff liberlisation. However, for most of the countries, there exists a large difference between simple average of bound rates and applied MFN rates. Though most of the countries’ average applied rates are close to 15%, many of the LDCs have single digit average (such as Papua New Guinea, Jamaica, etc.) whereas relatively more developed nations such as India has higher average tariffs. Quite interestingly along with developed countries such as Australia, Canada, there are countries like Botswana, Jamaica, Kiribati, Lesotho, etc. who have large number of duty free lines. This shows that several LDCs are pursuing tariff liberalization quite aggressively. Presence of non-ad valorem duties is quite low among Commonwealth Members. Highest presence of such duties is in India where almost 5.3% of lines have non-ad valorem duties. However, studying the dispersion of duties higher than 15% it may be commented that most of the countries have large number of duties with higher rate. In case of Bahamas more than 87% of duties have rate higher than 15%. Leaving aside the developed countries, on an average 25-30% of tariff lines of member nations have higher tariffs.

As most of the member nations are developing in nature, it is expected that they will protect their primary good sector which primarily consists of agricultural products. Table 2 validates that. The difference between the simple average of bound rate and applied rate is striking. Most of the countries have quite reasonable level of protection in agriculture despite having very high bound rates. Large divergence is observed in case of percentage number of tariff lines which are duty free in nature. Some food deficient developing countries are expected to have more zero duties compared to some other countries that focus on self sufficiency in food production. Non-ad valorem duties along with quota/tariff rate quota are quite common in agriculture. However, among commonwealth nations, almost 15% of their agricultural lines of southern African countries have non-ad valorem duties. It is important to note that almost 13% of agricultural lines in Canada also attract non ad valorem duties.

Binding coverage is expectedly quite high in case of non-agricultural products. Due to intense negotiation in WTO these MFN applied rates in the world has come down drastically. Commonwealth nations are not exceptions. Most of the members have already brought down their average applied rates to below 10% reflecting their commitments in trade liberalization. South Asian countries still have higher rates. Many members have already brought down many tariff lines to zero level. Among developing countries like Papua New Guinea, Jamaica, Brunei Darusaalam etc, have higher percentage of lines attract zero duties. Non-ad valorem duties in case of industries are very negligible. But many countries have large number of products higher tariff (higher than 15%). The Bahamas, Cameroon, Bangladesh, Maldives, etc have relatively higher percentage products have tariffs more than 15.

The article highlights the nuances of tariff liberalization in Commonwealth countries. It is important to note that that simple average of tariff rates provides limited information. A detailed analysis of tariff rates, their frequency distribution, non-ad valorem duties etc. can help us to gauge how a country is prioritizing its liberalization drive while giving protection to some important sectors. As Commonwealth nations have widely different socio-economic structure their priorities are also different which get reflected in their trade policy making.

Table I: All Products