Tariffs in general, increase the cost of imports, leading to higher prices for consumers less demand of a product and a decline in consumer surplus.
Domestic production will benefit with the introduction of tariffs. The reason is that it makes domestic products more competitive compared to imports. However, the other argument is that the restriction of competition encourages inefficient firms in the economy. Therefore, it skews the market in favor of inefficiencies that can also lead to corruption and retaliation from other countries. The other side of the coin is subsidies to export production which has the reverse effect of a tariff. Cost-Benefit analysis of the effects of tariffs and subsidies has been a subject of controversy for domestic trade policies and international trade.
For instance, if an ore is found in abundance in Australia and a country imports ore from China, it has to impose tariffs on Chinese ore to safeguard the interests of its domestic producers or cheaper Chinese ore will cause a shutdown of iron ore producing factories in Australia.
Another example is China as a follower of an export subsidy policy for its electronic goods and letting its exporters gain unfair advantage in international market so as to improve its exports.
James E. Anderson and J. Peter Neary Boston College University and College Dublin conducted a joint study to determine the effects of a skewed market and developed an index that reflects the measures of restrictiveness to international trade policy.
A Trade Restrictiveness Index (TRI) developed by these researchers reviews some of the theoretical extensions and applications of this Index. A number of institutions have provided motivating research settings and practical support with some of the components originated from a World Bank project. The impact of a country’s trade policy on its economic well-being is one of the most widely-debated topics in economics. Yet, the question of how to conduct trade policy and its economic assessment or measurement has received almost no attention in the past. In practice it has been done using a variety of “ad hoc measures such as the trade-weighted average tariff, the coefficient of variation of tariffs or the non-tariff-barrier coverage ratio.” The most natural criterion from an economist’s perspective is that of welfare of a nation. The question that arises is how the restrictiveness of trade policy should be measured where trade barriers take a single and well-defined form.
The question of cost-benefit of a tariff has wide implications and a variety of issues need be addressed in the applicability of value to the equation of differential economics foreign exchange rates, domestic parity values and comparisons of premiums in the transfer of payments to national account balances.
Tariffs are weighted by their relative importance in some sense. The simplest and most commonly-used method of doing it is by using actual trade volumes as weights. This result in trade-weighted average tariff but despite its convenience, the trade-weighted average tariff runs into flaws immediately. As the tariff on a good rises, its imports fall, so the now higher tariff gets a lower weight in the index. For high tariffs this fall in the weight may be so large that the index is decreasing in the tariff rate and averaging doesn’t work very well.
The economic value of a traded item-either an export or an import-at the border crossing or port of entry must reflect its export or import parity value. These values are derived by adjusting the c.i.f. (cost, insurance, and freight) or f.o.b. (free-on-board) prices (converted to economic values) by all the relevant charges between the origin and the destination point where the c.i.f. or f.o.b. price is agreed to in the terms of trade for Customs valuation.
“The WTO agreement on customs valuation aims for a uniform and neutral system for the valuation of goods for customs purposes — a system that conforms to commercial realities, and which outlaws the use of arbitrary or fictitious customs values. The Committee on Customs Valuation of the Council for Trade in Goods (CGT) carries out work in the WTO on customs valuation. royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable; You should include in the declared value any money paid for selling commissions, assists, royalties, production costs, packing, proceeds and these items should be noted on the commercial invoice. Duty will be assessed on the price paid for the goods unless the basis for duty is some other measure, such as quantity or volume (i.e. cents per bushel or metric tons) Terms of Sale.”
Commercial Invoice—Required Entries for Customs Valuation
- Terms of sale
a. Date of sale
b. Place of sale
c. Seller name & address
d. Buyer name & address
2. Shipment Terms
a. Date of shipment
b. Place of shipment
c. Destination port
d. Shipper’s name
e. Receiver or consignee’s name
3. Merchandise Details
a. A detailed description of the merchandise supporting the HTS classification.
b. Shipping and packaging marks and numbers detailing contents of each package
c. Quantities in weights and measures
d. Country of origin
e. HTS Classification
4. Value of the merchandise
a. Unit and total purchase price
b. Currency of the sale
c. If not specifically included in the purchase price all charges including cost of packing, cases, containers, and inland freight to the port of exportation.
d. All rebates or commissions
e. All goods or services furnished for the production of the merchandise (e.g., assists such as dies, molds, tools, engineering work) not included in the invoice price.
f. Any discount allowed on the price of the merchandise
5. Name of a responsible employee of the exporter, who has knowledge, or who can readily obtain knowledge, of the transaction.
6. Invoice must be in English.
As a result of national trade policies and different fiscal policies within member countries of WTO people pay a premium on traded goods over what they pay for domestic goods. This added cost is not reflected evenly when the prices of traded goods are converted to the domestic currency equivalent at the official exchange rate, specially, in countries with two different exchange rates one official and a market rate. This premium which people are willing to pay for traded goods, then, represents the amount that is over priced in relation to non traded items when the official exchange rate is used to convert foreign exchange prices into domestic values. An alternative arithmetic formulation is to view the issue as comparative economics in a domestic market. California’s GDP if far greater than Florida’s where wages and tax revenue for state and local coffers have a “premium” for a price conversion factor in food, rents, transportation etc. However, the exchange rate of a dollar in California and one in Florida is the same but the purchasing power is different. If one multiplies by 1 plus the differential premium stated in decimal terms it would be similar lent to the adjustment of an exchange rate in commercial foreign trade for instance if the total is 8% higher it would become 1.08% over local price.
In the European Union (EU) countries, commercial trade that takes place among members taxes are based on a commodity code and Value Added Tax (VAT), but not an import duty. A business can reclaim the VAT paid if the goods are to be used in the business. However, tariffs apply when a EU country imports from a non-EU country. Customs, excise are paid at the point of entry before the goods are sold, while VAT and sales tax come into play at the point of sale.
“China Customs assesses and collects tariffs. Import tariff rates are divided into six categories: general rates, most-favored-nation (MFN) rates, agreement rates, preferential rates, tariff rate quota rates, and provisional rates. As a member of the WTO, imports from the United States are assessed at the MFN rate. The five Special Economic Zones, open cities, and foreign trade zones within cities offer preferential duty reductions or exemptions. The importer must provide proof of origin to Customs and Border Protection (CBP) in the form of a Certificate of Origin. “
TRUMP & VAT: NAFTA, TRADE BARRIERS & RETALIATORY TARIFFS
Boston University School of Law
Law & Economics Working Paper No. 17-06 Richard T. Ainsworth
Boston University makes the following legal argument regarding the posture Trump is taken on different tax regimes regarding NAFTA:
· Value added taxes (VAT) used in most of the world
· Retail sales tax (RST) used in the United States
“This import VAT is creditable/ recoverable for domestic importers, but not for U.S. importers from NAFTA. Can American manufacturing company move its operations to Canada or Mexico and gain an unfair advantage when selling their product back into the US VAT-free; that is, can a manufacturer unfairly benefit from the VAT refund aspect of border adjustment that is provided to exporters from VAT jurisdictions, as compared to comparable manufacturers producing and selling entirely within the US ? When transaction chains cross borders destination-based consumption taxes have some difficulties. Production is in one jurisdiction, and consumption is in another. But, once again, the RST and the VAT achieve the same tax result, although the VAT (unlike the RST) requires border adjustments to do so. This can be demonstrated through the common example.”
Suppose in this permutation there are two jurisdictions, A & B, each with a separate tax administration, and each with different applicable tax rates. Assume that the manufacturer and wholesaler are in jurisdiction A where the tax rate is 8%. Assume that the retailer and final consumer are in jurisdiction B where the applicable tax rate is 10%.
Figure 3 applies this permutation to the retail sales tax. No tax is collected in jurisdiction A, and the full tax of 19 cu is collected in Jurisdiction B. There is no need for a border adjustment.”
In closing, the issue of a tariff cost-benefit analysis gets murky for study when one considers the complexity of international trade and the trend towards globalized economies that have different fiscal policies but are trading with rules from WTO or agreement combination such as the EU or NAFTA that are also members of WTO. These taxation regimes need to be reconciled in order to avoid complex tax adjustments at border crossings. This is one of the burning issues now plaguing the UK and BREXIT.
No comments:
Post a Comment