TD/TC(99)7/FINAL Or. Eng. REVIEW OF TARIFFS SYNTHESIS REPORT. Or. Eng. TRADE DIRECTORATE TRADE COMMITTEE

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1 Unclassified TD/TC(99)7/FINAL TD/TC(99)7/FINAL Or. Eng. Unclassified Organisation de Coopération et de Développement Economiques OLIS : 02-Jul-1999 Organisation for Economic Co-operation and Development Dist. : 05-Jul-1999 Or. Eng. TRADE DIRECTORATE TRADE COMMITTEE REVIEW OF TARIFFS SYNTHESIS REPORT This document represents the final version of the Committee s analysis of tariffs in the post-uruguay Round trading environment. It builds on the analytical results that have emerged from the various elements of the Committee s work on tariffs. The document constructs an accu resource providing up-to-date information on tariffs in OECD and thirteen non-oecd countries following the implementation of the relevant Uruguay Round Agreements. Contact person: Raed Safadi tel: fax: e.mail: raed.safadi@oecd.org Document complet disponible sur OLIS dans son format d origine Complete document available on OLIS in its original format

2 TABLE OF CONTENTS EXECUTIVE SUMMARY... 6 INTRODUCTION... 8 A. Measurement issues and sources of data... 9 B. Methodological approaches to constructing the post-uruguay Round tariff profiles Zero-for-zero Information Technology Agreement Agriculture Tariff escalation CHAPTER I. POST-URUGUAY ROUND TARIFF PROFILES Section 1. Overall characteristics of the post-ur tariff regimes i) Scope of bindings ii) bound s iii) MFN versus bound s iv) Post-Uruguay Round tariffs in agriculture v) Quota fill Section 2. Overview of agricultural tariffs by country...20 Argentina Australia Bangladesh Brazil Canada Colombia Czech Republic European Union Hungary Iceland India Indonesia Japan Korea Malaysia Mexico New Zealand Norway Poland The Philippines Romania Sri Lanka Switzerland Thailand

3 Tunisia Turkey United States Venezuela Section 3. Tariff indicators i) Tariff dispersion ii) Non-ad valorem duties Section 4. The Information Technology Agreement: effects on tariffs CHAPTER II. IMPLICATIONS FOR TARIFF POLICY i) Products that remain unbound ii) Products with high bound tariff s iii) Products with low bound s iv) Products with mode bound s v) Tariff escalation Tables Table 1. Post-UR bound tariff by HS section, in per cent Table 2. Post-UR simple bound mean tariff s by HS section, in per cent Table 3. Tariff achievements, pre- and post-uruguay Round Table 4. Agricultural quota-based tariff Table 5. tariffs and tariff quotas in agriculture, in per cent Table 6. Ad Valorem tariffs on staple foods using world prices Table 7. Simple mean quota fill s by major product groups, Table 8. Per cent tariff reductions due to the ITA in the relevant sections Table 9. Main characteristics of unbound Table 10. Unbound tariff, by Chapter and by Country Table 11. Most frequently unbound tariff at the HS 6-digit level Table 12a. Distribution of affected by bound s in excess of 15 per cent across all 6-digit, in per cent Table 12b. Per cent of within the 6-digit HS that are affected by bound s in excess of 15 per cent Table 13a. Distribution of affected by bound s in excess of 10 per cent across all 6-digit, in per cent Table 13b. Per cent of within the 6-digit HS that are affected by bound s in excess of 10 per cent Table 14a. Number of Bound Industrial tariff at 6-digit HS affected by very low tariffs in the range > 0 and <= 3%, by country and at 6 digit HS Table 14b. Number of Bound Agricultural tariff at 6-digit HS affected by very low tariffs in the range > 0 and <= 3%, by country and at 6 digit Table 15a. Number of Bound Industrial tariff at 6-digit HS affected by low tariffs in the range >3 and <= 5%, by country and at 6 digit HS Table 15b. Number of Bound Agricultural tariff at 6-digit HS affected by low tariffs in the range > 3 and <= 5%, by country and at 6 digit Table 16. Number and characteristics of products with mode bound s, grouped according to the height of the difference between Bound and MFN s, by country Argentina Australia Brazil

4 Canada Hungary Iceland India Japan Korea Malaysia Mexico New Zealand Norway Poland Romania Switzerland Thailand Turkey United States Table 17. Post-Uruguay Round bound tariff s for selected products, by stages of processing128 Appendix Table 1. Tariff line characteristics by HS Section and by country Argentina Australia Bangladesh Brazil Canada Colombia Czech Republic EU Hungary Iceland India Indonesia Japan Korea Malaysia Mexico New Zealand Norway The Philippines Poland Romania Sri Lanka Switzerland Thailand Tunisia Turkey United States Venezuela Appendix Table 2. Tariff line intervals by HS Section, post-uruguay Round bound s

5 Figures Figure 1. Post-Uruguay Round bound tariff s, by main sectors Figure 2. Current applied MFN, and post-uruguay Round bound tariff s Figure 3. IQTRs and OQTRs in agriculture Figure 4. Tariff peaks, national and international definition, all Figure 5. National and international peaks in agriculture Figure 6. National and international peaks in industry Figure 7. Standard deviation of tariffs in the post-uruguay Round Figure 8. Transparency in tariff structure Figure 9. Post-Uruguay Round bound tariffs by stages of processing Figure 10. Post-Uruguay Round tariffs on capital, intermediate and consumer goods

6 EXECUTIVE SUMMARY 1. This paper is the Synthesis Report of the Trade Committee s project on tariffs. The objectives of the project are to analyse the tariff liberalisation achievements initiated by the Uruguay Round in OECD Member and major non-member countries, and to draw some conclusions in respect of the most important aspects related to tariff regimes at the turn of the Century. As such, the project is restricted to one aspect of multilateral market access negotiations in merchandise trade. The other aspect that concerns non-tariff barriers is currently under preparation in the Trade Committee. 2. The project started in late 1997 with the examination of the tariff regimes of the Quad countries [TD/TC(97)11/REV1]. Since, the tariff regimes of the non-quad OECD countries [TD/TC/WP(98)29] and those of thirteen non-oecd countries [TD/TC/WP(98)50 and TD/TC/WP(98)50/ADD1] have been examined. The analysis takes into account the full implementation of the Uruguay Round tariff commitments irrespective of when these will actually come into force. The analysis is not concerned with, nor does it address either the scope of future multilateral trade negotiations or their modalities. 3. The Report takes into account all the oral and written comments that were expressed during the discussion of the various elements of the project, including the proposal on how to structure this Synthesis Report [cf. Room Document Number 1 submitted during the Working Party meeting of 26 January 1999]. Thus, the Report has an introductory section that explains in details the sources and the nature of the data used in the study, and the methodological approaches taken in the analysis, including specific issues relevant to the overall analysis, such as the negotiated elimination of tariffs in some industrial goods sectors, the use of tariff quotas in the tariffication of some agricultural products, and issues related to the tariff analysis of the Information Technology Agreement. 4. The main findings of the study are covered in two main chapters. Chapter I reports all the tariff characteristics and indicators that have already been analysed in the previous four papers, including the scope and levels of bound s, the gap between mean bound and applied s, tariff line intervals, tariff dispersion and transparency. Chapter II then discusses some of the most important implications on tariff policy of the various tariff indicators. Specifically, these include the identification of specific product groups that reflect: (i) relatively high bound s, (ii) mode s, and (iii) those product groups where bound s are at very low levels; products that remain unbound are also identified, and so are issues related to tariff escalation. Throughout the study, a sepa treatment is accorded to industrial and agricultural tariff. 5. The most important findings of the study are: (a) Bound mean tariffs still exhibit wide-ranging variations, both across countries and across sectors within any one country. The overall mean bound in the Quad countries is 5 per cent; in the non-quad OECD countries it is 18 per cent, and in the 13 non-member countries that were examined, the overall bound mean reaches a high of 43 per cent. 6

7 (b) At the main sectors level, bound means of agricultural are: 8 per cent in the Quad, 42 per cent in the non-quad OECD countries and 63 per cent in the sampled non-member countries. The corresponding bound means of industrial are: 4 per cent (Quad); 14 per cent (non-quad OECD); and 39 per cent (13 non-members). (c) Tariff peaks continue to affect a number of sectors, both in industry and in agriculture. In OECD countries, high industrial peaks are found in such sectors as textiles, clothing, footwear and motor vehicles. In the non-oecd countries, tariff peaks more often than not characterise the majority of, often spanning as much as three-quarters of tariff. In both OECD and non-oecd countries, it is more often the case that the number of tariff with peaks in agriculture is higher than that found in industry. (d) Low tariffs, between 0.1 and 3 per cent, affect a large number of mainly in OECD countries. At the sectoral level, low bound s in the industrial sector are concentd in base metals and their products, mineral products, machinery and instruments. In agriculture, these affect mainly some vegetable products and agricultural raw materials. The number of duty-free and those affected by low tariffs is practically zero in all of the non-oecd countries that were examined. (e) In the majority of cases, post-uruguay Round bound tariff s remain higher than those that are currently applied on an MFN basis; and the gap between the two s remains large in many instances. In fact, this is the case in the majority of the 13 non-oecd countries that were examined (and some non-quad OECD countries); and not just in terms of the overall difference between bound and applied s, but also in each and every section of the tariff nomenclature. (f) A high dispersion of tariffs still characterises the tariff schedules of many countries. In addition, and despite major achievements during the Uruguay Round, tariff escalation remains prevalent in many sectors. (g) The tariffication of agricultural non-tariff barriers following the Uruguay Round Agreement on Agriculture has led to the introduction of high outside-of-quota tariff s, and in many instances the same characterises inside-of-quota s that were introduced to provide for minimum access. Even in the case of countries that did not introduce tariff quotas as part of the tariffication exercise, the agricultural negotiating modalities of the Uruguay Round still resulted in high agricultural tariffs. (h) In some countries, the agricultural sector (and some non-agricultural sections) contains a large number of with non-ad valorem duties. 6. These findings indicate that tariffs remain an important part of any future market access liberalisation effort. 7

8 INTRODUCTION 7. This paper is the Synthesis Report of the Trade Committee s project on tariffs. The objectives of the project are to analyse the tariff liberalisation achievements initiated by the Uruguay Round in OECD Member and major non-member countries, and to draw some conclusions in respect of the most important aspects related to tariff regimes at the turn of the Century. As such, the project is concerned exclusively with one aspect of multilateral market access negotiations in merchandise trade. The other aspect that relates to non-tariff barriers is currently under preparation in the Trade Committee. 8. The project started in late 1997 with the examination of the tariff regimes of the Quad countries [TD/TC(97)11/REV1]. Since, the tariff regimes of the non-quad OECD countries [TD/TC/WP(98)29] and those of thirteen non-oecd countries [TD/TC/WP(98)50 and TD/TC/WP(98)50/ADD1] have been examined. The analysis that has been undertaken throughout the project, including in this Report, takes into account the full implementation of the Uruguay Round tariff commitments irrespective of when these will actually come into force. 1 The analysis is not concerned with, nor does it address either the scope of future multilateral trade negotiations or their modalities. 9. The next two sections describe in details measurement issues, the sources and the nature of the data used in the study, and the methodological approaches taken in the analysis, including specific issues relevant to the overall analysis, such as the negotiated elimination of tariffs in some industrial goods sectors, the use of tariff quotas in the tariffication of some agricultural products, and issues related to the tariff analysis of the Information Technology Agreement. 10. Then, the main findings of the study are covered in two main chapters. Chapter I reports all the tariff characteristics and indicators that have already been analysed in the previous four papers, including the scope and levels of bound s, the gap between mean bound and applied s, tariff line intervals, tariff dispersion and transparency. Chapter II then discusses some of the most important implications on tariff policy of the various tariff indicators. Specifically, these include the identification of specific product groups that reflect: (i) relatively high bound s, (ii) mode s, and (iii) those product groups where bound s are at very low levels; products that remain unbound are also identified, and so are issues 1 Most cuts in bound tariffs are scheduled to take place in five equal annual reductions (with some exceptions in respect of some products) beginning in January 1995, the date of entry into force of the WTO. In principle, the final offer s will be in effect no later than 1 January 1999; however, some countries have negotiated later dead in respect of some industrial goods. Textiles and clothing products are to be gradually integd into the WTO in a four-stage phase-out over ten years, starting 1 January 1995 and ending 1 January 2005 under the supervision of a Textiles Monitoring Body. In agriculture, a gradual liberalisation process is under way, initially over six years for industrialised countries (i.e., final offer s will be in effect by January 2000) and ten years for developing countries (final offer s will be in effect by January 2004). The analysis followed here is based on the full implementation of the UR commitments, irrespective of when these will actually come into force. 8

9 related to tariff escalation. Throughout the study, a sepa treatment is accorded to industrial and agricultural tariff. 2 A. Measurement issues and sources of data 11. The information on tariffs is drawn from UNCTAD s Trade Control Measures Database (TCMD) as well as from the WTO Integd Database (IDB). TCMD is the most comprehensive database covering tariffs that is currently available. It covers all OECD Member countries as well as a number of non-oecd countries. The information is collected from governments, other official published sources and also from the WTO. The latest tariff information refers to the year The WTO IDB was used to obtain information on the Uruguay Round tariff commitments of WTO member countries. 12. UNCTAD s data are recorded at the national tariff-line level using the Harmonised Commodity Description and Coding System (HS) as of The Harmonised System is used by the World Customs Organisation and the world over for classifying merchandise trade. 13. A revised version of the HS was adopted on 1 January The new version replaced an earlier one that was adopted in It includes more detailed specifications to account for the incorporation of new commodities and the need for more detailed statistics for some product groups. The new reporting system is made up of 21 Sections, 97 Chapters (2-digit level), 1337 Headings (4-digit) and 5113 Sub- Headings (6-digit) Thus, using TCMD necessitated some manipulation to account for the changes that took place in the HS from 1992 to Specifically, at the 6-digit (sub-heading) level, 348 new were introduced in the 1996 version while 253 were eliminated, resulting in an increase in the total number of 6-digit sub-headings from 5018 in 1992 to 5113 in In addition, descriptions of 223 have been slightly modified. At the four and the two-digit chapter level, very minor changes took place Two additional observations related to measurement issues should be mentioned at the outset. First, the tariff information reported in this study refers only to import duty since information on other duties collected on imports is fraught with definitional and coverage problems. For example, one country in 1998 was levying nine sepa charges on imports at the border, including a customs duty, a 2 This study is concerned exclusively with tariffs. It does not address either non-tariff barriers, or domestic support and other measures that may be specific to any particular sector. 3 The Harmonised System has been replacing the Standard International Trade Classification (SITC) over the last decade. SITC Revision 3, comprising 4346 products, was based on HS SITC Revision 1 was introduced in 1960, and Revision 2, including 2582 products, in Most OECD Member countries adopted the SITC Revision 2 in Today, all Members make their foreign trade statistics available in the Harmonised System and most are also available in the SITC. 4 Two additional chapters might also appear in any one country s tariff schedule. These are Chapters 98 and 99 which are Reserved for special uses by Contracting parties. See Harmonised Commodity Description and Coding System, World Customs Organisation, Brussels, Detailed national tariff line data are available with the Secretariat. 9

10 municipality tax, a stamp duty, a wharf tax, a housing fund and a Support and Price Stabilisation Fund tax. These surcharges (commonly referred to as other duties and charges, ODCs) are at some times substantial, especially in the tariff regimes of non-oecd countries. For example, the average tariff in Costa Rica in 1987 was 24 per cent; however, when a temporary surcharge and other import charges were added, the average jumped to 92 per cent. 16. Some of these ODCs reflect fees for services rendered, such as stevedoring, warehousing, port handling charges and the likes. Additional charges may also include customs processing fees, consular charges and statistical taxes. WTO rules (GATT Article VIII: Fees and Formalities connected with Importation and Exportation) allow the imposition of some of these charges provided they are limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic producers or a taxation of imports or exports for fiscal purposes. 17. Some countries, including the majority of the non-oecd countries that have been examined, set some ODCs as a percentage of the value of imports. As such, they appear to be unrelated to the cost of the service and in some instances may lead to perverse results. For example, the paper work required for processing a container of matches and a tanker of petroleum may be the same, but surely a percentage charge yields widely different revenues. The Secretariat has tried to compile a comprehensive and up-todate list of ODCs the non-member countries that were examined levy on imports; unfortunately, these efforts did not succeed in eliminating major gaps in the data. 18. As a starting point, we examined the WTO s central registry of notifications. This registry has been created in the context of the Uruguay Round Agreements following a Ministerial Decision on Notification Procedures whereby WTO members are called upon to communicate to the WTO secretariat their adoption of trade measures that affect the operation of GATT An indicative list of notifiable measures has been annexed to the Ministerial Decision, and it contains a requirement to notify, among others, surcharges. 19. Following an in-depth examination of the WTO central registry, it became obvious that information on surcharges contained therein is scanty and at best selective. The Secretariat then investigated other sources. These included, inter alia, the WTO Trade Policy Review of countries, 6 the EC Market Access Sectoral Reports, the US National Trade Estimate Report and various press reports. Despite the Secretariat s best efforts, it was unable to ascertain that the information on ODCs is either comprehensive or up-to-date. One conclusion emerging from this exercise is that few non-oecd countries carry out their obligation to report ODCs to the WTO central registry, and yet fewer have taken to bind these in their schedules. 20. A final comment regarding the nature of the data reported here. We have not attempted to weight the summary statistics by imports, or by domestic production or by any other measure. For one thing, the focus of the exercise is on the tariff outlook in the post-uruguay Round trading environment; for another, the objective is not to impute the trade or welfare effects of tariff changes; rather, it is to identify sectors/products where tariffs remain of relative importance. 6 These reviews usually contain an inventory of all existing measures affecting imports, including surcharges. However, due to the fact that the Trade Policy Reviews of the selected non-member economies take place either every four or six years, not all of the information on surcharges is current. 10

11 B. Methodological approaches to constructing the post-uruguay Round tariff profiles 21. The massive reductions in tariffs, and the establishment of non-discriminatory tariffs as the principal means of trade protection, are commonly viewed as one of the most significant success stories of post-war trade policy and multilateral trade negotiations under the GATT. The Uruguay Round marked the eighth time that GATT members have negotiated reductions of trade barriers in a multilateral framework. The success of these multilateral trade negotiations (MTNs) has been remarkable. Prior to the Uruguay Round, seven Rounds of MTNs had succeeded in lowering the average (trade-weighted) most-favoured-nation (MFN) tariff s on industrial goods from a high of 40 per cent at the end of World War II to around 6 per cent at the end of the Tokyo Round ( ). And the Uruguay Round ( ) further reduced the average trade-weighted tariff s to 4 per cent. 22. The continuing reductions of tariffs under GATT auspices suggest that progress toward trade liberalisation has been steady and marked. It would also seem that the process has occurred reciprocally, among major trading nations. Two reservations can be registered from the analysis about this picture. First, the tariff reductions have not been even across countries, and for all products and sectors. Second, the practice of tariff escalation continues to affect some sectors. These two observations cast doubt on the popular assertion that tariffs no longer matter as an instrument of trade policy. An uneven tariff structure, with some high nominal s stratified along the different stages of production, can yield high levels of effective protection. 23. Most analysis of tariff s is necessarily aggregative. 7 However, such analysis misses much of the action that occurs at the very fine level of detail. In Chapter I, summary indicators of tariffs are presented with a view of setting the general framework of analysis. Then, the analysis will try to identify the most important features that characterise the tariff structures of the countries under investigation. 24. The analysis takes account of the way tariff reductions were negotiated in the Uruguay Round, and thereafter with the Information Technology Agreement, to the extent that this bears on the tariff-level outcomes. In industry, the UR negotiations resulted in tariff elimination for a number of sectoral product groups by some countries, and in reductions in bound tariffs of around one-third overall by OECD countries. Zero-for-zero 25. The zero-for-zero tariff commitments resulted in the elimination of tariffs on pharmaceutical products, construction equipment, medical equipment, steel, furniture, agricultural equipment, beer, distilled spirits, toys and paper. While this approach did not address non-tariff barriers to trade, its results in the reduction of tariff barriers are significant: nearly half of the imports of OECD countries of the above-listed products will enjoy, by the end of the Uruguay Round implementation period, duty free access regardless of the origin of imports -- this share is even higher if account is taken of imports that are subject to preferential access. 7 For example, the tariff schedule of the US distinguishes among 10,097 tariff, that of the EU contains 10,492, Japan (9,062) and Canada (8,399). 11

12 Information Technology Agreement 26. The Synthesis Report also takes into account the post-uruguay Round negotiations to establish duty-free trade on a sectoral basis for IT products through the Information Technology Agreement. 8 The ITA establishes tariff-free trade in six product groups: computers, telecom equipment, semiconductors, semiconductor manufacturing and testing equipment, software and scientific instruments. Participating countries agreed to bind and eliminate all customs and other duties and charges on information technology products by the year The elimination will be carried out on an MFN basis and has in fact begun on 1 July It is being realised in three additional stages with equal tariff reductions: the second started on 1 January 1998, the third from 1 January 1999 and the fourth (complete elimination) from 1 January The incorporation of the ITA tariff commitments in the respective national tariff regimes proved to be a difficult task as it would have involved some judgement calls on behalf of the Secretariat. This was due mainly to the fact that the ITA diverged from previous approaches to tariff negotiations in the sense that negotiators started out with a list of IT products rather than with their corresponding tariff. Once the Agreement was secured, member governments submitted their respective schedules based on their own national tariff nomenclature. In some cases, this meant adding new product to the national tariff schedule. Thus, for example Canada included a total of 348 (at the 8-digit 1996 HS) in its ITA schedule; the corresponding numbers for the EU and the US are 358 and 327, respectively. Japan submitted its own at the 6-digit HS, and thus the number of product categories was 80; in addition to these 80 product categories, Japan included a list containing product descriptions without any classification Since the Secretariat has reconstructed the national tariff schedules on the basis of the 6-digit product level using the 1996 HS nomenclature, rather than on the 8-digit, it was not possible to incorpo the ITA in the respective schedules of the countries in the sample. Thus, the tariff analysis in Chapters I and II does not take into account the achievements of the ITA. However, Chapter I contains independent analysis of the impact of the ITA on the overall tariff regimes of the concerned countries where we have assumed that all products at the 6-digit tariff line that have been specified in the ITA will be reduced to zero, irrespective of whether or not all of the corresponding 8-digit will be reduced to zero. This approach overstates the impact of the ITA and thus it describes a maximum case scenario. 8. As of March 1997, a total of 40 countries accounting for more than 92 per cent of world trade in IT products agreed to eliminate import duties and other charges on these products. 9 The parties to the ITA have also agreed to investigate non-tariff measures as part of the on-going ITA process. 10 For individual developing countries, tariff elimination were agreed to be specified differently: Costa Rica, Indonesia, India, Korea, Malaysia, Chinese Taipei, and Thailand have been granted flexibility in cutting their tariffs on a few products to zero after the year 2000 but not beyond The ITA affects mainly 3 chapters: HS 84, 85 and 90. One item in HS 38 (HS ), and another in HS 70 (HS and/or ) are also affected. 12

13 Agriculture 29. In the case of agriculture, border measures such as quotas and variable levies were converted to tariffs (tariffication). In most cases, the tariffication process involved the establishment of tariff quotas (TRQs), with specified access levels being provided at lower duties ( inside of quota tariff or IQTR), as opposed to the higher which is referred to as the outside of quota tariff (OQTR). 30. OQTRs are sometimes mixed tariffs: one part of the tariff is reported on an ad valorem basis, and the other as a specific. Most OQTRs and many IQTRs are not reported on an ad valorem basis. In order to assess the height of these tariffs, ad valorem equivalents of specific duties had to be calculated. This has been achieved using value and volume data that were reported by each country, generally for 1996 where available. Two points should be mentioned in this context: we have not attempted to project the calculated unit values to the end of the UR implementation period when applying them to the end-ofperiod bound s, given the inherent difficulties in such an exercise. Thus, AVEs were calculated using 1996 unit values combined with end of Uruguay Round implementation of bound s. No attempt has been made to infer these using either MFN s, or effective s (the ratio of duties collected to import values). 31. Estimates of AVEs of specific s must be interpreted with caution. One main source of uncertainty originates from variations in the incidence of tariffs as a result of fluctuations in prices and exchange s within a period. Another source of uncertainty arises when actual imports are negligible; in this case, the computed AVEs will be high and possibly not representative of the true incidence of specific s. Of course, the low levels of recorded imports may in fact be the direct result of very high duties. In addition, data allowing the imputation of unit values were not always available, and this remains the most important caveat in this exercise in the sense that the detailed analysis that follows does not take into account those agricultural tariff where an AVE could not be calculated. Thus, the analysis underestimates the remaining degree of tariff protection in the agriculture sector. In view of the complexity of issues regarding tariff- quotas and the relative high share of specific duties in agriculture as compared with industry, the Study includes a detailed review of these instruments at the country level. Tariff escalation 32. It has been noted that despite progress during the UR negotiations, tariff escalation remains a contentious issue among trading partners. The Secretariat has addressed this issue using two different methodologies. The first consists of identifying the appropriate stage of processing for each of the 5113 product classifications: products are classified as raw materials, semi-finished goods or finished products. At an aggregate level, one can therefore observe whether or not there is an overall occurrence of escalation. The methodology used for their identification was devised by the GATT Secretariat in 1980 in a study of tariff escalation issues faced by developing countries after the Tokyo Round The Secretariat has also calculated mean tariff levels at each of the three stages of processing for 13 agricultural and industrial product chains. Products at each stage of the processing chain of bovine meat, cocoa, coffee, cotton, iron leather, paper, petroleum, soyabeans, sugar, tobacco, wheat and wood have been identified. Stages of processing were identified for 23 product chains in SITC classification Summarised in COM.TD/W/315: Tariff escalation, Note by the GATT Secretariat, GATT, July For a full description of the classification scheme used in this exercise, see Safadi, R. and A. Yeats, (1994), The Escalation of Asian Trade Barriers. Asian Economic Journal, Vol. 8, Number 2, July. 13

14 For the purposes of this study, these products were concorded to HS 96 classification. Tariffs at each stage of processing for each product chain were averaged using a simple arithmetic mean. 34. A few specific points should be noted concerning the identification of the processing chains. First, the level of detail changes from chain to chain due to the nature of the classification system. That is, several chains like cocoa and wood contain three stages while others like coffee or petroleum only include an unprocessed and processed stage. Second, there is a leakage problem in some chains, i.e. some commodities may be production inputs for items not included in the chain s components and lost from the analysis. Third, additional information is lost in migrating from the SITC classification to the HS. Finally, it is impossible to extend this work to all processing chains since problems of identification exist. Some products in fact contain elements of several stages of a processing chain, or products of several product chains. Further difficulty is encountered when processing chains merge and produce a mixed product. 35. All of the above-listed factors are relevant to the construction of the overall and detailed profiles of post-uruguay Round tariffs for the countries covered in the study, in the sense that (i) in industry, it is possible as a result of some sectoral zero-for-zero UR outcomes to classify products/sectors according to zero post-ur bound s, relatively low bound post UR tariffs, mode and relatively high post UR tariffs; and (ii) for agriculture, it has been necessary to take account of the existence of dual tariff s for the tariffied products, that is the inside-of-quota tariff s and the outside-of-quota tariff s However, the breakdown of the overall prevailing post Uruguay Round tariff levels to a product/sector level is employed as an analytical tool to assist Delegations considerations of the future liberalisation agenda; and not to pre-judge sectoral or comprehensive approaches or modalities. 37. For ease of reference, all the tables and graphs that are referenced in the text have been issued in an Annex document with the code TD/TC(99)7/ANN. 14 The agricultural sector in this study is defined in the same manner as was set out in Annex 1 of the UR Agreement on Agriculture; i.e., it includes HS 01-24, excluding 03, plus , , 3301, , , , , 4301, , , , 5301,

15 CHAPTER I. POST-URUGUAY ROUND TARIFF PROFILES Section 1. Overall characteristics of the post-ur tariff regimes i) Scope of bindings 38. One of the main goals of the Uruguay Round was to raise the scope of tariff bindings. Low levels of bindings characterised especially the tariff schedules of non-oecd countries, where in many sectors tariffs were not legally bound. Accordingly, tariffs could potentially be raised, thus creating lack of security in market access As Table 1 shows, the goal of raising the scope of bindings was met with mixed results. Practically, the entirety of the tariff schedules of Argentina, Bangladesh, Brazil, the Czech Republic, EU, Mexico, New Zealand, Norway, Romania, the US and Venezuela has been bound. Similarly, the share of bound tariffs in Canada, Colombia, Japan, and Switzerland is at a minimum 98 per cent. Australia, Hungary, Iceland, Indonesia, Korea, and Poland have at least a 90 per cent share of bound. In contrast, the share of bound in the tariff schedules of Sri Lanka is a low 19 per cent, that of Turkey is 46 per cent, Tunisia (53%), the Philippines (63%), India (67%), Malaysia (70%), and Thailand (73%). 40. Another point to note from the data reported in Table 1 is that the extent of bindings is greater in agriculture than in industry. And this applies to all of the selected countries that have bound less than 100 per cent of their tariff (the only exception is Hungary where the reverse is true: 91% and 97 of the agricultural and industrial, respectively, have been bound). Even when the overall level of bindings is relatively low - such as in the cases of Sri Lanka, India, Malaysia, Thailand, and Turkey, the corresponding share of bound agricultural is in the ninetieth percentile. The high levels of bindings in agriculture represents a major achievement of the Uruguay Round since prior to it only 35 per cent of agricultural product were bound. ii) bound s 41. Table 2 reports simple bound means by HS section and by country. It is evident from the data that the tariff regimes of the selected countries exhibit wide-ranging variations, both across different sectors within any one country, and also across countries. It is also clear that the agricultural sector is afforded a much higher tariff protection than is the case for industrial imports save in the tariff schedules of Australia, Canada, Malaysia and New Zealand. In Bangladesh and Sri Lanka, the mean s in agriculture are practically equal to those in industry (84% and 50%, respectively). 15 In the developing countries schedules, the pre-ur share of bound tariff for industrial products was 21 per cent, and 18 per cent for agricultural products. The corresponding post-ur shares are 73 per cent and 100 per cent, respectively. 15

16 42. The simple bound mean for all products ranges from 4 per cent in the case of the United States, to 84 per cent in the case of Bangladesh. On a regional basis, the highest mean bound s are found in Asia (Bangladesh s mean bound is 84%, India s 67%, Indonesia s 39%, Malaysia s 16%, the Philippines 27%, Sri Lanka s 50%, and Thailand s 29%). All the Latin American countries included in the study maintain at a minimum a mean bound of 30 per cent (Argentina and Brazil); the corresponding s for Colombia and Mexico are 42 and 36 per cent, respectively and for Venezuela it is 37 per cent. The mean bound for all the OECD countries is 15 per cent (5% for the Quad and 18% for the non-quad OECD countries); that for all the thirteen non-oecd countries in the sample is 43 per cent. 43. The largest absolute difference between the simple bound means of the two main product groups (agriculture and industry) is found in Norway s schedule (almost 120 percentage points), Figure 1. That difference is also evident in the tariff schedules of Tunisia (76 percentage points), India (65 percentage points), Romania (64 percentage points), Colombia (52 percentage points), Korea (51 percentage points), Switzerland (49 percentage points), and Poland (42 percentage points). The largest relative difference between the two means is again found in Norway where the simple bound mean for agricultural imports is more than 36 times that of industrial imports. A large difference is also observed in the schedules of Switzerland (27 times), the EU, Korea, Poland and Iceland where the simple bound mean in agriculture is some 5 times that of industrial goods. iii) MFN versus bound s 44. Of all the countries in the sample, Canada, the Czech Republic, the EU, Hungary, India, Japan, Norway, and the United States are the only parties that have achieved increased levels of bindings together with reductions in the s actually in force (Figure 2). In all of the other countries schedules, tariff s have been bound at higher levels than their corresponding applied 1996 MFN s. 45. Between now and the end of the UR implementation period, mean tariffs will fall by a minimum of 44 per cent in Canada, 34 per cent in the US, 31 per cent in Hungary, 24 per cent in Japan, 22 per cent in the EU, 17 per cent in the Czech Republic, 14 per cent in Norway and India (Table 3). In all of the remaining countries, bound s are on average higher than their corresponding MFN s. At one extreme, Bangladesh has bound its tariffs at levels that were on average 56 percentage points higher than the applied ones. The same is true in the case of Turkey s schedule where the difference between the two means is 34 percentage points, Colombia and Tunisia (30 percentage points), Indonesia and Sri Lanka (26 percentage points), Romania (25 percentage points) and Mexico (22 percentage points). In the schedules of these countries, not a single product group at the Section level is affected by a bound that is equal to or less than the MFN one. 46. In contrast, in almost each of the product groups at the Section level imported into the EU, Japan, the US, the Czech Republic, Hungary and Norway, post-ur bound tariffs will be lower than those that are applied on an MFN basis (only one product group in Hungary s tariff schedule footwear and headgear, is bound at s higher than 1996 applied s; the same is true in Norway s Section 3 fats and oils, and 17 transport equipment). 47. The difference between 1996 MFN and post-ur bound s is very significant in the case of some HS 6-digit products, especially in agriculture. The largest difference can be found in Korea s schedule, where the MFN for other cereals (Section 02, HS100890) is 3 per cent and the bound is 800 per cent. In Korea s schedule, there are a total of 61 product groups at the HS 6-digit level where the difference exceeds 100 percentage points. Similarly, Iceland s schedule contains 56 product groups (at the HS 6-digit) that are affected by bound s that are at least 100 percentage points higher than 1996 applied s. The largest difference affects some sweetened milk and cream (Section 01, HS040130), for which 16

17 the MFN is 30 per cent and the bound is 563 per cent. The corresponding figures for Turkey and Norway are 184 and 19 product groups, respectively. For the remaining non-quad OECD countries, a maximum of 15 product groups per country are thus affected. 48. For the non-oecd countries, the largest difference between the two s is found in India s schedule, where the MFN for animal or vegetable fats and oils (Section 3, HS ) is 40 per cent and the bound is 300 per cent. In India s schedule, there are a total of 85 product groups at the HS 6 digit level where the difference exceeds 100 percentage points. For all the selected non-oecd countries, the largest (in excess of 100 percentage points) affect 178 HS 6-digit products. These products are exclusively agricultural: 52 product groups belong to Chapter 15 (animal or vegetable fats and oils), 30 to Chapter 04 (dairy produce), 19 to Chapter 11 (products of the milling industry). 89 % of the at the 6-digit where the difference exceeds 100 percentage points are located in Colombia and India s schedules (respectively 61% for Colombia and 28 % for India). iv) Post-Uruguay Round tariffs in agriculture 49. As noted in the introduction, as a result of tariffication in the Uruguay Round, the majority of countries in the sample use tariff quotas on certain agricultural products, consisting of an IQTR and an OQTR (see Table 4). In addition, the tariffication process allowed countries to claim special safeguards (SSG). 16 In some cases the SSGs is claimed even where no tariff quota is in place. In Table 4, the column pertaining to OQTRs consists of both tariff where there are IQTRs (thus, of course, OQTRs), plus other tariff that were tariffied and hence have the right to use the SSG. For this reason, the number of OQTRs is in some cases greater than that of IQTRs. 50. One important reason for this is that TRQs were in many instances defined at the product rather than the tariff line level. Even at the tariff line level, some countries (especially non-oecd Members) reported TRQ at the 4-digit HS; others, including the majority of OECD countries reported these either at the 8 or 10-digit HS line; yet another group of countries defined their TRQ in a mixed way: some were defined at the 4-digit HS and others at various levels of specificity (see for example the section on Poland below). Another example is one country that decided to exclude sheep meat from the TRQs for red meat or beef and actually charged the beef IQTR on all imports, but still retained the right to use SSGs on sheep meat. 51. In some schedules, a TRQ line (with both an IQTR and an OQTR) has been introduced for, say, cheese products but soft cheese was excluded from its coverage. In this case, only the OQTR applies to soft cheese (there being no corresponding IQTR), and in addition an SSG if applicable 52. The OQTRs have predominantly been expressed as a combination of an ad valorem and a specific, and have resulted in many instances in very high tariff protection. Figure 3 shows that where TRQs have been introduced, high levels of OQTRs have resulted in many cases. 17 OQTRs in Korea s 16 The SSG can be applied in response to either a fall in import prices (price-based) or an import surge (volume-based). It is worth noting that SSGs are neither an anti-dumping measure nor a countervailing duty type measure as there is no injury or subsidisation requirement. In cases where SSGs have been introduced, the resulting tariffs are applied on top of their corresponding OQTRs. 17 Argentina, Bangladesh, Brazil, India, Sri Lanka and Turkey did not introduce any TRQs in the tariffication exercise. 17

18 schedule are set at the highest levels of all the countries in the sample (366 per cent). Japan and Romania s mean OQTRs are 274 and 270 per cent, respectively (Table 5); Norway and Iceland s are in the per cent range, similar to those in Canada (203%). The mean OQTR for Indonesia, Colombia, Venezuela and Tunisia falls in the per cent range. OQTRs in the Czech Republic, EU, Hungary, Mexico the Philippines, the US and Australia are set at relatively mode levels. At 7 per cent, New Zealand s mean OQTR is the lowest among all the countries in the sample. 53. The data reported in Table 5 also show high levels of tariff protection outside the TRQs. India s schedule exhibits the highest mean tariff in agriculture by far (124%), as well as the second highest tariffs overall (after Bangladesh) despite the fact that India has no TRQs in place. The same can be observed in the cases of the other countries that have no TRQs in place: thus, Bangladesh has an overall mean bound in agriculture of 84 per cent, Turkey 64 per cent, Sri Lanka 50 per cent, Argentina 33 per cent, and Brazil 35 per cent. 54. Norway s mean bound in agriculture is equal to India s, though Norway s mean incorpos TRQ. Tunisia s mean is 117 per cent; Romania, Colombia, Bangladesh, Turkey, Korea, Switzerland, Venezuela, Poland and Sri Lanka have all a mean bound in agriculture in excess of 50 per cent. Australia, the US, Canada, Japan and New Zealand are the only countries in the sample with a single-digit mean bound in agriculture. On a regional basis, the mean agricultural tariffs in the OECD area is 36 per cent, and that of the non-oecd countries is 63 per cent. 55. An alternative approach to evaluating the incidence of specific tariffs without calculating AVEs is to compare specific duties against imports of basic foods (such as wheat, milk powders, etc..) with world market prices. 18 Table 6 shows existing patterns of protection via quota-based tariff in respect of some selected agricultural commodities This approach reveals some interesting issues. For example, although Korea uses tariff- quotas extensively, they are not placed on the traditional staple foods as is the case in the other countries. Tariff- quotas are only set against imports of barley and rice among the selected products shown in Table The mean IQTR and OQTRs for Poland that are shown in Figure 3 are based on ad valorem equivalents. Maximum and minimum tariff s are also present in Poland s OQTR schedule, and these are taken into account in Table 6. Because some of the minimum tariff levels are indeed lower than the corresponding market prices, tariffs charged on some goods are in fact significantly higher than what their ad valorem values would suggest (see below the section on Poland). The tariff actually charged is 18 This approach should also be treated with caution since world prices do in fact reflect the extent of policy interventions, including those from trade policy. 19 The world prices have been obtained as follows: for wheat, the price is the 1995/96 average of soft winter wheat no. 2, fob Atlantic ports, USA; for barley, it is the 1994/95 average of barley for feed no. 1, fob Thunder Bay, Canada; the sugar price is the International Sugar Association daily quote for 1995; cocoa is the ICCO daily price for 1996; beef meat is cif Australia, destination United States, 1996; skim milk powder, whole milk powder and butter are 1996 prices, fob Western Europe. Exchange s used were 1996 daily averages of spot s. The specific portions of OQTRs were converted using 1996 period average exchange s and the ad valorem parts of mixed tariffs were taken as a per cent of the corresponding world price. 18