Removing Barriers to Free Trade: GATT

The dismal failure of the Smoot-Hawley Tariff was the main reason the General Agreement on Tariffs and Trade (GATT), a regular international conference to reduce trade barriers was established in 1947 immediately following World War II.

Tremendous gains in reducing barriers to free trade have been made in recent years. Much of the credit for free trade must go to the work of an international organization known as "GATT." In 1947, the General Agreement on Trade and Tariffs (GATT) was drafted in Geneva, Switzerland, and was signed by 23 nations, including the United States. It is a uniform system of rules for the conduct of international trade by which all member nations abide. GATT went into effect in 1948. Since 1948 membership in the GATT system has grown to 96 nations that account for about 80 percent of world trade.

A major function of GATT is trade liberalization, which it accomplishes through periodic negotiations among members to lower tariffs. GATT has sponsored seven "rounds" of tariff reductions. The inaugural round of tariff reductions occurred as a result of negotiation in Geneva in 1947. The most recent round of tariff reductions, "the Uruguay Round," was launched in 1986 and ended in 1990. Each round of tariff reductions is accomplished through long and sometimes excruciatingly painful negotiations that address a number of specific areas. As a result of GATT tariff reductions the average tariff rate on dutiable imports coming into the United States fell from a level of nearly 30 percent just after World War II to a current level of less than 4 percent.

However, despite the work of GATT, many barriers to international trade remain. Some observers argue that protectionism may even have increased in the 1970s through nontariff barriers to international trade that are often hidden from view. Major forms of nontariff barriers to free international trade include:

1. Import quotas and other import policies that restrict free entry of imported goods and services.

2. Standards, testing, labeling, and certification requirements that make it difficult for foreign products to enter foreign markets.

3. "Buy National" government procurement policies that prevent foreign suppliers from bidding for government contracts.

4. Export subsidies: Policies that lower the price of a nation's exports often below unit costs of production, making it difficult for other nations to compete in international markets where the subsidies prevail. This problem is particularly severe in agricultural markets.

5. Lack of intellectual property protection: inadequate patent, copyright, and trademark protection in some nations leads to "pirating" of developed products and ideas without compensation to the creators. This inadequacy reduces exports of intellectual properties from the nations in which they were created.

6. Services barriers: restriction of international flow of data and data processing.

7. Investment barriers: these make it difficult for one nation to acquire stocks or build facilities in another foreign nation.

In 1995 the World Trade Organization (WTO) replaced GATT. WTO is an organization whose functions are generally the same as GATT to promote free and fair trade among countries. Unlike GATT, the WTO is permanent organization with an enforcement system. Since then, rounds of negotiations have resulted in a decline in world wide tariffs.

Nations levy tariffs on both imports and exports, but the import tariff is by far the most important in practice, and it is the one we will emphasize.

Import tariffs may be:

ad valorem (a percentage of the value of the imported article);

specific (a given amount of money per unit);

compound (a combination of ad valorem and specific, such as 10 percent ad valorem plus $0.20 per yard of cloth)

Ad valorem tariffs have the administrative advantage of rising automatically with inflation and of taxing different qualities of products at the same percentage rate A tariff of 10 percent on wine produces proportionally more revenue as the price and quality of imported wine rise.

A specific tariff will not have this effect It will therefore decline in real terms in periods of inflation and will severely restrict imports of lower priced items within a product category while having little effect on expensive items A tariff of $2 per bottle on wine would be prohibitive for inexpensive wines from developing countries, but would have very little impact on imports of high-priced wines from France. Such a tariff discriminates against producers and consumers of the cheaper wines.

The disadvantage of an ad valorem tariff is that it creates opportunities for cheating through what is called false invoicing or transfer pricing. If a misleading low price is shown on the shipping invoice, part of the tariff can be avoided A 10 percent tariff on cars, for example, might encourage both car exporters and their customers to invoice the cars $1000 below their true value, thus saving $100, with a later fictitious transaction being used to move the $1000 as well as part of the $100 back to the exporter. A specific tariff of $500 per car would avoid this problem, because the customs officials would simply collect $500 times the number of cars driven off the ship and have no interest in the value of each car.

Some countries that believe they have been victimized by under invoicing of imports refuse to accept normal documents showing the price of products being imported, and use their own customs valuation procedures to set the prices to which ad valorem tariffs will be applied. Such procedures are often arbitrary and result in tariff rates that are much higher than those that arc supposed to apply. If the customs officials can simply decide that products are worth three times their actual value, a seemingly low tariff rate becomes very high. Customs valuation procedures are frequently a source of conflict in international trade, but there is a presumption that invoice prices will be accepted unless the government of the importing countryhas a clear reason to believe that those prices are not a fair representation of value.

The disadvantage of an ad valorem tariff is that it creates opportunities for calling false transfer price. Some countries decided this problem by using the list of prices (their own prices) foe importing production. But the result of this is that tariff is much higher than usual. That is why customs valuation producers are a source of conflict in international trade.

A tariff – is a tax, collected by customs officials at the place of entry.

Дата добавления: 2015-11-14