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Know your (Import) Duties

The importance of import duty and how your business can adapt.

While some debate that the US-China trade war may be justified due to unfair trading and intellectual property theft or whether it is an unjustified measure to curb China’s rise to global economic power, ultimately it hurts the trade economy on the grassroot level – the local businesses and consumers [1]

us china trade war

But if the giants are fighting, would there be no end to the collateral damage? 

Well, not all is doom and gloom. Instead of letting trade policies go unchecked, the World Trade Organization (WTO) regulates international trade. What’s in it for importers? The WTO promotes principles of the trading system[2] and here are some principles that can work in your favor:

The WTO Principles
of the Trading System

Trade without discrimination

Predictability through binding & transparency

Promoting fair competition

Trade without discrimination

In trading locally produced vs foreign-imported goods, WTO’s principle of “national treatment” is given an equal amount of treatment as stated within all three of the WTO’s general agreements (Article 3 of GATT, Article 17 of GATS, and Article 3 of TRIPS). Toward this end, WTO members are obliged to comply to Article 3 of GATT[3] by providing equally competitive conditions regardless whether the products are foreign or local. By preventing protectionism in member countries, this discourages buyers from resorting to only locally produced goods. This prevents a disproportion between the lack of supply and overwhelming demand, which could eventually drive prices up, creating monopolies and transferring these costs to us, the consumers.

Therefore, regulation of import duties in accordance with WTO’s principle opens up opportunities for importers to be able to reach or have access to products that are equivalent in quality or better than locally produced ones. 

 

Predictability through binding and transparency

If countries were to freely dictate tariffs without due process or regulation, prices would fluctuate uncontrollably and without a ceiling, there would be no limit to tariffs imposed. In regulating this, the WTO conducts regular trade reviews through the Trade Policy Review Mechanism[4] requiring local governments to publicly disclose their policies and practices to enforce transparency. Meanwhile WTO members abide by “binding” goods prices to ceilings for import duty rates. In some circumstances however, binding may be exempted in cases of anti-dumping where the Anti-Dumping Agreement seeks to prevent material injury to domestic markets[5]. Yet, this is not imposed until thorough investigation has been performed.

This allows time for businesses to prepare, mobilize their workforce, plan investment portfolios, or even decide on building trade with new countries.

Thus, in the event of such new policies, importers are often encouraged to begin early preparations to buffer against the effects of such change.

 

Promoting Fair Competition

While the WTO is deemed the institution that promotes “free trade”,  the system allows for the imposition of tariffs and certain forms of protection – only in the spirit of encouraging fair trade and a measure against non-discriminatory treatment. This includes exclusions to allow governments to impose punitive measures on actions such as dumping to reduce goods’ market values. Yet this is not without a fair amount of due diligence where the AD Agreement does not arbitrarily apply AD import duties but requires detailed, substantive requirements[6]. What this means to importers is that while such tariff rates encourage healthy competition, their bottom line may be impacted due to increasing costs of imports.

Therefore, they would need to pivot to explore alternative manufacturers who still comply with WTO’s trade guidelines yet look out for each other’s best interests.

In a nutshell, while import duties may have some impact on imported goods, it does not spell certain doom for businesses. Now we know why certain trade policies are in place, as importers and distributors, one can begin making informed decisions when there are shifts in the economic landscape; to be open to opportunities beyond home, make early preparations in light of these changes, and PIVOT! 

[1] US-China trade war: ‘We’re all paying for this’, Harrison, V.; https://www.bbc.com/news/business-49122849

[2] Principles of the trading system, World Trade Organization; https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm

[3] National Treatment, World Trade Organization; https://www.wto.org/english/tratop_e/dispu_e/repertory_e/n1_e.htm

[4] Trade policy reviews: ensuring transparency, World Trade Organization; https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm11_e.htm

[5] Anti-dumping, subsidies, safeguards: contingencies, etc, World Trade Organization; https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm

[6] WTO AGREEMENT ON ANTI-DUMPING, International Trade Administration; https://www.trade.gov/trade-guide-anti-dumping

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