Tariff rates are bound by MFN requirements: thus, all regional trade agreements, free trade agreements and preferential trade agreements seem to conflict with MFN – they give certain members lower tariff rates than others.
- However, there are two ways to get around this:
- Rule of Origin stop the practice of Trans-Shipment (using roundabout routs to minimise tariffs).
- E.g. for an item to be “Australian”, there must be a tariff category transformation, merely shipping does not change anything.
- This has been a problem with developing countries, since they can’t trade within each other and retain market access
Reciprocal Trade Agreements
- Article 24allows reciprocal trade agreements, but on the following requirements:
- 24:8:(i) Duties are eliminated with respect to substantial all the trade between the constituent territories
The Enabling Clause/GSP
Differential and more favourable treatment reciprocity and fuller participation of developing countries
- Must involve a developing country member (Art. 1)
- Differential treatment, here, must:
- facilitate trade for developing members (Art. 3:a)
- Developed countries involved should not except reciprocity (Art. 5)
- You can choose the areas opened in a Preferential Trade Agreementunder the Generalised System of Preference
- Thus, only less important industries are often liberalised
- Although, with regards to LDC’s “everything but arms” and “Duty Free Quota Free” is gaining traction
- Although India has been protesting about Bangladesh’s increased access to the US market
- Preferences given under the enabling clause used to be worth more, but since tariff rates are eroding (with NAMA tariffs averaging at less than 4%), the comparative advantage it gives developing countries is eroding
- Increasing tariffs is out of the question
- technical assistance for SPS/TBT adherence
- technical assistance for capacity building
India – EC – GSP case
India won a case saying that GSP preferences should be applied to all developing countries, and won.
Spaghetti bowl problem
- The MFN rate is no longer the rate
- Increasingly, FTA rates complicate the matter, and not all FTA’s were registered
- Recently, there was a crackdown of registration
- In the future, perhaps harmonisation, but currently not on the table