Higher tariffs on goods from poorer countries

This January the US imported almost $3 billion in goods from France and almost $0.2 billion in goods from Cambodia.  She collected about $30 million in tariffs on the imports from each country.  In fact she collected slightly more from Cambodia.

The staff of the Progressive Policy Institute (PPI) explain why: The United States Collects More Tariffs on Cambodian Goods than on French Goods (PPI's "Trade Fact of the Week" for March 22):

Why the disparity? Two reasons.

1.) The American tariff system: The 12 international trade agreements since World War II have eliminated most of America's technology- and heavy-industry tariffs. They have, however, left most shoe and clothing tariffs alone, even as employment patterns have shifted. (In 1974, the garment industry employed 1.4 million people; now it has 250,000.) Thus the United States collected about $23 billion in tariffs last year, and over $10 billion came from shoes and clothes, which together accounted for $94 billion in imports. Meanwhile, $307 billion in imported computers, steel, airplanes, semiconductor chips, medicines, and cars raised about $2 billion in tariffs. Cambodia and other low-income countries make high-tariff clothes and get hit hard; France and other rich countries specialize in low-tariff luxuries and technology products that flow freely across borders.

2.) The gap in trade/development programs: Low-income Asian, Muslim, and Pacific island states, unlike low-income African and Latin American countries, have no special tariff benefit. About 15 (e.g. Cambodia, Bangladesh, Fiji, Indonesia, Laos, Mongolia, Nepal, Pakistan, Palau, Sri Lanka) get especially tough treatment. You may enjoy a subscription to this free weekly newsletter.  Each week the PPI starts from some fact or statistic, explains its significance, and provides links to further reading.  These are short, lively, invariably entertaining newsletters.

Stiglitz and Charlton explain the relatively higher barriers to imports from developing countries in terms of the history of multilateral trade negotiations:

Developing countries played only a small role in the seven rounds of trade negotiations in the first 20 years of  the GATT.  To the extent that they participated at all, they campaigned for special treatment.  This took the form of preferential access to the rich countries' markets at tariff rates below those applied to other countries... and exemptions from GATT rules.  Article XVIII in the GATT rules provided developing countries with differential treatment.  Among other exceptions, it allowed economies 'which can only support low standards of living and are in the early stages of development' to 'implement programmes and policies of economic development designed to raise the general standard of living of their people, to take protective or other measures affecting imports.'  This recognized the right of developing countries to impose quantitative and other restrictions to protect infant industries.  Because of Article XVIII, developing countries could simultaneously be members of the GATT and evade the obligations imposed on developed countries.

This special status gave developing countries more freedom in determining their own development policies, but it simultaneously allowed them to be marginalized within the substantive negotiations.  Even in the absence of their special status, tariff negotiations do not offer many incentives for smaller economies to participate actively, because they have little to offer large markets in reciprocal negotiations.  But when exemptions freed developing countries from the requirement of reciprocity, their 'commitments' became almost meaningless because they were at liberty under the special arrangements to raise tariffs or introduce other protection at their own discretion.  They therefore had relatively little bargaining power within the GATT rounds because their concessions were of doubtful value.   They had no 'skin in the game.'

A passive strategy within the GATT negotiations actually suited some of the largest developing countries... which, until the 1980s, did not see international trade as their primary engine of growth.  Instead they pursued policies of 'import substitution'...

The developed countries were far more interested in each others' markets than in those of developing countries.  Bergsten (1998) describes the history of the post-war multilateral trading system in terms of the power relationships between the rich countries, particularly the EU and US.  He argues that the initial creation of the European Common Market in the late 1950s was one of the key motivations for the American initiative to launch the Kennedy Round in the early 1960s.  The US wanted to reduce the newly created discrimination against American exports, and also to build the 'new Atlantic partnership' enunciated by President Kennedy.  Similarly the expansion of the European Community to include the United Kingdom and others, with the extension of its discrimination to important new markets, was an important factor in the American decision to insist on the Tokyo round in the 1970s.  Thus the primary concern of developed countries was to gain access to other developed markets and the reform agenda focused on efforts to liberalize those goods traded intensively between developed countries.

Together these factors explain the peripheral role of the developing countries in most of the GATT negotiations.  As a consequence, over several rounds of agreements, the world trading system was tailored to the interests of the developed countries, who had, participated intensively in the negotiations.  Protection was progressively reduced on the goods of export interest to developed countries, but remained on goods exported intensively by developing countries...

Joseph Stiglitz and Andrew Charlton, Fair Trade for All: How Trade Can Promote Development , Oxford U Press, 2005. pages 43-44.

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Comments

[Colm]

Great post! I owe you a Hat-tip from my blog