According to a report published on the World Trade Organization (WTO) website on 1 November 2016 the majority of the participants in the expanded Information Technology Agreement (ITA) have implemented their tariff commitments under the agreement and full implementation will be achieved in the near future.
The expanded ITA provides for the elimination of the import tariffs and other duties and charges on a further 201 categories of information and communication technology products with immediate effect in some cases or over three years in most others. That means that more than 95% of the tariffs on these categories of products will be completely removed by 2019, with the remaining tariffs on a small proportion of products being eliminated by 2021 or at the latest 2023.
The products on which tariffs are to be eliminated under the expanded ITA are in total valued at more than USD 1.3 trillion in annual trade globally, in addition to the products covered under the original ITA concluded twenty years ago. The agreement will be implemented by 53 WTO members but the benefits of tariff elimination will extend to all WTO members so they will all be given duty-free access to the markets of the members eliminating the tariffs in relation to these products.
On 2 November 2016 the World Trade Organization (WTO) issued the latest expanded edition of its annual publication World Tariff Profiles. This publication provides tariff and non-tariff information on more than 170 economies worldwide and is issued in cooperation with UNCTAD and the International Trade Centre (ITC). The ITC is a joint agency of the WTO and UN aiming to assist small business exports in developing countries.
The publication gives summaries of average tariffs and more detailed analysis of various tariff categories. The detailed information refers not just to the tariffs a country imposes on goods imported into it but also the tariffs the country faces when exporting to its main trading partners.
An expanded section of the report details non-tariff measures. This section points out that the impact of tariffs has been reduced by the rounds of multilateral tariff reductions and that non-tariff measures are therefore becoming more important. However the range of non-tariff measures and their complexity makes it difficult to identify their existence or application.
Quoting the Group of Eminent Persons on Non-Tariff Barriers the report notes that non-tariff measures can be defined as policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods; change quantities traded; or both. Non-tariff measures include technical requirements relating to Sanitary and Phytosanitary (SPS) measures; and Technical Barriers to Trade aiming to protect health, safety or the environment.
The classification of non-tariff measures divides import-related measures into technical and non-technical measures. Non-technical measures include price control measures; measures affecting competition; distribution restrictions; subsidies (excluding export subsidies); restrictions related to intellectual property rights; and rules of origin. Statistical information is given in the report on three of the most well defined non-tariff measures, these being anti-dumping measures, countervailing duties and safeguard measures. These are similar to tariffs measures as they act through a tariff rate or price surcharge. Included as a separate category are export-related measures including export taxes, quotas or prohibitions.
Harmonized system for classification
The publication includes details on the new version of the Harmonized Commodity Description and Coding System that enters into force from 1 January 2017. This new version contains 233 amendments to the previous (2012) version. Some of these amendments clarify terms in product descriptions and notes; and others are structural changes modifying the product scope of headings and subheadings.
A large number of the changes were proposed by the Food and Agricultural Organization (FAO) of the UN and relate to fishery, fertilizers, agricultural machinery and forestry products, with additional subdivisions to improve the monitoring of trade in these products for food security reasons. Another set of amendments relates to environmental and social concerns with changes to the classification of chemical products such as chemical weapons, persistent organic pollutants, pesticides and narcotics.
The Appellate Body of the World Trade Organization (WTO) provided its report on 14 April 2016, regarding “Argentina – Measures relating to trade in goods and services” case brought by Panama.
In the case concerned, and in relation to Argentina’s obligations under the General Agreement on Trade in Services (GATS), Panama claimed that all eight challenged measures were inconsistent with article II(1) of the GATS, because the measures accorded less favorable treatment to services and service suppliers from non-cooperative countries than that accorded to like services and service suppliers from cooperative countries.
Panama also claimed that some of the measures were inconsistent with Article XVII of the GATS, because the measures accorded less favorable treatment to services and service suppliers from non-cooperative countries than that accorded to like domestic services and service suppliers.
Summary of the case:
On 31 December 2013, General Resolution (AFIP) 3576 was published in the Official Gazette and authorized the publication, on 1 January 2014, of the list of jurisdictions considered to be cooperative for purposes of tax transparency on the tax authority’s website. That list was published in accordance with Executive Power Decree 589/2013. This Decree provided that jurisdictions not included in the list were considered to be non-cooperative for international transparency purposes, which implied the application of specific defensive tax law provisions, some of which were challenged by Panama. In order to be considered cooperative a jurisdiction must have entered into a tax information exchange agreement or a tax treaty with an exchange of information clause, and the exchange of information must be effective.
The measures challenged by Panama include mostly anti-avoidance tax measures applicable to transactions with “non-cooperative” jurisdictions, but also other insurance, anti-money laundering or registry of companies’ regulations. A summary of the challenged anti-avoidance tax measures is set out below.
1) A non-rebuttable presumption that payments made by Argentine residents to creditors located in non-cooperative countries in certain transactions represent a net gain of 100% for the purpose of determining the tax base for income tax, applied pursuant to article 93(c) of the
2) A rebuttable presumption of unjustified increase in wealth applicable to any entry of funds – for the benefit of Argentine taxpayers – from non-cooperative countries in the context of an ex officio determination of the taxable subject matter by the tax administration for the purpose of income tax, applied pursuant to the unnumbered provision added after article 18 of the Tax Procedure Law (presumption of unjustified increase in wealth).
3) The obligation to apply valuation methods based on transfer pricing to transactions between Argentine taxpayers and persons of non-cooperative countries (irrespective of whether they are related or not) for the purpose of determining the tax base for income tax, applied pursuant to article 8(5) and article 15(2) of the Income Tax Law.
4) The allocation of expenditure for transactions between Argentine taxpayers and persons of non-cooperative countries to the fiscal years in which payment for the transactions actually takes place (disallowing the accrual method) for the purpose of determining the tax base for income tax purposes, applied pursuant to the last paragraph of article 18 of the Income Tax Law.
Finally, the Appellate Body overturned the WTO Panel’s conclusion that the challenged measures were inconsistent with the GATS. This consequence equally may be understood as an indirect confirmation that Argentina’s tax defensive measures in relation to tax havens are in accordance with the OECD’s recommendations and international practice.
The fifth meeting of ministers of landlocked developing countries (LLDCs) was held on 23 June 2016.
Trade is a driver of inclusive growth and is key to achieving the Sustainable Development Goals. However the LLDCs face very high trade costs that can be twice as high as those of coastal developing countries according to an estimate by the World Bank. The landlocked developing countries accounted for only 1.2% of global merchandise exports in 2014. Coastal counties do more than 50% more trade than the LLDCs.
The WTO Director General suggested that international cooperation is important and the WTO can contribute in a number of ways including through capacity building. The Aid for Trade initiative has mobilized resources for capacity building and trade related infrastructure. LLDCs are a beneficiary of the program. The Aid for Trade work continues in 2016 and 2017 under the theme of Promoting Connectivity and the sixth global review of Aid for Trade is to be carried out in the summer of 2017.
Trade Facilitation Agreement
The Director General pointed out that the Trade Facilitation Agreement concluded at the Bali conference would help LLDCs by streamlining, standardizing and simplifying customs procedures resulting in reduced compliance costs at the borders. The agreement when implemented could reduce trade costs for LLDCs by an average of more than 15% (19% for manufactured products and more than 11.5% for agricultural products). As a result of the reduced compliance costs smaller enterprises could trade internationally.
The issue of goods in transit is particularly important for LLDCs. Under the Trade Facilitation Agreement countries would not apply their technical regulations and standards to goods in transit, an issue that is crucial for LLDCs. The agreement also envisages capacity building support for implementing the reforms required under the agreement. Support can be accessed through the Trade Facilitation Agreement Facility in the WTO. Twenty-five LLDCs are members of the WTO and the Director General encouraged them all to ratify the Trade Facilitation Agreement as soon as possible to help bring the agreement into force at an early date.
The Director General also referred to the abolition of agricultural export subsidies agreed at Nairobi in December 2015, describing it as the biggest reform in agricultural trade rules in the past twenty years. This was also an element in the Sustainable Development Goals.
The WTO members also agreed at Nairobi to permanently resolve the issue of public stockholding for food security purposes and work out a special safeguard mechanism for times when there are surges in imports of food products that could threaten domestic production. Also at Nairobi the WTO members agreed to eliminate tariffs on a large number of new generation information technology products.
WTO member countries have suggested other issues that should be discussed at the WTO including inclusion of micro, small and medium enterprises (MSMEs); investment facilitation; e-commerce; private standards; and trade finance. The members must however be more specific on the particular issues they wish to consider. The Director General encouraged the LLDCs to ensure that issues important to them are reflected in future WTO discussion.
One example is the issue of e-commerce which can help LLDCs to overcome barriers to international markets, especially in the case of the services sector. Also trade finance is an issue of importance to LLDCs as they have difficulty in accessing finance on affordable terms. Improvements in the provision of trade finance would further help enterprises from LLDCs to reach international markets.
At the World Trade Symposium of 7 June 2016 on “Trade and Globalization in the Twenty First Century: The Path to Greater Inclusion” the Director-General of the World Trade Organization (WTO) spoke about current progress and remaining issues in global trade.
In the current economic climate international trade can be a driver for growth, development and job creation. Growth in trade has been hit hard as developed countries recover from the crisis and developing economies reach maturity. Global trade grew by around 2.8% in 2015 and is expected to remain about the same in 2016. This means that global trade is growing at around the same rate as GDP.
Some action can be taken to help the growth of global trade, such as countering restrictive trade measures. The WTO regularly monitors such restrictive trade measures. At the end of last year only 25% of the restrictive measures recorded since October 2008 had been eliminated, and the situation has not changed much since then, so around 75% of the restrictive measures remain in place.
The best safeguard against protectionism is a strong multilateral trading system. A number of liberalization measures have been introduced in the past few years including:
- The Trade Facilitation Agreement which could reduce average global trade costs by more than 14%;
- The agreement by WTO members to abolish export subsidies in agriculture which is the biggest reform to trade in agricultural goods in the past twenty years;
- The agreement by a group of WTO member countries to abolish tariffs on a number of new general information technology products which is the first tariff-cutting deal in the WTO for the last nineteen years. Trade in the IT products that are the subject of the agreement is worth USD 1.3 trillion dollars per year; and
- Talks are continuing with a view to concluding an Environmental Goods Agreement and further progress on this will be made during the current year.
More can be done to strengthen the global trading system. Global trade is still restricted by high tariffs, many of which are imposed on goods that are important to developing and least developed countries. Another area that could be improved is non-tariff measures. It is estimated that in 2010 the trade costs for developing countries were the equivalent of a 219% import tariff, and the Director-General considered that a cut of just 1% in trade costs would represent a 3% to 4% increase in trade growth. Global trade and investment growth is also hindered by restrictions on trade in services.
The growth in regional trading agreements is a challenge. Although this can support multilateral trade agreements it can also throw up issues such as trading rules in areas not covered by the WTO. Work must be done to ensure coherent rules in these areas so businesses are not weighed down by a patchwork of different rules that require increasing compliance costs.
The Director-General referred to some negative perceptions of global trade. Imports are often blamed for reducing employment whereas the real reason is often new technology and increased productivity. Another problem is that while the benefits from trade are evident across the whole economy there are specific groups that can be hard hit by increased competition and this impact must be mitigated by governments. Also international trade is seen as favorable for large enterprises but much more difficult for small and medium enterprises (SMEs). This issue needs to be dealt with so trading across borders is not seen as more costly for SMEs. Other issues that could be tackled in future by the WTO include fisheries subsidies, competition policy, investment facilitation, e-commerce and non-tariff barriers.
The World Trade Organization (WTO) conducted a review of the trade practices of the United Arab Emirates (UAE) on 1 and 3 June 2016. The review was conducted on the basis of a report prepared by the WTO secretariat.
Real GDP growth in the UAE averaged 4.5% annually between 2010 and 2014 but declined to 3.1% in 2015. Growth has been led in recent years by non-hydrocarbon sectors and this indicates successful diversification of the UAE economy. The oil price fall in 2014 affected government revenues in 2015 and a fiscal consolidation program was introduced to control public spending.
Trade and investment policy is focused on diversification with emphasis on improving competitiveness and on high technology sectors. The free zones and special economic zones offer advantages for investment with no corporate or personal income taxes, exemptions from customs duties and exemptions from some domestic regulations. Foreign ownership in the zones is not limited to 49% as it is outside the zones. Around two thirds of exports of non-oil products are from the free zones.
The UAE is a member of the Gulf Cooperation Council (GCC) and applies the Common Customs Law and common external tariff and other common rules on trade. The GCC is a party to free trade agreements with the EFTA states and with Singapore. Under the GCC common external tariff most products are either duty free or subject to a 5% tariff. Almost all tariffs are below their bound rate (the bound tariff is the maximum level to which the MFN tariff could rise on a given commodity). There are however 19 product lines with a minimum specific duty (so the ad valorem rate on these could be greater than the 200% bound duty).
The customs authorities of each Emirate are responsible for applying the GCC Common Customs Law. Dubai and Abu Dhabi have introduced electronic systems for customs declarations. The UAE is to launch an authorized economic operator (AEO) program, with a pilot program beginning with Dubai Customs.
Owing to the successful diversification strategy the UAE has managed the consequences of the low oil price while maintaining growth and investment. The UEA may need to speed up reforms such as full implementation of competition policy and easing restrictions on foreign investment, including relaxing the requirement for majority ownership by UAE nationals, and further improvements to the business climate.
The World Trade Organization (WTO) Trade Dialogues event held on 30 May 2016 gave business leaders an opportunity to discuss the challenges they face and the role of the WTO in helping to overcome the problems.
The business representatives noted that the issues surrounding the Doha agenda are still important. They urged the WTO to take action on trade finance and form a plan to fill gaps in export financing. Ratification of the Trade Facilitation Agreement and the provision of capacity building assistance for its implementation were also seen as important. The leaders saw a need to address non-tariff barriers to trade as these can be a problem for small enterprises in particular.
The business leaders requested the WTO to work on enhancing transparency and nondiscrimination in e-commerce, simplifying regulations and facilitating the inclusion of micro, small and medium enterprises (MSMEs) in e-commerce. The WTO could cooperate closely with other international organizations and discuss the establishment of global rules on e-commerce and cross-border data flows.
The WTO could develop an investment facilitation framework to improve transparency and information sharing and simplify administration procedures for national investment regimes. An integrated WTO portal could set out the trade and investment policies and regulations of member states. Clear principles could be developed for policy-making in relation to investment; and investment protection could be protected by a standard model for investment disputes.
Trading conditions for MSMEs
Conditions for MSMEs should be given more priority in WTO discussions and work could be done on improving the regulatory environment for MSMEs, for example by digitalizing government processes, improving access to public procurement and reducing compliance costs. The WTO could work on developing capacity building to facilitate the inclusion of MSMEs into global value chains. Better trade financing for MSMEs is also an issue that could be considered.
A further point made by the business leaders was that the WTO should engage more actively with the business community to explain its work.