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Market Access: What’s At StakeMarket Access: What’s At StakeMarket Access: What’s At StakeMarket Access: What’s At Stake

Christopher A. PadillaChristopher A. PadillaCo-Chair, WTO Working GroupCo-Chair, WTO Working Group

National Foreign Trade Council (U.S.)National Foreign Trade Council (U.S.)

April 2002April 2002

Christopher A. PadillaChristopher A. PadillaCo-Chair, WTO Working GroupCo-Chair, WTO Working Group

National Foreign Trade Council (U.S.)National Foreign Trade Council (U.S.)

April 2002April 2002

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Tariffs Remain An IssueTariffs Remain An Issue

Implied Tariff Collections, 1995

190

87

5.8

0

50

100

150

200

$US

Bill

ion

s

Industrial

Agriculture

Minerals

Two-thirds of collected tariffs are on industrials

Source: The World Bank

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Where the Money GoesWhere the Money GoesIndustrial Tariff PaymentsIndustrial Tariff Payments

Tariff Payments By Country

19%

40%

14%

27%North to North

North to South

South to North

South to South

Developing countries pay 40% of tariff bill, but only 22% of GDP

High tariffs on developing country exports are a significant problem

But developing countries pay most tariffs to each other Source: The World Bank

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Developing Countries Pay Most of their Developing Countries Pay Most of their Tariffs Tariffs To Each OtherTo Each Other

Developing Country Tariff Payments(Industrial Goods)

29%

71%

To High Income To Developing

$23 billion

$57 billion

Source: The World Bank

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Where The Money GoesWhere The Money GoesIndustrial TariffsIndustrial Tariffs

Tariffs on South-to-North trade are typically 4X higher than tariffs on North-to-North trade

But rates on South-to-South trade are the highest

0.8%

3.4%

10.9%

12.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Industrial Tariff (Avg)

North to North

South to North

North to South

South to South

Source: The World Bank

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Rapid Growth in South-South TradeRapid Growth in South-South Trade

South-South TradeDeveloping Country Exports to Developing

Countries

21.0%23.5%

27.0% 26.0% 28.0%32.5%

39.5%

0%

10%

20%

30%

40%

50%

1965 1970 1975 1980 1985 1990 1995

Nearly 40% of developing-country exports are to other developing countries

May rise to 50% by 2005

Source: The World Bank

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Major Regional Free Trade Agreements, 2005(Major FTAs covering a significant portion of world trade)

FTAA

EU & Associates

ASEAN FTA

Mexico - EUMexico - EFTAMexico - many

Mercosur - EU

South Africa - EUSADC - EU

Australia-NZ

Egypt - EU?

Aus/NZ/AFTA?Various Intra-Africa

More than half of world trade covered by an FTA in 2005

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Major Regional Free Trade Agreements, 2010(Major FTAs covering a significant portion of world trade)

FTAA

EU & Associates

China- ASEAN FTA

Mexico - EUMexico - EFTAMexico - many

Mercosur - EU

South Africa - EUSADC - EU

Australia-NZ

Egypt - EU

Aus/NZ/AFTA?Various Intra-Africa

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Major Regional Free Trade Agreements, 2020(Major FTAs covering a significant portion of world trade)

FTAA

FTAA and APEC

EU & Associates

APEC

Trade Covered by FTAs (est.)

Covered70%

Not Covered30%

Mexico - EUMexico - EFTAMexico - many

Mercosur - EU

Egypt - EU

South Africa - EUSADC - EU

Various Intra-Africa

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The U.S. “Basic Necessities Tax”The U.S. “Basic Necessities Tax”

Percentage of U.S. Import Value7%

93%

Percentage of U.S. Tariffs Collected

47%

53%

Clothes & Shoes

All Other Goods

Source: Progressive Policy Institute, using ITC data

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Backpack: 18.3%

Pencils, Markers: 4.3%

Jeans: 16.4%

T-Shirt: 17.8%

Shoes: up to 48%

Peanut-butter sandwich: 30%

The “Basic Necessities Tax”The “Basic Necessities Tax”Average U.S. Tariffs On Back-to-School ItemsAverage U.S. Tariffs On Back-to-School Items

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The “Cheap Goods Tax”The “Cheap Goods Tax”U.S. Import TariffsU.S. Import Tariffs

Source: Progressive Policy Institute, “America’s Hidden Tax on the Poor”

Ladies’ Undergarments

Silk: 2.4%

Polyester: 16.2%

Tableware - Forks

Silver-plated: 2.4%

Stainless steel: 15.8% +

Footwear (90% imported)

<$6.50/pair: up to 48%

>$12/pair: 20%

Tariffs on luxury items are lower. “Every-day” goods

are taxed more.

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““Cheap Goods Tax” Not Unique to Cheap Goods Tax” Not Unique to Developed CountriesDeveloped Countries

Nepal exports more to the United States than it does to India, which borders Nepal on three sides.

Same is true for Sri Lanka, Maldives

Nepal's Exports - 2000

$177

$220

$0

$50

$100

$150

$200

$250

$U

S M

illio

ns

To India

To U.S.

Source: Progressive Policy Institute

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Getting to ZeroGetting to ZeroModalities for Industrial Tariff EliminationModalities for Industrial Tariff Elimination

Bucket 2005

Multilateral Tariff Elimination

Bucket 2010 Bucket 2015 Bucket 2020

Immediate elimination Many zero/zero sectors are ready now

Equal annual reductions ov er 5 years 80% of lines in buckets 2005 or 2010

Equal annual reductions ov er 10 years No more than 15% of lines

Equal annual reductions ov er 15 years No more than 5% of lines and 20% of trade

Request/offer process

S&D through phasing

2020: Industrial Tariffs Eliminated

Eliminate LLDC tariffs

BEFORE 2005

More products in later buckets for developing countries

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1. Developing countries:

Pay most tariffs to each other, on growing South-South trade

Face high tariffs in developed countries on key export items

Need to reduce costs of production to attract investment

2. Developed countries:

Pay $16 billion in “residual” tariffs on North-North trade

Face broadly high tariffs in key developing markets

Should eliminate “basic necessities tax” on poor consumers

Summary: Why Zero?Summary: Why Zero?

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3. We’re halfway there already:

42% of world trade is duty-free, percentage is growing

Web of FTAs threatens:

more complexity

economic distortions

second-class status for many poor countries

4. Grand political bargain:

Addresses high tariffs on selected goods in developed countries AND broadly high rates in developing countries

If no bargain, little progress likely on either front

Summary: Why Zero?Summary: Why Zero?