Why Politicians Lie About Trade... and What You Need to Know About It by Grozoubinski Dmitry

Author:Grozoubinski, Dmitry
Language: eng
Format: epub
Publisher: Canbury
Published: 2024-05-23T00:00:00+00:00

Removing Tariffs and Tariff Bureaucracy from the Equation

If my country and your country signed a free trade agreement eliminating all tariffs on every product type without exception, we would still need customs declarations and full tariff classification on goods moving across our mutual borders. Why? Because I can’t trust that goods entering your market and then making their way into mine paid the tariffs they would have paid if they had entered my market directly – and I also can’t trust that something crossing into my territory from yours actually originated there.

Let’s conjure up an example. Your country has a long cultural history of growing papayas, a form of agriculture critical to the livelihoods of many of your citizens and their communities. You know there are cheaper sources of papaya abroad, but you consider the papaya sector so vital that you have imposed a tariff at the border to keep your own homegrown papaya sector competitive. Your next-door neighbour produces only a few luxury papayas, so doesn’t directly compete with your more egalitarian and commercially accessible 'people’s papayas'. That’s why, when you negotiated a free trade agreement with it, you agreed to eliminate your papaya tariff. Your neighbour’s industry is no threat to the bulk of your producers and your high-end restaurants benefit from access to its more refined fruit.

Yet now you face a problem. Because your neighbour is much less interested in growing papayas than you, it slaps a much lower tariff on them. It is also far more relaxed about trading away that smaller tariff when negotiating free trade agreements with others, even if they are large papaya producers. This means that if you want to stop a flood of cheap foreign papayas entering your market via your neighbour, you need border checks to ensure that any papayas claiming to be from your neighbour were actually grown there. While eliminating the tariff, your free trade agreement hasn’t eliminated papaya customs bureaucracy. It may even have made it worse.

Granted, governments could simply choose to ignore the risk of someone bypassing their tariffs through this kind of backdoor arbitrage, but both states would have to be comfortable with it or you would end up with a situation where there is effectively only a border one way. If you don’t care if third countries are exploiting your free trade agreement to bring in stuff tariff-free, but the other country does, it will demand tariff declarations and Rules of Origin (even if you don’t). That means your traders are going to find themselves at a massive disadvantage because they’ll be the only ones facing border tariff paperwork. Effectively, both sides will have eliminated tariffs but just one will still face bureaucracy.

Moreover, the industries that your third-country tariffs were meant to protect are unlikely to remain silent in the face of suddenly finding themselves unprotected. Effectively giving third countries full liberalisation into your market without getting anything in return is a hard argument to sell to your furious large producers – who are probably politically potent and well-represented.

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