Tariff-free proposal benefits the rich
A proposal by the United States to eliminate tariffs on trade in manufactured goods by 2015 is a bold and sweeping one, but one that is likely to be unfair to developing countries, according to an expert on trade law.
The plan, which was being announced yesterday by the United States' Trade Representative Robert Zoellick and Commerce Secretary Donald Evans, would apply to all countries in the World Trade Organisation.
It involves cutting tariffs on non-agricultural products to eight per cent by 2010 and eliminating them by 2015. All duties of five per cent or less would be eliminated in 2005. Another initiative calls for the faster elimination of tariffs on chemicals, paper and construction equipment.
The plan, to be submitted to the WTO in Geneva, covers big industrial products such as cars and machines as well as labour-intensive consumer goods such as clothing and textiles.
The proposal is part of a 50-year effort to remove tariffs and open world trade. US officials said it would eliminate US$18 billion (HK$104 billion) in levies that US consumers pay each year.
But the plan seems more likely to benefit the US and its producers than poor countries, said Mattheo Bushehri, a law professor at Hong Kong University.
For WTO members, tariffs are one of the few methods they have to protect their domestic industries, Professor Bushehri said. Eliminating tariffs could result in companies in developing countries either going bust or being swallowed up by multinationals.
Developing countries stand to lose more than the US because their tariffs are higher. For example, tariffs on industrial machinery in the US are 1.2 per cent and 1.8 per cent in the European Union but 36 per cent in India.
'Because the US already has fairly low tariffs they won't be giving much, but they'll be essentially opening access to developing countries, which are being protected by tariffs on American products,' said the professor.
He said that while multinationals have the size and strength to do business in small, poor countries, 'developing countries' firms may not have what it takes to compete in America'.
'Essentially, the US plan commits the developing countries to forgo protecting domestic industry through tariffs, and that might be something developing countries are not prepared to give.'
Gaining approval for the proposal may prove difficult. In order for it to take effect, all 144 WTO members have to agree to it. And in Asia, a plan by the Association of Southeast Asian Nations and China to establish a free-trade zone could make the US proposal even less attractive.
China and the 10 Asean members will begin negotiations next year on establishing a free-trade area with a combined potential market of 1.7 billion people.
'If China and Asean countries see that there's more benefit for the time being of regional liberalisation of tariffs . . . that might be a factor that might work against the US proposal,' the professor said.
Finally, there is no proposal to eliminate or reduce agricultural tariffs, which would benefit developing countries because rich countries such as the US already provide significant aid to their farmers, Dr Bushehri said.
'Their comparative advantage lies in agricultural products, which are being kept out of developed countries' markets by subsidies and tariffs,' he said.
