Obstacles to Zero Tariffs

The US proposal for zero tariffs on industrial and consumer goods by 2015 is a welcome wakeup call to negotiators in the Doha round of world trade talks. However, the proposal may not fly unless the concerns of developing countries are taken on board.

Few can dispute the US argument that lower tariffs will ultimately benefit the consumer. In his domestic pitch, US Trade Representative Robert Zoellick pointed out that Americans would save about US$18 billion a year if tariffs were eliminated, and the US economy would grow by US$95 billion, or just under one per cent of GDP.

But with US tariffs already low, averaging just 4 per cent, the potential gains to developing country exporters to the US from tariff abolition are limited, whereas US exporters to other developing countries (where tariffs average 40 per cent) would gain significantly if these countries were to abolish tariffs.

Therein lies the problem: the US plan may be seen as catering too much to American interests, without bringing much benefit to the other 145 members of the World Trade Organization (WTO). For instance, the proposal's provision for duties on 'highly-traded goods' such as civilian aircraft and pharmaceuticals to be eliminated as soon as possible, but no later than 2010, would clearly benefit the developed world much more.

Thus, while eliminating tariffs is a worthy goal, it is plain that in getting there, it is developing countries which will have to make the greater concessions under the US plan. The argument that lost tariff revenues (which also supplement developing country budgets) will be more than offset by increases in trade volumes, will not be convincing to many developing countries - who are already complaining that trade concessions made by industrialised countries in earlier trade rounds have not yielded much direct benefit.

Mr Zoellick has also suggested that there will be significant savings for these countries because the tariffs of their neighbouring trading partners will also have to come down. But that sales pitch is also unlikely to cut much ice.

The fact is that there is a strong feeling in the developing world that trade rules do not apply equally. Indeed, Washington lost the moral high ground earlier this year when it slapped steep tariffs on steel imports and locked in subsidies for its farmers. As well, the US has in place a sophisticated regime of non-tariff barriers such as anti-dumping laws that exporters from developing countries have found difficult, if not downright impossible, to circumvent.

Subsidies for farmers

True, Washington is working to overcome some of these imbalances. For instance, in July, it called for a sharp cut in subsidies for farmers and for a reduction in agricultural tariffs, from a global average of 62 per cent to just 15 per cent. It is also planning in January a proposal for reducing non-tariff barriers such as licensing rules and other regulatory restrictions.

But how far it will succeed in such initiatives is moot. On agriculture in particular, there is deep scepticism all around. The fact that the European Union is far from overcoming stubborn resistance from its powerful farm lobbies to trade liberalisation in agriculture does not help either. Therefore, bold though the American proposal may be, much still remains to happen before we can realistically expect to see a tariff-free world.