The Relationship between Tariff Policy and Economic Development
Politically, customs duties are directly related to the sovereignty and economic interests among countries. From the economic perspective, whether a country implements free trade or protective tariff policy is determined by its economic development condition, industrial structure, international trade balance and the ability to participate in international economic competition, etc. Many economists in developing countries believe that free trade policy is not suitable for local community economy. Instead, in order to develop their national economies, these countries choose to implement protective tariffs.
With the development of national economy, tariff policy also needs to make corresponding adjustments. It is impractical for many countries to switch to free trade policies in the short term, but for the long-term cooperative import and export trade, multilateral tariff agreements can be reached on a friendly and equal basis. Recent international trade events provide examples of regional trade agreements.
Starting from December 1st, 2021, 32 countries, including EU member states, the UK and Canada, would formally abolish the ‘GSP tariff treatment’ for trade with China. Also, China’s General Administration of Customs recently issued a proclamation, announcing that starting from December 1st, China would no longer issue GSP certificates of origin for goods destined for the above countries.
In the opinion of CCTV’s financial experts, the cancellation of GSP treatment by 32 countries would indeed affect some foreign trade enterprises, since China has signed trade agreements with many countries, the overall trade volume would be minimally affected.
According to the General Administration of Customs of China, the GSP is a one-way preferential tariff treatment system granted by developed countries (preference-giving countries) to developing countries and regions (beneficiary countries) for exporting manufactured and semi-manufactured products, aiming to help developing countries expand exports and accelerate their national economic growth. Related products imported from the beneficiary countries will be given tariff concessions based on the most-favored-nation tax rate, or even zero tariff access treatment.
In order to protect their own industrial and agricultural production and avoid adverse effects on their economic development caused by excessive preferential imports under the GSP system, each preference-giving country has formulated conservation measures in its own GSP scheme. For the products and beneficiary countries that trigger the implementation of conservation measures, the GSP treatment would be cancelled.
Since 1978, 40 countries have granted China GSP treatment. With the development of China’s economy and the improvement of the competitiveness of its export products, China has successively reached the standard of conservation measures and no longer benefit from the GSP treatment.
The Regional Trade Agreement Came into Effect
On January 1st, the Regional Comprehensive Economic Partnership agreement (RCEP) officially came into effect for Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, China, Japan, New Zealand and Australia. South Korea will also take effect on February 1st.
The agreement, initiated by the 10-member Association of Southeast Asian Nations (ASEAN) and involving China, Japan, South Korea, Australia and New Zealand, aims to reduce tariff and non-tariff barriers, establishing a 15-nation single free market trade agreement and achieving regional economic integration.
The agreement includes granting national treatment for goods of other contracting Parties in accordance with the relevant treaty, preferential market access through the gradual implementation of tariff liberalization, temporary duty-free entry of specified goods, elimination of agricultural export subsidies, abolishing all quantity restrictions and import licensing procedures and the elimination of non-tariff measures such as fees and procedures related to import and export.
Trade in services is the key content of RCEP market access. According to the agreement, in terms of trade in services, RCEP member countries have committed to opening-up in trade, including finance, telecommunications, transport, tourism and technology, and have committed to fully converting them into a negative list for market access within six years after the execution of agreement. New forms and models of business, such as cross-border e-commerce, Internet finance, online office, online education, online medical consultation, online trade fairs, etc. will promote greater development opportunities and bring increasing benefits and convenience to people living in these regions.
The validation of the RCEP marked the formal founding of the largest free trade zone in the world, and the development potential of these regions can be predicted according to the large population and trade volume. All parties should jointly uphold multilateralism and free trade as well as promote regional economic integration, and RCEP will contribute significantly to regional and global trade and investment growth, economic recovery, prosperity and development.
International Organizations and Trade Agreements Facilitate Cross-Border Trade
When the world economy is facing uncertainties due to the impact of COVID-19, the validation of the Regional Comprehensive Economic Partnership (RCEP) will help boost global economic recovery in specific region.
China will comprehensively fulfill the RCEP obligation, expand foreign trade and bilateral investment, steadily consolidate and strengthen industrial and supply chains, and continue to regulate the business environment. What’s more, China will guide local industries and enterprises to make good use of the agreed market opening commitments and rules, therefore foreign trade companies will effectively seize the market opening opportunities brought by the RCEP. The Ministry of Commerce of the People’s Republic of China and other relevant departments will continue to support the establishment of a public service platform for the FREE Trade Area, strengthen the service network of the China Free Trade Area, and provide training and services for local industries and enterprises in order to felicitously implement the agreement.
China will work with other members to actively participate in and support the institutional building of the RCEP, contributing to the economic and technical cooperation of the RCEP, continuing to enhance regional trade and investment liberalization, and transforming the RCEP into major platform for Economic and trade cooperation in East Asia.
These events show that regional trade agreements can benefit economic development in the long run on the basis of equal consultation. Despite the negative influence of COVID-19, the RCEP was signed and came into effect as scheduled. It opposes unilateralism and trade protectionism, and supports free trade and the multilateral trading system.
RCEP will not only motivate the world economic development, but also enhance confidence of business that the international industrial supply chain will not easily collapse caused by external shocks. Thanks to a better foundation for development and cooperation, relevant countries will be able to cooperate more conveniently and freely, thus the partnership enhances the resilience and stability of the international industrial and supply chains.
While regional trade agreements can liberalize trade within areas, they remain a suboptimal alternative to the multilateral trading system, which are accepted when liberalization at the multilateral level is blocked. In fact, regional trade agreements may lead to protectionist trade barriers that run counter to the principle of non-discrimination upheld by the global multilateral trading system. Others argue that trade liberalization should not override legitimate environmental standards and that it needs to be regulated by judicial restraints. Only when environmental protection is fully considered in regional trade agreements can the benefits of trade liberalization be guaranteed.
To sum up, although regional trade agreements and multilateral trading systems have their own advantages and disadvantages, transnational trade should be based on multi-party consensus while accompanied with constant friction in international relations, so that all countries can maximize their comparative advantages in labor productivity.
By Xin Wang
