Week 4

Question 1

Let’s talk tariffs

Answer 1

Mostly the importer have to pay -> Consumer has to pay the price in the end

Question 2

Tariffs and Trade

Answer 2

• Elecotronical Products: tariffs are low, standardized -> helped to build a global supply chain
• Tarifs are an easy way to collect taxes for the government -> less developped country

Question 3

What determines a tariffs?

Answer 3

Its really important to know the classification / type and the volume of the product
-> you have to know the way of production, the sed materials

Question 4

China: the world’s largest market for cars … and export of cars

Answer 4

Munich motor show 2023: two-thirds of the
floor space for Chinese carmakers.
− China’s car industry has capitalized on the
experience of joint ventures +
simultaneously placed significant bets on
electric batteries.
− Battery plants in China are far beyond levels
needed for domestic demand.
− China has established a lead in EV
manufacture – as in other green tech
industries – with a massive industrial policy
“Made in China 2025” over the last decade.

Question 5

Result of “Made in China 2025” -> electronic vehicles

Answer 5

China dominant position
-> Cell components
-> Battery cells
-> EV’s
->Material porcessing

some companies wil gp bankrupt, there is no guarantee for their national success

Question 6

Current Situation in the European Passenger Car Market

Answer 6

• at the moment there is a still comfortable situtaion, but the sales of the european companies decline
• german companies are dependent on the chinese batteries
• technology/software is really important, european companies do not lead this business
• If european car companies have to buy the software form China and the batteries from China -> what are their core competencies?

Question 7

Electirc vehicles
Which Economic Policy for Europe?
-> Reaction of Germany

Answer 7

German Chancellor Olaf Scholz told business weekly Wirtschaftswoche that he was not convinced about the need
to impose tariffs on Chinese electric vehicles.

The European Commission is investigating whether it should impose punitive tariffs to protect European Union automakers from cheaper Chinese EV imports it says are benefiting from state subsidies. “Our economic model should not be based or rely on protectionism - but on the attractiveness of our products.“ Scholz noted that there had been similar concerns when Japanese automakers entered the German market in the 1980s and also in the 1990s when South Korean companies came. “And yet we held our ground,” he said.

Question 8

Electirc vehicles
How does the EU react?

Answer 8

“The EU has formally launched an anti-subsidy investigation into the imports of battery electric vehicles (BEV) from China. The investigation will determine whether BEV value chains in China benefit from illegal subsidisation and whether this subsidisation causes or threatens to cause economic injury to EU BEV producers.”

“Electric battery vehicles are crucial for the green transition and to meet our international commitments to reduce CO2 emissions. This is why we have always welcomed global competition in this sector, which means more choice for consumers and more innovation. But competition must be fair. Imports must compete on the same terms as our own industry.”

-> Bargainig between China and Europe -> fair competition

Question 9

Teslas made in Shanghai

Answer 9

• Chinese learned a lot form Tesla -> how to produe electric vehicle
• Biggest source of made-in-China EV imports are
  Tesla cars made in Shanghai.
• Biggest source of made-in-China EV imports are Tesla cars made in Shanghai.
• Brussels imposed tariffs in 2013 on Chinese solar panels but lifted them five years later because it could not reach its renewable energy targets without them.
  -> Life punishes the latecomer”

Question 10

The US view on Tariffs on imported cars

Answer 10

• Basic US policy: Foreign-made vehicles imported into the U.S., whether new or used, either for personal use or for sale, are generally dutiable at the following rates:
• Auto 2.5%
• Trucks 25% -> Chicken Tax oversupply of chicken, they sold it to European, the reaction of the European State was to increase the tariffs
• Motorcycles 2.4% or free
• The U.S. imposes a stiff 27.5 percent tariff for Chinese-made cars — put in place during Donald Trump’s presidency. This makes U.S. market access almost three times more expensive for China-built vehicles than the EU. -> you have to produce in th US!
• President Joe Biden’s Inflation Reduction Act, which put a premium on car and battery production in North America. -> huge subsidies for electric vehicles (EV) manufactured in the U.S.

Question 11

```

Investigation into auto imports into the US
-> WTO Trade Policy Review: USA

Answer 11

On 23 May 2018, USDOC initiated a Section 232 investigation into auto imports to
determine whether imports of automobiles, including SUVs, vans, and light trucks, and automotive parts into the United States threatened to impair the national security as defined in Section 232. USDOC took into account the increase of the share of imports of passenger vehicles sold in the United States from 32% to 48% in the previous 20 years; the 22% decline in employment in motor vehicle production between 1990 and 2017; the low share of R&D represented by U.S. vehicle manufacturers in the United States (20% of the total); and the fact that U.S. auto part manufacturers account for only 7% of that industry in the United States. The investigation also analyzed whether the decline of U.S. automobile and automotive parts production threatens to weaken the U.S. internal economy, including by potentially reducing R&D and jobs for skilled workers in cutting-edge technologies.

-> National security has never been defined by the WTO
-> the US takes advatage of this

Question 12

Tariff jumping:

Answer 12

69% of the Japanese cars sold in the U.S. are built domestically while the other 31% are built in Japan and imported to the States.
That’s a huge contrast to what those numbers were in 1985 when 91% of cars from Japanese automakers sold in the U.S. were built in Japan.
That’s a 45% drop in imports over 33 years.

-> more jobs in the US
-> Advantage: better adjust the cars to the US audience
-> Chinese car are typically longer, more comfortable behind the driver, they do have driver

Question 13

Why is the WTO of relevance?

Answer 13

1. The WTO is the only global international organization dealing with the rules of trade between nations.
2. There are 164 members in the WTO representing 98% of world trade

-> in many areas there are no tariffs, about the half of trade is made without tariff
-> in many areas they have the data, do analysis
-> solve disagreement about trade
-> how to bring down tariffs

Question 14

WTO Secretariat in Geneva, Switzerland

Answer 14

Staff of 623  One of the smallest secretariats of all the
international organizations
- Budget: CHF 197 million (2022)
- Languages: English, French, Spanish
The main duties of the WTO Secretariat are:
- to provide technical and professional support for the various WTO
bodies;
- to provide technical assistance to developing-country Members;
- to monitor and analyse developments in world trade;
- to advise governments of countries wishing to become Members of the
WTO;
- to provide information to the public and the media

Question 15

WTO – Structure of the WTO Agreements

Answer 15

Question 16

What topics does the WTO cover?

Answer 16

• decision making by conses -> every one has a veto right
• as long as not every one agree you have to keep discussing
• critism because of this

Question 17

WTO ‘rules’ = Agreements

Answer 17

• The present agreements were signed in Marrakesh, April 1994, after 7½ years of negotiations: 500 pages of rules, 23,000 pages of commitments
• Through these agreements [created in the Uruguay Round], WTO members operate a non- discriminatory trading system that spells out their rights and their obligations.
• Each member receives guarantees that its exports will be treated fairly and consistently in other members’ markets.
• Each promises to do the same for imports into its own market. The system also gives developing economies some flexibility in implementing their commitments.

Question 18

Overall, tariffs have come down dramatically

Answer 18

Question 19

Status of Members

Answer 19

1. Developed-country members (e.g. Switzerland)
2. Developing-country members (e.g. PR China)
3. Least-developed-country members (e.g. Sudan)

Problem: There are no WTO definitions of “developed” and “developing” countries. Members announce for themselves whether they are “developed” or “developing” countries. However, other members can challenge the decision of a member to make use of provisions available to developing countries.  Currently China remains a developing-country member

Question 20

Claims by the US

Answer 20

«Nearly two-thirds of WTO Members have been able to avail themselves of special
treatment and to take on weaker commitments under the WTO framework by designating themselves as developing countries. While some developing-country designations are proper, many are patently unsupportable in light of current economic circumstances.

For example, 7 out of the 10 wealthiest economies in the world as measured by
Gross Domestic Product per capita on a purchasing-power parity basis — Brunei, Hong Kong, Kuwait, Macao, Qatar, Singapore, and the United Arab Emirates — currently claim developing-country status. Mexico, South Korea, and Turkey — members of both the G20 and the Organization for Economic Cooperation and Development (OECD) — also claim this
status.”

Question 21

WTO Structure

Answer 21

• The WTO’s top level decision- making body is the Ministerial Conference, which meets usually every two years.
• Below this is the General Council (normally ambassadors and heads of delegation based in Geneva but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body

Question 22

WTO Ministerial Conferences

Answer 22

• WTO members have agreed that the organization’s Twelfth Ministerial Conference (MC12) will take place in the week of 29 November 2021 in Geneva, Switzerland.
• MC12 was originally scheduled to take place from 8 to 11 June 2020 in Kazakhstan’s capital, Nur-Sultan, but was postponed due to the COVID-19 pandemic. The Conference will be chaired by Kazakhstan’s Minister of Trade and Integration, Bakhyt Sultanov, as approved by WTO members in December 2019.

Question 23

Role of the Director General

Answer 23

• The Members of the WTO set the policy agenda and take all policy
  decisions
• Neither the DG nor the WTO Secretariat has any autonomous
  policy decision-making powers.
• Head of the Secretariat of the WTO.
• The DG acts primarily as an ‘honest broker’ or ‘facilitator’ in
  decision-making processes
• He/She can make an important contribution to building a
  consensus among the Members
• The DG acts simultaneously as Chairman of the Trade Negotiations Committee (TNC)
• The head of the WTO doesen’t have much power

Question 24

What happend at MC12?

Answer 24

• The US is not anymore the leader role, they are absent
• The WTO would like to reform the organization
• agreement no taxes on e-commerce, knowledge -> intensify the reaseach on this regulaiton
• reform of the organization to improve all its functions through anione, transparent and inclusive porcess

Question 25

WTO facts

Answer 25

Sovereign states: 203
UN Members: 193
WTO Members: 164

Definition of a state as a person of
international law:
* permanent population;
* defined territory;
* government;
* capacity to enter into

Any state or customs territory having
full autonomy in the conduct of its trade
policies may join the WTO
* Hong Kong, China
* Macao, China
* Chinese Taipei
* Dual membership of the EU

Question 26

Membership of the WTO – Developing Members

Answer 26

• Around 3/4 of the Members are developing countries
• Among them are over 30 least-developed countries (LDCs)
• In the last years, the developing countries got a stronger voice within the
  WTO. Among them especially China, India and Brazil, which often act as
  spokespersons for the developing countries.

“Rising powers, such as China and India, must take some share of the blame for the WTO’s failures. Through much of the Doha negotiations, the larger developing countries were quick to demand greater market access in developed countries, but were unwilling to open up their own markets in
return.”

Question 27

Membership of the WTO – Developing Members

Answer 27

• Around 3/4 of the Members are developing countries
• Among them are over 30 least-developed countries (LDCs)
• In the last years, the developing countries got a stronger voice within the WTO. Among them especially China, India and Brazil, which often act as
  spokespersons for the developing countries

->advanced economies says that emerging market should do more regarding the climate change, they in turn say yes we can do this but we need your technology, but the western countries do not want to give them the technology because they don’t trust them

“Rising powers, such as China and India, must take some share of the blame
for the WTO’s failures. Through much of the Doha negotiations, the larger
developing countries were quick to demand greater market access in
developed countries, but were unwilling to open up their own markets in
return.”

Question 28

Double Membership of the EU

Answer 28

EU accounts as a full Member of the WTO vs. UN-Organisations

European Union or Communities?
* Since 2009 “European Union” has been the official name in the WTO. Before that, “European Communities” was the official name in WTO
* The EU is a WTO member in its own right as are each of its 28 member states — making 29 WTO members altogether.
* While the member states coordinate their position in Brussels and Geneva,
* the European Commission — the EU’s executive arm — alone speaks for the EU and its members at almost all WTO meetings and in almost all WTO affairs.
* However, sometimes references are made to the specific member states, particularly where their laws differ. This is the case in some disputes when an EU member’s law or measure is cited, or in notifications of EU member countries’ laws, such as in intellectual property (TRIPS). Individual EU members speak committee meetings or sponsor papers, particularly in the Budget, Finance and Administration Committee.

Question 29

Status of the WTO

Answer 29

The WTO shall have legal personality, and shall be accorded by each of its Members such legal capacity as may be necessary for the exercise of its function.
* The WTO is not part of the UN family
* WTO is not a ‘specialised agency of the UN‘
* It is a fully independent international organisation with its own
particular ‘corporate’ culture.

Question 30

Mandate of the WTO: How to achieve the objectives?

Answer 30

Reduction of tariff and non-tariff barriers
-> Tariffs went down from 40% to 4% on average

Elimination of discriminatory treatment in international trade relations

-> world trade is huge, we don’t have the big picture -> illegal products

Question 31

Principles of Non-Discrimination

Answer 31

Question 32

WTO - Functions

Answer 32

1. Implementation of the WTO agreements
2. Negotiation of new agreements;
3. Settlement of disputes;
4. Trade policy review;
5. Cooperation with other organisations;
6. Technical assistance to developing countries.

-> keep an eye on each other practicies
-> they hold each other to account
-> ensure that economic tensions do not lead up to more serious confrontation -> this why governments right after second world war negotiated trade rules

Question 33

WTO-Functions: Trade Policy Review

Answer 33

In the WTO, transparent regulations and policies are achieved in two ways:
1. Governments have to inform the WTO and fellow-members of specific measures, policies or laws through regular “notifications”; and

2. WTO conducts regular reviews of individual countries’ trade policies  WTO Trade policy
   reviews.
   - Goal.: Surveillance of national trade policies
   - At the centre of this work is the Trade Policy Review Mechanism (TPRM).
   - Review Cycle: every three, five, or seven years, depending on the size of the economy  largest
   economies reviewed most frequently

Three main documents:
1. Report written independently by the WTO Secretariat.
2. A policy statement the member under review, here EU
3. Discussions / Q&A

Question 34

Trade Policy Review: EU

Answer 34

• Since the last Trade Policy Review of the EU in 2015, the EU economy continued to grow, but trade and economic developments varied considerably from one member State to another.

The EU grants MFN or better treatment to WTO and non-WTO Members.
- Under the Treaty on the Functioning of the EU, common customs tariff duties are set by the European
Parliament and the Council, or the Council based on a proposal from the Commission
- Apart from ad valorem duties, the EU applies several non-ad valorem type duties, mostly on agricultural products.
- The EU uses seasonal duties and duties that are reduced if a product’s declared price is above a certain level (entry price system). Entry prices apply on 28 tariff lines at the 8-digit level, including tomatoes, cucumbers, courgettes, citrus fruits, grapes, apricots, and plums.

Question 35

Can the EU explain the justification for maintaining this high level of tariff protection for agricultural producers?

Answer 35

EU reply:
The EU is the world’s largest importer of agriculture products, with imports of EUR 98 billion € in 2014.

The EU has only a limited number of tariff peaks, which were accepted and bound as part of the Uruguay Round Agreement.

The EU has concluded and continues to negotiate ambitious FTA agreements to reduce agricultural tariffs in bilateral trade. A successful conclusion of the DDA would lead to a reduction in tariff peaks on an MFN basis. In the meantime the EU will continue to respect its WTO commitments

Question 36

The US and Europe diverge on China car threat -> reaction US

Answer 36

• On both sides of the Atlantic, the push to move beyond the internal combustion engine is creating a giant strategic opportunity for China, whose carmakers already dominate global markets for batteries and clean-energy technology.
• U.S. protectionism contrasts with the European Union’s low tariffs and generous national subsidies for battery-powered imports.
• The U.S. imposes a stiff 27.5 percent tariff for Chinese-made cars — put in place during Donald Trump’s presidency
• The tariff makes U.S. market access almost three times more expensive for China-built vehicles than the EU.
• The tariff makes U.S. market access almost three times more expensive for China-built vehicles than the EU.
• An obvious solution for China’s automakers would be to set up factories on North American soil.
• “They have some of the best battery technology,” Farley said of the Chinese. “If localizing their technology in the U.S. gets caught up in politics, you know, the customer is really going to get screwed.”

Question 37

The US and Europe diverge on China car threat -> reaction Europe

Answer 37

• Meanwhile, Europe’s moves have, provided a strategic opening for China’s start-up car brands. The bloc’s tariffs on imported cars are only 10 percent, and European national subsidies for electric vehicles apply to imports as well as domestically made cars and trucks.
• The EU’s 2035 clean car mandate — echoed in the U.K. — is the opening Chinese brands needed. Sales are also driven by comparatively generous purchase premiums in some richer countries like France, Germany and the Netherlands.
• Das Risiko für die europäische Wirtschaft ist extrem. Die Automobilindustrie ist der größte Industriezweig und der größte Arbeitgeber des Kontinents und macht 10 Prozent der Produktionstätigkeit aus.

Question 38

The US and Europe diverge on China car threat -> Chinese companies

Answer 38

• Its domestic market dwarfs any other, selling 27 million cars last year, compared with 13.75 million cars and light trucks in the U.S. and 9.25 million cars in the EU.
• China controls some 76 percent of global battery cell production capacity, and has a fierce grip on the raw materials used to make them. That offers the country’s carmakers a strategic advantage and the ability to build EVs at a cost-slashing scale.
• The quality and value for Chinese cars has improved by leaps and bounds, especially in the last three years,”
• China’s auto exports are still tiny, representing around 3.5 percent of European auto sales last year, according to S&P. But Transport & Environment, a green NGO, reckons that Chinese firms could grab from 9 percent to 18 percent of the all-electric car market by 2025.
• China’s advantage is twofold. Its EV producers don’t carry European automakers’ legacy costs of transitioning away from combustion engines. And with its vast domestic market, China has cracked the code on inexpensive production of battery cells — the main cost of an EV.

Question 39

The US and Europe diverge on China car threat -> outlook

Answer 39

“The goal is not to obstruct ambitious car and battery makers: the world sorely needs them. It’s to ensure intense but fair competition,” he wrote in a policy paper, adding that if the EU doesn’t act to block unfair competition from both China and the U.S., “Europe may well be on course to become a dumping ground for subsidized Sino-U.S. EVs and batteries.”

Question 40

Tariff Profiles

Answer 40

• Country with very low tariffs: Singapore, advanved economies tend to have low tariffs, also because they are more involved in the service sector and not so much in agricultural
• Country with very high tariffs: Pakistan

Question 41

Switzerland Tariff profile

Answer 41

• importance of the chemical / metals imports but also electrical goods
• Agricultural products are really protected –> high tariffs

Question 42

What is a trade tariff?

Answer 42

It’s a customs duty, or tax, on imported merchandise.

For example, if a store owner is importing shoes, a tariff collected by her government might add to the price she has to pay for them.

Question 43

global effort to reduce tariffs

Answer 43

There has been a global effort to reduce tariffs around the world because they make goods more expensive for firms and consumers alike. Lowering tariffs was a major objective of the Uruguay round of negotiations at the World Trade Organization. But in certain circumstances, some governments consider tariffs helpful as a policy tool – they raise revenues and protect local industry from foreign competition (in the shoe example, a locally produced shoe might be cheaper than the imported one with a tariff).

Question 44

Three types of tariff

Answer 44

There are three main types of tariff and they can be queried in UNCTAD TRAINS available through World Integrated Trade Solution (WITS).

The three types of tariff are Most Favored Nation (MFN), Preferential and Bound Tariff.

Question 45

Most Favored Nation (MFN) Tariff

Answer 45

A Most Favored Nation (MFN) Tariff is one that WTO member countries promise to impose all of their trading partners who are also WTO members, unless the country is part of a preferential trade agreement (such as a free trade area or customs union). This means that, in practice, MFN rates are the highest (most restrictive) tariffs that WTO members charge one another.

Question 46

Preferential Tariff

Answer 46

A Preferential Tariff is one that falls under a preferential trade agreement. Basically, countries make a deal in which they agree to charge a lower rate than the MFN rate. Details of various Preferential Tariffs are available in the Global Preferential Trade Agreement Database (GPTAD), which contains the original text of preferential trade agreements (PTA). It is indexed using classification consistent with WTO criteria.

In a customs union (such as the Southern Africa Customs Union or the European Community) or a free trade area (e.g., NAFTA), the preferential tariff rate is zero on almost all products. These agreements are reciprocal: all parties agree to give each other the benefits of lower tariffs.

Question 47

Bound and applied Tariff rates

Answer 47

• Bound tariffs are specific commitments made by individual WTO member governments. The bound tariff is the maximum MFN tariff level for a given commodity line.
• The actual tariff rate is called the applied tariff rate.
• Average bound tariff rates are higher for less-developed countries. This means that the WTO agreement has not forced LDCs to open their economies to the same degree as developed countries.
  − Switzerland’s applied tariffs on industrial products: 1.7% (average).
  From 2024: 0% tariff on industrial products!

IMPORTANT–> they have space to increase the tariffs legally –> boundary is important/pandemic!!

Question 48

1

Bound Tariffs

Answer 48

Bound Tariffs are specific commitments made by individual WTO member governments. The bound tariff is the maximum MFN tariff level for a given commodity line. When countries join the WTO or when WTO members negotiate tariff levels with each other during trade rounds, they make agreements about bound tariff rates, rather than actually applied rates.

Bound tariffs are not necessarily the rate that a WTO member applies in practice to other WTO members’ products. Members have the flexibility increase or decrease their tariffs (on a non-discriminatory basis) so long as they didn’t raise them above their bound levels. If one WTO member raises applied tariffs above their bound level, other WTO members can take the country to dispute settlement. If the country did not reduced applied tariffs below their bound levels, other countries could request “compensation” in the form of higher tariffs of their own. In other words, the applied tariff is less than or equal to the bound tariff in practice for any particular product.

The gap between the bound and applied MFN rates is called the binding overhang. Trade economists argue that a large binding overhang makes a country’s trade policies less predictable.

Question 49

binding overhang

Answer 49

The gap between the bound and applied MFN rates is called the “binding overhang.” Trade economists argue that a large binding overhang makes a country’s trade policies less predictable.