tariff

Russia’s Not-Normal Trade Relations

Russia’s Not-Normal Trade Relations

Nevertheless, the basic point still stands—products from the WTO are meant to be given consistent tariff rates at the border. Thus, a member with an MFN rate of 10% on eyeglasses can collect 10% in tariffs from every incoming WTO member firm at the border for each pair of glasses. If the eyeglasses are coming from a non-WTO member, then there is no MFN obligation. Members can apply whatever tariffs they want to glasses from non-WTO members. The pool of non-members is steadily shrinking with most remaining outside the WTO currently involved in accession negotiations. Belarus is not yet a WTO member, meaning that members can quite easily apply whatever tariffs or measures they want against Belarusian eyeglasses or any other product. Governments can be quite particular about products that come in from across borders. Thus, although they have agreed to non-discrimination and MFN treatment in the WTO, they do not give such consent in all circumstances. There are a number of exceptions clauses within the WTO that can be triggered, such as in times of crisis. The WTO has an explicit set of national security exceptions. The original GATT was formed in the aftermath of World War II and officials were extremely conscious of trade concerns in times of direct conflict or war. They put into place Article XXI on security exceptions that includes a provision to suspend application of the rules “taken in time of war or other emergency in international relations.” For a long time, the use of national security exceptions remained limited. They were assumed to be for use by direct combatants in war situations. But the norm against invoking these exceptions has sharply weakened in recent years. Some WTO members have now declared that they will apply national security exceptions to revoke Russia’s MFN treatment. In other words, they have reserved the right to make unilateral changes in their treatment of Russian imports such as imposing an across-the-board 35% tariff on all products. The removal of MFN thus far has largely been focused on tariff changes, but discriminatory practices could be taken across a range of possible trade commitments.

Trump’s Unilateral Trade Toolkit

Trump’s Unilateral Trade Toolkit

Finally, the system brought welcome stability, more certainty and lower risk. The GATT/WTO process captured the highest level of tariff on each product that could be charged. Many members applied a lower tariff rate at the border, but firms can be confident that tariffs will not rise above the rates locked in or “bound” at the GATT/WTO. Trump’s plan would upend all of this. Firms could be faced with a shifting and complex set of potential tariffs with no certainty on the top level of tariffs that might be charged at any time. To see how this matters it can be easiest to just view imports first. The table manufacturer can now make tables knowing that the wood for legs will face a consistent tariff no matter where they are sourced. The screws can be imported from anywhere, with the same tariffs in place. But if Trump gets his matching tariff scheme, the table company would need to know exactly where the legs are coming from, as the tariff on wood could vary widely from WTO member to WTO member. Screws from one country might arrive without any tariffs at all, while the supplier the table firm has traditionally used would need to pay 10% tariffs. But the basic point is that the GATT/WTO system brought welcome stability and consistency to most trade. Trump’s proposed action would upend this system. Firms would suddenly have to grapple with inconsistent and discriminatory tariffs. The complexity of managing trade and the costs associated with ensuring compliance would skyrocket. Smaller firms, especially, would be at a serious disadvantage.