How are export-import duties decided by a country for different countries?

Countries do not apply random tariffs on any imported commodity. There are set rules which define how tariffs have to be applied to imported products from different countries. Import and export duties (tariffs) applied by a country on imported commodity depends mainly on four factors as below:

  1. WTO agreement signed by members
  2. Country of Origin Rules
  3. Trade Agreements &
  4. GSP- Generalized System of Preferences
  1. WTO agreement signed by members

As per WTO, no country can apply tariffs more than what has been agreed upon also known as ‘Bound Rate’. Bound rate is the maximum tariff (rate of duty) that a country can impose on a imported commodity. Bound Rates varies for member countries and also from commodity to commodity, however, no country can raise tariffs above the bound rate it has committed.

The member countries can decide to keep the tariffs lower than the bound rate but the tariff must be equally applicable for all member countries also known as MFN (Most Favored Nation) rate. MFN means that if a country lowers tariff for a particular commodity from a country, the same tariff has to be applied to other countries as well. There may be an exception which has been covered below. The tariffs that are actually charged on imports are known as Applied Rate. Applied rate are the lowest tariffs charged by any country.
Example: Let us illustrate with example:

Statutory Duty is basically MFN rate. In the above table, Bound Rate is 100% for Lentil i.e. the highest India can impose, Statutory Duty (MFN Rate) for Lentil is 30% applicable to all nations except countries who are a part of any trade agreements and lastly the applied duty is zero i.e. import of pulses will not attract any duty from any country.

  1. Country of Origin Rules

MFN rule of WTO states that all countries should be equally treated when it comes to tariffs applicability; however, countries under Less Developed Countries (LCD) are exempted from Applied Rates. Commodities imported from LDCs are normally tariff free.

Example: Tur Dal imported from Canada or Myanmar into India may attract tariff. But import from Malawi (LDC country) will not attract tariff because of Country of Origin Rules.

  1. Trade Agreements

Countries that have enter into preferential trade agreements (such as ASEAN, NAFTA, MERCOSUR, ASEAN-INDIA, EUROPEAN UNION, SACU etc.), the preferential tariff is zero. Almost all the countries have joined at least one preferential trade agreement, under which they give another country’s product lower tariffs than their MFN rate.

Example:

1.Split Cassia attracts 36% duty in India. However, if imported from Vietnam, one has to pay only 5% duty as there is a free trade agreement between India-ASEAN of which Vietnam is a member.

2.Textile export to China from India attracts huge tariff, however, if exported from Thailand attracts zero duty as there is free trade agreement between China & ASEAN.

  1. GSP- Generalized System of Preferences:

Generalized System of Preferences (GSP) is a preferential tariff system extended by developed countries (also known as preference giving countries or donor countries) to developing countries (also known as preference receiving countries or beneficiary countries). It involves reduced MFN Tariffs or duty-free entry of eligible products exported by beneficiary countries to the markets of donor countries.

Example: US gives GSP i.e. reduced MFN rates on export of Shrimps from India.

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