EU Duty Reduction Program for Imported Inputs Offers Significant Savings, Report Finds
The European Commission released this month a report that offers a positive assessment of a European Union program aimed at lowering the cost of imported manufacturing inputs. The report acknowledges that there have been some unintended negative effects but asserts that these are not significant enough to call into question the program’s overall effectiveness and justification.
The EU’s autonomous tariff suspensions scheme provides duty-free or reduced duty treatment for imported raw materials, semi-finished goods or components not available within the EU. The cost savings from this treatment are expected to stimulate economic activity within the EU, improve the competitive capacity of these enterprises and, in particular, enable them to maintain or create employment, modernize their structures, etc. In principle, any business located in the EU can apply for a tariff suspension, provided it can demonstrate that the good in question fulfills a series of specific requirements. More than 1,600 products were subject to a suspension as of late 2011.
The report concludes that the core economic rationale for this scheme remains valid because it is reaching its primary objective of enhancing the competitiveness of beneficiaries by allowing them to benefit from cheaper imports. “In the absence of domestic production to protect or foster,” the report states, “there is no clear economic rationale for imposing tariffs on foreign imports.” The resultant savings for EU manufacturers can be significant and have led to wider benefits such as higher profitability, lower prices for users and consumers, more efficient production methods, and positive effects on employment. For example, the report notes, between 2007 and 2011 the average annual value of imports under suspension was €18.4 billion and the average annual value of import duties saved by beneficiaries was €944 million.
There are some unintended effects that could theoretically reduce, offset or even outweigh the program’s benefits, the report states. For example, there may be cases where suspensions are granted in spite of a (potentially) equivalent or substitutable product being available within the EU. There could be some erosion of the tariff preferences the EU has granted to countries with special trading agreements, though analysis suggests that the majority of suspensions are granted for goods where producers in such countries do not exist or are not competitive. Unilaterally eliminating its import tariffs for certain goods could also reduce the EU’s leverage in international trade negotiations, though in practice the trade flows of suspended goods are usually too small to be of significant concern.
On the other hand, the report states, there are some improvements that could be made. One would be to ensure that all EU manufacturers, especially small and medium-sized enterprises, have the opportunity to be informed about this scheme, possibly by involving trade associations to a greater extent and in a more consistent way. The report also suggests consideration of developing a simple, step-by-step guide that explains in clear and simple terms what the scheme does and how companies can apply.