EU-Indonesia Trade Cooperation
Facility
Module 2: EU as a negotiating partner
Tariff negotiations
1 October 2015
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Structure of seminar:
1.
2.
3.
4.
5.
What tariffs?
WTO framework – and interpretation
EU practice in recent agreements
Methodology for negotiation
Top tips!
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1. Preferential tariffs in Free Trade Agreements
Trade diversion vs. trade creation.
Relative competitiveness.
In FTAs, import tariffs are eliminated or reduced for certain
partners – immediately need rules to determine origin to ensure
others don’t freeride on FTA benefits.
MFN?
TRQ? AVEs?
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1. What tariffs?
How do you calculate tariff rates?
Applied tariffs
• Actually in force
Bound tariffs
• Notified to WTO
by each member
What year is reference period?
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1. What tariffs?
How do you measure tariff reductions?
By value?
By number of
tariff lines?
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2. Context – WTO framework
The rules for Free Trade Agreements are set out in the WTO:
Article XXIV of the
General Agreement
on tariffs and trade
Article V of the
General Agreement
on Trade in services
‘Substantially all trade’ must be liberalised
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2. What is “substantially all trade”?
There is no WTO official line on what it means to liberalise
substantially all trade.
The EU has traditionally interpreted it to mean that over 90% of
trade in goods are liberalised.
This means that the tariffs on
90% of imports and exports by
value and tariff line between
the FTA partners are reduced
to 0 over a period of time.
But EU ambition is now higher on tariff elimination. In some
recent agreements, the EU has gone a lot further. Asymmetry?
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3. Example 1: EU-South Korea Free Trade
Agreement
The majority of customs duties on goods were removed already at the entry into
force of the agreement. (1 July 2011)
Practically all customs duties on industrial goods will be fully removed a within the
first 5 years once the FTA is applied.
When considering both industrial and agricultural products, South Korea and the
EU will eliminate 98.7% of duties in trade value within 5 years from the entry into
force of the FTA.
A limited number of highly sensitive agricultural and fisheries products have
transitional periods longer than 7 years. Rice and a few other agricultural
products, for all of which the EU is not a significant exporter, are excluded from
the agreement
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3. Example 2: EU-Vietnam Free Trade
Agreement
The EU-Vietnam FTA will eliminate nearly all tariffs (over 99%), except
for a small number of tariff lines for which the EU and Vietnam agreed
on partial liberalisation through zero-duty Tariff Rate Quotas (TRQs):
Vietnam will liberalise 65% of import duties on EU exports to Vietnam
at entry into force, with the remainder of duties being gradually
eliminated over a 10-year period.
EU duties will be eliminated over a 7-year period.
“This is a far-reaching, fully symmetrical tariff elimination that has
never before been achieved with a developing country, but with
adequate transition periods to allow Vietnam to adapt.”
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3. Framework EU-Indonesia : Vision Group
Report
Paragraph 11: “For the markets in goods, the Vision Group
recommends a move to zero tariff for 95% of tariff lines with at
least 95% of trade value covered in a period of maximum 9 years.
The time path ought to reflect fully the different levels of
development of the partner: the EU would have a higher initial
commitment and a faster dismantling period.
A best-endeavour clause on the remaining 5% permits further
progress in future. Safeguards and/or provisions on sensitive
sectors may be incorporated. At the same time, credibility and
ambition would be negatively affected if such provisions and their
application would not remain truly exceptional and subject to
objective criteria.”
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3. Comparison
Agreement / Signals EU liberalisation
Partner
EU-South Korea
Trade Agreement
98.7% in 5 years
98.7% in 5 years
EU-Vietnam Trade
Agreement
99%+ in 7 years
Indonesia-EU Vision
Group report
95% in less than 9
years (higher initial
dismantling & faster)
65% at entry into
force
99%+ in 10 years
95% in 9 years
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4. Methodology – where to start?
1. Agree detailed parameters for first offer with negotiating
partner and date for exchange.
Example: Both sides agree to eliminate tariffs on industrial products over x
years (or EU over x years and Indonesia over x). We agree to eliminate tariffs
on x% of agricultural products over x years and processed food products over
x years. All other products will have x% of reduction in tariff or tariff rate
quotas.
2. Agree practical aspects for preparation of offers:
• Which customs nomenclature system to use so that offers are
comparable
• What level of customs code (6-8 digits)
• What period to use as reference period for value calculation (last year
data available or average 3 years?). Exchange actual data.
• Start from MFN or applied rates? Standstill clause.
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4. Methodology continued
3. Then each side prepares their offer in the form of a tariff
reduction schedule. For example:
• Summary of tariff eliminations and reductions
• Annex 1 – list of products to be eliminated at entry into force
• Annext 2 – list of industrial products to be eliminated over x years
• Annex 2 – List of agricultural and food products to be eliminated over x years
4. Then examine each others’ offers according to your “wish list”,
arising from industry and public consultation.
5. Then it’s for negotiation! Likely to have revised offers. Not
everything is possible so prioritise.
5. Tips for tariff negotiation
Know your negotiating objectives and the
other sides’ objectives
Get the framework set up and be as
clear as possible
What bargaining chips do you have?
What will you leave for Ministers to decide?
If a deadline is going to slip, tell the other side
as soon as possible
Don’t forget the links to rules of origin,
safeguards and NTBs…
Creative solutions – eg
safeguards for Korean cars
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