Understanding Australia’s base rate structure.



According to WTO tariff profiles, in 2017, the simple average MFN applied tariff for all goods in Australia was 2.5% weighted by 1.2% for agricultural products and 2.7% for non-agricultural products. That makes Australia one of the most-open economies within the CPTTP bloc and also in the world.  One may argue if Australia is such an open economy why bother to negotiate a Free Trade Agreement (FTA). This type of argumentation lacks many important angles such as the economic comprehensiveness of a modern FTA such as the CPTPP. However, even if one doesn’t care about many relevant topics covered by the TPP11 and we only focus on tariff liberalization as the most important element of an FTA, the short-sighted critics will be wrong anyway! Why?

Some empirical studies have made clear the existence of a long-run relationship between tariff liberalization and trade growth, but this substantial and significant association has been gradually losing ground, because of the reduced level of tariffs, on average, over recent decades[1]. This may suggest that there is little room left for tariff liberalization to contribute to welfare gains through trade and income growth, except perhaps for some developing countries that continue to maintain high tariff levels. However, despite of this, evidence exists that when considering a more complex and realistic world-production setting with production linkages, supply chains and multiple sector models, the removal of even small tariffs could deliver significant welfare gains[2].

Slide1

These are some basic features of Australia’s base-rate structure

  • Australia displays seven different types of base-rate duties: MFN duty-free (0%/free), 3 different levels of ad valorem (4%, 5%, and 10%), 1 specific (AD$1.220/kg), 1 mixed (min {5%, AD$0.45/kg}), and 1 compound (5% + AD$12,000).
  • There are 6,187 tariff lines in Australia’s Harmonized Tariff Schedule (HTS) in 2012.
  • 2,941 tariff lines are already MFN duty free, namely, 47.54% of Australia’s tariff lines when negotiating the CPTPP. For purposes of this analysis, I have called this previous tariff liberalization effort of Australia, when referring to CPTPP tariff commitments as the consolidation of its current MFN duty-free status[3].
  • The highest Australian base rates are: 10% ad valorem applied in 228 tariff lines and the compound base rate applied in 8 tariff lines (5% + AD$12,000). Thus, one may state that these 236 tariff lines are the most tariff-protected products in Australia, nowadays.
  • The most frequently applied MFN tariff in Australia is 5% in 48.33% of total tariff lines (2,990 tariff lines). Again, pretty low for international standards but when taking into consideration distance costs and a very competitive international setting among firms this 5% tariff could mean the difference between exporting or not.
  • The base rates of customs duties established in the Tariff Schedule of Australia reflect the MFN rates of duty in effect on 1 January 2010 for all products.

[1] Nenci, S. (2009) “Tariff liberalization and the growth of world trade: a comparative historical analysis for the evaluation of the multilateral trading system”, University of Roma Tre, accessed 27 April 2017, http://www.stat.unipg.it/aissec2009/Documents/papers/88_Nenci.pdf

[2] Caliendo, L, R C Feenstra, J Romalis and A M Taylor (2017). “Theory and evidence for the last two decades of tariff reductions”, 26 April 2017, VOX CEPR’s Policy Portal, accessed 27 April 2017, http://voxeu.org/article/theory-and-evidence-last-two-decades-tariff-reductions

[3] https://fgsaenzfgs.blog/2018/10/24/knowing-more-about-the-cptpp-or-tpp11-australias-tariff-schedule-some-notes-and-annotations/

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