Reducing Trade Taxes Supports Competitiveness, Says Study

Nations that reduce tax barriers to international trade are increasingly benefiting from improved business competitiveness and export performance, a new study from the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO) shows.

The organizations' new study breaks with conventional measurements of trade, which traditionally record gross flows of goods and services cross-border, and instead seeks to analyze the value added by a country in the production of a good or service that is then exported, to provide a fuller picture of commercial relations between countries.

Launching the report, OECD Secretary General, Angel Gurria pointed out that: "Countries’ capacity to sell to the world depends on their ability and readiness to buy from the rest of the world."

“Our new work with the WTO allows us to see more clearly than ever before how blocking imports will damage a country’s own competitiveness. Trade negotiations have to catch up to these new realities, and countries need to implement policies that help their firms better manage their place in international value chains," Gurria said.

A key finding of the report is that China’s bilateral trade surplus with the United States shrinks by 25% on a value-added basis, reflecting the high level of foreign-sourced content in Chinese exports.

The report points out that the larger the share of foreign inputs in production, as in China, Vietnam or the Netherlands for manufactured goods, the higher the relative costs faced by exporters from tariffs in their target markets. The interpretation however differs from country to country depending on the value chain: Dutch imports for instance are mostly from within the EU, suggesting lower cumulative tariff effects than in China and Vietnam.

The report states: "Success in international markets today depends as much on the capacity to import world class inputs as on the capacity to export. Protection measures against imports of intermediate products increase costs of production and reduce a country’s ability to compete in export markets: tariffs and other barriers on imports are a tax on exports. Policies that restrict access to foreign intermediate goods and services also have a detrimental impact on a country’s position in regional and global supply chains. Where foreign investment is a driver of export capacity, the cumulative effect of a number of seemingly small costs may discourage firms from investing, or from maintaining investment, in the country - and may lead them to bring production facilities, technologies, and jobs elsewhere."

January 16, 2013

Source: Tax News