How the Common Customs Tariff Benefits the EU and Its Trading Partners
The Common Customs Tariff (CCT) is a system of import duties that applies to goods entering the European Union (EU) from third countries. The CCT is based on the Harmonized System, a global classification of goods that facilitates international trade. The CCT aims to ensure fair competition and protect the EU’s internal market, while also promoting economic development and cooperation with other regions of the world.
The CCT has several advantages for the EU and its trading partners
- It simplifies customs procedures and reduces administrative costs for traders, as they only have to deal with one set of rules and tariffs for the whole EU market.
- It creates a level playing field for EU producers, who can compete fairly with imports from third countries that are subject to the same duties and standards.
- It supports the EU’s trade policy objectives, such as fostering sustainable development, human rights, environmental protection, and regional integration. The CCT includes preferential arrangements for developing countries, such as the Generalised Scheme of Preferences (GSP), which grant lower or zero tariffs for certain products. The CCT also reflects the EU’s commitments under multilateral and bilateral trade agreements, such as the World Trade Organization (WTO) and free trade agreements (FTAs) with various partners.
- It contributes to the EU’s budget, as customs duties are part of the EU’s own resources. In 2020, customs duties amounted to €14.4 billion, or 11.6% of the EU’s total revenue.
The CCT is not static, but evolves according to the changes in the global trade environment and the EU’s policy priorities. The European Commission is responsible for proposing and implementing changes to the CCT, in consultation with the Member States and other stakeholders. The European Parliament and the Council have a role in approving legislative acts that affect the CCT, such as trade agreements or autonomous measures.
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Some of the recent developments in the CCT include:
- The introduction of new product categories and tariff lines to reflect technological innovations and emerging sectors, such as electric vehicles, batteries, and renewable energy equipment.
- The revision of tariff preferences for developing countries under the GSP, which entered into force in 2014 and will expire in 2023. The Commission has launched a public consultation on the future of the GSP scheme, which aims to make it more effective, transparent, and responsive to the needs of beneficiaries.
- The update of tariff concessions for certain agricultural products under the WTO Agreement on Agriculture, which took effect in 2020. The new concessions reflect the changes in trade flows and consumption patterns since 1995, when the agreement was concluded.
- The implementation of FTAs with various partners, such as Japan, Canada, Vietnam, Singapore, and Mercosur. These agreements provide preferential access to each other’s markets for goods and services, while also addressing non-tariff barriers and regulatory issues.
The Common Customs Tariff is a key instrument of the EU’s trade policy, which aims to promote open and fair trade with the rest of the world. By harmonizing import duties and rules across the EU, the CCT facilitates trade flows and enhances the competitiveness of the EU economy.
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The Impact of Common Customs Tariff on Global Demand
One of the main objectives of forming a customs union is to facilitate trade among the member countries by eliminating internal tariffs and adopting a common external tariff (CET) for imports from non-member countries. The CET is supposed to protect the domestic industries of the customs union from unfair competition and promote economic development and diversification. However, the CET also affects the global demand for the products of the customs union, depending on the level and structure of the tariff rates and the elasticity of demand for the products.
The Effect of CET on Import Demand
The CET affects the import demand for the products of the customs union by changing the relative prices of imports from different sources. If the CET is lower than the average tariff rate of the member countries before the formation of the customs union, then the imports from non-member countries will become cheaper and more competitive, leading to an increase in import demand. Conversely, if the CET is higher than the average tariff rate of the member countries before the formation of the customs union, then the imports from non-member countries will become more expensive and less competitive, leading to a decrease in import demand.
The effect of CET on import demand also depends on the elasticity of demand for the products. Elasticity of demand measures how responsive consumers are to changes in prices. If the demand for a product is elastic, then a small change in price will cause a large change in quantity demanded. If the demand for a product is inelastic, then a large change in price will cause a small change in quantity demanded. Therefore, if the demand for a product is elastic, then a change in CET will have a larger impact on import demand than if the demand for a product is inelastic.
The Effect of CET on Export Demand
The CET affects the export demand for the products of the customs union by changing the competitiveness of the products in the global market. If the CET is lower than the average tariff rate of the member countries before the formation of the customs union, then the production costs of the products will decrease, making them more competitive and increasing their export demand. Conversely, if the CET is higher than the average tariff rate of the member countries before the formation of the customs union, then the production costs of the products will increase, making them less competitive and decreasing their export demand.
The effect of CET on export demand also depends on the elasticity of demand for the products. If the demand for a product is elastic, then a change in price will have a larger impact on export demand than if the demand for a product is inelastic.
The common customs tariff (CET) is an important instrument of trade policy that affects both import and export demand for the products of a customs union. The level and structure of the CET determine how competitive or protected are the products of the customs union in relation to those of non-member countries. The elasticity of demand for the products determines how sensitive are consumers to changes in prices. The net effect of CET on global demand depends on these factors and their interaction.
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