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New Report Praises E.U. Duty Reduction Program

Earlier this month, the European Commission released a report detailing the success of a European Union (E.U.) program that triggers autonomous tariff suspensions, dramatically reducing the duty treatment for a wide array of goods not available in the E.U.

The special report, “Evaluation of the Scheme for the Autonomous Suspensions of CCT Duties,” assesses reduced duty-treatment for imported raw materials and semi-finished goods that E.U. markets necessarily import. The report states: “The cost savings from this are expected to stimulate economic activity within the EU, to improve the competitive capacity of these enterprises and, in particular, to enable the latter to maintain or create employment, modernise their structures, etc.”

From the perspective of cost-savings, the study endorsed the E.U. program. “Based on the available evidence, the evaluation concludes that the core rationale for the scheme remains valid. The cost savings for EU businesses that import goods under the scheme can be significant. In turn, these savings can lead to wider benefits (such as higher profitability, lower user / consumer prices, more efficient production methods, etc.), depending on the product, company and sector in question.”

The scheme hinges on its narrow application to goods not available in the E.U. “In the absence of domestic production to protect or foster, there is no clear economic rationale for imposing tariffs on foreign imports, and a reduction of tariffs will be beneficial for EU producers and, by extension, the EU economy as a whole.”

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Additionally, the report cited empirical evidence that the cost-savings captured by duty-reduction or elimination could reverberate through the economy as whole. “The evaluation also confirms that these cost savings result in wider benefits. Depending on the product, company and sector in question, the cost savings lead to higher profitability (or the reduction of losses), lower user / consumer prices, more efficient production methods, positive effects on employment, or any combination of these.”

In absolute terms, Germany, Hungary and Slovakia were the countries that benefitted the most from the new scheme. In relative terms, the greatest beneficiaries were the Czech Republic, Hungary and Slovakia.

The report did acknowledge that there were some unanticipated negative effects. “While there are some concerns related to certain unintended negative effects, these are not significant enough to call into question the overall effectiveness and justification of the scheme, which should continue. Nonetheless, certain features deserve to be reviewed, including the processes for awareness raising (in particular among SMEs) and for dealing with objections (in particular to enhance clarity around what constitutes an “identical, equivalent or substitute product”).”

The scope of the duty-reduction program was specifically designed to have a wide application. “More than 1,600 products were subject to a suspension as of late 2011. On average, between 2007 and 2011 the value of imports under suspension was €18.4 billion per year, and the average value of import duties saved by beneficiaries (and at the same time, tariff revenue foregone by the EU) €944m per year. Throughout this period, approximately 80% of imports that benefitted from suspensions fell under two broad categories: micro/mechanics and chemistry.”

Every sovereign member of the E.U. is eligible for inclusion in the program. “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. Companies submit applications to the designated national authorities in their respective Member States; these collect applications (as well as objections, where relevant), and transmit them to the European Commission. The Commission examines the requests with the aid of the Economic Tariff Questions Group (ETQG). Regulations granting, prolonging, modifying or eliminating suspensions are adopted by the Council — on the basis of a Commission proposal — twice per year.”