March 15, 2016
Boosting Canadian competitiveness through selective tariff elimination
Introduction
Like almost all countries, Canada places taxes on some goods entering the country, known as import tariffs, with the rate of tax varying depending on the type of product and its country of origin. In theory, each tariff should satisfy at least one of three commonly cited purposes:1
- As a sanction to remedy trade distortions or disputes2
- To raise revenue for the government
- To assist domestic industries
The first of these is only used in exceptional circumstances. For example, in 2014 Canada threatened to place tariffs on American wine, ketchup and orange juice during a dispute over country-of-origin labeling.3
Non-exceptional tariffs, then, should either generate significant levels of government revenue or serve to assist domestic industries. There is a credible argument that tariffs should be rejected even for these purposes, but these two purposes at least offer a coherent rationale for maintaining a tariff. But, as we will see, many tariffs do not fulfill these purposes while imposing significant administrative burden on businesses.
This paper advocates reducing tariff burdens on Canadian businesses and consumers by setting tariff rates to zero on some goods. We examine past trade deals and, using the data in the World Bank’s World Integrated Trade Solution, identify tariffs with little obvious strategic value and find that Canada could, using a process similar to past tariff reductions, eliminate4 nearly half of its remaining tariffs for a cost to the treasury of $100 million per year, a tax cut which would go into the pockets of Canadian consumers and businesses. Furthermore, our businesses will become more productive through reduced regulatory barriers and our manufacturers in the clothing and food sectors (just to name two) will become more competitive through lowered input costs.
View PDF- The above list is from Japan’s Ministry of Economic, Trade and Industry’s Report on Compliance by Major Trading Partners with Trade Agreements: http://www.meti.go.jp/english/report/data/gCT13_1coe.html, but is commonly found in introductory textbooks on international trade. [↩]
- Typically referred to as anti-dumping duties and often requiring WTO approval. [↩]
- Reuters, “Canada threatens tariffs on American wine, orange juice and ketchup in meat labelling dispute,” National Post, October 21, 2014. At http://business.financialpost.com/news/economy/canada-threatens-tariffs-on-american-wine-orange-juice-and-ketchup-in-meat-labelling-dispute. [↩]
- In the context of this paper we use the term ‘eliminate’ to mean setting the Most-Favoured-Nation (MFN) tariff rate to zero. [↩]