Machinery Import Discrimination: An Index Number Approach

Abstract

It is one of the principles of the General Agreement on Tariffs and Trade that member nations should not discriminate in their tariff schedules by nation of origin. However, exception was made in the case of customs unions. Consequently, the member nations of organizations such as the British Commonwealth and the European Economic Community may legitimately apply different tariff rates to similar goods imported from different origins. Measurement of the amount of discrimination present on a general class of goods presents a complex problem. The virtually intractable nature of the task is well illustrated by Canada's tariff on machinery. All goods imported into Canada are subject to different rates depending upon the nation of origin. For goods imported under the Canadian Machinery Program, there is an additional source of discrimination. Statutory tariff items in the Canadian schedule define general classes of commodities. Under the Program, the statutory rate applied in the case of any nation depends upon whether similar goods are 'made in Canada.' Under any statutory tariff item, therefore, the ratio of duty collected to total imports also depends upon the proportion of machines which are found to be 'of a class and kind made in Canada.' This classification, therefore, serves as a 'non-tariff barrier' which discriminates against nations whose exports compete with Canadian production. Before the Kennedy Round there were more than eighteen Canadian tariff classifications pertaining to machines. The 'made in Canada' rate was highest for machines imported under the General Tariff. The rate applied under Most Favoured Nation (MFN) status was next highest (usually 22.5 per cent ad valorem) and the British Preference (BP) rate (applying to goods from the Commonwealth) was lowest (10 per cent ad valorem). In the case of machines which were not 'of a class or kind made in Canada,' the MFN and BP tariff rates were 7.5 per cent and duty free respectively. After the Kennedy Round, extensive changes were implemented. A fourth class of nation was defined, for which the tariff would be assessed at a special General Preferential Tariff (GPT) rate, which provides for lower assessment of duty on machinery from developing countries. Furthermore, some eighteen tariff items which previously had appeared separately were now grouped into a single tariff classification. Most of the MFN and BP rates were reduced, and the method of