Recent Study by UHY Shows Consumers in Emerging Economies Pay More than Consumers in Developed Countries Due to Import Duties

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• Protectionist policies also undermine domestic competitiveness • Emerging economies levy average customs duties of 0.82 percent of GDP, while EU countries charge 0.13 percent - less than one sixth as much

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Consumers in emerging economies are still paying comparatively high prices for goods relative to their counterparts in developed countries thanks to a far higher tax take from import duties in proportion to the size of their economy, according to a new study by UHY, the international accounting and consultancy network.

UHY studied customs duties levied by 18 economies around the world as a percentage of each economy’s size * as an important indicator of the impact of a country’s trade barriers.

It found that emerging economies charge import taxes equating to an average of 0.82 percent of their GDP, compared to a global average of 0.47 percent.

By contrast, the major EU economies surveyed raised proportionally the least in customs duties, at just 0.13 percent of their GDP on average – less than one sixth as much as emerging economies.

Countries that are part of the North American Free Trade Agreement (NAFTA): the US, Canada and Mexico, levy an average sum equivalent to 0.2 percent of their GDP in customs revenues.

UHY says that protectionist policies implemented by emerging economies to safeguard the interests of their domestic producers risk continuing to adversely impact consumers in those countries by creating artificially high prices for imported goods.

It adds that this may also suppress the competitiveness of domestic manufacturers and producers by insulating them from global markets.

Comments Ladislav Hornan, Chairman of UHY: “Consumers in emerging economies may still be getting a raw deal, as their national governments continue to strike a highly protectionist stance in an attempt to boost their domestic agricultural and manufacturing sectors.”

“By creating distortions in the market, the unintended consequence is often that consumers are left facing higher prices, while the duties fail to stimulate uncompetitive domestic industries. They often simply amount to another tax on businesses and consumers that leaves less money available for spending and investment locally.”

“Ambitious emerging economies which are keen to be able to compete on the global stage need to think carefully about whether protectionist policies are really the best way to develop their potential,” says Ladislav Hornan. “Excessive trade barriers prevent them from focusing on industry sectors where they do have a comparative advantage, and risks stifling innovation and efficiency.”
UHY notes that while the amount levied in duties is a useful measure of the impact of a country’s trade barriers, other factors can also have a bearing. For example, some countries’ geographies may mean they simply have no choice but to import most of the goods they use, so that the total amount of import duties paid reflects the volume of imports rather than an unusually high rate of duty.

Other countries may also impose additional taxes, which disproportionately affect imports. For instance, in addition to higher import duty rates on foreign luxury goods, China also charges a consumption tax on goods such as alcohol, tobacco, cars and cosmetics; categories in which the most popular brands are often foreign. In Brazil, as well as import duties, several other taxes disproportionately impact on imports, most notably a 25 percent tax on ocean freight called the Merchant Marine Renewal Tax.

Diverse range of Free Trade Agreements increasingly important to competitiveness

“Creating more Free Trade Agreements (FTAs) or customs unions with a more diverse range of countries is becoming increasingly important to increase competitiveness,” says Ladislav Hornan. “Many are benefitting from spreading their net beyond their immediate geographical neighbors”

For example, Mexico has a network of ten FTAs with 45 countries, as well as 30 investment agreements and nine other limited scope agreements. The US has 14 FTAs with countries including Korea, Singapore and Morocco. Australia has just signed a FTA with China, one of its key trading partners, which should help it to reduce the import duty costs borne by consumers in line with other developed economies.

He adds, “Consumers in the EU have clearly benefitted from the European free trade zone.”

“While the UK currently has one of the lowest customs duties burdens in the world, there’s a risk that this could shoot up if it leaves the EU following its forthcoming referendum, and relationships deteriorate. A so-called Brexit could jeopardize Britain’s continued participation both in the EU free trade zone and in trade agreements agreed by the EU with third party countries.”

“So much would depend on what the UK could achieve in establishing a whole new raft of bi-lateral trade agreements, should it vote to leave the EU.”

He adds, “On a global level, these figures indicate a clear difference in approach between emerging and developed economies. As globalization gathers pace, the question of whether protectionist policies are a benefit or a hindrance to individual economies is an increasingly important debate.”

*Information on the total amount of customs duties received on imports only

COUNTRY    CUSTOMS DUTIES COLLECTED US$ (millions)    CUSTOMS DUTIES COLLECTED AS % OF GDP

India    30,000    1.78%
Nigeria    4,988    0.96%
Russia    181,495    0.92%
Emerging economies average         0.82%
Uruguay*    11,669    0.74%
Global average         0.47%
China    46,138    0.44%
Netherlands    2,400    0.38%
Australia*    5,463    0.37%
Canada    3,831    0.21%
Japan    9,755    0.21%
NAFTA average         0.20%
US     33,926    0.19%
Mexico    2,150    0.17%
Germany    6,327    0.16%
France    3,581    0.15%
Ireland    298    0.15%
Spain    1,780    0.15%
Major EU economies average          0.13%
Croatia    76    0.13%
Italy    2,691    0.13%
Denmark    452    0.12%
UK    2,900    0.11%
Brazil    figures not available    
UAE    figures not available    

*2012 tax year – the most recent data available.

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About UHY LLP
UHY LLP, a licensed CPA firm, provides audit and other attest services to publicly traded, privately owned and nonprofit organizations in a number of industry sectors. UHY Advisors provides tax and advisory services to entrepreneurial and other organizations, principally those enterprises in the dynamic middle market.

UHY LLP, operating in an alternative practice structure with UHY Advisors, forms one of the largest professional services firms in the US. While that scale might provide confidence for some clients, others tell us our greatest value is the way we bring these resources to bear to help address today’s evolving business challenges. It’s a philosophy we call “The Next Level of Service”. To learn more visit http://www.uhy-us.com.

All of the above entities are members of UHY International (“UHYI”), a worldwide network of independent professional services firms that provide audit, tax and advisory services around the globe. UHYI is ranked among the top international accountancy networks and a proud member in good standing of the Forum of Firms. Collectively, our US operating entities (UHY LLP and UHY Advisors) are the largest independent members of UHYI with significant participation, bringing the power of our international network to serve the individualized needs of our clients.

UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.” UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

About UHY
Established in 1986 and based in London, UK, UHY is a network of independent audit, accounting, tax and consulting firms with offices in over 296 major business centres across more than 89 countries.

Our staff members, over 7,660 strong, are proud to be part of the 16th largest international accounting and consultancy network. Each member of UHY is a legally separate and independent firm. For further information on UHY please go to http://www.uhy.com.

UHY is a full member of the Forum of Firms, an association of international networks of accounting firms. For additional information on the Forum of Firms, visit http://www.forumoffirms.org

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Chris Clark
UHY LLP
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