A 0.001% Tariff Tax Rate? Time to Make it Zero
This is Part 3 in my Moffatt rants about import tariffs series — see Part 1 and Part 2.
There are all sorts of goods with active tariffs, where the government collects next-to-no tariff revenue, because the goods come in duty free under trade deals like NAFTA (and the relatively newly signed CETA and CPTPP). Although firms using these trade deals might not pay tax on these imports, they pay considerably in compliance costs:
Importers who want to import tariff-free under NAFTA must deal with the paperwork burden of navigating a complex and often amended 557 page NAFTA Rules of Origin Regulations, obtain valid certificates of origin, meet the extensive record keeping requirement, and face post-entry verification risk. In my paper, I estimated these costs to be over $1 billion for NAFTA alone. Small businesses often don’t have the resources to deal with this complex regulatory environment so simply end up paying tariffs they’re not legally required to, just to avoid these headaches.
There’s a solution to this problem: simply set the MFN tariff rate on these goods to 0% (which is already the case for most goods), so our importers can bypass the headaches of obtaining tariff protection under a trade deal.
Here are a few examples. I use trade data from 2017, then adjust for all the trade deals that have come into force since that date. (The dataset is in US Dollars; it’s easy enough to convert to CAD if you’re bored).
680911 — Gypsum Wallboard. In 2017, Canadians imported nearly 85 million US dollars of this tariff item and paid $1338 US in tariffs, for an effective tax rate of 0.00158%.
930390 — Hunting Rifles. Imports were roughly $2M of this tariff item in 2017. Canadian paid $52 in tax. Yes, FIFTY TWO BUCKS. This is an effective tax rate of 0.00241%. Had our new trade deals been in force in 2017 but import patterns had not changed, Canadians would have paid $48 in tariffs instead, for a saving of $4. (Though that’s USD, so it’s closer to five bucks Canadian).
920930 — Musical Instrument Parts. $9 million of imports. $5511 of tariffs paid in 2017; $4195 if CPTPP, CETA, etc. had been in place. With these trade deals, the effective tax rate would be 0.04603%.
852331 — Cards Incorporating an Unrecorded Magnetic Stripe. $27 million of imports. Just over $13,000 in tariffs paid; drops to $12,000 with out trade deals, for an effective tax rate of 0.04463%. Note that we’re not talking 4%, but 4/100 of 1%.
Here’s a complete list, along with my “Excluding new FTAs” estimates. A few big things to keep in mind:
- I don’t model any kind of behavioural change from eliminating these FTAs.
- Some of the tariff levels have already been reduced to an MFN rate of 0%. (Yay! Thanks!)
- For the FTAs list, I assume the new tariffs for these good is immediately 0%. That’s the case for most, but not all goods. Some goods, like various automotive categories, are reduced over time. Others, like supply managed goods, are exempt from trade deals. So don’t take the revenue estimates as gospel for a particular item; you’d want to check the details of those trade deals.
That said, here’s the list. Reach out via Twitter DM if you’d like this data in a different format.
