When1he japanese toldus itWf.S customarytolfave our shoes at1he door, TillS is1he door1hey had in mind.
Keep your shoes to yourself.That's the clear message the Japanese governmenthas given Allen-Edmonds and other U.S.shoe manufacturers.Tough licensing, even tougher tariffs and various other obstacles are making it nearly impossible to do business in Japan.
There is a market for our shoes there.The people have · shown great interest in our classic styles and our superior quality. But the duty makes them terriblyexpensive. Fact is, U.S.shoes sold in Japan are taxed up to 60% higher than Japanese shoes sold in this country.
Don't misunderstand.\\e're not lookingfor help or sympathy.In fact, we're making headway with some good old-fashioned pushiness.Just recently our president liter ally crashed aTokyo trade show we had been excluded
from-and promptly sold over 300 pairs of shoes.
The point is this. A company-even a small one like our own-can't wait for political solutions to unfair trade barriers.Manufacturersmust initiate action in a friendly but finn manner.Whether it's the Japanese market or any other, for now it'sthe best way we know to get a foot in the door.
Allen edmonds
The Handcrafted World of Allen-Edmonds.
Allen-Edmonds Shoe Corporation Port Washington, WI 53074 U.S.A. (414) 284-3461 Telex229715
FAX (414) 284-3462
•Figure 3.4 Japanese import barriers
Source: Reprinted with permission of Allen-Edmonds Shoe Corp.
and which confers a benefit.” Subsidies may take many forms – including cash, interest rate, value- added tax, corporate income tax, sales tax, freight, insurance, and infrastructure. Subsidized loans for priority sectors, preferential rediscount rates, and budgetary subsidies are among the various subsidy policies of several Asian countries.
There are several other kinds of subsidies that are not so obvious. Brazil’s rebates of the various taxes, coupled with other forms of assistance, may be viewed as subsidies. Tennessee, Ohio, Michigan, and Illinois, in order to attract foreign automakers to locate their plants in those states, provided such ser- vices as highway construction, training of workers, and tax breaks, which are simply subsidies in dis- guise. Table 3.4 shows the money spent on agricul- tural support.
Sheltered profit is another kind of subsidy. A country may allow a corporation to shelter its profit from abroad. In 1971 the USA allowed companies to form domestic international sales corporations (DISCs) even though they cost the US Treasury Department more than $1 billion a year in revenue. GATT, the multilateral treaty, eventually ruled that a DISC was an illegal export subsidy. A new US law then allowed companies that met more stringent requirements to form foreign sales corporations (FSCs). As in the case of Boeing Co., it was the biggest user of this tool, enabling it to avoid $130 million in US taxes in 1998, about 12 percent of its entire earnings.13 Ultimately, FSCs were also found to be illegal.
The Subsidies Code, technically named the Agreement on Interpretation and Application of Article VI, XVI and XXIII of the General Agreement on Tariffs and Trade, recognizes that government subsidies distort the competitive forces at work in international trade. The rules of the inter- national agreement negotiated during the Tokyo Round of Multilateral Trade Negotiations differen- tiate between export subsidies and domestic subsidies. The Code’s rules also differentiate between subsi- dies paid on primary products (e.g., manufactures) and those paid on nonprimary products and primary minerals. A primary product is any product of farm,
Table 3.4 Agricultural support. Billions of dollars were spent on agricultural support in 2001.
Country |
PSE1 |
Percentage |
|
(millions of US dollars) |
PSE2 |
Australia 827 4
Canada 3928 17
Czech Republic 585 17
European Union 93,083 35
Hungary 580 12
Iceland 108 59
Japan 47,242 59
Korea 16,838 64
Mexico 6537 19
New Zealand 52 1
Norway 2173 67
Poland 1447 10
Slovak Republic 151 11
Switzerland 4214 69
Turkey 3978 15
USA 49,001 21
OECD 230,744 31
Notes
1 Producer support estimate (PSE) is an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers.
2 The percentage PSE is the ratio of the PSE to the value of
total gross farm receipts.
Source: “Rich Countries Urged to Lead by Example on Trade
Access,” IMF Survey, October 21, 2002, 322.
forest, or fishery in its natural form or that has undergone such processing as is customarily required to prepare it for transportation and mar- keting in substantial volume in international trade (e.g., frozen and cured meat). The Code prohibits the use of export subsidies on nonprimary products and primary mineral products.
There is considerable debate over what should be considered manufactured products, since such products are not entitled to any subsidies. For instance, according to the USA, the EU’s export subsidies for such manufactured products as pasta and wheat flour are banned by the International Subsidies Code. The EU’s position is that pasta and wheat flour are not manufactured products.
Agricultural export subsidies have long been a persistent source of conflict. In 2002, Poland, the Czech Republic, Turkey, and Australia respectively spent $56 million, $35 million, $28 million, and $2 million on agricultural export subsidies. The figures for the following countries are: Switzerland ($292 million), Norway ($128 million), and the USA ($80 million). The EU by itself incredibly spent
$5985 million. In 2003, the EU trade ministers applauded an agreement to put limits on the EU’s forty-year-old practice of paying farmers subsidies based on the amount of their production. However, the EU has not reduced its $30.5 billion a year paid in production-linked subsidies, nor has it made any changes to its export subsidies – the highest in the world. Developing countries complain bitterly that these subsidies are harmful to trade by encouraging European farmers to sell their produce abroad.14
Interestingly, affluent countries have been heavily subsidizing their agricultural businesses (see Table
3.5). Their agricultural subsidies total almost $1 a day (about six times the level of aid to developing countries). While 75 percent of people in Sub- Saharan Africa live on less than $2 a day, an average European cow receives about $2.50 a day in subsidy. On average, a Japanese cow does even better, receiving about $7 a day in subsidy.15 According to the UNCTAD Secretary-General, “six or seven of the top ten agricultural exporters are developed
countries, and I don’t think they could reach that status without export subidies.”16
Customs and entry procedures
Customs and entry procedures may be employed as nontariff barriers. These restrictions involve classi- fication, valuation, documentation, license, inspec- tion, and health and safety regulations. Exhibit 3.1 describes how software products may be classified and valued.17
Classification
How a product is classified can be arbitrary and inconsistent and is often based on a customs officer’s judgment, at least at the time of entry. Product clas- sification is important because the way in which a product is classified determines its duty status. A company can sometimes take action to affect the classification of its product. Sony argued that its PlayStation 2, equipped with a 128-bit micro- processor, a DVD player, and Internet connection, was a big improvement over its PlayStation original and that it should thus qualify as a computer. However, the British customs office chose to con- tinue to classify PlayStation 2 in the video games cat- egory, in effect imposing a duty of 2.2 percent or about $9. Had Sony prevailed in getting the “digital
Table 3.5 Agricultural distortions. Protectionist policies in agriculture are costly to all regions (billion dollars).