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Tariff Reduction & Trade Deficit

In the first four months, China had an uncommon trade deficit caused mainly by the decrease of the import tariff. Will the nation's industries continue to be affected in the new round of tariff-reduction?  It's a common concern.

Trade deficit in the first four months

China's foreign trade had a rapid development in 2003, with a total import and export volume of US$850 billion, rising 37.1 percent compared with that of the year before and accounting for 60 percent of the year's GDP. In the first four months of this year, China's trade deficit totaled US$10.76 billion, and the figure for February alone was US$7.9 billion, the largest monthly deficit.

There were many reasons leading to the deficit. First, price increase of energy and raw materials and the reform of tax-rebate policy affected some products' export. Shortage of coal, electricity, oil and transportation power affected not only people's daily life, but enterprises' production. Second, increasing trade conflicts affect Chinese enterprises' development in international market. In the first quarter, China encountered 11 issues of anti-dumping and trade-protection, 83.3 percent over the same period last year. Third, import tariff continued to decrease in 2004.

Since China entered the World Trade Organization (WTO) three years ago, the nation has made unremitting efforts to fulfill its promise. After twice import-tariff decrease in past years, the country again reduced its general import tariff from 11 percent to 10.4 percent this year. It has inevitably added huge pressure to keeping foreign trade balance.

Influence on key industries

Import tariff cut is not the only reason for trade deficit, but it does make apparent impact on some industries.

Before China entered the WTO, grape wine's import tariff is 65 percent. After adding consumption and value added tax, its total tax reached 150 percent. In recent years, the tariff had been decreasing. By 2004, it had been reduced from 44.6 percent to 14 percent, 70 percent lower. In the first quarter of this year, Beijing imported 1,997 tons of grape wine, valuing US$1.175 million, increasing 46 and 25.4 percent respectively, compared to the first quarter in 2003. Caused by the lowering of import tariff, prices of domestic grape wines have also been lowered, some of the decreases having reached 70 percent.

This year's tariff reduction on 2,414 items has some impact on products such as grape wine, but the average decrease is small, only 0.6 percent, and its impact is less than that in the past years. Tariff on agriculture products decreased from 16.8 percent to 15.6 percent; that of industrial products decreased from 10.3 percent to 9.5 percent; and tariffs on those imported in large amounts, such as automobile, electronic and communication products, remain almost the same. 

After all, tariff reductions on industries that draw attention from both investors and consumers are not as much as people had expected. The Shanghai GM Company, the largest Sino-US joint venture of automobile manufacture, carried out its price-decrease campaign on May 17, as a preparation for the tariff reduction and import quota abolition to be applied in 2005. 2004 is the last year for automobile import quote as well as the promised tariff reduction..  

Some expert even said that the current tariff reduction has little impact on petrochemical, medical and textile industries. As the costs of some raw materials have been reduced, it has actually benefited some industries.

(China.org.cn by Feng Yikun, June 12, 2004)

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