By Yujue Wang
China, as the largest goods trading nation in 2013(data cited from the World Trade Organization), announced a new adjustment of its import tariffs of major technical equipment by the end of February. This gives us a new thought when discovering how tariff cuts benefit infant industries.
Ministry of Finance, the National Development and Reform Commission, Ministry of Industry and Information Technology, General Administration of Customs, State Administration of Taxation, the National Energy Board jointly announced that from March 1 this year, China’s imports of major technical equipment would adjust tax policies designed to support China’s emerging industries.
In August 2009, a major technology and equipment import tax policy is issued to restructure and upgrade equipment manufacturing industry of China. The goal is to enhance the industry’s competitiveness by regular adjustments of import tariffs on different components. To be more specific, the imported necessary components and raw materials listed within the catalog used by domestic enterprises for the production of equipment or products will be exempted from customs duties and import VAT.
When we make a comparison between 2012 version of the directory, several adjustments are observed. For instance, new catalogs are added in oil and gas drilling equipment, semi-submersible drilling platforms, LNG carriers, deepwater seismic vessel, wet electrostatic precipitator and other equipment. Changes are made due to government’s support on development new energy equipment which will provide technical support for air pollution control, energy development and railway safety operation in China, and boost the development of China’s strategic emerging industries. On the other hand, urban rail transportation equipment and nuclear power equipment have been deleted because domestic enterprises are able to produce these key components.
“Adjusting the catalog indicates that China is seizing international industrial transformation and upgrading of new technologies and new trends to accelerate the rapid development of equipment manufacturing industry as the representative of the strategic emerging industries.” Wang Zhonghong said, researcher at the Development Research Center of the State Council.
Imposing tariff will have a positive impact on domestic manufacturers as this action increase their competitive edge. Many developing countries use tariffs to protect infant industries by levying tariffs on imported goods in industries in which it wants to foster growth. This increases the prices of imported goods and creates a domestic market for locally produced goods, while protecting those industries from being forced out by more competitive pricing. It decreases unemployment and allows developing countries to shift from agricultural products to finished goods. However, in this case, cutting tariff somehow can also benefit domestic industries by encouraging imports of high-tech components that cannot be manufactured in home country. Lowering tariffs on these items is beneficial to promote industrial upgrading and regular adjustments on the tariff-free catalog help to restructure specific industries.
Actually, China is not the only case in which cutting on import tariff assists development of high-end industries. Russia brought down import tariffs to zero for those high-tech equipment that were not produced in the country in 2008.
Just as Ministry of Economic Development and Trade of the Russian Federation once mentioned, it is impossible to improve labor productivity when there is lack of basic technical updates.