This position on tariffs, the EU takes both sides, protection of local industries against free and fair international trade based on WTO guidelines. The EU promotes economic development and protects its interests against unfair trade policies and practices through a common custom policy, wide-ranging trade agreements and a single integrated market.
What Are Tariffs and How Does the EU Use Them?
Tariff is a tax on imported goods to a country or an economic bloc. To the EU, tariffs are utilised in a number of ways:
- In order to guard against unfair foreign competition to the domestic industries,
- To enhance local businesses and employment,
- In order to boost government revenue.
Tariffs can be quoted in percentage terms (ad valorem), or in fixed value per unit, e.g. euros per tonne.
credit: reuters.com
An example would be a situation where the EU has a 20 per cent tariff on imports of electronic goods provided by a third country, meaning that a product started at 200 Euros would now attract a tariff of 40 Euros and this raises the retail price of the product making it an incentive to EU producers to charge lower prices.
How Do Tariffs Work Within the EU?
One of the best benefits of the EU Customs Union is that external tariffs payable on goods imported outside the EU are the same across the countries that are its members. That is, once the goods have paid EU tariffs into the Union at entry, they can circulate freely among member states without further duty.
- About 3/4 of the amount of tariffs collected is used in the budget of the EU and fractions about 13.7 percent of the total EU budget in the year 2024.
- The EU believes in adherence to the rules of the world trade organization (WTO) such as the utterance of most-favoured-nation treatment, setting up a fair tariff and non-discrimination of the trading partners.
Countries can underpin trade arrangements enabling relatively low or no-tariffs of goods exchanged within the aggregate but have to impose regular duties on non-members, with exceptions arising in instances like anti-dumping.
What Are Trade Wars and How Does the EU Respond?
A trade war takes place when countries respond to another country’s tariffs or perceived trade practices that are unfair by raising tariffs and cutting off trade and raising costs for businesses and consumers.
- Most notable was the 2018 trade row when the US slapped tariffs on EU steel and aluminium, prompting the EU to place them on American motorcycles and bourbon.
- The EU applies trade defence mechanisms such as the anti-dumping tariffs to protect its industries against unfair low-priced imports in the strict observation of WTO rules.
- The EU Anti-Coercion Instrument gives the EU the powers to act against third countries that undertake economic coercion against them through dialogue and sanction, should the need arise.
- A common use of the WTO dispute settlement system lies in its appeal by the EU to settle trade disputes impartially and in order to avoid escalation.
How Does the EU Lower Tariffs Through Trade Agreements?
The EU engages in active trade negotiations with countries and regions across the globe in the effort to lower upstream tariffs as well as to make trade easier thus stimulating economic growth. These consensuses typically:
- Removal or cutting of tariffs,
- Services and investment pledges,
- Government procurement,
- Competition laws,
- Sustainable development,
- Regulatory cooperation.
At the present, the EU has 44 trade agreements with more than 70 partner economies, which makes the EU the global leader in the trade of goods and services and the leading trade partner to the world.
credit: ceps.eu
The EU Single Market: A Tariff-Free Zone
Ever since the formation of EU Customs Union in 1968, tariffs among member countries were eliminated leading to a single market in which goods, services, capital, and people are freely circulated.
Using this integration, businesses can:
- SUCCEED across borders without holdups at customs or added costs.
- Reach a broader customer audience,
- Get economies of scale.
Integration brings a greater selection of items at both high and low prices, consumers are better off with good safety and quality standards since there are uniform regulations.
A single market is the backbone of the European economic performance and competitiveness in the global market.
TopicExplanationPurpose of TariffsProtect local industry, promote jobs, generate revenueCustoms UnionEU countries apply common external tariffs; free internal movementAdherence to WTO RulesMost-favoured-nation principle; non-discriminationResponse to Trade WarsUses trade defense tools and WTO dispute systemTrade Agreements44 agreements covering tariffs, services, investmentsSingle MarketTariff-free area among EU members for goods
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