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Originally Posted by ravo
Isn't ANY tax burdensome on the business that collects it? Be it either, income tax, consumption/sales/VAT tax, payroll tax, health tax, etc, etc, etc.
It's simply a cost of doing business in that particular jurisdiction.
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Fine but this may be the beginning of the end of the WTO agreements. Instead of tariffs governments may (will?) enact new categorized consumption taxes. Same thing but can they get away with that ...
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[C]onsumers suffer a loss in surplus because the price they pay rises by the amount of the consumption tax.
Producers gain in terms of producer surplus. The production subsidy raises the price producers receive by the amount of the subsidy, which in turn stimulates an increase in output.
The government receives tax revenue from the consumption tax but must pay for the production subsidy. However, since the subsidy and tax rates are assumed to be identical and since consumption exceeds production (because the country is an importer of the product), the revenue inflow exceeds the outflow. Thus the net effect is a gain in revenue for the government.
In the end, the cost to consumers exceeds the sum of the benefits accruing to producers and the government; thus the net national welfare effect of the two policies is negative. ...
... This section demonstrates that if the consumption tax and production subsidy happened to be set on an imported product at equal values and at the same rate as the tariff reduction, then the two domestic policies would combine to fully duplicate the tariff’s effects. In this case, trade liberalization would have no effect.
The General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) agreements have always been cognizant of this particular possibility. The original text says that if after trade liberalization a country takes domestic actions nullifying the benefit that should accrue to the foreign export firms, then a country would be in violation of its GATT (or now WTO) commitments. In other words, it is a GATT/WTO violation to directly substitute domestic policies that duplicate the original effects of the tariff. ...
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Equivalence of an Import Tariff with a Domestic (Consumption Tax plus Production Subsidy)
This is clearly a self defeating government policy, and possibly, with a tax taking the place of tarrif (since the goods are virtual not physical) there is no ''port of entry control'', then this would be a GATT/WTO ''breach of agreements'' i.e.; a violation.
The EU and now Japan would have opened a legal can of worms for themselves, in their greed of increased rates of consumption taxes by the class of goods, should this occur; The EU and now Japan will be setting off a trade war that will hurt their economies worse that these taxes will effect the foreign seller.
The foreign seller may either abandon their market and their domestic suppliers will squeeze the domestic consumers markets freely.