Common External Tariff

Published Apr 6, 2024

Definition of Common External Tariff (CET)

A Common External Tariff (CET) refers to a uniform tariff rate adopted by a group of countries on imports from non-member countries. This is one of the key features of a customs union, a type of trade bloc which is formed through a trade agreement between multiple states. By implementing a CET, the member countries agree to set the same import duty rates on specific goods coming from outside the customs union, while allowing for the free movement of goods and services among themselves without internal tariffs.

Example

Consider the European Union (EU), which is a shining example of a customs union employing a CET. For instance, if the EU sets a CET of 10% on imported automobiles from any non-EU country, this means that all member states of the EU must levy a 10% import duty on cars coming from outside the EU. This is irrespective of which EU country the goods enter first. So, whether the car is imported into Germany, France, or Italy, the tariff rate applied should be uniformly 10%.

This practice harmonizes the approach to trade with non-member countries, thereby simplifying the trade process, reducing administrative burdens, and fostering a more unified economic relationship among the member states of the union.

Why Common External Tariff Matters

The implementation of a Common External Tariff is crucial for several reasons:

• Promotes Fair Competition: CET ensures that imports from outside the customs union are treated equally, regardless of the member country they enter. This creates a level playing field among businesses within the member states.
• Strengthens Bargaining Power: By acting as a single entity, the customs union can negotiate trade agreements with non-member countries or international trade organizations from a stronger position.
• Protects Domestic Industries: A CET can help protect emerging or vulnerable sectors in member countries by applying tariffs to imports that might otherwise flood the market.
• Encourages Regional Integration: The adoption of a CET is a step towards deeper economic integration among the member states, promoting closer ties and cooperation.

Frequently Asked Questions (FAQ)

How does a Common External Tariff affect consumers?

A CET can have mixed effects on consumers within the customs union. On one hand, it might lead to higher prices for certain imported goods due to tariffs, which can reduce consumer choice and increase costs. On the other hand, it can also encourage the development of domestic industries, potentially leading to increased employment opportunities and economic growth within the union.

What are the challenges of implementing a Common External Tariff?

Implementing a CET can be challenging as it requires member countries to agree on the rates and to forego their right to set individual tariffs. It may also necessitate adjustments in national economic policies to align with the collective standards of the customs union. Additionally, balancing the protection of domestic industries with the potential for increased consumer prices presents a constant challenge.

Can a country outside a customs union be affected by its Common External Tariff?

Yes, countries outside the customs union can be significantly affected by its CET. The tariff can either make it more expensive for these countries to export their goods into the customs union, potentially reducing their competitiveness, or it can prompt them to negotiate trade agreements with the union to secure better terms for their exports.

In conclusion, the Common External Tariff is a pivotal element in the framework of customs unions, reflecting a collective approach towards trade with non-member countries. While it aims to strengthen and protect the economies of member states, it also imposes certain obligations and challenges that need to be carefully managed to ensure the benefits are maximized for all members involved.