Reference no: EM13967370

Exercise Instructions

When I discussed the most favored nation (MFN) principles of the WTO, I used tax on imported goods (also called tariff or import duty) as an example. See the entry "WTO Principles: MFN" on the class web site.

The tariff examples I used were the tariff that the US imposed on imported goods. What about US exports? If the US exports to another country, how much import tax does the other country impose on US goods? We will explore this issue in this exercise.

Go to the class website on Moodle. Click on the link "Import duty on cars" under the week of January 25 - January 31. Use the information in that file to answer the following questions.

You will now see a table of information about many different countries. Use this table to answer the three questions at the end of this exercise.

When one imports a car into a country, one might have to pay four kinds of taxes:

1. An import tax. This tax applies to import only. It does not apply to home products. The import tax rate is listed under the column "MFN duty rate".

2. A sales tax. This tax applies to all products, both imports and home products. It is like the Idaho sales tax. In Idaho you pay 6% sales tax on anything you buy, regardless of whether the product is a US product or an import. The sales tax rate is listed under the column "Sales tax".

3. A consumption tax on the specific product. This is like a sales tax, but it applies to a specific product. A sales tax is general - a sales tax applies to all products. A consumption tax on a product is specific - the consumption tax applies to that product only and not to other products. This is like the Idaho tax on cigarettes. The current Idaho cigarette tax rate is .0285 cents per stick. This tax applies to cigarettes only and does not apply to other goods. The consumption tax rate, if there is any, is listed under the column "Additional duties & taxes". Any country might not have any consumption tax.

4. A countervailing duty. As discussed in class, a country can use a countervailing duty (tax) to offset the subsidy provided by another country. The countervailing duty rate, if there is any, is listed under the column "Additional duties & taxes". A country might not have any countervailing duty.

Question 1

For India,

The MFN duty rate is __________________.

The sales tax rate is ____________________.

The consumption tax rate is ______________. (If the "Additional duties & taxes" box is blank for a country or that box does not mention consumption tax, it means there is no consumption tax.)

The countervailing duty is _______________. ______________. (If the "Additional duties & taxes" box is blank for a country or that box does not mention countervailing duty, it means there is no countervailing duty.)

Question 2

For Kuwait,

The MFN duty rate is __________________.

The sales tax rate is ____________________.

The consumption tax rate is ______________. (If the "Additional duties & taxes" box is blank for a country or that box does not mention consumption tax, it means there is no consumption tax.)

The countervailing duty is _______________. ______________. (If the "Additional duties & taxes" box is blank for a country or that box does not mention countervailing duty, it means there is no countervailing duty.)

Question 3

For China,

The MFN duty rate is __________________.

The sales tax rate is ____________________.

The consumption tax rate is ______________. (If the "Additional duties & taxes" box is blank for a country or that box does not mention consumption tax, it means there is no consumption tax.)

The countervailing duty is _______________. ______________. (If the "Additional duties & taxes" box is blank for a country or that box does not mention countervailing duty, it means there is no countervailing duty.)