Understanding Tariff Data in WITS
When interpreting tariff data on the WITS site, it is essential to understand the distinct types of tariffs and how they are computed. The tariff rates you will see are MFN (Most Favored Nation) Simple Average Tariff, MFN Weighted Average Tariff, Effectively Applied Simple Average Tariff and Effectively Applied Weighted Average Tariff.
This guidance note will provide the details on what users should be aware of regarding how effectively applied tariffs are calculated. We strongly advise users to understand the caveats and conduct their own due diligence for their countries, products, and years of interest.
There are two primary types of tariffs data collected, which are used to calculate the Applied Tariff in WITS. These tariffs are:
Most Favored Nation (MFN) Tariff: MFN tariffs are the standard rates that WTO member countries commit to imposing on imports from other WTO members, unless a preferential trade agreement exists. These rates are generally the highest tariffs that WTO members charge one another.
Preferential Tariff: Preferential tariffs are lower tariff rates that countries offer each other under specific trade agreements, such as free trade areas or customs unions. These rates are designed to promote trade between the participating countries.
The MFN and Preferential tariff are available at the National Tariff Line level (NTL) (HS 8- and higher (10,12 etc.)-digit level). In WITS, these are aggregated to the HS 6-digit levelusing the methods described below.
For MFN tariff
For every country reporting tariff data (reporter) with other countries (their partners) for each year, we perform the following calculation to get the MFN tariff at HS 6-digit level. For each HS 6-digit product, we take the sum of MFN rates of all underlying NTL products and divide it by the total number of products at NTL level and use this as the simple and weighted average MFN tariff. �The simple and weighted average MFN tariff are the same at the HS 6-digit level because import data at the NTL level are not available.
For Applied Tariff
For every reporter, partner, year and product at 6-digit level, we perform the following calculation to get the applied tariff. We examine whether preferential tariffs are available. If preferential tariffs are available, we take the lowest of the preferential rates among the NTL products and add those up; we then add the MFN rates for NTL products that do not have preferential rates with that partner. We divide this sum of rates by the total number of NTL products. We use this as the simple and weighted average applied tariff for that HS 6-digit product.
For example, below are the details of MFN and Preferential tariff imposed by Japan on Indonesia in the year 2016 at the NTL level for HS 6 product 30520
|
Product Code at NTL |
MFN Tariff (%) |
Preferential Tariff |
Minimum of MFN and Preferential tariff (%) |
||
|
Preferential tariff for Indonesia (%) |
ASEAN Free Trade Area (%) |
Japan Generalized System of Preference (%) |
|||
|
030520010 |
8.4 |
0 |
0 |
not applicable |
0 |
|
030520020 |
7.5 |
not applicable |
not applicable |
not applicable |
7.5 |
|
030520030 |
3.5 |
not applicable |
0 |
not applicable |
0 |
|
030520040 |
10 |
0 |
2.7 |
not applicable |
0 |
|
030520090 |
2.8 |
0 |
0 |
0 |
0 |
|
MFN Tariff |
(8.4+7.5+3.5+10+2.8)/5 = 6.4 |
|
|
Applied Tariff |
(0+7.5+0+0+0)/5= 1.5 |
The computed applied tariffs (both simple and weighted average) available in WITS are based on available MFN and Preferential tariff data and are indicative of the actual tariff charged by a country. In addition, the tariffs used for calculating applied tariffs do not include hikes outside of MFN and Preferential tariffs such as unilateral hikes by a given country's government for certain products against some partner countries. Three potential reasons can explain why applied tariffs are indicative and may not represent the actual tariffs imposed by countries:
- Unavailability of some or all preferential tariff data across years
- Lack of import data at the level of the tariff line
- Handling of non-ad valorem duties, also known as specific tariffs.
1) Unavailability of Some or All Preferential tariff data across years:
In cases where preferential tariff data is unavailable for a reporting country in a particular year, the MFN tariff is used in place of the preferential tariff. Therefore, for the effectively applied tariff computation, the MFN tariff is selected by default. This ensures that there is always a tariff rate available for computation, but it could result in higher average tariffs for those years relative to other years when the preferential tariff information are available.
2) Lack of import data at tariff line level:
MFN and Preferential tariffs are recorded by the country at the most detailed HS 8- or 10-digit level, and tariffs are imposed at this level. However, WITS does not have information on which products at the HS 8 or 10-digit level were imported by a country, therefore the average at HS 6 digit level is computed using all reported tariffs at tariff line level without taking into account whether the associated product was imported or not. Simple averages for higher levels of aggregation such as HS 4 or 2 digit level, are derived from pre-aggregated HS 6-digit averages. All calculations are based on the complete standard nomenclature.
In addition, only duties and imports recorded under HS Chapters 01-97 are considered. National tariff lines that do not adhere to the standard HS nomenclature at the HS 6-digit level are excluded.
3) Handling of non-ad valorem duties, also known as specific tariffs:
Whenever possible, non-ad valorem duties (NAVs), say a tariff of 5 USD per kilo of a product, are converted into ad valorem equivalents (AVEs) using a method based on unit values (UV). The method involves two steps: 1) dividing the value of imports by the import volume (quantity) to determine the import unit value (UV) and 2) calculating the AVE is by dividing the specific part of the NAV by the UV, with the result expressed as a percentage.
Key Points for Users
- Understand the differences between MFN and Preferential tariffs.
- The effectively applied tariff is the lowest rate between MFN and Preferential tariffs.
- Understand how simple and weighted average tariffs are computed.
- Be careful of years where preferential tariff data is missing since MFN tariffs will be used instead, potentially affecting the estimates of average tariff rates.
These reasons lead to spikes in bilateral tariffs in one or more years, relative to previous years. By understanding these concepts, users can more accurately interpret the tariff data available on the WITS site.
Please Note:
For tariff rates provided at a higher level of aggregation, for example, at the HS 4-digit or the HS 2-digit product level , the computation of the simple and the weighted average MFN and Applied Tariffs are as follows. For any given reporter, partner, year, we consider only the HS 6-digit products that have positive imports. The simple average tariff it is then the sum of tariffs of all imported HS 6-digit products divided by the total number of imported HS 6-digit products. For example, for tariffs under a particular HS 4-digit level we take all the imported HS 6-digt products. For the weighted average tariffs, we take the imported trade value as the weight.
For additional questions on how to interpret WITS tariff data, contact us at wits@worldbank.org
The World Bank, UNSD, UNCTAD, and WTO do not provide any guarantee with respect to WITS and its supported databases. The users assume all risk for its use and results obtained from the system. The designation employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of any of the agencies involved concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.