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Japan's Import Tariff On Rice Is – Wait For It – 778%!

Kitty Miv, Editor
04 April, 2013

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out three Encomiums to countries which have done Good Things, and award three Execrations for countries which according to my highly personal and partial views have done Bad Things.

How seriously should we take the free trade agreement negotiations between China, Japan and South Korea? Stick two pins in a map of the world, and you'll probably find that the two countries concerned are involved in one or more trade agreements, either in place or being negotiated. There are only a few hold-outs from the secular process of minimizing or abolishing cross-border obstacles to free trade; North Korea springs to mind. The WTO has 159 members and there are 24 countries in the waiting room (observer status), while the United Nations has 193 members, leaving only ten nations which aren't aspiring to belong to both. Then there is a bewildering number of regional trade groupings, amongst which the EU, NAFTA, MERCOSUR, ASEAN and CARICOM are obvious examples; but there are lots of others.

Recently the Trans-Pacific Partnership (TPP) has been in the news; Japan has applied to join it, but neither China nor South Korea has yet applied to join. None of the three countries is a full member of ASEAN, but in "ASEAN + 3" the "3" are China, Japana and South Korea. All three are members of the WTO, of course. All three are also members of APEC, whose members are negotiating the FTAAP (Free Trade Agreement of Asia Pacific); at least they look as if they are, but there may be more heat than light.

South Korea has free trade agreements with a number of major countries, most famously with the USA (KORUS) and the EU; one with Canada is under negotiation. Japan's negotiations with Australia for an FTA have been dragging on since 2007; but just last week Japan opened negotiations with the EU for an FTA. China meanwhile has FTAs with a scattering of smaller nations including New Zealand, and has an FTA with ASEAN.

Ten years ago, apart from WTO involvements, none of our three countries seemed that interested in pursuing more thorough-going trade agreements; but based on their recent behaviour you have to allow that they have apparently changed their spots, and are giving at least lip-service to the idea of extensive free trade, even in so-called "sensitive" areas like agriculture. Are they serious? Japan's import tariff on rice is – wait for it – 778%!

It's all about politics of course, at least in Japan and South Korea. Theoretically there aren't any politics in China, but there are still import quotas for rice, and a tariff of up to a mere 65% for imports above quota. South Korea uses outright bans, quotas and tariffs to control rice imports. All three countries are therefore highly protectionist. Rice is of course one of the stumbling blocks that caused the Doha Round to fail, if it has.

Well, I will not examine the teeth of this gift horse, but merely welcome the initiative and congratulate the leaders of China, Japan and South Korea on their Damascene conversion, or whatever the East Asian equivalent of that might be. I don't suppose many of them have been anywhere near Damascus; and it's certainly not a place I would want to go to right now.

It's almost a relief to turn from countries which are making eyes at each other (admittedly better than scrapping over barren islets in the China Sea) to countries which are behaving badly and making no bones about it. We'll start with France, where Francois Hollande is giving his famous impersonation of an ostrich, sticking to his doctrinal insistence on taxing the living daylights out of anyone who has been subversive and anti-Republican enough (meaning something quite different in France) to make a capitalist profit. The Constitutional Court, about whose inconvenient existence he can do nothing, has blocked his path, so he is now pretending to impose his superlative 75% tax on companies which employ profit-makers. He knows, the Court knows, every journalist in France knows, and we all know that it won't work. So why didn't he just admit defeat, instead of making an ass of himself in addition to being wrong?

Egypt is another country with a leader who is making mistake after mistake, and I am not coming from any kind of anti-Islamist perspective. If a country, like several in the neighbourhood, votes in an Islamist government, then as long as they are tolerant of minorities that is their affair. It's unclear that such a vote has taken place in Egypt, because of the semi-dictatorial way that President Morsi has gone about things. The message coming out of Egypt is that it is suited to a pluralist regime, and attempts to deny this are tearing the country apart. Meanwhile the Government, desperate for money, is making mistakes: the imposition of a "capital gains tax" of 10% on the takeover of local bank NSGB by the Qataris can only do damage to the stock market. Local businesspeople were strongly against this tax, and indeed the local stock market index has fallen by more than 25% since the tax was announced; it was down more than 40% at one point. It's not really a "gains" tax, anyway; it's a tax on the proceeds of trading. Now, as the first step in a proposed program of tariff reductions (excuse me?) the tariffs on various types of luxury imports are rising to 40%. Boats is one category. Who in their right mind would import a boat into Egypt under these conditions? This is probably to be laid at the door of the IMF, which is forcing the Government to swallow nasty medicine as the price for lending it money. But the deal isn't done yet, and probably can't be done until elections take place: they have just been delayed until October. If you're transiting the Suez Canal, just keep going!

My jaw dropped when I read the story about the reporting of financial transactions to the Italian tax authority. I couldn't believe they are seriously expecting every bank and every other financial institution to report opening and closing balances and transaction value totals of every single account in the country. Surely there must be de minimis rules, I thought to myself, so I read the actual legislation in Italian, helped by the trusty Google, and as far as I can see, no there aren't! Since there are sixty million Italians, give or take, the Agenzia dell'Entrate is going to get a minimum 60m sets of data (allowing for different types of account and institution it's probably far more) to burrow into. The bureaucracy is mind-blowing, although admittedly it is all going to be done electronically; but what really should bother everyone is the degree of intrusiveness, which would be unthinkable in the USA, the UK or most other developed nations. Add to this data the redditometro (the compilation of facts about each family's purchases, spending, car ownership etc) and Big Italian Brother will be theoretically capable of knowing every single financial fact about any citizen it chooses to pursue. We know why they're doing it: because they are convinced that taxpayers are nothing short of crooks, out to defraud the state of every last penny they can get away with. They are not wrong, either, except that the solution is not to drive Italians and their financial transactions into the shadows, but to reduce tax rates to a point at which people will pay them willingly, or at least honestly, if reluctantly.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 46th) three countries are given encomiums and three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany has a neutral ranking, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week..

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

China, South Korea and Japan planning a communal rice bowl

And Kitty's Execrations:

Egypt's desperate measures

France no comment

Italy drowns in data



Tags: Asia | Asia Pacific

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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