Analytical Note, December 2004

Revenue Implications of WTO NAMA Tariff Reduction.

It is generally accepted that trade liberalisation could have a detrimental impact on developing countries’ government revenue. Indeed, since tariffs collected at the border represent a large share of total government revenues in many WTO developing country members, an overall reduction or elimination of tariffs as a result of NAMA negotiations would force governments to find alternative sources of revenue.

The extent of the impact of tariff reduction on government revenue is difficult to quantify and depends on several variables. However, two of the most significant variables concern:

1. The ambition of the reductions (the deeper the cuts, the greater loss of revenue for the same amount of imports), and;
2. The relative weight of tariffs within a country’s fiscal policy (the larger the proportion of revenue dependent on tariffs, the greater the loss of revenue after reductions).

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