TNAG-0135-FCO40-171-Tariff-preferences-for-developing-countries-1969 — Page 175

CONFIDENTIAL

7. The second main 'area of decision' is the distribution to particular sections of the community of the advantage the quota would create. Duty quotas could be administered either on a 'cut-off' basis or by prior allocation. The merits and demerits of these techniques differ, but either would involve significant administrative costs and clerical burdens both for the Government and for traders:-

(i) The essence of a 'cut-off' system is that goods would be admitted to preference in order of their entry until the quota was exhausted, subsequent imports being charged with duty at the normal rate. Customs would clear goods claiming preference on deposit of the normal rate of duty, and record the entries centrally in date order. These entries would be totalled monthly, and Customs would refund the duty deposited against proven claims' until the quota was exhausted. This sounds straightforward, but in practice would be quite the reverse. Shipments would tend to be bunched. Neither importers nor exporters could be sure, prior to shipment, whether duty would be payable. There would be an added incentive to importers to cover themselves by re-selling at duty-paid prices and pocketing the preference if it were given. There could be complaints of discrimination against the remoter l.d.c.'s, and allegations from all that preference was benefiting the United Kingdom importer more than the 1.d.c. exporter. There would inevitably be harsh decisions and thus representations both from exporters and importers over the treatment of goods 'on the water'. Dubious claims to preference would also be a problem. Any possible 'cut-off' system would be expensive in official manpower, because it would require special action to be taken on each and every importation claiming the benefit of the quota. A precise 'cut-off' system would require special accounting and recording arrangements. There would be additional costs

and inconvenience, both to traders and to Customs, of more elaborate procedures at the ports, and of ensuring that no drawback was paid on goods admitted duty-free.

(ii) Under a 'prior-allocation' system, the Board of Trade would issue certificates entitling those holding them to pay a lower preferential rate of duty on importation. This system has certain advantages over the 'cut-off' method. The quantity of goods receiving preference could be controlled precisely, and this would reassure both British industry and developed Commonwealth countries that any detriment resulting from the new preferences accorded to l.d.c.'s could be effectively contained. Secondly, it would eliminate uncertainty among importers as to whether their consignments would receive preference or not. Thirdly, it would allow preferential and non-preferential trade to continue at the same time, and there would be no incentive to bunch imports into the early part of the duty quota year. Fourthly, the system would not require much legislative action during the quota year. Prior-allocation, however, is not free from difficulty. If, as seems likely in most cases, the quotas are over-subscribed through applicants over-stating their requirements in order to secure any benefit which the possession of a quota is likely to confer, the Government would have to accept responsibility for deciding who would receive certificates and the amount to be allocated in individual cases. Experience in allocating import licences suggests that it would not be possible to devise a method of allocation which would be completely fair to all applicants. It might, for example, be necessary to discriminate in favour of established importers to prevent the fragmentation of quotas;

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