Legal Definitions - preferential tariff

A preferential tariff refers to a reduced or eliminated customs duty (a tax on imported goods) that one country applies to products originating from another specific country or group of countries. This special treatment is typically granted as part of a trade agreement, a free trade zone, or as a form of economic assistance, aiming to foster trade relations or support economic development between the participating nations. Goods from countries not covered by such agreements usually face higher, standard tariff rates.

• Example 1: Bilateral Trade Agreement

  Imagine Country Alpha and Country Beta sign a new trade agreement. Under this agreement, Country Alpha agrees to impose only a 3% tariff on imported electronics from Country Beta, while it maintains a standard 12% tariff on electronics imported from all other countries. This 3% tariff is a preferential tariff because it offers a significantly lower import tax rate exclusively to goods coming from Country Beta, making those products more competitive in Country Alpha's market.

• Example 2: Support for Developing Nations

  A developed nation, Country Gamma, implements a "Generalized System of Preferences" program to support economic growth in certain less developed countries. As part of this program, Country Gamma allows specific agricultural products, such as cocoa beans, from designated developing countries to enter its market with zero tariffs. Meanwhile, cocoa beans from other developed nations still face a 7% tariff. The zero tariff applied to cocoa beans from the designated developing countries is a preferential tariff, designed to give those nations a competitive advantage and boost their exports to Country Gamma.

• Example 3: Regional Economic Bloc

  Consider the "Northern Trade Alliance," a group of neighboring countries that have formed a regional economic bloc. Within this alliance, member countries agree to apply zero tariffs on most industrial goods traded among themselves. For instance, machinery manufactured in Member Country Delta can be sold in Member Country Epsilon without any import duties. However, identical machinery imported from a country outside the Northern Trade Alliance would face a 10% tariff. The zero tariff applied to goods traded between Member Country Delta and Member Country Epsilon is a preferential tariff, as it grants a significant economic advantage to products originating within the bloc compared to those from non-member countries.