San Marino would benefit from WTO membership
by Craig VanGrasstek

Even as San Marino moves to perfect and consolidate its trade relationship with the European Union, the country should complement that process by acceding to the World Trade Organization (WTO). Its accession is in fact overdue, now that nearly every country in the world is either in the WTO or actively seeking to join. The group of hold-outs has been reduced to a handful, including pariah states such as North Korea. The benefits of WTO membership go beyond the diplomatic imperative of establishing the country’s full citizenship in the global community. If San Marino is to secure the access that it already enjoys to foreign markets, and negotiate for improved access, it needs to have a seat at the table.
WTO membership is important not just when trade rules are being written, but also when they are being interpreted and enforced. The WTO is uniquely powerful among international organization for its strong dispute-settlement rules. Even the smallest WTO members can prevail against the largest in the organization’s Dispute Settlement Body, as Saint Lucia proved when it won a complaint against U.S. restrictions on Internet gambling services.
San Marino still faces barriers to its exports of goods and services. Tariffs are the most traditional of these hurdles, and the one for which the multilateral system has achieved the greatest progress. Many countries had average duties of 25 to 50 percent when the General Agreement on Tariffs and Trade (GATT) came into being in 1947, but by the time that the GATT evolved into the WTO in 1995 these rates had fallen to about one-tenth of those levels. The job is still not done, however, and even if the Doha Round of WTO negotiations sputters to an end — as now seems inevitable — WTO members still hope to cut tariffs by negotiating sectoral agreements.
San Marino has more to gain from multilateral tariff negotiations than do most other developed countries, as can be understood by reviewing the barriers that it still faces in markets outside of Europe. Let us consider the largest of all markets. In 2015 the average U.S. tariff on imports from San Marino was 6.3%. That is far in excess of the averages imposed on imports from the European Union (1.3%) and Japan (1.7%), and more than twice the average U.S. tariff on imports from China (3.0%). These tariffs are not discriminatory per se — the United States already extends most-favored-nation treatment to San Marino — but many of the country’s exports are concentrated in high-tariff sectors. Chief among them is ceramic tiles, accounting for nearly two-thirds of U.S. imports from San Marino. That product is subject to an 8.5% duty. Other San Marinese exports that face above-average tariffs include fur clothing (4% duty), milling and metal-working machines (both 4.2%), men’s leather shoes (10%), nuts (17.9%), men’s cotton shirts (19.7%), and luggage (20%). Nor is the U.S. case unique; other developed countries typically impose tariffs on these products that are just as high.
High tariffs have not prevented the United States from importing goods from San Marino. To the contrary, U.S. imports of San Marino’s ceramic tiles rose from nothing in 2009 to $5.5 million in 2015, when it became the twelfth-largest supplier to that market. There is still much room to grow, however, and if the tariff were reduced San Marino could compete more effectively with tile exporters that have duty-free access to the U.S. market (e.g., Colombia, Mexico, and Peru).
San Marino is also vulnerable to other, murkier forms of protectionism. Consider the safety certifications and other regulatory barriers that can affect San Marino’s exports of electrical machinery. If other countries were to adopt standards that discriminate against these items, it would not matter how high or low the tariffs might be. The industry that prints and reproduces recorded media has been growing, with production in San Marino rising 51% in 2015, but its success depends in part on the global rules governing intellectual property rights. These are issues that often arise in the WTO’s Dispute Settlement Body, which has so far taken on 52 cases involving technical barriers to trade, and 34 dealing with intellectual property rights.
The WTO deals not just in goods but in services, a topic of special interest to San Marino. Services comprise the greater part of the domestic economy, as is true for nearly all countries today, and an unusually large percentage of the population lives and works outside the borders. The number of San Marineses living abroad is equal to about 40% of the resident population, and (in addition to students and pensioners) these include professionals on international assignments. As long as San Marino remains outside the WTO, and does not adhere to its General Agreement on Trade in Services, the trade rights of its services professionals are less secure.
Joining the WTO implies costs as well as benefits, and is by no means automatic. Accession negotiations typically last for several years, and the acceding country is obliged not only to adopt all existing WTO agreements but to make market-access concessions to the incumbent members. Those costs are amply rewarded by the benefits of membership, however, as virtually the entire world has ultimately concluded. San Marino would do well to make the same calculations, and to reach the same conclusions.

Craig VanGrasstek, Adjunct Lecturer in Public Policy, according to The Economist, keeps a sharp eye on the politics of trade (January 22, 2000). He has worked as a consultant in nearly four dozen countries on five continents, with expertise in the fields of trade negotiations, preferences and free trade agreements, WTO accessions, dispute settlement, trade in services, and the trade policy making process of the United States. His clients include the World Trade Organization, the Organization for Economic Cooperation and Development, the United Nations Conference on Trade and Development, the World Bank, and other international organizations, as well as government agencies and private firms. He holds a doctorate in political science from Princeton University and a Master of Science in Foreign Service degree from Georgetown University. He has taught trade policy at Harvard University and American University, and also teaches an innovative course at Georgetown University on foreign policy and literature.

Craig VanGrasstek, HKS Affiliate

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