Tariff

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For other uses, see Tariff (disambiguation).

Taxation
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v•d•e

A tariff (from the Arabic ‫تعريفة‬, transliterated taʿrīfah, "notification"; derived from the verb ʿarrafa, "to
announce, inform") is a tax levied on imports or exports.

Contents
[hide]

• 1 History

• 2 Types
 • 3 Economic analysis

• 4 Political analysis

o 4.1 United States

• 5 See also

• 6 References

• 7 Further reading

• 8 External links

[edit]History

Tariffs are usually associated with protectionism, the economic policy of restraining trade between
nations. For political reasons, tariffs are usually imposed on imported goods, although they may also
be imposed on exported goods.

In the past, tariffs formed a much larger part of government revenue than they do today.

When shipments of goods arrive at a border crossing or port, customs officers inspect the contents
and charge a tax according to the tariff formula. Since the goods cannot continue on their way until the
duty is paid, it is the easiest duty to collect, and the cost of collection is small. Traders seeking to
evade tariffs are known as smugglers.

[edit]Types

There are various types of tariffs:

 An ad valorem tariff is a set percentage of the value of the good that is being imported.
Sometimes these are problematic, as when the international price of a good falls, so does the
tariff, and domestic industries become more vulnerable to competition. Conversely, when the price
of a good rises on the international market so does the tariff, but a country is often less interested
in protection when the price is high.

They also face the problem of inappropriate transfer pricing where a company declares a value for
goods being traded which differs from the market price, aimed at reducing overall taxes due.

 A SPECIFIC tariff, is a tariff of a specific amount of money that does not vary with the price of
the good. These tariffs are vulnerable to changes in the market or inflation unless updated
periodically.
  A REVENUE tariff is a set of rates designed primarily to raise money for the government. A
tariff on coffee imports imposed by countries where coffee cannot be grown, for example raises a
steady flow of revenue.

 A PROHIBITIVE tariff is one so high that nearly no one imports any of that item.

 A PROTECTIVE tariff is intended to artificially inflate prices of imports and protect domestic
industries from foreign competition (see alsoeffective rate of protection,) especially from
competitors whose host nations allow them to operate under conditions that are illegal in the
protected nation, or who subsidize their exports.

 An environmental tariff, similar to a 'protective' tariff, is also known as a 'green' tariff or 'eco-
tariff', and is placed on products being imported from, and also being sent to countries with
substandard environmental pollution controls.

 RETALIARY TARIFF is one placed against a country who already charges tariffs against the
country charging the retaliatory tariff (e.g. If the United States were to charge tariffs on Chinese
goods, China would probably charge a tariff on American goods, also). These are usually used in
an attempt to get other tariffs rescinded.

Tariffs, in the 20th century, are set by a Tariff Commission based on terms of reference obtained from
the government or local authority andsuo motu studies of industry structure.

Tax, tariff and trade rules in modern times are usually set together because of their common impact
on industrial policy, investment policy, and agricultural policy. A trade bloc is a group of allied countries
agreeing to minimize or eliminate tariffs and other barriers against trade with each other, and possibly
to impose protective tariffs on imports from outside the bloc. A customs union has a common external
tariff, and, according to an agreed formula, the participating countries share the revenues from tariffs
on goods entering the customs union.

If a country's major industries lose to foreign competition, the loss of jobs and tax revenue can
severely impair parts of that country's economy and increase poverty. If a nation's standard of living or
industrial regulations are too great, it is impossible for domestic industries to survive unprotected trade
with inferior nations without compromising them; this compromise consists of a global race to the
bottom. Protective tariffs have historically been used as a measure against this possibility. However,
protective tariffs have disadvantages as well. The most notable is that they prevent the price of the
good subject to the tariff from undercutting local competition, disadvantaging consumers of that good
or manufacturers who use that good to produce something else: for example a tariff on food can
increase poverty, while a tariff on steel can make automobile manufacture less competitive. They can
also backfire if countries whose trade is disadvantaged by the tariff impose tariffs of their own,
resulting in a trade war and, according to free trade theorists, disadvantaging both sides.(Murad)
[edit]Economic analysis
Neoclassical economic theories hold that tariffs are a harmful interference with the individual freedom
and the laws of the free market. They believe that it is unfair toward consumers and generally
disadvantageous for a country to artificially maintain an industry made inefficient by local demands,
and that it is better to allow a collapse to take place. Opposition to all tariffs is part of the free
trade principle; the World Trade Organization aims to reduce tariffs and to avoid countries
discriminating between differing countries when applying tariffs.

In the following graph we see the effect that an import tariff has on the domestic economy. In a closed
economy without trade we would see equilibrium at the intersection of the demand and supply curves
(point B), yielding prices of $70 and an output of Y*. In this case the consumer surplus would be equal
to the area inside points A, B and K, while producer surplus is given as the area A, Band L. When
incorporating free international trade into the model we introduce a new supply curve denoted as SW.
This curve makes the assumption that the international supply of the good or service is perfectly
elastic and that the world can produce at a near infinite quantity at the given price. Obviously, in real
world conditions this is somewhat unrealistic, but making such assumptions is unlikely to have a
material impact on the outcome of the model. In this case the international price of the good is $50
($20 less than the domestic equilibrium price).

The model above is only completely accurate in the extreme case where none of the consumers
belong to the producers group and the cost of the product is a fraction of their wages. If instead, we
take the opposite extreme, and assume all consumers come from the producers' group, and also
assume their only purchasing power comes from the wages earned in production and the product
costs their whole wage, then the graph looks radically different. Without tariffs, only those
producers/consumers able to produce the product at the world price will have the money to purchase it
at that price. The small FGL triangle will be matched by an equally small mirror image triangle of
consumers still able to buy. With tariffs, a larger CDL triangle and its mirror will survive.

Note also, that with or without tariffs, there is no incentive to buy the imported goods over the
domestic, as the price of each is the same. Only by altering available purchasing power through debt,
selling off assets, or new wages from new forms of domestic production, will the imported goods be
purchased. Or, of course, if its price were only a fraction of wages.

In the real world, as more imports replace domestic goods, they consume a larger fraction of available
domestic wages, moving the graph towards this view of the model. If new forms of production are not
found in time, the nation will go bankrupt, and internal political pressures will lead to debt default,
extreme tariffs, or worse.

Establishing tariffs slows down this process, allowing more time for new forms of production to be
developed, but also buttresses industries which may never regain competitive prices.

[edit]Political analysis
The tariff has been used as a political tool to establish an independent nation; for example, the United
States Tariff Act of 1789, signed specifically on July 4, was called the "Second Declaration of
Independence" by newspapers because it was intended to be the economic means to achieve the
political goal of a sovereign and independent United States.[1]

In modern times, the political impact of tariffs has been seen in a positive and negative sense.
The 2002 United States steel tariff imposed a 30% tariff on a variety of imported steel products for a
period of three years. American steel producers supported the tariff[2], but the move was criticised by
the Cato Institute[3].

Tariffs can occasionally emerge as a political issue prior to an election. In the leadup to the 2007
Australian Federal election, the Australian Labor Party announced it would undertake a review of
Australian car tariffs if elected[4]. The Liberal Party made a similar commitment, while independent
candidate Nick Xenophon announced his intention to introduce tariff-based legislation as "a matter of
urgency".[5]

Tariffs - The Economic Effect of Tariffs

How Tariffs Effect The Economy
From Mike Moffatt, former About.com Guide
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In my article The Softwood Lumber Dispute we saw an example of a tariff placed on a foreign
good. A tariff is simply a tax or duty placed on an imported good by a domestic government.
Tariffs are usually levied as a percentage of the declared value of the good, similar to a sales
tax. Unlike a sales tax, tariff rates are often different for every good and tariffs do not apply to
domestically produced goods.
The upcoming book Advanced International Trade: Theory and Evidence by Robert Feenstra
gives three situations in which governments often impose tariffs:
• To protect fledgling domestic industries from foreign competition.
• To protect aging and inefficient domestic industries from foreign competition.
• To protect domestic producers from dumping by foreign companies or governments.
Dumping occurs when a foreign company charges a price in the domestic market which is
"too low". In most instances "too low" is generally understood to be a price which is lower in
a foreign market than the price in the domestic market. In other instances "too low" means
a price which is below cost, so the producer is losing money.
The cost of tariffs to the economy is not trivial. The World Bank estimates that if all barriers to
trade such as tariffs were eliminated, the global economy would expand by 830 billion dollars
by 2015. The economic effect of tariffs can be broken down into two components:
• The impact to the country which has a tariff imposed on it.
• The impact to the country imposing the tariff.
In almost all instances the tariff causes a net loss to the economies of both the country
imposing the tariff and the country the tariff is imposed on.

Impact to the economy of a country with the tariff imposed on it.

It is easy to see why a foreign tariff hurts the economy of a country. A foreign tariff raises the
costs of domestic producers which causes them to sell less in those foreign markets. In the
case of the softwood lumber dispute, it is estimated that recent American tariffs have cost
Canadian lumber producers 1.5 billion Canadian dollars. Producers cut production due to this
reduction in demand which causes jobs to be lost. These job losses impact other industries as
the demand for consumer products decreases because of the reduced employment level.
Foreign tariffs, along with other forms of market restrictions, cause a decline in the economic
health of a nation.

The next section explains why tariffs also hurt the economy of the country which imposes
them.

What is tariff
 A tariff is a tax placed on imported goods. Each country has separate tariff regulations. The five
main types of tariffs include revenue, ad valorem, specific, prohibitive and protective.

A revenue tariff increases government funds. For example, countries that do not grow bananas
may create a tariff on importing bananas. The government would then make money from
businesses that import bananas.

An ad valorem tariff means that the tariff applies to a percentage of the import's value such as a
set number of cents on every dollar of value. A specific tariff, on the other hand, means that
the tariff is not concerned with the estimated value of the imported goods, but rather is based on
specific amount of the goods. A specific tariffmay apply to the number of goods imported or to the
weight, volume or other measurement of the goods

Types of meter
Credit meter tariffs
The value of your npower energy bill will depend upon the tariff you select, the unit costs for electricity or gas
consumed and how you wish to pay. Our electricity prices also vary according to where you live.
Prepayment meter tariffs
Many customers find a prepayment meter a convenient way to pay for their gas and electricity. Prepayment
meters let you pay for gas and electricity as you use it, and also covers the standing charge. It can also be used
to collect an amount each week to cover any money you owe us.

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Non-Tariff Barriers Export financing andV
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The various types of non-tariff barriers (or NTB) from International VC
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include consist of: import quotas, exchange
controls, customs delays, government purchasing
policies, subsidies, customs calculation
procedures, boycotts, technical barriers, bribes
and voluntary restraints.

Additional steps are continuously being taken

through the General Agreement on Tariffs and
Trade or GATT or now referred to as WTO World
Trade Organization since 1995, to reduce trade
barriers to imports from non-members.

Types of Tariffs
A tariff may be one of the following four kinds:

(1) Ad valorem (2) Specific (3) Alternative

(4) Compound

1. Ad Valorem duty
The kind most commonly used, is one that is calculated as a percentage of the value of the imported goods - for
example, 10, 25 or 35 per cent.

This may be based, depending on the country, either on destination (c.i.f.), or on the value of the goods at the port in
the country of origin (f.o.b.).

2. A Specific duty
Is a tax of so much local currency per unit of the goods imported (based on weight, number, length, volume or other
unit of measurement. Specific duties are often levied on foodstuffs and raw materials.

3. An Alternative duty
Is where both an Ad valorem duty and A Specific dutyare prescribed for a product, with the requirement that the more
onerous one shall be Ad valorem duty value plus 10 cents per kilo.

4. Compound duties
Are imposed on manufactured goods that contain raw materials that are themselves subject to import duty.
The"specific" part of the compound duty (called compensatory duty) is levied as protection for the local raw material
industry.

Dutiable Weights

Depending on the country, the Dutiable weights used to calculate specific import duties may be the gross
weight,the legal weight, or the net weight.
The dutiable weight is the actual weight upon which duty must be paid.

The gross weight is the weight of the goods and all interior, exterior containers and packing material.

The legal weight (used mainly by Latin American countries) is the weight of the goods and of the immediate interior
containers.

The net weight is the weight of the goods without the packing materials.
However, in a few countries, it is defined as including the weight of the immediate container.

Very often, there is a fixed percentage allowance(called the tare) used by the customs authorities for determining
gross weight from net weight, and vice-versa. Most countries using specific duties employ different types of dutiable
weights for difference commodities.

It is essential for an exporter to know what dutiable weight is being used for its product as it may be able to vary its
packing accordingly.

In some countries (such as Switzerland, Venezuela and Colombia) most specific duties are levied on gross weight,
whatever the nature of the goods.

Next Page 2.2/8 - About Tariff Lists, Dutiable Value and Anti Dumping Duties "Anti-dumping are additional dutiesto
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Some countries use the higher of the export
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How to calculate Costing for Export?
 Hazards of Export Packing & Shipping
Most countries have two major tariff lists: Export Shipment and Transportation
4 P's of Export Business Correspondence
Dutiable list for goods subject to customs
duties, and afree list for goods permitted to enter About Pallet a transportable platform
free of duty. Depending on the country, goods in
the dutiable list may be classified in any one of
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By the from International VC
(1) height of the duty, or by the Firms?
(2) attributes of the goods - for example, the raw
materials from which they are made, the use to
which the product will be put
or
(3) degree of processing that has been involved.

Levels of Import Duty

For each dutiable product, there may be one, two, or three different levels of import duty.

Single-Column Tariff Schedule

With this system, there is only one level of import duty for each product, wherever the country of origin.

Double-Column Tariff Schedule

Below are two levels of import duty for each export.

1. Maximum-minimum form
This is where both levels of tariff are set autonomously by the foreign country, without modification by international
agreement.

The higher or "maximum" level is the one that applies to imports from countries that have signed reciprocal tariff
reduction agreements with the country employing this tariff system.

2. General and conventional form

Here, the higher level of duty is established autonomously. But the lower level of duty comprises all the reduced
duties granted to other countries as a result of tariff negotiations.

The higher level is the normal rate of duty. The lower level, the rate charged on imports from countries that have
signed reciprocal agreements with importing country.

This lower level of tariff may also apply to products from third countries, which may be entitled by treaty to most-
favored-nation treatment - that is, not having their products subject to higher import duties than those of any other
country.

This system is used by, for example, the United States and Japan. With the U.S. tariff system, column-two rates apply
to products from most Socialist countries, and column-one rates (negotiated rates) to all other countries.
Triple-Column Tariff Schedule
Countries which have close political ties with other countries or which have colonial possessions, may have a lower
level of tariffs for goods from their affiliated countries.

This preferential system is used by, for example, the members of the British Commonwealth.

Anti-Dumping Duties

Dumping is the sale of a product abroad at a price lower than that usually charged in the home country. This may be
profitable for a manufacturing firm because it enables it:

1. To engage in longer production per unit of output.

2. To sell goods that would otherwise remain unsold.

3. To sell goods at a price that covers the variable or "incremental" cost of production and marketing of each unit and
also makes some contribution--however small, to the cost of plant overhead.

Exchange dumping, means a country manipulate its exchange rates to lower the selling price of its products when
calculated in terms of the foreign currency.

Since these practices are naturally considered to be unfair competition by manufacturers in the country in which the
goods are being dumped, the government of the foreign country will be asked to impose "anti-dumping" duties.

Anti-dumping are special duties additional to the normal ones, designed to match the difference between the price in
the home country and the price abroad.