Text A

Tariffs

International trade includes all economic transactions that are made

between countries. Accounts of barter of goods or of services among different

people can be traced back almost as far as the record of human history.

International trade, however, is specifically an exchange between members of

different nations. Accounts and explanations of such trade begins only with the

rise of the modern nation-state at the close of the European Middle Ages.

All nations interfere with international transactions to at least some degree.

Tariffs may be imposed on imports — in some instances making them so costly

as to bar completely the entry of the goods involved. Quotas may limit the

permissible volume of imports. State subsidies may be offered to encourage

exports. Money-capital exports may be restricted or prohibited. Investments by

foreigners in domestic plants and equipment may be similarly restrained. These

interferences may be simply the result of special-interest pleading, because

particular groups suffer as a consequence of import competition. Or a

government may impose restrictions because it feels impelled to take account

of factors that comparative advantage sets aside.

The general pattern of interference follows the old mercantilist dictum of

discouraging imports and encouraging exports.

Such interference or trade barriers may include state trading organizations

and government procurement practice that may be used preferentially.

Customs classification and valuation procedures, health regulations and

marking requirements may also have a restrictive effect on trade. Excise taxes

may act as a barrier to trade if they are levied at higher rates on imports than on

domestic goods.

Different government regulations and practices also act as barriers to

trade. For example, a tariff, or duty, which is a tax levied on a commodity when

it crosses the boundary of the Customs area. The boundary may be that of a

nation or group of nations that have agreed to impose a common tax on goods

entering their territory. Protective tariffs are designed to shield domestic

production from foreign competition by raising the price of the imported

commodity. Revenue tariffs are designed to obtain revenue rather than to

restrict imports. Still, protective tariffs, unless they are so high as to keep out

imports, yield revenue, and revenue tariffs give some protection to any domestic

producer of the duty-bearing goods. A transit duty, or transit tax, is a tax levied

on commodities passing through a Customs area en route to another country.

Similarly, an export duty, or export tax, is a tax imposed on commodities leaving

a Customs area.

Other practices may also act as barriers to trade. Quotas of quantitative

restrictions may prohibit the importation of certain commodities or limit the

amounts imported. Such quotas are usually administered by requiring

importers to have licences to bring in particular commodities. Quotas raise prices

just as tariffs do, but, being set in physical terms, their impact on imports is

direct, with an absolute ceiling set on supply. Increased prices will not bring

more goods in. There is also a difference between tariffs and quotas in their

effect on revenues. With tariffs, the government receives the revenue; under

quotas, the import licence holders obtain a windfall in the form of the difference

between the high domestic price and the low international price of the import.

Tariffs on imports may be applied in several ways. If they are imposed

according to the physical quantity of an import, they are called specific tariffs. If

they are levied according to the value of the import, they are known as ad

valorem tariffs.

Tariffs may differentiate among the countries from which the imports are

obtained. They may, for instance, be lower between countries that have

previously entered into special arrangements, such as the trade preferences

accorded to each other by members of the Commonwealth.

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12.2.1 Answer the following questions:

1) What is a tariff or duty?

2) What are protective tariffs designed to do?

3) What are revenue tariffs aimed at?

4) On what is a transit tariff or transit duty levied?

5) On what is an export duty or export tax imposed?

6) What are quotas usually introduced for?

7) In what way do quotas differ from tariffs?

8) What are the two ways in which tariffs or imports may be applied?

9) What trade preferences do members of the Commonwealth have?

10) How can tariffs encourage domestic production?

11) Why are tariffs favoured by industries?

12) What tendencies may tariffs encourage as far as a market structure is concerned?

13) What can force the price of the import down?

14) What are the negative results of imposing higher duty rates?

15) Why is the amount of revenue obtainable through tariffs always limited?

12.2.2 Look through text A again and underline the words essential for

its general understanding.