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tariff,tax on imported and, more rarely, exported goods. It is also called a customs duty. Tariffs may be distinguished from other taxes in that their predominant purpose is not financial but economic—not to increase a nation's revenue but to protect domestic industries from foreign competition. For that reason, protective tariffs, as they are often called, are opposed by advocates of free tradefree trade,
in modern usage, trade or commerce carried on without such restrictions as import duties, export bounties, domestic production subsidies, trade quotas, or import licenses.
..... Click the link for more information. . See also protectionprotection,
practice of regulating imports and exports with the purpose of shielding domestic industries from foreign competition. To accomplish that end, certain imports may be excluded entirely, import quotas may be established, or bounties paid on certain exports.
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Those customs duties that are still imposed today are usually either one of two types—specific duty, a tax levied on the quantity, whether by weight, size, or number, of the goods; or ad valorem duty, a percentage of the foreign or domestic price. The ad valorem duty is generally considered to be preferable but more difficult to levy, requiring complex procedures to determine the value of goods. Specific duties are best applied for protectionist purposes, since their size varies inversely with the prices of imports. For example, an import taxed at $5 per ton, and costing $100 per ton, may have an effective duty of 5%. However, if its price drops to $80 per ton—a threat to domestic producers—the effective duty may rise to more than 6%. Certain tariffs are also designed to offset dumpingdumping,
selling goods at less than the normal price, usually as exports in international trade. It may be done by a producer, a group of producers, or a nation. Dumping is usually done to drive competitors off the market and secure a monopoly, or to hinder foreign competition.
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Evolution of Tariffs
Tariffs have been used by governments since ancient times, although they were originally sources of revenue rather than instruments of state economic policy. Early customs duties consisted of payments for the use of trade and transportation facilities, including ports, markets, streets, and bridges. By the 17th cent., however, they came to be levied only at the boundary of a country and usually only on imports. At the same time, European powers established special low tariff rates for trade with their possessions; such systems of colonial preference formed the basis of the trading patterns that developed in the 17th and 18th cent. (see mercantilismmercantilism
, economic system of the major trading nations during the 16th, 17th, and 18th cent., based on the premise that national wealth and power were best served by increasing exports and collecting precious metals in return.
..... Click the link for more information. and Navigation ActsNavigation Acts,
in English history, name given to certain parliamentary legislation, more properly called the British Acts of Trade. The acts were an outgrowth of mercantilism, and followed principles laid down by Tudor and early Stuart trade regulations.
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Although the free trade movement in the early 19th cent. discouraged the use of tariffs, a new system of trade relations known as imperial preference developed in the late 19th cent. Great Britain and France, in particular, used preferential tariffs to organize the flow of foodstuffs and raw materials from their colonial dependencies and to regulate the export of domestic manufactured products into those areas. Other European nations retaliated by raising their tariffs, and a period of relatively high protective tariffs lasting through the Great Depression followed.
Trend toward Free Trade
Since World War II the trend has been away from tariffs and in favor of freer trade. Through instruments such as the most-favored-nation clausemost-favored-nation clause
(MFN), provision in a commercial treaty binding the signatories to extend trading benefits equal to those accorded any third state. The clause ensures equal commercial opportunities, especially concerning import duties and freedom of investment.
..... Click the link for more information. and the reciprocal trade agreementreciprocal trade agreement,
international commercial treaty in which two or more nations grant equally advantageous trade concessions to each other. It usually refers to treaties dealing with tariffs.
..... Click the link for more information. , two nations may agree to lower their respective tariff barriers. More comprehensive agreements, such as those of the European UnionEuropean Union
(EU), name given since the ratification (Nov., 1993) of the Treaty of European Union, or Maastricht Treaty, to the European Community (EC), an economic and political confederation of European nations, and other organizations (with the same member nations)
..... Click the link for more information. and other customs unions, lower or even eliminate tariffs among groups of nations. Finally, the General Agreement on Tariffs and TradeGeneral Agreement on Tariffs and Trade
(GATT), former specialized agency of the United Nations. It was established in 1948 as an interim measure pending the creation of the International Trade Organization.
..... Click the link for more information. (GATT) and its successor, the World Trade OrganizationWorld Trade Organization
(WTO), international organization established in 1995 as a result of the final round of the General Agreement on Tariffs and Trade (GATT) negotiations, called the Uruguay Round.
..... Click the link for more information. (WTO), have since the 1950s sponsored a number of initiatives for lowering the customs duties of most major trading nations. The United States has participated in the movement toward freer trade by lowering its customs duties from the high rates of the Hawley-Smoot Tariff ActHawley-Smoot Tariff Act,
1930, passed by the U.S. Congress; it brought the U.S. tariff to the highest protective level yet in the history of the United States. President Hoover desired a limited upward revision of tariff rates with general increases on farm products and
..... Click the link for more information. (1930); by playing an instrumental role in the several GATT tariff initiatives, including the Uruguay round (1986–93), which created the WTO; and by signing (1992) the North American Free Trade AgreementNorth American Free Trade Agreement
(NAFTA), accord establishing a free-trade zone in North America; it was signed in 1992 by Canada, Mexico, and the United States and took effect on Jan. 1, 1994.
..... Click the link for more information. (NAFTA) with Canada and Mexico. Under the Trump administration, however, the United States pursued a quasimercantalist approach to the balance of trade and imposed tariffs on a number of its major trading partners in an attempt to win trade concessions; the tariffs generally led to the imposition of equivalent foreign tariffs on U.S. trade.
See T. B. Curtis, The Kennedy Round and the Future of American Trade (1971); H. G. Johnson, Aspects of the Theory of Tariffs (1971); H. R. Nau, ed., Domestic Trade Politics and the Uruguay Round (1989).
a systematized schedule of customs duties on commodities transported across an international boundary.
The tariff was introduced in the countries of Western Europe in the 17th century. A tariff contains the name and classification of the commodities subject to assessment, the rates of duty, the methods of assessment, a list of duty-free goods, and a list of items that cannot be imported, exported, or sent through the country in transit.
Different countries use different classifications of commodities in their tariffs. In consonance with the convention signed by 13 states in Brussels in 1951 with respect to the Brussels Nomenclature, many capitalist countries—the Common Market countries, Sweden, Switzerland, and Japan—classify commodities in terms of their application. A few capitalist countries further classify commodities in terms of the substance from which the commodity is made (animal, vegetable, or mineral) or in terms of the degree to which the commodity has been processed (raw materials, semifinished products, and finished products).
In terms of rate structure, a tariff may be a single tariff, with only a single column of rates, or a compound tariff, with two or more columns. With a single tariff, the same rates are imposed on all commodities imported, no matter what the country of origin. Bolivia, Mexico, and Panama still use a single tariff. With a compound tariff, the same commodities may be assessed at several different rates. Most capitalist countries—for example, the USA, Canada, France, Great Britain, the Federal Republic of Germany (FRG), and Japan—use this kind of tariff (seeDIFFERENTIAL TARIFF). The imperialist countries and monopolies use differential tariff rates and, in general, an aggressive tariff policy in order to force certain other states to make concessions in foreign trade. Japan, for example, imposes compound rates of duty that are equivalent, on the average, to 19 percent of the value of the commodities—rates higher than those imposed by Great Britain, the FRG, and France. Japan has thus been able to erect tariff barriers against the import of commodities that would compete with its own.
The capitalist countries also make use of unilateral, multilateral, and mixed tariffs. Unilateral tariffs are those established by one country alone, acting unilaterally, and multilateral tariffs are those established by agreement among the countries concerned, such as the USA, Italy, and France. The rates of duty specified in a multilateral tariff are generally lower than those specified in a unilateral tariff. Some countries, such as Canada and India, use a combination of both, that is, a tariff with one or more columns of unilateral rates and with one or more columns of rates set by agreement with other countries. For example, Canada can thus impose the highest general rate of unilateral duty on the commodities of countries with which it has no trade agreement and, instead, give preferential rates to commodities imported from Great Britain and the other Commonwealth countries. The British tariff of 1970 had one column of maximum rates and another column of preferential rates, the latter for Commonwealth countries, Ireland, Common Market countries, and the members of the European Free Trade Association. For third parties, it set the highest rates for finished products, lower rates for semifinished products, and the lowest rates for raw materials and foodstuffs. For many raw materials and foodstuffs, duties are not levied at all.
Many developing countries establish highly differentiated rate structures in their tariffs. For example, they may impose low rates on imports of much-needed machinery, equipment, and certain kinds of industrial raw materials and foodstuffs. By the same token, they may set extremely high rates for luxury goods, such as cars, and for items they themselves produce, such as yarn, fabrics, and footwear.
The tariffs of the USSR and the other socialist countries are considerably more liberal. In 1961 the average tariff rates in the USSR were two to three times lower than those of the USA, France, the FRG, and other capitalist countries. The USSR has established concessions for goods imported from a number of neighboring countries. It has unilaterally introduced duty-free trade with the developing countries of Asia, Africa, and Latin America.
L. I. TUL’CHINSKII