FORMS OF TRADE CONTROL
FORMS OF TRADE CONTROL
The previous discussion centered on the end objectives sought by governmental influence on trade. Attaining any of the objectives depends in great part on groups at home who pressure for actions they believe will have the most positive (or least negative) influence on them. Since the actions taken on foreign trade by one country will have repercussions abroad, retaliation from foreign governments looms as another potential obstacle to the achievement of the desired objectives. The choice of instruments to achieve trade goals is therefore important, since domestic and foreign groups may respond differently to them. One of the ways the types of influence may be understood is to distinguish between (1) those that influence quantity movements by directly influencing prices and (2) those that affect quantity movements directly. Another common distinction is between tariff barriers and nontariff barriers. Tariff barriers influence prices, and nontariff barriers may affect either price or quantity directly.
Tariffs
The most common type of trade control is the tariff, or duty, a governmental tax levied on goods shipped internationally. If collected by the exporting country, it is known as an export tariff; if collected by a country through which the goods have passed, it is a transit tariff; if collected by the importing country, it is an import tariff. The import tariff is by far the most common.
Import duties serve primarily as a means of raising the price of imported products so that competitively produced domestic goods will gain a relative price advantage. A duty may be classified as protective in nature even though there is no domestic production in direct competition. For example, if a country wishes to reduce the foreign expenditures of its citizens because of bal-ance-of-payments problems, authorities may choose to raise the price of some foreign products, even though there is no close domestic substitute, in order to curtail consumption temporarily.
Tariffs also serve as a means of governmental revenue. Although of little importance to the large industrial countries, the import duty is a major source of revenue in many LDCs because governmental authorities there may have more control over ascertaining the amount and nature of goods passing across their frontiers and collecting a tax on them than they do over determining and collecting individual and corporate income taxes. Revenue tariffs are most commonly collected on imports; however, many nations that export raw materials use export duties extensively. New Caledonia's tariff on nickel is an example of such a tariff. Transit duties were once a major source of revenue for countries, but they have been nearly abolished through governmental treaties.
A tariff may be assessed on the basis of a tax per unit, in which case the duty is known as a specific duty. It may also be assessed as a percentage of the value of the item, in which case it is known as an ad valorem duty. It is not uncommon for both a specific duty and an ad valorem duty to be charged on the same product, in which case it is known as a compound duty. A specific duty is easier to assess because it is not necessary for customs officials to determine a value on which to calculate a percentage. During normal periods of price rises, the specific duty will, unless changed, become a smaller percentage of the value and therefore be less restrictive to imported goods.
One of the major tariff controversies concerns industrial countries' tariff treatment of manufactured exports from developing countries that are seeking to diversify and increase earnings by adding manufactured value to their raw materials exports. Raw materials frequently can enter developed markets free of duty; however, once processed, those same materials usually have a tariff assigned to them. Since an ad valorem tariff is based on the total value of the product, nonindustrial countries have argued that the effective tariff on the manufactured portion is higher than would be indicated by the published tariff rate. For example, a country may charge no duty on coffee beans but may assess a 10 percent ad valorem tariff on instant coffee. If $5 for a jar of instant coffee covers $2.50 in coffee beans and $2.50 in processing costs, the $0.50 duty is effectively 20 percent on the manufactured portion, since the beans could have entered free of duty. This has made it more difficult for developing countries to find markets for their manufactured products. In addition, many of the products that developing countries are best able to produce are the ones that in industrial countries are produced by employees who are ill equipped to move easily to new employment. The result is the formation of pressure groups to keep these products out. A further problem is that, although developing countries' products have preferential import restrictions, the most successful LDC exporters reach thresholds at which they lose preferential status. For example, Taiwan, Singapore, Hong Kong, and South Korea no longer have preferential treatment in the United States. The special treatment came about as a result of LDC pressures in UNCTAD and is known as the Generalized System of Preferences (GSP).
Another controversy concerns who bears the brunt of paying tariff costs. Some critics have claimed that in the United States the payment falls mainly on the poor. This claim is illustrated by the following examples:
? Mink furs are duty free. With the money a mother saves on her mink, perhaps she can afford to buy her child a polyester sweater, which carries a 34.6 percent tariff.
? Lobster is duty free. With the savings, struggling parents may be able to afford infant-food preparations, which carry a 17.2 percent tariff.
? Orange juice carries a 36 percent tariff, but Perrier is assessed only 0.4 cent per liter. (If the Customs Service reclassifies Perrier as benzene, then it can enter duty free.)
? Fresh broccoli carries a 25 percent tariff, but, happily, truffles are duty free.
? Footwear valued at not more than $3 a pair with rubber or plastic outer soles and uppers is tariffed at 48 percent. If valued at more than $12, the tariff is only 20 percent.19
Unfortunately, we do not know whether the preceding examples are selective or typical. Furthermore, price is only one type of burden on the poor. For example, the tariff on broccoli is imposed to ensure employment of migrant workers who plant and harvest the crops. A similar tariff on truffles would not help their employment inasmuch as the United States lacks sufficient quantities of the wild fungi, truffles, to make harvesting commercially viable.
The previous discussion centered on the end objectives sought by governmental influence on trade. Attaining any of the objectives depends in great part on groups at home who pressure for actions they believe will have the most positive (or least negative) influence on them. Since the actions taken on foreign trade by one country will have repercussions abroad, retaliation from foreign governments looms as another potential obstacle to the achievement of the desired objectives. The choice of instruments to achieve trade goals is therefore important, since domestic and foreign groups may respond differently to them. One of the ways the types of influence may be understood is to distinguish between (1) those that influence quantity movements by directly influencing prices and (2) those that affect quantity movements directly. Another common distinction is between tariff barriers and nontariff barriers. Tariff barriers influence prices, and nontariff barriers may affect either price or quantity directly.
Tariffs
The most common type of trade control is the tariff, or duty, a governmental tax levied on goods shipped internationally. If collected by the exporting country, it is known as an export tariff; if collected by a country through which the goods have passed, it is a transit tariff; if collected by the importing country, it is an import tariff. The import tariff is by far the most common.
Import duties serve primarily as a means of raising the price of imported products so that competitively produced domestic goods will gain a relative price advantage. A duty may be classified as protective in nature even though there is no domestic production in direct competition. For example, if a country wishes to reduce the foreign expenditures of its citizens because of bal-ance-of-payments problems, authorities may choose to raise the price of some foreign products, even though there is no close domestic substitute, in order to curtail consumption temporarily.
Tariffs also serve as a means of governmental revenue. Although of little importance to the large industrial countries, the import duty is a major source of revenue in many LDCs because governmental authorities there may have more control over ascertaining the amount and nature of goods passing across their frontiers and collecting a tax on them than they do over determining and collecting individual and corporate income taxes. Revenue tariffs are most commonly collected on imports; however, many nations that export raw materials use export duties extensively. New Caledonia's tariff on nickel is an example of such a tariff. Transit duties were once a major source of revenue for countries, but they have been nearly abolished through governmental treaties.
A tariff may be assessed on the basis of a tax per unit, in which case the duty is known as a specific duty. It may also be assessed as a percentage of the value of the item, in which case it is known as an ad valorem duty. It is not uncommon for both a specific duty and an ad valorem duty to be charged on the same product, in which case it is known as a compound duty. A specific duty is easier to assess because it is not necessary for customs officials to determine a value on which to calculate a percentage. During normal periods of price rises, the specific duty will, unless changed, become a smaller percentage of the value and therefore be less restrictive to imported goods.
One of the major tariff controversies concerns industrial countries' tariff treatment of manufactured exports from developing countries that are seeking to diversify and increase earnings by adding manufactured value to their raw materials exports. Raw materials frequently can enter developed markets free of duty; however, once processed, those same materials usually have a tariff assigned to them. Since an ad valorem tariff is based on the total value of the product, nonindustrial countries have argued that the effective tariff on the manufactured portion is higher than would be indicated by the published tariff rate. For example, a country may charge no duty on coffee beans but may assess a 10 percent ad valorem tariff on instant coffee. If $5 for a jar of instant coffee covers $2.50 in coffee beans and $2.50 in processing costs, the $0.50 duty is effectively 20 percent on the manufactured portion, since the beans could have entered free of duty. This has made it more difficult for developing countries to find markets for their manufactured products. In addition, many of the products that developing countries are best able to produce are the ones that in industrial countries are produced by employees who are ill equipped to move easily to new employment. The result is the formation of pressure groups to keep these products out. A further problem is that, although developing countries' products have preferential import restrictions, the most successful LDC exporters reach thresholds at which they lose preferential status. For example, Taiwan, Singapore, Hong Kong, and South Korea no longer have preferential treatment in the United States. The special treatment came about as a result of LDC pressures in UNCTAD and is known as the Generalized System of Preferences (GSP).
Another controversy concerns who bears the brunt of paying tariff costs. Some critics have claimed that in the United States the payment falls mainly on the poor. This claim is illustrated by the following examples:
? Mink furs are duty free. With the money a mother saves on her mink, perhaps she can afford to buy her child a polyester sweater, which carries a 34.6 percent tariff.
? Lobster is duty free. With the savings, struggling parents may be able to afford infant-food preparations, which carry a 17.2 percent tariff.
? Orange juice carries a 36 percent tariff, but Perrier is assessed only 0.4 cent per liter. (If the Customs Service reclassifies Perrier as benzene, then it can enter duty free.)
? Fresh broccoli carries a 25 percent tariff, but, happily, truffles are duty free.
? Footwear valued at not more than $3 a pair with rubber or plastic outer soles and uppers is tariffed at 48 percent. If valued at more than $12, the tariff is only 20 percent.19
Unfortunately, we do not know whether the preceding examples are selective or typical. Furthermore, price is only one type of burden on the poor. For example, the tariff on broccoli is imposed to ensure employment of migrant workers who plant and harvest the crops. A similar tariff on truffles would not help their employment inasmuch as the United States lacks sufficient quantities of the wild fungi, truffles, to make harvesting commercially viable.
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