Nontariff Barriers: Direct Price Influences
Nontariff Barriers: Direct Price Influences
Subsidies
Although countries sometimes make direct payments to producers to compensate them for losses incurred by selling abroad, governments most commonly provide other types of assistance to firms to make it cheaper or more profitable for them to sell overseas. For example, most countries offer their potential exporters an array of services, including the provision of information, sponsorship of trade expositions, and establishment of contacts for businesses overseas.20 These types of service subsidies are frequently more justifiable than tariffs from an economic standpoint, since they are designed largely to overcome market imperfections rather than to create them. Furthermore, there are economies to be gained by disseminating information widely and other countries are not likely to complain about such types of assistance. On the other hand, some observers may contend that users should be the only ones to share the costs. At any rate, export assistance is apt to result in less opposition than the imposition of import restrictions.
Other types of subsidies are more controversial, and producers frequently assert that they face unfair competition from subsidized exports. What exactly constitutes a subsidized export? On this point there is little agreement. Does Canada subsidize exports of fish because it gives grants to fishermen to buy trawlers? Did Britain subsidize steel when the government-owned steel company had severe losses? Did the United States block some automobile imports because the state of Pennsylvania made numerous concessions to convince Volkswagen to locate its plant there?21 Recent questions also have been raised about various governments' support of research and development and tax programs that directly or indirectly affect export profitability.
Some other forms of government assistance to exportation warrant mention, including foreign aid and loans. These forms are nearly always "tied"— that is, the recipient must spend the funds in the donor countries, making some products competitive abroad that might otherwise be noncompetitive. Tied aid is especially important in winning contracts to supply telecommunications, railways, and electric-power projects. One study estimates that
about one third of capital goods traded worldwide are financed through tied-aid packages.22 Most industrial countries also provide repayment insurance for their exporters, thus reducing the risk of nonpayment for overseas sales. Another scheme has been combining aid with loans so that the rate on paper does not look as low to competitor nations as it really is.
Customs Valuation
Customs officials used to have fairly wide discretion in
determining the value of an imported product for affixing an ad valorem duty,
If, for example, the invoice value of a shipment was $100, customs officials
might instead use the domestic wholesale or retail price or even an estimation
of what it would cost if the product were produced domestically. This meant
that tney mjght charge a duty on a value much higher than the $100. This
discretion was permitted to prevent exporters and importers from declaring an arbitrarily low price on invoices in order to avoid incurring as high a tariff as would otherwise be imposed. In practice, however, the discretionary powers were sometimes used as an arbitrary means of preventing the importation of foreign-made products by assessing the value too high.
Most industrial countries have now agreed on a sequence of techniques for assessing values. Customs officials must first use the invoice price. If there is none or if its authenticity is doubtful, they must then assess on the basis of the value of identical goods and then on the basis of similar goods coming in at about the same time. If these techniques cannot be used, they may compute a value based on final sales value or on reasonable cost.
Another customs-valuation problem can be traced to the fact that so many different products are traded. It is easy (by accident or on purpose) to classify a product so that it will require a higher duty. With over 13,000 categories of products a customs agent must use discretion to determine if silicon chips should be considered as "integrated circuits for computers" or as "a form of chemical silicon." A few examples should illustrate the problems that companies can encounter. The U.S. Customs Service had to determine whether sport utility vehicles, such as the Suzuki Samurai and Land Rover, were cars or trucks. They assessed the 25 percent truck duty instead of the 2.5 percent duty on cars. Procter & Gamble's Duncan Hines Muffin Mix operation had to suspend production for seven weeks while awaiting an eventual favorable ruling that the topping brought in from its Canadian plant should not be classified as sugar. Nike had to pay almost $9 million in back fees when the U.S. Customs Service ruled that its Air Jordan shoes should be assessed a synthetic rather than a leather shoe duty.23
Other Direct Price Influences
Countries frequently use other means to affect prices, including special fees (e.g., for consular and customs clearance and documentation), the requirement that customs deposits be placed in advance of shipment, and the establishment of minimum prices at which goods can be sold after they have customs clearance.
Subsidies
Although countries sometimes make direct payments to producers to compensate them for losses incurred by selling abroad, governments most commonly provide other types of assistance to firms to make it cheaper or more profitable for them to sell overseas. For example, most countries offer their potential exporters an array of services, including the provision of information, sponsorship of trade expositions, and establishment of contacts for businesses overseas.20 These types of service subsidies are frequently more justifiable than tariffs from an economic standpoint, since they are designed largely to overcome market imperfections rather than to create them. Furthermore, there are economies to be gained by disseminating information widely and other countries are not likely to complain about such types of assistance. On the other hand, some observers may contend that users should be the only ones to share the costs. At any rate, export assistance is apt to result in less opposition than the imposition of import restrictions.
Other types of subsidies are more controversial, and producers frequently assert that they face unfair competition from subsidized exports. What exactly constitutes a subsidized export? On this point there is little agreement. Does Canada subsidize exports of fish because it gives grants to fishermen to buy trawlers? Did Britain subsidize steel when the government-owned steel company had severe losses? Did the United States block some automobile imports because the state of Pennsylvania made numerous concessions to convince Volkswagen to locate its plant there?21 Recent questions also have been raised about various governments' support of research and development and tax programs that directly or indirectly affect export profitability.
Some other forms of government assistance to exportation warrant mention, including foreign aid and loans. These forms are nearly always "tied"— that is, the recipient must spend the funds in the donor countries, making some products competitive abroad that might otherwise be noncompetitive. Tied aid is especially important in winning contracts to supply telecommunications, railways, and electric-power projects. One study estimates that
about one third of capital goods traded worldwide are financed through tied-aid packages.22 Most industrial countries also provide repayment insurance for their exporters, thus reducing the risk of nonpayment for overseas sales. Another scheme has been combining aid with loans so that the rate on paper does not look as low to competitor nations as it really is.
Customs Valuation
Customs officials used to have fairly wide discretion in
determining the value of an imported product for affixing an ad valorem duty,
If, for example, the invoice value of a shipment was $100, customs officials
might instead use the domestic wholesale or retail price or even an estimation
of what it would cost if the product were produced domestically. This meant
that tney mjght charge a duty on a value much higher than the $100. This
discretion was permitted to prevent exporters and importers from declaring an arbitrarily low price on invoices in order to avoid incurring as high a tariff as would otherwise be imposed. In practice, however, the discretionary powers were sometimes used as an arbitrary means of preventing the importation of foreign-made products by assessing the value too high.
Most industrial countries have now agreed on a sequence of techniques for assessing values. Customs officials must first use the invoice price. If there is none or if its authenticity is doubtful, they must then assess on the basis of the value of identical goods and then on the basis of similar goods coming in at about the same time. If these techniques cannot be used, they may compute a value based on final sales value or on reasonable cost.
Another customs-valuation problem can be traced to the fact that so many different products are traded. It is easy (by accident or on purpose) to classify a product so that it will require a higher duty. With over 13,000 categories of products a customs agent must use discretion to determine if silicon chips should be considered as "integrated circuits for computers" or as "a form of chemical silicon." A few examples should illustrate the problems that companies can encounter. The U.S. Customs Service had to determine whether sport utility vehicles, such as the Suzuki Samurai and Land Rover, were cars or trucks. They assessed the 25 percent truck duty instead of the 2.5 percent duty on cars. Procter & Gamble's Duncan Hines Muffin Mix operation had to suspend production for seven weeks while awaiting an eventual favorable ruling that the topping brought in from its Canadian plant should not be classified as sugar. Nike had to pay almost $9 million in back fees when the U.S. Customs Service ruled that its Air Jordan shoes should be assessed a synthetic rather than a leather shoe duty.23
Other Direct Price Influences
Countries frequently use other means to affect prices, including special fees (e.g., for consular and customs clearance and documentation), the requirement that customs deposits be placed in advance of shipment, and the establishment of minimum prices at which goods can be sold after they have customs clearance.
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