Definition of 'Tariff'

A tax imposed on imported goods and services. Tariffs are used to restrict trade, as they increase the price of imported goods and services, making them more expensive to consumers. They are one of several tools available to shape trade policy.

Investopedia explains 'Tariff'

Governments may impose tariffs to raise revenue or to protect domestic industries from foreign competition, since consumers will generally purchase cheaper foreign produced goods. Tariffs can lead to less efficient domestic industries, and can lead to trade wars as exporting countries reciprocate with their own tariffs on imported goods. Organizations such as the WTO exist to combat the use of egregious tariffs.

Tariff, also called customs duty, tax levied upon goods as they cross national boundaries, usually by the government of the importing country. The words tariff, duty, and customs can be used interchangeably.

Objectives of tariffs
Tariffs may be levied either to raise revenue or to protect domestic industries, but a tariff designed primarily to raise revenue also may exercise a strong protective influence, while a tariff imposed primarily for protection may yield revenue. Gottfried von Haberler in The Theory of International Trade (1937) suggested that the best way to distinguish between revenue duties and protective duties (disregarding the motives of the legislators) is to compare their effects on domestic versus foreign producers. (Seeprotectionism.) If domestically produced goods bear the same taxation as similar imported goods, or if the foreign goods subject to duty are not produced domestically, and if there are no domestically produced substitutes toward which demand is diverted because of the tariff, then the duty is not protective. A purely protective duty tends to shift production away from the export industries and into the protected domestic industries or other industries producing substitutes for which demand is increased. On the other hand, a purely revenue duty will not cause resources to be invested in industries producing the taxed goods or close substitutes for such goods, but it will divert resources toward the production of those goods and services upon which the additional government receipts are spent. From the standpoint of revenue alone, a country can levy an equivalent tax on domestic production (to avoid protecting it) or select a relatively small number of imported articles of general consumption and subject them to low duties so that there will be no tendency to shift resources into industries producing such taxed goods (or substitutes for them). If, on the other hand, a country wishes to protect its home industries, its list of protected commodities will be long and the tariff rates high. Political goals often motivate the imposition or removal of tariffs. Tariffs may be further classified into three groupstransit duties, export duties, and import duties.

Transit duties
This type of duty is levied on commodities that originate in one country, cross another, and are consigned to a third. As the name implies, transit duties are levied by the country through which

the goods pass. Such duties are no longer important instruments of commercial policy, but, during the mercantilist period (16th18th century) and even up to the middle of the 19th century in some countries, they played a role in directing trade and controlling certain of its routes. The development of the German Zollverein (a customs union) in the first half of the 19th century resulted in part from Prussias exercise of its power to levy transit duties. The most direct and immediate effect of transit duties is a reduction in the amount of commodities traded internationally and an increase in the cost of those products to the importing country.

Export duties
Export duties are no longer used to a great extent, except to tax certain mineral, petroleum, and agricultural products. Several resource-rich countries depend upon export duties for much of their revenue. Export duties were common in the past, however, and were significant elements of mercantilist trade policies. Their main function was to safeguard domestic supplies rather than to raise revenue. Export duties were first introduced in England by a statute in 1275 that imposed them on hides and wool. By the middle of the 17th century, the list of commodities subject to export duties had increased to include more than 200 articles. With the growth of free trade in the 19th century, export duties became less appealing; they were abolished in England (1842), in France (1857), and in Prussia (1865). At the beginning of the 20th century, only a few countries levied export duties. For example, Spain still levied them on coke, Bolivia and Malaysia on tin, Italy on objects of art, and Romania on forest products. The neo-mercantilist revival in the 1920s and 30s brought about a limited reappearance of export duties. In the United States export duties were prohibited by the Constitution, mainly because of pressure from the South, which wanted no restriction on its freedom to export agricultural products. Export duties are now generally levied by raw-material-producing countries rather than by advanced industrial countries. Differential exchange rates are sometimes used to extract revenues from export sectors. Commonly taxed exports include coffee, rubber, palm oil, and various mineral products. The state-controlled pricing policies of international cartels such as the Organization of the Petroleum Exporting Countries have some of the characteristics of export duties. Export duties act as an effective means of protection for domestic industries. For example, Norwegian and Swedish duties on exports of forest products were levied chiefly to encourage milling, woodworking, and paper manufacturing at home. Similarly, duties on the export from India of untanned hides after World War I were levied to stimulate the Indian tanning industry. In a number of cases, however, duties levied on exports from colonies were designed to protect the industries of the mother country and not those of the colony. If the country imposing the export duty supplies only a small share of the worlds exports and if competitive conditions prevail, the burden of an export duty will likely be borne by the domestic producer, who will receive the world price minus the duty and other charges. But if the country

produces a significant portion of the world output and if domestic supply is sensitive to lower net prices, then output will fall; world prices would then tend to rise, and, as a consequence, both domestic producers and foreign consumers would bear the export tax. How far a country can employ export duties to exploit its monopoly position in supplying certain raw materials depends upon the success other countries have in discovering substitutes or new sources of supply.

Import duties Import duties are the most important and most common types of custom duties. As noted above, they may be levied for either revenue or protection, or both, but tariffs are not a satisfactory means of raising revenue, because they tend to encourage economically inefficient domestic production of the dutied item. Even if imports constitute the bulk of the available revenue base, it is better to tax all consumption, rather than only the consumption of imports, in order to avoid uneconomical protection. Import duties are no longer an important source of revenues in developed countries. In the United States, for example, revenues from import duties in 1808 amounted to twice the total of government expenditures, while in 1837 they were less than one-third of such expenditures. Until near the end of the 19th century, the customs receipts of the U.S. government made up about half of all its receipts. This share had fallen to about 6 percent of all receipts before the outbreak of World War II, and it has since further decreased. A tariff may be specific, ad valorem, or compoundi.e., a combination of both. A specific duty is a levy of a given amount of money per unit of the import, such as $1 per yard or per pound. An ad valorem duty, on the other hand, is calculated as a percentage of the value of the import. Ad valorem rates furnish a constant degree of protection at all price levels (if prices change at the same rate at home and abroad), while the real burden of specific rates varies inversely with changes in the prices of the imports. A specific duty, however, penalizes more severely the lower grades of an imported commodity. This difficulty can be partly avoided by an elaborate and detailed classification of imports on the basis of the stage of finishing (e.g., raw materials or finished goods), but such a procedure makes for extremely long and complicated tariff schedules. Specific duties are easier to administer than ad valorem rates, for the latter often raise administrative problems, especially concerning the valuation of imported articles. A list of all import duties is usually known as a tariff schedule. A single tariff schedule applies to all imports regardless of the country of origin. This is to say that a single duty is listed in the column opposite the enumerated commodities. A double-columned or multicolumned tariff provides for different rates according to the country of origin, with lower rates being granted to commodities coming from countries with which tariff agreements have been negotiated. Most

trade agreements are based on the most-favoured-nation clause, which extends to all nations party to the agreement whatever concessions are granted to the most-favoured nation. Every country has a free list that includes articles admitted without duty, but few conclusions about the impact of tariffs on trade can be drawn by looking at the free list and the value of the goods imported into a country. It is nearly impossible, furthermore, to measure the height of a tariff wall and to compare the degree of protection between countries by calculating the ratio of tariff receipts to the total value of imports. Using this approach, one might erroneously conclude that tariff protection is very limited in a country that exempts more than half of all imports from duties. Such a conclusion, however, is not correct, because some items are subject to very high tariffs, and, as those tariff levels increase, the quantity of the dutied imports decreases. A better method of measuring the height of a tariff wall is to convert all duties into ad valorem figures (based on the value of the goods) and then to estimate the weighted-average rate. The weighting should reflect the relative impact of the different imports; a tariff on foodstuffs, for example, may be far more significant than a tariff on luxuries consumed by a small group of people. In addition, a better understanding of protectionism can be reached through the effective rate of protection. It recognizes that the protection afforded a particular domestic industry depends on the tariffs levied against materials used to make the product (inputs) as well as tariffs levied on the final product (output). Suppose, for example, that half of an industrys inputs are imported and subject to a duty of 100 percent. If the imports with which the industry competes are subject to a duty of less than 50 percent, there is no effective protection. Calculating effective protection in a real-world situation requires complex economic analysis. Definition of 'Subsidy' A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public. Politics play an important part in subsidization. In general, the left is more in favor of having subsidized industries, while the right feels that industry should stand on its own without public funds. Investopedia explains 'Subsidy' There are many forms of subsidies given out by the government, including welfare payments, housing loans, student loans and farm subsidies. For example, if a domestic industry, like farming, is struggling to survive in a highly competitive international industry with low prices, a

government may give cash subsidies to farms so that they can sell at the low market price but still achieve financial gain.If a subsidy is given out, the government is said to subsidize that group/industry.

Import quota An import quota is a limit on the quantity of a good that can be produced abroad and sold domestically.[1] It is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time. If a quota is put on a good, less of it is imported. [2] Quotas, like other trade restrictions, are used to benefit the producers of a good in a domestic economy at the expense of all consumers of the good in that economy. Goals The primary goal of import quotas is to reduce imports and increase domestic production of a good, service, or activity, thus "protect" domestic production by restricting foreign competition. As the quantity of importing the good is restricted, the price of the imported good increases, thus encourages consumers to purchase more domestic products. In general, a quota is simply a legal quantity restriction placed on a good imported that is imposed by the domestic government. Effects Because the import quota prevents domestic consumers from buying an imported good, the supply of the good is no longer perfectly elastic at the world price. Instead, as long as the price of the good is above the world price, the license holders import as much as they are permitted, and the total supply of the good equals the domestic supply plus the quota amount. The price of the good adjusts to balance supply (domestic plus imported) and demand. The quota causes the price of the good to rise above the world price. The imported quantity demanded falls and the domestic quantity supplied rises. Thus, the import quota reduces the imports. Because the quota raises the domestic price above the world price, domestic sellers are better off, and domestic buyers are worse off. In addition, the license holders are better off because they make a profit from buying at the world price and selling at the higher domestic price. Thus, import quotas decrease consumer surplus while increasing producer surplus and license-holder surplus. While import quotas and other foreign trade policies can be beneficial to the aggregate domestic economy they tend to be most beneficial, and thus most commonly promoted by, domestic firms facing competition from foreign imports. Domestic firms benefit with higher sales, greater

profits, and more income to resource owners. However, by increasing domestic prices and restricting accessing to imports, foreign trade policies also tend to be harmful to domestic consumers. Other effects[3] Domestic Employment: Decreasing imports and increasing domestic production also increases domestic employment. Low Foreign Wages: Restricting imports produced by foreign workers who receive lower wages "levels the competitive playing field" compared to domestic goods produced by higher paid domestic workers. Infant Industry: If foreign imports compete with a relatively young domestic industry that is neither mature enough nor large enough to benefit from economies of scale, then import quotas protect the "infant industry" while it matures and develops. Unfair Trade: The foreign imports might be sold at lower prices in the domestic economy because foreign producers engage in unfair trade practices, such as "dumping" imports at prices below production cost. Import quotas seek to prevent such activity. National Security: Import quotas can also discourage imports and encourage domestic production of goods that policy makers declare publically to be critical to the security of the national economy. Corruption: Import quotas can lead to administrative corruption in countries with import quotas as the importers chosen to meet the quota are the ones who can provide the most favors to the customs officers. Smuggling: If the import quota succeeds in sufficiently raising the price of domestic goods that compete with imports, entrepreneurs will try to circumvent the quota. Smugglers bring in illegal goods (i.e., goods supplies in excess of the quota). Other entrepreneurs may try to incorporate the goods subject to the quota into import goods not subject to the quota. These market responses may limit governments' freedom of action in setting import quotas. Types[4] Quotas are established by legislation and Presidential proclamations issued pursuant to specific legislation and provided for in the Harmonized Tariff Schedule of the United States (HTSUS). United States import quotas may be divided into two types: absolute quota and tariff-rate quota. Once a specific quota has been reached in a particular category, goods may still be entered, but at a considerably higher rate of duty.[5] Absolute quotas

Absolute quotas limit the quantity of certain goods that may enter the commerce during a specific period. Once the quantity permitted under an absolute quota is filled, no further entries or withdrawals from warehouse for consumption of merchandise subject to the quota are permitted for the remainder of the quota period. Importers may hold shipments in excess of a specified absolute quota limit until the opening of the next quota period by entering the goods into a foreign trade zone or bonded warehouse. The goods may also be exported or destroyed under [ Customs and Border Protection] (CBP) supervision. Tariff-rate quotas Tariff rate quotas permit a specified quantity of imported merchandise to be entered at a reduced rate of duty during the quota period. There is no limitation on the amount of merchandise that may be imported into the United States, however quantities entered in excess of the quota limit during that period are subject to a higher duty rate. If the importer has not taken possession of the goods, and elects not to pay the higher rate of duty, they may enter the goods into a foreign trade zone or bonded warehouse until the opening of the next quota period, or export or destroy the goods under CBP supervision. Once CBP determines the date and time a quota is filled, field officers are authorized to make the required duty rate adjustments on the portion of the merchandise not entitled to quota preference. Under the North American Free Trade Agreement (NAFTA), there are trade-preference levels (TPL), which are administered like tariff-rate quotas. The U.S. Customs Service administers the majority of import quotas. The Commissioner of Customs controls the importation of quota merchandise, but has no authority to change or modify any quota. The Department of Commerce, in conjunction with the Office of the United States Trade Representative, determines and fixes quota limits. Quota merchandise is subject to the usual Customs procedures applicable to other imports. No import licenses are currently required for quotas administered by the Commissioner of Customs. Import quotas vs tariffs[6] Both tariffs and import quotas reduce quantity of imports, raise domestic price of good, decrease welfare of domestic consumers, increase welfare of domestic producers, and cause deadweight loss. However, a quota can potentially cause an even larger deadweight loss, depending on the mechanism used to allocate the import licenses. The difference between these tariff and import quota is that tariff raises revenue for the government, whereas import quota generates surplus for firms that get the license to import.

For a firm that gets a license to import, profit per unit equals domestic price (at which imported good is sold) minus world price (at which good is bought) (minus any other costs). Total profit equals profit per unit times quantity sold. Government may charge fees for import license. If the government sets the import license fee equal to difference between domestic price and world price, the import quota works exactly like a tariff. The entire profit of the firm with an import license is paid to the government. Thus government revenue is the same under such an import quota and a tariff. Also, consumer surplus and producer surplus are the same under such an import quota and a tariff. So why do countries use import quotas instead of always using a tariff? When an import quota is used, it allows a country to be sure of the amount of the good imported from the foreign country. When there is a tariff, if the supply curve of the foreign country is unknown, the quantity of the good imported may not be predictable. If world supply in the home country is upward-sloping and less elastic than domestic demand (as may be the case when the home country is the United States) then the incidence of the tariff may fall on producers, and the price paid domestically may not rise by much. Then if the tariff is supposed to make price of the good rise to allow domestic producers to sell at a higher price, the tariff may not have much of the desired effect. A quota may do more to raise price. However in competitive markets there is always some tariff that raises the price as high as the quota does.

Antidumping Meaning And Concept Dumping is said to occur when the goods are exported by a country to another country at a price lower than its normal value. This is an unfair trade practice which can have a distortive effect on international trade. Anti dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect. Thus, the purpose of anti dumping duty is to rectify the trade distortive effect of dumping and re-establish fair trade. The use of anti dumping measure as an instrument of fair competition is permitted by the WTO. In fact, anti dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry. It provides relief to the domestic industry against the injury caused by dumping.

Q.7. What are the essential requisites for initiating an anti dumping investigation? Ans. The following are essential for initiating an anti dumping investigation: a. Sufficient evidence to the effect that ;

there is dumping there is injury to the domestic industry; and there is a causal link between the dumping and the injury, that is to say, that the dumped imports have caused the alleged injury.

b. The domestic producers expressly supporting the anti dumping application must account for not less than 25% of the total production of the like article by the domestic industry. The application is deemed to have been made by or on behalf of the domestic industry, if it is supported by those domestic producers whose collective output constitute more than 50% of the total production of the like article produced by that portion of the domestic industry expressing either support for or opposition as the case may be, to the application. Note: This is to further clarify that a domestic industry, which seeks relief, should give sufficient evidence with respect to the above parameters. Unless the above parameters are satisfied, it will not be possible for the Authority to initiate an anti-dumping investigation. .15 What is the legal framework for Anti Dumping, Anti Subsidy and safeguard measures? Ans. Sections 9, 9 A, 9 B and 9 C of the Customs Tariff Act, 1975 as amended in 1995 and the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 and Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidised Articles and for Determination of Injury) Rules, 1995 framed there under form the legal basis for anti-dumping and anti subsidy investigations and for the levy of anti-dumping and countervailing duties. These laws are in

consonance with the WTO Agreements on Anti Dumping and Anti Subsidy countervailing measures.