Chapter 20

Tariffs

1. MEANING AND TYPES

A tariff is a tax or duty levied on goods when they enter and leave the national
frontier or boundary. In this sense, a tariff refers to import duties and export duties.
But for practical purposes, a tariff is synonymous with import duties or custom
duties.
Types of Tariffs
Tariffs are classified in a number of ways.
On the Basis of Purpose. Tariffs are used for two different purposes for
revenue and for protection.
1. Revenue Tariff. Revenue tariffs are meant to provide the state with
revenue. Revenue duties are levied on luxury consumer goods. The lower the

import duties, the larger is the revenue from them. This is because the rise in the
price of the imported goods does not increase much with the imposition of low
import duties and the consumers do not normally shift their demand to other
domestically produced goods.
2. Protective Tariff, Protective tariffs are meant "to maintain and encourage
those branches of home industry protected by the duties." Now-a-days,
governments levy import duties with the principal objective of discouraging
mports in order to encourage domestic production of protected industry. The
revenue function of an import duty is a secondary one.
The following types of tariff duties are levied : ad valorem, specific,
Compound and sliding scale duties.
1. Ad Valorem Duty. The most common type of duty is the ad valorem duty.
is levied as a percentage of the total value of the imported common duty. The
port duty is a fixed percentage of the c.i.f. (cost, insurance and freight) value
O the commodity. I t may be 25 per cent, S0 per cent and so on.

2. Specific Duty. Specific duties are levied per physical unit of the imported
Com
Ommodity, as Rs X per TV, as cloth per metre, as oil per litre, as fertilizers per
tonne, etc.
. G.
Haberler, op. cit., p. 238.
214 International Economics
3. Compound Duty. Often. governments levy compound duties which are
area
combination of the ad valorem and the specitic duties. In this case, units of
imported commodity are levied a percentage ad valorem duty plus a pecific
duty on each unit of the commodity. For instance, a country may impose
an
import duty on a car at the fixed rate of Rs. 1 lakh + l10% on the price of car
4. Sliding Scale Duty. Sometimes governments levy import duties whit
Such duties are known as eli
vary with the prices of commodities imported.
scale duties which may be either ad valorem or specific. Normally, slidingsliding
scalale
duties are imposed on specific basis.
On the Basis of Country-wise Discrimination. The tollowing types of tariff
are levied on the basis of country-wise discrimination.
1. Single Column Tariff. When a uniform rate of duty is imposed onall
similar commodities irrespective of the country from which they are imported, it
is called single-column tariff. It is non-discriminatory tariff which is very simple
and easy to design and administer. But it is not elastic and adequate. Revenue
may not be collected by this system.
2. Double Column Tariffs. Under this system, two different rates of duty
exist for all or some of the commodities. The government of the country declares
both the rates at the beginning or one at the beginning and another after setling
the rates under trade agreements. They can be classified as follows
(i) General and Conventional Tariffs. The general tariff is the list of tariffs
which is announced by the government as its annual tariff policy at the beginning
of the year. It is a particular tariff rate which is charged from all countries. On the
other hand, conventional tariff rates are based on trade agreements/treaties with
other counties. They may be different for different countries and vary from
commodity to commodity. They are not flexible for they can only be changed
by mutual consent. As they are inflexible, they hamper the expansion of trade.
(i) Maximum and Minimum Tariffs. Governments usually fix two tan
rates for importing the same commodity from different countries. Countries with
which it has a commercial agreement/treaty, (under most favoured nation)
minimum tariff rate is imposed. On the other hand maximum tariff rate is imposed
on imports from the rest of the countries.
3. Multiple or Triple Column Tariffs. Under the multiple column taril
system, two or more tariff rates are levied on each category of commodity. Bul
theusual practice is to have three different lists of tariffs, i.e. general, intermediae
and preferential. The general rates are imposed in the same manner as he
maximum rates mentioned above. the
Similarly, the intermediate rates arc
minimum rates. The preferential rates were levied on
goods imported from br
belore independence which had low rates or
were duty free. Presently,
among the SAARC countries carry preferential duties on
imp each

other. imports from

On the Basis of Retaliation. There are two ways to levy import dutlc
the basis of retaliation
Tariffs 215

1.Retaliatory Tariffs. A retaliatory tariff duty is levied by one country on

the imports of another country in order to punish the latter for its trade policy
which harms its exports or balance of payments position.
2. Countervailing Duty. It is an additional duty which is imposed on a
commodity whose export price is reduced by the other country through an export
Subsidy. The additional duty is levied to raise its price in order to protect
producers of the same commodity in the importing country from the cheap
foreign commodity.