7 Relevant Issues on Tariffs in International Trade – Discussed!


February 1, 2019 admin 0 Comment

Relevance:

As of now, the coverage of customs duties extends to only goods and services, though in the foreseeable future, capital flows may also be brought under them. It is noteworthy that, in both theory and practice import duties attract far greater attention than export duties. This unbalanced use is sought to be justified on several counts:

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1. It is often felt (and in several instances, correctly) that a part of import levies is borne by the foreigners; that is to say, a part of their incidence shifts onto them.

2. Generally speaking, governments are more concerned with the spill-over effects of a deficit in balance of payments and the need for its correction rather than with a situation where balance of payments is in surplus. They, therefore, seldom levy export duties. Instead, they prefer a policy of encouraging exports by various means including direct subsidies and refunding of indirect taxes collected on exports.

They levy a duty on an export item only if it has a low elasticity of demand in foreign markets and the exporters are profiteering on this account. In such a situation, the government may levy an export duty so as to appropriate a part of the abnormal profit which otherwise would have gone to the exporters.

They could also be used to discourage export of raw materials where processing and concomitant-value addition—might have brought in higher yield, e.g. iron ore vis-a-vis finished steel.

3. Because of the complexity of modern economies, governments tend to prefer a policy of “selective protection” (or discriminatory protection) in conformity with their chosen national objectives including, for example, protecting certain industries and sections of the society.

4. Similarly, domestic producers welcome import duties because they protect them against foreign competition; they are happy with export subsidies because they add to their competitive strength.

5. Historically, customs duties have been viewed as a major source of public revenue in countries where external sector contributed a sizeable proportion of their GDP.

6. These days, a typical modern government prefers to be an active participant in promoting economic growth and social welfare of the country; and it is believed that customs duties can effectively contribute to the achievement of these goals.

7. Generally, an expressly stated objective of levying a tariff is that of promoting national welfare while, in reality, its purpose is to replenish government treasury or to protect the interests of certain industries or social groups, etc.



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