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Tariff
Is the tax imposed on the import or
export of goods
In general parlance, however, it refers
to import duties charged at the time
goods are imported.
Tariffs have three primary functions:
to serve as a source of revenue;
to protect domestic industry; and
to remedy trade distortions. Tariffs
can be ad valorem or specific or
mixed.
Ad valorem tariff
The tariff levied on imports, defined in terms of a
fixed percentage of the goods value.
For instance, if India imposes an ad valorem tariff of 40%
on butter, it means that the tariff will be 40% of the
value of the butter being imported.
Specific tariff
Tariff that is levied at a specific rate per physical
unit of a particular item.
For instance, a tariff of $ 10 on every kilogram of butter
imported.
Compound tariff
A combination of ad valorem and specific
tariffs
Example: 10% plus $ 5 per kilogram
Tariff binding:
This requires the setting of a maximum tariff rate
on an imported product. While the applied tariff
rate charged by an importing country could vary,
an importing country cannot exceed the bound rate
without re-negotiating its WTO commitments.
Tariff binding comprises two sets of issues:
First is the issue of tariff binding coverage, implying the
number of tariff lines to be bound.
The second relates to the rate at which unbound tariff lines
should be bound.
Developed countries have been keen that developing
countries and Least Developed Countries (LDCs) increase
their tariff binding coverage to 100% or near 100%.
Increasing tariff binding coverage implies binding more
tariff lines, thereby giving up the flexibility of being able to
increase tariff rates on a particular product beyond a
certain point.
Tariff classifications
National tariffs are organized in the form of tables that consist of tariff
classification numbers assigned to goods, and a corresponding tariff
rate.
The way in which an item is classified for tariff purposes will have an
important and palpable effect on the duties charged.
Tariff line
Tariff escalation
If a country wants to protect its processing or
manufacturing industry, it can set low tariffs on imported
materials used by the industry (cutting industry costs) and
set higher tariffs on finished products to protect goods
produced by the industry.
When importing countries escalate their tariffs in this way,
they make it more difficult for countries producing raw
materials to process and manufacture value-added products
for export.
Tariff escalation exists in both developed and developing
countries. A country may choose to impose no tariff on the
import of raw materials, but increase tariffs on semiprocessed and final goods.
For instance, the tariff average in developed countries for
rubber increases from 0.0% for raw rubber to 3.3% for semiprocessed products to 5.1% for finished products.
Bound tariffs
Applied tariffs