Tariff trade policy instruments

Customs tariff is the main instrument of foreign trade policy. It is also one of the oldest forms of government intervention in economic activity. The word «tariff» is Arabic in origin and it basically means «that fees need to be paid».

The levying or lifting of trade tariffs can be viewed as a significant aspect of international foreign policy.

Tariffs may differentiate among the countries from which the imports are obtained. They may, for instance, be lower between countries that have previously entered into special arrangements, such as the trade preferences accorded to each other by members of the Commonwealth.

Members of the European Union apply the common Customs tariff (CCT) to goods imported from non-EU countries.

The tariff is the name given to the combination of the nomenclature (or classification of goods) and the duty rates which apply to each class of goods. The tariff is a concept, a collection of laws as opposed to a single codified law in itself.

A tariff can be defined as a systematic set of rates of Customs duties,imposed on goods and other things as they cross national boundaries, usually by the government of the importing country. The boundary may be that of a nation or group of nations that have agreed to impose a common tax on goods entering their territory.

A tariff may be assessed in a number of ways, including directly, at the border, or indirectly, by requiring the prior purchase of a license or permit to import given quantities of the goods. The taxed goods can be anything, but for practical purposes tariffs are usually applied to items that are easily detected, classified, and measured or valued. Thus, many types of services and, of course, successfully smuggled goods tend not to be subject to such taxes.

Tariffs may be levied either to raise revenue or to protect domestic industries.

Tariffs protect domestic industries by changing the conditions under which goods compete in such a way that competitive imports are placed at a

disadvantage. Protective tariffs are designed to shield domestic production from foreign competition by raising the price of the imported commodity.

A tariff levied primarily for protection may yield revenue. Revenue tariffs¹are designed to obtain revenue rather than to restrict imports. Therevenue function comes from the fact that the income from tariffs provides governments with a source of funding. In the past, the revenue function was indeed one of the major reasons for applying tariffs, but economic development and the creation of systematic domestic tax codes have reduced its importance in the developed countries. In some developing countries, however, revenue may still be an important tariff function.

A tariff on imported goods affects supply and demand, producers, consumers and the world market by creating advantages and disadvan-tages for the concerned parties. Placing a tariff on imported goods has a number of clear outcomes that can be advantageous to some parties while being a significant disadvantage to others:

– promotes local products

When the government chooses to place a tariff on imported goods, the producers can choose to reduce their prices to compensate for the tariff or to pass on the cost to the consumer. When producers choose to pass on the cost to local consumers by increasing their price, it promotes national products, giving national companies a clear advantage.

– increased goverment revenue

The government collects revenue in order to economically support its function. Increased government revenue appears as a clear advantage to the country placing import tariffs on foreign goods.

– discourages trade

When national consumers choose to buy a lower- priced local product, foreign producers become disadvantaged, ultimately leading to less trade with the producing country. Foreign producers are forced to reduce their prices to compete with similar local products. They may choose not to trade as much with the producing country and import their products to other countries where there are no tariffs. A reduction in trade causes producers to make less of their product which could mean workers losing jobs in the producing country.

– reduces consumer choice

¹ Фискальный (таможенный) – тариф, взимаемый прежде всего с цельюпополнения бюджета, а не защиты отечественного рынка.

Individual consumer choice remains as one of the greatest consumer benefits to international trade. When tariffs are placed on imported goods, the increased prices and reduced trade prohibit individuals from all choices that could be available in the market. In the event that national companies do not produce a product similar to the imported goods, consumers may be robbed of the opportunity to purchase a product altogether because they pushed a foreign product out of the market with a tariff.

Generally, tariffs are assessed on goods imported or brought into a country across a border. Tarrifs on goods exported also exist but are less common.

Tariffs on imports may be applied in several ways. If they are imposed according to the physical quantity of an import, they are called specific tariffs. A specific tariff is levied as a fixed fee based on the typeof item (e.g., $ 1,000 on any car). If they are levied according to the value of the import, they are known as ad valorem tariffs. (e.g., 10% of the car's value). A combined or compound tariff is a tariff that combines both a specific and an ad valorem component.

Within the Eurasian Economic Union the Unified Customs Tariff is a set of rates of customs duties applied to goods imported into the common customs territory from third countries, classified according to the uniform Foreign Economic Activity Commodity Nomenclature (FEACN).

The Unified Customs Tariff includes the following rates of import customs duties:

· ad valorem rates calculated as a percentage of the customs value of taxable goods;

· specific rates calculated per unit of taxable goods;

· combined rates that combines the ad valorem and specific components.

The use of import customs duties depends on the country of origin of goods.

Tariffs may be further classified into three groups: transit duties, export duties, and import duties.

A duty, charged by Customs, is a tax on goods and other things thatare moved across the Customs border of the state.

A transit duty, or transit tax, is a tax levied on commodities passingthrough a Customs area en route to another country. Import duties are

imposed on the goods imported to the Customs territory of a country. Similarly, an export duty, or export tax, is a tax imposed on commodities leaving a Customs area.