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[edit]History

Tariffs are usually associated with protectionism, the economic policy of restraining trade between nations. For

political reasons, tariffs are usually imposed on imported goods, although they may also be imposed on

exported goods.

In the past, tariffs formed a much larger part of government revenue than they do today.

When shipments of goods arrive at a border crossing or port, customs officers inspect the contents and charge

a tax according to the tariff formula. Since the goods cannot continue on their way until the duty is paid, it is the

easiest duty to collect, and the cost of collection is small. Traders seeking to evade tariffs are known

assmugglers.

[edit]Types

There are various types of tariffs:

An ad valorem tariffs is a set percentage of the value of the good that is being

imported. Sometimes these are problematic, as when the international price of

a good falls, so does the tariff, and domestic industries become more

vulnerable to competition. Conversely, when the price of a good rises on the

international market so does the tariff, but a country is often less interested in

protection when the price is high.

They also face the problem of inappropriate transfer pricing where a company declares a value for goods being

traded which differs from the market price, aimed at reducing overall taxes due.

A SPECIFIC tariff, is a tariff of a specific amount of money that does not vary

with the price of the good. These tariffs are vulnerable to changes in the

market or inflation unless updated periodically.

A REVENUE tariff is a set of rates designed primarily to raise money for the

government. A tariff on coffee imports imposed by countries where coffee

cannot be grown, for example, raises a steady flow of revenue.

A PROHIBITIVE tariff is one so high that nearly no one imports any of thatitem.

A PROTECTIVE tariff is intended to artificially inflate prices of imports and

protect domestic industries from foreign competition (see also effective rate of

protection,) especially from competitors whose host nations allow them to

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operate under conditions that are illegal in the protected nation, or who

subsidize their exports.

An environmentaltariff, similar to a 'protective' tariff, is also known as

a 'green'tariff or'eco-tariff', and is placed on products being imported from,

and also being sent to countries with substandard environmental pollution

controls.

A RETALIATORYtariff is one placed against a country who already charges

tariffs against the country charging the retaliatory tariff (e.g. If the United

States were to charge tariffs on Chinese goods, China would probably charge

a tariff on American goods, also). These are usually used in an attempt to get

other tariffs rescinded.

Tariffs, in the 20th century, are set by a Tariff Commission based on information obtained from the government

or local authority and suo motu studies of industry structure.

Tax, tariff and trade rules in modern times are usually set together because of their common impact

on industrial policy, investment policy, and agricultural policy. A trade bloc is a group of allied countries

agreeing to minimize or eliminate tariffs and other barriers against trade with each other, and possibly to

impose protective tariffs on imports from outside the bloc. Acustoms union has a common external tariff, and,

according to an agreed formula, the participating countries share the revenues from tariffs on goods entering

the customs union.

If a country's major industries lose to foreign competition, the loss of jobs and tax revenue can severely impair

parts of that country's economy and increase poverty. If a nation's standard of living or industrial regulations are

too great, it is impossible for domestic industries to survive unprotected trade with inferior nations without

compromising them; this compromise consists of a global race to the bottom. Protective tariffs have historically

been used as a measure against this possibility. However, protective tariffs have disadvantages as well. The

most notable is that they prevent the price of the good subject to the tariff from undercutting local competition,

disadvantaging consumers of that good or manufacturers who use that good to produce something else: for

example a tariff on food can increase poverty, while a tariff on steel can make automobile manufacture less

competitive. They can also backfire if countries whose trade is disadvantaged by the tariff impose tariffs of their

own, resulting in a trade warand, according to free trade theorists, disadvantaging both sides.(Murad)

[edit]Economic analysis

Neoclassical economic theories hold that tariffs are a harmful interference with the individual freedom and the

laws of the free market. They believe that it is unfair toward consumers and generally disadvantageous for a

country to artificially maintain an industry made inefficient by local demands, and that it is better to allow a

collapse to take place. Opposition to all tariffs is part of the free trade principle; the World Trade

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Organization aims to reduce tariffs and to avoid countries discriminating between differing countries when

applying tariffs.

In the following graph we see the effect that an import tariff has on the domestic economy. In a closed economy

without trade we would see equilibrium at the intersection of the demand and supply curves (point B), yielding

prices of $70 and an output ofY*. In this case the consumer surplus would be equal to the area inside points A,

B and K, while producer surplusis given as the area A, B and L. When incorporating free international trade

into the model we introduce a new supply curve denoted as SW. This curve makes the assumption that the

international supply of the good or service is perfectly elastic and that the world can produce at a near infinite

quantity at the given price. Obviously, in real world conditions this is somewhat unrealistic, but making such

assumptions is unlikely to have a material impact on the outcome of the model. In this case the international

price of the good is $50 ($20 less than the domestic equilibrium price).

The model above is only completely accurate in the extreme case where none of the consumers belong to the

producers group and the cost of the product is a fraction of their wages. If instead, we take the opposite

extreme, and assume all consumers come from the producers' group, and also assume their only purchasing

power comes from the wages earned in production and the product costs their whole wage, then the graph

looks radically different. Without tariffs, only those producers/consumers able to produce the product at the

world price will have the money to purchase it at that price. The small FGL triangle will be matched by an

equally small mirror image triangle of consumers still able to buy. With tariffs, a larger CDL triangle and its

mirror will survive.

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Note also, that with or without tariffs, there is no incentive to buy the imported goods over the domestic, as the

price of each is the same. Only by altering available purchasing power through debt, selling off assets, or new

wages from new forms of domestic production, will the imported goods be purchased. Or, of course, if its price

were only a fraction of wages.

In the real world, as more imports replace domestic goods, they consume a larger fraction of available

domestic wages, moving the graph towards this view of the model. If new forms of production are not found in

time, the nation will go bankrupt, and internal political pressures will lead to debt default, extreme tariffs, or

worse.

Establishing tariffs slows down this process, allowing more time for new forms of production to be developed,

but also buttresses industries which may never regain competitive prices.

[edit]Political analysis

The tariff has been used as a political tool to establish an independent nation; for example, the United

States Tariff Act of 1789, signed specifically on July 4, was called the "Second Declaration of Independence"

by newspapers because it was intended to be the economic means to achieve the political goal of a sovereign

and independent United States.[1]

In modern times, the political impact of tariffs has been seen in a positive and negative sense. The 2002 United

States steel tariffimposed a 30% tariff on a variety of imported steel products for a period of three years.

American steel producers supported the tariff,[2] but the move was criticised by the Cato Institute.[3]

Tariffs can occasionally emerge as a political issue prior to an election. In the leadup to the 2007 Australian

Federal election, theAustralian Labor Party announced it would undertake a review of Australian car tariffs if

elected.[4] The Liberal Party made a similar commitment, while independent candidate Nick

Xenophon announced his intention to introduce tariff-based legislation as "a matter of urgency". [5]

[

:] Why are tariffs preferred to quantitative restrictions as a means of controlling imports?

[A:]Thanks for your question!

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Tariffs and quantative restrictions (commonly known as import quotas) both serve the purpose of controlling the number offoreign products that can enter the domestic market. There are a few reasons why tariffs are a more attractive option than importquotas.

Three Reasons Why Tariffs Are Preferable to Quotas

1. Tariffs Generate Revenue for the Government: If the U.S. government puts a 20% tariffs on imported Indian cricketbats they will collect $10 million dollars if $50 million worth of Indian cricket bats are imported in a year. That may soundlike small change for a government, but given the millions of different goods which are imported into a country, thenumbers start to add up. TheProgressive Policy Institute has found that the United States collects 20 billion dollars a yearin tariff revenue. This is revenue that would be lost to the government unless their import quota system charged aliscencing fee on importers. Which brings me to point 2.

2. Import Quotas Can Lead to Administrative Corruption: Suppose that there is currently no restriction on importingIndian cricket bats and 30,000 are sold in the U.S. each year. For some reason the United States decides that they only want5,000 Indian cricket bats sold per year. They could set an import quota at 5,000 to achieve this objective. The problem is :How do they decide which 5,000 bats get in and which 25,000 do not? The government now has to tell some importer thattheir cricket bats will be let into the country and tell some other importer than his will not be. This gives the customsofficials a lot of power as they can now give access to favored corporations and deny access to those who are not favored.This can cause a serious corruption problem in countries with import quotas as the importers chosen to meet the quota arethe ones who can provide the most favors to the customs officers.

A tariff system can achieve the same objective without the possibility of corruption. The tarriff is set at a level whichcauses the price of the cricket bats to rise just enough so that the demand for cricket bats falls to 5,000 per year. Althoughtariffs control the price of a good, they indirectly control the quantity sold of that good due to the interaction of supply anddemand.

3. Import Quotas Are More Likely to Cause Smuggling: Both tariffs and import quotas will cause smuggling if they areset at unreasonable levels. If the tariff on cricket bats is set at 95% then it's likely that people will try to sneak the bats intothe country illegally, just as they would if the import quota is only a small fraction of the demand for the product. Sogovernments have to set the tariff or the import quota at a reasonable level. But what if the demand changes? Supposecricket becomes a big fad in the United States and everybody and their neighbour wants to buy an Indian cricket bat? Animport quota of 5,000 might be reasonable if the demand for the product would otherwise be 6,000. Overnight, though, thedemand has now jumped to 60,000. With an import quota there will be massive shortages and smuggling in cricket batswill become quite profitable. A tariff does not have these problems. A tariff does not provide a firm limit on the number of

products that enter. So if the demand goes up, the number of bats sold will go up, and the government will collect morerevenue. Of course, this can also be used as an argument againsttariffs as the government cannot ensure that the number ofimports will stay below a certain level.

For these three reasons, tariffs are generally considered to be preferrable to import quotas.

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Non-tariffbarrierstotrade (NTBs) are trade barriers that restrict imports but are not in the usual form of

a tariff. Some common examples of NTB's are anti-dumping measures andcountervailing duties, which,

although they are called "non-tariff" barriers, have the effect of tariffs once they are enacted.

Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. Some non-

tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed

necessary to protect health, safety, or sanitation, or to protect depletable natural resources. In other

forms, they are criticized as a means to evade free trade rules such as those of the World Trade

Organization (WTO), the European Union (EU), orNorth American Free Trade Agreement (NAFTA) that

restrict the use of tariffs.

Contents

[hide]

1 Six Types of Non-Tariff Barriers to Trade

2 Examples of Non-Tariff Barriers to Trade

3 See also

4 References

5 External links

[edit]Six Types of Non-Tariff Barriers to Trade

1. Specific Limitations on Trade:

1. Quotas

2. Import Licensing requirements

3. Proportion restrictions of foreign to domestic goods (local content requirements)

4. Minimum import price limits

5. Embargoes

2. Customs and Administrative Entry Procedures:

1. Valuation systems

2. Antidumping practices

3. Tariff classifications

4. Documentation requirements

5. Fees

3. Standards:

1. Standard disparities

2. Intergovernmental acceptances of testing methods and standards

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3. Packaging, labeling, and marking

4. Government Participation in Trade:

1. Government procurement policies

2. Export subsidies

3. Countervailing duties

4. Domestic assistance programs

5. Charges on imports:

1. Prior import deposit subsidies

2. Administrative fees

3. Special supplementary duties

4. Import credit discriminations

5. Variable levies

6. Border taxes

6. Others:

1. Voluntary export restraints

2. Orderly marketing agreements

BENEFITS OF A SINGLE WORLD CURRENCY

DIVIDENDS OF SINGLE CURRENCY INCLUDE BUT NOT LIMITED TO THE FOLLOWING:

ELIMINATES THE MAINTAINING OF FOREIGN EXCHANGE RESERVES

DO AWAY WITH CURRENCY RISK, WHICH OFTEN SCARE FOREIGN INVESTORS ELIMINATE THE CHANCE OF CURRENCY FAILURE, WHICH WOULD MAKE FOREIGN INVESTMENT

DECISIONS MUCH EASIER IN EMERGING ECONOMIES

SUCH A CURRENCY WOULD IN ONE GO ELIMINATE THE PROBLEM OF CURRENT ACCOUNT DEFICITS AS

THERE WOULD BE NO NEED FOR FOREIGN EXCHANGE

ELIMINATION OF TRANSACTION COSTS RELATED TO TRADING CURRENCIES

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WHILE, THE BENEFITS SEEM IMMENSE, SUCH A CURRENCY COULD VIRTUALLY DO AWAY WITH THE NEED

FOR FOREX TRADING!! BUT, FOREX TRADERS CAN RELAX FOR NOW AS THE ADOPTION OF SUCH A

CURRENCY IS NOT A LIKELIHOOD IN THE NEAR FUTURE DUE TO THE VAST VARIATIONS IN GLOBALPOLITICAL AND ECONOMIC STRUCTURES. SOME OF THE KEY REASONS THAT GO AGAINST A SINGLE

CURRENCY INCLUDE:

.

DISADVATAGES ARE

POLITICAL BARRIERS,

POLITICAL PERSPECTIVE BTW NATIONS IS A BIG BARRIER TO THE ADOPTION OF COMMON CURRENCY. IT

CAN LEAD TO A LOSS IN POLITICAL SOVEREIGNTY AS MONETARY INTERESTS WOULD NEED TO SURPASS

POLITICAL INTERESTS. THIS IS UNLIKELY TO BE ACCEPTABLE TO MOST OF THE NATIONS AND THE IDEAOF A SINGLE CURRENCY MAY BE DIFFICULT TO IMPLEMENT.

INDEPENDENT NATIONAL MONETARY POLICY WILL BE LOST BECOS REGIONS EXPERINCING ECONOMIC

DEPRESSION WILL BE UNABLE TO USE THE INTEREST RATE TO BOOST THE ECONOMY, ALSO NATIONS

WITH HIGH INFLATION WILL BE HANDICAPPED TO RAISE INTEREST RATE TO CONTAIN INFLATION.

MORESO ISLAMIC NATIONS DONT BELIVE IN INTEREST RATE. SO WHERE DO WE GO FROM HERE.

Special Report

Prosandcons

The United Kingdom will not join the single European currency with the first wave of countries on 1January 1999. The Chancellor of the Exchequer, Gordon Brown, said in October that, although thegovernment supported the principle of the single currency, Britain would not be ready to join at least untilthe second wave of countries join in 2002. He added that the UK should, however, begin to prepare formonetary union.

There are many possible advantages and disadvantages that the government had to consider:

Advantages:

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1. A single currency should end currency instability in the participating countries (by irrevocably fixingexchange rates) and reduce it outside them. Because the Euro would have the enhanced credibility ofbeing used in a large currency zone, it would be more stable against speculation than individualcurrencies are now. An end to internal currency instability and a reduction of external currency instabilitywould enable exporters to project future markets with greater certainty. This will unleash a greaterpotential for growth.

2. Consumers would not have to change money when travelling and would encounter less red tape whentransferring large sums of money across borders. It was estimated that a traveller visiting all twelvemember states of the (then) EC would lose 40% of the value of his money in transaction charges alone.Once in a lifetime a family might make one large purchase or transaction across a European border suchas buying a holiday home or a piece of furniture. A single currency would help that transaction passsmoothly.

3. Likewise, businesses would no longer have to pay hedging costs which they do today in order to insurethemselves against the threat of currency fluctuations. Businesses, involved in commercial transactions indifferent member states, would no longer have to face administrative costs of accounting for the changesof currencies, plus the time involved. It is estimated that the currency cost of exports to small companiesis 10 times the cost to the multi-nationals, who offset sales against purchases and can command the best

rates.4. A single currency should result in lower interest rates as all European countries would be locking intoGerman monetary credibility. The stability pact (the main points of which were agreed at the Dublinsummit of European heads of state or government in December 1996) will force EU countries into asystem of fiscal responsibility which will enhance the Euro's international credibility. This should lead tomore investment, more jobs and lower mortgages.

Disadvantages:

1. Fifteen separate countries with widely differing economic performances and different languages havenever before attempted to form a monetary union. It works in the United States because the labourmarket is mobile, helped by the common language and portability of pensions etc. across a large

geographical area. Language in Europe is a huge barrier to labour force mobility. This may lead topockets of deeply depressed areas in which people cannot find work and areas where the economyflourishes and wages increase. While the cohesion funds attempt to address this, there are still greatdifferences across the EU in economic performance.

2. If governments were obliged through a stability pact to keep to the Maastricht criteria for perpetuity, nomatter what their individual economic circumstances dictate, some countries may find that they areunable to combat recession by loosening their fiscal stance. They would be unable to devalue to boostexports, to borrow more to boost job creation or cut taxes when they see fit because of the public deficitcriterion. In the United States, Texas could not avoid a recession in the wake of the 1986 oil price fall,whereas demand for Sterling changed in the light of the new oil price, adjusting the exchange ratedownwards.

3. All the EU countries have different cycles or are at different stages in their cycles. The UK is growingreasonably well, Germany is having problems. This is the reverse of the position in 1990. Since the warthe UK economy has tended to have an economic cycle closer to the US than the EU. It has changedbecause interest rates are set in each country at the appropriate level for it. One central bank cannot setinflation at the appropriate level for each member state.

4. Loss of national sovereignty is the most often mentioned disadvantage of monetary union. The transferof money and fiscal competencies from national to community level, would mean economically strong and

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stable countries would have to co-operate in the field of economic policy with other, weaker, countries,which are more tolerant to higher inflation.

5. The one off cost of introducing the single currency will be significant. The British Retailing Consortiumestimates that British retailers will have to pay between 1.7 billion and 3.5 billion to make the changesnecessary. Such changes include educating customers, changing labels, training staff, changing

computer software and adjusting tills.

Special Report

Emu:theadvantages

Currency stability will be one of the main benefits of EMU

If everything goes to plan, by 2002, participating member states of the European Union will have ditchedtheir national currency in favour of the euro, a single European currency.

The advantages and disadvantages of joining the European Monetary Union (Emu) will vary from countryto country, and are difficult to predict. Within the EU, each member state has its own financial system;therefore the introduction of the Euro will make a different impact on each country's economcy.

But economists say that there are a number of advantages in signing up to the euro:

y Currencystability

A single currency should end currency instability in the participating countries (by irrevocablyfixing exchange rates) and reduce it outside them.

Because the euro would have the enhanced credibility of being used in a large currency zone, itwould be more stable against speculation than individual currencies are now.

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An end to internal currency instability and a reduction of external currency instability would enableexporters to project future markets with greater certainty. This could unleash great potential forgrowth.

y Tourism

Consumers would not have to change money when travelling within the euro zone, and wouldencounter less red tape when transferring large sums of money across borders.

Travellers will no longer be forced to change money and pay banks the commission charges.

A consumer might wish to make one large purchase or transaction across a European bordersuch as buying a holiday home or a piece of furniture. A single currency would help suchtransactions pass smoothly.

y Business benefits

Likewise, businesses would no longer have to pay hedging costs which they do today in order to

insure themselves against the threat of currency fluctuations.

Businesses, involved in commercial transactions in different member states, would no longerhave to face the costs of accounting in different currencies.

Surprisingly, small firms stand the most to gain. Experts estimate that currently the currency costof exports is ten times higher for small companies than for multi-nationals, who can offset salesagainst purchases and command the best rates.

y Cheapermortgages, lowerinterestrates

A single currency should also result in lower interest rates as all member countries if the newEuropean Central bank takes on the monetary credibility of Germany's Bundesbank.

The stability pact (the main points of which were agreed at the Dublin summit of European headsof state or government in December 1996) will force EU countries into a system of fiscalresponsibility which will enhance the euro's international credibility.

This should lead to more investment, more jobs, lower interest rates - and for home owners tolower mortgages.

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