Governments have always looked to the traffic in goods across their borders as an important source of revenue. The tax charged on incoming goods is known as a tariff or a duty. When goods are imported, three main issues need to be resolved in order to determine the appropriate tariff: the classification of the product, its value, and its place of origin.
Despite the multitude of available product listings, some products fit more than one category or in the case of new technologies, do not fit any. Most custom duties are ad valorem taxes; that is, the tax is a percentage of the value of the goods. In order to compute the proper tariff, the importer also needs to know where the goods come from. Tariffs vary, depending on the source of the imported goods. A country might have most-favoured nation (MFN) status, or it may belong to a tariff preference program. Finally, imports from countries in free-trade areas may have their products qualify for duty-free import.
However, in this era of multinational corporations, it is not always easy to determine the country of origin for imports. The production of goods may take place at any number of places around the globe. Companies ship parts and materials to any point for assembly or manufacture in order to take advantage of low taxes, low wages, low energy costs, and tariff preference programs. In some cases, companies subject to antidumping duties simply ship the component parts to another country for assembly in what is called a «screwdriver plant». Then it exports the goods from the second country, which is not subject to a dumping order.
Problems with determining a place of origin occur when goods from one country are exported to another country during the production process. For example, automobiles assembled in one country may use sheet metal, glass, engine parts, and upholstery from many others. When these automobiles arrive at their final destination, there will be more than one possible place of origin. There are several rules to determine it. In some circumstances, the customs officials will look at the percentage of content from each country to determine the place of origin. Another rule is «substantial transformation». For example, a company might buy vinyl from Mexico, metal handles from Brazil, and turn these components into luggage in Jamaica. The latter will be declared as the place of origin, because the goods have undergone a significant change there. In the last few years, variations on this rule, such as «change in character, appearance, identity, and use» have been used as alternative tests.
These barriers exist in every-country and range from safety standards to quotas. Standards exist for a variety of reasons, including safety, environmental protection, and health. Most countries require all imported cars to meet pollution standards. This standard does not discriminate against imports, but does add costs. Some standards may be targeted at imports, in an attempt to protect domestic industries. For example, in 1989 the EC banned all imports of beef treated with hormones. The EC initially based its decision on health and safety grounds, but later claimed that the ban reflected consumer preferences, much like the US requirement that all imported cheese be pasteurized. The United States, claiming that the ban was an unfair trade practice aimed at US exports, retaliated by imposing 100 percent duties on a variety of EC imports to the United States.
Countries have long used quotas and embargoes as part of foreign policy and the protection for domestic industries. Increased exports from other countries can threaten or cause serious injury to a domestic industry.
What is a tariff?
Why are they imposed?
How are the appropriate tariffs determined?
What is ad valorem duties?
How do tariffs depend on the source of the imported goods?
What countries may have their products qualify for duty-free import?
Why is it problematic to determine the country of origin?
How do countries try to avoid restrictions?
When do problems with determining a place of origin occur?
What are the rules for that?
What is «substantial transformation»?
What kinds of standards exist in foreign trade? Give examples.
Why do countries use restrictions?
Sum up the information from the text about all kinds of trade barriers.
Task 11. Summarizing the Topic.