Tariffs and Related Border Measures

• Author: Jon R. Johnson
• Pages: 75-99

CHAPTER

3

Tariffs

or

customs duties

are

commodity taxes levied

on

imported

goods.

The

application

of

tariffs

results

in

different

and

less

favourable

treatment

being accorded

to

imported goods than

to

domestic goods.

However,

discrimination through

tariffs

is

permissible under

GATT

1994

up to the

tariff

levels

to

which each member country

is

committed.

Tariffs

are

used both

to

raise revenue

and to

protect domestic pro-

ducers.

At the

time

of

Confederation,

tariffs

were

the

most single impor-

tant

source

of

revenue

for the new

Canadian government. However,

with

the

advent

of

income taxes

and

other

forms

of

commodity taxes,

tariffs

now

account

for a

relatively insignificant proportion

of the

reve-

nues raised

by the

federal

government. Only

the

federal

government

can

impose

tariffs.

Tariffs

are

also used

as

instruments

of

industrial policy

to

protect

domestic producers.

The

National Policy

of Sir

John

A.

Macdonald's

government

included among

its

objectives

the

encouragement

of

domestic manufacturing through high

tariffs.

With

the

successive

rounds

of

GATT negotiations,

tariffs

in all

industrialized countries have

dropped

dramatically

and for

most products have ceased

to

afford

much

protection

from

foreign

competition. However, some Canadian indus-

tries, such

as the

textile

and

apparel industry, continue

to be

protected

through relatively high

tariffs.

For

trade theorists,

tariffs

are

preferable

to

non-tariff

measures

of

protection

such

as

quantitative import

restrictions,

discretionary

import licensing,

non-tariff

measures maintained through state trading

75

TARIFFS

AND

RELATED

BORDER

MEASURES

76

INTERNATIONAL

TRADE

LAW

enterprises,

voluntary export restraints,

and the

like.

Tariffs

are

trans-

parent

while other measures

of

protection

frequently

lack transparency.

Tariffs

do not

involve

the

allocation problems that measures

of

protec-

tion such

as

quantitative restrictions entail.

Tariffs

are

levied either

on a per

unit

or an ad

valorem basis.

A per

unit

tariff

is

expressed

as a

fixed

sum per

kilogram

or

litre

or

other

unit

of

measurement.

An ad

valorem

tariff

is

expressed

as a

percentage that

is

applied

to the

value

of the

good

for

duty purposes.

As

discussed under

"Valuation,"

the

Valuation

Agreement

sets

out

rules

for

valuing goods

for

duty

purposes.

Tariffs

are

usually applied

at a

constant rate regardless

of the

annual

volume

of

imports. However,

tariff

rate quotas

are

applied

to

some

goods. Under

a

tariff

rate quota,

a

prescribed

annual quantity

of

goods

enters

at a

lower rate

of

duty

and

imports over that quantity enter

at a

higher rate.

Tariff

rate quotas have replaced quantitative restrictions

for

agricultural

goods under

the

Agriculture

Agreement

(see chapter

4

under

"The

Agriculture Agreement

and

Tariffication"),

and the

NAFTA

textile

and

apparel provisions create

"tariff

preference

levels"

for

certain textile

and

apparel goods (see chapter

4

under

"Tariff

Preference Levels").

A.

HARMONIZED SYSTEM

AND

TARIFF

CLASSIFICATION

1) The

Harmonized System

The

Harmonized Commodity Description

and

Coding System (Harmo-

nized

System

or HS) is an

international numerical system

for

classifying

goods

for

customs

and

statistical

purposes

and is

used

by

Canada,

the

United

States, Mexico, Chile, Israel,

and

most other countries.

The

Har-

monized

System

is

used

in the WTO

agreements

as

well

as in

NAFTA,

CIFTA,

and

CCFTA

as the

principal means

of

referring

to

goods.

The

Harmonized System

is

divided into sections covering broad cat-

egories

of

goods. Each section

is

broken down into chapters, which

are

broken down into headings

and

subheadings.

HS

chapters

are

assigned

two-digit

numbers

(01

through

to

97).

HS

headings

are

assigned

four-

digit

numbers,

the

first

two

being

the

number

of the

chapter within

which

the

heading

falls.

HS

subheadings

are

assigned six-digit numbers,

the

first

four

being

the

number

of the

heading within which

the

subhead-

ing

falls.

Each good

is

classified under

a

tariff

item, which

is a

number

with eight

or

more digits.

The

first

two

digits

of a

tariff

item correspond

to

the

chapter under which

the

good

is

classified.

The

first

four

digits