Understanding Tariffs

Understanding Tariffs

Tariffs are taxes or fees imposed on imported or exported goods. They are usually taxed as a percentage of the value of traded goods and are used as a means of protecting domestic industry from foreign competition and generating revenue for governments. Tariffs can be applied to a wide variety of goods, from raw materials and agricultural products to manufactured goods and consumer goods. They can be applied to goods imported from asingle country or from a group of countries, such as a trade group or a customs union. Tariffs can have many effects on business and the economy. On the other hand, tariffs can help protect a domestic industry from foreign competition by making imported goods more expensive, which can encourage consumers to buy domestic products instead. It can support domestic jobs and industry and protect against unfair competition. On the other hand, tariffs can also have negative effects. They can make imported goods more expensive for consumers, which can lead to higher prices and inflation. They can also lead to trade disputes and retaliation by other countries, which can hurt exports and disrupt supply chains. In addition, tariffs can make it difficult for domestic companies to enter foreign markets and reduce competition, which can lead to higher prices and lower quality products for consumers. In general, tariffs are a complex and often controversial issue in international trade. They can have both positive and negative effects, and their use is often debated and negotiated between governments and business partners.

Difference between Tariff and Duties

Tariffs and taxes are similar, but they are not the same. Tariffs are duties or taxes on imported or exported goods, while duties are a type of tariff imposed on certain goods or groups of goods. Tariffs can be established as a percentage of the value of traded goods (value tariffs), as a fixed amount per unit of goods (special tariffs) or as a combination of these (combined tariffs). Customs duties are a type of tariff imposed on certain goods or groups of goods. For example, the tax on imported steel may be a wholesale tax of ￡100 per ton, while the tax on imported clothing may be an ad valorem tax of 10% of the value of the clothing. In general, governments use both tariffs and tariffs to protect domestic industries from foreign competition and to generate revenue. However, tariffs are a more specific type of tariff that is applied to specific goods or groups of goods.

Customs Valuation:

The customs value of the imported goods is determined mainly for the application of ad valorem taxes. This is the basis of customs taxation. It is also an integral part of the compilation of trade statistics, the monitoring of quantitative restrictions, the application of preferential customs treatment and the collection of national taxes. Today, almost all customs of the current 161 members of the WTO value imported goods according to the provisions of the Agreement on Customs Valuation of the WTO (adopted in 1994). This agreement establishes a system of customs assessments based primarily on the commercial value of the imported goods, which is the price actually paid or payable for the goods when sold for export to the importing country, plus certain cost, and expense adjustments. fees. Currently, more than 90% of the world's business is valued using the transaction value method, which increases predictability, uniformity, and transparency for the business world.

The UK Global Tariff (UKGT)

The UK Global Tariff (UKGT) is the tariff schedule that sets out the customs duties (tariffs) that apply to goods imported into the UK. The UKGT replaces the EU's Common External Tariff (CET) for the UK, and it came into effect on January 1, 2021, following the UK's departure from the EU. The UKGT applies to goods imported from countries that do not have a free trade agreement with the UK, and it is intended to protect UK businesses and industries from unfair competition from imported goods. The UKGT is administered by the UK's Department for International Trade (DIT).

Zero or reduced tariff

A zero or reduced tariff is a customs duty (tariff) that is either zero or lower than the standard rate for a particular good. Zero or reduced tariffs are often granted to certain goods or countries as part of a trade agreement, such as a free trade agreement or preferential trade agreement. These agreements can help to promote trade and economic development by reducing barriers to trade, such as tariffs. Zero or reduced tariffs can also be used as a tool to support specific industries or sectors, such as by reducing tariffs on raw materials to support domestic manufacturing. In general, zero or reduced tariffs can help to make imported goods more affordable and can provide benefits to both importing and exporting countries.

Some examples of zero or reduced tariff:

·        Trade agreement with the UK and the country importing or exporting to. To check the list of these agreements please click this link https://www.gov.uk/government/collections/the-uks-trade-agreements

·        Special exception, such as relief or tariff suspension like relief measure because of COVID19 ( https://www.gov.uk/guidance/pay-no-import-duty-and-vat-on-medical-supplies-equipment-and-protective-garments-covid-19 )

·        the goods come from developing countries covered by the Generalised Scheme of Preferences (https://www.gov.uk/government/publications/trading-with-developing-nations )

·        Importing goods covered by a tariff-rate quota (TRQ). If there’s a TRQ for your product, you can apply to import a limited amount at a zero or reduced rate of customs duty. If this limit is exceeded, a higher tariff rate applies. Some tariff-rate quotas are only applicable to products imported from a specified country (https://www.gov.uk/government/publications/reference-documents-for-the-customs-tariff-quotas-eu-exit-regulations-2020 )

·        Additional duties on goods originating in red listed countries, like Russia, Belarus… (https://www.gov.uk/guidance/additional-duties-on-goods-originating-in-russia-and-belarus )

Anti-dumping and anti-subsidy trade remedy measures

Anti-dumping and anti-subsidy trade measures are tools that countries can use to combat unfair trade practices. Anti-dumping measures are used in situations where a foreign company sells a product in the domestic market at a price lower than the price of the same product in the domestic market of the exporting country. This can happen when a foreign company tries to drive domestic competitors out of business by undercutting their products at artificially low prices. Anti-dumping measures usually involve the imposition of additional taxes (customs duties) on imported goods to ensure a level playing field and protect the domestic industry from unfair competition.

 Anti-subsidy measures, on the other hand, are used in situations where a foreign company receives financial support or subsidies from its government that give it an unfair advantage over domestic competitors. This may include, for example, subsidies for raw materials, production costs or exports. Anti-subsidy measures usually involve imposing additional taxes on imported goods to offset the subsidy and create a level playing field.

 Both anti-dumping and anti-subsidy measures are designed to protect domestic industry from unfair competition and to promote fair and open international trade. These measures can be complex and are usually implemented and monitored by the government agency responsible for trade control in a particular country.

The types of tariffs

There are several different types of tariffs that can be used in international trade. Some of the most common types of tariffs include:

·        Ad valorem tariffs: These are tariffs that are levied as a percentage of the value of the goods being traded. For example, a 10% ad valorem tariff would be applied to a good worth ￡100, resulting in a tariff of ￡10. Ad valorem tariffs are often used for a wide range of goods, and they are designed to be easy to calculate and administer.

·        Specific tariffs: These are tariffs that are levied as a fixed amount per unit of the good being traded. For example, a tariff of ￡5 per ton of steel would be a specific tariff. Specific tariffs are often used for goods that are difficult to value, such as raw materials or agricultural products.

·        Compound tariffs: These are tariffs that combine both ad valorem and specific tariffs. For example, a tariff of ￡5 per ton of steel plus 10% of the value of the steel would be a compound tariff. Compound tariffs can be used to provide a more tailored tariff rate for a specific good or group of goods.

·        Most-favoured-nation (MFN) tariffs: These are tariffs that are applied to all goods imported from countries that do not have a preferential trade agreement with the importing country. MFN tariffs are designed to ensure that all countries are treated equally in terms of tariff rates, and they are often used as a default tariff rate for goods from countries that do not have a special trade agreement.

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