Wednesday, January 12, 2005

Tariffs and Taxes

A tax is a general word that describes any fee charged for a government on any type of transaction. It is a general word that has no specific use in trade.

A tariff is a tax levied by a government on goods imported into its country. This is also known as an import duty. This tax may be computed based on the value of the goods, a unit of measurement (a dimension or quantity), or a combination of the two. Tariffs may also depend on where the goods are coming from. Remember all that buzz about China entering the WTO? WTO members enjoy lower tariffs when their goods enter the United States than non-members. In some cases the difference is quite large - like 2% versus 60%. No wonder WTO accession is such a big deal!

Also, note that some countries enjoy specific penalties or priveledges. Vietnam gets special breaks on exporting textiles to the United States that are much better than those enjoyed by standard WTO members. These breaks are typically used to help developing countries develop industry and create jobs. There is also the opposite - penaties imposed on specific countries to punish price dumping or other unwanted behavior. This type of action is called a sanction and may involve a percentage penalty or the complete dissolution of trade in one or more categories with a country.

If you want to lookup complete information on the tariffs and other taxes imposed by a country, you have to find where they publish this information and lookup your goods, cross-referencing the country of origin. For the U.S. this can be done here. Be forewarned - it isn't organanized very well. To find a specific item you will either already need to know what Chapter it is in, or you will have to download the .pdf files for all Chapters and then search from within Acrobat. If you want general FAQ on import/export duties there is one here.

Also note that the E.U. charges a VAT (or Value Added Tax) in addition to a tariff. If you export to the E.U. you will have to pay both. It is typically much, much more expensive to get goods into the E.U. than the United States.

One last thing to keep in mind - occasionally countries put an export tax on certain items. This is often done to avoid protective tariffs from other countries. For example, if the U.S. is concerned that cheap cotton shirts from China are damaging U.S. firms, it may threaten to start charging a specific duty on cotton shirts from China. In response, China could charge an export tax on these items destined for the U.S. This would raise the price for U.S. buyers of the Chinese shirts, but the tax would go to China instead of to the U.S. This is a typical type of situation, and the WTO is involved in resolving hundreds of disputes like this.

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