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Description

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Instrument

Import tariff

Description

An import tariff is a tax on imports. While a specific tariff is imposed on a per unit basis (e.g. volume or weight), an ad valorem tariff is imposed as a percentage of the product’s value.

A tariff escalation is applied to secure or increase value creation in the domestic country. In this situation, raw materials are taxed at a low rate and the rate rises progressively on semi-finished goods, making imports of processed products less financially attractive.

When a group of countries forms a customs union, they reduce trade barriers between them and introduce common external tariffs on imports from countries outside the union. The challenge is to pitch the import tariffs at a level that is advantageous to all the countries in the customs union.

WTO members define a maximum permissible tariff rate (bound tariff) for every product (categorised according to the Harmonized Commodity Description and Coding System, HS Codes). The bound tariff can only be exceeded in exceptional cases (e.g. when safeguards are applied). However, lower tariff rates (applied tariffs) can be applied and are used by many countries. These tariffs can be increased at will up to the bound level.

There are several alternatives, depending on the intended effects of the tariff: tariff quotas can be applied to protect a sector, with safeguards, anti-dumping tariffs and countervailing duties used to achieve short-term protection. If the focus is on building up the domestic value chain, additional market and investment subsidies and flanking policy instruments are useful.

Requirements

  • A properly functioning country-wide administration and monitoring system with access to the relevant information and sufficient technical and human capacities for its design, implementation and monitoring
  • Clear and coherent political strategy and targets for policy-makers and public authorities
  • Close cooperation and knowledge sharing with research institutions
  • Compatible regional and world trade law (WTO conformity)
  • Constant market surveying and forecasting
  • Efficient customs administration
  • Market price information systems

Possible Negative Effects

  • Inefficient use of production resources/market distortion
  • Higher prices for consumers (loss of consumer surplus) and the processing industry (usually short-term)
  • Prices of complementary products could rise
  • Could hinder technical progress
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This page was last edited on 24 October 2019 | 14:50 (CEST)
Implementation Level
  • Competent Authority
  • National Government
Required Budget
low ($)
Impact Horizon
  • short
  • medium
  • long
Administrative Complexity
medium
Ministries Involved
  • Agriculture, Fisheries & Forests
  • Trade, Industry & Economic Development
  • Finance
Trade Impact
distorting
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