What is a tariff?

 

Tariffs are a type of barrier to trade, taking the form of a monetary penalty imposed on imported goods. They are designed to favour particular importing parties over others and are usually negotiated as part of international diplomacy.

You can learn about the legal framework that supports tariffs by visiting our pages on international trade law.

Tariffs are generally out of favour with the international community which promotes open trade and anti-protectionism. Whilst tariffs protect vulnerable or weak local industries and therefore local jobs and the local economy, they distort trade, leading to inefficiencies and higher prices for consumers.

Excessive tariffs also tend to encourage piracy and smuggling, resulting in an expanding unregulated black market.

Types of tariff

The main two types of tariffs are and 'ad valorem tariffs' and 'specific tariffs'.

Ad valorem is Latin for 'according to value'. Ad valorem tariffs are levied on goods on a percentage basis based on that good’s value. They will generally apply to particular classes of imported goods but in some circumstances might apply to all commercial trading except where specific exceptions are granted.

Contrastingly, specific tariffs are fixed fees levied on units of imported goods. They are generally fairly uniform in their application. However, they are usually goods specific, varying substantially for different types of goods, depending on the government’s current perception of the need for a particular industry to be protected.

Tariff rules

The General Agreement on Tariffs and Trade (GATT) is an international treaty made by the World Trade Organisation (WTO) which encourages and facilities anti-protectionism.

Under the GATT, quantitative restrictions such as taxes, tariffs, duties and export licences are to be eliminated. All Members must reveal and report all concessions and subsidies provided to domestic producers and businesses.

Furthermore, the ‘Most Favoured-Nation’ principle applies so that any trade concessions granted to one Member are applied immediately and without conditions to all other Members, and Members may not use internal measures to discriminate between domestic goods and those imported from Member states.

Before expanding your operations into other countries, you must be aware of their trade policies and the legal and financial implications. An international trade lawyer can investigate the tariffs or other protective measures that may apply to your particular type of good or service and the country with which you wish to trade.

If you wish to speak to a specialist lawyer dealing with tariff law, call us on 0800 1777 162 or fill in the web-form opposite to speak to an advisor.

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