Duty

A duty is a tax on goods imported into a country, levied by the government and paid by the purchaser. Duties are commonly called tariffs. Duties vary by country of origin, country of import, and product type. Duties are usually levied as a fixed rate per unit of good (called “specific tariffs”) or as a percentage of the value of the good (called “ad valorem tariffs”). If the duty is calculated as both a rate per unit and a percentage of the good's value, it is called a “compound duty.”

Duties can be distinguished by where they are levied. Most duties are “import tariffs,” which are those levied as a good enters the destination country. If the duty is levied by the country of origin as it is exported, it is called an “export tariff.” For example, in 2004, China imposed an export tariff on 74 textile products to promote the use of these textiles within the country. Duties can also be levied by countries through which a good passes; these are called “transit tariffs.” Governments also levy duties on goods manufactured and sold within their country. For example, excise [Page 541]duties are commonly applied to alcoholic beverages, tobacco products, and fuel products such as gasoline, electricity, and coal.

Governments have several reasons to impose duties on products. First, duties act as indirect taxes on the consumption or the use of certain products. Duties raise the prices of imported goods, making them less competitive within the market of the importing country. As the price of these products increases, the demand decreases. By controlling price and demand, governments use duties to achieve the correct balance between supply and demand. Second, governments use duties to increase the cost of the good in an attempt to reduce consumption and importation of that good. In turn, these duties protect domestic industries producing the product by making imported goods more expensive than local. Also, by controlling the market for certain products, duties protect the cultural identity of the domestic country.

Third, duties raise revenues for the governments. Often, this revenue is used to pay for the enforcement of government regulations controlling the product and related industries. A government can also gain an economic advantage by collecting revenue from a good controlled by that country or in abundance in the country. Fourth, governments often have political motives for imposing duties. In the past, duties have been used to penalize the county of origin by effectively reducing their exports.

Lastly, duties can also be a tax to reduce the consumption of luxury (high-priced goods such as a boat) or socially forbidden goods (such as alcohol and tobacco). The efficacy of these duties is limited and some argue that they increase the likelihood of smuggling and the use of black markets. In response, some governments provide limited provisions for personal use, which has spawned the creation and growth of duty-free shops, and ports allowed personal purchase of a limited number of goods in the late 20th century.

Information about the duty amount each country levies is available from the U.S. Department of Commerce's International Trade Administration. The agency manages a Web site, http://www.export.gov, in collaboration with the 19 federal government agencies that provide export services. Duties are assessed using the Harmonized Commodity Description and Coding System (or Harmonized System), which is an internationally standardized system of commodity nomenclature and categorization.

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