Duties, Ad Valorem and Specific
DUTIES, AD VALOREM AND SPECIFIC
DUTIES, AD VALOREM AND SPECIFIC. Duties are levied upon imports, ad valorem as a percentage of their price and specific as a fixed amount per unit. Both are a source of revenue for the government. Ad valorem duties provide the least protection when imports are inexpensive; conversely, protection is greatest when imports are expensive and therefore fall in volume. Specific duties prevent a reduction in revenue when prices fall so they were often favored for commodities which have unstable prices. Customs administrators generally prefer specific rather than ad valorem duties, in particular because of the difficulty in determining the correct value of the latter. Ad valorem duties are also much easier to evade.
The first United States tariff act, passed in 1789, used both ad valorem and specific duties, but they were mostly low. The tariff act of 1816 was more explicitly protectionist and extended the range of specific duties. The rates in the Walker Tariff Act of 1846 and The Tariff Act of 1857 were entirely ad valorem. The Morrill Tariff Act of 1861 restored many specific duties and in the long era of protectionism that ensued, they were largely retained.
The framers of the Wilson Tariff Act of 1894 unsuccessfully attempted to substitute ad valorem rates for many of the specific duties. In the Dingley Tariff Act of 1897 and The Payne-Aldrich Tariff Act Of 1909 there was a clear trend toward more numerous and more detailed specific duties. The tariff act of 1897 adopted the former practice of combining specific compensatory duties and ad valorem protective duties. Under this act commodity duties were raised to the highest average level of the nineteenth century. Specific compensatory duties are intended to compensate manufacturers for the higher cost of raw materials, insofar as such higher cost is caused directly by the tariff.
The tariff act of 1909 replaced many ad valorem with specific duties. Changes from specific to ad valorem rates, however, were a characteristic of the Underwood Tariff Act of 1913. In the Emergency Tariff Act of 1921 the duties were specific, with the exception of ad valorem duties on cattle, prepared or preserved meat, wheat flour and semolina, and cheese. A significant characteristic of the Fordney-McCumber Tariff Act of 1922 was the frequency of the compound duty, a combination of specific and ad valorem duties.
In the Smoot-Hawley Tariff Act of 1930, most duties were specific. Under the act duties reached a historic equivalent average ad valorem peak of 41 percent. The Roosevelt administration believed that the Smoot-Hawley tariff was exacerbating the Great Depression. The Trade Agreements Act of 1934 empowered the president to negotiate reductions in duties.
After World War II the United States used the General Agreement on Tariffs and Trade (GATT), created in 1947, to persuade the rest of the world to liberalize trade. At home, the trade acts of 1962, 1974, 1984, and 1988 resulted in substantial tariff rate reductions and movement to an equal balance between specific and ad valorem duties. In the international agreement of 1994 to replace GATT with the World Trade Organization, the United States agreed to further trade liberalization. However, that has not prevented the occasional use of ad valorem anti-dumping duties against particular imports.
Ratner, Sidney. The Tariff in American History. New York: Van Nostrand, 1972.
Salvatore, Dominick. International Economics. 7th ed.. New York: Wiley, 2001.
Taussig, F. W. The Tariff History of the United States. 8th ed. New York: Putnam's, 1931.
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