International trade- tariffs Research Paper Example | Topics and Well Written Essays - 1750 words

International trade- tariffs - Research Paper Example Such tariffs levied on the import of good are called the import tariff. Another kind of tariff which is not very common is called the export tariff. It is levied on exported products. Ghana imposed a tax on the export of cocoa. The OPEC (Organization of the Oil Producing Countries) once imposed export tax on oil to generate revenue and also artificially create a scarcity of oil in the international markets to increase the price of the product. A more important purpose of tariffs is to produce revenue for the government. A revenue tariff may be on export or import, depending on the trade policy of the government. But in modern times when international trade has a huge impact on the economy of a country, the most important role of tariffs is for protection purpose. Different Types of Tariffs Tariffs can be classified into three categories – the specific tariff, the ad valorem tariff and the compound tariff. Each kind of tariff has their own pros and cons we shall discuss them br iefly. Specific tariff is fixed amount of money taxed on each unit of the imported goods. The advantage of this kind of tariff is that it can be very easily calculated on the standard goods that are regularly imported. However the degree of protection that this kind of tariff offers varies inversely with the price of the good in the international market. ... In such cases the domestic industry has to supply the domestic market with less expensive good to win back the consumers. But in times of depression the prices of goods in the world market falls. In such a situation the domestic markets are better protected by the specific tariff. Specific tariffs help the domestic industries against the foreign producers who reduce their prices as the extra price the domestic consumer has to pay for foreign good. Ad valorem tariff is a tax levied as a fixed percentage of the value of the imported good. Ad valorem tariff is more proportionate and progressive than specific tariff. For a slight improvement in the product which is reflected in its price a higher price needs to be paid. For example if Ad valorem tariff rate for a country is 10% then tariff for $200 iPod will be $20. For a slightly higher version of an iPod worth $220 the tariff will proportionately higher at $22. Furthermore, ad valorem rate of tariff ensures that there is a constant pro tection for the domestic industries through periods of fluctuating price. However ad valorem tariffs generate revenue for the government that is proportional to the value of imports. Therefore the government revenue may also fluctuate with price fluctuation. Another difficulty of imposing ad valorem tariff is the problem of evaluation. The evaluation of the value of the good poses a difficulty for the customs appraisers. The difficulty increases due to constant fluctuation of prices of goods in the world market. (Helpman and Krugman). Sometimes compound tariff rates are also preferred by the countries. This kind of tariff consists of a specific component and an ad valorem component. The specific tariff is used to negate the disadvantage of cost faced by the domestic producers of finished