4. Under what laws and through what agencies was American trade controlled during the World War? Illustrate their working. Compare with war trade control in some other country. LIPPINCOTT, Chs. 5 and 6; CLARK, HAMILTON, AND MOULTON, 272-300; Amer. Hist. Rev., October, 1920, pp. 54-76; Report of U. S. War Trade Board, June 30,

1919.

5. Outline the system of government control of foreign trade in Soviet Russia. Commerce Reports, May 15, 1922, PP. 444-445; July 17, 1922, pp. 201-203.

CHAPTER VII

FORMS AND BASES OF DUTIES

Introduction.

As already stated, there are two basic forms of customs duties ad valorem and specific. The former are based on values and measured in percentages. Thus in the American tariff act we find that post cards pay a thirty per cent ad valorem duty when imported, which means that for every dollar's worth brought into this country the government exacts a payment of thirty cents. Specific duties are those based upon a unit of weight or measure and are measured in payments per pound, ton, kilogram, dozen, quart, liter, etc. In the American tariff law, for example, lemons pay an import duty of two cents per pound. Sometimes there is a combination of both kinds of duties; such combinations are spoken of as compound (or mixed) duties. Writing paper, for instance, imported into the United States pays a duty of three cents per pound and fifteen per cent ad valorem.1

Compound duties are rare except in the United States. Specific rates of duty are most largely used on the Continent of Europe and in certain other countries including Chile, Peru, and Mexico. The ad valorem form is conspicuous in many backward countries throughout the world; British colonies use it as does Great Britain in her newer duties; and it reaches its highest development in the United States, although here, as in Japan, specific rates are also found in large number. The ad valorem duty can be enacted readily by the legislative body, and in theory it is eminently fair; but, to apply 1 For discussion of "mixed" duties, see GREGORY, Tariffs, 127-131.

it properly, a highly organized, expert, and costly administrative system must be built up. The world tendency before the war was clearly in the direction of specific rates because of the ease of their application. But specific duties fail to keep in alignment with the currency. In the face of the general increase in prices and of the growth of governmental expenditures, the revenue produced by such duties remained unchanged. So even France has found it advisable to introduce many ad valorem rates into a system which before the war was limited almost entirely to specific rates.

Advantages and Disadvantages of Ad Valorem Duties. The principal advantage of ad valorem rates is their adaptability to changing market conditions. The amount of the duty increases or diminishes with the rise or fall in the price of the imported articles. Likewise the finer or higher-priced goods pay proportionally the same as the lower grades. The duty is thus equitable when properly applied. There are, however, many serious disadvantages in the use of ad valorem rates. They are difficult and expensive to administer, both because of the temptations of importers to undervalue their goods in order to escape the full payment of duties and because of the large number of expert officials required to determine properly the various rates of duties.1 Many opportunities for fraudulent practices are open not only to importers but to government officials and, although very severe penalties have been enacted to overcome these evils,2 they have not proved entirely effective. One of the difficulties in applying ad valorem duties is the determining of a correct value basis as expressed in price. Should the latter be the price at the

1 In the United States, undervaluation is discouraged by a simple rule. If the appraiser raises the value above that declared by x per cent, an additional duty of x per cent is imposed. Thus, if the declared value is $100, the rate 25 per cent, and the appraised value $105, the duty will be $105 times 25 per cent (i.e. $26.25) plus $105 times 5 per cent (i.e. $5.25); total, $31.50. See Tariff Act of 1922, Sec. 489.

* See Tariff Act of 1922, Sec. 591; Tariff Act of 1913, Sec. III, Pars. G and H; U. S. Tariff Commission, Report on the Revision of Customs Administrative Laws, pp. 18-19, 108-109, 176–177.

place of purchase, at the port of departure, or at the port of entry? Should the price include storage, packing, or transportation costs? Should it be the wholesale or the retail price?

Ad Valorem Duties: Basis of Valuation. (a) Import Value. In most countries the value used as a basis for calculating ad valorem rates of duty is theoretically the value of goods at the port of importation, but methods of determining the value at such ports vary widely. In some cases the value is arrived at by adding to the current domestic value at the place of exportation a certain percentage (Australia, e.g. ten per cent) to cover ocean transportation and insurance; in other cases, by adding a similar percentage to the invoice value when such value does not include freight and insurance. In the absence of an invoice or when the correctness of the invoice is questioned, the basis is sometimes determined by making a deduction from the wholesale (duty-paid) price at the port of entry.

(b) Export Value. In the United States, as in Cuba, Dominican Republic, Panama, Newfoundland, Canada, and the Union of South Africa, the basis taken has commonly been the value at the place of exportation, usually including the cost of packing and other expenses incident to preparing the goods for shipment and sometimes with the express stipulation that the dutiable value shall not be less than the current value for home consumption at the place of purchase.

(c) Official Value. In a few countries ad valorem rates are assessed, not upon the actual value of particular shipments at all, but upon fixed schedules of values officially assigned to commodities which are subject to ad valorem duties, purely for duty-assessment purposes. This method is characteristic of the so-called valuation tariffs of Argentina, Bolivia, Paraguay, and Uruguay. An ad valorem rate is established in the tariff law for each of several large groups of commodities,

e.g. drugs, paints, oils, and chemicals"; and then from time to time official value is given to each commodity falling within that group, by the Executive either with or without the assent of the Legislature as the law of the country may prescribe. These official valuations are usually changed infrequently, and they bear no definite relation to actual market prices. The duties therefore, while ad valorem in form, are really specific in effect. Somewhat similar practice in tariff matters seems to have been usual in Europe a century ago and later, but to-day it is rarely followed except in South America. Even there the tendency is to replace it by specific duties, as has already been done in Peru and Chile.1

In connection with the recent revision of the American tariff, much prominence was given to a proposed " American valuation plan " which involved the abandonment of export value as the basis for assessing ad valorem duties and, as originally formulated, the substitution primarily of the wholesale price of comparable or competitive products of the United States. in the principal markets of this country. Among the arguments advanced in its support were uniformity of rate upon a given commodity irrespective of the country whence imported; greater simplicity and definiteness in fixing valuations especially "in these days of chaos in foreign exchange when foreign values expressed in the terms of foreign currencies fluctuate from day to day "; saving of large amounts of revenue now lost through undervaluation; and more adequate and dependable protection to American industry. On the other hand, it was contended that the plan would lead to confusion in customs administration; render foreign-trade business highly speculative and precarious since importers would not know what duties to expect; tend to make our tariffs prohibitive; unduly check imports and, in turn, cur

1 GREGORY, Tariffs, 131-133. The Brazilian tariff has certain peculiar features which are apparently a survival from an older valuation tariff; see RUTTER, Tariff Systems of South America.