Tariffs and Import duties

Tariffs and Import duties


• Tariffs and custom duties are taxes imposed by the government on imported goods entering the domestic market. These taxes also include freight charges and insurance for those goods.
• Ultimately, different tariffs and import duties are applied differently by different government depending on the nature of the import.
• The most fundamental effect of tariffs and import duties is that they increase the cost of the imported product in the domestic market and has potential to affect the competitiveness similar locally produced commodities.
• A tariff-induced increase in price has the effect of creating a gap in prices between the exporting and importing countries.
• Basically, the net cost on the side of the importing country is equal to “cost to consumers minus profits to producers minus government revenues.” In essence, this is the efficiency loss as a result of distortions in the pricing system and profits gained from improved terms of trade which is brought about by lowered international prices.

The Australian Manufacturing Sector
• Australia waives tariffs and import duties to all the goods believed to compete unfairly with goods manufactured in Australia.
• For the last one decade the rates have been at an average of rate of 3.5%.
• Australian manufactured products that are believed not to compete with the imported goods enter at a rate of about 3% only if they were previously manufactured there or attract a duty free charge if they were never manufactured at all
• Dumping duty of 20% is imposed on imported products that are believed to compete unfairly with locally manufactured goods. These measures are instrumental and they have prompted investments, developed a large skill base and jobs which is essential for developing industry.
• The policies played a significant role in import replacement and thus creating job opportunities.
• High import duties and tariffs can be attributed to the unattractiveness of investment in the Australia manufacturing sector.
• Restrictions, import duties and tariffs have widened the margins between the cost of importing raw materials and the market prices for the finished goods.
• Manufacturers in Australia believe that tariffs help compensate for operational cost penalties to support what may otherwise be uncompetitive activities.
• Note that the higher the tariff the higher the disincentive for Australian manufacturers to consider exporting goods to markets where they anticipate prices are below those prevailing in the domestic market
• Import tariffs inflates prices to consumers and reduce their disposable incomes, the impact extends to increasing the competitiveness of the local industries
• Persistent application of tariffs stimulates regional investments and growth of commercial enterprises.
• Tariffs and duties serve as sources of revenue to the government, protect local infant industries and help remedy the economy from trade distortions

Indonesian agricultural sector
• In 2011, Indonesia had an average applied tariffs of 7%, however, the country has been periodically revising import duties and tariffs for agricultural products
• There is a large gap between the applied and bound tariffs which creates a lot of uncertainty for any foreign companies and businesses aiming at investing in Indonesia
• Importers believe that reduction of import duties for agricultural and manufactured goods can increase market accessibility opportunities in Indonesia.
• Indonesia has a very extensive preferential trade area relationship with many countries and stands to benefit from lower tariffs and collective bargaining power. Indonesia has stringent import requirements including permit requirements, import licensing, pre shipment assessments, product labeling and quantitative import restrictions.
• Aimed at protecting the domestic agricultural sector from unhealthy competition especially from imported products.
• The Indonesian government regularly suspends or adjusts import duties for importation of food products such as rice, wheat and soybeans in an effort to curb inflation and respond to civil unrest.
• When global prices for food products hiked last year the government zero rated soybean import tariffs.

Brazilian energy sector
• Brazil is working on a strategic plan to reduce import tariffs in the energy sector so as to help industries cut down on cost and offset the effect of depreciation of the domestic currency against the dollar
• By the start of 2013 the Brazilian government unilaterally scraped out the 20% import duty on ethanol imports.
• Move that will help Brazil build a global marketplace for biofuels especially those imported from the U.S
• Brazil is leading by example through zero rating import duties and tariffs for importation of clean and renewable fuels.
• Brazilian Chamber of Foreign Trade proposes that the government should make the zero rated tariffs permanent to encourage importation and help reduce cost of production. Brazil is a good investment destination since the cost of production is also low as a result of lowered fuel prices.
• It stands to reap a net gain of about $ 356 million dollars as a result of eliminating import duties to zero
• According to Rogers 2012 et al, “The best way to cut energy costs and reduce global dependence on oil is to give consumers more choices and make providers of different energy sources compete in open markets,â€
• The previous 20% tariff on ethanol imports was a setback for importation.
• It is expected that by the end of 2013, the zero rated tariff on ethanol will open markets and essentially expand the consumption of ethanol which will transform it into a global source of energy
• Importers to enjoy the tax relieves must register with the Brazilian Secretariat of Foreign Trade (SECEX) to be able to access all the computerized trading documentation system.
• Except for ethanol, the government employs administrative bottlenecks to make it difficult to import goods from countries like China, Africa and sometimes the U.S.
• This is a measure that the government is using to discourage importation of some products that are manufactured locally so as to avoid unnecessary competition with the foreign made goods.
• Importers face high dumping duties especially if the government realizes that their products are trading cheaply in Brazil than the country of origin

• It has been established that import duties and tariffs are an important source of revenue for developing countries.
• Employing import duties and tariffs stimulate growth for infant industries and protect the less developed economies from dumping caused by flooding of subsidized imports from developed nations.
• In a nutshell, import duties, tariffs and other protectionist measures play a critical role in economic development of Brazil, Indonesia and Australia.


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