Finance Mom 1200

specific tariffs, the duty would be the same.

Another advantage of an ad valorem tariff is that it tends to maintain a constant degree of protection for domestic producers during periods of changing prices. If the tariff rate is a 20 percent ad valorem and the imported product price is $200, the duty is $40. If the product’s price increases, say, to $300, the duty collected rises to $60; if the product price falls to $100, the duty drops to $20. An ad valorem tariff yields revenues proportionate to values, maintaining a constant degree of relative protection at all price levels. An ad valorem tariff is similar to a proportional tax in that the real proportional tax burden or protection does not change as the tax base changes. In recent decades, in response to global inflation and the rising importance of world trade in manufactured products, ad valorem duties have been used more often than specific duties.

The determination of duties under the ad valorem principle at first appears to be simple, but in practice it has suffered from administrative complexities. The main problem has been trying to determine the value of an imported product, a process referred to as customs valuation. Import prices are estimated by customs appraisers, who may disagree on product values. Moreover, import prices tend to fluctuate over time, which makes the valuation process rather difficult.

Another customs-valuation problem stems from variations in the methods used to determine a commodity’s value. For example, the United States has traditionally used free-on-board (FOB) valuatio