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1.8 Appendix A: Selected U.S. Tariffs—2009

Table 1.2 "Special Tariff Classifications in the United States" contains a selection of the U.S. tariff rates specified in the 2009 U.S. Harmonized Tariff Schedule (HTS). The complete U.S. HTS is available at the U.S. International Trade Commission Web site (http://www.usitc.gov).

Table 1.2 Special Tariff Classifications in the United States

Symbol Description
A, A∗, A+ Generalized System of Preferences (GSP)
AU U.S.-Australia free trade area (FTA)
B Automotive Products Trade Act
BH U.S.-Bahrain FTA
C Agreement on Civil Aircraft
CA, MX North American Free Trade Agreement (NAFTA): Canada and Mexico
CL U.S.-Chile FTA
D African Growth and Opportunity Act (AGOA)
E Caribbean Basin Economic Recovery Act
IL U.S.-Israel FTA
J, J∗, J+ Andean Trade Preference Act
JO U.S.-Jordan FTA
K Agreement on Pharmaceuticals
P, P+ CAFTA-DR FTA
PE U.S.-Peru FTA
MA U.S.-Morocco FTA
OM U.S.-Oman FTA
R U.S.-Caribbean Trade Partnership Act
SG U.S.-Singapore FTA

The tariff schedule in Table 1.3 "Selected Tariffs in the United States, 2009" displays four columns. The first column gives a brief description of the product. The second column shows the product classification number. The first two numbers refer to the chapter, the most general product specification. For example, 08 refers to chapter 8, “Edible fruit and nuts; peel of citrus fruit or melons.” The product classification becomes more specific for each digit to the right. Thus 0805 refers more specifically to “Citrus fruit, fresh or dried.” The code 0805 40 refers to “Grapefruit,” and 0805 40 40 refers to “Grapefruit entering between August 1 and September 30.” This classification system is harmonized among about two hundred countries up to the first six digits and is overseen by the World Customs Organization.

The third column displays the “General Rate of Duty” for that particular product. This is the tariff that the United States applies to all countries with most-favored nation (MFN) status, or as it is now referred to in the United States, “normal trade relations” (NTR). The status was renamed NTR to provide a more accurate description of the term. One provision in the U.S. GATT/WTO agreements is that the United States promises to provide every WTO member country with MFN status. As a matter of policy, the United States also typically grants most non-WTO countries the same status. For example, as of 2009, Russia was not a member of the WTO, but the United States applied its NTR tariff rates to Russian imports.

The final column lists special rates of duty that apply to select countries under special circumstances. For each product, you will see a tariff rate followed by a list of symbols in parentheses. The symbols indicate the trade act or free trade agreement that provides special tariff treatment to those countries. A complete list of these is shown in Table 1.2 "Special Tariff Classifications in the United States". Symbols that include a “+” or “∗” generally refer to special exceptions that apply for some countries with that product.

In the standard U.S. tariff schedule, there is one additional column labeled “2.” This is the U.S. non-MFN tariff, meaning essentially the nonspecial tariffs. Many of these tariff rates, especially for product categories that have been around for a long time, are holdovers from the Smoot-Hawley tariffs set in the Tariff Act of 1930. They are significantly higher than the standard MFN tariffs in column 1 but apply to only two countries: Cuba and North Korea.

Table 1.3 Selected Tariffs in the United States, 2009

Description HTS Code MFN/NTR Tariff Special Tariff
Cauliflower, broccoli 0704.10.20 2.5% (June 5–Oct. 25) Free (A,AU,BH,CA,CL,E,IL,J,JO,MA,MX,OM,P,PE,SG)
0704.10.40 10% (Other, not reduced in size) Free (A,AU,BH,CA,CL,E,IL,J,JO,MA,MX,OM,P,PE,SG)
0704.10.60 14% (Cut or sliced)

Free (A,BH,CA,CL,E,IL,J,JO,MA,MX,OM,P,PE)

7% (AU)

3.5% (SG)

Grapefruit, incl. pomelos 0805.40.40 1.9¢/kg (Aug.–Sept.) Free (AU,BH,CA,D,E,IL,J,JO,MA,MX,OM,P,PE,SG)
0805.40.60 1.5¢/kg (Oct.)

Free (CA, CL, D, E,IL,J,JO,MX,P,PE, SG)

1¢/kg (AU)

0.9¢/kg (BH)

1.1¢/kg (MA)

1.2¢/kg (OM)

0805.40.80 2.5¢/kg (Nov.–July)

Free (CA, D, E, IL, J, JO, MX, P, PE)

1.8¢/kg (AU,MA)

1.5¢/kg (BH)

1¢/kg (CL,SG)

2.2¢/kg (OM)

Grapes, fresh 0806.10.20 $1.13/m3 (Feb. 15–Mar. 31) Free (A+,AU,BH,CA,CL,D,E,IL,J,JO,MA,MX,OM,P,PE,SG)
0806.10.40 Free (Apr. 1–June 30)
0806.10.60 $1.80/m3 (any other time) Free (A+,AU,BH,CA,CL,D,E,IL,J,JO,MA,MX,OM,P,PE,SG)
Ceramic tableware; cups valued over $5.25 per dozen; saucers valued over $3 per dozen; soups, oatmeals, and cereals valued over $6 per dozen; plates not over 22.9 cm in maximum diameter and valued over $6 per dozen; plates over 22.9 but not over 27.9 cm in maximum diameter and valued over $8.50 per dozen; platters or chop dishes valued over $35 per dozen; sugars valued over $21 per dozen; creamers valued over $15 per dozen; and beverage servers valued over $42 per dozen 6912.00.45 4.5%

Free (A+,AU,CA,CL,D,E,IL,J, JO,MX,P,PE,SG)

2.7% (BH)

2.4% (MA)

4% (OM)

Motor cars principally designed for the transport of persons, of all cylinder capacities 8703.2x.00 2.5% Free (A+,AU,B,BH,CA,CL,D,E,IL,J,JO,MA,MX,OM,P,PE,SG)
Motor vehicles for the transport of goods (i.e., trucks), gross vehicle weight exceeding 5 metric tons but less than 20 metric tons 8704.22.50 25%

Free (A+,AU,B,BH,CA,CL,D,E,IL,J,MA,MX,OM,P,PE)

2.5% (JO)

10% (SG)

Bicycles having both wheels not exceeding 63.5 cm in diameter 8712.00.15 11%

Free (A+,AU,BH,CA,CL,D,E,IL,J,JO,MA,MX,OM,P,PE)

1.3% (SG)

Cane sugar 1701.11.05 1.4606¢/kg less 0.020668¢/kg for each degree under 100 degrees but not less than 0.943854¢/kg Free (A∗,AU,BH,CA,CL,E∗,IL,J,JO,MA,MX,OM,P,PE,SG)
Sports footwear: tennis shoes, basketball shoes, gym shoes, training shoes and the like: having uppers of which over 50% of the external surface area is leather 6404.11.20 10.5%

Free (AU,BH,CA,CL,D,E,IL,J+,JO,MA,MX,OM,P,PE,R)

1.3% (SG)

Golf clubs 9506.31.00 4.4% Free (A,AU,BH,CA,CL,E,IL,J,JO,MA,MX,OM,P,PE,SG)
Wristwatches 9101.11.40 51¢ each + 6.25% on case and strap + 5.3% on battery Free (AU,BH,CA,CL,D,E,IL,J,J+,JO,MA,MX,OM,P,PE,R,SG)
Fax machines 8517.21.00 Free
Coffee, caffeinated 0901.21.00 Free
Tea, green tea, flavored 0902.10.10 6.4% Free (A,AU,BH,CA,CL,E,IL,J,JO,MA,MX,OM,P,PE,SG)

The products presented in Table 1.3 "Selected Tariffs in the United States, 2009" were selected to demonstrate several noteworthy features of U.S. trade policy. The WTO reports in the 2006 U.S. trade policy review that most goods enter the United States either duty free or with very low tariffs. Coffee and fax machines are two goods, shown above, representative of the many goods that enter duty free. The average MFN tariff in the United States in 2002 was about 5 percent, although for agricultural goods the rate was almost twice as high. About 7 percent of U.S. tariffs exceed 15 percent; these are mostly sensitive products such as peanuts, dairy, footwear, textiles, and clothing. The trade-weighted average tariff in the United States was only about 1.5 percent in 2003.

One interesting feature of the tariff schedule is the degree of specificity of the products in the HTS schedule. Besides product type, categories are divided according to weight, size, or the time of year. Note especially the description of ceramic tableware and bicycles.

Tariffs vary according to time of entry, as with cauliflower, grapefruit, and grapes. This reflects the harvest season for those products in the United States. When the tariff is low, that product is out of season in the United States. Higher tariffs are in place when U.S. output in the product rises.

Notice the tariffs on cauliflower and broccoli. They are lower if the vegetables are unprocessed. If the product is cut or sliced before arriving in the United States, the tariff rises to 14 percent. This reflects a case of tariff escalation. Tariff escalation means charging a higher tariff the greater the degree of processing for a product. This is a common practice among many developed countries and serves to protect domestic processing industries. Developing countries complain that these practices impede their development by preventing them from competing in more advanced industries. Consequently, tariff escalation is a common topic of discussion during trade liberalization talks.

Tariff rates also vary with different components of the same product, as with watches. Note also that watches have both specific tariffs and ad valorem tariffs applied.

Notice that the tariff on cars in the United States is 2.5 percent, but the tariff on truck imports is ten times that rate at 25 percent. The truck tariff dates back to 1963 and is sometimes referred to as the “chicken tax.” It was implemented primarily to affect Volkswagen in retaliation for West Germany’s high tariff on chicken imports from the United States. Today, Canada and Mexico are exempt from the tariff due to NAFTA, and Australia will also be exempt with the new U.S.-Australia FTA. The truck tax is set to be a contentious issue in current U.S.-Thailand FTA discussions.

The tariff rates themselves are typically set to several significant digits. One has to wonder why the United States charges 4.4 percent on golf clubs rather than an even 4 percent or 5 percent. Much worse is the tariff rate on cane sugar with six significant digits.

The special tariff rates are often labeled “free,” meaning these goods enter duty-free from that group of countries. Note that Chile and Singapore sometimes have tariff rates in between the MFN rate and zero. This reflects the FTA’s phase in the process. Most FTAs include a five- to fifteen-year phase-in period during which time tariffs are reduced annually toward zero.

One thing to think about while reviewing this tariff schedule is the administrative cost of monitoring and taxing imported goods. Not only does the customs service incur costs to properly categorize and measure goods entering the country, but foreign firms themselves must be attuned to the intricacies of the tariff schedule of all the countries to which they export. All of this requires the attention and time of employees of the firms and represents a cost of doing business. These administrative costs are rarely included in the evaluation of trade policies.

An administratively cheaper alternative would be to charge a fixed ad valorem tariff on all goods that enter, much like a local sales tax. However, for political reasons, it would be almost impossible to switch to this much simpler alternative.

Exercise

  1. Jeopardy Questions. As in the popular television game show, you are given an answer to a question and you must respond with the question. For example, if the answer is “a tax on imports,” then the correct question is “What is a tariff?” [Note: the following exercises are meant to provide practice in reading and interpreting the U.S. tariff schedule.]

    1. The 2009 MFN tariff rate on imported broccoli that has been processed by cutting or slicing before shipping.
    2. The allowable diameter range for ceramic plates valued over $8.50 under HTS code 6912.00.45.
    3. The 2009 U.S. tariff on truck imports from Singapore.
    4. The 2009 MFN tariff on cauliflower that entered the U.S. in November.
    5. The 2009 U.S. tariff on golf clubs from Israel.