Tax Refunds on Exports

Merchants and manufacturers are not contented with the monopoly of the home market, but desire likewise the most extensive foreign sale for their goods. Their country has no jurisdiction in foreign nations, and therefore can seldom procure them any monopoly there. They are generally obliged, therefore, to content themselves with petitioning for certain encouragements to exportation.

Merchants and manufacturers are not content with a monopoly in their home market. They also want to sell their goods as widely as possible abroad. Their country has no authority over foreign nations, so it can seldom secure a monopoly for them there. They must therefore usually settle for asking for incentives to export their goods.

Of these encouragements, what are called drawbacks seem to be the most reasonable. To allow the merchant to draw back upon exportation, either the whole, or a part of whatever excise or inland duty is imposed upon domestic industry, can never occasion the exportation of a greater quantity of goods than what would have been exported had no duty been imposed. Such encouragements do not tend to turn towards any particular employment a greater share of the capital of the country, than what would go to that employment of its own accord, but only to hinder the duty from driving away any part of that share to other employments. They tend not to overturn that balance which naturally establishes itself among all the various employments of the society, but to hinder it from being overturned by the duty. They tend not to destroy, but to preserve, what it is in most cases advantageous to preserve, the natural division and distribution of labour in the society.

Of these incentives, those called drawbacks seem the most reasonable. Drawbacks allow merchants to reclaim all or part of an excise tax or domestic duty on goods they export. They can never cause more goods to be exported than would have been exported without the duty. Such incentives do not tend to direct more of the country’s capital into a particular trade than would go there naturally. They only prevent the duty from driving some of that capital into other trades. They do not tend to upset the balance that naturally develops among the various trades in society. Instead, they prevent the duty from upsetting it. They do not tend to destroy the natural division and distribution of labor in society. Rather, they preserve it, which in most cases is advantageous.

The same thing may be said of the drawbacks upon the re-exportation of foreign goods imported, which, in Great Britain, generally amount to by much the largest part of the duty upon importation. By the second of the rules, annexed to the act of parliament, which imposed what is now called the old subsidy, every merchant, whether English or alien. was allowed to draw back half that duty upon exportation; the English merchant, provided the exportation took place within twelve months; the alien, provided it took place within nine months. Wines, currants, and wrought silks, were the only goods which did not fall within this rule, having other and more advantageous allowances. The duties imposed by this act of parliament were, at that time, the only duties upon the importation of foreign goods. The term within which this, and all other drawbacks could be claimed, was afterwards (by 7 Geo. I. chap. 21. sect. 10.) extended to three years.

The same may be said of drawbacks on imported foreign goods that are re-exported. In Great Britain, these refunds generally amount to by far the largest part of the import duty. The second rule attached to the act of parliament imposed what is now called the old subsidy. It allowed every merchant, whether English or foreign, to reclaim half that duty upon export. English merchants had to export the goods within twelve months. Foreign merchants had to export them within nine months. Only wines, currants, and worked silks were excluded from this rule. They received other, more advantageous allowances. At the time, the duties imposed by this act of parliament were the only duties on imported foreign goods. The period for claiming this and all other drawbacks was later extended to three years (by 7 Geo. I. chap. 21. sect. 10.).

The duties which have been imposed since the old subsidy, are, the greater part of them, wholly drawn back upon exportation. This general rule, however, is liable to a great number of exceptions; and the doctrine of drawbacks has become a much less simple matter than it was at their first institution.

Most duties imposed since the old subsidy are fully refunded when goods are exported. However, there are many exceptions to this general rule. The system of refunds, known as drawbacks, has become much less simple than when it was first introduced.

Upon the exportation of some foreign goods, of which it was expected that the importation would greatly exceed what was necessary for the home consumption, the whole duties are drawn back, without retaining even half the old subsidy. Before the revolt of our North American colonies, we had the monopoly of the tobacco of Maryland and Virginia. We imported about ninety-six thousand hogsheads, and the home consumption was not supposed to exceed fourteen thousand. To facilitate the great exportation which was necessary, in order to rid us of the rest, the whole duties were drawn back, provided the exportation took place within three years.

When some foreign goods were exported, all import duties were refunded, without even keeping half the old subsidy. This applied to goods expected to be imported in quantities far greater than needed for domestic consumption. Before the revolt of our North American colonies, we had a monopoly on tobacco from Maryland and Virginia. We imported about ninety-six thousand hogsheads, and domestic consumption was not thought to exceed fourteen thousand. The rest had to be exported in large quantities to clear it out. To make this easier, all duties were refunded, provided the tobacco was exported within three years.

We still have, though not altogether, yet very nearly, the monopoly of the sugars of our West Indian islands. If sugars are exported within a year, therefore, all the duties upon importation are drawn back; and if exported within three years, all the duties, except half the old subsidy, which still continues to be retained upon the exportation of the greater part of goods. Though the importation of sugar exceeds a good deal what is necessary for the home consumption, the excess is inconsiderable, in comparison of what it used to be in tobacco.

We still have a nearly complete monopoly on sugar from our West Indian islands. So if sugar is exported within a year, all import duties are refunded. If it is exported within three years, all duties are refunded except half the old subsidy. Half the old subsidy is still retained when most goods are exported. Although sugar imports exceed what is needed for domestic consumption by a good deal, the excess is small compared with what it used to be for tobacco.

Some goods, the particular objects of the jealousy of our own manufacturers, are prohibited to be imported for home consumption. They may, however, upon paying certain duties, be imported and warehoused for exportation. But upon such exportation no part of these duties is drawn back. Our manufacturers are unwilling, it seems, that even this restricted importation should be encouraged, and are afraid lest some part of these goods should be stolen out of the warehouse, and thus come into competition with their own. It is under these regulations only that we can import wrought silks, French cambrics and lawns, calicoes, painted, printed, stained, or dyed, etc.

Some goods that our manufacturers particularly fear as competition cannot be imported for use at home. However, they can be imported and stored in warehouses for export, if certain duties are paid. But none of these duties are refunded when the goods are exported. It seems our manufacturers do not want even this limited importation encouraged. They fear that some goods might be stolen from the warehouses and compete with their own. Only under these rules can we import woven silks, French cambrics and lawns, and calicoes that are painted, printed, stained, or dyed, etc.

We are unwilling even to be the carriers of French goods, and choose rather to forego a profit to ourselves than to suffer those whom we consider as our enemies to make any profit by our means. Not only half the old subsidy, but the second twenty-five per cent. is retained upon the exportation of all French goods.

We are unwilling even to carry French goods. We would rather give up a profit than help those we consider our enemies make one. When any French goods are exported, half the old subsidy and the second 25 percent are retained.

By the fourth of the rules annexed to the old subsidy, the drawback allowed upon the exportation of all wines amounted to a great deal more than half the duties which were at that time paid upon their importation; and it seems at that time to have been the object of the legislature to give somewhat more than ordinary encouragement to the carrying trade in wine. Several of the other duties, too which were imposed either at the same time or subsequent to the old subsidy, what is called the additional duty, the new subsidy, the one-third and two-thirds subsidies, the impost 1692, the tonnage on wine, were allowed to be wholly drawn back upon exportation. All those duties, however, except the additional duty and impost 1692, being paid down in ready money upon importation, the interest of so large a sum occasioned an expense, which made it unreasonable to expect any profitable carrying trade in this article. Only a part, therefore of the duty called the impost on wine, and no part of the twenty-five pounds the ton upon French wines, or of the duties imposed in 1745, in 1763, and in 1778, were allowed to be drawn back upon exportation. The two imposts of five per cent. imposed in 1779 and 1781, upon all the former duties of customs, being allowed to be wholly drawn back upon the exportation of all other goods, were likewise allowed to be drawn back upon that of wine. The last duty that has been particularly imposed upon wine, that of 1780, is allowed to be wholly drawn back; an indulgence which, when so many heavy duties are retained, most probably could never occasion the exportation of a single ton of wine. These rules took place with regard to all places of lawful exportation, except the British colonies in America.

Under the fourth rule attached to the old subsidy, the drawback allowed on exported wine was substantial. It amounted to far more than half the duties then paid on imported wine. The legislature seems to have intended to give the wine carrying trade somewhat more encouragement than usual. Several other duties could also be fully drawn back when wine was exported. These included the additional duty, the new subsidy, the one-third and two-thirds subsidies, the impost 1692, and the tonnage on wine. They were imposed either at the same time as the old subsidy or later. All these duties, however, except the additional duty and the impost 1692, were paid in cash upon importation. The interest on such a large sum created an expense. This made it unreasonable to expect a profitable carrying trade in wine. Therefore, only part of the duty called the impost on wine could be drawn back upon exportation. None of the duty of twenty-five pounds per ton on French wines could be drawn back. Nor could any part of the duties imposed in 1745, 1763, and 1778. The two five percent imposts imposed in 1779 and 1781 applied to all previous customs duties. They could be fully drawn back when all other goods were exported, and so they could also be drawn back on wine. The last duty imposed specifically on wine, that of 1780, can be fully drawn back. But so many heavy duties are retained that this concession could most probably never cause a single ton of wine to be exported. These rules applied to all places where exports were lawful, except the British colonies in America.

The 15th Charles II, chap. 7, called an act for the encouragement of trade, had given Great Britain the monopoly of supplying the colonies with all the commodities of the growth or manufacture of Europe, and consequently with wines. In a country of so extensive a coast as our North American and West Indian colonies, where our authority was always so very slender, and where the inhabitants were allowed to carry out in their own ships their non-enumerated commodities, at first to all parts of Europe, and afterwards to all parts of Europe south of Cape Finisterre, it is not very probable that this monopoly could ever be much respected; and they probably at all times found means of bringing back some cargo from the countries to which they were allowed to carry out one. They seem, however, to have found some difficulty in importing European wines from the places of their growth; and they could not well import them from Great Britain, where they were loaded with many heavy duties, of which a considerable part was not drawn back upon exportation. Madeira wine, not being an European commodity, could be imported directly into America and the West Indies, countries which, in all their non-enumerated commodities, enjoyed a free trade to the island of Madeira. These circumstances had probably introduced that general taste for Madeira wine, which our officers found established in all our colonies at the commencement of the war which began in 1755, and which they brought back with them to the mother country, where that wine had not been much in fashion before. Upon the conclusion of that war, in 1763 (by the 4th Geo. III, chap. 15, sect. 12), all the duties except £3, 10s. were allowed to be drawn back upon the exportation to the colonies of all wines, except French wines, to the commerce and consumption of which national prejudice would allow no sort of encouragement. The period between the granting of this indulgence and the revolt of our North American colonies, was probably too short to admit of any considerable change in the customs of those countries.

The Act of 15 Charles II, chapter 7, called an act for the encouragement of trade, gave Great Britain a monopoly on supplying the colonies with all goods grown or manufactured in Europe. This included wine. Our North American and West Indian colonies had a very extensive coastline, and our authority there was always very weak. The inhabitants were allowed to carry their non-enumerated goods in their own ships. At first they could take them to any part of Europe. Later they could take them to any part of Europe south of Cape Finisterre. In these circumstances, the monopoly was probably never much respected. The inhabitants probably always found ways to bring back some cargo from the countries where they were allowed to deliver one. They do, however, seem to have had some difficulty importing European wines directly from where they were produced. Nor could they easily import them from Great Britain. There, wines were burdened with many heavy duties, a considerable part of which was not refunded on export. Madeira wine was not a European commodity, so it could be imported directly into America and the West Indies. Those colonies enjoyed free trade with the island of Madeira in all their non-enumerated goods. These circumstances probably created the widespread taste for Madeira wine that our officers found throughout our colonies at the start of the war that began in 1755. The officers brought this taste back to the mother country, where the wine had not previously been very fashionable. After that war ended in 1763, a law (4 Geo. III, chapter 15, section 12) allowed all but £3, 10s. of the duties to be refunded when wines were exported to the colonies. French wines were an exception. National prejudice would not allow any encouragement of their trade or consumption. The time between this concession and the revolt of our North American colonies was probably too short for any considerable change in their customs.

The same act which, in the drawbacks upon all wines, except French wines, thus favoured the colonies so much more than other countries, in those upon the greater part of other commodities, favoured them much less. Upon the exportation of the greater part of commodities to other countries, half the old subsidy was drawn back. But this law enacted, that no part of that duty should be drawn back upon the exportation to the colonies of any commodities of the growth or manufacture either of Europe or the East Indies, except wines, white calicoes, and muslins.

The same law gave the colonies a much greater advantage over other countries in refunds of duties on all wines except French wines. But it gave them much less of an advantage in refunds on most other goods. When most goods were exported to other countries, half the old subsidy was refunded. But the law provided that none of this duty would be refunded when goods grown or manufactured in Europe or the East Indies were exported to the colonies. Wines, white calicoes, and muslins were exceptions.

Drawbacks were, perhaps, originally granted for the encouragement of the carrying trade, which, as the freight of the ship is frequently paid by foreigners in money, was supposed to be peculiarly fitted for bringing gold and silver into the country. But though the carrying trade certainly deserves no peculiar encouragement, though the motive of the institution was, perhaps, abundantly foolish, the institution itself seems reasonable enough. Such drawbacks cannot force into this trade a greater share of the capital of the country than what would have gone to it of its own accord, had there been no duties upon importation; they only prevent its being excluded altogether by those duties. The carrying trade, though it deserves no preference, ought not to be precluded, but to be left free, like all other trades. It is a necessary resource to those capitals which cannot find employment, either in the agriculture or in the manufactures of the country, either in its home trade, or in its foreign trade of consumption.

Drawbacks, or refunds of import duties, were perhaps originally granted to encourage the carrying trade. Foreigners often paid ships’ freight charges in money, so this trade was thought especially suited to bringing gold and silver into the country. But the carrying trade certainly deserves no special encouragement. Although the reason for granting drawbacks was perhaps quite foolish, the practice itself seems reasonable enough. Drawbacks cannot direct more of the country’s capital into this trade than would have gone into it naturally without import duties. They only prevent those duties from excluding capital from the trade altogether. The carrying trade deserves no preference, but it should not be ruled out. Like all other trades, it should be left free. It provides a necessary outlet for capital that cannot find employment in the country’s agriculture or manufacturing, its domestic trade, or its foreign trade in goods for consumption.

The revenue of the customs, instead of suffering, profits from such drawbacks, by that part of the duty which is retained. If the whole duties had been retained, the foreign goods upon which they are paid could seldom have been exported, nor consequently imported, for want of a market. The duties, therefore, of which a part is retained, would never have been paid.

Customs revenue benefits from such drawbacks rather than suffering, because part of the duty is retained. If the full duties had been retained, the foreign goods on which they were paid could seldom have been exported. Without a market, the goods could not have been imported either. Therefore, the duties, part of which is retained, would never have been paid.

These reasons seem sufficiently to justify drawbacks, and would justify them, though the whole duties, whether upon the produce of domestic industry or upon foreign goods, were always drawn back upon exportation. The revenue of excise would, in this case indeed, suffer a little, and that of the customs a good deal more; but the natural balance of industry, the natural division and distribution of labour, which is always more or less disturbed by such duties, would be more nearly re-established by such a regulation.

These reasons seem sufficient to justify drawbacks. They would justify them even if all duties were refunded on export. This applies whether the duties were on domestic products or foreign goods. In that case, excise revenue would indeed suffer a little, and customs revenue would suffer much more. But such a rule would come closer to restoring the natural balance of industry and the natural division and distribution of labor. Duties always disturb that balance and distribution to some extent.

These reasons, however, will justify drawbacks only upon exporting goods to those countries which are altogether foreign and independent, not to those in which our merchants and manufacturers enjoy a monopoly. A drawback, for example, upon the exportation of European goods to our American colonies, will not always occasion a greater exportation than what would have taken place without it. By means of the monopoly which our merchants and manufacturers enjoy there, the same quantity might frequently, perhaps, be sent thither, though the whole duties were retained. The drawback, therefore, may frequently be pure loss to the revenue of excise and customs, without altering the state of the trade, or rendering it in any respect more extensive. How far such drawbacks can be justified as a proper encouragement to the industry of our colonies, or how far it is advantageous to the mother country that they should be exempted from taxes which are paid by all the rest of their fellow-subjects, will appear hereafter, when I come to treat of colonies.

These reasons, however, justify drawbacks only on goods exported to entirely foreign and independent countries. They do not justify drawbacks on goods sent to countries where our merchants and manufacturers enjoy a monopoly. For example, a drawback on European goods exported to our American colonies will not always increase exports. Because our merchants and manufacturers have a monopoly there, they might often send the same quantity even without a refund of duties. The drawback may therefore often be a pure loss of excise and customs revenue. It may leave trade unchanged, without expanding it in any way. Such drawbacks might be justified as a proper encouragement to industry in our colonies. Exempting the colonies from taxes paid by all their fellow subjects elsewhere might also benefit the mother country. How far either is true will become clear later, when I discuss colonies.

Drawbacks, however, it must always be understood, are useful only in those cases in which the goods, for the exportation of which they are given, are really exported to some foreign country, and not clandestinely re-imported into our own. That some drawbacks, particularly those upon tobacco, have frequently been abused in this manner, and have given occasion to many frauds, equally hurtful both to the revenue and to the fair trader, is well known.

However, it must always be understood that drawbacks are useful only when the goods receiving them are actually exported to a foreign country. The goods must not be secretly brought back into our own country. It is well known that some drawbacks, especially those on tobacco, have often been abused in this way. This has led to many frauds that harm both public revenue and honest traders.