ABSTRACT
The formal theory of tariffs, like most of the theory of international trade, has been constructed on the assumption of a world in which commodities are all final goods – goods destined for final consumption – and are produced entirely with the use of original factors of production. Yet in the real world, many commodities are raw materials, fuels, intermediate goods, or capital goods destined for use in production processes making other goods; and the production processes for making commodities use other commodities as inputs, in addition to using original factors of production. Similarly, in the real world international trade comprises not only goods destined for final use, but raw materials, fuels, semi-finished goods and capital goods destined for use in the production processes of other goods. Moreover, the tariff schedules or structures of countries take account of these differences between goods, levying duties at rates that differ not only between commodities but according to the nature of the goods and the stage of the production process at which they enter the country.
