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Chapter 4

CHAPTER IV.

OF DRAWBACKS.

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.

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.

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 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.

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.

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.

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.

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.

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.

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 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.

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.

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.

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, 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.

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.

Adam Smith

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