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CHAPTER IV: OF DRAWBACKS - Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (Cannan ed.), vol. 2 
An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith, edited with an Introduction, Notes, Marginal Summary and an Enlarged Index by Edwin Cannan (London: Methuen, 1904). Vol. 2.
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MERCHANTS and manufacturers are not contented with theMerchants demand encouragements to exportation. 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 theDrawbacks of duty paid on domestic produce are reasonable, as they preserve the natural distribution of labour. 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 employment1 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.
So are also drawbacks of duty paid on goods imported.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.1 By the second of the rules, annexed to the act of parliament,2 whichUnder the old subsidy a drawback of one-half is allowed. 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.3
Of more recent duties the whole is generally allowed,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.
and in some cases the whole even of the old subsidy is allowed.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.4 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.5
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,6 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,In the case of some prohibited goods there is no drawback 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 are 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,1 French cambrics and lawns,2 callicoes painted, printed, stained, or dyed, &c.
We are unwilling even to be the carriers of French goods, and chooseFrench imports generally are allowed a smaller drawback on re-exportation 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.3
By the fourth of the rules annexed to the old subsidy, the drawbackWines have been peculiarly favoured, 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 coinage on wine, were allowed to be wholly drawn back upon exportation.4 All those duties, however, except the additional duty and impost 1692,5 being paid down in ready money, upon importation, the interest of so large a sum occasioned an expence, 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,6 and no part of the twenty-five pounds the ton upon French wines,1 or of the duties imposed in 1745,2 in 1763,3 and in 1778,4 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,5 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 1780,6 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 take place with regard to all places of lawful exportation, except the British colonies in America.
especially when exported to the American colonies,The 15th Charles II. chap. 7. called an act for the encouragement of trade,7 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,8 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 a European commodity,9 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 l. 10 s. 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 drawback upon all wines, except Frenchthough the export of other foreign commodities to those colonies was discouraged. 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 callicoes and muslins.1
Drawbacks were, perhaps, originally granted for the encouragementDrawbacks were originally granted to encourage the carrying trade, which was absurd, but they are reasonable enough. of the carrying trade, which, as the freight of the ships 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 for 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 gains by their existence when they do not amount to the whole of the duty paidThe 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.
They would be justified even if they always did amount to the whole duty 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.
but only to independent countries, not to those in respect of which there is a monopoly of tradeThese 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 hereafter1 when I come to treat of colonies.
They give rise to fraudsDrawbacks, 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.
[1 ] [Eds. 1 and 2 read ‘go to it’.]
[1 ] [The next three pages are not in eds. 1 and 2; see below, p. 5, note.]
[2 ] [12 Car. II., c. 4.]
[3 ] [Henry Saxby, The British Customs, containing an Historical and Practical Account of each branch of that part of the Revenue, 1757, pp. 10, 308.]
[4 ] [These figures are also quoted above, vol. i., p. 352, and below, p. 103.]
[5 ] [Saxby, British Customs, p. 12.]
[6 ] [Ibid., p. 11.]
[1 ] [6 Geo. III., c. 28; 11 Geo. III., c. 49.]
[2 ] [Above, vol. i., p. 437.]
[3 ] [7 and 8 W. III., c. 20; 1 Geo. I., c. 12., § 3; Saxby, British Customs, p. 45; above vol. i., p. 437. The first 25 per cent. was imposed in 1692, the second in 1696.]
[4 ] [Saxby, British Customs, pp. 13, 22, 39, 46. ‘The additional duty’ was imposed in 1703. For the ‘impost 1692’ and the subsidies see above, vol. i., pp. 437, 438, and below, pp. 363, 364. ‘The coinage on wine’ was the duty levied under 18 Car. II., c. 5, for defraying the expenses of the mint.]
[5 ] [Saxby, British Customs, pp. 13, 38.]
[6 ] [1 Jac. II., c. 3, and continuing Acts: £8 a tun on French and £12 on other wine.]
[1 ] [7 and 8 W. III., c. 20, § 3; 1 Geo. I., st. 2, c. 12, § 3.]
[2 ] [18 Geo. II., c. 9; Saxby, British Customs, p. 64: £8 a tun on French and £4 on other wine.]
[3 ] [? 1762. 3 Geo. III., c. 12: £8 a tun on French and £4 on other wine.]
[4 ] [18 Geo. III., c. 27: £8 8s. on French and £4 4s. on other wine.]
[5 ] [I.e., 5 per cent., not on the value of the goods, but on the amount of the previously existing duties, 19 Geo. III., c. 25, and 22 Geo. III., c. 66.]
[6 ] [20 Geo. III., c. 30: £8 a tun on French and £4 on other wine.]
[7 ] [The colonial part of the Act is said in its particular preamble (§ 5) to be for the purpose of ‘maintaining a greater correspondence and kindness between’ the colonies and mother country, and for keeping the colonies ‘in a firmer dependence’.]
[8 ] [All this is dealt with in greater detail below, pp. 78-81.]
[9 ] [The framers of the Act were not so sure about Madeira being non-European. They excepted wine of the Madeiras and Azores by special provision, § 7 of 15 Car. II., c. 7, § 13.]
[1 ] [From the words ‘duty upon importation’ at the end of the first sentence of the third paragraph of the chapter to this point is new matter, which appears first in Additions and Corrections and ed. 3. Eds. 1 and 2 read in place of it simply, ‘Half the duties imposed by what is called the old subsidy, are drawn back universally, except upon goods exported to the British plantations, and frequently the whole, almost always a part of those imposed by later subsidies and imposts’. The provision of 4 Geo. III., c. 15, taking away drawbacks, is quoted below, p. 85.]
[1 ] [Below, pp. 84-86.]