The Wealth of Nations

F 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.