The use of customs duties has developed a number of perplexing difficulties. One of the first to develop was that of smuggling. When a country has a large frontier line, with many possible approaches, it is difficult to prohibit some goods from getting in without the knowledge of the officials. This is especially true of goods of small bulk and great value, such as precious stones. The duty, on a value basis, is likely to be high enough to make smuggling profitable. If such goods are not taxed, a source which is easily able to bear tax burdens is allowed to escape.

Method of Levy. - The method of levy is an important problem which always confronts customs administrators. There are two important methods, each possessing advantages and disadvantages. One class of levy is known as ad valorem, and the other as specific. The base for the levy of ad valorem duties, as the term suggests, is the value of the goods. Specific duties are levied upon some other unit than value, such as volume, length, or weight. A specific duty would be upon each gallon, yard, or hundredweight. Many objects bear both classes of duties, while some bear only the ad valorem or specific duties.

Objections to Specific Duties. - Specific duties possess the advantage of being simple and easy to collect. Fraud and evasion are comparatively difficult. They do not, however, conform to theories of justice, since, in effect, they are regressive. Heavier burdens are placed upon the less valuable goods of a class than upon the more valuable, since some other criterion than value is made the base of the tax. The tax burden does not fluctuate, moreover, whether the price to be received is high or low. The general result is that they are taxes of increasing burden in a period of falling prices, and the opposite when prices are rising. Their administrative simplicity, however, gives them their place as a part of customs duties.

Difficulties with Ad Valorem Duties. - Ad valorem duties have the advantage of falling upon value, the most just base of levy, yet many possibilities of fraud are presented. The duties have frequently been evaded through fictitious invoices, especially when the goods were shipped by the agent of an American buyer. Goods of high value have often been placed in consignments of a lower value, and have consequently escaped the higher duty. In some cases goods have been artificially colored to resemble those of a lower value, as, for example, the coloring of better grades of sugar. Where a minute classification exists, as in our woolen schedule, it is often difficult to accurately classify the goods. To reduce these fraudulent practices to a minimum, and hence secure a reasonable degree of justice, a large amount of administrative machinery is required.

Administrative Machinery. - The need for administrative machinery can be illustrated by a brief review of the method of levy in force in the United States. The importer receives a consular invoice, which contains a description of the merchandise, including value, discounts, charges, etc. He then makes entry of these goods, with their proper description, with the rates that he considers applicable, and pays the gross amount of duty thus determined. The inspector then issues a permit for delivery, with the exception of one package in every ten included in the importation. In no case is less than one article retained from each invoice.

These packages or articles are retained for the purpose of appraisement. The value is determined and the rate checked with that used by the merchant. In case the rate which the merchant used was too low, the difference is collected, with penalties for attempted fraud. All protests from the merchants are heard by a board of general appraisers, provided the protest is filed within ten days after the merchant has been notified of the charges. The board examines witnesses, calls in experts, and after a thorough investigation renders a decision. Appeals may be made, however, to the Circuit Court within thirty days.

The complexities and uncertainties of customs duties, especially of those in the United States, have prevented their indorsement as an unqualified success. The laws are cumbersome and difficult to understand. Duties are laid upon articles with apparently no definite scheme in mind. The returns have been very irregular, often failing the government when funds were needed most. With proper legislative forethought such difficulties could be greatly lessened, and customs duties could be made a more satisfactory part of the fiscal system.