Distinguish between ad valorem and specific duties and give an example of each.

• A. Ad valorem duties are a fixed amount per unit; specific duties are a percentage of the value.
• B. Ad valorem duties are a tax on consumption; specific duties are a tax on profit.
• C. Ad valorem duty is a percentage of the value of goods (e.g., 10% of CIF value); specific duty is a fixed amount per unit (e.g., $2 per kilogram).
• D. Ad valorem duties apply only to services; specific duties apply only to goods.

Answer: (C)

The key idea is how tariffs are calculated: ad valorem duties are based on the value of the goods, while specific duties are fixed amounts per unit of quantity. An ad valorem duty is a percentage of the goods’ value, typically the CIF value used for imports (cost + insurance + freight); for example, a 10% ad valorem duty on a CIF value of 1,000 yields a 100 duty. A specific duty, by contrast, is a set amount for each unit of measure, such as $2 per kilogram, so a shipment of 500 kilograms would incur 1,000 in duties. In some tariff systems, both can be used together (a small fixed per-unit charge plus a percentage of value). The other descriptions blur these bases: ad valorem is not a fixed amount per unit, and specific duties are not based on profit or limited to services.