Sec. 2. #Specific and ad valorem rates.# Before entering upon the history of the American policy let us make clear the meaning of certain technical terms and explain certain methods which are frequently referred to.

Rates (and duties) may be by either specific or ad valorem.  Specific duties are those that are calculated and levied according to some physical test, as so much per pound, per yard, per hundred-weight, or per ton. Ad valorem duties are those that are calculated and levied according to the value of the goods (usually as it was at the place of shipment) determined by an assessor, by invoice of sale, by statement of the importer under oath, etc.  The actual duty collected on any article may result from various combinations of the two rates (as, to take an actual example, $4.50 a pound and 25 per cent ad valorem on cigars and cigarettes) or ad valorem with a minimum valuation so that on the cheaper goods the rate is specific.

Specific rates are more easily applied in administration, not offering the temptation to undervaluation and misrepresentation that ad valorem rates do; on the other hand, specific rates do not adjust themselves to price changes as ad valorem rates do.  If the prices of goods go up the specific rate is relatively less and affords less of “protection” to the domestic producer; whereas if prices go down (as, in general trend, the prices of manufactured goods have done most of the time) the specific duties are relatively greater.  To take a historical example, the specific rate of 6-1/4 cents a yard on cotton goods in 1816 which was at first in fact only about 25 per cent, within a few years became about 75 per cent and absolutely prohibitive.  For this reason specific rates have most often been used in acts intended to increase the “protective” duties and often as a device for immediately raising rates; while ad valorem rates have been more often used in acts prompted by the desire for less drastic exclusion and for a more adequate revenue; but there is no essential connection between the protective policy and specific rates.  Indeed, in the period from 1897 to 1909, when most prices were rising, many of the specific rates under the Dingley Act, intended to be strongly protective, afforded less and less “protection."[1]

Sec. 3.  Some technical features of the tariff.  All goods not subject to duties are said to be on the free list.  It is customary to group articles in schedules, of which there are fourteen in the law of 1913, designated from A to N (for chemicals, pottery, metals, wood, etc.), but the rates are not uniform for all the articles in each schedule. Drawbacks are a certain amount, the whole or a part, of the duties that have been paid on imported commodities, which is paid back by the government on the reexportation of the goods. Compensatory duties (or compensatory rates) are those levied