Drawback

Drawback, a term in commerce, employed in connection with the remitting or paying back by government of excise duties on certain classes of articles exported. Excise duties, as a matter of course, enhance by so much the natural price of the commodity on which they are imposed. Were these duties not remitted, the commodity so taxed would not be ordered by those foreign countries where articles of the same kind could be purchased free of such duties. To afford facility for the exportation of these articles, the state resorts to the expedient of returning to the exporter a sum equal in amount to what he or the manufacturer had paid to the excise. Such is drawback. Among other matters of fiscal policy, Adam Smith, in his Wealth of Nations, discusses the propriety of giving drawbacks, and sees in them nothing that is adverse to a sound political economy. 'To allow,' he says, '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 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.' It will, however, be admitted that the system of drawbacks is liable to abuse. The bounties paid by several European states to sugar, for example, were based on the payment of drawbacks, the sum returned being actually larger than the sum paid as duty. See BOUNTY.