Nota bene: This is the next installment of my multi-part review of Adam Smith’s 1784 pamphlet Additions and Corrections to the First and Second Editions of Dr. Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations.

Addition #6 (pp. 6-9) consists of nine paragraphs and is the fourth longest addition in Smith’s pamphlet. Here, Smith demonstrates his personal knowledge of one specific corner of Britain’s complex web of trade laws: drawbacks. A “drawback” is a refund or rebate of customs duties or tariffs. Smith explains in meticulous detail how British merchants are entitled to draw back one-half of the duties they pay on most imported goods if they re-export those goods to other countries within a certain time frame, but he also mentions how this drawback policy became more complex and convoluted over time: “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.” (Smith 1784, p. 6)

In some cases (such as tobacco and sugar), for example, merchants are allowed to draw back 100% of the duties paid:

“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 hogheads, 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.” (Id. at pp. 6-7)

In other cases (especially textiles), by contrast, no drawbacks are granted at all, even when the goods are promptly re-exported:

“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 are drawn back. Our manufacturers are unwilling, it seems, that even this restricted importation should be encouraged, and are afraid left 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 cambricks and lawns, callicoes painted, printed, stained, or dyed, &c.” (Id. at p. 7)

Smith then devotes the last three paragraphs of Addition #6 (paragraphs 7 to 9) to wine. Although Britain’s trade laws allow merchants to draw back some of the duties they pay on imported wine, Smith concludes that the total amount of wine duties are so “heavy” and burdensome that it is “unreasonable to expect any profitable carrying trade in this article.” (Id. at p. 8) At the same time, Smith notes that wine imported from Britain’s North American colonies are exempt from these onerous duties.

Specifically, in 1763 Britain decided to remove almost all her duties on imported wine that was re-exported to her colonies (“Upon the conclusion of that war, in 1763 (by the 4th Geo. III, Chap. 15, Sect. 12), all the duties, except 3l. 10s. were allowed to be drawn back, upon the exportation to the colonies of all wines, except French wines …”), but Smith concludes that “[t]he 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.” (Id. at p. 9)

But Smith’s most fascinating observation in this part of his pamphlet (Addition #6) is his critique of Britain’s attempt to monopolize trade with her North American and West Indian colonies. Although British law “had given Great Britain a monopoly of supplying the colonies with all the commodities of the growth or manufacture of Europe” (id. at p. 8) — “and consequently with wines”, Smith adds (id.) — the colonies probably found many creative ways around this policy:

“In a country of so extensive a coast as our North American and West Indian colonies, where our authority was always do 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.” (Id. at pp. 8-9)

Smith then uses the example of Madeira wine to illustrate how Britain’s North American colonies evaded Britain’s pre-1763 onerous duties on wine:

“They [the British colonists] 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 a being a 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.” (Id. at p. 9)

I wonder what kind of wine Adam Smith himself preferred to imbibe? (To be continued.)