The theory of nominal tariff in general and the well-known Metzler paradox in particular have been rigorously developed by Metzler [14], Jones [13], Johnson [12], and Batra [1, ch. 5], among others. The analysis has been typically conducted under the strong assumption that the economy is devoid of any inter-industrial and/or intra-industrial externalities. Some aspects of inter-industrial externalities, which have played a major role in the development of welfare economics in the past three decades, have been explored by Chang [3] and Herberg, Kemp and Tawada [11]. And the implications of intra-industrial variable returns to scale which are external to the firms have been examined by Eaton and Panagariya [7; 8], Panagariya [9], Parai [10], Choi and Yu [4; 5] and Beladi [2]. Many of the standard trade theories have been shown to be significantly affected by the presence of either type of the externalities. It is notable that the implications of the externalities for the tariff theory, however, have not been studied. The purpose of this paper thus is to examine several aspects of the standard theory of tariffs in a framework allowing various production externalities. Specifically, we will explore the effects of a change in the tariffs and/or the terms of trade on the import demand, as well as the effects of tariff on the terms of trade and the domestic price ratio. Several interesting results emerge from this analysis. For example, in contrast to the conventional results, an improvement in the terms of trade for a given tariff may dampen the import demand, and a higher tariff for a given terms of trade may raise it. An increase in the tariff rate need not improve the terms of trade and, hence, may raise the domestic price ratio of the importable good by more than the tariff rate. Although the presence of inter-industrial and intraindustrial externalities does not affect the sufficient condition for the Metzler paradox, it does modify a necessary condition for the paradox. This paper is organized as follows. Section II delineates the assumptions and the model. Section III examines the effects of tariffs and/or the terms of trade on import demands. Section IV