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<i L., COMMERCIAL, TRADE POLICY, , , , , , , , 5.1 Introduction, 5:2 Free Trade, 5.3, , Protection, , [Bi INTRoDucTION, , , , A commercial trade policy or trade policy refers to a government's, , policy i in relation to a country’s international trade. Commercial, , trade policy includes all the policies adopted by the government of, a country while negotiating international trade agreements and, pacts. It can also be described as the regulations and policies that, govern how companies and individuals in one country carry out, trade and commerce with companies and individuals in other ., countries. It includes all measures regulating the external economic H, , relations of a country, Commercial trade policies are implemented through tariffs, import, , quotas, export constraints, export subsidies, import substitution,, subsidies to domestic producers and policies towards foreign, , investments., , Member nations ina regional trade bloc follow common commercial, trade policy agreed upon by a treaty within a customs union. For
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ain products in whi, , , , oTvices to meet forejoy, , , , rces for encouraging the, , , , , , , , ed and strategically important, the newl\ ned al $ gna = ., NE sttes toon os competition by adopting protectionist, industries from for com}, policies, , i se foreign exchange, (vi) To preserve foreign exchange and increase fore g gi, reserves, , (vii) To restrict imports to achieve diversification of industries and, self sufficiency., , (viii) To maintain favourable balance of payments and terms of tr, , (ix) To maintain a desired rate, and exports,, , ade., , of exchange by regulating imports, , (x) To enter into trade, , agreements with other nations for mutual, benefits in trade., , Today,, , commercial policy of e, e€ncoura, , very countr, B€Ment of exports and, , j Promote its exports, freely. If it restr its imports through, vill also face similar, Policies can be, , Nits exports y
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2 oial Trade Poltey, a Sa, op FREE TRADE POLICY, i, | :, | phe term free trade policy is used to describe a liberal trade policy, es free movement of goods and services between, , th at promot, , soretical sense, CO Stn Peas ‘, ; nations In theoretic e, complete free trade regime would mean, , complete ;, ; yices between nations. It is a situation that is characterized by, , absence of any restrictions on movement of goods and, 5, , set ‘ . bene, of tariffs, quotas, exc hange restrictions, taxes and subsidies, , ysernce, . production on use of factors and on consumption. Under free, trade regime, international trade takes place in the same manner as, , ; internal trade between regions of a nation. I lowever, itis not possible, : that a complete free trade policy is adopted by any country at any, joint of time. In reality, nations adopt either liberal trade policy, with fewer restrictions on imports and exports, or adopt a, protectionist trade policy with high degree of restrictions on import, oxports. Here we will discuss the arguments in favour of and, , and €, de or liberal trade policy., , against free tra, , The following are some of the arguments in favour of free trade:, , 4. Promotes efficiency: The strongest argument in favour of free, trade is that it promotes international specialization and, division of labour. Each country specializes in the production, of those goods and services in which it has a comparative cost, advantage over its trading partners. This leads to optimum, utilization of resources and lowers cost of production. Countries, do not need to produce those goods and services in which they, have cost disadvantage because they can acquire them from, , other countries. Countries under free trade regime have to, manage their resources better in order to effectively compete, , with the rest of the world., , 2. Promotes economic growth: Because of free trade, global output, increases. Countries with cost advantage can produce goods, , on larger scale for the global market. This leads to economies, ase, higher level of, , d promote economic, growth. China’s remarkable economic growth can largely be, , of scale, expansion of production b, employment, higher aggregate demand an, , attributed to its massive export sector.
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i), °, N, ox, >), =), S), iS), S, ro), oe, ne, a, a, , LEV OddO, , , , VI (T.Y.B.Com, , , , Economics, , Business, , ‘ > »tes CO} ati: fe, mpetitiveness: Free trade prome te > COMPetition cree, sauirages CO ; ac ; I, Encourages © es no barriers to trade, dome stic industries are, As there are few | lobal producers. This INCENtivizg 1, competition from 8, become more efficie, to lower cost and be able to succ, in the world. Free trade, countries and promotes innova, domestic monopolies and prevé, , nt, use better technology in ond, essfully compete w ith the bes, hnology sharing among, ade also prev, , open to, , them to, , , , encourages tec :, tions. Free tf, , , , ents exploitation of consumers, , " sorts to come in withou;, «ces: Free trade allows imports Ou, Reduce prices: Free trac vith, rtages an 1 lower p ices, barriers. Imports can meet C nortages ane Price, Imports that are not subject to tar, and this can prove to be competitive Wee, will be incentivized to sell their products at lower prices t, compete with imported goods. Free trade also helps to prevent, the formation of domestic monopolies and this helps to keep, es benefit consumers and increase, , jomestic sl, iffs can be sold at lower prices, , iS}, , to domestic producers why, , prices low. Lower pric, , welfare., , Promotes economic welfare: Free trade policy helps to optimize, world trade and to maximize world production. This helps, generate higher levels of employment, income and, consumption. The improvement in the standards of living of, the people due to larger production, increases economic welfare., Larger production means larger exportable surplus and more, exports. This results in more supply of goods and services in, the international market., , Greater international cooperation: Free trade policy makes it, necessary for countries to be dependent on each other. Since, a ae tends to specialize in the production of those goods, 28 a Se = have comparative advantage, they have to rely, rae Be partners for those goods they do not produce., , ‘ans that trading nations have to cooperate with each, , not only in trade i y, other at ut al i, th b SO Politicall . Such cooper ation Is, , Less government interven, free, , trade policy, it will h, trade. Generally, a restri q, , at the bureaucratic level.
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59, , cial trade Policy, i lowing’ are some of the arguments against free trade policy, ne tageous for less devel > i }., e advan age a oped countries: Free trade is, 1 cenerally advantageous to ¢ eveloped countries as they have, ge comparative advantage. in| the production of many goods, ind servic es that use advanced technology and have lower real, rol production. Smaller producers in less developec, countries who do not have access to advanced technology, tively compete with foreign firms and may find it, , cannot effec :, jifficult to survive., , ruction of domestic industries: Free trade can lead to, ng and destroy domestic industries. Severe competition, evelop between domestic and foreign producers, Domestic industries often lower their prices to compete with, low priced foreign products. This affects their profits and they, st wiped out. In such situations they seek protection, , may g© : od, against foreign competition through tariffs, quotas or subsidies., , Unbalanced economic development: Free trade promotes, cialization. Countries tend to produce only a, hich they have comparative advantage and, n of other products that they import from, some sectors of the economy perpetually, leading to unbalanced economic, , Destru, dump!, may d, , international spe, few products in w, neglect the productio, other countries. Thus,, remain neglected,, development., Dangers of overdependence: Free trade makes countries over, dependent on each other. Therefore, in case of any problem in, any country, its trading partners will also get affected. For, example, if a country is dependent on another country for, supply of some essential agricultural raw material, and the, exporting country faces a severe drought, then the importing, country will have to face shortage of the raw material and the, consequent shortage of the finished product. Over dependence, can also lead to political dominance of more powerful countries, , over less powerful trading partners., iff barriers, there, , Dumping of foreign goods: Without any taritt > \, is the danger of foreign sellers dumping low quality goods ina, country, Often harmful, poor quality and low technology
