Economic Environment of Business_7

Trade Policy

Export and Import Policy
It influences:
• Volume
• Direction, &
• Composition of Trade

Objectives
• Balanced Growth
• Price Stability
• Exchange Rate Stability
• BOP Equilibrium

Two Theoretical Policy options
• Free Trade: No Artificial Restrictions on Import and Export
• Protection/ Protective Trade Policy: Barriers to Free Trade

Tools/Instruments of Trade Policy
• Quantitative Tools
– Tariffs: Import Duties/ Custom Duties
– Quotas
– Subsidies: Land, electricity, lower interest rates, Tax concessions, other facilities at lower than market rates

• Qualitative Tools
– Export Promotion

Policies
– Child Labour content
– Environmental considerations
– Preferential Buying by the Government

Advantages of Free Trade
• Optimum Allocation of Global Resources
• Greater Employment, income, consumption leading to Greater Welfare
• Availability of wider variety of goods and services at cheaper rates
• Greater Competition and no monopoly
• Greater Equality of Incomes and wealth
• Greater Interdependence leading to Stability and World Peace

Arguments in Favour of Protection
• Diversification of Industry Argument
• Employment Promotion Argument
• BOP Argument
• Balanced Growth Argument
• Cheap Labour Argument
• Anti- Dumping Argument
• Self Sufficiency Argument
• Defence Argument

Tariffs
• Revenue Tariffs, Protective tariffs
• Single column, Multiple column tariffs
• Specific, Ad-Valorem Import Duties

Quotas
• Tariff Quota
• Import License
• Unilateral Quotas
• Bilateral Quotas
• Mixing Quotas