The main instruments or toots which are now a days used for achieving the objectives of a commercial policy or trade policy, are as follows:
(1) Tariffs or Custom Duties
(2) Bounties on Exports
(3) Import Quota System
(4) Trade Agreements
(1) Tariffs or Custom Duties:
Tariff’s or custom duties may be defined as a schedule of duties authorized by territorial government to be imposed upon a list of commodities that are exported.
Tariffs are generally classified into three classes.
(a) Transit duties, (b) Import duties, (c) Export duties.
(a) Transit duties are those which are levied upon merchandize passing through the country and consigned for another country. Transit duties are levied for raising money for the government.
(b) Import duties are those which are levied on the goods brought into the country. Import duties are chiefly levied for revenue or for protection purpose or for both.
(c) Export duties are those which are imposed on the merchandize sent out of the country are called export duties. Export duties, like import duties, are also imposed for raising revenue and to restrict the export of certain raw material with the view to encourage the development of domestic industries.
Custom duties may be discriminatory with respect to commodities of countries or it may be non-discriminatory.
When a country is pursuing a discriminatory tariff policy, it may give:
(a) Preferential treatment by levying lesser custom duties upon the merchandize of some of the countries. (or);
(b) Enter into an agreement with other countries for ensuring fair and equal treatment to the imports or exports of each member country. (or);
(c) Join a common market where the merchandize of member countries are allowed free entry but the goods of other countries are subjected to tariffs.
(2) Bounties on Exports:
In order to promote the export of particular industry or the export of specified commodities, a government some times gives bounties on exports.
The bounties or subsidies may be direct or indirect.
When subsidy is paid in cash from the public treasury, the bounty is said to be direct and when low freight rates are charged on the goods to be exported or they are exempted from taxes, etc, the bounty or subsidy is said to be indirect.
(3) Direct restrictions on Imports (Import Quota System):
The government may totally prohibit the import of certain commodities into the country with the intent of increasing foreign exchange or for protection of domestic industries or for discouraging the use of particular commodities because they are injurious to health. The government may regulate the imports by means of quotas.
Under import quota system, the maximum amount of a commodity which can be imported during a particular period is fixed by the government. In recent years, the governments of most of the countries are employing the import quota system because:
(i) It is very flexible and can be adjusted by the administrative authorities without resorting to legal action.
(ii) The home producers know in advance the total quantity of goods to be imported during a particular period, so they can regulate their output accordingly.
(iii) It arouses less resentment than the custom duties from the consumers.
(4) Trade Agreements:
The government of a country may enter into trade agreements with other countries for the exchange of goods.
The trade agreements may be bilateral or multilateral.
When two countries make a trade agreement for the exchange of goods, the agreement is said to be bilateral.
When more than two countries enter into, trade agreement for ensuring fair and equal treatment to the imports and exports of the member countries, the agreement is called multilateral.
Efforts are being made by different countries of the world to secure a general reduction of tariffs.
General Agreement on Trade and Tariff – Objectives:
A General Agreement on Trade and Tariff (GATT) of 117 countries of the world was reached at.
The main objectives of the GATT were:
(i) To develop the resources of the world.
(ii) To expand production and exchange of goods.
(iii) To promote economic development.
(iv) To help in raising standard of living.
(v) To achieve full employment without inflation.
In 1995, the GATT was replaced by World Trade Organization. The WTO is established to oversee the trade agreements among nations and settle trade disputes. The globalization of economy, liberalization of trade among all the nations of the world is now taking the shape of new world economic order.
Globalization is the free movement of capital, goods and services based on market based economy.