The main instruments or toots
which are now a days used for achieving the objectives of commercial
policy are as follows:
(1) Tariffs or Custom
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
(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
(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
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 director,
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
Restrictions on Imports:
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 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. A
General Agreement on Trade and Tariff (GATT) of 117 countries of the world was
The main objectives of the GATT
(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.