INTERNATIONAL TRADE POLICY 1

INTRODUCTION TO TRADE POLICY AND THE WTO Module 1 INTRODUCTION TO TRADE POLICY AND THE WTO What is Trade Policy? 2

Definition of Trade Policy Dictionaries define trade policy as any government action that affects trade. – Thus trade policy is any government action that affects the availability or price of any traded good or service. Trade policy is composed of a wide variety of possible types of actions by governments

Definition Trade Policy also includes domestic policies that discriminate between domestic and foreign goods or services. It can include policies of subsidiary levels of government or institutions.

In conclusion Trade Policy also includes domestic policies that discriminate between domestic and foreign goods or services. It can include policies of subsidiary levels of government or institutions.

Trade Measures Tariff Measures Non-tariff Measures

Trade Measures The most important type of trade restrictions is the tariff. A tariff is a tax or duty levied on the traded commodity as it crosses a national boundary. An import tariff is a duty charged on the imported commodity. An export tariff is a duty charged on the exported commodity.

Tariff can be ad valorem, specific, or compound. The ad valorem tariff is expressed as a fixed percentage of the value of the traded commodity. The calculation is based on product’s price, which sometimes is not easy to determine. The specific tariff is expressed as a fixed sum per physical unit of the traded commodity. It is a flat rate. The calculation is based on the quantity of imports. The compound tariff is a combination of an ad valorem and a specific tariff.

Why does a country impose import tariffs? 1. To raise tariff revenue 2. To lower the quantity of imports 3. To protect domestic suppliers 4. To prevent job loss in some sectors 5. To prevent a reduction of workers’ income 6. To achieve investment objectives, which in turn, create jobs within the country.

Tariffs versus Quotas Tariffs are the least distorting trade measure for a given level of protection. This is because when tariffs are applied in a non- discriminatory manner, consumers’ choices will be based on relative prices. Thus, at the same level of product quality, the lowest cost foreign supplier will be the most competitive. – Not necessarily true in the case of a quantitative restriction, such as a quota

Non-tariff trade Measures As tariffs were negotiated down after World War II, the importance of non-tariff trade barriers has greatly increased. Such barriers include: – Import quotas – Health, Sanitary and Phytosanitary Regulations – Rules of Origin