FOREIGN TRADE

1.Benefits of Foreign Trade 2.Foreign Trade Policies 3.Barriers to trade

Benefits of Foreign Trade

As we all know, that the natural resources of the earth are unevenly distributed. One country possesses product X in surplus and lacks in respect of product Y. In other country reverse may be true. Countries also differ in their preferences and technologies, scale economies, economic and social institutions, and capacities for growth and development. All these account for ever growing foreign trade. For a developing economy, developmental and maintenance imports set limits to the extent of industrialisation, which can be carried out in a given period.

Benefits of Foreign Trade

Beside these imports, a developing economy also required to import consumer goods which are in short supply at home during industrialisation. Such import are antiinflationary because they reduce the scarcity of consumer goods. One example of such imports in the food-grains imports by India in the postindependence period, which helped arrest the rise of prices at home.

Foreign Trade Policies

Outward-oriented policies Inward-oriented policies

Outward-oriented policies (free trade policy) is supported on the following grounds: 1. Free Trade Promotes World Trade; Increased world trade benefits all the participating countries. World business promotes competitions. In a competitive environment, countries specialise and export goods in which they have comparative advantage and import products that they produce less efficiently than other nations.

Foreign Trade Policies

The Economic Interdependence among Countries Engage Less in Conflicts; One reason why the European Economic Community was formed after the World War II was that countries with economic interdependence were less likely to enter conflicts. Uneven Distribution Of resources Make Trade Inevitable. World Trade Encourage efficient Use Of Global Resources. Global Competition Forces Companies to Become more Efficient and Innovative Exports Create Jobs

Inward-oriented Policies
An Inward-oriented Policy, usually, means over protection. What is less obvious is that sheltering domestic industries puts exports at a great disadvantage because it raises the cost of the foreign inputs used in their production. Moreover, an increase in the relative costs of domestic inputs may also occur through inflation or because of appreciation of the exchange rate as import restrictions are introduced.

Barriers to Trade

Barriers

Tariff

Non-tariff

Export tariff Import Tariff Transit tariff

Quotas

Subsidies

Others

Product And testing standards

Embargoes

Local content Requirements

Administrative Delays

Currency controls

Barriers to Trade
Tariff; A tariff is a tax imposed on goods involved in
international trade. Tariff may be import tariff, export tariff and transit tariff.

Non tariff; A second category of government

interventions on international trade relates to non-tariff barriers. We consider the following in this context (1) Quotas (2) Subsidies (3) Others

Quotas: Quotas refer to numerical limits on the quantity

of goods that may be imported into a country during a specified period.

Subsidies
A subsidy is a government payment to a domestic producer. Subsidies take several forms including cash grants, low-interest loans, tax breaks , and government equity participation in local firms. By lowering costs, subsidies help domestic producers in two ways; They help them compete against lowcost foreign imports and gain access to export markets.

Other Barriers
Embargo; An embargo refers to a complete ban on
trade (imports and exports) in one or more products with a particular country.

Local Content Requirements; The government

of a country may state that local labour, components, or other inputs should be used, partially at least, in the production of goods.

Administration Delays; This non-tariff barrier

includes a wide range of government actions such as requiring international air carriers to land at inconvenient airports, requiring product inspection that damages the product itself, purposely understaffing customs offices to cause unusual delays.

Other Barriers
Currency Controls; This refers to restrictions on
the convertibility of a currency into the other currencies. A countrys government can discourage imports by restricting who is allowed to convert the nations currency into an internationally acceptable currency.

Product and Testing standards; This nontariff barrier requires that foreign goods meet a countrys domestic product or testing standards before they can be offered for sale in that country.