Trade

Trade is the transfer of ownership of goods and services from one person to another. Trade is
sometimes loosely called commerce or financial transaction or barter. A network that allows
trade is called a market. The original form of trade was barter, the direct exchange of goods and
services. Later one side of the barter was the metals, precious metals (poles, coins), bill, paper
money. Modern traders instead generally negotiate through a medium of exchange, such as
money. As a result, buying can be separated from selling, or earning. The invention of money
(and later credit, paper money and non-physical money) greatly simplified and promoted trade.
Trade between two traders is called bilateral trade, while trade between more than two traders is
called multilateral trade.

Tariff
A tariff (or duty, the words are used interchangeably) is a tax levied by governments on the value
of imported products. Sales and state taxes, and in some instances customs fees, will often be
levied as well. The tariff is assessed at the time of importation along with any other applicable
taxes/fees. Tariffs raise the prices of imported goods, thus making them less competitive within
the market of the importing country. Before you export to any country, you need to determine
what the tariff rate is on your product(s) as well as any import fees for that country. The
following information will help you make this determination.

Tariff-rate quota

A tariff-rate quota (TRQ) is a trade policy tool used to protect a domestically-produced

commodity or product from competitive imports.A TRQ combines two policy instruments that
nations historically have used to restrict such imports: quotas and tariffs. In a TRQ, the quota
component works together with a specified tariff level to provide the desired degree of import
protection. Imports entering during a specific time period under the quota portion of a TRQ are
usually subject to a lower, or sometimes a zero, tariff rate. Imports above the quota’s quantitative
threshold face a much higher (usually prohibitive) tariff

Impact on Global Business Scenario

Tariffs are taxes levied on businesses for imported goods. Tariffs raise the domestic price above
the world price by the amount of the tariff. The increase in the domestic price will lead to a
decrease in domestic quantity demanded, and an increase in domestic quantity supplied. Before
the tariff, the domestic price is the same as world price. After the tariff, the domestic price rises.

Quotas are restrictions on the maximum amount that may be imported, and have a similar effect
as do tariffs. They restrict the amount available to domestic consumers and push up the price,
resulting in a deadweight loss similar to that of a tariff. The main difference is the distribution of
the surplus. A tariff raises revenue for the government, whereas import quota creates surplus for
licence holders. The government could capture surplus from import quotas by charging a fee for
the licences. If licence fee equals difference in prices, then import quota works same as tariffs.

The role tariffs play in international trade has declined in modern times. One of the primary
reasons for the decline is the introduction of international organizations designed to improve free
trade, such as the World Trade Organization (WTO). Such organizations make it more difficult
for a country to levy tariffs and taxes on imported goods, and can reduce the likelihood of
retaliatory taxes. Because of this, countries have shifted to non-tariff barriers, such as quotas and
export restraints. Organizations like the WTO attempt to reduce production and consumption
distortions created by tariffs. These distortions are the result of domestic producers making
goods due to inflated prices, and consumers purchasing fewer goods because prices have
increased.
Since the 1930s, many developed countries have reduced tariffs and trade barriers, which has
improved global integration, as well as brought about globalization. Multilateral agreements
between governments increase the likelihood of tariff reduction, and enforcement on binding
agreements reduces uncertainty.

Free trade benefits consumers through increased choice and reduced prices, but because the
global economy brings with it uncertainty, many governments impose tariffs and other trade
barriers to protect industry. There is a delicate balance between the efficiencies and the
government's need to ensure low unemployment.

Examples

The best example by keeping the entire context in mind we find in the local market is the Sugar
export as it is banned because of the high domestic consumption.

Similarly when we see two years back the is a swear crisis of flour and its price jumps to a high
extent because of the low check an balance from the government side and large sum of wheat
and flour is export to the nearest neighbor Afghanistan which result in local short term shortage
that result in high price and inflation as well.

The examples we have taken from agriculture sector because Pakistan is an Agricultural Country
and its exports majorly consists of agricultural finished and semi finished products.
References

http://en.wikipedia.org/wiki/Trade

http://www.export.gov/logistics/eg_main_018130.asp
http://en.wikipedia.org/wiki/Tariff-rate_quota

http://www.basiceconomics.info/international-business-and-trade.php

http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp