Chapter 2-Trade policies

Unilateral trade agreements are one-sided, non-reciprocal trade preferences

granted by developed countries to developing ones, with the goal of helping
them to increase exports and spur economic development.

 foster exports and economic development in beneficiary countries

 assist their efforts to reduce poverty, promote good governance and
support sustainable development
 encourage compliance with international standards in the areas of
human rights, labour rights and environment protection
 under preferential schemes, you can export/import from a developing
country to a developed one by paying smaller or no duties at all
 your goods must qualify as originating in the beneficiary country,
according to rules of origin established by the specific preference
scheme
 product coverage, country coverage and specific rules vary greatly from
one agreement/scheme to another

Frequently, unilateral trade agreements are conditioned by evolutions in the

fields of human rights, sustainable development and good governance in
beneficiary countries. If there are serious and systematic violations, the
providing country can withdraw this benefit until the situation improves
sufficiently.

For Example-Some conservatives define unilateral trade policies as the

absence of any trade agreement whatsoever.The United States would lift all
tariffs, regulations, and other restrictions on trade. It's unilateral because it
doesn't require other nations to do the same. The argument is that the
government should not restrict the rights of its citizens to trade anywhere in
the world.

Providers of preferential trade agreements include: the EU, Armenia, Australia,

Canada, Chile, China, Iceland, India, Japan, Kazakhstan, South Korea, the Kyrgyz
Republic, Montenegro, Morocco, New Zeeland, Norway, Russia, Switzerland,
Taiwan, Tajikistan, Thailand, Turkey and the USA.

A multilateral agreement is a trade agreement established between three or

more countries with the intention of reducing barriers to trade, such as
tariffs, subsidies, and embargoes, that limit a nation's ability to import or
export goods.

 For Example- North American Free Trade Agreement (NAFTA) signed in 1994
between the U.S., Canada and Mexico

India’s Recent Trade Policy

Announcing a new Foreign Trade Policy in April 2015, Prime Minister Narendra
Modi’s government said it wished to increase India’s share of global trade from
2.1 percent to 3.5 percent and double exports (to $900 billion) by 2020.19 The
policy seeks to integrate the government’s Make in India and Digital India
initiatives. Modi elaborated on his thinking and set out a clear road map at a
speech in Washington in June 2016: We will continue to strengthen the “Make
in India” initiative. It is not intended for only manufacturing for the domestic
market or import substitution. It is as much about making world-class products
and services for the whole globe. That is why, for us, improvements towards
free trade are important. It is very important for us that developed countries
open their markets, not only to goods from countries like India but also to
services. India is the future human resource powerhouse of the world with a
young hard-working population. In my vision, a partnership between American
capital and innovation, and Indian human resources and entrepreneurship can
be very powerful., The government will need to continually assess how these
priorities (for example, the partnership between American capital and
innovation and Indian resources and entrepreneurship) are playing out within
evolving global trends. Implementation of India’s major schemes—the Smart
City Project, Make in India, Skill India Program, and Digital India—will require
foreign direct investment and a comprehensive rebooting and rejuvenation of
India’s manufacturing sector. The Modi government has made a good start. In
2015, India attracted more foreign direct investment (FDI) than China and the
United States, tripling Greenfield FDI, which reached an estimated $63
billion.22 Indeed, India became the leading country in the world for greenfield
FDI, overtaking the United States ($59.6 billion) and China ($56.6 billion). The
Make in India initiative, however, has possibly run into international
headwinds caused by recession, protectionism, and technological
developments, such as automation and 3D printing. As a result, Make in India
may only affect the Indian market, specifically the defence sector.
Tariffs in competitive markets

Who Benefits from Tariffs?

The benefits of tariffs are uneven. Because a tariff is a tax, the government will see
increased revenue as imports enter the domestic market. Domestic industries also
benefit from a reduction in competition, since import prices are artificially inflated.

Unfortunately for consumers—both individual consumers and businesses—higher

import prices mean higher prices for goods. If the price of steel is inflated due to
tariffs, individual consumers pay more for products using steel, and businesses pay
more for steel that they use to make goods. In short, tariffs and trade barriers tend
to be pro-producer and anti-consumer.

The effect of tariffs and trade barriers on businesses, consumers, and the

government shifts over time. In the short run, higher prices for goods can reduce
consumption by individual consumers and by businesses. During this period, some
businesses will profit, and the government will see an increase in revenue
from duties.

In the long term, these businesses may see a decline in efficiency due to a lack of
competition, and may also see a reduction in profits due to the emergence
of substitutes for their products. For the government, the long-term effect of
subsidies is an increase in the demand for public services, since increased prices,
especially in foodstuffs, leave less disposable income.

How Do Tariffs Affect Prices?

Tariffs increase the prices of imported goods. Because of this, domestic producers
are not forced to reduce their prices from increased competition, and domestic
consumers are left paying higher prices as a result. Tariffs also reduce efficiencies
by allowing companies that would not exist in a more competitive market to remain
open.

The figure below illustrates the effects of world trade without the presence of a tariff.
In the graph, DS means domestic supply and DD means domestic demand. The
price of goods at home is found at price P, while the world price is found at P*. At a
lower price, domestic consumers will consume Qw worth of goods, but because the
home country can only produce up to Qd, it must import Qw-Qd worth of goods.
When a tariff or other price-increasing policy is put in place, the effect is to
increase prices and limit the volume of imports. In the figure below, price
increases from the non-tariff P* to P'. Because the price has increased,
more domestic companies are willing to produce the good, so Qd moves
right. This also shifts Qw left. The overall effect is a reduction in imports,
increased domestic production, and higher consumer prices.