Meaning of Commercial Policy in International Trade
Commercial policy in international trade refers to deliberate efforts on the part of a government to intervene in the country’s trade relations with other countries. Commercial policy aims at regulating trade and protecting the economy.
Instruments of Commercial Policy
A number of commercial policy instruments are used. These include:
- Tariffs: This is a tax imposed on imported goods. Import duties may be increased in order to reduce imports.
- Import quota: This involves fixing a maximum quantity or value of a commodity which may be imported during a given period.
- Import licensing: Importers may be required to obtain licenses for the importation of particular commodities.
- Foreign exchange control: The use of foreign exchange for imports may be controlled. For example, a maximum amount may be fixed as Basic Travel Allowance.
- Devaluation: This is a commercial Policy which involves lowering the value of a country’s currency in relation to those of other countries.
- Prohibitions: Outright bans may be imposed on acommodity.
- Administrative controls: Stringent administrative rules may be imposed on the importation of some commodities. This may involve the use of severe rules and regulations and the imposition of technical and safety regulations in order to make importation difficult.
- Import-substitution: The production of commodities at home which would otherwise be imported may lead to a reduction in the volume of world trade.
Aims and Objectives of Commercial Policy
The use of commercial policy instruments is aimed at achieving certain objectives.
- Protection of infant industries: The use of tariffs and other protective devices would shield young domestic industries from foreign competition to enable them grow to maturity.
- To raise the level of domestic employment and incomes, the protection of the economy would enable domestic industries to grow.
- To prevent dumping: The use of quota, high tariffs and other instruments would discourage dumping and protect the economy.
- To improve the balance of payment: Commercial policy instruments are used to reduce the volume of imports. The total value of imports may therefore decrease relative to the value of exports with a consequent remedial effect on the balance of payments.
- To raise revenue: The use of tariffs is sometimes usedtoraise revenue for government expenditure.
- For strategic reasons: Protection of the economy may be forsecurity purposes. A country may decide to produce its military equipment for fear of the ‘cost’ of total dependence on other countries in times of crises.
- Diversification of the economy: The use of commercial policy instruments is sometimes used to enable the economy to be more broadbased. This reduces dependence on a few sectors thereby making the economy more self-reliant.
- To regulate the consumption pattern: Protective devices are used to reduce or stop the importation and consumption of some commodities regarded as either non-essential or harmful.
- As a retaliatory measure: A country may retaliate against another country by using certain commercial instruments.