International trade policy

The Main Types of Trade Policy

Regulation of international trade supposes purposeful influence of the state on trade relations with other countries. The main goals of foreign trade policy are:

• the volume change of exports and imports;

• changes in the structure of foreign trade;

• providing the country with the necessary resources;

• the change in the ratio of export and import prices.

There are three main approaches to the regulation of international trade:

• a system of unilateral measures, in which the instruments of state control used by the government unilaterally and not coordinated with the trading partner;

• the undertaking of bilateral agreements, in which trade policy measures agreed between trading partners;

• the undertaking of multilateral agreements. Trade policy is coordinated and regulated by the participating countries (the General Agreement on Tariffs and Trade, which is included in the system of the WTO agreements, agreements on trade of EU member states) [18, p.170].

The state can use each of approaches in any combination.

The basic line of government control of international trade is the application of two different types of foreign trade policy in combination: liberalization (free trade policy) and protectionism.

Under the free trade policy is understood the minimum of state interference in foreign trade, which developed on the basis of free market forces of supply and demand, and under the protectionism - the state policy, which provides the protecting of the domestic market from foreign competition through the use of tariff and non-tariff trade policy instruments.

These two types of trade policy characterize the measure of state intervention into international trade.

If under the conditions of liberalization policy, a basic regulator of foreign trade is a market, then the protectionism practically excludes the operation of free market forces. It is assumed that economic potential and competitiveness at the world market of separate countries is different. Therefore a free action of market forces can be unprofitable for the less developed countries. Unlimited competition from more powerful states can result to economic stagnation and the formation of inefficient economic structure in less-developed countries

The protectionism policy contributes to the development of certain industries in the country and often is a necessary condition for industrialization of agrarian countries and unemployment reduction. However, the removal of foreign competition reduces the interest of domestic producers in the implementation of scientific and technological progress, improving the efficiency of production. There are such forms of protectionism:

• selective protectionism, directed against some countries or some commodities;

• industrial protectionism, which protects certain industries;

• collective protectionism: countries, which belong to economic integration organizations conduct this form to countries, which do not belong to a union;

• hidden protectionism, which is carried out by methods of domestic economic policy.

Every country has economic, social and political arguments, protecting interests of protectionism.

The main arguments for restrictions on foreign trade are:

• necessity of defense providing;

• increase of domestic employment;

• diversification for the sake of stability;

• protection of infant industries;

• protection from dumping;

• cheap foreign labor force.

So, the art of trading policy is to find the point of balance between two trends: free trade and protectionism. Each policy has its own advantages and disadvantages, depending on the circumstances, time and place of its applying.

The instruments of state regulation of international trade include the following:

• tariff methods that regulate mostly the imports and protect domestic producers from foreign competition. They make foreign goods less competitive;

• nontariff methods, regulating both imports and exports (they help to bring more domestic products on the world market, making them more competitive).

To indicate the nature of trade policy, the following two indicators are used:

• the average level of customs tariff. It is calculated as the average rate of import duties, according to the value of imported goods, to which the rate is applied. This indicator is defined only for the goods whose imports are imposed by duties;

• the average level of nontariff barriers. It is calculated as the value share of the imports or exports, which are subject to the restrictions [18, p. 173].

Mode of implemented restrictions for each of the indicators is considered as open one if its level is less than 10%, the moderate one if less than 10-15%, the limited one if over 25% and the restrictive one if 40-100%.

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