Trade policy

Commerce

Trade policy is the set of regulations that determine how economic relations will develop between local companies or individuals and foreign agents.

In other words, trade policy encompasses the entire legal framework to which imports and exports are subject. This, in turn, varies for each partner. Thus, there are some countries with which there may be trade agreements and other markets with which strong restrictions are placed on the exchange of goods and / or services.

There is no doubt that international trade has an impact on the economic growth of countries. This, taking into account that the difference between exports and imports is one of the components of the gross domestic product (GDP).

Tools of a restrictive trade policy

Countries have different trade policy tools. First, we will focus on the restrictions or barriers that have the effect of increasing the cost of importation. These measures can be classified into two:

  • Tariff barriers: These are taxes on imports, which in turn are divided into three:
    • Ad valorem: It is calculated as a percentage of the value of the merchandise.
    • Specific: It is established based on the quantity of the imported good.
    • Mixed: It is a combination of the ad valorem and the specific tariff.
  • Non-tariff barriers: Are those that do not correspond to tariffs:
    • Import quotas: It is the application of limits of units or maximum weight to the importation of a product during a determined period.
    • Phytosanitary measures: These are certifications that are required for certain products to safeguard the health of consumers.

It should be noted that countries can adopt these barriers in order to protect local producers from foreign competition, for example under the nascent industry argument.

Another tool that can be used to increase the competitiveness of local businesses is the subsidy. Thus, the State provides financial support to exporting companies or a sensitive sector that competes with lower-priced foreign products.

Tools of an open trade policy

As a counterpart, the Government can adopt a trade policy of opening towards the outside, reducing or eliminating the aforementioned barriers. For example, the percentage of the ad valorem tariff on certain products can be lowered.

Governments can also reach, for example, the following agreements:

  • Free trade agreement: It focuses on the elimination of trade barriers within the zone or area delimited by the countries seeking greater harmonization between their economies.
  • Customs union: It is the next step to the free trade agreement, since it involves the inclusion of a common external tariff between the members of the union against third parties. That is, if Colombia and Peru agreed to have a single tariff regime on products imported from the United States.

In addition to the Customs Union, there are other types of agreement that go beyond the commercial, including mobility, for example, of the human factor and capital, as is the case of the common market.

Likewise, it should be noted that countries can establish measures unilaterally, reducing tariffs on certain products from a country.

For example, in 1991, the United States enacted the Andean Trade Preference Act (ATPA), which eliminated tariffs on a series of products from Peru, Bolivia, Colombia and Ecuador. This, with the objective of strengthening legal industries in these nations, and thus seeking to reduce drug production.

Commercial policy of a company

At a microeconomic level, we can refer to the commercial policy of a company as those decisions that the organization makes in order to achieve its sales objectives and consolidate its business.

That is, the commercial policy includes how prices will be set, how products will be distributed, what will be the marketing strategy, what will be the services that the customer will receive, among others.

Difference between international trade and foreign trade

Tags:  bag economic-dictionary markets 

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