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Various Approaches to Trade Policy

Introduction

Countries occupying different positions in the world economy in general and in various commodity markets in particular administer a certain trade policy to protect their interests. In the condition of the economic crisis, borrowing some positive experiences concerning trade policy in different countries will help developing countries to integrate into the world market more smoothly and harmoniously and become highly developed states. Modern trade policy of states is different with the development and confrontation of two trends – protectionism and liberalization. Each of these trends prevails in certain periods of development in terms of regional and global trade. While in 1950-60s the trend towards liberalization dominated, there was a wave of new protectionism in 1970-80s. The relevance of the research topic consists in the fact that trade policy is an integral element of international economic relations.

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Concept and Types of Trade Policy of the State

Foreign policy of the state is the activities of public authorities directed at establishing the optimal ratio of exports and imports of the country ensuring the sustainable development of the national economy and achieving the country’s maximum benefit. In the field of foreign trade, a country is intended to protect its national interests, turns external trade into a factor of economic development and growth, improves its situation in the international division of labor, and improves the export structure. In addition, its task is to protect the interests of domestic producers and consumers, monitor the favorable ratio of exports and imports, and maintain production and population with essential goods, services, and resources. Besides, the country also increases budget revenues from foreign trade, which are made up of revenue of state exporters, customs duties, taxes, and other charges. Certain tasks have a long-term nature such as changes in the degree and the method of inclusion of the country in the international division of labor. Further, some other objectives can be achieved in a short period of time such as a change in exports or imports. In such a way, countries perform highly important tasks in relation to trade policy.

There are two main areas of trade policy – free trade policy and protectionism. Free trade policy means that the state refrains from a direct impact on foreign trade. Thus, the market plays a role of the regulator. However, this fact does not mean that the state is completely eliminated from the influence on this sphere of business. It concludes agreements with other countries to provide maximum freedom of its business entities. In the book The Impact of Trade Liberalization on the Trade Balance in Developing Countries, it is written that “many developing countries have substantially liberalized their trade regime over the past three decades, either unilaterally or as part of multilateral initiatives”. The implementation of free trade policy allows obtaining the greatest benefit mostly from international economic exchange to more economically developed countries.

Protectionism is the policy aimed at the protection of the domestic economy from foreign competition. In contrast to free trade policy, the protectionism eliminates free market forces since it is assumed that the economic potential and competitiveness in the global market of individual countries are different, and, therefore, the free effect of market forces can be disadvantageous for less developed countries. Unlimited competition from stronger foreign states may result in economic stagnation and formation of the inefficient economic structure for weaker states. Protectionism has three main forms. The first one is unilateral protectionism – regulation of foreign trade without coordination with a partner. The second form includes double-sided protectionism – coordination of measures with a partner. The last form is multilateral – participation of several countries in the development of trade policy. In its extreme type, protectionism takes the form of economic autarky, in which countries seek to restrict imports only by goods, the production of which is impossible in the country. Different degrees of protectionism occur constantly and depend on the level of economic development of the country.

Modern general trend of the development of trade policy includes the weakening of protectionism and liberalization particularly in the framework of integration associations. In recent years, the development of international trade is conducted under conditions of accelerated liberalization as it leads to economic growth (Appendix). There is an increased exposure to international and regional regulations. Moreover, there is weakening of national regulation. However, within the framework of foreign trade regulation, the states use various trade policy instruments such as trade barriers, which can be administrative and economic.

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Classification of Trade Barriers

Under the conditions of developed market relations, different tools are most often applied, by which the state is acting on the increase or decrease in income from foreign trade forces economic agents to make decisions in this area in accordance with public policy objectives. Such instruments include trade barriers. The latter are divided into economic, administrative, and monetary. In particular, economic barriers are anti-dumping measures. Administrative barriers include embargo – a ban on imports, quantitative restrictions, and licensing. Next, monetary methods appear in the foreign exchange control. One of the measures of the foreign exchange control is the introduction of multiple exchange rates, when currency exchange for the payment of various goods is produced by different rates. As a result, import of those goods is constrained, the payment for which requires exchange on the most disadvantageous exchange rate. In general, trade policy instruments are divided into tariffs and non-tariff barriers. There are several definitions of customs tariffs. First of all, they can be defined as a systematic list of customs duties used to goods moved across customs border. It can be also an instrument of trade policy and state regulation of the domestic market with its interplay with the world market. In addition, customs tariff can be defined as a specific rate of customs duty payable on import or export of particular goods into or out of the customs territory of the state. Customs tariff of every state consists of certain rates of customs duties, which are used for taxation of exported or imported products. Customs duty is a necessary fee collected by the customs authorities in export or import of products. It is the basic term for import and export. In general, customs duties have three important functions. The first is a protective one associated with import duties. The next function is balancing, which relates to the export duties set to avert unnecessary exports of products, domestic prices for which are lower than the world’s ones. The last function is fiscal, which relates to export and import duties as they are one of the main articles in the state budget. Therefore, trade barriers are divided into customs duties and customs tariffs, which serve their extremely important roles in trade policy. 

Economic Institutions Governing Trade Policies

The major institutions governing international trade policies include the WTO, UNCTAD, and GATT. The WTO is a multilateral agreement that includes international legal rules, principles, and norms, according to which trade and economic relations between the participating states are regulated. At the official site of the WTO, it is noted that “The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations”. It has its institutional framework, the main purpose of which is to exercise control over the member countries that have assumed particular obligations. The WTO is an organization that conducts multilateral trade negotiations, which addresses international trade issues. The body of the United Nations General Assembly, UNCTAD, was established in 1964. At their website, it is written that “UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964”. It studies and solves international trade problems in connection with the acceleration of economic development of the world economic system taking into account the interests of all groups of states. There are several UNCTAD’s tasks. The major task is the promotion of inclusive and equitable trade cooperation between states at different levels of development with different socio-economic systems. The next task is the establishment of adequate international trade principles and policies in order to resolve the problems of economic growth. In addition, UNCTAD conducts the production of comprehensive guidelines, organizational and legal conditions, and mechanisms of international trade linking the global trade policy with industrial cooperation and monetary problems worldwide. Besides, another task is policy coherence between governments and regional economic groupings in the field of trade and related development. GATT plays a special role in the regulation of international trade. It is an international organization operating since 1947. The members of this organization are developed countries of market economy and developing countries. The scope of its activity covers 4/5 of world trade. Thus, this institute is highly important now. In the book Trade and Protectionism, it is noted that “one important reason why the GATT system flourished was American support for it”. GATT was established on a temporary basis after World War II in the period of occurrence of various multilateral organizations in the area of international economic cooperation, in particular, the Bretton Woods institutions known today as the World Bank and the International Monetary Fund. The major advances in the field of international trade liberalization were achieved through a series of multilateral trade negotiations or trade rounds under GATT. The most important of them include the Dillon Round, the Kennedy Round, the Tokyo Round, and the Uruguay Round. These organizations play their significant roles in regulation and control trade policy among member states.

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Future Trends in Trade Policy

Production of goods, especially technically complex ones, will be more often shared between countries with comparative advantages. An increasing number of goods and services will not just be the subject of international trade, but also a universal trading system, the most important task of which is to coordinate measures to reduce the customs, administrative and technical barriers, harmonization and unification of legal rules of trade regulation in the member states. Gradually, a holistic multilevel system of international regulation will be formed. It will be characterized by the coexistence of national, transnational, regional, and global forms. The growing interdependence of national economies will force states to conduct foreign policy that will take into account not only its domestic interests but also the position of the partner countries as well as the interests of the transnational enterprise capital. The continued weakening of the barriers to the movement of goods, services, and capital is the essence of modern and future liberalization. Despite the conflicting interests of the participants, the regulation of international trade formally gains a more orderly world economic character. However, liberalization should not be understood simplistically. In fact, the regulation of world trade flows is an extremely difficult and controversial task. The World Trade Organization will continue to be the most versatile and influential in terms of the effects on international trade. As a result of its work, the level of import duties on industrial products has decreased by 10 times. At the present stage, there are three components of national trade and political systems. The first component is the reliance on legal provisions defining the specific powers of the executive authorities, the rights and obligations of economic entities in the sphere of foreign economic activity. The second sphere consists in harmonization and unification of national regulatory instruments with the principles, norms, and practices of the WTO. The last sphere lies in the complex nature of applicating the measures of state regulation and control of foreign trade including the economic, administrative, and technical means (barriers). These three forms will be the basis for future economic relations.

Conclusion

Summarizing and identifying common patterns and trends in the regulation of trade policy of individual countries, several conclusions can be drawn. First of all, trade policy of the countries is focused on the regulation and development of trade relations with other states. Implementation of this policy involves the determination of the state’s strategic goals in foreign relations as a whole and with individual countries and groups of countries. Next, it consists in elaboration of methods and means of ensuring the achievement of the set goals and saving these achievements. Protectionism is a characteristic of developing countries, and liberalism is more typical for developed countries. Both liberalism and protectionism reflect not only the specifics of the foreign trade policy of certain states but also their response to changes and the events occurring in international economic relations. The market economic system is more in line with the economic instruments of foreign trade regulations acting through the price mechanism, primarily customs, and tariff control.

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