Information Resources

Trade

What is Trade?

Trade is a transaction of exchanging goods or services mostly for profit. The producer might sell a commodity or provide a service; a customer pays for them for it. It is trade. The mechanism that allows these trade transactions is called market. Trade development in any country creates employment, generates income, and contributes to poverty reduction. Especially in developing countries trade is becoming a way to address poverty. When goods and services are traded to other countries it is known as International Trade. If the producer or supplier sells goods outside his country, it is known as exporting and if a country buys commodities from other countries. Import export trade assumes huge importance in the context of overall performance of the world economy. An upward trend of import export trade is indicative of smooth functioning of the world economy; whereas a downward trend results from economic instability. Globalization has driven a sea change in the trading activities across the globe.

 

What is Trade liberalization?

Today's global economy countries now trade more intensively and regularly than in the past. The benefits of trade can significantly contribute to the upgrading of basic living standards, many developing countries and countries with economies in transition; have sought to actively take part in the global trading system. For most of these countries, efficient and effective participation in the global economy has led to extensive economic restructuring in their economies.

 

The term Trade liberalisation refers to reducing the barriers on trade that countries in the world have erected over a number of years. Integration in world markets and reduced trade barriers (trade liberalisation) leads to gains from trade to the participating countries. Protection in trade is to ensure that domestic businesses are protected from competition from foreign manufacturers and can be carried out through various means, through tariffs which increase the price of goods entering in a country, limits on the number of goods that can be brought into a country, and other non-tariff barriers in the form of legislation and regulations that make it very difficult for foreign competitors to sell goods into another country. Trade liberalisation contributed largely by aiding competition in the market and by increasing the basket of goods and services with better quality and lower prices. Liberalisation facilitates many players entering the market which also advances the investment climate of the country. Improved investment leads to growth which in turn results in consumer welfare.

 

Trade and SMEs

Small and Medium businesses make up majority of the domestic business transactions but play a limited role in international trade. Given their size and diversity of sectors in which they function, SMEs are highly adaptable between the developed and developing economies, provided that trade barriers are negated. Trade barriers are government imposed restrictions in the form of policy or regulation that restricts international trade. SMEs have trade issues unique to themselves based on their characteristics. Trade issues related to SMEs have been largely classified as; access to markets, access to technology, access to finance and access to skills. To address these issues national governments need to enhance transparency in international tax, finance, and trade rules and streamline unique SME dispute settlement procedures.

 

What is the need for Trade legislation?

The trade legislation or trade regulatory system is required to provide the necessary legal environment for the conduct of fair import and export trade. A clear and comprehensive trade enactment /regulation facilitate trade. The rationale is to set up a legal framework so that importers and exporters may conduct their international trade with certainty and confidence. Trade facilitation is the efficient implementation of the existing trade and Customs laws and regulations. Trade legislations in different countries are specifically drafted and implemented to meet their unique economic requirements; the laws have some common provisions to describe the duties and responsibilities of the implementing agencies of that country to regulate the smooth conduct of trade. The trade regulations will specify the types of import and export documentation and procedures that necessitate compliance by the importers as well as by exporters. Customs duties also come under trade regulations. They are imposed for fiscal purposes or sometimes, for the security of local industries. Legislations and subsidiary regulations related to trade should be enacted to build up and administer a fair and conducive trading environment that will assist and advance international trade for the development of the country. Properly drafted trade legislations and regulations also make sure that prohibited or risky goods are not illegally imported or exported.

 

What are the types of trade barriers?

Trade barriers are constrains that tends to obstruct the movement of goods and services. These trade barriers are imposed by the government in order to support local industries from getting exploited. Some types of trade barriers:-

 

Tariff (customs duty): Tariff as a trade barrier is tax imposed on imported products or services. Tariffs usually make imported goods or services more expensive than the local version.

 

Subsidy: A subsidy provides advantage to the local producers and export oriented firms in a country. It can be in the form of tax benefits or exemptions etc.

 

Quota: A quota fixes a certain limit on the quantity of a good that can be imported for a specific period.

 

Embargo: An embargo is a complete ban on the import of a product for economic, political, religious, security or quarantine reasons.

 

Voluntary Export Restraint (VER): A country facing a persistent, huge trade deficit against another country may pressurize it to adhere to a self-imposed limit on the exports. This act of limiting exports is referred to as voluntary export restraint. After facing consistent trade deficits over a number of years with Japan, the US persuaded it to impose such limits on itself.

 

Hidden barriers: Apart from the above mentioned barriers, there are also few hidden barriers for e.g. quality, labeling, safety and packaging requirements can make it difficult to sell products overseas and add to final costs.