International trade is the exchange of capital, goods, and services across international borders or

territories, which could involve the activities of the government and individual.[1] In most countries, such
trade represents a significant share of gross domestic product (GDP). While international trade has been
present throughout much of history (see Uttarapatha, Silk Road, Amber Road, salt road), its economic, social,
and political importance has been on the rise in recent centuries. It is the presupposition of international trade
that a sufficient level of geopolitical peace and stability are prevailing in order to allow for the peaceful
exchange of trade and commerce to take place between nations.
Trading globally gives consumers and countries the opportunity to be exposed to new markets and products.
Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry,
wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A
product that is sold to the global market is an export, and a product that is bought from the global market is
an import. Imports and exports are accounted for in a country's current account in the balance of payments.
[2]

Ancient Silk Road trade routes across Eurasia

Industrialization, advanced technology, including transportation, globalization, multinational corporations, and
outsourcing are all having a major impact on the international trade system. Increasing international trade is
crucial to the continuance of globalization. Without international trade, nations would be limited to the goods
and services produced within their own borders. International trade is, in principle, not different from
domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally
regardless of whether trade is across a border or not. The main difference is that international trade is
typically more costly than domestic trade. The reason is that a border typically imposes additional costs such
as tariffs, time costs due to border delays and costs associated with country differences such as language,
the legal system or culture.
Another difference between domestic and international trade is that factors of production such as capital and
labor are typically more mobile within a country than across countries. Thus international trade is mostly
restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors
of production. Trade in goods and services can serve as a substitute for trade in factors of production.
Instead of importing a factor of production, a country can import goods that make intensive use of that factor
of production and thus embody it. An example is the import of labor-intensive goods by the United States
from China. Instead of importing Chinese labor, the United States imports goods that were produced with
Chinese labor. One report in 2010 suggested that international trade was increased when a country hosted a
network of immigrants, but the trade effect was weakened when the immigrants became assimilated into their
new country.[3]
International trade is also a branch of economics, which, together with international finance, forms the larger
branch called international economics. Trading is a value-added function: it is the economic process by which a
product finds its market, in which specific risks are to be borne by the trader.

Commercial policy
From Wikipedia, the free encyclopedia

A commercial policy (also referred to as a trade policy or international trade policy) is a set of rules and
regulations that are intended to change international trade flows, particularly to restrict imports. Every nation
has some form of trade policy in place, with public officials formulating the policy which they think would be
most appropriate for their country. Their aim is to boost the nations international trade. Examples include
the European Union, the Mercosur committee etc. The purpose of trade policy is to help a nation's
international trade run more smoothly, by setting clear standards and goals which can be understood by
potential trading partners. In many regions, groups of nations work together to create mutually beneficial
trade policies.
Trade policy can involve various complex types of actions, such as the elimination of quantitative restrictions
or the reduction of tariffs. According to a geographic dimension, there is unilateral, bilateral, regional, and
multilateral liberalization.

According to the depth of a bilateral or regional reform, there might be a free trade area (wherein partners
eliminate trade barriers with respect to each other), a customs union (whereby partners eliminate reciprocal
barriers and agree on a common level of barriers against no partners) or a free economic area (or deep
integration as in, for example, the European Union, where not only trade but also the movement of factors of
production has been liberalized, where a common currency, the Euro, has been instituted, and where other
forms of integration and harmonization have been established). Some of the most common trade barriers are:
Tariffs: a tax levied on products that are traded across borders is called a tariff. However, governments
impose tariffs essentially on imports and not on exports. Two most popular types of tariffs are:
Ad valorem: This tariff involves a set percentage of the price of the imported goods.
Specific: This refers to a specific amount charged by the government on import of goods.
Subsidies: Subsidies work to foster export by providing financial assistance to locally manufactured goods.
Subsidies help to either sustain economic activities that face losses or reduce the net price of production.
Quotas: Import quotas are the trade limits set by the government to restrict the quantity of imports during a
specified period of time.
Embargo: This is an extreme form of trade barrier. Embargoes prohibit import from a particular country as a
part of the foreign policy. In the modern world, embargoes are imposed in times of war or due to severe
failure of diplomatic relations.
A voluntary export restraint: A restriction set by a government on the quantity of goods that can be
exported out of a country during a specified period of time. Often the word voluntary is placed in quotes
because these restraints are typically implemented upon the insistence of the importing nations. (ISBN/ISSN:
1405108002 9781405108003)
Objectives of Commercial Policy:
The main objectives of the commercial policy are:
First, to appreciate trade with other nations.
Second, to protect domestic market prevailing in the country.
Third, to increase the export of particular product which will help in expanding domestic market.
Fourth, to prevent the imports of particular goods for giving protection to infant industries or developing key
industry or saving foreign exchange, etc.
Fifth, to encourage the imports of capital goods for speeding up the economic development of the country.
Sixth to restrict the imports of goods which create unfavourable balance of payments.
Seventh, to assist or prevent the export or import of goods and services for achieving the desired rate of
exchange.
Eighth, to enter into trade agreements with foreign nations for stabilizing the foreign trade.
Some nations make an attempt to protect their industries with trade policies which place a heavy burden on
importers, allowing domestic producers of goods and services to get ahead in the market with lower prices or
more availability. Others avoid trade barriers, promoting free trade, in which domestic producers are given no
special treatment, and international producers are free to bring in their products.
There are three proposed arguments offered as explanation for why nation adopt commercial policies:
ADVANTAGE First is the national defence theory. According to this argument, certain industries such as
weapons, aircraft, and petroleum are vital to a nation's defence. Therefore, proponents of this theory argue
that these domestic industries should be protected from foreign competitors so that there is a domestic
supply on hand in case of an international conflict. No country would like to be dependent on another country
when it comes to weapons. Second is the infant industry theory. Under this argument, it is believed that new
domestic industries should be protected from foreign competition for so long so that they will have a chance
to develop. Ideally, as the new industry matures and becomes able to stand on its own feet and compete
effectively with other producers, the protections will be removed. It is intended to help a new domestic
industry develop without being immediately crushed by already established foreign industries. Last is
the antidumping theory. Dumping is simply the selling of a good in a foreign country at a lower price than it is
sold for in the domestic market. It is an illegal practice and current laws provide relief in the form of tariffs
imposed against the violators. Proponents of this argument believe that if dumping is allowed, foreign
producers will temporarily cut prices and drive domestic firms out of the market. Then they will use their
monopoly to exploit consumers. Antidumping legislation is implemented to prevent this.
Disadvantage: Increased Cost to Consumers:one of the most important disadvantages of trade restrictions is

that it drives up the price of goods in a country where trade barriers artificially raise the price of imported
products. The apparent effect of trade barriers is to prevent jobs from being lost to foreign competition,
which is an argument used by many special interest groups to justify various types of trade barriers. In the
long run, however, trade barriers force consumers to pay higher prices, since products that could otherwise be
made cheaply overseas take more resources to produce domestically. Increased Costs to Domestic Suppliers:
Price hikes due to trade barriers don't just affect consumers. It also puts a strain on firms which supply raw
goods and commodities to domestic industries. Without trade barriers in place, such firms can rely on the law
of comparative advantage, meaning that it would cost them more to try to find a certain raw material in their
own country than it would to buy from a country rich in a particular commodity. Trade barriers artificially raise
prices on foreign commodities, making it less profitable to buy from other countries. Less Competition: Trade
barriers lessen foreign competition, leading to fewer product choices for consumers. The fact that trade
restrictions make it more costly to purchase goods from abroad results in the domestic industry facing less
competition from foreign markets. In the short term, this can save jobs in select domestic industries.
However, in the long run, it leads to customers having fewer choices in the products they buy. It also gives
producers less incentive to create high-quality products available to the public. Escalations: Over time, one
country's policy of trade restrictions may lead to similar measures taken by foreign governments, who lose out
in the international trade game because they can't export products for a profit. This cuts down on economic
efficiency and competition on a global scale.
When nations trade with each other regularly, they often establish trade agreements. Trade agreements
smooth the way for trading, spelling out the desires of both sides to create a stronger, more effective trading
relationship. Many trade agreements are designed to accommodate a desire for free trade, with signatories to
such agreements making certain concessions to each other to establish a good trading relationship. Regular
meetings may also be held to discuss changes in the financial climate, and to make adjustments to trade policy
accordingly. Safety is sometimes an issue in trade policy. Different nations have different regulations about
product safety, and when goods are imported into a country with stiff standards, representatives of that
nation may demand the right to inspect the goods, to confirm that they conform with the product safety
standards which have been laid out. Security is also an issue, with nations wanting to protect themselves from
potential threats while maintaining good foreign relations with frequent trading partners.