International trade policy

One of the most important features of the international trading environment is the proliferation of
the trade barriers.

All government attempts to restrict or support international trade or transfers of resources. This
intervention can take the form of controlling the flow of trade and transfer of goods, controlling
the transfer of capital flow, or controlling the movement of personnel and technology.

 Tariffs 
A tariff or customs duty is a tax levied on imports or exports.
o Import duties are levied on goods entering a country. They serve two purposes:
revenue and protection. If the duties are for revenue purposes, they must be
relatively low or they will discourage the import of such items and limit the
amount of revenue that can be collected. If the duties are for protection, they can
be relatively high, such as the 490% tariff placed on imports of foreign rice into
Japan .
o Export duties on goods leaving a country serve three purposes: to provide
revenue, conserve domestic resources, and/or stimulate the growth of domestic
industries. For example, if export duties make it more cost-effective for local raw
material suppliers to sell to local manufacturers than to international markets,
international supply of these materials will be limited. This increases the price of
the materials to overseas producers and gives local manufacturers a relative cost-
advantage in export markets.
o Penalty duties are levied on imports for the violation of some customs rules of the
importing country, such as importing jewellery at a fictitiously low cost.
o Anti-dumping duties are levied on goods which are sold below the fair market
value in the importing country or below the cost of production in the exporting
country. For example, Brazilian orange juice and South American crayfish have
in recent years been 'dumped' on the Australian market.
o Retaliatory duties may be levied as a tit-for-tat measure by a nation for
discriminatory treatment of its products. For example, Australia and other rice-
growing countries might tax Japanese products in retaliation for Japan 's refusal
prior to 1995 to allow the importing of rice.
o Preferential duties are sometimes granted to maintain ties with certain countries
for political or economic reasons. Former British colonies, after gaining
independence, were often granted preferential treatment by the mother country.

Some examples of the size of tariffs are evident in that shows the changes in tariffs and quotas
into China from 2004. Large falls in tariffs can also be found in the recent US-Australia Free
Trade Agreement that came into force on 1 January 2005. Duties on more than 99% of tariff
lines covering industrial goods have been eliminated. For example, tariff savings for US
manufactured goods exporters will result in savings of $US300 million in the first year alone.
Subsidies 
A subsidy is a government payment to a domestic producer. By receiving subsidies,
manufacturers are able to set prices that are not completely dependent on the cost of production.
Countries which import these subsidised products usually retaliate by levying a countervailing
duty (a tariff) to offset the advantage of the subsidy. 
Classification of subsidies

1. Service subsidies
2. Econonomic subsidies
3. Production subsidies
4. Export subsidies

Regulation of international trade

The first regulations of international trade were made through bilateral treaties.   These were
agreements signed by two countries through which they stipulated the way trades are to be
conducted. Mercantilism had a huge impact on the flow of goods. Mercantilism suggests that the
ruling government should play a protectionist role in the economy, by encouraging exports and
discouraging imports, especially through the use of tariffs, a tax on goods upon importation.
Tariffs can be a percentage of the value of the good imported or a specific value not relating to
the value of the good, but to its weight or volume. There is more than one purpose of
implementing a tariff. It can be a set of rates designed primarily to raise money for the
government also known as a revenue tariff, a set of rates intended to artificially inflate prices of
imports and protect domestic industries from foreign competition also known as protective tariff
or a rate so high that no one imports the product taxed this way, thus being a prohibitive tariff.   

In the nineteenth century a new belief emerged, that of free trade. This belief became the
dominant thinking among western nations.   Free trade is a market model in which trade in goods
and services between countries flow without government imposed restrictions. Restrictions to
trade include taxes and tariffs, and other non-tariff barriers.   Free trade can be contrasted with
protectionism, which is the economic policy of restricting trade between nations.   Besides taxes
and tariffs free trade can include the absence of trade-distorting policies which could give
a certain advantage, free access to market information, free movement of labor between and
within countries, free movement of capital between and within countries and free market
information. Free trade is usually most strongly supported by the most economically powerful
nations, but many other countries are increasingly becoming advocates of free trade as they
become more economically powerful. Traditionally agricultural interests are usually in favour of
free trade while manufacturing sectors often support protectionism, but in the last few years the
United States and Europe have set rules which allow for more protectionist measures in
agriculture than for most other goods and services