TRADE POLICY

INTRODUCTION
Before we go into the subject matter of this unit, we shall take a quick look into a few recent developments in the international trade arena.

• On January 27 , 2017 The European Commission, after a detailed investigation which confirmed dumping ,decided to impose anti-dumping measures on two steel products (stainless steel tube and pipe butt-welding fittings) originating in China and Taiwan.
• In April, 2017 India accuses that by deciding to test up to 50 per cent of India’s shrimp consignments for antibiotic residues, European Union is using SPS (Sanitary and Phytosanitary) restrictions in the case of seafood, and also on fruits and vegetables) in an exaggerated way and that its specifications sometimes exceed the norms prescribed in the Codex Alimentarius standards of the FAO.
• In April, 2017, India decided to have a domestic purchase preference policy applicable for five years for PSU oil companies. Targets of local contents (LC) also are stipulated for certain oil and gas business activities.
•  In view of the avian influenza threat, India has in recent years curbed the import of frozen chicken legs from the US. The WTO upheld the objections raised by the US to India’s move, that the curbs are beyond international norms and therefore amounted to non-tariff barrier.

The above vignettes are just a few of the multitudes of episodes that arise almost on a daily basis when countries engage in trade. A glance at similar newspaper reports makes it obvious that governments do not conform to free trade despite the potential efficiency and welfare outcomes it will promote; rather, they employ different devices for restricting the free flow of goods and services across their borders.

• In unit 1, we have seen that there are clear efficiency benefits from trade in terms of economic growth, job-creation and welfare. The persuasive academic arguments for open trade presuppose that fair competition, without distortions, is maintained between domestic and foreign producers.
•  However, it is a fact that fair competition does not always exist and unobstructed international trade also brings in severe dislocation to many domestic firms and industries on account of difficult adjustment problems. Therefore, individuals and organisations continue to pressurize policy makers and regulatory authorities to restrict imports or to artificially boost up the size of exports.
• Historically, as part of their protectionist measures, governments of different countries have applied many different types of policy instruments, not necessarily based on their economic merit, for restricting free flow of goods and services across national boundaries. While some such measures of government intervention are simple, widespread, and relatively transparent, others are complex, less apparent and frequently involve many types of distortions. 
• In this unit, we shall describe some of the most frequently used forms of interference with trade. Understanding the uses and implications of the common trade policy instruments will enable formulation of appropriate policy responses and more balanced dialogues on trade policy issues and international trade agreements.
• Trade policy encompasses all instruments that governments may use to promote or restrict imports and exports. Trade policy also includes the approach taken by countries in trade negotiations. While participating in the multilateral trading system and/or while negotiating bilateral trade agreements, countries assume obligations that shape their national trade policies. 
• The instruments of trade policy that countries typically use to restrict imports and/ or to encourage exports can be broadly classified into price- related measures such as tariffs and non-price measures or non-tariff measures (NTMs).