This document discusses various instruments of trade policy used by governments, including tariffs, subsidies, and quotas. It provides details on different types of tariffs (specific vs. ad valorem), subsidies (consumption, export, employment, agriculture), quotas (absolute, tariff rate), and dumping (sporadic, predatory, persistent, reverse). Anti-dumping policies, which impose tariffs on imports priced below fair market value, are also examined.

1. 5. Trade Relations
Prof. Anita Rathod

2. 5.1 Instruments of trade policy:
This chapter examines the policies that governments adopt toward international trade,
policies that involve a number of different actions. These actions include taxes on some
international transactions, subsidies for other transactions, legal limits on the value or
volume of particular imports, and many other measures. The chapter thus provides a
framework for understanding the effects of the most important instruments of trade
policy

3. 5.1.1Tariffs:
Tariff also known as custom duties are
basically taxes or duties imposed on goods
and services which are imported or exported.
It is the oldest form of trade policy. Tariffs
give a price advantage to locally produce
goods over similar goods which are imported.

4. Specific Tariffs: A specific tariff is an import duty that
assigns a fixed monetary tax per physical unit of the
good imported. It is calculated on the unit of measure,
such as weight, volume, etc, of the imported good.
Ad valorem tariff: An ad valorem tariff is levied as a
constant percentage of the monetary of one unit of the
imported good. While ad valorem tariff preserves the
protective value of tariff on home producer, it gives
incentives to deliberately undervalue the good’s price
on invoices and bills of lading to reduce the tax
burden.

5. 5.1.2 Subsidies
Government payment to a domestic producer in order to encourage the production of
goods and services at less cost and help domestic exporters have competitive pricing in
the international market. Subsides aim to encourage production, boost exports, promote
research, reduce unemployment.
Types of subsidies:
● Consumption subsidy
● Export subsidy
● Employment subsidy
● Agriculture subsidy

7. 5.1.3 Quotas:
Quotas are limitation on the imported goods,
Government impose limit on the quantity or in
Exceptional cases the value of the goods or services
That may be exported or imported over the specified
Period of time. Quotas are more effective in restricting trade than tariffs.
Types of import quotas:
● Absolute quota
● Tariff rate quota

8. 5.2 Dumping - Meaning and Anti dumping
policies
Dumping means selling goods in a foreign market below their cost of production or selling
goods in a foreign market below their “Fair” market value.
Types of dumping:
● Sporadic dumping.
● Predatory dumping
● Persistent dumping
● Reverse dumping

9. Types of dumping:
Sporadic dumping - Manufactures practise this type of dumping to get rid of excess
merchandise, also avoids starting a price war in the domestic market, or reduce their own
merchandise price by destroying the excess supplies.
Predatory dumping (Intermittent dumping) - It involves the sale of goods in
overseas market at a price lower than the home market price.
Persistent dumping (Long period dumping) - Consistently selling at lower prices in
one market than in the rest of the market.
Reverse dumping - It is followed in the overseas market where the demand is less
elastic. Such markets tolerate a higher price. Thus, dumping is done in the manufactures
home market by selling locally at a lower price.

10. Anti-dumping policies -
Anti-dumping policy is a tariff imposed on imports manufactured in foreign countries that
are priced below the fair market value of the similar goods in the domestic market. The
government imposes anti-dumping duty on the foreign imports when it believes that the
goods are being dumped.