Commercial policy is the part of economic policy of a country, that is related with measures and instruments that influence exports and imports, either through quantities, prices or which good will be traded or not.
Instruments of commercial policy
- Tariff policy: mainly exports and imports tariffs.
- Non-tariff restrictions: quantitative restrictions (import and export quotas, differential exchange rates, etc.).
- Subsidies and instruments that promote certain industries: The state may subsidize certain industries which replace imports or increase exports. Governments can also give technological support and promote international commercial relations.
Reasons to reduce imports
- To protect local employment in certain industries
- To reduce commercial deficit
Commercial policy integrates into a national economic development policy.
Bilateral agreements: 2 countries undertake an agreement. One country reduces import tariffs or other restrictions to imports from the another country, and the other country does the same with certain products from the first country.
Free trade agreements: a lot of commercial barriers between 2 or more countries are reduced or eliminated.
Custom unions: a group of countries unifies his external custom tariffs and make agreements regarding its internal tariffs.
Free economic areas: a lot of commercial regulations are eliminated. The movement of production factors is liberalized and monetary policy is coordinated. There are several grades of economic unions. European Union has unified it’s currency and released the movement of production factors.
Commercial relations between governments are not always cooperative: restrictive measures taken by a country can lead to other restrictive measures taken by another country in response to the first measures. For example, if a country raises its import tariffs to a product, the country that exports these products can raise the tariffs to products exported from the first country.