The Various Instruments Of Trade Policy

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The several instruments of trade policy, which are implemented by governments, have increasingly become pro-producer and anti-consumer. Tariffs, subsidies and local content requirements have been introduced to increase government revenue, encourage the production of goods and services, raise the prices of imported goods and to benefit local producers. Rovegno (2013) argues that governments have turned to these alternative means of regulating trade as regulatory bodies such as the World Trade Organisation (WTO) has restrained the ‘traditional forms of import protection’. Tariffs are considered to be the oldest form of trade policy and are pro-producer. Tariffs fall under two categories, specific tariffs which are levied as a fixed charge…show more content…
Governments can ensure that domestic producers remain operating with ‘buyouts’. For example, the Australia government financially supporting car manufactures such as Toyota. The multinational automotive manufacturer was the beneficiary of $2 billion from the Australian federal government (Hawthorne & Preiss, 2013). Although subsidies do not necessarily favour producers at the expense of consumers directly, consumers as taxpayers ultimately pay for these ‘buyouts’ to keep businesses afloat, even if they are proving to be inefficient and failing to maintain competitiveness in foreign markets. Furthermore, local content is another strategy implemented by governments that focuses on producers rather than consumers. Local content is a requirement (physical or value terms) placed by a nations government that ensures a fraction of a good is to be produced domestically. Frequently used in developing countries, local content requirements often directly affect the supply a nation receives of any particular good (Richardson, 2013), as foreign competition and imports are limited. As local content requirements protect and benefit domestic producers, the restrictions placed on imports in turn increase the prices for goods and components. Thus resulting in consumers suffering at the expense of producers, as they have to pay higher prices for the final product. Overall, local content requirements continue the trend of
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