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Free trade policy means policy of non intervention Tariff (tax) and Non Tariff (non tax) Barriers Other barriers like transportation cost, insurance, loading and unloading, port charges etc
Free trade
No barriers Least govt. intervention All countries are free to trade with each other No distinction between domestic and foreign firms No restriction on import or export
Mutually beneficial
Export of goods where prices are high Import from nations where prices are low
Efficient entrepreneurship
Tough competition
International cooperation
People from different countries come in close contact with each other
Possibilities of inventions
Each country try to improve quality
Advantage to consumers
Competition
Wide market
Free trade means market of whole world is open to one and all
Methods of protection
Methods of Protection
Tariff Barriers
Natural Barriers
Tariff Barriers
It is a duty levied on the traded commodity as it crosses a national boundary Import duty Export duty Import tariff are more important than export tariff It increases the price of imported product
Specific
Ad-valorem
Compound
Ad-valorem Duty
Duty is fixed according to value of the goods Usually a fixed percentage of the value For example the value of the car is Rs. 15,00,000 and the duty is at the rate of 10% The total duty works out to be (10/100)*15,00,000= 150000
Compound duty
This duty is combination of specific duty and ad-valorem duty Specific duty is added to the ad-valorem duty For example specific duty on car is Rs. 10,000 Ad-valorem duty is 10% and the value of car is Rs. 15,00,000 Ad-valorem duty works out to be 1,50,000 Compound duty = Specific duty+ Ad-valorem = 10,000 + 1,50,000 = 1,60,000
State Trading
Trading is done by govt. agencies Import of goods that are highly essential
Legal prohibition
British govt. prohibited import of cloth from India
License system
License to import
Technical regulations
Testing on the grounds of health, safety and pollution
Administrative barriers
Bureaucratic hurdles Complicated export forms Administrative delays Excessive inspection
Natural Barriers
Transportation Loading and unloading expenses Port charges Insurance etc.