Last updated: May 27, 2019
Topic: ArtDesign
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Trade Policy refers to Policies adopted by a country with reference to exports and imports. Trade Policy can be free trade policy or protective trade policy. A free trade policy is one which does not impose any restriction on the exchange of goods and services between different countries. A free trade policy involves complete absence of tariffs, quotas, exchange restrictions, taxes and subsidies on production, factor use and consumption.

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A protective trade policy pursued by a country seeks to maintain a system of trade restrictions with the objective of protecting the domestic economy from the competition of foreign products. Protective trade policy constituted an important plank in the commercial policies of underdeveloped countries. Trade policies may he outward looking or inward looking. An outward looking trade policy encourages not only free trade but also the free movement of capital. workers. enterprises and an open system of communications. An inward looking trade policy stresses the need for a country to evolve its own style of development and to be thc master of its own fate.

Free Trade Zones have been adopted by nations to promote exporters. Foreign trade can have a profound impact on the growth of an economy in terms of production, employment, technology resource utilization and so on.


The economic cooperation of trade refers to the broad characteristics of the economic system of the country in which the trade operates.

The economic environment of inter country trade is a complex phenomenon. Each nation

has economic relations with the other  Government, the capital market, the household sector and the foreign sector. These different sectors, together, influence the trends and structure of the economy. The form and functioning of the economy varies from country to country. The design and structure of an economic cooperation system is conditioned by socio-political arrangements. The Government is the manager of the economy. The nature of Government ownership, control and regulation of the economic activities of a country provides form and shape to the nature of economic system. In a mixed economy, the private, public and joint sectors and the like all have some say in the major decisions that influence the functioning of international trade.


There has been a phenomenal growth of trade between the nations all over the world. It would be advantageous for a country to indulge in trade with other countries, by exporting those commodities which it produces cheaper in exchange for what others can produce at a lower cost. Foreign trade has a profound impact on the growth of an economy in terms of production, employment technology, resource utilization and so on. The trading nations have clubbed in different consortiums and have a set rule of trading. The system has been framed in such a way so as to benefit the respective nations equally.


A group of nations combine together and select the method of free trade among them .There is no restriction on trade and goods pass free of trade barriers. When any member country in the group is trading outside the group then it may have its own independent external trade policy. Free Trade Area is not fully similar to the other systems in vogue. In Customs Union, besides the above factor they have a common external trade policy. Common Market, in addition to the above, is having free movement of labor and capital among member nations which is not applicable to free trade area. Free trade area is not having policies of monetary, and fiscal which are existing in Economic Union


An agreement between a group of countries by removing all barriers to trade among themselves. Further there is a common external trade policy that applies to non members. The first part of the Customs Union i.e. agreement for removing all barriers to trade among themselves, is common to Free Trade Area, Common Market and Economic Union. The policy in Free Trade Area is that group members pursue independent external trade policy. Common Market members, besides the above policies, are having a common external tariff on goods imported from outside the union, which is different from Customs Union. Policies like monetary, fiscal, welfare are added features in Economic Union which is not applicable in Customs Union.


A group of nations eliminating all barriers to the free flow of gods and factors of production among member nations and also having a common external trade policy. The first part is similar to all the other three –Free Trade Area, Customs Union and Economic Union. The second part is not matching with Free Trade Area as in that members set on tariffs on imports from non members. Customs Union is having a common external trade policy that applies to non members. Economic Union has features like monetary, fiscal and welfare which common market is not having.


In addition to the features available in Common Market, it has got that additional policies i.e. harmonizing monetary and fiscal policies across the member countries. Economic Union is entirely different from the other three factors already mentioned. The other three factors are lagging in one feature or the other from Economic Union. Each group of nations are establishing their own system to carry on the trade for maximum benefit to member nations.

As Economic Union has a wide scope of doing trade among member nations, the                       group of nations who have not so far adopted it are trying to follow the above system.




1. The Wall street Journal. 3ed ed