Introduction:

Commercial Policy is an economic policy which is concerned with those decisions, strategies
and instruments which influence the foreign trade sector of an economy. In the commercial
policy it is to be decided that what will be the exports and imports of the country, whether the
foreign trade sector will be consisting of consumer goods or the producer goods and whether
the trade will be free or restricted. Commercial Policy can be decomposed into
Export and import Policy
Foreign exchange policy and
Tariff Policy.
Instruments of Commercial Policy:
The commercial policy is consisted of the following instruments:
Tariff Import Tax!
"uota #ystem
Exchange Control
Export subsidies
$oluntary Export %estraints
#tate Trading
&ultiple Exchange rate system
Objectives of Commercial Policy:
Following are the main ob'ecti(es of commercial policy.
To increase Exports: The under de(eloped countries are preys to )Trade *ap+. It
means that their exports are less than their imports. ,s a result they ha(e to face
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deficit in their balance of payments. Therefore, the main ob'ecti(es of commercial
policy in these countries are to remo(e deficit in balance of payments. This can be
done by enhancing exports. In this respect the export duties are abolished and
subsidies on exports be pro(ided, the concessions be granted to those firms which
produce domestic raw material, and multiple exchange rate system be pursued,
whereby low rate of exchange be adopted for exports, and a higher rate of exchange
be followed for imports, particularly for luxurious imports.
Diversification in Exports: To remo(e deficit in balance of payments not only the
exports should be boosted up, but a di(ersification in exports be also brought. The
.uality of exports is impro(ed. The new mar/ets for exports be disco(ered the share
of manufactured goods in exports be increased for this all, the exporters be
encouraged. They be pro(ided with subsidies and rebates. The cheap credit policy be
initiated for the exporters. Tax holidays be granted for the exporters. In this way the
.uantity and .uality of exports would be increased.
Protection to Infant Industries : The purpose of import policy is to protect the infant
domestic industries. ,s the industries of under de(eloped countries li/e Pa/istan
cannot compete with industries of de(eloped countries. Therefore if the domestic
mar/ets are supplied with foreign products the process of industriali0ation in home
country will ne(er start. The country will remain bac/ward. Therefore in order to
protect the infant industries, the commercial policy aims at imposing import duties,
.uota system and exchange control etc. The cheaper credit facilitates be granted to
those industries which engage in import substitutions. In this way on the one side the
imports will come down. 1n the other side import substitutes will be produced in the
country. Conse.uently the balance of payments of the country will impro(e the
process of capital accumulation will start leading to increase income and
employment.
Improvement in Terms of Trade: The ratio between the prices of exports and prices
of imports is /nown as terms of trade The terms of trade of de(eloping countries li/e
Pa/istan goes on to fall. It means that they ha(e to gi(e more exports against their
imports. In other words the prices of exports go on to fall while the prices of imports
go on to increase in case of de(eloping countries. Therefore to chec/ the falling
tendency of terms of trade the commercial policy helps us. Through commercial
measures such goods be exported which could command rising prices in the world
mar/ets. ,s rather agriculture goods, the manufactured goods are exported. The
buffer stoc/s for agri goods be set up so that fluctuations in their prices could be
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a(oided. The necessary raw material and industrial goods be prepared at country
le(el. 3ith such all measures terms of trade could be impro(ed.
Stability in Internal and External Value of Currency: 3hene(er a country faces
deficit in its balance of payments, the external (alue of the currency goes on to fall.
This not only leads to decrease the international (alue of the currency but inflation is
also generated in the country. Thus commercial policy can be applied to bring internal
and external stability in the (alue of currency. For this purpose the import duties be
imposed on the imports, the .uotas of the imports be fixed and rationing of foreign
exchange can be made. 3hen the external (alue of the currency impro(es the
internal (alue of the currency will also impro(e. In other words, with the help of
commercial instruments both internal and external balances can be attained.
Commercial Links: The commercial policy can be applied to ma/e commercial lin/s
with other countries. For this purpose the trade delegates can be sent abroad. The
trade fairs and exhibitions can be arranged. In this way, a country can populari0e its
products and exports. Conse.uently the exports are boosted up and balance of
payments will impro(e.
Commercial Policy in Pakistan:
Pa/istan4s Commercial Policy can be summari0ed into the following points:
To de(elop trade with all countries of the 3orld and establish lasting collaboration
with them in the commercial sphere.
To maximi0e Pa/istan4s exports with a (iew to increasing our foreign exchange
earnings and disposing of surplus commodities manufactured goods.
To so control imports as to /eep them within our estimated earnings of foreign
exchange, while at the same time meeting essential re.uirements of for industrial
consumption as well as commercial use.
To de(elop other ser(ices which are ancillary to trade and commerce, namely
shipping, mercantile marine, insurance etc., to meet the expanding needs of the
country and augment our earnings of foreign exchange through them as well.
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Effects of Commercial Policy:
Commercial Policy influences the following area which ha(e a direct impact on the economy:
%e(enue
Protection or resource allocation
6efense of the balance of payments
#tability of the domestic economy
&aximi0ation of income from exports, and hence of the total 7ational income
Economic 6e(elopment
Revenue
8nderde(eloped countries li/e Pa/istan whose capacity to deri(e re(enues from direct taxes
such as income and corporate profits taxes! is limited so commercial policy affects the
re(enue by imposition of export or import duties which these countries find alternati(e
sources and import and export duties are among the easiest taxes to collect. This
dependence on customs duties as part of re(enue earnings is high in these countries.
Protection or resource allocation
Tariffs as an instrument of Commercial Policy is an effecti(e weapon for pro(iding protection
from foreign competition to indigenous, newly establishing industries. In fact, the well9/nown
4infant Industry4 argument is considered to be one of the chief 'ustifications for interference
with the free flow of international trade. This is an important criteria from the (iew point of
underde(eloped countries li/e Pa/istan, which ha(e hardly any industry of note, or a few
industries producing for the export mar/et apart from the small9scale, so9called cottage
industry, which produces, perhaps, for a local mar/et only!. %eallocation of resources follows
automatically, for these countries usually start with the manufacture of some raw material
abundantly produced in and pre(iously exported by the country. substitutes. This reallocation
raises other problems. Industriali0ation in(ol(es use of foreign exchange, for in the
beginning, imports are the only source for securing capital goods. If the costs of financing the
industriali0ation programs are to be met out of the current foreign exchange earnings of the
country, increased absorption of the export product in the home industry, unless its
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production is raised simultaneously, poses considerable foreign exchange a(ailability
problems.
Defense of the balance of payments
8nderde(eloped countries suffer from pressures on the balance of payments due to
continuously rising demand for capital goods, 9semi9manufactured raw materials; and other
imports related to their de(elopment needs. Trade of a country also affects if domestic
spending is di(erted to home products or to forced sa(ings, if the controlled imports are
expensi(e consumer goods without close substitutes in the home mar/et. <alancing of
international payments is one of the main considerations of a commercial policy. <udgeting
and careful allocation of the current foreign exchange earnings may not be effecti(e enough
unless matched by action on the side of export promotion as well, because there is /a limit
beyond which imports may not fall specially in a de(eloping country li/e Pa/istan.
Stability of the domestic economy
#tability of the domestic economy is depending on the price le(el and the le(el of
employment and both are exposed to the effects of international trade in an economy. The
cumulati(e effects of a restricti(e import policy as part of Commercial Policy shows up
directly, by affecting prices of imports, and indirectly, by the re9ad'ustment of domestic
resources under such a policy. The effects generated through the impact of trade on
employment need consideration too especially when export incomes are rising, which means
the pressures of demand for imports would also be high. Commercial Policy affects the
(olatile fluctuations in the domestic economy ris/ of exposure to outside forces. Commercial
Policy manipulation may lead to effect sa(ings and capital formation.
a!imi"ation of income from e!ports# and hence of the total
$ational income
&aximi0ation of income from exports is highly important from the point of (iew of re(enue
collection, balance of payments, and abo(e all, national income. Commercial Policy affects
regulation of supply of exports, introduction of new exports, organi0ational changes in
mar/eting, pro(ision of increased facilities and incenti(es, and di(ersification of the pattern of
exports.
Economic Development
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1rgani0ed Commercial Policy of a country affects international transactions in international
trade by raising sa(ings and contributing to capital formation in the economy. Institutional
changes in the
domestic economy, and its absorpti(e capacity for the incoming foreign capital, aid, grants,
loans or pri(ate in(estment! as a supplement to domestic capital formation also affects the
trade of ma'or industries of a country as the foreign trade is a (ital source of supplies of
capital e.uipment for de(elopment purposes in the country for long term growth and
de(elopment.
Conclusion:
Effecti(e Commercial Policy is integral to the economic growth and de(elopment of a country
especially for underde(eloped countries li/e Pa/istan as the foreign trade opens new
hori0ons for ad(ancement in industrial as well as agricultural sector and pro(ides a bridge for
the exchange of (aluable resources for the prosperity and boom of economy.
References:
%. %esearch %eport #eries 7o. -, Commercial Policy of Pa/istan by &rs. 7. #arfra0
Pa/istan Institute of 6e(elopment Economics!
&. Pa/istan4s Commercial Policy>,n ,ppraisal Economic Digest $ol. 5, 7o. - #pring -?@A!,
pp. 5-95B Published by: Pa/istan Institute of 6e(elopment Economics
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