Chapter-3

Protectionism & Free Trade

Q: 1. what is free trade?(07,09,12,15)
Free trade is common word in international market. Some time it is
helpful and some time it is problem. But what is free trade-
Free trade is a no restriction on the movement of goods and services
among different countries.
According to Adam Smith-“Free trade is that system of commercial
policy which draws no distinction between domestic and foreign
commodities and therefore neither impose additional burdens on the
latter non grants any special favors to the formers”.
So free trade is the international business policy which does not impose
any barriers.
Q :2. What is protectionism? (07,09,12)
The term protectionism is used to denote a policy of encouraging the
home industry by the used of countries or by the imposing of high
customs duties on foreign products.
Another word- a policy of restriction on the movement of goods or
services among different countries is called protectionism.
According to H.G Johnson—“Protectionism refers to those policies that
create a divergence between the relative prices of commodities to
domestic consumers and producer and their relate prices in the world
market”.
So from the above discussion we can say that protectionism is a policy
of no restriction in international business.

Q:3. What are arguments for free trade?(2011,17)

Or can you advance some arguments in favor of free trade for 5
economic development of Bangladesh. 14.
Sometime free trade is helpful for different countries and sometime. So
the arguments for free trade are given below:
1. Helps economic developments to under developments countries:
2. Movements of capital to under develop country:
3. Helps to improve productive efficiency and technical know-how:
4. Division of labor:
5. Equalization of price.
6. Wide market.
7. Beneficial for consumers and producers.
8. Educated effect
9. A safe guard against the formation of monopoly.

The above arguments are discussed below:

1. Helps economic developments to under-developed countries:
The under- developed countries obtain goods, capital,
equipment, machinery raw material which are useful in
accelerating the role economic growth.
2. Movement of capital to under-develop countries: Free trade
has brought about a tremendous movement of capital from the
developed to the underdeveloped and developing countries.
3. Helps to improve productive efficiency and technical know-
how: Besides the raw materials and capital equipment free
trade enable a country to input technical know-how, technical
skills and managerial talents though foreign collaboration.
4. Division of labor: Free trade promotes international divisions
of labor on specialization.
5. Equalization of price: Free trade has important effect of
reducing price. For free trade many company has compete with
each other that influence to minimize the price.
6. Wide market: Free market widens the size of the market
which promotes the greater specialization and efficiency in
production.
7. Beneficial for consumers and producers: Free trade enables
the consumers to get maximum suppliers at minimum price and
producer gets huge consumer as well as huge profit.
8. Educated effect: Free trade widens the area of competition and
their by promoting the use of new method of production and
new technological developments.
9. A safe against the formation of monopoly: Free trade prevents
the monopoly because it widens door of the competitive market.
 So these are the important argument of free trade.
Question:4. What are the arguments against free trade?
Discuss the disadvantages of free trade (2011,2014)

Ans: There are some arguments against free trade as follows-

1. Excessive dependency: For free trade the poor country can
largely depend on the developed countries’ products. They cannot want
to set up his own industry to meet his own demand.
2. Import unnecessary harmful and luxurious fashionable
good: Through free trade the country can import any kinds of product.
So many country import luxurious and harmful product that increase the
total expense of country that may not need. Which imbalance the total
economy.
3. Barriers on spreading indigenous industry: The indigenous
industry cannot develop if the same kinds of products are import through
free trade. Because the imported products sometimes takes less cost.
4. Create in-equilibrium condition on economy: Through free
trade many country more depend on import not home production. This
tendency decreases the reserve and industry set up.
5. Dumping tendency: Through free trade the developed country
can get chance to export their less quality product to under-develop
country. If the free trade is not practiced the developed country cannot
sell their low quality harmful product.
6. Origin of colonialism: Through free trade the developed
country can make the commercial colony to under-developed country.
7. Argument infant industry: Free trade is a barrier of local
infant industry because the local industry faces difficult competition.

So those are the common arguments against free trade.

Question: 5. State the argument for the protectionism.(2008)
Ans: There are some main arguments for protectionism is as
follows:
1. Infant industry argument: By the protectionism policy the
country can protect the home infant industry.
2. Diversification of industry: The country can implement the
diversified industry when the country can maintain the
protectionism policy.
3. Employment of argument: By using the protectionism policy
the country can set up different industry that makes employment
facility.
4. Conservation of natural resources: By the protectionism
policy the country can preserve his natural resources to further
long term use.
5. Defense argument: The country can defense with the foreign
company to use the protectionism policy.
6. Revenue argument: By producing home country product the
country can earn more revenue.
7. Key industry: For protectionism policy the country can protect
and develop the key industry.
8. Balance of payment: Protectionism encourages the country to
export and not to import more that strong the balance of
payment.
9. Self sufficiency: Protectionism encourages the country to be
self sufficient.
10. For economic stability: Protectionism makes the country
economically stable.
11. Anti dumping argument: The economically developed
country can’t take the opportunity of exporting low quality
product in the under developed country.
 So those are arguments for protectionism.

Q: 6. Discuss about the arguments against protectionism.

There are many arguments against protectionism. The most common
Arguments are given below:

1. Barriers of international trade: Protectionism limits the

international trade among different countries.
2. Rising of commodity price: Protectionism helps to increase the
price of products because the only limited numbers of products are
sold in the market.
3. Create monopoly business: For protectionism the local business
holder creates monopoly in the market because the limited
numbers of company business here.
4. Reduce international co-operation: By international business
different countries get opportunity to come close and create
friendly relationship with each other. For protectionism different
country need not business with each other. So international co-
operation reduce.
5. Reduce company production: Protectionism reduces the specific
company productions because the company cannot sell his product
in the other country.
6. Unequal distribution of wealth: For protectionism the country
cannot encourage extracting her wealth and make finish goods
because of insufficient market.
7. Consumer’s problem: The consumers cannot get the best product
in low price because of international companies product cannot get
into the specific country’s market.

So those are the arguments against free trade.

Q:7. Discuss the ways of removing barriers of free trade.

Every country can remove the barriers of free trade by using the
following ways:
1. Reduction of import duty: If country can impose low import
duty that means the country can encourage free trade. So the
reduction of import duty is the ways of removing of barriers of free
trade.
2. Reduction of tariff trade: Reduction of tariff trade also
encourages the free trade. So reduction of tariff is the way of
removing barriers.
3. Remove of quota system: Removal of quota system is the way of
removing barriers of free trade.
4. Easy term and condition: If the terms and condition of
international trade is flexible then the free trade is encouraged.
5. Favorable government policy: If the government policy of a
specific country is favorable to international trade that remove the
barriers of free trade. The government policy is influenced by the
political thoughts and principle.
6. Decrease subsidy to domestic industry: Every country gives
subsidy to the domestic production and export oriented sector.
So to discourage the protectionism every country has to decrease
the subsidy.
7. Remove state trade: State trade encourage the protectionism. In
contrast to the protectionism the removal of state trade decrease the
barriers of free trade.
So those are the ways of removing barriers of state trade.
Q:8. Write down the instruments or tools used of protectionism.(06).
Or protectionism is implemented through tariffs, quotas and
embargoes. (2014)

There are many instrument of protectionism. The common instrument is

discussed below:

1. Tariff: If the country imposes the high tariff on the importing

goods, it can decrease the importing rate. So tariff is a tool of
protectionism.
2. Quota restriction: If the country imposes the quota in importing
the goods it can discourage the importing.
3. Subsidy: If the country gives more subsidies to her agricultural or
productive and exporting sector, it can encourage local production
and discourage importing.
4. Price discrimination: Different price in different country can
discourage the importing.
5. State trade: The country which business is operated by her own
state that can discourage the importing. Because all of the needs of
a country want to meet by her own production.
6. Embargo: An embargo is a complete or partial block of trade and
business activities between two nations, usually imposed by one
nation against the other as a diplomatic tool. Nations usually use
targeted embargoes that affect only specific industries or
activities.
So those are the tools of protectionism.

Q:9. Do you think that protectionism policy is essential for the

economy of Bangladesh? Or what type of trade you suggest for the
economy of Bangladesh? (2012,15).
 Protectionism is the policy to protect the local industry by using tariff
& non tariff barrier. I think protectionism policy is essential for the
economy of Bangladesh. Why ----- discussed below---

Bangladesh is developing country. Every sector of industry is very

weak. But Bangladesh need huge amount of product to meet the
different kinds of need. Bangladesh must have to produce own or import
from another country. Every country wants to economically strong. To
be economically strong Bangladesh need own production for self
dependent. Some argument for protectionism is discussed below-

1) To protect the local industry: Bangladesh has many infant

industries to develop. If we want to save and gradually develop
those infant industries Bangladesh must need to take protectionism
policy.
2) Minimizing the government expenses: If Bangladesh wants to
reduce the total expense; it must need to produce locally and not to
import from another country. That is to be fruitful when
protectionism policy is applied.
3) Develop the local industry: Bangladeshi industry is poor in
finance and skill. If Bangladesh wants to develop those poor
industries it must have to protect from all kinds of barrier.
4) Strongest the local production: To make the strong local
production unit firstly Bangladesh need to take protectionism
policy. For example medicine industry.
5) To be an economic power: To be a economic power in the world
in specific sector, Bangladesh need to take protectionism policy
first.
But some time we need enjoy the advantage of free trade.
So from the above discussion we can say that protectionism
policy is essential for economy of Bangladesh.
Q:10. Discuss the role of protectionism in under-developed country.

Protectionism play vital role for underdeveloped country. The most

important role is discussed below:
1. Protectionism of infant industry: Under developed country are
weak in capital. So their local production is not strong to compete
with international company. So protectionism play a vital in
protect and develop infant industry.
2. Developing home industry: Sometime country need protectionism
to develop the country’s home country.
3. Strengthening the local capital: Protectionism strength the local
capital because of most local production.
4. Act as a planned economic tool: Protectionism is such kind of
policy which strength local economic policy.
5. Increase self sufficiency: Protectionism increase the self
sufficiency of country.
So those are role of protectionism

Q: 11: “Suppose the Government of Bangladesh has decided to

impose high tariff on the import of NIDO of powder milk from
Switzerland. What will be the likely impact of this govt. move
in the economy of Bangladesh? (09,15).

Tariff is one kind of tax. Tariff is imposed by an independent country to

cross his boarder of the imported or exported products. Normally
tariff has influential effect on the import or export and also on
economy. So, if the Bangladesh can impose the high tariff on the
import of NIDO powder milk from Switzerland it can practically
impact on the economy of Bangladesh. What will be the impact is
described below:

1. High tariff will increase the price of NIDO powder milk that will
discourage savings.
 2. High tariff will influence the consumer to use the domestic
produced powder milk that increase local investment.
3. High tariff on NIDO powder milk will influence to produce
substitute product that promote the local industry.
4. High tariff on NIDO powder milk will increase the national
income of Bangladesh.
5. High tariff on NIDO powder milk will increase the taxable income.

So from the above discussion, we can say that high tariff impose on
NIDO powder milk will impact vastly on the economy of Bangladesh.

Q: 12: “Nurse the baby, protect the child and free the adult.”-
Explain the statement with reference to the economic development
of a country. (2010,14)

Here the statement is given for the economic development of a country.

Every country has some infant industry. Infant industry is that kind of
industry which industry is not developed yet. So to protect the infant
industry protectionism policy is essential. So, to protect the local infant
industry, the country has to nurse the infant the industry by
protectionism policy.

When the infant industry is going to be run as semi established(child)

industry ,then the child industry have to protect by different kinds of
rules and policies like tariff and non tariff barrier. It must be protected
for growing in future like a child.

After a passage of time when the child or semi established industry is

well grown up then the time come for those local industries to meet
challenge of international competition. Here, the industry is adult
enough to meet all kinds of obstacle. So not need to protect like child. It
must be free from all kinds of boundaries in international business.

So, first the country has to nurse the local infant industry, then protect
the child industry to develop and free adult the industry for
meeting up the international challenge. In these way the country
will be develop in economic sector.

Q: 13: What is commercial diplomacy? Do you think that

commercial diplomacy can break trade barriers in Bangladesh.
(10,12).

Commercial diplomacy is a subtype of diplomacy. It concerns an

activity conducted by public and private actors with diplomatic status to
support business promotion between a home and host country. It aims at
generating commercial gains in the form of trade and inward and
outward investment by means of business and entrepreneurship
promotion and facilitation activities in the host country. Commercial
diplomacy is pursued with the resources available to the home country,
aiming at outputs such as economic stability, home country welfare and
a national competitive advantage.

Yes, I agree. Commercial Diplomacy can break trade barriers in

Bangladesh. In recent years commercial diplomacy has become a new
growth point. It helps remove barriers to trade and investment and find
new export markets and foreign investments. Also the diplomacy is
required to resolve policy conflicts arising from the globalization of the
world economy.

Q:14: What is the difference between tax and tariff?(2013).

Points of Tax Tariff

difference
1. Definition Tax is a sum of money A tax imposed on
demanded by a imported goods
government for its support services. Tariffs are
 or for specific facilities or used to restrict trade, as
services levied upon they increase the price
incomes, property, sales of imported goods and
etc. services.
2. Collection Taxes are collected Tariff is imposed on an
Process internally. imported good.

3. Scope Scope of tax is large. Scope of tariff is

narrow.
4. Imposed Tax imposed as one of the Tariff imposed to
major source of revenues protect domestic
for the government. industry from cheap
imports.
5. Uses Taxes are also used to pay Tariff is used to get
international debts. equilibrium position in
international balance of
payments.

Q:15: Mention some non-tariff barriers in international trade.(2013)

There are several some non-tariff barriers in international business.

1. Licenses: The most common instruments of direct regulation of

imports are licenses and quotas. Almost all industrialized countries
apply these non-tariff methods. The license system requires that a
state issues permits for foreign trade transactions of import and
export commodities included in the lists of licensed merchandises.

2. Quotas: A quota is a limitation in value or in physical terms,

imposed on import and export of certain goods for a certain period
of time.

3. Agreement on a voluntary export restraint: The agreement on

voluntary export restraints is imposed on the exporter under the
 threat of sanctions to limit the export of certain goods in the
importing country.

4. Embargo: Embargo is a specific type of quotas prohibiting the

trade. As well as quotas, embargoes may be imposed on imports or
exports of particular goods, regardless of destination, in respect of
certain goods supplied to specific countries, or in respect of all
goods shipped to certain countries. Although the embargo is
usually introduced for political purposes, the consequences could
be economic.

5. Standards: Standards take a special place among non-tariff

barriers. Countries usually impose standards on classification,
labeling and testing of products in order to be able to sell domestic
products, but also to block sales of products of foreign
manufacture. These standards are sometimes entered under the
pretext of protecting the safety and health of local populations.

6. Administrative and bureaucratic delays at the entrance:

Among the methods non-tariff regulation should be mentioned
administrative and bureaucratic delays at the entrance, which
increase uncertainty and the cost of maintaining inventory.

7. Import Deposits: Another example of foreign trade regulation is

import deposits. Import deposits is a form of deposit, which the
importer must pay the bank for a definite period of time(non-
interest bearing deposit) in an amount equal to all or part of the
cost of imported goods.

So those are the non-tariff barriers in international trade.