◄UNIT 2: TERMS OF TRADE.UNIT 4:BALANCE OF PAYMENT (BOP).►

UNIT 3:FREE TRADE AND TRADE PROTECTIONISM

  • UNIT 3:FREE TRADE AND TRADE PROTECTIONISM

    Key unit competence: 

    Analyze the impact of free trade and trade protectionism in an economy.

    Introductory activity

    Following the opening of the African continental Free Trade Agreement in 
    Kigali, Rwanda in March 2018, Africa is about to become the world largest 
    free trade area; 54 countries merging into a single market of around 1.3 
    billion people with a combined GDP of 2.5 trillion Us Dollars. The major goal 
    of this agreement was to establish a single market for goods and services 
    across the continent, allow the free movement of business travelers and 
    investments and also create a continental customs to streamline trade- and 
    attract long term investments. The agreement between countries required 
    members to remove tariffs from 90% of goods allowing free access to 

    commodities, goods and services across the continent. 

    Basing on the above agreement 
    a) What do you think is free trade?
    b) What are benefits and costs of such trade?
    c) Explain the measures that can be used to protect a country from the 

    costs of such trade.

    3.1. Free Trade

    Activity 3.1

    a). What is meant by the term free trade

    (b) Briefly explain the term free trade according to Adam smith.

    3.1.1. Meaning of tree trade

    Free trade refers to the unrestricted purchase and sale of goods and services 
    between two or more countries. Under a free trade policy countries agree to 
    buy or sell goods and services across international boundaries with little or no 
    government tariffs, quotas, subsidies and other forms of restriction.
    According to Adam Smith, the term “free trade” is used to mean “the system 
    of commercial policy which draws no distinction between domestic and foreign 
    commodities and, therefore, neither imposes additional burdens to the latter, 
    nor grants any special favour to the former” 

    In other words, free trade implies complete freedom of international trade 
    exchange. In this situation, there are no barriers to movement of commodities 

    among countries and exchange can take its perfectly natural course.

    3.1.2: Advantages of free trade

    Activity 3.2.

    Make research and discuss the view that free trade does more good than 

    harm on the economy.

    Free trade is the term given to trade between nations that takes place without 
    the imposition of barriers in the form of tariffs, quotas or other measures by 
    governments or international organizations. Free trade is generally considered 
    by economists to be beneficial to international trade by encouraging competition, 
    innovation, efficient production and consumer choice etc. Its advantages include 

    among others the following

    - Improves consumers’ welfare. Free International trade avails 
    consumers in a particular country with a wider choice of goods and 
    services because it makes easy for them to find both imported and
    locally produced goods and services cheaply. Thus Free trade permits 
    large varieties of consumption goods which later improve consumer’s 

    welfare.

    - Reduced costs of production by domestic businesses. With 
    free trade, domestic businesses may also have a chance to reduce 
    their costs of production by buying imported raw materials or new 
    technology without restrictions and this in turn leads to reduction in 

    general price levels in the country.

    - Encourages specialization among countries. With free trade, a 
    country is able to specialize in the production of a commodity where 
    they incur lower costs than other countries and cheaply get buy 
    commodities where they incur higher costs from other countries. In 
    other words, countries are also be export those goods or services that 
    they are most efficient in producing and import the items which other 

    countries may produce more efficiently.

    - Encourages competition between domestic and foreign 
    industries: Free International trade increases competition as 
    domestic industries must compete with foreign firms in the same 
    industry in their own country. This compels domestic industries to 
    look for ways to keep costs down by operating more efficiently and 
    gives them an incentive to Innovate and look for improved products, 
    processes and marketing methods. Thus, this constant search for 
    new ideas and technology induces domestic producers to improve 
    their efficiency which enables them to compete on the international 

    market.

    - Increased earnings for the factors of production. Under free 
    trade, factors of production will also be able to earn more, as they 
    will be employed for better use i.e. optimally utilized. In other words; 
    free trade creates many job opportunities in the country especially for 
    the importers and exporters which in turn increases wages, interest, 

    profits and rent

    - Imports become Cheaper. Free trade enables the country to get 
    imports at cheap rates since it is becomes easy for the country to get 
    goods and services from other countries with little or no restriction 
    and this reduces prices in the domestic market which later favours 

    customers.

    - Enlarges a country’s market in other countries: Free trade 
    widens the size of the country’s market in the way that a country is 
    able to sell their products in other countries without any restriction. 
    This also favours specialization because a wide market will encourage 
    the country to concentrate in the production of commodities where 
    they incur lower costs and the surplus will be sold to other countries. 

    - Restricts consumers’ exploitation by domestic monopolists: 
    Free trade prevents grow of domestic monopolies who always exploit 
    the consumers through charging high prices. This trade makes it 
    hard for the domestic producers to increase prices in the market 
    due to high levels of external competition where goods can easily be 

    imported into the country at cheapest prices possible. 

    - Promotes international cooperation among countries and 
    mutual understanding as well. It is also known that the more 
    countries work together in terms of buying and selling goods and 
    services even their relationships tend improve in the same direction. 
    This helps to increase the atmosphere of peace and good will among 

    such countries hence increasing the volume of international trade.

    - Widens tax base in the economy as a result of variety of goods 
    and services produced and exchanged. This increases a country’s tax 
    base which in turn increases a country tax revenue used for further 

    development.

    - Reduces administrative costs of protectionism such as enforcing 
    quotas, foreign exchange control, subsidies etc. The government 
    to enforce such policies incurs a lot of administrative costs such as 
    supervision costs etc. Therefore, free trade makes it easy because it 

    takes place between countries with either little or no such costs. 

    - Eliminates possibilities of trade malpractices like smuggling 
    with its negative effects. Free trade gives all people an opportunity to 
    with little or no government restrictions and this helps people to trade 

    freely without getting involved in such malpractices.

    3.1.3: Disadvantages of free trade

    -Unemployment increases. Free trade makes it becomes easy to import 
    some products at a cheaper price than the domestic ones and this causes 
    some industries to be out competed and pushed out of business by such 

    cheap foreign products hence causing unemployment. 

    -Increases uneven distribution of income among countries. As 
    a result of free international trade, some countries will be able to take 
    advantage of their natural resources, skilled workforce or economies of 
    scale to sell their goods and services internationally on more favorable 
    terms than other countries without such advantages and then get more 

    revenue compared to other. 

    - Prices fluctuation on the global market. Most developing countries 
    always export semi or unprocessed products whose prices are always 
    fluctuating on the global market hence making such countries to gain less 

    from free trade.

    - Increases dumping of goods. Free trades enables other countries to sell 
    their surplus products in our countries at lower prices compared to their 
    home prices. This has a number of negative effects on the economy like 
    reducing market for domestically produced goods, causes unemployment 

    and narrowing a country’s tax base and many others.

    - Degradation of natural resources. Since free trade expands a 
    country’s market in other countries this leads to over exploitation of natural 
    resources like timber, minerals and other natural resources as the way of 
    increasing more products on the market which later leads to environmental 

    degradation. 

    - Destruction of native culture. Since free trade also allows free movement 
    of people between countries. This makes it easy for people with bad cultural 
    practices to spread it in other countries which leads to destruction of a 
    country’s good culture and sometimes accompanied with other negative 

    effects like diseases and death.

    - Reduced tax revenue for government. Since free trade allows countries 
    to trade with other with little or no restrictions, this means that a country’s 
    import and export duties are reduced which also slows down a country 

    development.

    - Worsens a country balance of payment problem. Tree trade 
    becomes unfavorable for a country which exports primary products and 
    imports full manufactured goods. This implies that a country’s expenditures 
    will continuously increase when the earnings from abroad are continuously 
    declining thus worse the problem which in turn reduces a country’s 

    development. 

    - Worsens the importation of undesirable commodities in the 
    country. Free trade has adverse effects on consumers since there is no 
    check on production and trade of various harmful goods. This undermines 

    the health conditions of local people.

    - Unfair competition between developed and developing countries. 
    Competition induced under free trade is unfair and unhealthy. Backward 
    countries cannot compete with advanced countries.ie Local infant industries 
    are outcompeted by cheap imported products from abroad since they 

    cannot compete favourably with MDCs.

    - Encourage brain drain. Since it allows people to move freely between 
    countries with little or no restrictions this makes it easy for many people to 
    move to developed countries looking for greener pastures which in turn 

    reduces skilled labour force in developing countries.

    - Discourages self-reliance. It makes a country to over depend on 

    imported goods since importation of goods becomes easy and cheap.

    Application activity. 3.1.

    To what extent has free trade contributed towards the growth and 

    development of a country’s international trade?


    3.2. Trade protectionism

    3.2.1: Meaning of trade protectionism

    Activity 3.3

    Developing countries are beginning to overcome some major hurdles in 
    their quest to expand trade with industrialized countries. Different trade 
    agreements negotiated between countries to carry out free trade. This 
    means that traditional trade protectionism measures of tariffs is falling away. 
    But to some extent it is being replaced by domestic technical regulations 
    that permit countries to restrict products that don’t meet certain standards 

    from entering their markets.

    Basing on the above statement.
    (a). What is meant by trade protectionism and why do countries practice 
    it?
    (b) Explain some of the domestic technical regulation that countries use 
    to restrict products that don’t meet their standards from entering their 

    markets.

    Trade protectionism refers to the different forms of barriers imposed on 
    international trade to influence the flow or volume of commodities exchanged. It 
    is a commercial policy of safe guarding the national interests through restrictions 
    on international trade. It is used to regulate the inflow and outflow of commodities 
    between or among countries involved in international trade so as to allow fair 
    competition between imports and goods and services produced domestically
    The doctrine of protectionism contrasts with the doctrine of free trade, where 

    governments reduce as much as possible the barriers to trade.

    3.2.2: Reasons for trade protectionism

    - To protect infant industries against unfair competition from low cost products 
    from abroad. Infant industries normally produce at high costs and their 
    products are of poor quality and thus need to be protected from cheap and 

    high quality import goods.

    - To discourage dumping through imposing high tariffs on cheap and expired 

    commodities from other countries into the country. 

    - To increase employment opportunities at home by reducing imported goods. 
    When a country limits imported goods, this stimulates domestic demand for 
    local products which contains local industries in operation so that they can 

    keep providing employment. 

    - To reduce external economic dependence and promote self-sufficiency eg 
    through establishment of import substitution industries to produce formerly 

    imported commodities to ensure self-reliance in the economy.

    - To increase government revenue through import and export duties, of which 
    revenue can be used to finance government development programs.
    - To prevent importation of undesirable commodities and thus protect health of 
    citizens e.g. ban (total refusal) of certain drugs, food staffs and even other 

    commodities basing on health grounds.

    - To check imported inflation by increasing tariffs or prohibit importation of 

    commodities from countries experiencing hyperinflation.

    - To encourage full utilization of domestic resources especially for import 

    substitution industrial strategy.

    - To improve on the BOP position of a country. Restrictions may be imposed 
    on imports in order to reduce the amount of goods imported and this helps 
    to reduce foreign exchange expenditure abroad thus improving BOP position 

    of a country.

    - For security purposes e.g. a country may impose restrictions like embargo 
    or total ban on importation of strategic commodities like firearms, military 

    hardware etc. to maintain security in the country.

    - For retaliation purposes i.e. countries impose restrictions to retaliate against 

    other countries restrictions on her exports. 

    3.2.3: Tools of protectionism (Barriers to Foreign/

    International Trade)

    Tools of protection are normally grouped into 2, namely;
    (a) Tariff barriers

    (b) Non-tariff barriers

    Tariff barriers to trade

    These are restrictions in form of taxes on imports and or exports. They are at 

    times called customs duties. They are divided into;

    (i) Import duties: These are taxes imposed on goods and services 

    imported into the country.

    (ii) Export duties: These are taxes imposed on goods and services 

    exported to other countries 

    Non-tariff barriers to trade

    These are non-tax restrictions or regulations in international trade. It can also be 
    taken as other forms the government use to restrict imports and exports rather 

    than imposing taxes.

    Forms of Non-tariff barriers to trade

    1. Total ban. The government of a country by law may totally ban the import or 
    export of certain commodities for reasons of health or for promoting the growth 
    of certain industries in the country. For instance, when foot and mouth disease 
    attacks cattle in a certain country, the government may totally prohibit the import 

    of beef from the country experiencing that problem.

    2. Foreign exchange control. Exchange control implies the government 
    regulations relating to buying and selling of foreign exchange. The government 
    then may allocate the foreign exchange among only the licensed importers so 
    as to reduce the amount of foreign exchange given to importers in order to 
    reduce on imports. In the same way the government may intervene in the foreign 
    exchange market to lower the value of its currency by selling its currency in the 
    foreign exchange market at higher price. Doing so will raise the cost of imports 

    which discourage importation of goods. 

    3. Quotas. These are physical quantities of commodities that are supposed 
    to be imported or exported in a given period of time set by the government. In 
    order to reduce imports, the government may specify the maximum amount of a 
    commodity which can be imported from each producing country in a given time. 
    When the total amount of goods to be imported is determined, this will help to 
    reduce the physical amount of a commodity that is imported in a given period 

    of time. 

    4. Preferential treatment. The government of a country may give preferential 
    treatment in the rate of taxes to some of the countries. The granting of 
    preferential treatment results in the formation of trade blocks because imports 
    from countries which are not giving preferential treatment will be highly taxed 

    thus limiting amount of goods imported.

    5. Import monopolies. When the government of a country takes responsibility of 
    importing all the necessary commodities herself, this also reduces on the amount 

    of imported goods in the country because all other importers are restricted.

    6. Import licenses. Another barrier which restricts the import of goods from 
    abroad is the import license. If the government of a country allows the import of 
    foreign commodities to the licensed importers, the trade is very much brought 
    under control because all unlicensed importers will be restricted from importing 

    goods into the country which reduces on the physical amount of goods imported. 

    7. Embargo/ sanctions: 

    This is an extreme form of trade barrier. Embargoes prohibit import from a 
    particular country as a part of the foreign policy. In the modern world, embargoes 

    are imposed in times of war or due to severe failure of diplomatic relations

    8. Anti-dumping legislation: Supporters of anti-dumping laws argue that they 
    prevent “dumping” of cheaper foreign goods that would cause local firms to 
    close down. However, in practice, anti-dumping laws are usually used to impose 

    trade tariffs on foreign exporters.

    9. Political campaigns advocating domestic consumption .This involves 
    encouraging citizens to consume their home made commodities e.g. the 
    “Buy made in Rwanda” campaign in Rwanda. This promotes the market for 
    local products which has a number of benefits to citizens and in turn leads to 
    reduction in the amount of goods imported. 
    10. Employment-based immigration restrictions. This may involve labour 
    certification requirements or numerical caps on work visas. If such requirements 
    are at higher levels, it will restrict many unnecessary workers to enter in the 

    country. 

    11. Direct subsidies: Government subsidies (in the form of lump-sum payments 
    or cheap loans) are sometimes given to local firms that cannot compete well 
    against imports. These subsidies are supposed to “protect” local jobs, and to 

    help local firms adjust and meet their standards to those of the world markets

    3.2.4: Advantages / arguments for trade protectionism.

    Activity 3.4

    Make research and discuss the view that protectionism should be adopted 

    if developing countries are to achieve high growth rates.

    The main arguments which are advanced to support the policy of protectionism 

    are as follows:

    (i) Unemployment reduces: The use of tariffs discourages imports and raises 
    their prices to the domestic consumers. This increases the production of 
    locally produced goods due to the increased local market and this in turn 

    more employment is provided for the home population.

    (ii) Preserves certain class of population or certain occupation: The government 
    of a country on political or social grounds may favor protectionism for 
    preserving certain classes of people or certain occupations. For instance, the 
    agrarian population is generally more submissive and loyal to the government 
    than the industrial population. The government may want to preserve this 
    class of people, by charging heavy import duties on foreign agricultural raw 

    material and thus encourage them to take interest in their farming industry.

    (iii) Protects the domestic infant industries. A newly established industry is just 
    like a newly born baby. As the baby cannot grow up unless it is nursed and 
    well protected, similarly, an infant industry cannot face the blast of foreign 
    competition unless it is given full protection till it grows to its full structure. 
    Thus protectionism protects infant industries against unfair competition from 

    low cost imported products.

    (iv) Protectionism guards against dumping: Protectionism discourages dumping 
    of cheap and at times substandard or expired goods in the country. If foreign 
    industries resorts to dumping with a view to capturing foreign markets, then 
    the other countries must protect their industries by levying high protective 

    duties on such foreign goods in order to be restricted. 

    (v) Keeps money at home. Protectionism is also advocated on the grossly 
    fallacious argument of “Keeping money at home”.When we buy manufactured 
    goods abroad, we get the goods and the foreigners get the money. When 
    we buy the manufactured goods at home, we get both the goods and the 

    money which has a great advantage towards the development of the country.

    (vi) Protectionism increases government revenue: Protectionism is also 
    advocated on the ground that it raises revenue for the state through import 
    and export duties. To this it is pointed out that if prohibitive high tariffs are 
    imposed on the import of foreign goods, then they may not be imported at 
    all and the government would not able to collect the revenue at all. On the 
    other hand, if a moderate protectionism duty is levied, then it may serve both 

    the purposes of collecting revenue and protecting industries.

    vii)Protectionism helps in checking imported inflation by putting sanctions or 

    even total ban on commodities from countries affected by inflation.

    (viii) Protectionism conserves national resources: Protectionism is essential for 
    preserving the natural resources of a country which can be used to meet 
    the needs of the future generation. The unrestrained trade often leads to 
    quick exhaustion of mineral resources which would be very vital for the 

    development of the country.

    (ix) National security purposes: It also helps to safe guard a country’s national 
    security especially when importation of military armies are restricted into the 

    country by unauthorized people. 

    (x) Reduces shortages in the home country. The government can use 
    protectionism to reduce shortage in the country through restricting exports 
    and favouring imports so as to increase the amount of goods available on 

    the domestic market.

    (xi) It encourages full utilization of domestic resources. If imports are discouraged 
    and demand for domestic goods is encouraged, it encourages domestic 
    producers to use the available idle resources in order to increase production 

    to meet the domestic demand.

    (xii) It checks on the production and consumption of harmful products in the 
    economy.     High import duties on certain imported commodities or their total 
    ban discourages inflow of such commodities on health and moral grounds 
    which improve the standards of living of the citizens of the protecting 

    countries.

    3.2.5: Dangers of protectionism

    (I) Market distortion and loss of allocative efficiency: Protectionism can be an 

    ineffective and costly means of sustaining jobs.

    (II)It may lead to trade diversion in case trade protectionism is in form of regional 
    integration.     It makes the country shift her trade from low cost nonmember 

    state to high cost member states. 

    (III) It may lead to inflation due to high import tariff especially if imports have 
    inelastic demand because such goods will still be imported even if high taxes 

    are imposed which in turn affect the price of other goods leading to inflation.

    (IV) Trade barriers spoil the relationship between countries. Protectionism 
    acts as retaliation against the trading partners (beggar-my neighbor policy) 
    i.e. when a certain country restricts goods from another country even that 
    country restricts goods from that country which in turn ends up spoiling their 

    trade relationships.

    (V) It encourages smuggling which reduces government revenue because 

    smuggled goods are always not taxed. 

    (VI) It promotes monopoly i.e. protected domestic industries will become 
    monopolies when imports are restricted and as a result such industries begin 

    exploiting consumers by charging high prices. 

    (VII) Over protectionism leads to inefficiency whereby local producers will 
    produce local quality goods because of limited competition caused by 

    restriction of imports.

    (VIII) Loss of economic welfare: Welfare is reduced through higher prices 
    and restricted consumer choice since imports are restricted and consumers 

    may end up consuming low quality and expensive commodities. 

    (IX) Extra costs for exporters: For goods that are produced globally, 
    high tariffs and other barriers on imports act as a tax on exports, damaging 
    economies, and jobs, rather than protecting them It leads to high production 
    costs thus high prices for domestic final goods due to the fact that LDCs 

    normally import raw materials and spare parts

    (X) It may lead to scarcity inflation especially if there are high taxes on 
    imports which limits supply of goods and services thus scarcity in the country 

    that results into high prices for the few commodities available.

    (XI) Limited inflow of skilled labour into the country. If foreign workers 
    are restricted into the country this may create inefficiency in some sectors 
    of the country due to limited skilled workers and this may result into poor 

    performance of such sectors which also affects a country’s development. 

    (XII) Production of poor quality products. When home producers are 
    protected from external competition this makes it easy for them produce poor 

    and expensive products which in turn affects people’s standards of living

    Application activity 3.2

    “Protectionism is the only best strategy that can be used in promoting the 

    growth of domestic firms” Discuss

    3.3. Commercial policy

    3.3.1: Meaning of commercial policy

    Activity 3. 5

    ‘’Due to the increased need for countries to gain more from international 
    trade, the government of Rwanda developed a policy which involves 
    influencing, directing and controlling trade in the country. In this case, 
    more import substitution industries and export promotion industries have 

    been established in the country’’. 

    Make research on international trade in Rwanda and thereafter discuss 

    and present the following in class;

    (a)What economic term is given to such a policy?

    (b)What are the objectives of such a policy in Rwanda?

     (c)What policy tools have been adopted in Rwanda to improve her 

    domestic industrial or commercial welfare?

    A Commercial policy or trade policy or international trade policy or 
    economic policy     refers to the set of rules and regulations that are intended to 
    change international trade flows and particularly to restrict imports. It is a set of 
    measures adopted by the government of a country towards international trade 
    aimed at improving domestic industrial and commercial welfare. It can also be 
    defined as the government policy meant to influence, control and direct the 

    volume of trade, value and the direction of trade in the country.

     3.3.2 .Objectives of commercial policy 

    The main objectives of commercial policy are:

    - To increase the quantity of trade with foreign nations.

    - To preserve, the essential raw material for encouraging the development of 

    domestic industries.

    - To encourage the imports of capital goods for speeding up the economic 

    development of the country.

    - To restrict the imports of goods with a view to correct the unfavorable 

    balance of payments

    - To assist or prevent the export or import of goods and services for achieving 

    the desired rate of exchange.

    - To enter into trade agreements with foreign nations for stabilizing the foreign 

    trade.

    - To stimulate the export of particular products with a view to increasing their 

    scale of production at home.

    - To prevent the imports of particular goods for giving protection to infant 

    industries or developing key industry.

    - To restrict imports for securing diversification of industries.

    3.3.3 Instruments/Tools of Commercial Policy:

    The main instruments or tools mainly used for achieving the objectives of 

    commercial policy are as follows:

    1. Tariffs or Custom Duties: Tariff’s or custom duties refers to the taxes 
    imposed goods exported, imported or passing through the territories of 

    another country. 

    Custom duties are generally classified into three classes;

    (a) Transit duties are those taxes which are levied upon merchandize passing 

    through the territories of another country. 

    (b) Import duties are those taxes which are levied on the goods brought into 
    the country. Import duties are chiefly levied for revenue or for protection 

    purpose or for both. 

    (c) Export duties are those taxes which are imposed on goods exported from 
    the country. Export duties, like import duties, are also imposed for raising 
    revenue and to restrict the export of certain raw material with the view to 

    encourage the development of domestic industries.

    2. Subsidizing domestic industries. When the government subsidies her 
    domestic firms, they grow and expand and then sell their products at a cheaper 
    price than foreign goods which reduces on importations. The subsidies may 
    be direct or indirect. Direct subsidies are paid in cash from the public treasury 
    but the indirect subsidies involve reducing taxes imposed on locally produced 

    goods.

    3. Direct Restrictions on Imports: The government may totally prohibit the 
    import of certain commodities into the country with the intent of increasing 
    foreign exchange or for protection of domestic industries or for discouraging 
    the use of particular commodities because they are injurious to health. The 
    government may regulate the imports by means of quotas. Under quota system, 
    the maximum amount of a commodity which can be imported during a particular 

    period is fixed by the government.

    4. Trade Agreements: The government of a country may enter into trade 
    agreements with other countries for the exchange of goods. The trade 
    agreements may be bilateral or multilateral. When two countries 
    make a trade agreement for the exchange of goods, the agreement is said to 
    be bilateral. When more than two countries enter into, trade agreement for 
    ensuring fair and equal treatment to the imports and exports of the member 

    countries, the agreement is called multilateral.

    5. Economic integration. This is the economic cooperation of countries in the 

    same region so as to improve gains from trade among themselves.

    6. Devaluation. This is the legal reduction in the value of a county’s currency in 
    terms of other countries’ currencies. This is done to increase the demand for 
    exports as they become cheap and reduce that of imports since they become 

    expensive.

    7. Import substitution strategy. This is where a country establishes domestic 
    enterprises at home to produce goods at home which were previously imported 

    in to the country. This is done with the intent of reducing import expenditure.

    8. Foreign exchange control. This is the regulation of inflow and outflow of 

    foreign exchange e.g. by fixing the foreign exchange rate.

    9. Basic infrastructure policy. This involves expansion and improvement of 
    domestic infrastructure like roads, railway, dams and many others in order to 
    promote domestic production so as to reduce the amount of goods imported 

    in the long run. 

    Application activity 3.3

    Explain the reasons behind the commercial policies adopted by the

     government of Rwanda in order to influence international trade.

    Skills Lab

    As we have seen, for countries to grow and develop, they need each 
    other especially through international trade. Basing on the reasons and 
    tools of protectionism applied in Rwanda, come up with the proposal 
    for the products that you think should be restricted by the government 
    from other countries, and provide reason as to why such products should 
    be restricted and then submit your proposal to the responsible people in 

    higher authorities for further consideration. 

    End unit assesment

    1. Distinguish between tariff barriers and non-tariff barriers to trade

    2. Explain the various non-tariff barriers used to restrict international 

    trade in your country

    3. Explain argument for and against protectionism policy.

    4. (a) What is trade liberalization? 

    (b). Would you advocate for trade liberalization, why? 

    ◄UNIT 2: TERMS OF TRADE.UNIT 4:BALANCE OF PAYMENT (BOP).►