Pak mulls removing import duy on Indian Tea Essay Example for Free

Pak mulls removing mo duy on Indian Tea EssayFree trade takes place when there are no bulwarks and no intrusions to trade put by the authority(goernment and trade organisations). Free trade allows goods and services to flow freely freely from one country to another. The opposite to free trade is Protectionism. There are many protectionism that the government of a particular country can impose on trade. Main types of protectionism* Tariffs* Subsidies* Quotas* EmbargoesThe governement of Pakistan has imposed a trade barrier on the upshot of Tea from India. India afternoon tea is under a 10 percent import art. approximately possible reasons for the imposition of Import duty on Tea are given below.* To prevent over specialisation* To raise government gross* To remove balance of payment deficitsGiven below is a graphical record that shows the effect of imposing import duty on the import of Tea.Due to the imposition of import duty the prices for Tea rises from P-world to P- impo rt duty because of which the Supply curve shifts from S-world to S- world+ import duty . and then there is an overall consumer loss. Areas a,b,c and d shows the consumer loss. Area a shows the producers gain. Area b shows green loss.It is said to be a Green Loss because there is inefficiency that is creeping in this area as inefficient internal producers are now producing this area at a higher price. Area c shows the government revenue callable the import duty. Area d shows the net loss. d is not being produced or demanded due to the rise in prices, this shows the net loss towards the consumer.Tea is an important drink in every Pakistani house and Pakistan is the second largest importer of Tea. Therefore the demand curve for Tea in Pakistan is very inelastic. The smuggled tea is sold at a low cost but due to the Inelastic demand for Tea, The miscellanea in the price of tea should have a realively low change in the demand. However, the article states that Pakistan imports cxl mi llion kg and 20 million kg is smuggled. This shows that 12.5 % of tea is smuggled, which is a very high rate. This indirectly shows that Tea inspite of being very inelastic in demand, a change in price go forth have a big effect on the demand.Area d in the above graph is consumer loss in Trade between India and Pakistan. However, this area is being demanded and supplied throught smuggling and illegal trade. Therefore, Area d can also be observed as the government loss of revenue.India and Kenya are the two principal(prenominal) countrys supplying Pakistan with tea. Due to the drought in Kenya the prices have increased tremendously. This puts Pakistan in a very infavourable situation.S-world takes into enumerate the imported supply of Tea from India and Kenya. Due to the import duty the price shifts from P world to P- import duty and the supply shifts from S- world to S- world+ import duty. Again due to the drougth the price shifts from P- import duty to P1 and the supply shifts f rom S- world+ import duty to S- world 2. Due to the very high prices people allow for stop consuming Tea and move to other alternatives like coffee. Also smuggling of Tea willing increase tremendously. The net effect will have a tremedous loss of revenue for the government.