COMMERCE A LEVEL(FORM SIX) NOTES – THE ROLE OF GOVERNMENT IN TRADE

THE ROLE OF GOVERNMENT IN TRADE

Government:

A group of people who officially rule a country, such as the president, ministers, and civil servants.

Function of Government

The government performs the following functions:

Protective functions. The government is responsible for maintaining peace and security in the country and defending it against external aggression. For this purpose, the government maintains the police and armed forces.
Administrative functions. The government is responsible for the administration of the country. Various administrative departments are established for this purpose.
Social functions. The government provides social services to the public such as education, health, housing, transport, and communication. These services are vital for the welfare of society.
Development functions. The development of different sectors of the economy is not possible without state help. The government should develop irrigation, transportation, communications, industrial, and agricultural systems to rapidly increase the rate of economic growth.
Makes policies and laws and implements them to promote the development of the country.
Trade function. Facilitates trade within and outside the country.

Business

Business refers to any activity carried out with the intention of making PROFIT while facing the risk of LOSS. Business can take the form of trading, farming, transportation, communication, insurance, etc.

THE ROLE OF BUSINESS

In economic theory, business plays two roles:

They enter the marketplace as PRODUCERS of goods and services bought by consumers. They buy factor inputs from households to produce those goods and services. They use various economic resources efficiently to attain high profits at lower costs.

GOVERNMENT INVOLVEMENT IN COMMERCE

The government can involve itself in business activities as follows:

Carrying out trading activities directly. Public corporations, parastatals, marketing bodies, and local authorities are set up for this purpose. These government bodies may be responsible for producing specific items or providing specific services.
Controlling the activities of the private sector. This is done by ensuring the production of better quality goods and protecting consumers’ interests. The government can control private sector activities in various ways, such as consumer protection.
The government buys shares in private companies.

CONSUMER PROTECTION

Meaning:

This is a policy enacted by law to protect consumers from exploitation by businesses. Consumers need protection because they require support against unfair practices from sellers, including:

a) Being charged higher prices
b) Misleading advertisements
c) Selling defective or expired goods
d) False descriptions
e) Wrong quotation of weights and measures
f) Ignorance of their basic rights
g) Selling unhygienic goods (foodstuffs)

The need for consumer protection (Reasons for consumer protection)

To avoid overcharging. Many suppliers exaggerate expenses such as transport charges, taxation (e.g., VAT), and rental charges to justify charging consumers very high prices.
To ensure correct weights and measures are used. Some traders use incorrect measurements and weights when selling goods, cheating customers. This is common with goods like sugar, salt, beans, maize, wheat flour, and rice sold in small weighed units.
To guarantee safety of foodstuffs and drinks. Some traders sell food and drinks from unhygienic places or sell expired, half-cooked, or stale products. The Ministry of Health sets standards that traders must meet to protect consumers.
Eliminating misleading advertisements. Many business owners use persuasive but misleading advertisements to attract customers, such as claims like “IT WASHES WHITER THAN WHITE” or unrealistic vehicle stunts. Cosmetics advertisements often contain misleading phrases, pictures, and slogans.
To avoid sale of out-of-date (expired) drugs. In rural areas, drug dealers sometimes sell expired drugs to unsuspecting consumers. Some people also pretend to be doctors and prescribe incorrect drug doses.
Consumer ignorance of their rights. Many customers do not know their rights, so it is the government’s duty to protect them.

BASIC CONSUMER RIGHTS

The basic consumer rights include:

Right to safety. Protection against marketing goods and services hazardous to life and property. Goods and services should meet immediate and long-term needs.
Right to be informed. Being informed about the quality, quantity, potency, purity, standard, and price of goods to protect against unfair trade practices.
Right to choose. Assurance of access to a variety of goods and services at competitive prices.
Right to seek redress. The right to seek remedies against unfair trade or exploitation, including fair settlement of genuine grievances.
Right to be heard. Representation in forums considering consumer welfare.
Right to satisfaction of basic needs. Access to essential goods and services such as food, clothing, shelter, health care, education, and sanitation.
Right to a healthy environment. Living and working in an environment that does not threaten present and future generations’ well-being.

METHODS OF PROTECTING CONSUMERS

There are three major ways of protecting consumers:

Government-initiated methods.
Consumer-initiated methods.
Business-initiated methods.

(i) Government-initiated methods

The government protects consumers through various measures and institutions, including:

Weights and Measures Department. Requires businesses to use recommended weights and measurements when selling goods. Manufacturers must indicate correct weights on goods or packaging. This department operates under the Ministry of Commerce and Industries and inspects weighing scales nationwide.
Setting up bureaus of standards. These establish quality standards for products made or imported. The Tanzania Bureau of Standards (TBS) is an example, marking approved goods with a standardization mark.

FUNCTIONS OF TANZANIA BUREAU OF STANDARDS (TBS)

Ensuring high quality of goods produced by manufacturers through random sampling.
Taking action against manufacturers producing inferior goods.
Maintaining quality standards for locally produced and imported products.
Preparing standards related to products, measurements, materials, quantity, weight, and moisture content.
Certifying industrial products.
Inspecting quality of imports at legal ports of entry.
Improving measurement accuracy and disseminating information on standards.
Maintaining close liaison with and providing efficient service to industry, trade, and commerce nationwide.

Price Control Act

This Act safeguards consumers from overcharging by fixing prices of certain essential goods, such as sugar, salt, and soap. Prices are published annually by the Minister of Finance during the National Budget presentation.

Business Premises Rent Tribunal

This tribunal ensures landlords charge reasonable rents to tenants.

LAWS USED BY GOVERNMENT TO PROTECT CONSUMERS (Legal measures)

The government uses various laws to protect consumers, including:

Sale of Goods Act

This Act protects buyers by setting conditions and warranties from sellers. It provides five conditions and two warranties to protect buyers’ vulnerable positions.

Conditions

The seller has the legal right to sell the goods.
The goods sold by description correspond with the description.
The goods are reasonably fit for the intended purpose made known to the buyer.
The goods are of merchantable quality.
When goods are sold by sample, the actual goods match the sample quality.

Warranties

The goods are free from any charge in favor of a third person.
The buyer shall have and enjoy quiet possession of the goods purchased.

Food and Drugs Act

This Act protects the public by prohibiting adulteration of foods and medicines. Manufacturers must list ingredients used in production.

Weights and Measures Act

This Act prescribes weights and measures for business transactions. It requires testing and sampling of all weights and measures used by businesses and regular inspections to ensure conformity. Using incorrect weights or measures is a criminal offense.

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Hire Purchase Act

This Act prescribes the form for sale of goods by hire purchase or credit sale. It requires detailing cash price, deposit, service charges, hire purchase or credit sale value, repayment terms, and time period. Rights and duties of the buyer are set in a written agreement, with legal remedies available.

Resale Price Act

This Act prohibits manufacturers and suppliers from imposing minimum resale prices and enforces this by withholding supplies from dealers who do not comply.

Trade Description Act

This Act requires goods sold to bear correct descriptions and trademarks. It protects customers from misleading advertisements. Making false or exaggerated claims is a criminal offense punishable by fine or imprisonment.

Statutory Merchandise Marks Act

This Act ensures the genuineness of goods sold under trademarks and protects consumers from false or forged trademarks or misleading descriptions.

(ii) Consumer-Initiated Methods

Consumers protect themselves by forming consumer associations.

Consumers Associations

Associations formed by consumers to safeguard their interests. The Tanzania Tenants Association is an example.

Consumers associations typically:

Protest against high prices charged by businesses.
Inform the government about inferior quality products sold by manufacturers.
Take legal action against businesses that abuse consumers.

These associations may be set up with local council support. Any consumer can join by paying a small fee. They investigate product quality, prices, and design, then publish results to help members find the best bargains.

(iii) Business-Initiated Methods

Businesses protect themselves by forming Business Associations.

Business Associations

Formed by businessmen to ensure satisfactory standards of goods and services. They may implement Resale (Retail) Price Maintenance (RPM), controlling product prices to keep them consistent across locations. In East Africa, RPM works well for beer, soda, cigarettes, petroleum products, and transport rates.

HOW CAN CONSUMERS PROTECT THEMSELVES?

Consumers can protect themselves before and during purchases by:

Gathering information about product prices by visiting several shops and reading bulletins.
Requesting necessary documents such as receipts, invoices, and warranties to assist in case of complications.
Seeking advice from others about advertised products to avoid being cheated.
Using non-governmental and non-commercial consumer organizations in the market.

OTHER ROLES PLAYED BY THE GOVERNMENT IN THE DEVELOPMENT OF COMMERCE

Price Control Advisory Committee.

A statutory committee comprising government, business, consumer, and public authority representatives. It oversees price structures, reviews prices, considers business applications for price changes, and makes recommendations to the Minister of Finance.

Trade Policies

Policies created by the government to control trade, including:

a. Export Promotion

Export promotion includes:

Incentives for investors in the export sector.
Export promotion organization (BET) – Board of External Trade.
Trade expansion through participation in international agreements, e.g., Lome Convention.
Lowering export tariffs.

b. Protectionism

Protectionism aims to control imports and promote exports to safeguard the economy from adverse effects of international trade.

Forms of Protectionism

Protectionism includes:

Import tariffs/duties. Taxes on imported goods that increase their prices relative to local goods, encouraging consumers to buy locally produced goods and reducing imports.
Import quota. A maximum limit on certain commodities imported during a specific period, discouraging imports.
Exchange control. The central bank limits foreign currency available to importers to restrict import quantities.
Embargo/Total ban. Prohibiting import of certain commodities with negative cultural or economic impacts, such as pornography, cocaine, and second-hand clothes.

c. Devaluation. The government deliberately reduces its currency’s value against others, making local goods cheaper and imports more expensive, encouraging consumers to buy local products.

d. Revaluation. The government increases the domestic currency’s value to make imports cheaper.

e. Trade Liberalization (Free trade). Eliminating all trade barriers such as tariffs and import quotas.

f. Business License. A permit allowing a businessman to carry out certain business activities, issued by the government.

Fiscal Measures.

Measures influencing economic activities through taxes and expenditures. The government can control trade by adjusting taxes accordingly.

Government Investments.

The government facilitates commerce by investing in:

a. Public services. Services that the private sector cannot efficiently provide, such as defense and law enforcement.
b. Capital and securities market. The government issues stocks, extends loans, and participates in securities markets by buying and selling securities.
c. Public corporations. Government-established corporations producing goods and providing services, e.g., Tanzania Electrical Company (TANESCO), Air Tanzania Company Ltd, National Insurance (NIC), Tanzania Broadcasting Corporation (TBC).
d. Provision of credits and subsidies. Establishing special funds to provide credit to businesses and subsidies to producers, helping reduce production costs and encouraging preference for local goods over imports.

TANZANIA INVESTMENT CENTER (T.I.C)

THE ROLE OF T.I.C

Promotes local and foreign investment by presenting opportunities, providing brochures, and investor guides.
Facilitates investors from initial stages to completion, including land identification, company registration, business licensing, work and residence permits, and tax issues as a one-stop center.
Provides aftercare services by visiting investors to address problems and support business continuity and expansion.
Advises the government on investment policy issues.

GOVERNMENT MINISTRIES WHICH FACILITATE TRADE

The government has two ministries directly involved in facilitating commerce:

Ministry of Trade and Industries
Ministry of Finance

1. THE MINISTRY OF COMMERCE AND INDUSTRIES

In Tanzania, this ministry is responsible for promoting and developing home and foreign trade. It regulates retail and wholesale activities, provides advisory services to traders, controls imports, and protects infant industries from unfair foreign competition.

ORGANIZATION

The ministry is divided into the following departments:

Administrative department
Department of commerce
Department of industries

i. Administration department (section)

Responsible for overall administration and policy formulation.

ii. Department of commerce

Promotes commercial sectors such as trading and commercial services. It is subdivided into:

Internal trade section
Commercial trade section
Export trade guarantee section

1. Internal trade section

Regulates trading activities within the country. Responsibilities include:

Ensuring weights and measures used by traders meet required standards.
Controlling prices of essential commodities like fuel and sugar.
Ensuring equal distribution of essential goods nationwide.
Issuing trading licenses to retailers and wholesalers.
Providing training and advisory services to traders and ministry staff.
Supplying business information and statistics to firms.
Resolving trade disputes.

2. External trade section

Promotes and develops Tanzanian products in international markets. Most activities are performed by the Board of External Trade (B.E.T), established in 1977.

BOARD OF EXTERNAL TRADE (B.E.T)

Established to continuously review export promotion policies in consultation with the Ministry of Trade and Industries. It studies export problems and recommends policy adjustments to stimulate exports.

Focuses on product development, improving export marketing techniques, providing commercial services to exporters, import substitution, and more.

FUNCTIONS AND OBJECTIVES OF BOARD OF EXTERNAL TRADE

Marketing Tanzanian products abroad.
Advising manufacturers on improving product quality for larger overseas markets.
Arranging trade fairs and exhibitions in foreign countries.
Publishing information on export expansion responsibilities.
Providing training facilities on export matters.
Sending trade delegations and study teams for market research abroad.
Encouraging production and marketing of handicrafts.

Commercial services section

Regulates, promotes, and develops commercial services such as insurance, communication, and warehousing for producers, traders, and consumers.

Export credit guarantee section

Provides insurance for exporters to cover the risk of non-payment when credit is allowed.

iii. Department of industries

Responsible for promoting and developing industries in Tanzania. It:

Formulates industrial policy and encourages new industries in public and private sectors, including foreign investors.
Encourages industrialists to establish industries in less developed areas.
Cooperates with the commerce department to protect domestic industries from foreign competition.
Provides financial assistance to industrialists.

THE MINISTRY OF FINANCE

This ministry controls all financial sectors. It applies fiscal policy instruments such as taxation and government expenditures to regulate business activities. For example, during low purchasing power due to unemployment, it increases spending and reduces taxes. It also applies monetary policy instruments like open market operations (OMO) through the central bank to control money supply, reducing it during inflation.