Chapter 9. International Trade

• voluntary exchange of goods and services is referred to as trade. To trade, two parties are required. One person sells, while other buys. People barter their goods in some places. Trade is mutually beneficial for both parties.
• There are two levels of trade: international and national. exchange of goods and services across national borders is called international trade.
• Countries must trade in order to obtain commodities that they cannot produce or purchase at a lower cost elsewhere.

History of International Trade
• Trade was limited to local markets in ancient times. Long-distance trade gradually emerged, with Silk Route as one example. The 6000-kilometer road connecting Rome and China was used by traders to deliver Chinese silk, Roman wool, metals, & other goods. Sea and ocean routes were later discovered, and trade increased.
• In 15th century, Portuguese, Dutch, Spaniards, and British captured African natives and sold them to plantation owners in America, resulting in Slave Trade. Following Industrial Revolution, developed countries imported raw resources and exported completed goods to developing countries.
• International trade is result of manufacturing specialisation and labour division. This is founded on comparative advantage theory, which benefits both trading partners.

Basis of International Trade
factors on which international trade depends are as follows:
• Difference in National Resources: world’s resources are unequally distributed. Geology, mineral resources, and climate are key variations.
(1) Geological Structure: This refers to relief features and types of land that supports agriculture, tourism, & other industries, such as fertile, mountainous, and lowland.
(2) Mineral Resources: regions rich in minerals will support industrial development that leads to trade.
(3) Climate: It has an impact on type of flora and fauna prevalent in a certain area, such as wool production in cold climates. Bananas, cocoa, & rubber may all be grown in tropical climates.
Population Factors: size, dispersion, and diversity of a country’s population have an impact on trade in terms of goods kind and volume. Due to consumption in local markets, highly populated locations have a higher volume of internal trade than external trade.
(1) Cultural Factors: Certain cultures produce distinct forms of art and skill, which lead to trade, such as China’s porcelain and brocades, Iran’s carpets, Indonesia’s Batik textiles, and so on.
Stage of Economic Development: Industrialised nations export machinery, and finished products and import foodgrains and raw materials. situation is opposite in agriculturally important countries.
Extent of Foreign Investment: Because developing countries lack finance, international investment in plantation agriculture can help improve trade in those countries.
Transport: Due to a lack of transportation in past, trade was limited to mainly local locations. With expansion of rail, maritime, & air transportation, as well as improved refrigeration and preservation methods, trade has expanded spatially.

Aspects of International Trade
There are three very important aspects of international trade:
Volume of Trade: total value of goods and services traded is simplest way to calculate it. However, volume is determined by actual tonnage of sold products, whereas services cannot be measured in weight.
Composition of Trade: Previously, primary goods dominated total traded goods, followed by manufactured goods, and finally, service sector, which includes transportation and other commercial services.
Direction of Trade: Earlier valuable goods and artifacts were exported to European countries by developing countries. Later in 19th century, manufactured goods from European countries were exchanged with foodstuffs and with raw materials from their colonies.

Balance of Trade
• It refers to number of products and services that a country imports and exports to other countries. A positive trade balance means that value of exports exceeds value of imports.
• An unfavourable trade balance means that imports exceed exports. A country’s economy is influenced by its balance of payments, as a negative balance indicates that country’s expenses exceed its income.

Types of International Trade
There are two types of international trade:
• Bilateral trade: When two countries agree to trade certain goods in which they are experts, it is referred to as a bilateral agreement.
• Multilateral trade: This is carried out simultaneously with a large number of trade countries on items in which countries specialise. Some trading partners may be granted designation of Most Favoured Nation [MFN] by government.

Case for Free Trade
• act of opening up economics so more commerce can take place is called free trade or trade liberalisation. It is accomplished through lowering trade barriers such as tariffs. Trade liberalisation, on other hand, promotes competition and might lead to dumping.
• Dumping is practice of selling a commodity in two nations at different prices for reasons other than cost. Dumped goods must be avoided at all costs.

World Trade Organisation [WTO]
• General Agreement on Tariffs and Trade [GATT] was established in 1948 with goal of eliminating tariffs and non-tariff barriers around world.
• GATT was renamed World Trade Organisation on January 1, 1995, in order to create an entity dedicated to promoting free and fair trade among nations.
• World Trade Organization [WTO] establishes laws that govern global commercial system. World Trade Organization [WTO] is headquartered in Geneva, Switzerland, and has 164 members.
• Those concerned about impacts of free trade and economic globalisation have criticised and opposed WTO. They said that free trade is harmful to ordinary people because it widens wealth gap between affluent and poor. They further claimed that health, workers’ rights, child labour, and environment are all overlooked.

Regional Trade Blocs
• As a result of failure of global organisations, these have been formed. There are 120 regional trade blocs that account for 52% of global trade.
• following are some of trade blocs:

Regional Blocs Head Quarter Member nations Origin Commodities Other areas of Cooperation
ASEAN [Association of South East Asian Nations] Jakarta, Indonesia Brunei, Darussalam, Cambodia, Laos, Myanmar, Philippines, Indonesia, Malaysia, Singapore, Thailand Vietnam Aug. 1967 Agro products, rubber, palm oil, rice, copra, coffee, minerals – copper, coal, nickel & tungsten. Energy – petroleum and natural gas and Software products Accelerate economic growth cultural development, peace & regional stability
CIS [commonwealth of Independent States] Minsk, Belarus Armenia, Azerbaijan, Belarus, Georgia Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine And Uzbekistan Crude oil, natural gas, gold, cotton, fibre, aluminium Integration and cooperation on matters of economics, defence & foreign policy
EU [European Union] Brussels, Belgium Austria, Belgium, Denmark, France, Finland, Ireland, Italy, Netherlands, Luxemburg, Portugal, Spain Sweden. EEC-March 1957 EU – Feb. 1992 Agro products, minerals, chemicals, wood, paper, transport vehicles, optical instruments, clocks – works of art, antiques Single market with single currency
LAIA [Latin American Integration Association] Montevideo, Uruguay Argentina, Bolivia, Brazil, Columbia, Ecuador, Mexico, Paraguay, Peru, Uruguay And Venezuela 1994
NAFTA [North American Free Trade Association] U.S.A., Canada & Mexico 1949 Agro products, motor vehicles, automotive parts, computers, textiles
OPEC [Organisation of Petroleum Exporting Countries] Vienna, Austria Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, U.A.E. & Venezuela Crude petroleum Coordinate and unify petroleum policies.
SAFTA [South Asian Free Trade Agreement Bangladesh, Maldives, Bhutan, Nepal, India, Pakistan & Sri Lanka Jan-2006 Reduce tariffs on inter-regional trade

Concerns Related to International Trade
This can be summarised as merits and demerits of international trade.
• Merits of International Trade: International trade is positive if it encourages regional specialisation, higher levels of production, a higher standard of life, global availability of goods and services, price & wage equality, and knowledge and culture dissemination.
• Demerits of International Trade: disadvantages of international trade include reliance on other countries, unequal levels of development, exploitation, and commercial competition.

Gateways of International Trade
• Ports and harbours are main entry points for international trade. These ports make it easier for cargo and passengers to move around, as well as provide docking, loading, unloading, and storage facilities.

Types of Ports
• Ports are generally, classified according to types of traffic which they handle. Types of ports on basis of cargo handled are:
(1) Industrial Ports: Industrial ports are those that handle bulk goods such as grain, ores, oil, & chemicals.
(2) Commercial Ports: Commercial ports handle packaged commodities, manufactured items, and passengers.
(3) Comprehensive Ports: Comprehensive ports are those that handle substantial amounts of bulk and general goods. Comprehensive ports account for majority of world’s major ports.

Types of Ports on basis of Location
Inland Ports: Inland ports, such as Mannheim on Rhine River, are positioned away from sea beaches and connected to sea by a river or canal.
Out Ports: Out ports, such as Athens and its out port Piraeus in Greece, are located in deep waters away from actual ports and serve large ships.

Types of Ports on basis of Specialised Functions
Oil Ports: Ports that deal in processing and shipping of oil are called oil ports. These are tanker ports like Tripoli in Lebanon and refinery’ ports like Abadon on Gulf of Persia.
Ports of Call: Ports of call, such as Honolulu and Aden, were initially built as stopping locations on major sea routes where ships could anchor for refuelling, watering, & food supplies.
Entrepot Ports: These are collection centres where items from other countries are brought for export, such as Singapore, which is an entrepot for Asia.
Packet Station: Ferry ports, called passenger and mail terminals, are exclusively concerned with transfer of passengers and mail across small distances across sea bodies, such as Dover in England and Calais in France.
Naval Ports: These ports serve warships and have repair workshops for them, for example, Kochi, Karwar in India. They have only strategic importance.

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