INTERNATIONAL TRADE LESSON 9
INTRODUCTION
Trade means voluntary exchange of goods & services between two parties
It is conducted at international & national level
Initial form of trade in primitive societies was the Barter system
At present barter system is practiced in Jon Beel Mela near Guwahati
Difficulties of barter system were overcome by the introduction of money
Older form of currency: skins, furs, cattle , rice etc.
HISTORY OF INTERNATIONAL TADE
Trade was restricted in ancient times to local markets only as it
was risky to transport goods over far off distances
The traders transported silk, wool from India ,Central Asia through
silk route(early example of long distance trade connects Rome to China)
European Commerce grew between 12-13 century with the
development of ocean going warships between Europe & Asia
Around 15th century slave trade was started due to colonialism
After Industrial Revolution the demand of raw materials was
expanded but their monetary value got declined in relation to
manufactured goods
In the late 19th century industrial regions became each other’s prime
customers and regions which produced primary goods were no
more important
After the World Wars GATT was formed
WHY DOES INTERNATIONAL TRADE
EXIST?
It is the result of specialization in production
Based on the principle of comparative advantage ,
complimentarity & transferability of goods & services ,mutual benefit
In modern times, trade is related to foreign policy of nations
Developed transport & communication also a reason for
international trade
BASIS OF INTERNATIONAL TRADE
- Difference in National Resources: Resources are unevenly
distributed due to physical differences
Geological structure
Mineral resources
Climate - Population factors: Size, diversity of population affect the type &
volume of goods traded
Cultural Factors
Size of population
- Stage of Economic Development: It decides the items to be traded
- Extent of foreign investment: Boost trade in developing countries
- Transport: Trade has expanded due to better transport facilities
ASPECTS OF INTERNATIONAL TRADE
VOLUME OF TRADE:
1. It is the total value of goods & services traded
2. Includes both exports & imports
3. Volume of trade has been steadily rising over the decades
COMPOSITION OF TRADE:
- Nature of goods & services traded by countries have undergone
changes . - Trade of primary products was dominant in the early 20th century , later
mfg. goods gained importance - Agricultural products, fuels, textiles, etc. are traded majorly
- Trade in services is capable of generating more profit as it can be
expanded infinitely
DIRECTION OF TRADE
- Historically developing countries exported valuable goods to
European countries - During 19th century European countries started exporting
manufactured goods for raw materials from colonies - Europe & USA ,Japan emerged as major trade partners & leaders in
manufactured goods - During the late 20th century direction of trade changed as
developing countries started competing
BALANCE OF TRADE
Records the volume of goods & services imported, exported by one
country to other countries
Negative BOT: Value of Imports is more than of exports , leads to
exhaustion of financial reserves
Positive BOT: Value of exports is more than of imports, favourable to
financial reserves
TYPES OF INTERNATIONAL TRADE
BILATERAL TRADE:
- It is done by two countries with each other
- Bilateral agreement is signed between two countries for trade
MULTILATERAL TRADE:
- It is done between many countries
- Status of MFN is granted to some trading countries
CASE OF FREE TRADE
Trade Liberalisation is the act of opening up of economies for
trading goods & services
Free Trade is done by bringing down trade barriers
Globalisation with free trade can adversely affect economies of
developing countries
Free trade should not only let rich countries enter markets but allow
developed countries to keep their own markets protected from
foreign goods
Countries need to be cautious about dumped goods
WTO
Initially called GATT formed in 1948
Transformed into WTO in 1995, headquartered at Geneva
Only organization which deals with global trading rules& resolves
disputes between member nations
Criticised as some believe it is widening gap between rich & poor
Influential nations in WTO focus on their respective interests
Developed countries haven’t opened their markets for developing countries
Issues of health, labour rights, environment are ignored
REGIONAL TRADING BLOCS
RTB’s came up to encourage trade between countries with
geographical proximity , similarity & complementarities in trading items countries
Also, curb restrictions on trade of developing world
These were developed to boost intra regional trade
Today RTB’s shares 52% of the world trade
MAJOR TRADING BLOCS
ASEAN
- HQ.- Jakarta
- Members- Singapore, Thailand, Malyasia
- Founded -1967
- Trades: Agro Products, Minerals, Software products
CIS
- HQ- Minsk
- Members- Russia, Ukraine, Uzbekistan
- Founded- 1991
- Trades: Crude oil, Natural Gas
EU
- HQ- Brussels
- Members- Spain, France, Italy
- Founded- 1992
- Trades- Agro Products, Minerals, Chemicals
LAIA
- HQ- Montevideo
- Members- Argentina, Brazil, Venezuela
- Founded- 1960
NAFTA
- Founded- 1994
- Members- USA, Canada & Mexico
- Trades- Agro products, Computers, Textiles
- Now renamed as USMCA
OPEC
- HQ- Vienna
- Members- UAE,Iraq, Saudi Arabia
- Founded- 1949
- Trades- Crude Petroleum
SAFTA
- Member Nations- India ,Nepal, Bangladesh
- Founded- 2006
- Reduce tarrifs on inter-regional trade
CONCERNS RELATED TO INTERNATIONAL TRADE
MERITS
- Mutually beneficial if it leads to better standard of living & diffusion
of knowledge & culture - Also beneficial if leads to availability of goods & services
DEMERITS
- Leads to dependence on other countries
- Uneven levels of development
- Trade wars
- Affects aspects of life like environment & health
- Marine life is depleting fast
GATEWAYS TO INT’L TRADE
Chief gateways of the world of int’l trade are harbours & ports
Harbours- Natural/Man-made connecting a piece of land with a large
waterbody provide safe anchorage to ships during bad weather
Ports- are used for commercial purpose , export & import of goods
Ports provide facilities of docking , loading ,unloading for cargo
Port authorities maintain navigable channels, arrange tugs & barges
Importance of a port is decided by size of cargo & number of ships
handled
Quantity of cargo handled by a port indicates the level of hinterland’s
development
San Francisco is the largest landlocked harbour in the world
TYPES OF PORTS
On the Basis of Cargo Handled
- Industrial ports: specialize in bulk cargo like grain,oil
- Commercial ports: handle cargo packaged goods &
manufactured goods also passengers - Comprehensive ports: Handle bulk & general cargo in large
quantities, world’s great ports are comprehensive ports
On the basis of location
- INLAND PORTS-
▪ Located away from the sea coast
▪ Linked to sea by a river/canal
▪ Accessible to flat bottom ships
*Memphis is located on Mississippi - OUT PORTS-
▪ Deep water ports built away from the actual ports
▪ Help actual ports by receiving large ships
*Athens Port – Piraeus Port
On the basis of specialized functions
1.Oil Ports: deal in oil processing & shipping
*Tanker Ports- Marcaibo (Venezuela)
*Refinery Ports- Abadan (Gulf of Persia)
2. Ports of Call: Calling points on main sea where ships used to anchor
for refuelling & taking food items
*Aden , Singapore
3. Packet Station/Ferry Ports: Exclusively transport passengers & mail across water bodies for short distances *Dover (England)
4. Entrepot Ports: Collection centres , goods are brought from different
countries for export
*Singapore for Asia
5. Naval Ports: Only have strategic importance, serve warships
*Kochi & Karwar