INTERNAITONAL TRADE

WHAT IS INTERNATIONAL TRADE?

THEORIES OF INTERNATIONAL TRADE?

(1) MERCANTILISM
In the 1600 and 1700 centuries, mercantilism stressed that countries
should simultaneously encourage exports and discourages imports.

Accumulation of financial wealth is the core is of this theory

(2) THEORY OF THE WEALTH OF NATIONS ABSOLUTE

ADVANTAGE ADAM SMITH IN 1776
A country that has on absolute advantage produces greater output of a good or
service than other countries using the same amount of resources.

Smith stated tariff and quotas should not restrict international trade

E.g.?

Contrary to mercantilism used labor as the only input, smith arqued that
a country should concentrate on production of goods in which it holds an
absolute advantage. No country would then need to produce all the goods it
consumed.

According to this theory, international trade is a positive sum game ,

because there are gains for both countries to an exchange.

(1) Comparative advantage theory

Introduced by David Ricardo in 1817.
The Most basic concept in the whole of International theory.

A country should specialize in producing and exporting those products

in which it has a comparative advantage compared with other countries and should
import those goods in which it has a comparative disadvantage.

Hours of work necessary to produce on unit.

 Diagram

Two types of goods

Capital intensive goods

Labour intensive goods

Hours of work necessary to produce on unit.

Space for Diagrame

In illustration, England

THE HISTROY OF TRADE AGREEMENTS

Great depression of 1930s was responsible for the wave of liberalization.

Successive increases in tariffs in the late 1920s and early 1930s were
thought to have played an important role in deepening the depression.

Each country saw its economy shrinking and so tightened restriction on

imports. These restrictions hurt other countries, which responded by tightening their
own restriction_____ a vicious circle. started

BRETTON WOODS_______IMF,WORLD BANK

An attempt was made to establish an international Trade Organization (ITO) to

regulate trade.

It was rejected by the U.S

GATT WAS INTRODUCED (128 Members)

General Agreement on tariffs and trade

Greatly reduced tariffs on manufactured goods

Was built on the principle of non-discrimination countries would not

discriminate against other members of GATT.

Same treatment for all

All most favored

 PRINCIPLE OF NATIONAL TRADE:

Foreign producers would be treated the same and be subject to the same
regulations as domestic producers.

THE URUGUAY ROUND (Also called Grand Bargain)

The round of trade negotiations began in September 1986, ended with an

agreement signed in Marrakech on April 15 , 1994

GATT was replaced by the World Trade Organization (161 members)

Faster expansion of trade agreements reaching into new areas like

services and intellectual property rights.

ADVANTAGE OF W.T.O

For the first time enforcement mechanism was introduced.

Allowed injured countries to retaliate by imposing trade restrictions.

WTO,s international law is an imperfect rule of law.

Rules of W.T.O

Developed countries promised to liberalize trade in agriculture and textiles (that

is , labour intensive goods of interest to exporters in developing countries)

In return , developing countries agreed to reduce tariffs and accept a range of

new rules and obligation on intellectual property rights , investments and services.

Complains against WTO:

1. Poorest countries of sub-Saharan African were worse off:-

2. 70% of the gains went to the developed countries_______350 billion
annually.
Although 85% of the Worlds population and almost half of total global
income
3. Poor Angola pays as much in tariffs to the US as does rich Belgium.
4. The focus was on liberalization of capital flows and investment (which
developed countries wanted)
5. The strengthening of intellectual property rights largely benefited the
developed countries.
DOHA ROUND ( DEVELOPMENT ROUND)

Trade ministers met next at Doha in Qater

The developed countries promised to make the talk a development round

The negotiations stalled over the refusal of the developed world to cut back on
agricultural subsidies.

In fact, in 2002 the US enacted a new fare bill that nearly doubled its
subsidies.

In September 2003, the trade ministers met again at Cancun (Maxico).

The talks collapsed on the fourth day of the meeting

The U.S due to highly subsidized cotton farming is the largest producer..it
opened up export of Africa cotton to the U.S, Joke!

BALI PACKAGE:

The Bali Package is a trade agreement resulting from the 9 th Ministerial

Conference of the WTO in Bali, Indonesia on 3-7 December 2013

It is aimed at lowering global trade barriers and is the first agreement reached
through the WTO that is approved by all its members.

The accord includes provisions for lowering import tariffs and agricultural
subsidies with the intension of making it easier for developing countries to trade with
the developed World.

FOUR AREAS:

1. Trade facilitation
2. Agriculture
3. Cotton
4. Development and LDC issues (Easy Rules For Exporting Goods, preferential
treatment for LDC made compulsory)

Non-Tariff Barriers:

2. DUMPING DUTIES: (Most preferred by the U.S)

To prevent practice of selling goods below costs.

 TECHNICAL BARRIERS:

Rule of Origin:

When developed countries give preferences to developing countries

or sign free trade agreements , they went to be sure that the goods admitted are goods
actually produced in the country concerned.