1. International Trade Theory

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International trade is the purchase, sale or exchange

of goods and services across national borders. International tradeproduces many benets to

countries both exporting and importing products.

For countries importing products, the benet is that

they get goods or services they cannot produceenough of on their own.

Likewise, for the exporter, one of the benets isthrough the trade they can also get either the goods

or services they need or the money in which topurchase these goods from another country or source.

International trade also helps the economies of thecountries by providing more jobs for people in orderto process these various commodities.
http://voices.yahoo.com/topic/31609/international_trade.htmlhttp://voices.yahoo.com/topic/31609/international_trade.html


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he economy of countries a!ects the

world output of international trade. If a country"s economy is slow so does

the volume of international trade while

a higher output produces more trade. If a currency is weak in one country as

compared to the other countries of the

world then the imports are going to bemore expensive than domesticproducts.


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Industriali#ation, advanced in

technology transportation, globali#ation, multinational corporations, andoutsourcingare all having a majorimpact on the international tradesystem.

Increasing international trade is crucialto the continuance of globali#ation.

$ithout international trade, nationswould be limited to the goods andservices produced within their own

borders.
http://en.wikipedia.org/wiki/Industrializationhttp://en.wikipedia.org/wiki/Transporthttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/Multinational_corporationhttp://en.wikipedia.org/wiki/Outsourcinghttp://en.wikipedia.org/wiki/Outsourcinghttp://en.wikipedia.org/wiki/Multinational_corporationhttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/Transporthttp://en.wikipedia.org/wiki/Industrialization


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International trade is, in principle, not di!erent

from domestic tradeas the motivation and thebehavior of parties involved in a trade do notchange fundamentally regardless of whethertrade is across a border or not.

he main di!erence is that international tradeis typically more costly than domestic trade.

he reason is that a border typically imposes

additional costs such as tari!s, time costs dueto border delays and costs associated withcountry di!erences such as language, thelegal system or culture
http://en.wikipedia.org/wiki/Domestic_tradehttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Domestic_trade


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International trade encompasses many

aspects in relation to various countries. here are many theories regarding

international trade.

%ome of these include mercantilism,absolute advantage, comparativeadvantage, factor proportions theory,

international product life cycle, new tradetheory and national competitiveadvantage.


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Internationalrade heories

Free trade refers to a situation where agovernment does not attempt to in&uencethrough 'uotas or duties what its citi#enscan buy from another country or what theycan produce and sell to another country.

Mercantilism, which emerged in (nglandin the mid)*+thcentury, asserted that it is

in a countrys best interest to maintain atrade surplus)) to export more than itimports.


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International rade heory

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In *55+, -dam %mith attacked themercantilist assumption that trade is

a #ero)sum game and argued thatcountries di!er in their ability toproduce goods e6ciently, and that a

country has an absoluteadvantagein the production of aproduct when it is more e6cient than

any other country in producing it.


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International rade heory7/89-:-I2( -12-3-4(

In *;*5, 1avid :icardo argued that itmakes sense for a country to speciali#ein the production of those goods that it

produces most e6ciently andto buy the goods that it produces lesse6ciently from other countries, even if

this means buying goods from othercountries that it could produce moree6ciently itself.


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International rade heory


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International rade heoryF/70% /3 8-3-4(:I-L I89LI7-I/3%

here are at least three mainimplications for internationalbusinesses?

Location

First)8over -dvantages

4overnment 9olicy


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International Trade Agreements

rade agreements regulate international trade between twoor more nations.

-n agreement may cover all imports and exports, certaincategories of goods, or a single category.

he most important general trade agreement is called,simply enough, the 4eneral -greement on ari!s and rade@4-A.

4- was signed in /ctober *BC5 to liberali#e trade, tocreate an organi#ation to administer more liberal tradeagreements, and to establish a mechanism for resolvingtrade disputes

. he 4- organi#ation is small and located in 4eneva.8ore than **D nations have signed the general agreement,which originally was signed by EC nations, including the0nited %tates.

he role of 4- as an organi#ation has been superseded bythe $orld rade /rgani#ation,


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he agreements that create free trade

#ones all share the same aims? o liberali#e trade, promote economic

growth, and provide e'ual access to

markets among the member nations. he most signicant free trade #ones are

the (uropean 0nion @(0A,

he 3orth -merican Free rade-greement @3-F-A,

he -ssociation of %outheast -sian

3ations @-%(-3A.


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International trade policy framework

$orld rade /rgani#ation @$/A is a global

organi#ation, head'uartered in 4eneva, fordealing with trade between nations.

(stablished in anuary *BBG by the

0ruguay round negotiations under 4-,the $/ included *CC nations as of anuaryEDDE.

he $/ administers trade agreements,

provides a forum for trade negotiations andresolving trade disputes, monitors tradepolicies, and provides technical assistance

and training for developing countries.


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he Internet and technological advances

in telecommunications link the tradepartners across the globe.>et, this does not mean that trade barriers

are non)existent. $hile the $orld rade /rgani#ation

@$/Apromotes global multilateral free trade

:egional trade blocks provide theirmembers with the mechanisms forcompeting in an aggressive global

market.
http://www.wto.org/http://www.wto.org/


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In general terms, regional trade blocks are

associations of nations at a governmentallevel to promote trade within the block anddefend its members against globalcompetition. .

1efense against global competition isobtained through established tari!s on goodsproduced by member states, import 'uotas,

government subsidies etc. In terms of their si#e and trade value, there

are four major trade blocks and a largernumber of blocks of regional importance.


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ASEAN (Association of Southeast Asian Nations)

(stablished on -ugust ;, *B+5, in angkokhailand.

8ember %tates? runei 1arussalam, 7ambodia,Indonesia, Laos, 8alaysia, 8yanmar, 9hilippines,%ingapore, hailand, and 2ietnam.

4oals? @*A -ccelerate economic growth, social progressand cultural development in the region and

@EA 9romote regional peace and stability and adhere

to 0nited 3ations 7harter. Important Indicators for ED**?

9opulation +DC.; millionJ 419 0%KE.*5; trillionJ andotal rade 0%KE.;; trillion.

@Figures as at -pril ED*E, -%(-3 $ebsite.A
http://www.asean.org/http://www.asean.org/


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EU (European Union)Founded in *BG* by six neighboring states as the

(uropean 7oal and %teel 7ommunity @(7%7A./ver time evolved into the (uropean (conomic7ommunity, then the (uropean 7ommunity and,in *BBE, was nally transformed into the (uropean

0nion.:egional block with the largest number of membersstates @E5A. hese include -ustria, elgium,ulgaria, 7yprus, 7#ech :epublic, 1enmark,

(stonia, Finland, France, 4ermany, 4reece,


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4oals? (volved from a regional free)trade association ofstates into a union of political, economic and executive

connections. 9opulation estimated at GD.+ million @anuary ED*E

est., (urostatA.419 @999A estimated at 0%K*G.5 trillion @ED*E est., 7I-

$orld Factbook G February ED*A.European Union egislationhas resulted intotreaties, international agreements and legislations.For up!to!date trade ne"s#2isit EurActivM anindependent media portal fully dedicated to (0 a!airs.

Ne" EU!US Free Trade Alliance#Leaders on bothsides of the Atlantic have given the green light to startnegotiations for a free trade agreement establishing thelargest economic alliance in the world, which alreadyaccounts for some 455bn in trade and millions of jobs.
http://eur-lex.europa.eu/en/legis/latest/index.htmhttp://eur-lex.europa.eu/en/legis/latest/index.htmhttp://www.euractiv.com/en/tradehttp://www.euractiv.com/trade/eu-us-launch-talks-ground-breaki-news-517790http://www.euractiv.com/trade/eu-us-launch-talks-ground-breaki-news-517790http://www.euractiv.com/en/tradehttp://eur-lex.europa.eu/en/legis/latest/index.htmhttp://eur-lex.europa.eu/en/legis/latest/index.htmhttp://eur-lex.europa.eu/en/legis/latest/index.htm


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ME$%&SU$ (Mercado %omun del %onoSul

! Southern %one %ommon Mar'et) (stablished on E+ 8arch *BB* with the reaty of

-ssunciNn.

Full members include -rgentina, ra#il, 9araguay,0ruguay, and 2ene#uela.

-ssociate members include olivia, 7hile, 7olombia,(cuador, and 9eru.

-ssociate members have access to preferential tradebut not to tari! benets of full members

4oals? Integration of member states for acceleration ofsustained economic development based on social

justice,environmental protection, and combating poverty.9opulation? 8ore than E5G million people @ED** est.,$orld (conomic /utlook 1atabase, I8F, -pril ED*EA419 @999A of more than 0%K.C5* trillion @ED**est.,$orld (conomic /utlook 1atabase, I8F, -pril ED*EA.
http://www.mercosur.int/msweb/Portal%20Intermediario/http://www.mercosur.int/msweb/Portal%20Intermediario/http://www.mercosur.int/msweb/Portal%20Intermediario/http://www.mercosur.int/msweb/Portal%20Intermediario/http://www.mercosur.int/msweb/Portal%20Intermediario/http://www.mercosur.int/msweb/Portal%20Intermediario/http://www.mercosur.int/msweb/Portal%20Intermediario/http://www.mercosur.int/msweb/Portal%20Intermediario/http://www.mercosur.int/msweb/Portal%20Intermediario/http://www.mercosur.int/msweb/Portal%20Intermediario/


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NAFTA (North American Free Trade Agre

ement)-greement signed on * anuary *BBC.8embers? 7anada, 8exico, and the 0nited

%tates of -merica 4oals? (liminate trade barriers among

member states, promote conditions for free

trade,increase investment opportunities, andprotect intellectual property rights.

9opulation of over CG.* million @uly ED*Eest., he 7I- Factbook, G February ED*A.

419 @999A 0%K*5.; trillion @uly ED*E est.,
http://www.naftanow.org/default_en.asphttp://www.naftanow.org/default_en.asphttp://www.naftanow.org/default_en.asphttp://www.naftanow.org/default_en.asphttp://www.naftanow.org/default_en.asphttp://www.naftanow.org/default_en.asp


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he roup of *@!*A is an informal forum set up tofoster cooperation and provide input for other

international groups, such as the$orld rade /rgani#ationand the 4roup of (ight.4);

It was established , in %eptember *B;B, and is composedof countries from Latin -merica, -frica, and -sia with a

common goal of enhanced growth and prosperity. he 4)*G focuses on cooperation among

developing countriesin the areas of investment, trade,and technology.

8embership has since expanded to *5 countries, but the

name has remained unchanged. 7hile, Iran and =enya have since joined the 4roup of *G,

whereas >ugoslavia is no longer part of the groupJ

9eru, a founding member)state, decided to leave the 4)

*G in ED**.
http://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/G8http://en.wikipedia.org/wiki/G8http://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/G8http://en.wikipedia.org/wiki/G8http://en.wikipedia.org/wiki/World_Trade_Organization


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%ome of the objectives of the 4)*G are?

o harness the considerable potential for greater andmutually benecial cooperation among developingcountries.

o conduct a regular review of the impact of theworld situation and of the state of internationaleconomic relations on developing countries.

o serve as a forum for regular consultations amongdeveloping countries with a view to coordinatepolicies and actions.

o identify and implement new and concreteschemes for %outh)%outh cooperation and mobili#ewider support for them

o pursue a more positive and productive 3orth)

%outh dialogue and to nd new ways of dealing with


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In addition, the Federation of 7hambers of

7ommerce, Industry and %ervices @F77I%A is a privatesector forum of 4)*G member countries.

he purpose of the F77I% is to coordinate andmaximi#e e!orts which promote business, economic

development and joint investment in 4)*G nations. %ince *B5G, the heads of state or government of the

major industrial democracies have been meetingannually to deal with the major economic and

political issues facing their domestic societies andthe international community as a whole

he 45; %ummit has consistently dealt withmacroeconomic management, international trade,

and relations with developing countries


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1. International Trade Theory

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