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International trade is the purchase, sale or exchange

of goods and services across national borders.


International trade produces many benefits to
countries both exporting and importing products.
For countries importing products, the benefit is that
they get goods or services they cannot produce
enough of on their own.
Likewise, for the exporter, one of the benefits is
through the trade they can also get either the goods
or services they need or the money in which to
purchase these goods from another country or source.
International trade also helps the economies of the
countries by providing more jobs for people in order
to process these various commodities.

The economy of countries affects 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 be
more expensive than domestic
products.

Industrialization, advanced in
technology transportation, globalization
, multinational corporations, and
outsourcing are all having a major
impact on the international trade
system.
Increasing international trade is crucial
to the continuance of globalization.
Without international trade, nations
would be limited to the goods and
services produced within their own
borders.

International trade is, in principle, not different


from domestic trade as the motivation and the
behavior of parties involved in a trade do not
change fundamentally regardless of whether
trade is across a border or not.
The main difference is that international trade
is typically more costly than domestic trade.
The reason is that a border typically imposes
additional costs such as tariffs, time costs due
to border delays and costs associated with
country differences such as language, the
legal system or culture

International trade encompasses many


aspects in relation to various countries.
There are many theories regarding
international trade.
Some of these include mercantilism,
absolute advantage, comparative
advantage, factor proportions theory,
international product life cycle, new trade
theory and national competitive
advantage.

International
Trade Theories
Free trade refers to a situation where a
government does not attempt to influence
through quotas or duties what its citizens
can buy from another country or what they
can produce and sell to another country.
Mercantilism, which emerged in England
in the mid-16th century, asserted that it is
in a countrys best interest to maintain a
trade surplus-- to export more than it
imports.

International Trade Theory

ABSOLUTE ADVANTAGE

In 1776, Adam Smith attacked the


mercantilist assumption that trade is
a zero-sum game and argued that
countries differ in their ability to
produce goods efficiently, and that a
country has an absolute
advantage in the production of a
product when it is more efficient than
any other country in producing it.

International Trade Theory


COMPARATIVE ADVANTAGE

In 1817, David Ricardo argued that it


makes sense for a country to specialize
in the production of those goods that it
produces most efficiently and
to buy the goods that it produces less
efficiently from other countries, even if
this means buying goods from other
countries that it could produce more
efficiently itself.

International Trade Theory

HECKSCHER-OHLIN THEORY
Hecksher and Ohlin argued that
that countries will export goods
that make intensive use of those
factors that are locally abundant,
while importing goods that make
intensive use of factors that are
locally scarce.

International Trade Theory

FOCUS ON MANAGERIAL IMPLICATIONS

There are at least three main


implications for international
businesses:
Location
First-Mover Advantages
Government Policy

International Trade Agreements

Trade agreements regulate international trade between two


or more nations.
An agreement may cover all imports and exports, certain
categories of goods, or a single category.
The most important general trade agreement is called,
simply enough, the General Agreement on Tariffs and Trade
(GATT).
GATT was signed in October 1947 to liberalize trade, to
create an organization to administer more liberal trade
agreements, and to establish a mechanism for resolving
trade disputes
. The GATT organization is small and located in Geneva.
More than 110 nations have signed the general agreement,
which originally was signed by 24 nations, including the
United States.
The role of GATT as an organization has been superseded by
the World Trade Organization,

The agreements that create free trade


zones all share the same aims:
To liberalize trade, promote economic
growth, and provide equal access to
markets among the member nations.
The most significant free trade zones are
the European Union (EU),
The North American Free Trade
Agreement (NAFTA),
The Association of Southeast Asian
Nations (ASEAN).

International trade policy framework


World Trade Organization (WTO) is a global
organization, headquartered in Geneva, for
dealing with trade between nations.
Established in January 1995 by the
Uruguay round negotiations under GATT,
the WTO included 144 nations as of January
2002.
The WTO administers trade agreements,
provides a forum for trade negotiations and
resolving trade disputes, monitors trade
policies, and provides technical assistance
and training for developing countries.

The Internet and technological advances


in telecommunications link the trade
partners across the globe.
Yet, this does not mean that trade barriers
are non-existent.
While the World Trade Organization
(WTO)
promotes global multilateral free trade
Regional trade blocks provide their
members with the mechanisms for
competing in an aggressive global
market.

In general terms, regional trade blocks are


associations of nations at a governmental
level to promote trade within the block and
defend its members against global
competition. .
Defense against global competition is
obtained through established tariffs on goods
produced by member states, import quotas,
government subsidies etc.
In terms of their size and trade value, there
are four major trade blocks and a larger
number of blocks of regional importance.

ASEAN (Association of Southeast Asian Nations)


Established on August 8, 1967, in Bangkok/Thailand.
Member States: Brunei Darussalam, Cambodia,
Indonesia, Laos, Malaysia, Myanmar, Philippines,
Singapore, Thailand, and Vietnam.
Goals: (1) Accelerate economic growth, social progress
and cultural development in the region and
(2) Promote regional peace and stability and adhere
to United Nations Charter.
Important Indicators for 2011:
Population 604.8 million; GDP US$2.178 trillion; and
Total Trade US$2.388 trillion.
(Figures as at April 2012, ASEAN Website.)

EU (European Union)
Founded in 1951 by six neighboring states as the
European Coal and Steel Community (ECSC).
Over time evolved into the European Economic
Community, then the European Community and,
in 1992, was finally transformed into the European
Union.
Regional block with the largest number of members
states (27). These include Austria, Belgium,
Bulgaria, Cyprus, Czech Republic, Denmark,
Estonia, Finland, France, Germany, Greece,
Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Poland, Portugal, Romania,
Slovakia, Slovenia,
Spain, Sweden, The Netherlands, and the United
Kingdom

Goals: Evolved from a regional free-trade association of


states into a union of political, economic and executive
connections.
Population estimated at 503.6 million (January 2012
est., Eurostat).
GDP (PPP) estimated at US$15.7 trillion (2012 est., CIA
World Factbook 5 February 2013).
European Union Legislation has resulted into
treaties, international agreements and legislations.
For up-to-date trade news: Visit EurActiv an
independent media portal fully dedicated to EU affairs.
New EU-US Free Trade Alliance : Leaders on both
sides of the Atlantic have given the green light to start
negotiations for a free trade agreement establishing the
largest economic alliance in the world, which already
accounts for some 455bn in trade and millions of jobs.

MERCOSUR (Mercado Comun del Cono Sul


- Southern Cone Common Market)

Established on 26 March 1991 with the Treaty of


Assuncin.
Full members include Argentina, Brazil, Paraguay,
Uruguay, and Venezuela.
Associate members include Bolivia, Chile, Colombia,
Ecuador, and Peru.
Associate members have access to preferential trade
but not to tariff benefits of full members
Goals: Integration of member states for acceleration of
sustained economic development based on social
justice,
environmental protection, and combating poverty.
Population: More than 275 million people (2011 est.,
World Economic Outlook Database, IMF, April 2012)
GDP (PPP) of more than US$3.471 trillion (2011est.,
World Economic Outlook Database, IMF, April 2012).

NAFTA (North American Free Trade Agre


ement
)
Agreement signed on 1 January 1994.
Members: Canada, Mexico, and the United
States of America
Goals: Eliminate trade barriers among
member states, promote conditions for free
trade,increase investment opportunities, and
protect intellectual property rights.
Population of over 453.1 million (July 2012
est., The CIA Factbook, 5 February 2013).
GDP (PPP) US$17.8 trillion (July 2012 est.,

The Group of 15 (G-15) is an informal forum set up to


foster cooperation and provide input for other
international groups, such as the
World Trade Organization and the Group of Eight.G-8
It was established , in September 1989, and is composed
of countries from Latin America, Africa, and Asia with a
common goal of enhanced growth and prosperity.
The G-15 focuses on cooperation among
developing countries in the areas of investment, trade,
and technology.
Membership has since expanded to 17 countries, but the
name has remained unchanged.
Chile, Iran and Kenya have since joined the Group of 15,
whereas Yugoslavia is no longer part of the group;
Peru, a founding member-state, decided to leave the G15 in 2011.

Some of the objectives of the G-15 are:


To harness the considerable potential for greater and
mutually beneficial cooperation among developing
countries.
To conduct a regular review of the impact of the
world situation and of the state of international
economic relations on developing countries.
To serve as a forum for regular consultations among
developing countries with a view to coordinate
policies and actions.
To identify and implement new and concrete
schemes for South-South cooperation and mobilize
wider support for them
To pursue a more positive and productive NorthSouth dialogue and to find new ways of dealing with

In addition, the Federation of Chambers of


Commerce, Industry and Services (FCCIS) is a private
sector forum of G-15 member countries.
The purpose of the FCCIS is to coordinate and
maximize efforts which promote business, economic
development and joint investment in G-15 nations.
Since 1975, the heads of state or government of the
major industrial democracies have been meeting
annually to deal with the major economic and
political issues facing their domestic societies and
the international community as a whole
The G7/8 Summit has consistently dealt with
macroeconomic management, international trade,
and relations with developing countries

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THE STRUCTURE OF INCOTERMS 2000


4 Groups of terms
Group E : Departure
EXW EX Works (.named place)
Group F : Main Carriage Unpaid
FCA Free Carrier (named place)
FAS Free Alongside Ship (named place)
FOB Free On Board (named port of shipment)
Group C : Main Carriage Paid
CFR Cost and Freight (named port of destination)
CIF Cost Insurance and Freight (named port of destination)
CPT Carriage Paid To (named place of destination)
CIP Carriage Insurance Paid To (named place of destination)
Group D :
DAF Delivered at Frontier (named place)
DES Delivered Ex Ship (named port of destination)
DEQ Delivered Ex Quay (named port of destination)
DDU Delivered Duty Unpaid (named place of destination)
DDP (Delivered Duty Paid (named place of destination)

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