Chapter : 11

What Are International Trade ?

  • The initial form of trade in primitive societies was the barter system. Where goods and services were exchanged with goods and services.
  • Due to limitations of barter system, the necessity of money was realised.
  • In ancient times, precious stone sand rare objects like flintstones, obsidian, cowrie shells, tiger’s paws, whale’s teeth, dog’s teeth, skins, furs, cattle, rice, peppercorns, salt, small tools, copper, silver and gold were treated as common medium of change.
  • At that time, internal trade was more popular than international trade because of threats of being robbed and low connectivity between distant places.
  • One of the ancient trade routes is Silk route-connecting Rome to China
  • International trade helped in the discovery of unknown places like Americas.
  • The demand for produced goods led to more demand for labourers supplied illegally from Africa called Slave trade.
  • Slave trade was a lucrative business for more than two hundred years till it was abolished in Denmark in 1792, Great Britain in 1807 and United States in 1808.
  • In order to smoothen the international trade during first half on 20th century GAT T was formed in 1948, which was later transformed into WTO on 1st January 1995.
  • International trade is based on the principle of comparative advantage, complementarity and transferability
    of goods and services.
  • Due to variations in natural resources like geological structure, mineral reserves, climatic conditions and Human aspects like population, local policies, cultures, stage of economic development, transportation network; gives birth to international trade.
  • International trade has three very important aspects. These are volume, sectoral composition and direction of trade.
  • Volume of Trade: is the total goods and services exchanged between countries.
  • Composition of Trade: Means the detail information about list of commodities and services exchanged between countries.
  • Direction of Trade: Direction of trade means a study of the countries to whom the exports are made and from whom the imports are made.
  • Balance of trade records the volume of goods and services imported as well as exported by a country to other countries.
  • Balance of payment: Balance of Payment (BOP) is a statement which records all the monetary transactions for the purchase and sale of goods and services made between a country and the rest of the world during any given period.
  • International trade can be categorised as Bilateral trade (between two countries) and multi-lateral trade (Many trading countries).
  • The act of opening up economies for trading is known as free trade or trade liberalisation.
  • Globalisation along with free trade can adversely affect the economies of developing countries by not giving equal playing field by imposing conditions which are unfavourable.
  • The practice of selling a commodity in two countries at a price that differs for reasons not related to costs is  called dumping. Thus, countries should be cautious of this.
  • WTO is the only international organisation dealing with the global rules of trade between nations.
  • The WTO has however been criticised for being biased to developed countries and argued that issues of health, worker’s rights, child labour and environment are ignored.
  • WTO Headquarters are located in Geneva, Switzerland. 164 countries were members of WTO as on December 2016. India is one among the founder members of WTO.
  • Countries with similar trading gaols, geographical proximity and complementarities in trading item have formed their regional blocs like EU, ASEAN, CIS, LAIA< NAFTA< OPEC, SAARC,
  • International trade benefits the countries with regional specialisation, higher level of production, better standard of living, worldwide availability of goods and services, equalisation of prices and wages and diffusion of knowledge and culture.
  • International trade on the other side proves to be detrimental to nations of it leads to dependence on other countries, uneven levels of development, exploitation, and commercial rivalry leading to wars.
  • Moreover, when countries compete to trade more, production and the use of natural resources spiral up, resources get used up faster than they can be replenished.
  • Major chunk of international trade happens through ports and harbours.
  • As countries compete to trade more, production and the use of natural resources spiral up, resources get used up faster than they can be replenished.
  • The quantity of cargo handled by a port is an indicator of the level of development of its hinterland.
  • On the basis of type of traffic ports handle, they can be divided into Industrial port, Commercial port and comprehensive port.
  • On the basis of the location, ports can be categorised as Inland ports like Kolkata and Out port like Port Piraeus of Athens in Greece.
  • Types of port on the basis of specialised functions:
  • a) Oil Ports: These ports deal in the processing and shipping of oil. For e.g. Tripoli in Lebanon
  • b) Ports of Call: These are the ports which originally developed as calling points on main sea routes where ships used to anchor for refuelling, watering and taking food items. E.g. Singapore
  • c) Packet Station/ ferry ports: are exclusively concerned with the transportation of passengers and mail across water bodies covering short distances. E.g. Dover in England and Calais in France across the English Channel.
  • d) Entrepot Ports: These are collection centres where the goods are brought from different countries for export. Rotterdam for Europe is an example.
  • e) Naval Ports: These are ports which have only strategic importance. For instance, Kochi port in western coast of India.