CHAPTER 4

INTERNATIONAL INTERNATIONAL TRADE AND THE TRADE AND THE

THOERYTHOERY

MEANING OF INTERNATIONAL

TRADE• International trade - is the exchange of goods and services across international boundaries and territories.

• The guiding principle of international trade is comparative advantage (every country

• find something that it can produce cheaper than another country.)

• While international trade has been present • importance have been on the rise in recent

centuries, because of Industrialization,• Globalization and Multinational corporations .

• International trade is a major source of economic revenue for any nation that is considered a world power. .

• Without international trade, nations would be limited to the goods found within their own borders.

• New developments include in patterns of international trade: the integration of countries into trade blocs(European Union, NAFTA, EFTA, CEFTA) and globalisation.

INTERNATIONAL TRADE IN DEVELOPING COUNTRIES

• Recent decades have seen rapid growth of the world economy.

• This growth has been driven in part by the even faster rise in international trade. The growth in trade is in turn the result of both technological developments and concerted efforts to reduce trade barriers.

International Trade and the World Economy

• Over the past 20 years, the growth of international trade has averaged 6 percent per year, twice as fast as world output. But trade has been an engine of growth for much longer.

• Since 1947, when the General Agreement on Tariffs and Trade (GATT) was created, the world trading system has benefited from eight rounds of multilateral trade liberalization, as well as from unilateral and regional liberalization.

• The resulting integration of the world economy has raised living standards around the world. Most developing countries have shared in this prosperity; in some, incomes have risen dramatically.

• Many developing countries have substantially increased their exports of manufactures and services relative to traditional commodity exports: manufactures have risen to 80 percent of developing country exports.

• Moreover, trade between developing countries has grown rapidly, with 40 percent of their exports now going to other developing countries.

CONT

The Benefits of Trade Liberalization

• Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth.

• Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. In these countries, defined by the World Bank as the "new globalizers," the number of people in absolute poverty declined by over 120 million (14 percent) between 1993 and 1998.

CONT

• There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. Indeed, one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10.

• Freeing trade frequently benefits the poor especially. Developing countries can ill-afford the large implicit subsidies, often channeled to narrow privileged interests, that trade protection provides.

CONT

• The potential gains from eliminating remaining trade barriers are considerable.

• Moreover, developing countries would gain more from global trade liberalization as a percentage of their GDP than industrial countries, because their economies are more highly protected and because they face higher barriers.

• The group of low-income countries, however, would gain most from agricultural liberalization in industrial countries because of the greater relative importance of agriculture in their economies.

The Need for Further Liberalization of International Trade

• These are the considerations point to the need to liberalize trade further.

• In industrial countries, protection of manufacturing is generally low, but it remains high on many labor-intensive products produced by developing countries

• Many developing countries themselves have high tariffs. On average, their tariffs on the industrial products they import are three to four times as high as those of industrial countries, and they exhibit the same characteristics of tariff peaks and escalation. Tariffs on agriculture are even higher than those on industrial products.

CONT

• For a variety of reasons, preferential access schemes for poorer countries have not proven very effective at increasing market access for these countries.

• Further liberalization of international trade will be needed to realize trade's potential as a driving force for economic growth and development

• Enhanced market access for the poorest developing countries would provide them with the means to harness trade for development and poverty reduction.

INTERNATIONAL TRADE IN DEVELOPING COUNTRIES

The developing countries that participated in international trade are:

• Brazil

• India

• North Korea

• Philippine

• Thailand

• South Africa

IMPORTANCE OF INTERNATIONAL TRADE

International trade was importance todeveloping countries for 4 reasons:• Primary means of realizing the benefits of

globalization.• Continuing reallocation of manufacturing

activities.• Intertwined with another element of

globalization.• Trade supported by WTO that creating a

commercial environment more conducive to the multilateral exchange of goods and services.

Brazil• Brazil is a developing country that participated in international trade.• The activities including export and import

from and to other countries such as US, Argentina, China, Germany, Japan and so on.

• Brazil was in sustained growth, coupled with booming exports, healthy external accounts, moderate inflation, decreasing unemployment, and reductions in the debt-to-GDP ratio.

BRAZIL - Impact of International Trade

• Sustainable growth of economy

Depends on the impact of structural

reform program and efforts to build a

more welcoming climate for investment

• Healthy export growth To increase exports, the government is seeking

access to foreign markets through trade

negotiations and increased export promotion as

well as government financing for exports.

Cont

• Decreasing of unemployed rate

Need a volume of skilled workers in using the

new technologies in the production process.

• Reductions in the debt-to-GDP ratio

Through international trade, Brazil total foreign

debt falling by the increasingly of export income.

Russia

• Russia is a developing countries but it is slow in economy growth.

• The main industries are mining, machine building, defense, shipbuilding, agricultural machinery, construction equipment, consumer durables, textiles, foodstuffs and handicrafts.

• Main export and import partners are Germany, Italy, France, Netherland, Turkey and Japan.

RUSSIA - Impact of international trade

• Increasing in national income when tariffs are lowered and relative prices

change, resources are reallocated to production activities that raise national incomes.

• New economy environment economies adjust to technological innovations,

new production structures and new patterns of competition

Cont• Transition of economy system The change of economic system from

central planning to a market-based

economy system.

• Increasing in capital investments Russia has been experiencing a boom in capital

investments.

• Changing of manufacturing structure manufacturing is now moving away from low

value-added activities to more technology intensive goods

• South Africa has rich mineral resources. It is the world's largest producer and exporter of gold and platinum and also exports a significant amount of coal. Another major export is diamonds. During 2000, platinum overtook gold as South Africa's largest foreign exchange earner.

• The value-added processing of minerals to produce ferroalloys, stainless steels, and similar products is a major industry and an important growth area. The country's diverse manufacturing industry is a world leader in several specialized sectors, including railway rolling stock, synthetic fuels, and mining equipment and machinery.

SOUTH AFRICA

AFTA• AFTA is a free trade zone in Southeast Asia

where member countries include Malaysia, Singapore, Thailand, Philippines, Indonesia, and Brunei. 

Malaysian Participation in

International Trade

History of AFTA

• The proposal to set up a Free Trade Area in ASEAN was first mooted by the Thai Prime Minister Anand Panyarachun and the Thai proposal was agreed upon with amendments during the ASEAN Seniors Economic Official Meeting (AEM) in Kuala Lumpur. In January 1992, the ASEAN members then signed the Singapore Declaration at the heart of which was the creation of AFTA in 15 years.

The primary goals of AFTA seek to:

• Increase ASEAN’s competitive edge as a production base in the world market through the elimination, within ASEAN, of tariffs and non-tariff barriers.

• Attract more foreign direct investment to ASEAN.

• The purpose was to develop greater trade and industrial linkages among ASEAN member countries. With a combined population of 513 million people, the establishment of the Free Trade Area among ASEAN, offers vast potential for greater economic collaboration.

Impact of AFTA on Malaysia’s Economy

• Positive impact to Malaysia’s industries

• Negative impact to Malaysia’s industries

Malaysian Participation in International Trade (cont.)

APEC

• APEC, or the Asia-Pacific Economic Cooperation, is a huge regional trade group brings together political leaders and CEO's from 21 nations that together account for more than half of the world's economic output.

APEC membersAPEC has 21 members

- referred to as "Member Economies" Australia Brunei Canada Chile China Hong Kong Indonesia Japan South Korea Malaysia Mexico

New Zealand Papua New Guinea Peru Philippines Russia Singapore Taiwan Thailand USA Vietnam

APEC’s Objectives• to further build the dynamism of the Asia-

Pacific community through economic growth and cooperation, capacity building and equitable development .

• to strengthen the multilateral trading system

• to achieve the goal of free and open trade and investment in the Asia-Pacific region by 2010 for developed member economies and 2020 for developing member economies

• to foster constructive economic interdependence among the Asia Pacific economies.