LESSON 8
INTERNATIONAL
TRADE
FUNDAMENTALS OF
HUMAN GEOGRAPHY
CLASS 12TH
TRADE
Trade means the voluntary exchange of goods and
services. Two parties are required to trade. One person sells and the other
purchases. In certain places, people barter their goods. For both the parties
trade is mutually beneficial.
LEVELS OF TRADE
Trade may be conducted at two levels: international
and national.
International
trade is the exchange of goods and services among countries across national
boundaries. Countries need to trade to obtain commodities, they cannot produce
themselves or they can purchase elsewhere at a lower price.
The initial form of trade in
primitive societies was the barter system, where direct exchange of goods took
place. In this system if you were a potter and were in need of a plumber, you
would have to look for a plumber who would be in need of pots and you could
exchange your pots for his plumbing service.
JON BEEL MELA (ONLY FAIR IN INDIA, WHERE BARTER SYSTEM IS STILL
ALIVE)
Every January after the harvest
season Jon Beel Mela takes place in
Jagiroad, 35 km away from Guwahati and it is possibly the only fair In India,
where barter system is still alive. A big market is organised during this fair
and people from various tribes and communities exchange their products.
SALARY
The word salary comes from the Latin word Salarium which
means payment by salt. As in those times producing salt from sea water was
unknown and could only be made from rock salt which was rare and expensive.
That is why it became a mode of payment
HISTORY OF INTERNATIONAL TRADE
In ancient times, transporting goods over long
distances was risky, hence trade was restricted to local markets. People then
spent most of their resources on basic necessities – food and clothes. Only the
rich people bought jewellery, costly dresses and this resulted in trade of luxury
items.
The Silk Route is an early example of long distance
trade connecting Rome to China – along the 6,000 km route. The traders
transported Chinese silk, Roman wool and precious metals and many other high
value commodities from intermediate points in India, Persia and Central Asia.
After the
disintegration of the Roman Empire, European commerce grew during twelfth and
thirteenth century with the development of ocean going warships trade between
Europe and Asia grew and the Americas were discovered.
Fifteenth century onwards, the European colonialism
began and along with trade of exotic commodities, a new form of trade emerged
which was called slave trade.
The Portuguese, Dutch, Spaniards, and British
captured African natives and forcefully transported them to the newly
discovered Americas for their labour in the plantations. 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.
After the Industrial Revolution the demand for raw
materials like grains, meat, and wool also expanded, but their monetary value
declined in relation to the manufactured goods.
The industrialised nations imported primary products
as raw materials and exported the value added finished products back to the
non-industrialised nations.
In the later
half of the nineteenth century, regions producing primary goods were no more
important, and industrial nations became each other’s principle customers.
During the World Wars I and II, countries imposed
trade taxes and quantitative restrictions for the first time. During the
postwar period, organisations like General Agreement for Tariffs and Trade
(which later became the World Trade Organisation), helped in reducing tariff.
WHY DOES INTERNATIONAL TRADE EXIST?
International trade is the result
of specialisation in production. It benefits the world economy if different
countries practise specialisation and division of labour in the production of
commodities or provision of services. Each kind of specialisation can give rise
to trade. Thus, international trade is based on the principle of comparative
advantage, complimentarity and transferability of goods and services and in
principle, should be mutually beneficial to the trading partners.
BASIS OF INTERNATIONAL TRADE
(i)
Difference in national resources:
The world’s
national resources are unevenly distributed because of differences in their
physical make up i.e. geology, relief soil and climate.
(a)
Geological structure:
It determines
the mineral resource base and topographical differences ensure diversity of
crops and animals raised. Lowlands have greater agricultural potential.
Mountains attract tourists and promote tourism.
(b)
Mineral resources:
They are
unevenly distributed the world over. The availability of mineral resources
provides the basis for industrial development.
(c) Climate: It
influences the type of flora and fauna that can survive in a given region. It
also ensures diversity in the range of various products, e.g. wool production
can take place in cold regions, bananas, rubber and cocoa can grow in tropical
regions.
(ii) Population factors: The size, distribution and
diversity of people between countries affect the type and volume of goods
traded.
(a)
Cultural factors:
Distinctive forms of art and craft develop in
certain cultures which are valued the world over, e.g. China produces the
finest porcelains and brocades. Carpets of Iran are famous while North African
leather work and Indonesian batik cloth are prized handicrafts.
(b)
Size of population:
Densely
populated countries have large volume of internal trade but little external
trade because most of the agricultural and industrial production is consumed in
the local markets. Standard of living of the population determines the demand
for better quality imported products because with low standard of living only a
few people can afford to buy costly imported goods.
(ii)
Stage of economic development:
At
different stages of economic development of countries, the nature of items
traded undergoes changes. In agriculturally important countries, agro products
are exchanged for manufactured goods whereas industrialised nations export
machinery and finished products and import food grains and other raw materials.
(iii)
Extent of foreign investment:
Foreign
investment can boost trade in developing countries which lack in capital
required for the development of mining, oil drilling, heavy engineering,
lumbering and plantation agriculture. By developing such capital intensive
industries in developing countries, the industrial nations ensure import of
food stuffs, minerals and create markets for their finished products. This
entire cycle steps up the volume of trade between nations.
(iv)
Transport:
In
olden times, lack of adequate and efficient means of transport restricted trade
to local areas. Only high value items, e.g. gems, silk and spices were traded
over long distances. With expansions of rail, ocean and air transport, better
means of refrigeration and preservation, trade has experienced spatial
expansion.
BALANCE OF
TRADE
Balance of trade records the volume of goods and
services imported as well as exported by a country to other countries.
Negative or Unfavourable balance of trade
If the value of imports is more than the value of a
country’s exports, the country has negative or unfavourable balance of trade.
Positive or Favourable balance of trade
If the value of exports is more than the value of
imports, then the country has a positive or favourable balance of trade.
Balance of trade and balance of payments have
serious implications for a country’s economy. A negative balance would mean
that the country spends more on buying goods than it can earn by selling its goods.
This would ultimately lead to exhaustion of its financial reserves.
Types of International Trade
International trade may be categorised into two
types:
(a)
Bilateral trade:
Bilateral trade
is done by two countries with each other. They enter into agreement to trade
specified commodities amongst them. For example, country A may agree to trade
some raw material with agreement to purchase some other specified item to
country B or vice versa.
(b)
Multi-lateral trade:
As the term suggests multi-lateral trade is
conducted with many trading countries. The same country can trade with a number
of other countries. The country may also grant the status of the “Most Favoured
Nation” (MFN) on some of the trading partners.
CASE FOR FREE TRADE
The act of opening up economies for trading is known
as free trade or trade liberalisation. This is done by bringing down trade
barriers like tariffs. Trade liberalisation allows goods and services from
everywhere to compete with domestic products and services.
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.
With the development of transport and communication
systems goods and services can travel faster and farther than ever before.
But free trade should not only let rich countries
enter the markets, but allow the developed countries to keep their own markets
protected from foreign products.
Countries also need to be cautious about dumped
goods; as along with free trade dumped goods of cheaper prices can harm the
domestic producers.
DUMPING
The practice of selling a commodity in two countries
at a price that differs for reasons not related to costs is called dumping.
WORLD TRADE ORGANISATION
In 1948, to
liberalise the world from high customs tariffs and various other types of
restrictions, General Agreement for Tariffs and Trade (GATT) was formed by some
countries. In 1994, it was decided by the member countries to set up a
permanent institution for looking after the promotion of free and fair trade
amongst nation and the GATT was transformed into the World Trade Organisation
from 1st January 1995. WTO Headquarters are located in Geneva, Switzerland. Total 164 countries were members of WTO as on December 2016. India
has been one of the founder member of WTO
IMPORTANCE OF
WORLD
TRADE ORGANISATION (WTO)
1)
WTO is the only international
organisation dealing with the global rules of trade between nations.
2)
It sets the rules for the global trading
system.
3)
It resolves disputes between its member
nations.
4)
WTO also covers trade in services, such
as telecommunication and banking,
5)
It also includes the others issues such as trade of intellectual rights.
CRITICISM
OF WORLD TRADE ORGANISATION
The WTO has however been criticised and opposed by
those who are worried about the effects of free trade and economic
globalisation. It is argued that free trade does not make ordinary people’s
lives more prosperous. It is actually widening the gulf between rich and poor
by making rich countries more rich. This is because the influential nations in
the WTO focus on their own commercial interests. Moreover, many developed
countries have not fully opened their markets to products from developing
countries. It is also argued that issues of health, worker’s rights, child labour
and environment are ignored.
REGIONAL TRADE BLOCS
Regional Trade Blocs have come up in order to
encourage trade between countries with geographical proximity, similarity and
complementarities in trading items and to curb restrictions on trade of the developing
world. Today, 120 regional trade blocs generate 52 per cent of the world trade.
These trading blocs developed as a response to the failure of the global
organisations to speed up intra-regional trade.
Though, these regional blocs remove
trade tariffs within the member nations and encourage free trade, in the future
it could get increasingly difficult for free trade to take place between
different trading blocs.
BENEFITS ARISING FROM TRADE BLOCS
Regional Trade Blocs have come up in order to encourage
trade between countries with geographical proximity, similarity and
complementarities in trading items from trading blocs. These trading blocs
developed as a response to the failure of the global organisations to speed up
intra-regional trade. The main benefits arising from trade blocs are given
below:
1.
These regional blocs remove trade
tariffs within the member nations and encourage free trade
2.
In international market they have more
power as trading bloc than as an individual national.
3.
It leads to 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.
CONCERNS RELATED TO INTERNATIONAL TRADE (Effects of International
Trade)
With the help of following points we can understand
the Concerns related to International Trade (Effects of International Trade)
1.
Undertaking international trade is
mutually beneficial to nations if it leads to 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.
2.
International trade can prove to be
detrimental to nations of it leads to dependence on other countries, uneven
levels of development, exploitation, and commercial rivalry leading to wars.
3.
Global trade affects many aspects of
life; it can impact everything from the environment to health and well-being of
the people around the world.
4.
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. As a result, marine life is also depleting
fast, forests are being cut down and river basins sold off to private drinking
water companies. Multinational corporations trading in oil, gas mining,
pharmaceuticals and agri-business keep expanding their operations at all costs
creating more pollution.
5.
Their mode of work does not follow the
norms of sustainable development. If organisations are geared only towards
profit making and environmental and health concerns are not addressed, then it
could lead to serious implications in the future.
PORTS: GATEWAYS OF INTERNATIONAL TRADE
Ports
The chief gateways of the world of international
trade are the harbours and ports. Cargoes and travellers pass from one part of
the world to another through these ports. The ports provide facilities of
docking, loading, unloading and the storage facilities for cargo. In order to
provide these facilities, the port authorities make arrangements for
maintaining navigable channels, arranging tugs and barges, and providing labour
and managerial services. The importance of a port is judged by the size of
cargo and the number of ships handled. The quantity of cargo handled by a port
is an indicator of the level of development of its hinterland.
TYPES OF PORT
Generally, ports are classified
according to the types of traffic which they handle.
Types of port according to cargo handled:
(i)
Industrial Ports: These ports specialise
in bulk cargo-like grain, sugar, ore, oil, chemicals and similar materials.
(ii)
(ii) Commercial Ports: These ports
handle general cargo-packaged products and manufactured goods. These ports also
handle passenger traffic.
(iii)
Comprehensive Ports: Such ports handle
bulk and general cargo in large volumes. Most of the world’s great ports are
classified as comprehensive ports.
Types of port on the basis of location:
(i)
Inland Ports: These ports are located
away from the sea coast. They are linked to the sea through a river or a canal.
Such ports are accessible to flat bottom ships or barges. For example,
Manchester is linked with a canal; Memphis is located on the river Mississippi;
Rhine has several ports like Mannheim and Duisburg; and Kolkata is located on
the river Hoogli, a branch of the river Ganga.
(ii)
(ii) Out Ports: These are deep water
ports built away from the actual ports. These serve the parent ports by
receiving those ships which are unable to approach them due to their large
size. Classic combination, for example, is Athens and its out port Piraeus in
Greece.
Types of port on the basis of specialised functions:
(i)
Oil Ports:
These ports deal in the processing and shipping of oil. Some of these are
tanker ports and some are refinery ports. Maracaibo in Venezuela, Esskhira in
Tunisia, Tripoli in Lebanon are tanker ports. Abadan on the Gulf of Persia is a
refinery port.
(ii)
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. Later on, they developed into commercial ports. Aden, Honolulu and
Singapore are good examples.
(iii)
Packet Station:
These are also known as ferry ports. These packet stations are exclusively
concerned with the transportation of passengers and mail across water bodies
covering short distances. These stations occur in pairs located in such a way
that they face each other across the water body, e.g. Dover in England and
Calais in France across the English Channel.
(iv)
Entrepot Ports:
These are collection centres where the goods are brought from different
countries for export. Singapore is an entrepot for Asia. Rotterdam for Europe,
and Copenhagen for the Baltic region.
(v)
Naval Ports:
These are ports which have only strategic importance. These ports serve
warships and have repair workshops for them. Kochi and Karwar are examples of
such ports in India.
