INTERNATIONAL BUSINESS AND TRADE God is in control and has good plans for you.
International Trade Organizations, ● The case for free trade was
Agreements, and Rules of Origin reinforced by the classical
HISTORY OF INTERNATIONAL TRADE economists writing in the first quarter
of the nineteenth century
Biblical Evidence of Trade ● Emerged during this period and
“...She looks for wool and flax and works strengthened our understanding of
with her hands in delight. She is like the nature of trade and its benefits
merchant ships; she brings her food from ● David Ricardo has received most of
afar. She rises also while it is still night and the credit for developing this
gives food to her household and portions to important theory
her maidens. - Suggests that a country export
goods in which its relative cost
She considers a field and buys it; from her advantage, and not their absolute
earnings she plants a vineyard. She girds cost advantage, is greatest in
herself with strength and makes her arms comparison to other countries.
strong. She senses that her gain is good; - “Absolute Productive Advantage”
her lamp does not go out at night.” and “Relative Advantage
— Proverbs 31:13-18 (King Lemuel
seeking for a perfect wife)
Ricardo’s Comparative Advantage
● “Mai” – Philippines’ Pre-colonial Hours of Work Needed to Produce 1
Name: Barter System Unit
● Early Transportation: Chinese Junk
Ship and British Trading Vessels Country Cloth Wine
● 16th and 17th Century: Mercantilism
England 100 120
Mercantilism
● Benefits of “Profitable Trading” Portugal 90 80
● Maximization of Export Trading of a
Country Both countries are better off trading with
● Also Known as “Commercialism” each other than existing in isolation.
● Focused on exports rather than
imports
Theory of Comparative Advantage
● To increase precious metal deposits
of a country It states that a less developed country that
lacks an absolute advantage in any good
18th Century: Industrial Revolution can still engage in mutually beneficial
Adam Smith trade, and that an advanced country whose
“The Wealth of a Nation” 1776 domestic industries are more efficient than
- Importance of specialisation of those in any other country can still benefit
production due to rapid global
from trade even as some of its industries
demand and liberalization.
facing intense import competition.
David Ricardo
- Theory of “Comparative Advantage” Theory of Absolute Advantage
- Self-sufficiency and Free Trade - developed by Adam Smith
Situation - International Trade was an efficient
mechanism for all coating resources
Theory of Comparative Advantage
INTERNATIONAL BUSINESS AND TRADE God is in control and has good plans for you.
and for increasing national welfare, knowledge that will reduce their
regardless of the level of a country's costs.
economic development. ● skeptical about whether
- Any impediment to trade would governments could correctly identify
detract from the gains from trade “infant” industries and distinguish
and therefore harm the economy. those that stood a chance of growing
- The aim is liberalizing trade from up from those that were destined to
government restrictions (such as remain infants.
import tariffs and quotas) and ● Worried that protection would not be
moving toward free trade. temporary, but would become
- Eliminate situations in which a permanent.
government might wish to sacrifice
economic gains for some other Challenges: The Terms of Trade
political objective. Argument
● Robert Torrens
Comparison of Theories ● Deals with the ratio (i.e., the prices)
at which countries exchanges
Adam Absolute Free Trade,
Smith Advantage Least exports for imports
Government ● the terms of trade are determined by
Intervention international supply and demand,
but those underlying factors could be
David Comparative Unrestricted manipulated by government policy to
Ricardo Advantage: Free Trade;
the benefit of one country.
Gains from
trade arising Increase in ● argued that reciprocity, not free
from World trade, was the wisest trade policy
differences Production because a unilateral tariff reduction
in would lead to a deterioration in the
productivity terms of trade.
● “The Theory of Reciprocal Demand”
Hecksher- Comparative Free Trade
Olin Advantage Beneficial ● countries that possess the power to
Theory arises from affect the prices of goods on the
differences international market may find it
in National advantageous to restrict trade.
Factor
Endowments
18th Century: Industrial Revolution
● The main features involved in the
Challenges: Theory of Infant Industry Industrial Revolution were
Argument technological, socioeconomic, and
● Alexander Hamilton cultural.
● Generated intense controversy ● In the period 1760 to 1830.
among economists.
● Whether trade restrictions provide The technological changes included the
new industries to acquire productive following:
INTERNATIONAL BUSINESS AND TRADE God is in control and has good plans for you.
- The use of basic materials, chiefly ● Decline of economies of most of the
iron and steel. countries
- the use of new energy sources, ● Import quotas and restrictions to
including both fuels and motive protect their own domestic products
power, such as coal, the steam ● Increasing customs duties to survive
engine, electricity, petroleum, and
the internal-combustion engine. The League of Nations: World Peace
- the invention of new machines, such Towards Global Prosperity
as the spinning jenny and the power ● Founded on January 10, 1920
loom that permitted increased ● as a result of the Paris Peace
production with a smaller Conference that ended the First
expenditure of human energy. World War
- a new organization of work known ● It had 58 members.
as the factory system, which entailed ● Hosted World Economic Conference
increased division of labour and in May 1927
specialization of function, ● Later Followed by GATT in 1947
- Important developments in after WWII
transportation and communication, - League of Nations: Societies Des
including the steam locomotive, Nations
steamship, automobile, airplane, - United Nations
telegraph, and radio, and
- These technological changes made GATT
possible a tremendously increased - is a non-political, non-governmental
use of natural resources and the of purely trade agreements founded
mass production of manufacture on April 15, 1947 at Geneva,
goods. Switzerland.
- Later becomes WTO (World Trade
19th Century: Trade Blocks Organization)
● Reductions of Trade Barriers: Tariff - founded after majority of the
and Non-Tariff Barriers superpower countries withdraw their
● Towards free and liberalized commitment to International Trade
exchange of goods Organization sponsored by UN.
● smooth flow of goods between
countries GATT-TWO Main Objectives:
● introduction of bilateral, regional, 1. To have trade fow as freely as
and multilateral agreements and possible.
arrangements. 2. To liberalize trade.
3. To set up impartial means of settling
World War I and II and Its Impact to disputes.
International Trade
● Changed the course of international Trade as Freely as Possible…
trade By eliminating both Tariff and Non-Tariff
● nations built borders among Barriers
themselves
INTERNATIONAL BUSINESS AND TRADE God is in control and has good plans for you.
Tariff Barriers examples:
● High customs tariff rates
● Customs duties
Non-Tariff Barriers examples:
● Quantitative Restrictions
● Import Quotas
Trade Liberalization
● Elimination of single market and
monopolies.
● Open Market Access
● Transparency and Predictable
Trading
● Simplification of Customs
Administrations and Procedures
Venue for Settling Disputes
● Serves as international court for
settling disputes on trade.
● Equal opportunity for all.
● Avoid war and misunderstandings
among member states.
● Apprehend non-compliant countries
in accordance with the agreements.
WTO Today
● The WTO has 164 members,
accounting for 98% of wold trade.
● 22 countries are negotiating
membership.
● Decisions are made by the entire
membership. This is typically by
consensus. “Single Undertaking
Approach”.
● The WTO’s top level
decision-making body is the
Ministerial Conference, which
meets usually every two years.
● General Council - which meets
several times a year in the Geneva
headquarters.