Your Ultimate UPSC Study Material To Crack IAS Exam
Comprehensive content tailored For Success
Basic Concepts of International Trade- NCERT Notes UPSC
May 05, 2022
Trade means the voluntary exchange of goods and services. It is conducted at two levels:International and National. International trade is the exchange of goods and services among countries across national boundaries.
Read this detailed blog to expand your UPSC knowledge base and enhance your UPSC Preparation. So, let’s get started.
History of Trade
The initial form of trade in primitive societies was the barter system, where direct exchange of goods took place.
In the olden times, before paper and coin currency came into being, rare objects with very high intrinsic value served as money, like, flintstones, obsidian, cowrie shells, tiger’s paws, whale’s teeth, dogs’ teeth, skins, small tools, copper, silver, and gold.
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 and 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, 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 latter half of the nineteenth century, regions producing primary goods were no more important, and industrial nations became each other’s principal customers.
During World War I and World War II - The countries-imposedtrade taxes and quantitative restrictions but later on General Agreement for Tariffs and Trade (which later became the World Trade Organisation), helped in reducing tariff.
Reasons behind existence of International Trade
It benefits the world economy if different countries practise specialisation and division of labour in the production of commodities or provision of services.
It is based on the principle of comparative advantage, complementarity and transferability of goods and services and in principle, should be mutually beneficial to the trading partners.
In modern times, trade is the basis of the world’s economic organisation and is related to the foreign policy of nations.
Basis of International Trade
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.
It determines the mineral resource base and topographical differences ensure diversity of crops and animals raised.
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.
Population Factors: The size, distribution, and diversity of people between countries affect the type and volume of goods traded.
Distinctive forms of art and craft develop in certain cultures which are valued all over the world 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.
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.
Stage of Economic Development
At different stages of economic development of countries, the nature of items traded undergo 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.
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.
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.
It has three very important aspects - Volume, sectoral composition, and direction of trade.
Volume of Trade
The actual tonnage of goods traded makes up the volume. However, services traded cannot be measured in tonnage. Therefore, the total value of goods and services traded is considered to be the volume of trade.
Composition of Trade
The nature of goods and services imported and exported by countries have undergone changes during the last century.
Trade of primary products was dominant in the beginning of the last century.
Later manufactured goods gained prominence.
Currently, though the manufacturing sector commands the bulk of the global trade, service sector which includes travel, transportation and other commercial services have been showing an upward trend.
The volume of imports and exports of the world merchandise has been growing consistently over the years.
Manufactured goods contributed to the bulk of world merchandise exports.
Fuels and mining goods and agricultural goods are also important contributors of merchandise exports.
There is change in the share of continents in the world merchandise trade as Europe’s contribution is declining while the contribution of Asian countries is growing.
Direction of Trade
Historically, the developing countries of the present used to export valuable goods and artefacts, etc.
During the nineteenth century there was a reversal in the direction of trade. European countries started exporting manufactured goods for exchange of foodstuffs and raw materials from their colonies.
Europe and U.S.A. emerged as major trade partners in the world and were leaders in the trade of manufactured goods. Japan at that time was also the third important trading country.
The world trade pattern underwent a drastic change during the second half of the twentieth century.
Europe lost its colonies while India, China and other developing countries started competing with developed countries.
The nature of the goods traded has also changed.
Balance of Trade
Balance of trade records the volume of goods and services importedas well as exported by a country to other countries.
If the value of imports is more than the value of a country’s exports, the country has negative or unfavourable 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.
Implications of Balance of Trade:
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
Bilateral trade: It 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.
Multi-lateral trade: It 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.
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.
Issues with Free Trade:
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.
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.
World Trade Organisation (WTO)
The General Agreement for Tariffs and Trade (GATT) was formed by some countries in1948 to liberalise the world from high customs tariffs and various other types of restrictions.
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.
It is the only international organisation dealing with the global rules of trade between nations.
It sets the rules for the global trading system and resolves disputes between its member nations.
It also covers trade in services, such as telecommunication and banking, and other issues such as intellectual rights.
Criticism on WTO
It is argued that free trade does not make ordinary people’s lives more prosperous. It is actually widening the gulfbetween rich and poor by making rich countries richer because the influential nations in the WTO focus on their own commercial interests.
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 Block
They 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.
Other Areas of Cooperation
ASEAN (Association of South East Asian Nations)
Brunei Llarussalam. Cambodia.Indonesia. Lao s. Malaysia. Myanmar. Philippines.Singapore. Thailand and Vietnam
Agro products. rubber, palm on, rice. copra. coffee. minerals - copper, coal, nickel and tungsten. Energy - petroleum and natural gas and Software products
Accelerate economic growth. cultural development. peace and regional stability
CIS (Commonwealth of Independent States)
Armenia. Azerbaijan. Belarus. Georgia. Kazakhstan. Kyrgyzstan. Moldova. Russia. Tapia,Uut Turkmenistan. Ukraine and Uzbekistan.
Integrationandcooperation on matters of economics. defence and foreign policy
Austria. Belgium. Bulgaria. Croatia. Cyprus. Czech Republic. Denmark. Estonia. Finland. France. Germany. Greece. Hungary. Ireland. Italy. Latvia, Lithuania.Luxembourg. Malta. Poland, Portugal Romania. Slovakia. Slovenia. Spain. Sweden. Netherlands and United Kingdom
EEC-Muth 1057 Ell - Feb. 1992loco
Agro products.MUWEIschemicals wood, paper. transport vehicles. optical instruments.clocks - works of art. antiques
Single market with single currency
LAIA(Latin American Integration AssocMilan)
Argentina. Bolivia. Brazil. Columbia. Ecuador. Mexico. Paraguay. Peru.Uruguay and Venezuela
(North American (NorthFree Trade Association)
U.S,A.. Canada and Mexico
Agro products. motor vehicles. automotive parts. computers. textiles
OPEC (Organisation of Petroleum Exporting Countries)
Algeria. Indonesia. Iran. Iraq. Kuwait, Libya. Nigeria. Qatar. Saudi Arabia. UA.E. and Venezuela
Coordinate and unify petroleum policies.
SAFTA(South Asian Free Trade Agreement)
Bangladesh.Maid/nu. Bhutan. Nepal, India.Pakistan and Sri Lanka
Reduce tariffs on inter-regional trade
Major Regional Trade
Here’s a useful video on Ocean Warming by Himanshu Sharma Sir, our faculty for Geography, that will help you to enhance your UPSC CSE preparation:
Impact to International Trade
Positive Aspect: 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, etc.
Negative Aspect: 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.
Other Impacts of Global Trade: Global trade can impact everything from the environment to health and well-being of the people around the world. 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.
Impacts on Environment: The 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.
Gateways of International Trade
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 Ports
Based on Cargo handled
Industrial Ports: These ports specialise in bulk cargo-like grain, sugar, ore, oil, chemicals, and similar materials.
Commercial Ports: These ports handle general cargo-packaged products and manufactured good. These ports also handle passenger traffic.
Comprehensive Ports: Such ports handle bulk and general cargo in large volumes. Most of the world’s great ports are classified as comprehensive ports.
Based on Location
These ports are located away from the seacoast and are linked to the sea through a river or a canal. 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.
Such ports are accessible to flat bottom ships or barges.
These are deep water ports builtaway from the actual ports.
These serve the parent ports by receiving those ships which are unable to approach them due to their large size. For example - Athens and its out-port Piraeus in Greece.
Based on Specialised Function
These ports deal in the processing and shipping of oil.
Some of these are tanker ports and some are refinery ports. For example - Maracaibo in Venezuela, Esskhira in Tunisia, Tripoli in Lebanon are tanker ports and Abadan on the Gulf of Persia is a refinery port.
Ports of Call
These are the ports which originally developed ascalling pointsonmain sea routes where ships used to anchor for refuelling, watering, and taking food items. Later, they developed into commercial ports. For example - Aden, Honolulu, and Singapore.
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. For example - Dover in England and Calais in France across the English Channel.
These are collection centres where the goods are brought from different countries for export.
Examples: Singapore is an entrepot for Asia. Rotterdam for Europe, and Copenhagen for the Baltic region.
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.
Every January after the harvest season Jon Beel Mela takes place in Jagiroad, Guwahati and it is possibly the only fair In India, where barter system is still alive.
Its headquarters are located in Geneva, Switzerland.
164 countries were members of WTO as of December 2016.
India has been one of the founder members of WTO.
Afghanistan is the newest member joined in 2016.
Hoogli river is a branch of the river Ganga.
Download the PrepLadder appto study from India’s top UPSC faculty and transform your UPSC CSE preparation from the Beginner level to the Advanced level. You can also join our Telegram channel for UPSC coaching and to stay updated with the latest information about the UPSC exam.
Own Your Dream
Get quick access to the latest happenings across the globe. Articles revolving around factual data that aims to boost your UPSC CSE preparation and make your dreams become a reality!
Top searching words
The most popular search terms used by aspirants
UPSC NCERT notes
NCERT Notes UPSC
UPSC Coaching Online
UPSC Exam Preparation Online
UPSC Preparation Online
Basic Concepts of International Trade NCERT Notes UPSC