INTRODUCTION OF

INTERNATIONAL TRADE
PREPARED BY : NURUL FATHIYAH BT KAMARUL BAHRIN
 OUTLINE

 Understand the importance of international trade

 Advantages and disadvantages of international trade
 Risks in international trade
 Understanding trade block
 What is international trade

 Import & export activities carried out by any nation with another nation; by any company in one country
with a company in another country
 The exchange of services or goods between different national sovereignties or countries.
 FACTORS THAT CAN FACILITATE
TRADE BETWEEN COUNTRIES
 Government policies that promote competition and encourage efficiency
 Industries that are competitive
 Labour force & workers who are enable to enter & leave occupations without difficulties
 An open society & economy
 REASONS FOR IT/ important

 Comparative Advantages
 The tendency of a country to specialize in the production and export of things that it can produce best and relatively cheaper
than other countries of the world.
 Removing protective framework
 Increase productivity, efficiency and quality of goods and services
 Closer political links between different countries
 Technology
 Refers to the method of producing goods and services that are efficient
 ADVANTAGES

 Enable country to obtain goods which are not available locally and export surplus goods.
 Increase standard of living and the economic of the country concerned
 Competition
 Increase productivity, efficiency and quality of goods and services
 Economies of scale because of the enlarge markets
 Closer political link between countries
 Advantages of international trade

 Meeting our needs

 Job creation
 Attracting investment
 New technology & materials
 Diverse Products and services
 Disadvantages of international trade

 Support of non-democratic systems

 Cultural identity issues
 Social welfare issue
 Environment issues
 Political issues
 RISKS in International trade

 Credit Risk
 Can the buyer pay for the imported goods
 To reduce the risk the seller should carry a status enquiry or getting a copy of the audited a/c
 Performance risk (importer)
 The goods or services that are imported do not meet the provisions laid down in the contract.
 Can be reduced making trade enquiry on the supplier to ascertain whether the supplier supplies goods of high quality
 CONTINUED

 Documentary risk
 A possibility that documents presented by an exporter are forged
 Bank is paying to the wrong person
 Foreign exchange risk
 The fluctuation in exchange rate
 Can minimized it by entering into a forward contract
 Transit risk
 Goods may be damaged between the transit from factory to the buyer’s warehouse
 Should be insured
 PROTECTION TO FREE TRADE

 Tariffs
 Taxes or duties on imported goods
 It will increase the price of the imported goods
 The imported goods will decrease & increase the supply of local goods
 Import quotas
 Restriction on the quantity to be imported
 Will reduce the quantity of imported goods in the country
 Subsidies
 Granting of subsidies & financial assistance to make the local goods cheaper
 Local producers will have a coast advantage over foreign producers
CONT.

 IMPORT LICENCES
 The goods can be imported with permit issued by the authority.
 This is another way to control type and quantity of goods that can be imported.
 EMBARGOES
 Embargoes is total ban on import goods, which normally are either socially desirable, or economically disruptive
such as violent films and drugs.
 Non Tariff Barriers
 CONTINUED

 Currency depreciation
 Imports will be more expensive
 Will reduced the dd for imported goods
 Non-tariffs barriers
 Exchange control regulation by restricting the amount of foreign currency that can be bought by importers wilth limit the ability to imports.
 Other include health and pollution standards, labelling and packaging requirements.
 Various safety &performance requirement on imported goods
 Procedures for importing
 Exchange control regulation
 Health & pollution standards
 Labeling & packaging regulations
 FACTORS THAT FACILITATE INTERNATIONAL TRADE

• Government policies that promote competition & encourage efficiency

(export oriented; e.g Malaysia, China).
• Industries that are competitive (industrialization - lower cost of
production; contract manufacturing opportunities like in Asia Pacific
region).
• Labor force & workers who are able to enter & leave occupations with
ease (job opportunities; e.g EU, Middle East - Dubai).
• An open society & economy (borderless world; globalization! – eBay
Stores, Amazon.com).
TRADE BLOC

 A trade bloc is a large free trade area formed by one or more tax, tariff & trade
agreements.
 Typical trade pacts define such a bloc specify formal adjudication bodies, e.g.
NAFTA trade panels.
 It may include even a more democratic & participative system, as the EU & its
parliament.
 Economic blocs, generally regionally based, have been developed to promote
trade between member states.
 A trade bloc is established through a trade pact/pacts covering different issues of
the economic integration.
NAFTA

 The North American Free Trade Agreement is the trade bloc in North
America created by the NAFTA itself and its two supplements, the North
American Agreement on Environmental Cooperation (NAAEC) & the
North American Agreement on Labor Cooperation (NAALC).
 Its members are Canada, Mexico & the US.
 It came into effect on 1 Jan 1994.
 The main objective is to increase trade and investment among
partners by lowering or eliminating tariff and non-tariff barriers.
 EU

 The European Union (EU) is a sui generis supranational union, made up of 27

European countries.
 It was established as the European Economic Community (EEC) in 1957 and
has undergone many changes since. As a result, the EU can be described as
both a supranational & an intergovernmental body.
 The combined economy of the EU is the world’s largest with a nominal GDP of
€12,256.48 billion or $16,523.78 in 2009 (€11.6 trillion in 2007).
 The EU has a single market between member states with common policies in
trade, agricultural & fisheries and regional development.
AFTA

 ASEAN Free Trade Agreement (AFTA) is an agreement by the Association of South East Asian Nations
(ASEAN), of local manufacturing in all ASEAN countries.
 It was signed on 28 Jan 1992 by six members, Brunei, Indonesia, Malaysia, Philippines, Thailand & Singapore.
 Later, it was joined by Vietnam (1995), Laos & Myanmar (1997), Cambodia (1999).
 Its self-described goal is “to increase the region’s competitive advantage as a production base geared for the world
market”.
 The primary goals of AFTA seek to:
1) increase ASEAN’s competitive edge as a production base in the world market thru the elimination,
within ASEAN, of tariffs & non-tariff barriers;
2) Attract more foreign direct investment to ASEAN.
AFTA was established with the aim of eliminating intra-regional tariffs, attracting direct foreign investment
and improving the efficiency and competitiveness tariff reductions within ASEAN, while leaving members free
to set their own tariff levels against non-members.
 WTO

 The World Trade Organization (WTO) is an international organization designed

to supervise and liberalize international trade.
 It came into effect 1 Jan 1995 to succeed the General Agreement on Tariffs &
Trade (GATT).
 It deals with the rules of trade between nations at a near-global level –
responsible for negotiating & implementing new trade agreements; in charge in
policing member countries’ adherence to all the WTO agreements.
 It is governed by a Ministerial Conference, a General Council & a Director
General.
 Its headquarters are in Geneva, Switzerland.
European Economic Community (EEC)

 All countries in Europe formed this trading block in order to have economic integration and common market
for them. Later they formed a specific group, EFTA (European Free Trade Area) to promote free flow of
labor, free flow of capital and competition policy.
TUTORIAL QUESTIONS

 Discuss 2 disadvantages of International trade (Safwan)

 Discuss 3 advantages of International trade (uyuni)
 Briefly explain any two risks involved in international trade (basit)
 Write short notes terminology of East Asian Economic Caucus (EAEC) (nadzifah)
THANK YOU