CHAPTER 2

INTRODUCTION TO INTERNATIONAL
TRADE
DIFFERENT WAYS OF
CLASSIFYING THE
WORLD INTERNATIONAL
BUSINESS
By Geographic Region: The location of a firm’s foreign affiliates or the
region where a customer lives or works.

By Economic Development: Countries can be categorized based on their

level of economic development, such as developed, developing, and least
developed countries.

By Political System: Countries can be classified based on

states. their political systems, such as democracies,
authoritarian regimes, or socialist states.

By Trade Agreements: Countries often engage in trade agreements, such

as free trade agreements (FTAs) or regional trade agreements (RTAs),
which create preferential trade arrangements between member
countries.
COMPARISON OF
DOMESTIC AND
GLOBAL MINDSETS
Domestic Mindset

Focused on local market conditions and regulations. Prioritizes

short-term profitability and domestic customer satisfaction.

Global Mindset
Recognizes the interconnectedness of the world economy.
Emphasizes long-term growth and international customer needs.
HISTORICAL
ANTECEDENTS
Ancient Trade Routes
Silk Road, Spice Route, and other ancient trade routes facilitated
global exchange of goods and ideas.

Mercantilism
Economic policy emphasizing national wealth through trade
surpluses and government intervention.

Industrial Revolution
Rapid technological advancements led to increased global trade and
international competition.

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Bretton Woods System
Post-World War II agreement establishing the International
Monetary Fund and the World Bank.

GATT (General Agreement on Tariffs and

Trade)
Multilateral agreement aimed at reducing trade barriers and
promoting international trade.

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URUGUAY ROUND :
THE BIRTH OF THE
WTO
Significant Expansion
Negotiations focused on reducing trade barriers and expanding
international trade.

Establishment of WTO
The Uruguay Round marked the transition from GATT to
the World Trade Organization (WTO).

New Agreements
The WTO expanded its scope to include trade, intellectual
property, and agricultural goods. in services
THE WTO AS AN
INTERNATIONAL
ORGANIZATION
Multilateral Trading System

The WTO provides a framework for regulating international

trade and resolving disputes.

Trade Rules and Regulations

The WTO's agreements establish rules for trade in goods,

services, and intellectual property.

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TRADE WITHOUT
DISCRIMINATION OR
PRINCIPLE OF
NON- DISCRIMINATION
F
Most-Favored-Nation (MFN)

Treat all WTO members equally, without granting preferential

treatment to any one country.

National Treatment

Treat imported goods and services no less favorably than

domestic products, preventing discrimination against foreign
products.

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THE RULES ON
MARKET ACCESS
Tariffs
Taxes levied on imported goods, influencing import
prices and affecting trade flows.

Non-Tariff Barriers
Regulations, standards, and other measures that can
restrict trade without explicit tariffs.

Trade Agreements
Negotiated agreements between countries that reduce trade
barriers and promote trade liberalization.
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ANTI- DUMPING,SUBSIDIES
AND COUNTERVAILING
DUTIES
Dumping - refers to the practice of a foreign producer
selling a product in another country at a price lower than its
normal value in its own domestic market or a third-country
market. This can be a predatory tactic, as foreign producers
may intentionally sell at a loss to gain market share and drive
out domestic competitors. The consequences of dumping can
be severe for domestic industries, leading to job losses,
factory closures, and a decline in economic activity. Anti-
dumping duties are tariffs imposed on imported goods to
counteract the effects of dumping.

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Subsidies - are financial assistance provided by governments
to enterprises or industries to promote specific economic
activities including direct cash payments and tax credits.

Countervailing duties (CVDs)-are tariffs imposed on

imported goods to offset the subsidies provided by the exporting
country's government. CVDs aim to neutralize the price
advantage enjoyed by subsidized exporters and create a level
playing field for domestic producers. They are typically
calculated based on the amount of the subsidy provided by the
exporting government.

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GENERAL EXCEPTIONS
General exceptions are provisions within international trade
agreements, such as the World Trade Organization (WTO)
agreements, that allow countries to deviate from their
obligations under these agreements in certain
circumstances. These exceptions are designed to provide
flexibility and allow countries to pursue important public
policy objectives, even if they may conflict with trade
liberalization commitments.

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1. Public Morals-This exception allows countries to restrict
trade in goods considered contrary to public morals, such as
pornography, drugs, or weapons.

2. Public Security:- This exception permits countries to restrict

trade in goods that pose a threat to national security, such as
weapons or materials used in the production of weapons.

3. Human, Animal, or Plant Life or Health- This exception allows

countries to restrict trade in goods that pose a threat to human,
animal, or plant life or health, such as contaminated food or
diseased livestock.
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4. Protection of National Treasures of Artistic, Historic, or
Archaeological Value-This exception permits countries to restrict
trade in goods considered national treasures, such as ancient
artifacts or works of art.

5. Conservation of Exhaustible Natural Resources This exception

allows countries to restrict. trade in goods that could deplete
natural resources, such as endangered species or timber from old-
growth forests.

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6. Protection of Intellectual Property-This exception allows
countries to restrict trade in goods that infringe on
intellectual property rights, such as counterfeit goods or
pirated software.

7. Application of Measures Relating to the Products of Prison

Labor-This exception allows countries to restrict trade in
goods produced by prison labor, as long as the measures are
not discriminatory.

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TRADE IN GOODS
AND THE WTO'S
AGREEMENTS
Trade in goods and the World Trade Organization
(WTO) agreements are closely linked in the global
trading system. The WTO, established in 1995, is the
primary international organization governing trade
relations between its member countries. Its
agreements cover various aspects of international
trade, including the trade in goods.

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1. General Agreement on Tariffs and Trade (GATT)

The GATT which has been incorporated into the WTO framework,
is the key agreement regulating the trade in goods. It lays down the
basic principles and rules for global trade in goods and has several
key features:

Most-Favored-Nation (MFN) Treatment: This principle requires

WTO members to treat all other members equally in terms of
trade. If one country offers a trade concession (such as a lower
tariff) to another, it must extend the same treatment to all WTO
members.

National Treatment: After goods have crossed the border, they

must be treated the same as domestically-produced goods. This
prevents discrimination against foreign goods once they enter the
market.
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Tariffs: GATT focuses on reducing tariffs (taxes on imports) to make trade more
predictable and open. Over time, countries have made commitments to lower
tariffs through multilateral trade rounds.

Non-Tariff Barriers: Besides tariffs, the GATT addresses non-tariff barriers like
quotas, import licensing, and subsidies that restrict trade.

Transparency and Fair Competition: WTO members are required to make

trade policies transparent and enforce fair competition standards.

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2. Specific GATT Provisions on Trade in Goods

Within GATT, there are specific provisions that address particular issues
related to trade in goods:

Subsidies and Countervailing Measures: This section deals with

government subsidies that distort trade and provides mechanisms for
resolving disputes related to subsidies.

Anti-Dumping Measures: Anti-dumping provisions allow countries to

take action against foreign products sold at unfairly low prices (below
cost or market value) that harm domestic industries.

Safeguards: These measures allow a country to temporarily restrict

imports of certain goods if they are causing serious injury to the domestic
industry.
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3. WTO Agreement on Agriculture (AoA)

The WTO Agreement on Agriculture specifically addresses the trade in

agricultural goods, aiming to reduce subsidies and trade-distorting
practices in agriculture. This agreement focuses on three pillars:

Market Access: It aims to reduce barriers to agricultural trade.

Domestic Support: It seeks to limit trade-distorting subsidies for

domestic agriculture.

Export Competition: It aims to reduce subsidies for agricultural exports,

ensuring fairer competition.

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4. WTO Agreement on Textiles and Clothing (ATC)

The ATC was an agreement designed to phase out the Multifiber

Arrangement (MFA), which had imposed quantitative restrictions on the
trade of textiles and clothing. The ATC set out a 10-year plan for
integrating textiles and clothing into the WTO system, ensuring that trade
in these goods would be governed by the general GATT principles.

5. Trade Facilitation Agreement (TFA)

The TFA, which came into effect in 2021, aims to simplify and streamline
customs procedures to ease the movement of goods across borders. It
focuses on reducing administrative burdens, improving transparency, and
enhancing cooperation between customs authorities, thus facilitating
smoother trade in goods.

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6. Dispute Settlement

One of the core functions of the WTO is resolving disputes between

members regarding the implementation and interpretation of trade
agreements. The WTO's Dispute Settlement Body (DSB) adjudicates cases
related to the trade in goods, ensuring that members comply with their
obligations under the WTO agreements.

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7. Trade in Services and Intellectual Property

Though primarily focused on goods, the WTO agreements also extend to

services and intellectual property. For example:

General Agreement on Trade in Services (GATS) regulates trade in services

alongside GATT's focus on goods.

Trade-Related Aspects of Intellectual Property Rights (TRIPS) governs

intellectual property, which can affect the trade of goods, especially in
industries like pharmaceuticals, technology, and entertainment.

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AGRICULTURE
Key Agreements

The WTO's Agreement on Agriculture aims to promote fair trade and

sustainable development in the agricultural sector. It covers market access,
domestic support, and export competition.

Challenges

Balancing the needs of farmers, consumers, and the environment is a crucial

challenge for the agreement. Developing countries face specific issues related to
market access and subsidies.

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STANDARD AND
SAFETY
Technical Barriers to Trade (TBT)
The Agreement on Technical Barriers to Trade aims to prevent standards
and regulations from becoming unnecessary obstacles to trad

Sanitary and Phytosanitary (SPS)

The SPS Agreement ensures that food safety and animal and plant health
measures are based on scientific evidence and are not discriminatory.

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TEXTILES
Textile Trade Agreements

The WTO's agreements on textiles aim to promote free and fair trade in
the textile sector. They cover market access, quotas, and subsidies..

Challenges

The textile industry faces challenges related to competition, labor standards,

and environmental sustainability.

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ANTI-DUMPING, SUBSIDY
AND COUNTERVAILING
MEASURES AND
SAFEGUARD
Anti-Dumping
The Anti-Dumping Agreement allows countries to impose duties on
imports sold at unfairly low prices.

Subsidies and Countervailing Measures

The Agreement on Subsidies and Countervailing Measures

covers government subsidies that distort trade and allows for
countervailing measures.

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Safeguard Measures
The Agreement on Safeguard Measures allows countries to temporarily
restrict imports if they are causing serious injury to domestic
producers.

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NON-TARIFF BARRIES
(NTBs’) A. IMPORT
LICENSING
1. NTBs
2. Import Licensing

3. Example

Some countries require importers to obtain

licenses before they can bring in certain goods.

4. Impact

Licensing requirements can create barriers to

trade by delaying shipments and increasing
costs. 44
CUSTOMS
VALUATION
Agreement
The Agreement on Customs Valuation establishes rules for determining the
value of goods for customs purposes.

Purpose

The agreement aims to ensure that customs duties are assessed consistently and
fairly, regardless of the country of origin.

Benefits

Harmonized valuation procedures reduce trade disputes and facilitate

global trade.
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AGREEMENT ON
TRADE- RELATED
INVESTMENT
MEASURES
Investment
The agreement aims to ensure that investment measures do not unduly
restrict trade.

Impact

It promotes a more open and predictable environment for foreign

investment, contributing to economic growth.

Challenges

Balancing the need for investment with the need to protect domestic
industries remains a key challenge.
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thank you