Ritu Jain

Basis and Need for International Trade

1) Primary Effect of Natural Resources

A recent study by the WTO finds that export policy,

rather than import restrictions, dominates natural resources trade (WTO 2010)

FUELS

MINING PRODUCTS

FORESTRY PRODUCTS

FISH

Natural Resources – Distinctive FeaturesUneven geographical distribution

Exhaustibility (hence the large rents associated to their scarcity)

Environmental externalities deriving from their extraction and consumption

Dominance in some economies, and high price

Share of Intra Region Trade in Natural Resource Exports, 2008

Figure 1. World resources exports by product, 1990-2008 (Billion dollars)

Less industrialized regions are abundant in natural resourcesand mostly ship these goods to more industrialized countries in Europe, Asia, and North America.

Trade policy in resource sectors

Resource rich countries often restrict exports through

a variety of means such as export taxes and quantitative restrictions

Whereas , tariffs and other import restrictions in resource-scarce countries are low

Trade policy in resource sectors

Applied tariffs are on average 23% lower in natural resource sectors relative to other merchandise trade

Export taxes cover 11% of natural resources trade (compared to 5% of other merchandise trade)

Export restrictions on natural resource products represent 35% of all notified export restrictions

2) Supply and Demand

International Trade arises because a country specializes in the production of certain goods

and services and thus produces more than enough

to supply the domestic demand

Major Products exported from India

Agri Equipments, Auto Parts, Bed Spreads, Gems and

Stones, Rice, Steel and Iron, Spices, Handicrafts,

Embroidery and Zari, Aluminium, Coffee, Human Hair,

Silk, Sugar, Tea, Footwear, Raw Cotton, etc

Major Products exported from IndiaIndia’s merchandise export figures for specified sectors for the period 2009-10 vis-à-vis 2008-09 in US dollar billion are given below:

Product Group 2008-09 2009-10

Gems and Jewelry 28.41 29.00

Leather & Leather Manufacturers

3.49 3.28

Textiles 18.15 18.28

Major Products imported to India

Raw Wool, Phosphorus, iodine, drill machine, aluminum foil, polyester filament yarn, Resin,

Printing paper, Paraffin Wax, Mobile phone, chocolates, Computer parts, oil, etc

Major Products imported to India

Jan 4, 2010 (Reuters) - India imported 300-350 tons of

gold in 2009, higher that the previous estimate of a

little over 200 tons, as per the head of Bombay Bullion Association.

Major Products imported to India

Jan 7,2010 (Reuters) - India, the world's top consumer

of sugar and the biggest producer behind Brazil, allowed tax-free imports of the sweetener in

2009 to bridge a shortfall. In the year up to September

2009, importers received 2.3 million tons of raws and 225,000 tons of whites

3) Difference in Government policies (e.g. Taxes)

“International trade law" includes the appropriate rules and customs for handling trade between countries

Whereas "International Commercial Law" deals with transactions between companies and individuals.

3) Difference in Government policies

A variety of policies can be used such as the economic

policies of restraining trade between states :

A. TARIFFS

Tariffs or taxes are imposed on imported goods.

Tariff rates usually vary according to the type of goods

imported.

Import tariffs will increase the cost to importers, and

increase the price of imported goods in the local markets, thus lowering the quantity of goods

imported.

B. IMPORT QUOTAS

To reduce the quantity and therefore increase the

market price of imported goods.

This creates scarcity of the goods hence increasing

the cost.

C. ADMINISTRATIVE BARRIERS

Countries are sometimes accused of using theirvarious administrative rules (eg. regarding

food safety, environmental standards, electrical safety, etc.)

as a way to introduce barriers to imports.

D. ANTI DUMPING LEGISLATION

Supporters of anti-dumping laws argue that they

prevent "dumping" of cheaper foreign goods that

would cause local firms to close down.

However, in practice, anti-dumping laws are usually

used to impose trade tariffs on foreign exporters.

E. DIRECT SUBSIDIES

Government subsidies (in the form of lump-sum payments or cheap loans) are sometimes given to local firms that cannot compete well against

foreign imports.

These subsidies have the objective to "protect" local

jobs, and to help local firms adjust to the world markets.

F. EXPORT SUBSIDIES

Export subsidies are often used by governments to increase exports.

Export subsidies are the opposite of export tariffs, exporters are paid a percentage of the value of

their exports.

Export subsidies increase the amount of trade.

G. EXCHANGE RATE MANIPULATION

A government may intervene in the foreign exchange market to lower the value of its currency by selling its currency in the foreign exchange market.

Doing so will raise the cost of imports and lower the cost of exports, leading to an improvement in its trade balance.

However, such a policy is only effective in the short run, as it will most likely lead to inflation in the country, which will

in turn raise the cost of exports, and reduce the relative price of imports.

4) Unequal distribution of resources

World distribution of wealth