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Saturday, June 30, 2012

International Trade

First of all, speaking on this topic, I'd like to define what international trade is. Well, I feel it like an exchange of goods and services, results of mental activity and labour force between different countries. The aim of international trade is to use division of labour more efficient with surplus.

Let me remind you, that international trade has a long history and a lot of different theories. If I am not mistaken, first theories of IT appeared centuries ago and many of them are still in use. First and foremost, let me tell you about Economist Cannath Boulduin, that has used the term "cowboy capitalism" to describe the American economy of yesterday. He compared yesterday capitalism to the early American West. The land was so reach and the resource was so wast that the people could abuse the environment with impunity. They could cut down trees, kill buggelo and plug the grass land.

But Boulduin's "cowboy" is now gone. The cowboy capitalis m can't operate successfully without the wast world unkept market.

Another term to describe our world became popular in the 60's. We are on "Space ship earth", "Global village" according to Marshall McLuhan. That was him, who said that all persons are part of one surviving system, hurtling through space together. So the business people of the international global village must recognize that the time of cowboy capitalism is over. The abuse of any part of the world environment must be seen as hazardous to the progress of all our fellow travelers on space ship earth.

Nowadays there are 5 main forms of international business:

International trade in commodities and services between different countries currency transactions is an activity related with moving of the money and its substitutes. employing foreign assets This form of business includes licenses, patterns, know-how and so on. foreign investments . The foreign investing activity is the process of transmission of the capital of one country to another in order to get the profit. Investments are divided into direct and portfolio. � Assets and securities. International services are activity having no material form but bringing benefit. It includes transportation, tourism, engineering, insurance, banking, consulting and so on.

International trading balance is reflected in the below balances. Balance of trade, or other words visible balance, reflects trade in goods. Trade in services (banking, tourism, insurance and so on) is reflected in invisible balance. There is also the balance of trade that is the difference between what a country receives and pays for its exports and imports of goods. And the difference between a country's total earnings from exports and its total expenditure on imports. And the present situation of the exports and imports on a particu lar date is called current balance. A country has a favorable balance of trade when it exports more than it imports. But when a country starts spending too much money on nontrade activities its favorable balance of trade can turn into an unfavorable balance of payments.

Adding to all what I've mentioned I would say that there are 2 theories of international trade. Nations may have an absolute or a comparative advantage in producing goods and services because of factors of production (notably raw materials), climates, division of labour, economies of scale, and so forth. The theory of absolute advantages belongs to Adam Smiths. Smiths thought that the development of international trade began when countries have different absolute costs on production of goods. So a country imports the goods for which in other countries the costs are cheaper.

The farther of the second theory is David Ricardo who also as Smiths supported the idea of free trade. He thought that for the development of international trade it is enough for countries to have just comparative advantages. The majority of economists believe in the comparative cost principle, which proposes that all nations will raise their li ving standards and real income if they specialize in the production of those goods and services in which they have the highest relative productivity.

Next thing I feel like speaking about is world international trade organizations. In this context I can't but remember The General Agreement on Tariffs and Trade (GATT), an international organization set up in 1947, had the objectives of encouraging international trade, of making tariffs the only form of protectionism, and reducing these as much as possible. It took nearly 50 years to arrive at the final GATT agreement because until the 1980s, most developing countries opposed free trade. Also the regulation of international trade is realized by some other W7orld International Trade Organizations, such as the European Union, the North American Free Trade Agreement (NAFTA), signed in the early 1990s, and some others.

So here we can speak about the interference in international trade. And there are 6 categories of b arriers in economics:

Price based constrains. They are tariffs and subsidies. Tariffs are taxes charged on imports. Subsidies are offered to some domestic companies for similar reasoning as tariffs. Domestic companies are aided directly through low cost loans and tax breaks. Quantity limits - quotas and embargo. Quotas are quantitative limits on the import of particular products or commodities. And embargo is a particular type of quota that sets the limit at zero imports often is placed on imports for clear political reasons. It's prohibitional on trading within countries generally in some particular goods. Cartel is an organization of independent companies, producing the similar goods, which make the agreement in order to increase prices and to limit the output. There are such bright examples of cartels as Organization of Petroleum Exporting Cartel, the International Sugar Agreement and so on. NTB means other non-tariff barriers, which include the wide variety of barriers ranging from bureaucratic delays to quality limits. These barriers also include so-called safety norms and the deliberate creation of customs difficulties. Financial limits and limits of foreign direct investments belong to the barriers of international trade.

All these tariffs governments suppose to be essential in order to protect what they see as strategic industries - notably agriculture, or some infant industries - without which the country would be in danger if there was a war, as well as other jobs. Abandoning all sectors in which a country does not have a comparative advantage is likely to lead to structural unemployment in the short (and sometimes medium and long) term. Other reasons for imposing tariffs:

to make imports more expensive than home-produced substitutes, and thereby reduce a balance of payments deficit; as a protection agains t dumping (the selling of goods abroad at below cost price in order to destroy or weaken competitors or to earn foreign currency to pay for necessary imports);

� to retaliate against restrictions imposed by other countries;

to protect 'infant industries' until the are large enough to achieve economies of scale and strong enough to compete internationally.

Foreign economic restructuring has effected the development of foreign trade, the banking system and the role of Russian enterprises in the economy. The main point of the foreign trade reform are:

enterprises now have a right to conduct international trade; industrial enterprises are allowed to maintain hard currency bank accounts; great emphasis is made on export and import world marketing technique; inward investment by means of joint ventures is encouraged.

One of the most serious problems facing Russian economy is not convertibility of the ruble, which is a serious handicap in relations within trade counter-parts. The economic reform sets a task to make ruble convertible.

Globalization is the world expansion of economic links between countries and integration of economies of different countries to each other. On the contrary there is localization. Its supporters think that globalization leads to losing by countries their own culture and they are against the opening of borders. So as the result of opposition of these two tendencies globalization and localization one more term appeared, which is called glocalization. The main idea of these term is saving culture, traditions, national character of a country at the same time opening its borders for foreign trade with other countries.

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