International Trade & Economics

• International Trade and Economics involves the exchange of goods and services across national borders

Origin and Evolution of Trade

• Trade is the voluntary exchange of goods and services
• Trade can be national or international
• International trade involves the exchange of goods and services among countries across national boundaries
• Historical trade systems include the barter system, the introduction of money, and salary (Salarium)

Historical Trade Routes and Developments

• The Silk Route (130 B.C.E. to 1453 C.E.) spanned 6,000 km from Rome to China, with intermediate points in India, Persia, and Central Asia
• Key goods traded along the silk route included Chinese silk, Roman wool, and precious metals
• European commerce grew between the 12th and 13th centuries, facilitated by ocean-going warships enabling trade between Europe and Asia
• Slave trade involved the Portuguese, Dutch, Spaniards, and British capturing African natives and transporting them to the Americas for plantation labor.
• Slavery was abolished in Denmark in 1792, Great Britain in 1807, and the United States in 1808
• The Industrial Revolution (1760-1840) led industrial nations to import raw materials and export finished products to non-industrialized nations
• Later in the Nineteenth century, industrial nations became each other's primary customers
• World Wars I and II resulted in countries imposing trade taxes and quantitative restrictions
• The General Agreement on Tariffs and Trade (GATT) in 1947 and the World Trade Organization (WTO) in 1995 aimed to reduce tariffs
• India is a founder member of the WTO

Trends in World Imports and Exports

• 1955: Exports totaled $95 billion, and imports totaled $99 billion
• 1965: Exports reached $190 billion, and imports reached $199 billion
• 1975: Exports amounted to $877 billion, and imports were $912 billion
• 1985: Exports totaled $1.954 trillion, and imports totaled $2.015 trillion
• 1995: Exports amounted to $5.162 trillion, and imports totaled $5.292 trillion
• 2005: Exports totaled $10.393 trillion and, imports totaled $10.753 trillion
• 2015: Exports amounted to $15.583 trillion, and imports totaled $15.628 trillion

Principles of International Trade

• International trade is based on the principle of comparative advantage and mutually beneficial trade

Comparative Advantage

• Countries benefit from specializing in producing goods they are best at

Complimentarity and Transferability

• Countries can benefit from specializing in goods that complement each other, ensuring goods and services can be easily exchanged

Mutually Beneficial Trade

• Countries specialize in producing goods that benefit both trading partners

Types of International Trade

• Bilateral trade involves trade between two countries
• Multilateral trade involves trade among multiple countries

International Trade Theories

• Economic theories attempt to explain and direct international trade practices

Mercantilism Theory

• Introduced by Victor de Riqueti and Marquis de Mirabeau in 1763
• The prosperity of a country is determined by the amount of capital or assets stored in the country, and the amount of international trade carried out by that country
• Includes national economic policies accumulation of foreign exchange reserves through a positive trade balance, especially in manufactured goods
• A positive trade balance results in an influx of gold and silver, increasing a nation's riches and power
• A favorable trade balance can be achieved through the promotion of exports, imposing tariffs, colonialism, and government regulation of business and trade

Adam Smith's Theory of Absolute Advantage

• Advocates for laissez-faire economics and opposes government intervention in markets
• Free trade is essential for the expansion of international trade
• Countries should produce goods in which they have an absolute advantage
• Absolute advantage stems from the ability of a party to produce a good or service more efficiently than its competitors
• Encourages the production of goods at a lower cost than other countries and exporting those products to countries with a cost disadvantage
• Trade increases efficiency, benefiting both countries
• Government should not regulate business and trade

Ricardian Theory of Comparative Advantage

• First articulated by British economist David Ricardo in 1817
• Efficiency forms basis, states that a product’s value/price determined by the amount of time and labor hours required
• A country will benefit from international trade, specializes in products produced more efficiently
• Even if one country is less efficient than another, both countries can benefit by specializing in goods for which they have a comparative advantage
• Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country

Theory of Comparative Advantage Example

• If Mr. Jetha Lal is ten times more efficient than Mr. Bhide as a Businessman and twice as efficient as a Teacher, then Mr. Jetha Lal should devote all his efforts to Business and leave all the Teaching work to Mr. Bhide

Implications of Comparative Advantage

• Ricardo's theory suggests that international trade can lead to a more efficient use of global resources
• Provides a strong argument in favor of free trade between nations
• Challenges protectionist policies

Heckscher-Ohlin Theory of International Trade

• Developed by Eli Heckscher (1919) and Bertil Ohlin (1933)
• Focuses on factor endowments such, the amount of land, labor, capital, and other resources a country has, as the basis of trade
• A country will export goods that use its abundant factors intensively and import goods that use its scarce factors intensively
• Supports free trade, specialization maximizes global efficiency
• The Leontief Paradox: H-O theory faced challenges, which reflected that the United States (capital-abundant), exported labor-intensive goods and imported capital-intensive goods during the 1950s
• The Paradox contradicted the H-O theory and led to further refinement of trade theories

Modern Relevance and Applications

• Forms the foundation for modern trade models
• Explains trade between developed and developing countries
• Useful for understanding trade policy and globalization

Modern or Firm Based Theory of International Trade

• Developed after World War II
• Focuses on company needs rather than country level

Country Similarity Theory

• Swedish economist Steffan Linder founded it in 1961

• Countries with similar development phase prefer to trade

• Emphasized the role of demand patterns and similarities between trading nations, especially in the context of manufactured goods

• Steffan Linder suggested that companies first produce goods for domestic consumption and export to countries where customers have similar preference

• Theory suggests that countries with similar income levels, preference and living standards more likely to trade

• The strong trade relationship between European Union countries like Germany, France, and Italy that share a high level of industrialization, income and consumers preferences

Product Life Cycle Theory

• Propounded by Raymond Vernon (1960)
• This theory is for developed countries
• Describes that some branded products initially products initially produced in developed nations and mass produced in developing nations labor

Stages of the Product Life Cycle

Introduction Stage

• A new product is developed in an advanced, high-income country because of innovative capabilities, access to skilled labor, and affluent consumer base
• Initial production is domestic, targeting the local market
• Exports to other high-income countries may begin as demand grows internationally

Growth Stage

• Demand for the product expands domestically and internationally, particularly in other advanced economies
• Firms set up production facilities abroad in similar, high-income countries, ensuring proximity to major markets
• Example: European countries establishing production of American-developed technologies like computers

Maturity Stage

• The product becomes standardized, with fewer unique features, and competition increases
• Production shifts to countries with lower labor and production costs to maintain profitability
• Exports to both developed and developing countries rise as the product's price drops and global demand stabilizes

Decline Stage

• Demand diminishes as new, innovative products replace the old product, as consumer preferences change
• Production becomes concentrated in low-cost countries, where there is still product demand due to its affordability
• High-income countries often stop producing the product entirely, focusing on newer innovations
• Declining production of VCRs and CRT televisions replaced by newer technologies

Global Strategic Rivalry Theory

• Developed in the 1980s by economists Paul Krugman and Kelvin Lancaster
• Majorly focuses on multinational companies and their strategies to gain advantage over similar global firms
• Theory goes beyond classical theories incorporating strategic behavior and innovation
• The firm will face Global competition and need to prove their superiority.

Competitive Advantage

• The firm must develop a competitive advantage to achieve by research and development, owning of Intellectual Property, gaining Economies of scale , having a Unique methods, and Favorable access to raw materials

Porter's National Competitive Advantage Theory

• Emerged in the 1990s
• Nation's Competitiveness majorly depends on capability and capacity of the industry to come up with innovation and upgrade.
• Main determinants proposed were the local market resources, demands and conditions, local suppliers and complementary industry
• Role of Government in policy making

Nature and Scope of International Economic Law

• International Economic Law (IEL) is a branch of international law that governs economic interactions between states, international organizations, and businesses
• The set of legal rules, principles, and institutions that regulate international trade, investment, finance, and economic relations

Multidisciplinary Nature

• IEL overlaps with international trade law through the WTO, investment law (FDI), financial law (IMF), environmental law, and human rights law

Regulatory Framework

• IEL establishes rules governing economic transactions and dispute resolution mechanisms

Dynamic and Evolving

• IEL adapts to globalization, technological advancements, and emerging economic issues such as climate change and digital trade

Binding Non-Binding Instruments

• IEL includes treaties, customary international law, soft law (guidelines and recommendations), and contractual agreements

Interplay of Sovereignty and Globalization

• IEL balances national interests with international cooperation in economic matters

Scope of International Economic Law

• The scope of International Economic Law (IEL) is broad and covers various aspects of global economic relations, including:

International Trade Law

• Governed by the World Trade Organization (WTO) and regional trade agreements
• Covers tariffs, trade barriers, trade remedies, and dispute settlement.
• Agreements include GATT, GATS, TRIPS, and FTAs

International Investment Law

• Protects foreign investments through Bilateral Investment Treaties (BITs) and Multilateral Investment Agreements
• Governs Investor-State Dispute Settlement (ISDS) mechanisms like ICSID and UNCITRAL
• Balances investor protection with host state regulatory autonomy

International Financial and Monetary Law

• Regulated by institutions like the International Monetary Fund (IMF) and the World Bank
• Covers monetary policies, exchange rate stability, international lending, and debt restructuring
• Addresses global financial crises and banking regulations such as the Basel Accords

International Development Law

• Focuses on economic development, poverty reduction, and sustainable development
• Implemented through aid programs, development financing through the World Bank, UNDP, and regional development banks

International Taxation Law

• Deals with tax treaties, transfer pricing, and efforts to curb tax evasion and avoidance
• Organizations like the Organization for Economic Co-operation and Development (OECD) play a key role in international tax cooperation

Competition and Antitrust Law

• Aims to prevent anti-competitive practices
• Prevents monopolies, unfair trade practices, and promotes fair competition
• Involves cooperation among competition authorities like EU Competition Law, US Antitrust Laws

Sustainable Development and Environmental Law

• Links economic growth with environmental protection and social responsibility
• Encompasses agreements like the Paris Climate Accord and corporate sustainability regulations

Technology and Digital Economy

• Regulates e-commerce, data protection, and cross-border digital trade
• Addressed by WTO rules, regional agreements, and national data protection laws (e.g., GDPR)

Principles of International Economic Law

• Governed by the underlying principles that regulate economic relations between states, international organizations and businesses

Sovereignty and Economic Independence

• States maintain the right to regulate their own economic policies with trade, investment and monetary regulation
• Countries have the authority to enter into international economic agreements while maintaining control over their domestic economies
• Actions are balanced by obligations under treeties from world trading agreements and Bilateral Investment Treaties

Free Trade and Non-Discrimination

• Guarantees partners are provided mutually favorable terms
• Requires foreign investors to be treated the same as local
• Incentivizes trade in a free system devoid of barriers

Reciprocity(tit for tat)

• Favorable support one an other
• Provides balanced exchanges
• Countries reciprocate tariffs

Fair Competition and Market Access

• Promotes fair business practices and prevents monopolies, cartels, and unfair subsidies
• Ensures that companies from different countries compete equally in the global market

Sustainable Development and Environmental Protection

• Balances financial stability and environmental sustenance
• Supports Business Practices, green finance and sustainable resource management
• Agreements like the ParisClimate and SDGs

Protection of investments and investor laws

• Ensures that International agreements are legitimate
• Offers a protection from unfair action
• Provides methods for dispute settling action through legal recourse

Monetary and Financial Stability

• Maintains Global Financial stability
• Restrains countries from unfairly devaluing currency
• Encourages responsible loan practices

Transparency and Good Governance

• Demands states to share economic data that is both publicly visible and clear
• Enforces laws that prevent corruption
• Promoted by the World Bank, OECD and WTO

Peaceful Dispute Settlement

• Encourages resolution through the judicial system
• Institutions such at the WTO and UNCITRAL provide channels for dispute settlement

International Economic Law Framework

• The principles promote global economic interactions through
  • Ensured fairness
  • Promotion of economic growth
  • Investment Protection
  • Sustainable Development
  • Reduced Financial instablity

Linkage of International Economic Laws with International Trade

• International Economic Laws regulate and govern the dynamics of international trade
• These laws facilitate, standardize, and enforce trade policies

Framework for Global Trade

• Provide a legal framework that governs the movement of goods, services, and investments across borders
• Establish trade rules intellectual property

Trade Agreements and Economic Cooperation

• International Economic Laws shape trade agreements that enable countries to engage in mutually beneficial terms
• Trade facilitates free trade

Tariffs, Customs, and Trade Barriers

• Trade aims to regulate costs and quotas between nations
• Aims the the reduction of trade restriction allowing for more flow

Investment Protection and Trade Facilitation

• Influence foreign investment to encourage beneficial trade flows

Intellectual Property Rights in Trade

• They protect trade, patents and intellectual rights
• Agreement from the WTO governs international Property Right Trade

Dispute Resolution Mechanisms

• Allows for means to enforce resolution for any conflict
• The WTO Dispute Settlement is a such an example

Relationship Between Trade and Law

• Laws facilitates:
  • Market stability
  • Smooth Trade
  • Investment opportunities -Dispute Regulations

World Economic Order

• Contributing to global balance
• UNCTAD
• UNCITRAL
• World bank
• IMF
• ICSID
• IFC

United Nations Conference on Trade Development (UNCTAD)

• An intergovernmental organization that supports developing countries
• Established in 1964
• Composed of 195 members with head quarters in Geneva Economic Imbalances:

• Trade inequality
• Accumulation of Debt
• Limited Access to Resources

Purpose of UNCTAD

• Founded for the promotion of the economic well being of countries by better integrating them

Main Duties of UNCTAD

• Aides trade growth capacity for improving economies
• Provides Analysis on economy
• Capacity building
• Negotiations

What about Development

• Aids to find ground in the International communities
• Supports Foreign Direct investment
• Works towards Agenda UN's 2030 sustainability

United Nations Commission on International Trade Law (UNCITRAL)

• UNGA a body focused on international trade legal assistance
• Created in 1966
• The UN recognized that disparate laws are creating international trade barriers

Components of UNCITRAL

• Membership:

• 70 states are a composed member
• Every 3 you term is up for re-election

• Focuses on removing barriers and supporting

Structure of UNCITRAL

• Support legislative standardization
• Technical Aid
• Dispute mediation
• Helps enhance border activity
• provides legal council

Activities of UNCITRAL

• Convention and international laws
• Works With countries to create consistent rules

Structure

• Public
• Insolvency
• Secured loans
• Electronic
• Trade

UNCITRAL helps strength global relationships

World Bank

• Promotes poverty freedom in the development process
• Founded in 1944
• Offers the reconstruction and lending in global institutional reform
• Finances world products

Structure of Word Bank

• International Development Bank
• international funding Cooperation
• Multi lateral agencies World Band supports;
• Financial aid for those in need
• Aids projects that promote growth
• Improves policy

The world bank helps projects that lead to:

• Infrastructure
• Education
• Support the Climate

World bank also supports efforts that leads to

• Sustainable food supplies
• Good government

All leading to a stronger global market

International Monetary Fund

• Works to achieve sustainability It can:
• support stability
• provides jobs
• well being Funds come by way of its members, It can
• Advise government
• Review economics

The IMF supports missions that promotes:

• International trade
• Promotes growth
• Avoinds policies that hurt trades

Structure components;

• Managaing directer
• Board
• Experts The fund lends a hand to stabiliy

Function Includes

• Cooperation
• Monitors stability
• Aids nations in distress
• Policies on growth IMF can:

• Prevent financial disaster
• Aids to help technical issues