BA322 International Business & Trade - Chapter 1 PDF

**BA322 International Business and Trade - Chapter 1** **INTRODUCTION** **World Trade Organization ( WTO)** is the only global international organization dealing with the rules of trade between nations. **THE BIRTH OF WTO** - World Trade Organization is the precursor of the General Agreement...

**BA322 International Business and Trade - Chapter 1** **INTRODUCTION** **World Trade Organization ( WTO)** is the only global international organization dealing with the rules of trade between nations. **THE BIRTH OF WTO** - World Trade Organization is the precursor of the General Agreement on Tariffs and Trade ( GATT). - The headquarter is located in Geneva, Switzerland. - Has 164 members and 22 countries are in the process of accrediting. - Major decisions are made by the WTO's member government either by ministers or by ambassadors or delegates. **General Agreement on Tariffs and Trade ( GATT)** - Established by a multilateral treaty of 23 countries in 1947 after World War II in the wake of other new multilateral institutions as dedicated to international economic cooperation such as World Bank ( founded in 1944) and International Monetary Fund ( Founded in 1944). **THA GOAL OF WORLD TRADE ORGANIZATION** The primary goal is to ensure that the trade flows as smoothly, predictably and freely as possible and to help producers of goods and services, exporters and importers conduct their business. **Roles of World Trade Organization:** 1. It operates a global system of trade rules. 2. It acts as a forum for negotiating trade agreements. 3. It settles trade disputes between its members. 4. It supports the need of developing countries. **THE DIRECTOR GENERAL OF WTO** **Ngozi Okonjo-Iweala** a former finance minister of Nigeria and former World bank senior executive. The first woman and the first African to serve as director general. Her term of office will expire on August 31, 2025. **MAIN THEORIES** 1. **Classical or country-based theory** - Focus on the country as the primary unit of analysis. Explain trade patterns based on national characteristics, such as resources, labor productivity, or comparative advantage. Example: Mercantilism, Absolute Advantage (Adam Smith), Comparative Advantage (David Ricardo), and Heckscher-Ohlin Theory. **2. Firm- based or company-based Theory -** Emphasize the role of individual companies and their competitive strategies in international trade. Recognize the importance of branding, customer loyalty, and innovation. Examples: Product Life Cycle Theory, New Trade Theory, and Strategic Trade Theory. **ADAM SMITH ( wealth of nations) and DAVID RICARDO ( Principles of economics) -** is a foundational work in economics and a cornerstone of classical economic theory. It explores the mechanisms of wealth creation, the division of labor, free markets, and the role of government in the economy. A country based international trade theory that states that a country's wealth is determined by its holdings of gold and silver. **THEORY OF FREE TRADE**- is an economic concept suggesting that international trade should be conducted without restrictions, such as tariffs, quotas, or subsidies. this theory is grounded in the belief that open markets lead to the most efficient allocation of resources, benefiting all participating nations. **INTERNATIONAL TRADE HISTORY** **Trade** is one of the oldest job in the human history. **Roman empire 15^th^ century to early 18^th^ century** the development of voyage and navigation improved rapidly, specially the discovery of new routes that help seafarer to reduce the costs and improvement the efficiency of their cruise. The **Cape of Good Hope** located in the southern tip of Cape Peninsula Africa, the Cape eventually a significant port and waypoint for sailors travelling from Europe to Asia. However, the opening of Suez Canal in 1869 provided much shorter route from mideterranean Sea to Indian Ocean making the long trip around south Africa efficient. - During 1800s-1900s the discover of land routes and the most prominent land routes for merchant is the silk road ( silk road named by von Richthofen) - A **silk road** was a network of eurasian trade routes it played a central role in facilitating economic, cultural political and religious interaction between the east and the west. The Silk road was divided to three main routes which are North, Central and South. - Han Dynasty ruled china, he sent the merchants to sell commodities like ivory, gold, and silk **DIFFERENT SAILORS CONTRIBUTED TO THE HISTORY OF TRADE** 1. **Christopher Columbus,** an italian explorer sailed across the Atlantic ocean ( 1942). 2. **Vasco Da Gama**, portuguese sailor found a route from Spain to the east. 3. **Bartolemeu Dias**, portuguese navigator with his famous expedition who led the first European to sail around south Africa cape of good hope. **THEORY OF THE PRICE-SPECIE FLOW MECHANISM** Introduced by **David Hume** in the mid-18th century, explains how international trade imbalances are self-correcting under a gold standard. This theory outlines how the flow of gold (specie) between countries impacts their money supply, price levels, and trade balances. **TRADE SURPLUS -** Is the amount by which the value of country's export exceeds the cost of its imports.It indicates that a nation is selling more abroad than it is buying, resulting in a positive balance in its trade account. **DIVISION OF LABOR -** is the separation of a work process into a number of task , with each task performed by a separate person or group of persons to boost **productivity and efficiency and enhance specialization.** **INDUSTRIAL CAPITALISM -** The second phase of capitalism in which industries/factories became the dominant factor in the production of goods. It characterized by the transition from agrarian economies to industrialized and mechanized production. It emphasizes private ownership of industrial means of production, competitive markets, and the pursuit of profit through large-scale manufacturing and trade. **MERCANTILISM -** Refers to an economic policy or trade system wherein a country focuses on maintaining a favorable trade balance by maximizing exports and minimizing imports with other countries. The preference to export but limit the import. It restrict imports and reduces the choices available to consumers. **COMPARATIVE ADVANTAGE** - Refers to the country's capability to produce the specific good at lower marginal cost and opportunity cost compared to other countries. The law of comparative advantage is popularly attributed to English political economist **David Ricardo** and his book \"On the Principles of Political Economy and Taxation\" written in 1817, although it is likely that Ricardo\'s mentor, **James Mill,** originated the analysis. In this theory it both considered the marginal and opportunity cost. **ABSOULUTE ADVANTAGE** - Is the country's inherent ability to produce specific goods efficiently and effectively at a relatively lower marginal cost, lesser workforce, lesser time and lesser cost without compromising the quality. Absolute advantage emphasizes marginal cost. **Marginal Cost** is the cost incurred in producing an additional unit of a product while **Opportunity cost** mean the value that can get from an alternative that did not choose. Example: Your money can earn interest if you deposited in the bank but you opted to spend it or lend it to somebody. The interest you would earn in the bank is the opportunity cost of the money you spent or lent to somebody. **THEORY OF INTERNATIONAL TRADE AND COMMERCIAL POLICY** **BARTER -** It is the facilitating of goods and services among different peoples before the advent of monetary system. **Bartering** involves a direct trade or exchange of goods and services. It is a local phenomenon during ancient time. It a process of trading of goods and services between two parties without using money in transaction. The **advantage of bartering** is that it does not involve money. It is very simple. The advent of technology bartering once again set a stage of comeback through trading online now called swap markets and online auctions **Disadvantages of barter:** 1. It is difficult to find people who need what the other people have. 2. There is no standard measure of value. 3. It is time consuming 4. If someone's goods are perishable it hard to preserve it. **System of trading (evolution of the barter system)** - Exchanging good between group of people base on what they need. This types of exchange was mainly done to fulfill basic needs. - The barter system was introduced by Mesopotamia tribes during 600 BC and it was adopted by Phoenicians who bartered their goods in other cities located across the oceans. Then it was improved by Babylonia people who used this system for exchange of weapons, tea, spices and food items. - Salt is the most valuable items during that time because the salary of roman soldiers was paid in salt. **Valuable things during ancient time** 1. Salt 2. Metal 3. Farm animals 4. Shells 5. Feather 6. Animal teeth These material things used as money. So that traders wanted something that was not perishable and easy to carry as medium of exchange. **MONEY** - is a medium of exchange that facilitates transactions of goods and services. It serves as a unit of account, providing a common measure of value for comparing the worth of different goods and services. Money also acts as a store of value, allowing individuals to save purchasing power for future use. In modern economies, money takes various forms, including coins, banknotes, and digital currencies. Its fundamental role is to overcome the limitations of barter systems by providing a widely accepted and standardized means of conducting transactions. **THE ORIGIN OF MONEY** - China is the first country to use coins and the first region of the world to use industrial facility to manufacture coins. The first recognizable metal coins appeared in China during 100 BC - Around 700 BC Chinese moved from coins to paper money when Marco Polo ( Venetian merchant who traveled around Asia ). - **Minting** is the process of making a coin by stamping metal. - Croesus (Croeseid) is the world\'s first bimetallic monetary system. In this system, both gold and silver were used as currency, with the government setting official exchange rates between the two metals. The use of both metals allowed for flexibility in trade and payment systems. - European colonial government issued the first paper currency. They use IOUs ( promissory notes) that traded as currency. The first instance was in Canada - Legal tender means currency such as coin and paper money is valid and sufficient foe the payment of debts. - notes issued by private individuals also circulated as money. - The government issued promissory notes called " ordonnances " and treasury notes called " acquits" which began to circulate as money. **The history of Philippine currency** - The inconvenience of the barter system led to the adoption of specific medium of exchange. - The Cowries ( a form of currency) produced in gold, jade , quartz and wood became the most common and acceptable form of money through many centuries. 1. Pre-Hispanic Era 2. Spanish Era 3. Revolutionary Period 4. American Period 5. Japanese Occupation 6. Philippine Republic - Philippine coins and notes are the treasure of the nation. They are woven into the fabric of social, political and economic life. From its early bead-like form to the paper notes and coins that we know today, our money has been a constant reminder of our journey through centuries as a people relating with one another and with other peoples of the world. - Central Bank of the Philippines ( 1949) - English Series Notes was first currencies issued by Thomas De La Rue & Co., Ltd. In England and the coins minted at the Bureau of Mint. - The Filipinization of the republic coins and notes began in the 60s and carried up to the present. - The Philippine coinage system with the Flora and Fauna Coin Series initially issued in 1983. - The Barilla , a crude bronze or copper coin worth about one centavo was the first coin struck in the country as ordered by the Royalty of Spain. - The Filipino term " Barya" referring to small change had its origin in barilla. - Gold coins with the portrait of Queen Isabela were minted in Manila. Silver pesos with the young Alfonso XIII were the last coins minted in Spain. - The pesos fuertes is the first paper money circulated in the country issued by the country's first bank the El Banco Español Filipino De Isabel II - The Philippine Republic of 1898 under General Emilio Auguinaldo issued its own coins and paper currency backed by the country's natural resources. One-peso and Five-peso revolutionary notes printed as Republika Filipina Papel Moneda De Un Peso and Cinco Pesos were freely circulated. **The first local form of coinage called Piloncitos.** - These had a flat base that bore an embossed inscription of the letters "MA" or "M" similar to the Javanese script of the 11th century. It is believed that this inscription was the name by which the Philippines was known to Chinese traders during the pre-Spanish time. **New Generation Currency Series (2010-present)** The new banknote design features famous Filipinos and iconic natural wonders. Philippine national symbols will also be depicted on coins. To provide a smooth transition from the New Design Series to New Generation Currency (NGC) series, BSP purposely retained some NDS features, such as, the size, predominant colors and the featured personalities in the NGC, except for the portrait of President Corazon Aquino which is an added portrait on the 500-piso note.  The BSP started releasing the initial batch of new banknotes on December 16, 2010. The BSP launched in 2020 the enhanced NGC banknotes that are more responsive to the needs of the elderly and the visually impaired, and feature the latest anti-counterfeiting technology. The NGC and enhanced NGC banknotes are legal tender and may be used as payment for goods and services. - **Polymer banknotes are smarter. More secure.** Detailed images and sophisticated security features make polymer banknotes more difficult to counterfeit. - **More eco-friendly.** Don't panic just because it's plastic. Producing polymer banknotes has less environmental impact given their smaller carbon footprint, lower water and energy usage, and less environmental toxicity. - **Recyclable.** Go green with polymer banknotes. When deemed unfit, these banknotes can be recycled to produce various products such as building components, plant pots, and garden furniture.  **Mobile payments and Internet payments ( digital payments )** **Mobile payments** are money rendered for a product or service through a portable electronic device. According to BSP the share of digital payment transactions to total monthly retail payments in the Philippines grew from 42.1 percent in 2022 to 52.8 percent in 2023, according to the[ 2023 Report on E-Payments Measurement](https://www.bsp.gov.ph/PaymentAndSettlement/2023_Report_on_E-payments_Measurement.pdf) of the Bangko Sentral ng Pilipinas (BSP). The main contributors to the rise in e-payments were merchant payments which accounted for 64.9 percent of monthly digital payments volume, person-to-person transfers at 19.3 percent, and business-to-business supplier payments at 6.1 percent. **Mobile and digital wallet** - is an electronic application or system that allows users to store payment information securely on a mobile device or online platform. It facilitates cashless transactions by enabling users to make payments, transfer money, and store information like credit and debit card details, loyalty cards, and even identification documents. **Virtual currency -** Is any types of digital unit that is used as a medium of exchange or a form of digitally stored value generated by agreement within the community currency users. It referred as to " digital gold" it also called "altcoins" **Cryptocurrency** is digital money it is virtual and no physical form. A type of digital or virtual currency that uses cryptography for security, making it highly secure and resistant to counterfeiting. Cryptocurrencies operate on decentralized networks based on blockchain technology, a distributed ledger enforced by a network of computers (or nodes). They are typically not issued or controlled by a central authority, such as a government or financial institution. **Fiat currency or cash -** Is the real currency (coins and paper money) issued and printed by the central bank of a country. Fully --backed by the government of a country and its acceptable as payment for public and private financial obligations. **E-money** - Is a digital representation of fiat currency stored in digital wallets. Any amounts of currency stored in e-wallet ( gcash, Paymaya, Coins Ph, GrabPay) is e-money which also be can accepted as " card payment" or can be withdrawn right away as cash. **Debit Card -** is a payment card issued by a bank or financial institution that allows you to access funds directly from your bank account. It is commonly used for cash withdrawals, online or in-store purchases, and bill payments. Unlike a credit card, it does not involve borrowing money; transactions are deducted immediately from your available balance.