Macroeconomics International Trade and Its Significance

International trade or Global trade names of a very import part of Gross Domestic Product (GDP), the economy of a country is based upon this GDP and from which we able to find is the economy is going toward right direction or the economy is falling towards wrong direction. The international trade gives a support to economy and let the economy of country to stand on its foot. The International trade is basically the export and imports of goods and services to international borders on simple words exports and imports of goods and services with other countries.

The international trade can be helpful and can be harmful for the economy but the question is how this international trade can be harmful for a countries economy, basically the international trade is exports and imports of goods are services, when a country’s imports are more than its exports than then international trade become harmful for an economy, it means the country is not making enough for itself and due to this reason the imports are higher than exports. If a country wants to be stronger it needs to work hard to improve its exports and build a strong relationship with its regional countries. A country can enhance its relationship with its regional and neighboring countries by signing free trade agreements with them so that the countries may not find that they are separate part, the example of EU shows that when the countries in region have good relationship than they can become more economically stable , the build strong relationship all the European countries has signed an agreement in which all the member countries can easily fly to member countries and they do not have any trade barrier.

The countries like Pakistan need to work hard on its trade and need to emphasize more or trade not on loan and funds, the country need to develop a good business environment where inverters can join hands with governments and remove this trade barrier which is now present in Pakistan. The government of Pakistan needs to develop more sea ports and dry ports so that the investor may a find place to start a business, and they need to develop more stable political and economical system. The government need to make sure that they are going on right direction because their might not be any turning back.

Table of Contents

Table of Contents 3

Introduction 4

History of International Trade 5

Present Global Trade Scenario 5

About WTO 6

Role of WTO 6

MISSION STATEMENT OF WTO: 7

How is WTO important for least developed countries (Underdeveloped Countries)? 7

Type of Trade 8

International Trade 8

Domestic Trade 9

Bilateral Trade Agreement 9

Multilateral Trade Agreement 10

Free Trade Agreement 10

International Trade and Pakistan 11

Pakistan Exports Commodities 11

Pakistan Exports Partners 12

Pakistan Imports Commodities 12

Pakistan Imports Partners 12

How to Improve International Trade of Pakistan 13

Advantages and Disadvantages of International Trade 13

Conclusion 14

Recommendations 15

Bibliography and References 16

Introduction

The topic of my report is international trade and its significance, as topic its self describe that we need to describe the international trade and its importance, in this report we try to focus on all aspects of trade so you can understand what really international trade is, we all know what trade is but we do not have any idea what really international trade is and how it contributes to an economy. In simple words we can say that the buying and selling of goods and services on global level is call international trade or on other words imports of goods and services and export of goods and services is called international trade and counties trade in domestic and international borders. The countries not only trade goods and services they also trade raw materials with other countries, most of countries import raw materials from develop countries and use they in products and then export them back.

International trade contributes to Gross Domestic Product (GDP) of an economy and it plays an important role in economy, trade have great impact on economy both negative and positive, if a country have more imports than exports it means the country has less GDP and they are is loss, and they country have more exports than imports its shows that country is moving towards positive direction and the economy of the country is under controlled.

The significant of trade is known to every country but some are working hard to improve their trades and some are doing nothing, countries that have good trading system and have strong relationship with their trading partners are more successful and known as the best economies of the world. The countries that are doing nothing for the trade is known as underdeveloped countries, if these countries focus more on international trade and improve their trading system they can compete with develop countries and can improve living standard.

A country trade with other countries so they can get most out of their resources, and export what they have in massive amount and import what they don’t have or what they have is less quantity. The history of trade is very old, and the trade has been the most important part of an economy, there are many international organizations who are working to improve the trading system and these organizations make different trading policies.

History of International Trade

The international trade or world trade was prevalent very long time ago before the formation of nation states and countries. The first known ancient long distance trade was by the Egyptians who imported spices from Arabia and the ‘Land of Punt’ (present day Somalia), than the Ptolemaic dynasty, which ruled in Egypt from 305 BC to 30 BC, traded with India, the Arabian vessels were used to transport Indian goods to Aden, and the Chinese goods made their way to India, Persia and Rome through the silk route. (n/a, n/d)[1][2]

The first international trading company was established by Elizabeth I on 31 December 1600 and the company was known as the East India Trading Company (EITC), in the eighteenth century, industrialization and colonization went hand in hand. The European nations increased their political power through trade. They exploited trading opportunities in eastern countries like India, China and other countries. The foreign trade got its impetus in eighteenth and early nineteenth century this was the age when international trade developed in massive amount and trading ports were developed in many parts of world especially China, India and European countries. Rapid development in transportation facilities resulted in a surge in international trade in the twentieth century. Today, international trade has taken the form of outsourcing and multinational companies; multinational companies are those companies which are working in multiple counties. (n/a, n/d)[1][2]

Present Global Trade Scenario

In Past the international trade was very low but in twentieth century this international trade made a dramatic turn and rise big volume. In 1928 the International trade was just UD$31.7 billion, in 1994 this figure rise to US$4,215,000 billion which is 100 times more than 1928 and still the international trade is rising. Studies conducted by the UNCTAD in 1994 show that trade in commercial services rose much faster than merchandise trade between 1970 and 1990. (n/a, n/d)[1]

The G-7 group, comprising of the US, France, Germany, the UK, Italy, Japan and Canada, has always commanded a dominant position in world trade. Gradually the significance of certain Asia Pacific nations, such as China, Singapore, India, Hong Kong, Taiwan and Korea, has risen. (n/a, n/d)[1]

About WTO

WTO is very important part of international trade this is the organization which monitor all the trade policies and keep the trade alive, it is WTO which made the trade between countries easy and clear before this organization trading was a difficult task and countries have to follow different kind of rules which were not acceptable of many countries. The World trade organization formally known as General Agreement on Tariffs and Trade (GATT), this organization was introduced after the World War II in 1948. WTO replaced GATT in 1st January 1995 under the Marrakech Agreement. The organization deals with trade issues, in start this organization was introduces so that the trade barrier between countries can be removed and new trading system may introduced, in which all countries can participate equally and no country may not find difficulty in trade. WTO has very clear trading policies and currently 153 countries are member of this organization which represents total of 98% trade of world, every two year WTO call up meeting of its member countries so that they can discuss the problem and may find the solutions to those problems. It is most powerful body for the controlling of dynamics of global trade; WTO is helping those countries which have problem with neighboring countries and it is helping them by formulating new trade agreements and policies.(n/a, n/d)[3][4][5]

Role of WTO

The World Trade Organization is driven by its member countries, and each member country play its role in WTO, the role of WTO Is very simple, the organization formulate trading policies for its member countries and negotiate w ith member countries if any kind of problem arises among the member countries, the organization have very clear trading policy which is keep the trade alive and remove all type of trade barriers among member countries, currently this organization is working under United Nations and follows UN’s policies. WTO develop agreements with governments to make their trade policies transparent and it also ensure that trade flows are clear and smooth, the organization make sure the decisions which they are taking are not harmful for any country and the decisions may not create any kind of disputes. WTO have velar transparent system in which all the member countries got equal rights and if any country is not agreeing on any issue it also formulate committees which handle that problem and make sure that all countries are agreed and no member have problem. Each in two year WTO sit together in Geneva and Doha round conference and discuss problems and ensure that everything is controlled, WTO also monitor the Fridge rates by the different countries and keep an eye on trade polices of all the member countries before WTO all the countries has different fridge rates and when the goods reaches to its end point the price of product become very high and some countries do not allow to travel through there sea’s but now there is no such kind of problem and trading is a very easy task and everyone can trade. WTO is a very important part of International trade due to this reason the organization work very hard to keep trade smooth and alive.(n/a, n/d)[3]

MISSION STATEMENT OF WTO:

The World Trade Organization (WTO) is the international organization whose primary purpose is to open trade for the benefit of all. (n/a, n/d) [3]

How is WTO important for least developed countries (Underdeveloped Countries)?

WTO have total of 153 member countries and 35 countries are least developed countries, least develop countries are those countries who are suffering from economical challenges and are not economically stable. WTO know the policies which can implement of developed countries are not applicable on LDC’s dude to this reason WTO has special policies from these countries so that they can have more trade and become more economical stable. WTO is also working with IMF; IMF is the International Monitory Funds which working with WTO on many levels, the main aim of IMF and WTO is ensure great coherence in global economic policymaking and both organization are helping LDC’s so that countries which are suffering from economical problems may recover soon and bring benefit to nation. IMF give funds to LDC’s and also help them in building new economical and trade policies. A cooperation agreement between WTO and IMF has signed after the creation of WTO which covers various aspects of their relationship and most important agreement was helping the LDC’s and making sure that all the member countries are economical stable and when ever any member country needed help both organization will help that country.( Kwa, 1998)[4]

Type of Trade

There are two basic types of trade one is International trade and other is Demotic trade, The trade itself have very old history, People start trading very long time ago when people use exchange the goods which they have in large amount and get what they don’t have or what they need the most. The trade is basic economic concept that includes multiple bodies which participate and negotiate and exchange goods and services. Now money is medium for the trade and people trade goods and services for money, the money which they earn from trade they can use it and can purchase what they want for them. (n/a, n/d)[3]

International Trade

International trade is the exchange of goods and services among multiple countries, a nations trade with other nations and get what it need more and give what they have is large amount. The international trade is very important part of an economy many of nations are based upon trade and these countries are known as developed countries and developing countries. Due to international trade the countries are interlinked with each other and the economical situations are depended upon each other. For example, dude some political changes in Pakistan which could result in an increase in the cost of labor and products that produced in Pakistan, thereby increasing the manufacturing costs and increase in cost of goods and the exports will become more expensive and the importer countries need to pay more for the same product for which they use to pay less amount and when prices are change it will show a great impact on those countries. (heakal,2007)[5]

Trading Internationally gives a consumers and countries the opportunity to be exposed to goods and services which are not available in their own countries, and it give them an opportunity to export those product which they produce in massive amount and in which they are experts, when they will export that product they will get more price than usual price which they use to get in their country. Due to this international trade we can get anything what we want for our selves, and now people are also trading the services for example Bahrain is providing banking system in which they allow people from all around the invest and giving them big amount of interests. This is all because of international trade. Now we have Multinational Companies working in multiple countries we do not have any problem we can get what is product of USA in Pakistan in very Affordable. (heakal,2007) [5]

The International Trade changed today’s world now we can get anything from any country and now nations are stronger than ever, the country which using its resources more effectively is more successful, we can take example of china and India they are now known as trading countries, they are trading their expertise and goods to other countries and these countries are known as biggest markets of the world. All the trading countries want to invest in these countries because they know they can get more profit. China has covered more than 60% of worlds market and they are known as biggest exporters of this world. (heakal,2007) [5]

Domestic Trade

Domestic Trade is exchange of goods within the borders of country, the domestic trade more cheap than international trade, international trade is more expensive than domestic trade because in international trade the shipping cost and tariff rates by different countries are included and it is more time consuming than domestic trade. Domestic trade is very import for the economy, if some goods are available in any part of country in large amount and the other part of country need that product it can also bring benefit to country, the domestic trade introduce cash flow in country and people are encourage to produce more goods. Many countries give more preference to domestic trade because domestic trade has no bad impact of countries economy and it also strong the countries economical system. (heakal,2007) [5]

Bilateral Trade Agreement

Bilateral Trade Agreement is an agreement which is signed between two nations, on in other words when two countries are agreed on any trading policy and they agree to import and export goods without any involvement any other country is known as Bilateral Trade. They are fairly easy to negotiate, and give those two nations favored trading status between each other.

We can take example from previous Pakistan and China Bilateral Trade Agreement which took place last Saturday on 18th December in which both countries agreed to trade 22 kinds of product worth of US$17 billion. Other example of Pakistan and Iran Gas pipe line both countries signed agreement that Iran will supply gas to Pakistan. (Smith, Summer, Rossan,2009)[6]

Multilateral Trade Agreement

A multilateral Trade Agreement is an agreement which is signed between more than two counties at once and all the countries agree upon that agreement this agreement is very powerful agreement once all the countries sign the agreements, this benefit of this multilateral trade agreement is all the countries are treated equally and all the countries plays its important role in it. (Smith, Summer, Rossan,2009)[6]

The biggest multilateral trade agreement was passed by 149 countries in DOHA 2007 in which all the countries sign the agreement, The latest agreement by India, Afghanistan, Pakistan and Iran was another example of Multilateral Trade Agreement in this agreement all the countries agreed to produce Electricity from Gas and trade it to the other export it to Afghanistan. (Time, 2009)[2][5]

Free Trade Agreement

In Free Trade Agreement countries are agreed to export and import goods and services without any tariff rate and no quota system is implementing on it, most of Free trade agreement is signed between neighboring countries and in regions. This trade agreement is now a day is very successful and is giving benefits to many economies. (n/a, n/d)[7]

The Latest Free Trade Agreement was signed by USA and South-Korea in this agreement both countries has removed all the trade barriers and now the citizen of USA and SK can travel easily without any restriction and can easily trade. Before this agreement the most successful FTA is signed by European-Union (EU) in which all the European countries were agreed to implement a single currency in all over the Europe which clearly increased the trade and it also removed many threads to trade. (n/a, n/d)[7]

International Trade and Pakistan

Pakistan is least developed country and its economical situation is not stable from last past 12 years, Pakistan’s trade is decreasing day by day due to this reason Pakistan is asking for international funds so that the country can come out from great depression which has eaten its economy. The government of Pakistan is also not doing anything for trade, they signed many trading agreement but they did not implement any agreement and no agreement has been complete. Pakistan’s international trade is suffering with huge amount; the main reason of decrease in demand of its products is low export quality and political situation. The Political situation of Pakistan is not stable since it’s creating, the government does not have any trading plans and they do not have any clear policies for trade. Pakistan is member for several international trade organizations in which ASEAN, ECO, SAFTA, WIPO and WTO are very famous. (n/a, n/d)[8][9]

Due to its unstable political and economical satiations the trade is decreasing day by day, in 2008 its trade decrease by 5.8%, The major export earning come from textiles industries, cotton and lather products but unfortunately the exports are decreasing day by day the graph of exports is going high and imports are going up which is very dangerous sign for an economy. In 2008 the export were US$ 21.09 billion which decreased to US$17.87 billion in 2009 on other hand the imports also fell from US$38.19 billion in 2008 to US$28.31 billion in 2009. (n/a, n/d)[8][9]

Pakistan Exports Commodities

The major exports of Pakistan are following:

Textiles (garments, bed linen, cotton cloth, yarn)

Rice

Leather goods

Sports goods

Chemicals

Manufactures

Carpets and rugs

Household furnishings

Surgical equipment

Pakistan Exports Partners

The following graph depicts Pakistan’s Exports partners with percentage share as of 2008:

Pakistan Imports Commodities

The major imports of Pakistan are following:

Petroleum

Petroleum products

Machinery

Plastics

Transportation equipment

Edible oils

Paper and paperboard

Iron and steel

Tea

Pakistan Imports Partners

The following graph depicts Pakistan’s import partners with percentage share as of 2008:

How to Improve International Trade of Pakistan

Government of Pakistan trying hard to improve its International trade, but things are not going as they should be, the government of Pakistan has signed many agreements with China, Afghanistan, India, Iran, Malaysia, USA, EU and other countries for the improvement of trade, government of Pakistan is introducing new infrastructure for trading system so that the trading system become crystal clear and the business may expend. (n/a, n/d)[8][9]

The First thing which government should do they should develop new ports and make sure of all security, the second thing which government should do develop demotic trade and fix the fridge rate all over the Pakistan so that the industries in other provinces can have access to sea and they can easily ship products to other countries, the fridge rate in Pakistan is not fix and there is no such system on which the people may work. (n/a, n/d)[8][9]

Government of Pakistan need to work on their policies, and they need to work for the better Pakistan, there should be one window operation in all over the Pakistan, and to remove monopoly of freight forwarders new companies should be invited in Pakistan, so a improved business environment may introduce, and. The road and railway infrastructure should be updated so they can achieve their goals. New sea port should be introduced so that the over booking can be reduced, over booking means unavailability of space at ports (n/a, n/d)[8][9][10]

A Country cannot survive with funds and loans, the government need to understand this thing, if they need help than ask for the technological support, ask them to invest in Pakistan and the government of Pakistan should introduce an environment of new business where everyone can invest their money. (n/a, n/d)[8][9]

Advantages and Disadvantages of International Trade

There is always advantages of International trade and it’s always bring profit to country and all the countries of the world know that international is not about trade and anything it’s about building relationship with neighboring countries and important countries. The advantages of international trade is ; International trade enhances the domestic competitiveness, it increases sales and profits, gains the global market share, reduces dependence on existing markets, exploit international trade technology, stabilize seasonal market fluctuations, enhance potential for expansion of your business ,sell excess production capacity and maintain cost competitiveness in your domestic market.(n/a, n/d)[10]

There is no suck disadvantages of international trade, the only thing which a country need to understand is the international trade need time to gain profit, it also need staff to launch international trading and stuff should be professional and new marketing system should be implemented in international trade, need to focus of international market not on local market. (n/a, n/d)[10]

Conclusion

International trade is a very important part of an economy and if a country wants to survive in this world so that country needs to work on its exports need to work on all parts of trade which are interlinked with trade like the fridge rate, trade policies and stable political environment. International trade increase GDP of an economy, and when a country to manage to develop a trading country it need to increase its exports because when the exports are greater than imports it means GDP is increasing and the country is becoming economically stable. The country like Pakistan needs to use its resources which they are gifted by God and use them effectively. The Significance of trade is known to every country and that why the develop countries work more on international trade, they example of Japan , China and India is in front of us, these countries are the trading countries and the people of these countries are happy and the unemployment rate is less than other countries. By Improving International trade the country can fight with unemployment and can remove the inflation from country, when there will be trade the flow of cash will increase and economy will become more stable and value of money will increase. The international trade not only gives benefit to the country itself it also give benefit to those countries that are interlinked with that country. By Introducing international trade a country can make a good relationship with its neighboring countries and regional countries this relationship can help the country to build long term relationship. A country that does not have proper trading system cannot survive in these difficult situations , now a day the agreements among countries are very helpful and can give benefit to nations, these agreements are long term agreements but the benefits are also long term benefits.

Recommendations

The recommendations are very simple and easy, the countries those are not working for international trade new to develop a proper trading system and build a strong healthy relationship with its neighboring countries, and otherwise the survival for that country in these tuff times will be difficult. The least develop countries need to sign free trade agreements with their regional countries so that the trade among these countries may increase and the region may become more stable and the countries may have good relationship with each country. Introducing International trade is a difficult task but not impossible task, it’s only time investment after developments of ports and dry ports a country can earn more profit and they can use the same profit for the development of country like the developed countries.

My recommendation to government of Pakistan is, they need to enhance its trading system and use the natural resources for their own benefit build strong relationship with regional countries like India, Afghanistan, China and Iran when they will have good relationship with these countries they will have more success in business and the country will be more economically stable. Pakistan needs to develop an environment of free trade and provide a secure environment to the inverters so that the inverters may not find difficulty in recovery of his money. When the investor is secured it means the country in moving towards stable position. This thing is only possible if our government may think rationally and become proactive no reactive to economical situations.