What Is International Trade?

International trade is the exchange of goods and services between countries. This
type

of

trade

gives

rise

to

world

economy,

in

which

prices,

or supply and demand, affect and are affected by global events. Political change in
Asia, for example, could result in an increase in the cost of labor, thereby
increasing the manufacturing costs for an American sneaker company based in
Malaysia, which would then result in an increase in the price that you have to pay
to buy the tennis shoes at your local mall. A decrease in the cost of labor, on the
other hand, would result in you having to pay less for your new shoes.
Trading globally gives consumers and countries the opportunity to be exposed to
new markets and products. Almost every kind of product can be found on the
international market: food, clothes, spare parts, oil, jewelry, wine, stocks,
currencies and water. Services are also traded: tourism, banking, consulting and
transportation. A product that is sold to the global market is an export, and a
product that is bought from the global market is animport.
Imports and exports are accounted for in a country's current account in the balance
of

payments

Industrialization,

including transportation, globalization, multinational

advanced

technology,
corporations,

and outsourcing are all having a major impact on the international trade system.
Increasing international trade is crucial to the continuance of globalization.
Without international trade, nations would be limited to the goods and services
produced within their own borders. International trade is, in principle, not different
from domestic trade as the motivation and the behavior of parties involved in a
trade do not change fundamentally regardless of whether trade is across a border or

not. The main difference is that international trade is typically more costly than
domestic trade. The reason is that a border typically imposes additional costs such
as tariffs, time costs due to border delays and costs associated with country
differences such as language, the legal system or culture.
Another difference between domestic and international trade is that factors of
production such as capital and labor are typically more mobile within a country
than across countries. Thus international trade is mostly restricted to trade in goods
and services, and only to a lesser extent to trade in capital, labor or other factors of
production. Trade in goods and services can serve as a substitute for trade in
factors of production. Instead of importing a factor of production, a country can
import goods that make intensive use of that factor of production and thus embody
it. An example is the import of labor-intensive goods by the United States from
China. Instead of importing Chinese labor, the United States imports goods that
were produced with Chinese labor. One report in 2010 suggested that international
trade was increased when a country hosted a network of immigrants, but the trade
effect was weakened when the immigrants became assimilated into their new
country.

Three Feathers of International Trade

1.

UNCTAD (The United Nations Conference on Trade and Development)

2.

UNCTRAL (United Nations Commission of International Trade Law)

3.

WTO (World trade organization)

UNCTAD
The United Nations Conference on Trade and Development (UNCTAD) was established in 1964
as a permanent intergovernmental body. UNCTAD is the principal organ of the United
Nations General Assembly dealing with trade, investment, and development issues. The
organization's goals are to: "maximize the trade, investment and development opportunities
of developing countries and assist them in their efforts to integrate into the world economy on an
equitable basis.
The primary objective of UNCTAD is to formulate policies relating to all aspects of development
including trade, aid, transport, finance and technology. The conference ordinarily meets once in four
years; the permanent secretariat is in Geneva.

The developing countries were greatly dissatisfied with the working of the
GATT. The principles and procedures underlying it were regarded as the
fundamental cause of the weak bargaining position (in tariff reduction
negotiations) of the less developed countries. Thus, though GATT had made a
very significant contribution to the liberalization of international trade in the
post war era, it was condemned since most of its benefits accrued to the
advanced nations.
Hence, it was desired to have some new institutional arrangements of
international economic co-operation to deal with problems of world trade and
development, especially, those which may reduce the trade gap of
developing countries. Consequently, the UNCTAD was created. It, however,
marked a turning point in international economic relations and ushered a new
era in the evolution of world trade and development, since it represented the

first major endeavour to examine all the problems of international economic

relations, with special reference to the needs of developing countries.

Organisation of the UNCTAD:

The UNCTAD was established as a permanent organ of General Assembly of
the United Nations. However, it has its own subsidiary bodies and also a fulltime secretariat to service it. It has a permanent organ called Trade and
Development Board as the main executive body.
The Board functions between the plenary sessions of the Conference. It
meets twice annually. It is composed of 55 members, elected by the
Conference from among its members on the basis of equitable geographical
distribution.
The Trade and Development Board have four subsidiary organs to assist it in
its functions. These are:
(1) The Committee on Commodities
(2) The Committee on Manufactures
(3) The Committee on Shipping
(4) The Committee on Invisible Items and Financing related to Trade

Generally, these committees meet annually. However, they may be called in

special session to consider urgent matters.

Basic Principles of UNCTAD

The first conference held in 1964 laid down UNCTADs action programme and
priorities. The various recommendations are based on the following principles:
1. Every country has the supreme right to freely dispose of its natural resources for
the sake of its economic development. It can freely trade with other countries.
2. Principles of sovereign equality of states, self-determination of people and noninterference in the internal affairs are the principles which guide trade and
economic relations between countries; and
3. There shall be no discrimination on the basis of differences in socioeconomic
systems. The adoption of various trading methods and policies shall be consistent
with this principle

Functions of UNCTAD
UN General Assembly has laid down certain essential functions of UNCTAD.
Accordingly, it shall promote accelerated development of the less developed
regions of the world by dealing properly with the problem of slow expansion
of exports confronting the less developed countries. The other important
functions of UNCTAD are as follows:
1.

To

promote

underdeveloped

international
countries

with

trade
a

between
view

to

the

developed

accelerating

and

economic

development, special emphasis should be laid upon the accelerated

development of the underdeveloped countries.
2. To formulate the principles and policies on International trade.
3. To negotiate multinational trade agreements.
4. To make proposals for implementing its principles and policies.
5. To promote research and support negotiations for commodity agreements,
technical elaboration of new trade activities designed to assist in the areas of
trade and capital for developing countries.
6. To generally review and coordinate the activities of other institutions
within the fold of United Nations relating to international trade and economic
development.
7. To act as a centre for harmonious trade related policies of governments
and regional economic groupings in pursuance of Article 7 of the Charter of
the United Nations.

The need for reducing disparities between the rich and the poor was keenly
felt at the global level. Particularly developing countries in Asia, Africa and
Latin America realized the importance of global efforts to be undertaken in
this direction. In order to fulfill the above, the United Nations Conference on
Trade and Development (UNCTAD) came to be established on 30th
December, 1964.

UNCTRAL (United Nations Commission of International Trade Law)

The United Nations Commission for International Trade Law (UNCITRAL),

established by the United Nations General Assembly by its resolution 2205 (XXI)
of 17 December 1966, plays an important role in developing that framework in
pursuance of its mandate to further the progressive harmonization and
modernization of the law of international trade, by preparing and promoting the use
and adoption of legislative and non-legislative instruments in a number of key
areas of commercial law. UNCITRAL has become recognized as the core legal
body of the United Nations system in the field of international trade law. For more
than 40 years, UNCITRAL has produced relevant international texts on the sale of
goods, transport, dispute resolution, procurement, infrastructure development,
international payments, electronic commerce and insolvency. International
arbitration, transport law, electronic commerce, insolvency law, security interests
and public procurement are the focus of its current work. UNCITRAL also
coordinates and cooperates with other law reform bodies (notably other
international organizations) to facilitate the harmonization of international trade
law and law reform efforts, and provides assistance with respect to the adoption
and uniform implementation of its texts.

Introduction
The World

Trade

Organization (WTO)

is

an intergovernmental

organization which

regulates international trade. The WTO officially commenced on 1 January 1995 under
the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement
on Tariffs and Trade (GATT), which commenced in 1948.[5] The WTO deals with regulation of trade
between participating countries by providing a framework for negotiating trade agreements and a
dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which
are signed by representatives of member governments [6]:fol.910 and ratified by their parliaments.[7] Most
of the issues that the WTO focuses on derive from previous trade negotiations, especially from
the Uruguay Round (19861994).
The WTO is attempting to complete negotiations on the Doha Development Round, which was
launched in 2001 with an explicit focus on developing countries. As of June 2012, the future of the
Doha Round remained uncertain: the work programme lists 21 subjects in which the original
deadline of 1 January 2005 was missed, and the round is still incomplete. [8] The conflict between free
trade on industrial goods and services but retention of protectionism on farm subsidies to
domestic agricultural sector (requested by developed countries) and the substantiation of fair
trade on agricultural products (requested by developing countries) remain the major obstacles. This
impasse has made it impossible to launch new WTO negotiations beyond the Doha Development
Round.

As

result,

there

have

been

an

increasing

number

of

bilateral free

trade

agreements between governments.[9] As of July 2012, there were various negotiation groups in the
WTO system for the current agricultural trade negotiation which is in the condition of stalemate. [10]
The WTO's current Director-General is Roberto Azevdo,[11][12] who leads a staff of over 600 people
inGeneva, Switzerland.[13] A trade facilitation agreement known as the Bali Package was reached by
all members on 7 December 2013, the first comprehensive agreement in the organization's history

Objectives:
Important objectives of WTO are mentioned below:
(i) to implement the new world trade system as visualised in the Agreement;
(ii) to promote World Trade in a manner that benefits every country;
(iii) to ensure that developing countries secure a better balance in the sharing of the
advantages resulting from the expansion of international trade corresponding to
their developmental needs;
(iv) to demolish all hurdles to an open world trading system and usher in
international economic renaissance because the world trade is an effective
instrument to foster economic growth;
(v) to enhance competitiveness among all trading partners so as to benefit
consumers and help in global integration;
(vi) to increase the level of production and productivity with a view to ensuring
level of employment in the world;
(vii) to expand and utilize world resources to the best;
(viii) to improve the level of living for the global population and speed up
economic development of the member nations.

Functions:
WTO
The former GATT was not really an organisation; it was merely a legal arrangement. On the other
hand, the WTO is a new international organisation set up as a permanent body. It is designed to play
the role of a watchdog in the spheres of trade in goods, trade in services, foreign investment,
intellectual property rights, etc. Article III has set out the following five functions of WTO;
(i)

The WTO shall facilitate the implementation, administration and operation and further
the objectives of this Agreement and of the Multilateral Trade Agreements, and shall also
provide the frame work for the implementation, administration and operation of the
plurilateral Trade Agreements.

(ii)

The WTO shall provide the forum for negotiations among its members concerning their
multilateral trade relations in matters dealt with under the Agreement in the Annexes to
this Agreement.

(iii)

The WTO shall administer the Understanding on Rules and Procedures Governing the
Settlement of Disputes.

(iv)

The WTO shall administer Trade Policy Review Mechanism.

(v)

With a view to achieving greater coherence in global economic policy making, the WTO
shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with
the International Bank for Reconstruction and Development (IBRD) and its affiliated
agencies.

(vi)

To ensure the optimum use of world resources.

(vii)

To assist international organizations such as, IMF and IBRD for

establishing coherence in Universal Economic Policy determination.

WTO principle
Most-Favored-Nation
The most-favored-nation clause has been the pillar of the system since the inception of
the GATT in 1947. The Contracting Parties to the GATT 1947 were bound to grant to the
products of other contracting parties treatment no less favorable than that accorded to
products of any other country. Members of the WTO have entered into similar commitments,
under the GATT 1994 (Article I) for trade in goods, under the GATS (Article II) in
relation to treatment of service suppliers and trade in services, and under the TRIPs
Agreement (Article 4) in regard to the protection of intellectual property.

National treatment
The national treatment principle condemns discrimination between foreign and national
goods or services and service suppliers or between foreign and national holders of
intellectual property rights. GATT 1994 and the TRIPS Agreement provide for national
treatment as one of the main commitments of WTO Members. Imported goods, once duties have
been paid, must be given the same treatment as like domestic products in relation to any
charges, taxes, or administrative or other regulations (GATT Article 3). With regard to
the protection of intellectual property rights, and subject to exceptions in existing
international conventions, Members of WTO are committed to grant to nationals or other
Members treatment no less favorable than that accorded to their own nationals (Article
III). GATS, however, due to the special nature of trade in services, deals with national
treatment under its Part III, Specific Commitments, (Article XVII ), where national
treatment becomes a negotiated concession and may be subject to conditions or
qualifications that Members have inscribed in their schedules on specific commitments in
trade in services.

Trade in services
The General Agreement on Trade in Services (GATS) establishes a multilateral framework of
principles and rules for trade in services with a view to the expansion of such trade
under conditions of transparency and progressive liberalization, and as a means to
promote the economic growth of all countries and the development of developing countries.
Through general obligations and principles, the negotiation of specific commitments, and
the commitment to launch further rounds of negotiations on trade in services, the GATS
seeks to achieve predictable and growing access to markets for services.

Transparency
Provisions on notification requirements and the Trade Policy Review Mechanism are set out
in the WTO Agreement and its Annexes, with the objective of guaranteeing the fullest
transparency possible in the trade policies of its Members in goods, services and the
protection of intellectual property rights. Article X of GATT 1994 deals with the
publication and administration of trade regulations; Article III of GATS sets out
provisions on transparency as one of the general obligations and disciplines under that
agreement; and Article 3 establishes transparency rules for the TRIPs Agreement.

Predictable and growing access to markets

Predictable and growing access to markets for goods and services is an essential
principle of the WTO. This principle is fulfilled through various provisions so as to
guarantee security, predictability and continued liberalization of trade.

Trade in goods

In the case of goods, a basic GATT postulate is that tariffs should normally be the only
instrument used to protect domestic industry. Furthermore, tariffs should be predictable
and stable