2003. 09. 14.jegyzetek.

hu

NYV0011H

Krlek ne felejtsd el, hogy az anyagban elfordulhatnak hibk, trgyi tvedsek. Ha ilyet talltl, krlek jelezd neknk.
J tanulst kvn a jegyzetek.hu csapata!

International Trade
In the world there are more than 180 countries. Each country has its own special features. The
features are heavily influenced by the setting of the country and by the history. So there are different
countries having and needing different goods. International trade helps the countries to obtain things
they need and get rid of those goods they have more than enough. That is why countries need
international trade. Without international trade no economy in the world could work. International
trade can be interpreted on 2 levels:

Private

Governmental

The private companies engage in international business activities to make profit, but the
government international business activities are not necessarily profit motivated.

Absolute and Comparative Advantage

A country might have an absolute or comparative advantage in producing goods or services
because of the special features, which differentiate countries from each other.
Absolute Advantage
The theory of the absolute advantage comes from Adam Smith. He thought, that trade is
advantageous for two countries if every country specialise in the production of those goods of which
they have a natural or gained advantage by the production. This theory is based on the work-hours
needed for the production.
Comparative Advantage
The theory of the comparative advantage alleges, that trade between two countries (by assuming
there are only 2 products produced by both countries) is advantageous if the more developed country
which has an efficiency and outgo advantage (the less developed country has obviously an
efficiency/outgo disadvantage in the production of both products), specialises in the production of the
product of which she has the bigger relative efficiency advantage, and according to this the less
developed country specialises in the production of the product of which she has less fallback of
relative efficiency.
The theories can also be interpreted with more than 2 products.

Quotas and Tariffs

Through the history, many countries imposed tariffs and quotas against other countries to
protect their own domestic economy or simply in order to get more income. Free trade is
recommended by almost every economist, because tariffs, quotas, and other means of protectionism
are barriers for the emergence of the absolute and comparative advantage, and of course the division of
labour between countries. But there are many reasons for imposing tariffs. In many cases it is even
recommended because simply abandoning all the sectors in which the given country has no advantage
would lead to the crash of the economy, structural unemployment etc.
Here are some reasons for imposing tariffs, quotas, etc.:

To protect domestic sectors from foreign competition

Protection against dumping

To retaliate against restrictions imposed by other countries

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2003. 09. 14.jegyzetek.hu

NYV0011H

Krlek ne felejtsd el, hogy az anyagban elfordulhatnak hibk, trgyi tvedsek. Ha ilyet talltl, krlek jelezd neknk.
J tanulst kvn a jegyzetek.hu csapata!

Protection of infant industries or sectors

GATT and WTO

The GATT (General Agreement on Tariffs and Trade) was an international organisation set up
in 1947. Its major aims were to encourage free trade, making tariffs the only form of protectionism
(abolish all the other barriers of free trade), and to reduce them to a minimum level. In 1995 the GATT
became the WTO (World Trade Organisation).
The main principles of the GATT were:

Lower trade barriers

Member countries must adhere to the MOST-FAVOURED-NATION CLAUSE 1

When a country increases its tariff above agreed levels, it must compensate its trading
partners for their economic damage

Trade conflicts should be settled by consultations and arbitration

The main functions of the WTO are:

Administering WTO trade agreements

Forum for trade negotiations

Settling trade disputes

Monitoring national trade policies

Assisting developing countries in trade policy issues, through technical assistance and
training programmes

Co-operation with other international organisations

1 This clause requires that if a country grants a tariff reduction to one country, it must grant
the same concession to all other countries. All trade barriers should be applied on a nondiscriminatory basis.
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