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MODULE 4
GLOBAL TRADE

Global Trade: Trends in growth of merchandise trade; composition of merchandise trade; regional
pattern/distribution of merchandise trade. Trends in growth of services trade; composition of services trade;
regional pattern/distribution of services trade. Trade of developing countries; south –south trade. Analysis of
foreign trade of India; trade policy and promotion.

GLOBAL TRADE

GLOBAL TRADE also known as international trade, is simply the import and export of goods and
services across international boundaries. Goods and services that enter into a country for sale are
called imports. Goods and services that leave a country for sale in another country are called
exports: International trade is the exchange of capital, goods, and services across international
borders or territories. In most countries, such trade represents a significant share of gross domestic
product (GDP).

International trade is the exchange of capital, goods, and services across international borders or
territories. In most countries, such trade represents a significant share of gross domestic product (GDP).
Global trade, also known as international trade, is simply the import and export of goods and services
across international boundaries. Goods and services that enter into a country for sale are called imports.
Goods and services that leave a country for sale in another country are called exports.

For example, a country may import wheat because it doesn't have much arable land, but export oil
because it has oil in abundance.

MERCHANDISE TRADE

It is the transfer of ownership of a tangible and moving object from a seller to buyer. It includes only
goods transfer and not services, capital transfer or foreign investments. It covers all types of inward and
outward movement of goods in a country through customs warehouses and free zones. Goods here
include all merchandise that add to reduce the stock of material resources

Trade growth of Merchandise

WTO forecasts the global merchandise trade of each year in accordance with its past years
performances. WTO forecasts about global merchandise every year . However there exists with great
uncertainity as economic and policy developments raise the forecasts risk.In 2018, the WTO
forecasted a trade growth b/w 2.1- 4 % .In 1991 the Merchandise trade growth was at its peak. And in
the financial crisis of 2016 it falls to its lowest rate in history. Developing countries faced a great
blow in Merchandise trade that year. Though the developed countries continued to trade, it was in a
slow rate

TRENDS IN GROWTH OF MERCHANDISE TRADE

World trade has reached about 18 trillion USD in 2011, increasing almost threefold since 2002.A large
share of the increase in world trade can be attributed to developing countries. High and middle income
countries (developed and developing) continue to constitute the main players in international trade, while
low income countries’ (including LDCs) participation in world trade remains limited. International trade
has increased dramatically in the last 10 years, rising from 6.5 trillion USD in2002 to around 12 trillion
USD in 2006 to reach around 18 trillion USD in 2011. Developed countries remain the main destination

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of international trade flows, with total import valued at about 10 trillion USD. As of 2011, developing
countries’ export value is similar to that of developed countries (around 9 trillion USD). Trade flows to
and from developing countries largely involve middle income countries (about half) and high income
countries (about one-third). Low income countries account for a small, albeit increasing, share of
developing countries ‘trade; about 10 percent of exports and 12 percent of imports in 2011. Least
developed countries (LDCs) only account for a minor, although also increasing, fraction of developing
country trade. Notwithstanding the economic crisis, international trade has grown substantially over the
last five years. In general, rates of trade growth have been fairly similar across developing country
regions. Yet, South Asia has been the fastest growing region both in terms of exports and imports.
Increased demand in South Asia, East Asia and Latin America has resulted in imports growing faster than
exports. World trade has risen significantly from its level in 2006. Figures 3a and 3b portray the increase
in trade between 2006 and 2011 as well as between 2010 and 2011. In spite of the global economic crisis,
trade of developed countries has increased by about 30 percent since 2006. Trade flows originating from
and destined to developing countries have increased substantially faster. Since 2006exports have
increased by a minimum of about 60 percent in the case of East Asia and Latin America, and a maximum
of about 90 percent in South Asia. Sub-Saharan African exports have increased by about 80 percent.
Imports by developing countries have also increased considerably, varying from almost 50 percent in
West Asia and North Africa to a peak of more than 150 percent in South Asia. Importantly, rates of
import growth have exceeded export growth rates in East Asia, Latin America and South Asia, indicating
growing demand levels in these regions.

COMPOSITION OF MERCHANDISE TRADE

• By Composition of Merchandise Trade it means the types of goods imported and exported
by a particular company.
• For example, iron and steels, Chemicals, Office and Telecom equipments, Automotives,
Clothings etc

The first breakdown of merchandise exports is between oil and non-oil exports. This division is more
appropriate for merchandise imports where the intention might be to have a control on oil imports, where
the oil expenditure is a large proportion of the total exports, but for exports, it shows the progress of the
country towards higher degree of oil sufficiency. There has been increasing exports of oil, both in terms
of value and contribution to the value of merchandise exports. The oil exports in1970-71 was
US$0.0113billion, which was only 0.56% in total merchandise exports of US$2.0313 billion. The oil
exports rose to US$0.5227billion in 1990, accounting for 2.88%. The value of oil exports in 2013-14 has
been fixed at US$63.1794billion, which comes out to be 20.09%. The non-oil exports have risen from US
$17.6225billion in 1990-91 to US$ 251.2363 billion in 2013-14. The share of non-oil exports to total
merchandise exports has come down gradually from 99.44% in 1970-71 to 97.12% in 1990-91 and
79.91% in 2013-14. This is quite a large proportion.

REGIONAL PATTERN/DISTRIBUTION OF MERCHANDISE TRADE

Region-wise analysis of a country's trade and payments highlights the relatively crucial centers of its
trading nexus. The implications of a regional analysis are particularly significant for a country like India
where the balance of payments deficit has set a limit to the possible rate of economic development. It is
Interesting to note the changes in the direction of India's trade over the last half decade. While the index
method is useful to indicate the net extent of "trade creation ", the changing percentage shares make clear
the different, significance of the "new centers" in India's trade and the Gini-Hirschman coefficients of
geographical concentration measure the actual degree of dispersion achieved in trade. Increased trade

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with the rupee payments agreement partners in the "Rest of Non-Sterling Area" was accompanied by a
favorable movement in the balance of trade with these countries and thus, with the region as a whole.
This, together with the loans received from these countries, contributed towards a smaller deficit in the
overall balance of India's payments. The trend, however, was dissimilar for the country's trade and
payments with the rest of her trade partners in the Other Non-Sterling Area or in the traditional centers of
her trade in the Sterling, the Dollar or in the OEEC areas. In her balance of trade and payments with these
countries is explained by the automatic mechanism of trade balance stipulated under the bilateral
arrangements with the agreement partners.

SERVICES TRADE

A service is an act of or performance that one party can offer to another that is essentially
intangible and does not result in the ownership of anything. Its production may or may not be tied
to a physical product.
- Philip Kotler

EXAMPLES

• Manufacturing Services
• Maintenance and Repair
• Transport
• Construction
• Insurance
• Pension etc

TRENDS IN GROWTH OF SERVICES TRADE

• Services Trade contributes to the highest in global GDP(70% of GDP) , 60% of global
employment and 46% of global exports measured in value added terms
• International services catalysing IB include telecom, Internet, finance, accounting, legal services
• Trade of Services provide a great support to the IB

International trade in services also provides an assessment of how policy makers can further bolster their
service industries by leveraging the changes prompted by technological advancements. The book provides
policy recommendations that include the reduction of barriers to services trade across all sectors and the
promotion of health- and environment related development policies that should be promoted in parallel
with a burgeoning services market. The first recommendation is considered the most important, because it
focuses on the need to ensure trade openness, which helps ensure the access to services and promotes the
quality of services provision through foreign and domestic competition. Moreover, the issue of temporary
movement of labor is another focus of this book, given that it is one of the most important means of
service exports for developing countries. This is an issue that is considered technically complex and
politically sensitive because of its political and security implications. The book examines mechanisms
that have been used by various countries to liberalize the temporary movement of persons and concludes
that regardless of the negotiating forum- multilateral, regional, or bilateral-the policy making results on
temporary movement of labor are, so far, modest and limited to a small range of categories. However, it
proposes alternative ways to move forward that require further analysis by countries and relevant
international organizations, including the World Bank.

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COMPOSITION OF SERVICE TRADE

• Trade in services predominantly involves financial services, insurance ,

telecommunications, transportation and professional services

The services sector, with around 60 per cent contribution to the Gross Domestic Product (GDP) in 2014-
15, has made rapid strides during the past decade and a half to emerge as the largest and one of the
fastest-growing sectors of the economy. The services sector is not only the dominant sector in India’s
GDP, but has also attracted significant foreign investment flows, contributed significantly to exports as
well as provided large-scale employment.

India’s services sector covers a wide variety of activities such as trade, hotels and restaurants, transport,
storage and communication, financing, insurance, real estate, business services, community, social and
personal ser In India, the national income classification given by Central Statistical Organization is
followed. In the National Income Accounting in India, service sector includes the following:

1. Trade, hotels and restaurants:

a. Trade
b. Hotels and restaurants
2. Transport, storage and communication
a. Railways
b. Transport by other means
c. Storage vices, and services associated with construction.
d. Communication
3. Financing, Insurance, Real Estate and Business Services
a. Banking and Insurance
b. Real Estate, Ownership of Dwellings and Business Services
4. Community, Social and Personal services
a. Public Administration and Defense (PA & D)
b. Other services

PERFORMANCE OF SERVICES SECTOR IN INDIA - SECTORIAL COMPOSITION OF GDP

GROWTH

The analysis of the sectorial composition of GDP and employment for the period 1950-2000 brings out
the fact that there has taken place ‘tertiarization’ of the structure of production and employment in India.
The service sector output increased at a rate of 6.63% per annum in the period 1980-81 to 1989-90 (i.e.
pre-reform period) compared with 7.71% per annum in the period 1990-91 to 1999-2000 (i.e. post- reform
period). The share of this sector in GDP further increased to 55.1% in 2006-07. Currently it is
contributing around 60% of Indian GDP.

TRADE OF DEVELOPING COUNTRIES

• Countries in the category of developing countries are located mostly in Asian ad African
countries with low per capita income

• Even the countries with lowest per capita income have a stratum of society can afford to trade
global products

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• For many developing countries progression from low income to middle and upper income
country status rests highly on successful trade in regional and global markets

• Trade liberalisation has helped developing countries a lot in their development and organisations
like IMF, the world bank etc has also played a great part in liberalising trade

For many developing countries, progression from low income to middle and upper middle-income
country status rests heavily on successful trade in regional and global markets Conventional theory
suggests that there is a standard process through which this takes place.

Exporting primary goods (commodities) in which a country has a natural comparative advantage Import
substitution – where a country develops a domestic manufacturing capability and capacity e.g. tomato
growing businesses can build tomato processing factories Export-focused manufacturing production
taking advantage of lower unit cost labor and increasing economies of scale in production Many sub
Saharan African countries and nations such as India and Sri Lanka have a trade ratio lower than the world
average. However for others, trade is a significant percentage of national income and competitiveness in
international markets has a huge bearing on their overall macroeconomic performance and development
prospects. Successful trade provides for developing/emerging nations:

• A source of foreign currency to help a nation’s balance of payments (trade surplus countries build
up US$ reserves)
• An important way of financing imports of essential imports of capital equipment / technologies
and energy supplies
• An injection of demand into the circular flow of income and spending + creating positive export
multiplier effects
• Increased employment in export industries and related industries which can lead to rising per
capita incomes and also stronger Human Development Index scores
• Falling prices for consumers helps to increase real incomes e.g. by opening up markets to new
competition
• But overseas trade also has risks Volatile global prices affecting export revenues and profits
• Risks that exports will be affected by geo-political uncertainty and cyclical shifts in demand
• Opening up an economy to trade may cause rising structural unemployment in some industries

BENEFITS OF TRADE FOR DEVELOPING COUNTRIES

• Development and poverty reduction

• Promotes Competitiveness

• Market Diversification

• Boosts Technological Innovation

• Price Reduction

• Strengthens ties b/w nations

• Increases employment opportunities

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FOREIGN TRADE OF INDIA

Foreign trade in India includes all imports and exports to and from India. At the level of Central
Government it is administered by the Ministry of Commerce and Industry.[1] Foreign trade
accounted for 48.8% of India's GDP in 2015. There are records throughout history of India's trade
with foreign countries. Even before independence, the Government of India maintained semi-
autonomous diplomatic relations. It had colonies (such as the Aden Settlement), who sent and
received full missions,[3] and was a founder member of both the League of Nations[4] and the
United Nations.[5] After India gained independence from the United Kingdom in 1947, it soon
joined the Commonwealth of Nations and strongly supported independence movements in other
colonies, like the Indonesian National Revolution.[6] The partition and various territorial disputes,
particularly that over Kashmir, would strain its relations with Pakistan for years to come. During
the Cold War, India adopted a foreign policy of not aligning itself with any major power bloc.
However, India developed close ties with the Soviet Union and received extensive military support
from it.

SOUTH-SOUTH TRADE

• South- south trade refers to the trade b/w countries from global south. These countries have more
similar economies and therefore more suited to trade with eachother than with Western Countries
• Such trade could be more economically and politically beneficial to them than with richer
countries.

There are new challenges to all states: among them, the real threat to multilateralism... South-South and
triangular cooperation can contribute to a new multilateralism and drive the revitalization of the global
partnership for sustainable development.

The EU signed an Economic Partnership Agreement (EPA) on 10 June 2016 with the
SADC EPA Group comprising Botswana, Lesotho, Mozambique, Namibia, South Africa and
Swaziland. Angola has an option to join the agreement in future. The agreement became the first
regional EPA in Africa to be fully operational after Mozambique joined in February 2018.The other
six members of the Southern African Development Community region – the Democratic Republic of
the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe – are negotiating Economic
Partnership Agreements with the EU as part of other regional groups, namely Central Africa or
Eastern and Southern Africa.

ANALYSIS OF FOREIGN TRADE IN INDIA:

Before Independence: During the colonial rule, the restrictive policies ,trade and tariffs followed by the
government adversly affected the composition and volume of Indian foreign trade

• Britain maintained a complete monopoly over the trade

• Export Surplus

After Independence: India’s trade has changed in terms of composition of commodities. With the
inclusions of many trade policies, removal of trade barriers,etc.

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Foreign trade in India includes all imports and exports to and from India. At the level of Central
Government it is administered by the Ministry of Commerce and Industry. Foreign trade accounted for
48.8% of India's GDP in 2015. Foreign Trade has been one of most significant determinants of economic
development in a country. The Foreign Trade of a country consists of inward and outward movement of
goods and services, which result in to out flow and inflow of foreign exchange from one country to
another country. During present time, international trade is a vital part of development strategy and it can
be an effective instrument of economic growth, employment generation and poverty alleviation in an
economy. In 1991, the government introduced some changes in its Policy on trade, foreign Investment,
Tariffs and Taxes under the name of "New Economic Reforms". The main focus of these reforms has
been on Liberalization, openness and export promotion activity. India's foreign Trade has export
significantly changed in the Post- reforms period. In absolute terms, Trade Volume rose and the
composition of exports has undergone several significant changes. In Post- reform Period, the major
contributor to exports growth has been the manufacturing sector. This is really a welcome development
and the trend needs to be strengthened further for the increased income through exports. The effect of
liberalization on India’s foreign trade the economy has greatly influenced. In this paper an attempt has
been made to examine the growth and structure of exports in India during the period 1990-91 to 2012-13.

FOREIGN TRADE POLICY

• EXIM (export import) policy outlines the set of laws and regulations for exports and imports of a
country.

• It is a set guidelines n instructions which is updated every year on March 31st

• It aims in export promotion and controlling imports of a country by following specific policies
and guidelines

• It is regulated by foreign trade development and regulation act 1992

• First policy was introduced in 1992

TRADE POLICY AND PROMOTION

Trade promotion (sometimes referred to as export promotion) is an umbrella term for economic policies,
development interventions and private initiatives aimed at improving the trade performance of an
economic area. Such an economic area can include just one country, a region within a country, or can
encompass a group of countries involved in an economic trade area. Specific industries may be targeted.
Improvement is mainly sought by increasing exports both in absolute terms, as well as relative to imports.
When specific industries are targeted, trade promotion policies tend to target industries that have a
comparative advantage over their foreign competitors. Trade promotion can also include expanding the
supply of key inputs in a country's strongest industries, via import expansion. If successful, such a tactic
would lead to Pro-trade Biased Growth. As an economic policy with the ultimate goal of increasing
domestic welfare, trade promotion comprises a large set of policy instruments. One notable tactic is the
provision of trade intelligence to domestic enterprises in order to reduce transaction costs and provide
them with a competitive advantage vis-à-vis foreign companies. Many countries all over the world have
set up special agencies, most of them in the public domain, to implement trade promotion policies and
provide support services to domestic enterprises. Some international organizations provide assistance to
so-called developing countries to help them promote their exports, most prominently the International
Trade Centre in Geneva, which is a subsidiary of the World Trade Organization and the United Nations
with a mandate to providing trade-related technical assistance to those countries. he integration of the
domestic economy through the twin channels of trade and capital flows has accelerated in the past two

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decades which in turn led to the Indian economy growing from Rs 32 trillion (US$ 474.37 billion) in
2004 to about Rs 153 trillion (US$ 2.3 trillion) by 2016. Simultaneously, the per capita income also
nearly trebled during these years. India’s trade and external sector had a significant impact on the GDP
growth as well as expansion in per capita income. Total merchandise exports from India grew by 4.48 per
cent year-on-year to US$ 25.83 billion in February 2018, while merchandise trade deficit increased 25.81
per cent year-on-year from US $ 11.979 billion during April-February 2017-18 to US $ 9.521 billion
during April-February 2017-18, according to data from the Ministry of Commerce & Industry. According
to Mr. Suresh Prabhu, Minister for Commerce and Industry, the Government of India is keen to grow
exports and provide more jobs for the young, talented, well-educated and even semi-skilled and unskilled
workforce of India.

Capital Inflows: According to data released by the Reserve Bank of India (RBI), India's foreign
exchange reserves were US$ 421.335 billion as on March 16, 2018.

Foreign Direct Investments (FDI): During April 2000–December 2017, India received total foreign
investment (including equity inflows, re-invested earnings and other capital) worth US$ 532.6 billion.
The country was one of the top destinations for FDI inflows from Asian countries, with Mauritius
contributing 34 per cent, Singapore 17 per cent and Japan and UK contributing 7 per cent each of the total
foreign inflows.

Foreign Institutional Investors (FIIs) :FIIs net investments in Indian equities, debt and hybrid stood at
Rs 145,068 cores (US$ 22.34 billion) in2017-18

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