Q. 1. How is international trade considered a basis of world economy?
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How do nations gain from international trade?
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‘‘In modern times international trade is the basis of the world economy.’’ Support the statement with examples.
Ans. (i) Specialisation in production.
(ii) It is based on the comparative advantage.
(iii) Complementarity and transferability of goods and services.
(iv) Formation of foreign policy on the basis of international trade.
(i) Specialisation in production: Instead of trying to produce everything by themselves, countries often concentrate on producing things that they can produce most efficiently. They then trade for other goods and services. In doing so, both the country and the world become wealthier. For example, if a country is more efficient in cloth production it can double its cloth output by transferring all its resources to that industry. By doing so, it will eliminate its furniture industry. However, it can trade the surplus cloth for furniture with some other country.
Similarly, the country which is more efficient in producing furniture can direct all its resources to the production of furniture and trade it. Although that country’s cloth industry will suffer but it can trade the surplus pieces of furniture for cloth exchange.
Through specilisation and trade, supply of goods in both economies increases, which brings the prices down, making them more affordable.
(ii) It is based on the comparative advantage: Even if one country can produce everything more efficiently than another country, there is still scope for trade. A country can maximise its wealth by putting its resources into its most competitive industries, regardless of whether other countries are more competitive in those industries. This is called the law of comparative advantage.
(iii) Complementarity and transferability of goods and services: Sometimes it is difficult to move resources from one industry to another as it would cost a great deal of money. For example, it would require a great deal of effort to turn a shoe factory into a car factory. Governments try to keep in mind certain factors before formulating the foreign policies.
(iv) Formation of foreign policy on the basis of international trade: International trade occurs because individuals, business and governments in one country want to buy goods and services produced in another country. Trade provides people with greater selection of goods and services to choose from and often these goods are available at lower prices than those in the domestic economy. Thus, the foreign policies of the countries are based on international trade.
(v) Competitiveness: Competitiveness is used to describe the relative productivity of companies and industries. If one company can produce better products at lower prices than another, it is said to be more competitive. This is a matter of concern for the government, since it is difficult for uncompetitive industries to survive. This also helps the countries in formulating their foreign policies.
Q. 2. Explain with examples how ‘International Trade’ can be detrimental to nations.
Ans. International trade can be detrimental in the following ways:
(i) Dual Economies: International trade has resulted in creating ‘dual economies’ in underdeveloped nations as a result of which the export sector became an island of development while the rest of the economy remained backward.
(ii) Not much beneficial for poor countries: The international trade has had an adverse effect on their economy. It has been seen that the inflow of foreign capital has developed a country’s natural resources only for export purposes, to neglect the production in the domestic sector. Despite huge foreign investments, the people have remained backward in their countries.
(iii) Limited possibility of gain: The possibility of gain from foreign trade to underdeveloped countries is restricted or limited. It is simply due to the reason that underdeveloped countries export mainly primary goods.
(iv) Adverse effect on demonstration effect: The international operation of the demonstration effect has been a handicap for the poor countries. It has been responsible for reducing the capacity for capital formation. This has also lead to corruption and black marketing.
(v) Deterioration in the terms of trade: It has resulted in an international transfer of income from poor to rich countries through a secular deterioration in the commodity terms of trade of the poor countries.
Q. 3. Examine the five bases of international trade which are responsible for promoting international trade.
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Explain any five bases of international trade.
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Explain any five bases of international trade.
Ans. Bases of international trade:
(i) Difference in national resources.
(ii) Population factor.
(iii) Stage of economic development.
(iv) Extent of foreign investment.
(v) Transport.
Detailed Answer:
(i) Difference in national resources: The world’s national resources are unevenly distributed because of differences in their physical make up, i.e., geology, relief, soil and climate.
(a) Geological structure: It determines the mineral resource base and topographical differences ensure diversity of crops and animals raised.
(b) Mineral resources: They are unevenly distributed over the world. The availability of mineral resources provides the basis for industrial development.
(c) Climate: It influences the type of flora and fauna that can survive in a given region. It also ensures diversity in the range of various products, e.g. wool production can take place in cold regions, bananas, rubber and cocoa can grow in tropical regions.
(ii) Population factors: The size, distribution and diversity of people between countries affect the type and volume of goods traded.
(a) Cultural factors: Distinctive forms of art and craft develop in certain cultures which are valued the world over, e.g. China produces the finest porcelains and brocades.
(b) Size of population: Densely populated count- ries have large volume of internal trade but little external trade because most of the agricultural and industrial production is consumed in the local markets.
(iii) Stage of economic development: At different stages of economic development of countries, the nature of items traded undergo changes. In agriculturally important countries, agro-products are exchanged for manufactured goods whereas industrialised nations export machinery and finished products and import food grains and other raw materials.
(iv) Extent of foreign investment: Foreign investment can boost trade in developing countries which lack in capital required for the development of mining, oil drilling, heavy engineering, lumbering and plantation agriculture.
(v) Transport: In olden times, lack of adequate and efficient means of transport restricted trade to local areas. Only high value items, e.g. gems, silk and spices were traded over long distances. With expansions of rail, ocean and air transport, better means of refrigeration and preservation, trade has experienced spatial expansion.
Q. 4. What is the basic function of the World Trade Organisation (WTO)? What benefits do nations get by forming trading blocs?
Ans. World Trade Organisation
(i) In 1948, to liberalise the world from high customs tariffs and various other types of restrictions, General Agreement for Tariffs and Trade (GATT) was formed by some countries.
(ii) In 1994, it was decided by the member countries to set up a permanent institution for looking after promotion of free and fair trade amongst nation and the GATT was transformed into the World Trade Organisation from 1st January 1995.
(iii) WTO is the only international organisation dealing with the global rules of trade between nations.
(iv) It sets the rules for global trading system and resolves disputes between its member nations.
(v) WTO also covers trade in services, such as telecommunication and banking, and others issues such as intellectual rights. (Any three) Benefits of forming trading blocs:
(i) Regional Trade Blocs have come up in order to encourage trade between countries with geographical proximity, similarity and complementarities in trading items and to curb restrictions on trade of the developing world.
(ii) Today, 120 regional trade blocs generate 52 per cent of the world trade. These trading blocs developed as a response to the failure of the global organisations to speed up intra-regional trade.
Q. 5. Differentiate between bilateral trade and multilateral trade. Explain how ports are helpful in trade.
Ans. Bilateral Trade: It refers to the exchange of goods between two countries. Bilateral trade agreements give preference to certain countries in commercial relationships, facilitating trade and investment between the home country and the foreign country by reducing or eliminating tariffs, import quotas, export restraints and other trade barriers. Bilateral trade agreements can also help minimise trade deficits.
Multilateral Trade: It refers to the trading system that facilitates the exchange of financial instruments between multiple countries. Multilateral trading allows eligible contract participants to gather and transfer a variety of securities, especially instruments that may not have an official market. These facilities are often electronic systems controlled by approved market operators or larger investment banks. Traders will usually submit orders electronically, where a matching software engine is used to pair buyers with sellers.
Ports helpful in trade: Ports are backbone of the world trade and play a key role in inward and outward movement of goods and countries which built good ports with excellent infrastructure became competitive manufacturing centres/hubs. For any port to develop in terms of trade flow it is important that the port offers good quality infrastructure. Trade and manufacturing based economy cannot grow without sufficient high quality port infrastructure.
Q. 6. What is the role of ‘World Trade Organisation ‘ as an international organisation? Why has the World Trade Organisation been criticised by some countries? Explain.
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Explain any two functions of WTO. Why has the organisation been criticised ? Give three arguments in this regards.
Ans. WTO is the only international organisation dealing with the global rules of trade between nations. It sets the rules for the global trading system and resolves disputes between its member nations. WTO also covers trade in services, such as telecommunication and banking, and others issues such as intellectual rights. Roles of WTO are:
(i) Trade negotiation: The WTO regulates agreements over goods, services and intellectual property. They spell out the principles of liberalization and the permitted exceptions. They include individual countries commitments to lower customs tariffs and other trade barriers and to keep open services markets.
(ii) Implementation and monitoring: All WTO members must undergo periodic scrutiny of their trade policies and practices, each review containing reports by the country concerned and the WTO Secretariat.
(iii) Dispute settlement: The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly.
The WTO has however been criticised and opposed by those who are worried about the effects of free trade and economic globalization. It is argued that free trade does not make ordinary people’s lives more prosperous. It is actually widening the gulf between rich and poor by making rich countries more rich. This is because the influential nations in the WTO focus on their own commercial interests.
Moreover, many developed countries have not fully opened their markets to products from developing countries. It is also argued that issues of health, worker’s rights, child labour and environment are ignored. Various countries claim that the issues of labour and environment are being ignored.
Q. 7. Explain the two types of international trade. Examine any three possible negative impacts of globalisation along with free trade in the world.
Ans. The two types of international trade are:
(i) Bilateral Trade: This type of trade is done by two countries with each other. They enter into agreement to trade specified commodities amongst them.
(ii) Multilateral Trade: This type of trade is conducted with many countries. The same country can trade with a number of other countries.
Globalization along with free trade can adversely affect the economies of developing countries by not giving equal playing field by imposing conditions which are unfavourable.
(i) Equal life chances: There should be no differences in outcomes based on factors for which people cannot be held responsible.
(ii) Equal concern for people’s needs: Some goods and services are necessities, and should be distributed according to the level of need.
(iii) Meritocracy: Positions in society and rewards should reflect differences in effort and ability, based on fair competition.
Q. 8. Give information on the growing importance of the Regional Trade Blocs in International trade with special reference to the European Union (EU) and the Oil Producing and Exporting Countries (OPEC).
Ans. Regional Trade Blocs have come up in order to encourage trade between countries with geographical proximity, similarity and complementaries in trading items and to curb restrictions on trade of the developing world. Today, 120 regional trade blocs generate 52% of the world trade. These trading blocs developed as a response to the failure of the global organizations to speed up intra-regional trade. Though these regional blocs remove trade tariffs within the member nations and encourage free trade in the future it could get increasingly difficult for free trade to take place between different trading blocs.
European Union(EU)
- Headquarters at Brussels, Belgium,
- EU consists of Austria, Belgium, Denmark, France, Finland, Ireland, Italy, Netherlands, Luxembourg, Portugal, Spain, Sweden and the United Kingdom.
- The commodities traded by it include-Agroproducts, minerals, chemicals, wood, paper, transport vehicles, optical instruments, clocks, antiques, etc. Organisation of Petroleum Exporting Countries (OPEC)
- Headquarters at Vienna, Austria.
- Member countries include Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE and Venezuela.
- Commodity-crude oil.
Q. 9. Why are ports known as ‘gateways’ of international trade? Explain any three characteristics of inland ports.
Ans. Ports are known as ‘gateways’ of international trade because cargoes and travellers pass from one part of the world to another through these ports. The ports provide facilities of docking, loading, unloading and the storage facilities for cargo. Port authorities make arrangements for maintaining navigable channels, arranging tugs and barges and providing labour and managerial services. The importance of port is judge by the size of the cargo and the number of ships handled.
Characteristics of inland ports:
(i) These ports are situated far away from the sea coast.
(ii) A river or a canal links these ports to the sea.
(iii) Flat bottom ships or barges can access these ports easily.
For example: Rhine has various ports like Mannheim, Duisburg.
Manchester is linked with a canal.
Q. 10. Explain the types of ports on the basis of specialised functions.
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Classify ports on the basis of their specialised functions into five groups. Write main features of each.
Ans. Types of port on the basis of specialised functions:
(i) Oil Ports: These ports deal in the processing and shipping of oil. Some of these are tanker ports and some are refinery ports.
(ii) Ports of Call: These are the ports which originally developed as calling points on main sea routes where ships used to anchor for refuelling, watering and taking food items. Later on, they developed into commercial ports.
(iii) Packet Station: These are also known as ferry ports. These packet stations are exclusively concerned with the transportation of passengers and mail across water bodies covering short distances.
(iv) Entrepot Ports: These are collection centres where the goods are brought from different countries for export.
(v) Naval Ports: These are ports which have only strategic importance. These ports serve warships and have repair workshops for them.
Q. 11. How are ports helpful for trade? Give a classification of ports on the basis of their location.
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How are ports helpful for trade? Give a classification of ports on the basis of their location.
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Classify the ports on various basis.
Ans. Importance of ports:
(i) The chief gateways of the world of international trade are the harbours and ports.
(ii) Cargoes and travellers pass from one part of the world to another through these ports.
(iii) The ports provide facilities of docking, loading, unloading and the storage facilities for cargo.
Classification of ports on the basis of their location:
(i) Inland ports: These ports are located away from the sea coast. They are linked to the sea through a river or a canal. Such ports are accessible to flat bottom ships or barges. For example, Manchester is linked with a canal; Memphis is located on the river Mississippi; Rhine has several ports like Mannheim and Duisburg; and Kolkata is located on the river Hoogli, a branch of the river Ganga.
(ii) Out ports: These are deep water ports built away from the actual ports. These serve the parent ports by receiving those ships which are unable to approach them due to their large size. Classic combination, for example, is Athens and its out port Piraeus in Greece.
Q. 12. Explain the significance of ‘Ports’ in the development of international trade. Differentiate between ‘Entrepot Ports’ and ‘Naval Ports’.
Ans. Ports constitute an important economic activity in coastal areas. Ports are known as gateways of international trade because cargoes and travellers pass from one part of the world to another through these ports. The ports provide facilities of docking, loading, unloading and the storage facilities for cargo. Port authorities make arrangements for maintaining navigable channels, arranging tugs and barges, and providing labour and managerial services.
Difference between Entrepot Port and Naval Port: Entrepot Ports:
(i) Entrepot ports are collection centres where the goods are brought from different countries for export.
(ii) Examples of entrepot ports are: Singapore for Asia, Rotterdam for Europe and Copenhagen for the Baltic region.
Naval Ports:
(i) These are ports which have only strategic importance. (ii) These ports serve warships and have repair workshops for them.
For example: Kochi.
