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1.2 International Trade (II)

Where there are no differences among countries in the basic capabilities at producing goods,other bases for trade among them may still exist.

First, patterns of demand may differ among nations. For example, most consumers in one country may consider dog meat a delicacy, while in another country the consumption of dog meat is abhorrent. In this case the second country may sell its dog meat to the first country. Trade will be based not on differences in the production capabilities of the two countries but on different consumption preferences.

Second, trade may occur out of economies of scale, that is, the cost advantages of large-scale production. For example, Country A and Country B may have the same capability in producing cars and computers, but the cost for the production of both commodities will decrease if the goods are produced on a larger scale. Both countries might find it advantageous if each were to specialize completely in the production of one commodity and import the other.

Third, trade takes place because of innovation or style. Even though Country A produces enough cars at reasonable costs to meet its own demand and even to export some, it may still import cars from other countries for innovation or variety or style.

To summarize, the theory of international specialization seeks to answer the question which countries will produce what goods with what trade patterns among them. Differences in production conditions, the element highlighted by the theory of comparative advantage, provide the most important part of the answer. But a complete answer must also take into account other factors such as demand, economies of scale and innovation or style.

In reality, however, complete specialization may never occur even when it is economically advantageous. For strategic or domestic reasons, a country may continue to produce goods for which it does not have an advantage. The benefits of specialization may also be affected by transport cost. Goods and raw materials have to be transported around the world and the cost of the transport reduces the benefit of trade. The case will be more serious with transporting bulky or perishable goods. Protectionist measures which are often taken by governments are also barriers to trade, and typical examples are tariffs and quotas.

Tariff barriers are the most common form of trade restriction. A tariff is a tax levied on a commodity when it crosses the boundary of a customs area which usually coincides with the area of a country. A customs area extending beyond national boundaries to include two or more independent nations is called a customs union. Import duties are tariffs levied on goods entering an area while export duties are taxes levied on goods leaving an area. The former type is more common than the latter as most nations want to expand exports and increase their foreign exchange earnings. Import duties may be either specific, or ad valorem, or a combination of the two-compound duties. The term drawback refers to duties paid on imported goods that are refunded if the goods are re-exported. The term most-favoured-nation (MFN) treatment refers to a tariff treatment under which a country is required to extend to all signatories any tariff concessions granted to any participating country. However, MEN treatment is not really special but is just normal trading status. It gives a country the lowest tariffs only within the tariff’s schedule, but it is still possible to have lower tariffs.

Quotas or quantitative restrictions are the most common form of non-tariff barriers. A quota limits the imports or exports of a commodity during a given period of time. The limits may be in quantity or value terms, and quotas may be on a country basis or global, without reference to countries. They may be imposed unilaterally and can also be negotiated on a so-called voluntary basis. Obviously, exporting countries do not readily agree to limit their sales. Thus, the"voluntary" label generally means that the importing country has threatened to impose even worse restrictions if voluntary cooperation is not forthcoming.

In addition to visible trade, which involves the import and export of goods, there is also invisible trade, which involves the exchange of services between countries.

Transportation service across national boundaries is an important kind of invisible trade.International transportation involves different means of transport such as ocean ships, planes,trains, trucks and inland water vessels. However, the most important of them is maritime ships.When an exporter arranges shipment, he generally books space in the cargo compartment of a ship, or charter a whole vessel. Some countries such as Greece and Norway have large maritime fleets and earn a lot by way of this invisible trade.

Insurance is another important kind of invisible trade. In the course of transportation, a cargo is vulnerable to many risks such as collision, pilferage, fire, storm, explosion, and even war. Goods being transported in international trade must be insured against loss or damage. Large insurance companies provide service for international trade and earn fees for insuring other nation’s foreign trade. Lloyd's of London is a leading exporter of this service.

Tourism is yet another important form of invisible trade. Many countries may have beautiful scenery, wonderful attractions, places of historical interest, or merely a mild and sunny climate.These countries attract large numbers of tourists, who spend money for travelling, hotel accommodations, meals, taxis, and so on. Some countries depend heavily on tourism for their foreign exchange earnings, and many countries are making great efforts to develop their tourism.

The fourth type of invisible trade meriting attention is called immigrant remittance. This refers to the money sent back to home countries by people working in a foreign land. Import and export of labour service may be undertaken by individuals, or organized by companies or even by states.And this is becoming an important kind of invisible trade for some countries.

Invisible trade can be as important to some countries as visible trade is to others. In reality, the kinds of trade nations engage in are varied and complex, often a mixture of visible and invisible trade. TIVXZNwdthf1OPKxHT/X0CkhhafQI1ZxMn3elC9TPpQOFeX9oaEC7gHelJxz7PZs

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