CHAPTER 1

INTRODUCTION OF INTERNATIONAL
TRADE
 DEFINITION OF
INTERNATIONAL TRADE
• International trade is the exchange of goods, and services
between countries.
• It gives rise to a world economy, in which prices, or supply and
demand, affect and are affected by global events.
• It gives consumers and countries the opportunity to be exposed
to goods and services not available in their own countries.
• It allows greater competition and more competitive pricing in
market.
 THE IMPORTANCE OF
INTERNATIONAL TRADE
• A particular country wants goods it does not
produce or manufacture.

• Not all countries can produce or manufacture all

goods they want.

• It enables a country to specialize in the

production of goods where it is a comparative
advantage.
Parties involve in the International Trade

1. Importer/Buyer
2. Exporter/Seller
3. Shipping Agency
4. Customs
5. Issuing Bank/Importer’s Bank
6. Advising Bank/Exporter’s Bank
 ADVANTAGES OF
INTERNATIONAL TRADE

Meeting our Attracting

Job Creation
needs Investment

New Diverse
Technology & Products and
Materials Services
 DISADVANTAGES OF
INTERNATIONAL TRADE

Cultural Social Welfare Environmental

Identity Issues Issues Issues

Support of
Political Non-
Issues Democratic
Systems
 RISKS IN INTERNATIONAL TRADE

Buyer’s
Buyer’s Knowledge
Insolvency/Credit
Acceptance Risk Inadequacy
Risk

Seller’s
Documentation
Performance
Risk
Risk
 TRADING BLOCK

Trading block is where a few countries getting together to form a group

of trading partners with special privilages.

They work together by giving special tariff rates for trading among
member, sharing knowledge and technology, cooperating on politic
and economic development and protect their market against outsider.
 ASEAN FREE TRADE AREA (AFTA)
 AFTA is for ASEAN members such as Malaysia, Thailand, Singapore, Philippines,
Indonesia, Brunei, Vietnam, Kampuchea and Myanmar.
 The primary goals of AFTA seek to:
a) Increase ASEAN's competitive edge as a production base in the world market
through the elimination, within ASEAN, of tariffs and non-tariff barriers; and
b) Attract more foreign direct investment to ASEAN
c) Create a single market and an international production base
 AFTA does not apply a common external tariff on imported goods.

 Each ASEAN member may impose tariffs on goods entering from outside ASEAN
based on its national schedules.
 However, for goods originating within ASEAN, ASEAN members are to apply a tariff
rate of 0-5 %.
 EAST ASIAN ECONOMIC CAUCUS(EAEC)
 East Asia Economic Group (EAEG) was a regional free trade zone
(FTA) proposed in 1990 by former Malaysian Prime Minister Dr.
Mahathir bin Mohamad

 EAEC was a reaction to ASEAN's integration into the Asia-Pacific

Economic Cooperation

 Asia-Pacific Economic Cooperation (APEC) is a forum for 21 Pacific

Rim member economies that seeks to promote free trade and
economic cooperation throughout the Asia-Pacific region
 NORTH AMERICA FREE TRADE (NAFTA)
 In January 1994, the United States, Mexico and Canada entered into the NAFTA,

creating the largest free trade area and richest market in the world.

 key goals of the NAFTA

a) to reduce barriers to trade

b) to increase cooperation for improving working conditions in North America

c) to establish clear and mutually advantageous trade rules

 U.S. consumers participate in international trade each day as they purchase goods

and services that cross international borders. Therefore, they are affected daily by

what they pay for the products and how safe they are.

 Trade is considered "free" or "open" when goods and services can move into

markets without restrictions, and prices are determined by supply and demand
EUROPEAN ECONOMIC COMMUNITY (EEC)

 Also known as Common market with a view to bring about economic

integration including single market among Inner Six of European
integration: Belgium, France, Germany, Italy, Luxembourg and the
Netherlands.
 All countries in Europe formed this trading block in order to have
economic integration and common market for them. Later they
formed a specific group EFTA (European Free Trade Area) to
promote free flow of labor, free flow capital and competition policy.