• Created by: Frances
  • Created on: 14-04-18 19:48


  • Visible exports are actual goods which are sold to other nations
  • Invisible exports or services which are sold to other nations
  • The trade balance of balance of payment is a difference between the monetary value of exports and imports of output of a country measured by the currency of that country
  • A positive trade balance is known as a trade surplus in which export is greater than import
  • A negative balance is known as trade deficit in which importing is greater than exporting
  • When there's a trade surplus there is a flow of money into the country and the level of national income and employment goes up
  • When there's a trade deficit there is a flow of money out of the country
  • Countries and surplus are able to build up their foreign exchange reserves
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INEQUALITIES IN TRADE FLOWS: visible and invisible trade is dominated by countries of north America,West Europe and Asia. In recent times the economies of LICs and lower MICs have become strongly linked with those of  HICs. This has raised living standards in many LICs and lower MICs but has not benefited some unskilled workers who have lost jobs and had wage cuts.

VISIBLE TRADE: the value of Asia's exports of manufactured goods expanded by 3% in 2012 where as europe's exports declined by 2%. as a result Asia's share in the world exports of manufactured goods rose to 38% compared with 41% for europe a decrease from 43% in 2011.

With the exception of the Commonwealth of Independent States the group of ex-Soviet countries (+15%) and North America (+3%), all regions registered declines in exports of agricultural products in 2012.

Africa and the Middle East increased their exports of fuels and mining products in 2012 by 9% and 6% respectively. 

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INVISIBLE TRADE: North America and Europe are net exporters of invisible trade whilst other continents net importers. 

Construction exports accounted for 6% of exports of the Commonwealth of Independent States in 2012 double the world's average.

Receipts from royalties and licence fees percentage 18% of North America's commercial services exports in 2012.

In europe, exports of financial services accounted for 8% of a service exports

The highest share of communication services was held by Africa (4.8%). Computer and information services accounted for 8.8% of services exports of Middle East and 7% of Europe service exports. 

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LICs AND WORLD TRADE:  many LICs are still primary product dependent, meanings they obtain foreign currency by exporting a small range of primary products often at low prices compared with the prices of manufactured goods or services.

The prices of primary products vary enormously from year to year whereas the price of manufactured goods and services has shown a fairly steady rise over time, for this reason many LIC's have very high trade deficits and lack the capital to develop the economies.

Although the deficits may not appear very high in real terms they are particularly high when expressed as a percentage of GDP. Trade deficits have to be financed and borrowing reduces investment in agriculture, education, health, etc. 

Other countries spend more on interest payments and on loans than they do inviting services such as health and education

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  • How much it cost to produce goods in the importing country compared with the exporting country. This in time will be affected by the cost of land, labour, capital and tax
  • Resource endowment 
  • Locations advantage 
  • Historical factors, including colonial ties
  • Currency exchange rates 
  • Trade agreements and trade barriers
  • Environmental, health or safety standards
  • The availability of foreign exchange to pay for imports
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  • RESOURCE ENDOWMENT: the amount of resources and economy has played a significant part in the trade balances of countries. The economies of countries as diverse as New Zealand, swaziland ukraine china and pakistan or rely to a certain extent on the export of agricultural produce this is partly controlled by climate factors. Some countries have been able to use their wealth from the export of raw materials to allow diversification to a more balanced economy examples of this includes South Africa and Brazil. This illustrates that the principle of comparative advantage where countries specialise in producing the commodity is for which they are best and down and trade these for other goods and services.
  • HISTORICAL FACTORS: prior to independence agreements between 1945 and 1970 trade was dominated by a flow of primary goods from the colonies and manufactured goods from the colonial power. This relationship is often seen as exploitative and it is claimed that this is the reason for the very low share of world trade that many poorer African countries have today.  The trading links between the former colonial powers and the former colonies often remain strong. For example, links between the UK and the Commonwealth countries are still significant. Even stronger links are seen between France and it's former colonies. The colonies were considered to be overseas départements of France ( 5 remain today )

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closeness to the market area and demand, this can be seen with tourists resorts of the Mediterranean, Spain and Portugal which are warm climates areas within the short airline flight times from colder climates of the densely populated areas of northern Europe 

Ports with large hinterland,  the classic example is rotterdam with a large hinterland reached by river barge and rail in Netherlands, Belgium, Germany, France and Luxemburg

Strategic position on trade routes, examples include Cape Town at the southern tip of Africa and singapore which is strategically located at the tip of the Malay peninsula where shipping routes in the Indian and Pacific oceans cross.

CHANGES IN THE GLOBAL MARKET: foreign direct investment has changed the global market. It involves investments by TNCs and by chinese state-controlled enterprises. It has allowed many countries such as Brazil and Mexico to increase their trade to GDP ratio, however in many african countries the ratio has decreased

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TRADE AGREEMENTS & FREE TRADE: an international trade tariff is a tax on imports or exports. Free trade is trade without these taxes. An import quota is a limit on the quantity of a commodity or services that can be produced abroad and sold domestically. They are often controlled by licences issued to importers.

Countries use tariffs and quotas to protect their own economies. Curtis raise that domestic price above the world price so domestic sellers are better off however domestic consumers are worse off. The licence holders make a profit from buying at the world price and selling at the higher domestic price. 

Trade blocs are group of countries who have joined together to stimulate trade between them they have led to growing economic regionalism. The types of trade blocs includ, Free trade areas for example NAFTA where there are no quotas or tariffs, Customs unions for example Mencosur where there are common external tariff for non members, Common market where there's free trade of goods and services and free movement of labour and capital and Economic unions for example the European union where there are common economic policies.

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The world trade organisation was started in 1995 replacing the general agreement on tariffs and trade and multilateral agreements regulating international trade which began in 1948. It is made up of 159 membership countries each which have one vote. The secretariat in Geneva employs over 600 staff.

The world trade organisation promotes trade seeking to reduce tariffs and other trade barriers to the mutual advantage of members, it is against protectionism but in some situations it support maintaining trade barriers

It provides the rules for trade in goods, in services, inventions and designs. Trade agreements are negotiated and signed by the member trading nations which bind governments to keep their trade policies within the agreed limits

It is a place where members settle trade disputes, countries bring the disputes to the WTO if they thing their rights under the agreement are being infringed. Judgements by specially appointed independent experts are based on interpretations of the agreements and individual countries commitments

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  • NON-DISCRIMINATION: a country should not discriminate between it's trading partners and should not discriminate between its own and foreign products, services or nationals
  • OPENNESS : lowering trade barriers is one of the most obvious ways of encouraging these trade barriers includes imports bands and quotas
  • MORE COMPETITION: the WTO  aims to discourage unfair practices such as export subsidies and dumping products at below normal value to gain market share
  • PTOTECTION FOR THE ENVIRONMENT: the WTO's agreements permits members to take measures to protect not only the environment as public health animal health and plant health
  • MORE BENEFIT FOR LICS: over 3/4 of WTO members are developing countries and countries in transition to becoming market econimies. Giving them more time to adjust, greater flexibility and special privileges is intense to help them 
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  • Fairtrade is a movement whose goal is to help producers in LICs to achieve better access to markets and sustainability. Higher prices are paid to exporters and social and environmental standards are imposed the movement focuses on goods which are exported from LICs to HICs
  • The fair trade movement has restructured and formed partnerships with mainstream businesses in efforts to be more efficient and broaden its appeal. Sales of fair trade products really took off with the arrival of the first fairtrade labelling initiative. This was part of a move to take fair trade goods out of small specialist shops and into mainstream supermarkets
  • In 1988 the first fairtrade label was launched this boosted fair trade sales in seconds and global sales rose from US$ 230,000 in 2000 to US$ 2.4 billion in 2007
  • Other Fairtrade labelling includes Max Havelaar ( in Belgium, Switzerland, Denmark, Norway and France), Transfair (in Germany, Austria, Luxembourg, Italy, the United States, Canada and Japan) , Fairade Mark in the UK and Ireland, Rättvisemärkt in Sweden, and Reilu Kauppa in Finland 
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There are now two organisations: FAIRTRADE INTERNATIONAL (FLO) & FLO-CERT

Fairtrade international:

  • standards-based setting and producer support unit
  • Non-profit making organisation
  • 25 member and associate member organisations

FLO-CERT : inspects and certifies producer organisations and audits traders

The certification standards imposed by FLO-CERT include: 

  • Democratic decision-making within the farm
  • Systems in place for capacity- building and economic strengthening of the organisation
  • Employees must receive decent wages
  • Employees may join unions and bargain collectively
  • No force or child labour
  • Health and safety requirements are met
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  • Fairtrade coffee can be sold in shops and cafes at any price so nearly all extra price paid by consumers is kept in the countries where coffee is sold
  • Fairtrade certification brings extra cost to farmers but there is little research on the effects of Fairtrade membership on the income of farmers
  • Failure by Fairtrade to enforce these standards with cooperatives, importers and packets profiting by evading them
  • In order to join Fairtrade cooperatives must meet standards which means they must be relatively skillful, educated and rich. These are not the poorest farmers who get the lowest prices
  • Political values are being imposed on people
  • Paying a guaranteed price leads to overproduction and lower prices for other farmers
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