Tieu luan ESP

8/2/2019 Tieu luan ESP

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Abstract

The world trade pattern has never been the same as it used to be 100 years ago. Back to the

past, it is the world that the most developed countries would have the voice in many

important decisions, global economy policies, political issues of other countries, for

instances.

Fifteen years have passed since the entry into force of the Marrakesh Agreement

Establishing the World Trade Organization (WTO). During this time, the traditional actors

namely, the United States, Japan, the European Union and Canada (the original Quad)

have retained much of their leading role on the economic and political scene. While their

influence on world affairs is irrefutable, over the years, their dominance has waned. Since

1995, the world has undergone major geopolitical changes and has witnessed the rise of

new state actors, who have asserted their own role in shaping the world's economic and

political environment. Today, developing countries constitute two thirds of the WTO's

membership. The rise in numbers and significance of non-state actors (NSAs) has also

confirmed their role in shaping the world's economic and political environment.

It is partly to admit, which many people may tell you, the growth of developing economies

and the globalization trend have transformed the word trade sharply. However, that is not

the whole story while there are more. This assignment will bring you a new point of view

about what help shape the world trade pattern, how those factors affect it and some

predictions of the writers about the future of the global trade.


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Introduction

The world economy is currently striving to recover from its deepest economic crisis sincethe 1930s. The crisis led to an unprecedented contraction in trade flows that stands in

contrast to the process of economic integration and the significant expansion of trade

experienced since the Second World War. This expansion was partly driven by the process

of globalization that rested on increased economic inter-dependence among nations, which

was stimulated by a combination of technological advances, economic policy reforms, and

geopolitical changes.

The new geopolitical environment, as well as the financial crisis, are factors that haveaffected international trade in different ways. The development of new technologies has

also contributed towards shaping international trade by changing the way business is

conducted and the way people interact. The rapid development of technology has generated

both new challenges and new opportunities for economic agents worldwide. What are the

main economic, political and technological factors shaping world trade?

There are, definitely, enormous works of thousands of economists in the world considering

about this topic. Understanding well what factors are determining world trade may help notonly them but policy makers, businessmen to make the right decision to earn profit and

gain from world trade. This assignment cannot cover all potential forces affecting the

shaping of world trade. It only looks at three major elements contributing to the

transformation of the world trade, especially in last decade.

For more specifically, the paper progressively introduces the following sections:

Section 1 provides a broad context for the analysis with some discussion of the

theory of international trade;

Section 2 mainly describes the economical factors, namely Preferential Trade

Agreements, Global production networks, Growth of developing countries


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Section 3 concentrates on how the development of Internet, International Payment

System and Transportation, called Technological factors, influences that of World trade.

Section 4 illustrates the impacts of Globalization trend, WTO and local policies by

analyzing some situations and decisions that shape the global trade.


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TABLE OF CONTENTS

Abstract

Introduction

Chapter 1: Overview of theories of international trade 5

I. Classical theories of international trade 5

1. Mercantilism 5

2. The absolute advantage 5

3. The comparative advantage 6

4. Factor proportions theory 6

II. New theories of international trade 7

Chapter 2: Analyzing factors affecting the world trade pattern 12

I. Economical factors 12

1. Preferential trade agreements 12

2. Global production networks 15

3. Growth of developing countries 17

II. Technological factors 20

1. Internet 20

2. International payment system 21

3. International transportation 23

III. Political factors 26

1. Local policies 26

2. Globalization trend and World Organization's influences 27

IV. Forecast about the future of world trade pattern 29

Conclusion 30

Reference

Duty chart


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CHAPTER 1: OVERVIEW OF THEORIES OF INTERNATIONAL

TRADE

Classical theories of international trade

Mercantilism (William Petty, Thomas Mun and Antoine de Montchrtien

model)

Mercantilism is a philosophy from about 300 years ago. The base of this theory was the

commercial revolution, the transition from local economies to national economies, from

feudalism to capitalism, from a rudimentary trade to a larger international trade.

Mercantilism was the economic system of the major trading nations during the 16th, 17th,

and 18th century, based on the premise that national wealth and power were best served by

increasing exports and collecting precious metals in return. It superseded the medieval

feudal organization in Western Europe, especially in Holland, France, United Kingdom,

Belgium, Portugal and Spain. The monarch controlled everything. Their policy was to

export in the countries that they controlled and not to import (to have a positive Balance of

Trade). Geographical discoveries not only stimulated the international trade, but alsoproduced an affluent flow of gold and silver, which could be used to encourage the

economy based on money and prices. The state exercised much control over economic life,

chiefly through corporations and trading companies. Production was carefully regulated

with the object of securing goods of high quality and low cost, thus enabling the nation to

hold its place in foreign markets. The theory states that the world only contained a fixed

amount of wealth and that to increase a country wealth; one country had to take some

wealth from another, either through having a higher import/export ratio. So, this tendency,

to export more and import less and to receive in exchange gold (the deficit is paid in gold)

is called MERCANTILISM. The theory was criticized by the newly appeared class. More

money was associated with less products and inflation. The standard of living is weaker.

Mercantilist ideas did not decline until the coming of the Industrial Revolution and of

laissez-faire.


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The Absolute Advantage (Adam Smith model)

In the second half of the XVIII century, mercantilist policies became an obstacle for the

economic progress. Adam Smith (father of liberalism and economical science) brought the

argument in his book The Wealth of Nations, published in 1776, that the mercantilist

policies favorised producers and disadvantaged the interests of consumers. Adam Smiths

theory starts with the idea that export is profitable if you can import goods that could

satisfy better the necessities of consumers instead of producing them on the internal

market. The essence of Adam Smith theory is that the rule that leads the exchanges from

any market, internal or external, is to determine the value of goods by measuring the labour

incorporated in them. In order to demonstrate its theory, Adam Smith analyzed for the

beginning country A, using one factor of production, the productivity of labour, evaluated

in the necessary of hours needed to produce a unit of measure of the products X and Y. He

used a unifactorial system of economy. Symbolizing H-hours, L-labour, the unitary

necessary of labour for product X is HLX and for Y HLY. Because all the economies have

limited resources, there are limits in the level of production, and if a country wants to

produce much of one product it has to give up producing another goods, existing in this

case renounce of trade. Renounces can be illustrated by a graphic.

The Comparative Advantage (David Ricardo model)

David Ricardo theory demonstrates that countries can gain from trade even if one of themis less productive then another to all goods that it produce

Country A is more productive in X than in Y

Country B is more productive in Y than in X


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Then, each country should specialize in the production for which it has less opportunity

cost.

Factor proportions theory

A country should choose what to produce on the basis of the relative scarcity of labor, land,

and capital. Basically, on this view the relative scarcity of a factor or of factors determines

the comparative advantage of the country. Leontief Paradox - There are instances of

reversal of this common sense. An example is a capital intensive country exporting labor-

intensive goods. The reaction is to save the theory by pointing out a possible weakness, in

this case that the Heckscher-Ohlin theory erroneously assumes that the factors of

production are homogeneous. The use of different production methods rests on the

heterogeneity of factors of production. For example, recently Canada and Egypt were net

exporters of wheat. Clearly, wheat can be produced in at least two ways. Multiple

production methods presents a difficulty for the Heckscher-Ohlin theory.

II) New theories of international trade

A new body of international trade theory emerged in the 1980s. The foundations of

this theory were that competition in markets was imperfect, and that firms and

governments could act strategically to affect trade flows and national welfare. For

many economists, this growing body of literature represented a radical departure from

previous scholarship. Rigorous mathematical models were developed which questionedthe heart and soul of classical comparative advantage. Respectable academic

economists began asking whether unconditional free trade was a countrys best policy

choice.

This case reviews the background and central hypotheses of these new theories,

which have also been called theories of strategic trade policy. The case looks at why

many economists and policymakers thought alternative approaches were necessary, at

what the contributions of industrial organization to this new theory were, and at what

some of the tentative results in the 1980s were. The case ends with a questions about

the value of classical comparative advantage and the role of firm and industry-level

variables in determining who competes successfully in international trade.

Changes in the trading environment.


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Several economic changes in the international trading system stimulated executives,

policymakers, to revisit international trade theory in the 1980s. The first was growing

economic interdependence among nations, especially the increasing importance of trade

for the United States. The rapid growth of imports into the United States, for instance,

meant that trade suddenly became a primary concern for executives and policymakers

alike. For the first time, virtually all American companies began facing serious foreign

competition at home; at the same time, U.S. government policymakers found that

policies for such diverse activities as antitrust or innovation could no longer be set in

isolation from the world economy. Moreover, the possibility that foreign governments

were providing assistance to their domestically-based firms raised the question of

whether the U.S. government should counter such assistance through its own initiatives.

By the 1980s, some governments had demonstrated an ability to affect the welfare ofAmericans through policy actions.

Traditional predictions of trade patterns were further confounded by the emergence of

huge scale economies in some industries, and the growth of very large firms (usually

multinationals) which dominated selected global markets. Classical theory assumed that

firms did not have the power to affect prices. As long as there were many firms

operating at arms length, theory did not have to account for strategic behavior; all

firms could be assumed to be price takers. But as industries became increasingly

concentrated, with large firms capable of affecting the structure and conduct of the

market, firms and governments had the opportunity to make strategic choices that

could build competitive advantage in global markets.

Demand for government intervention.

A second stimulus to the new trade theory was shifting political and policy

dynamics. Rising demands for protectionism and growing pressures for regional trade

blocs, especially in Europe and North America, led economists and politicians to

search for solutions as well as justifications for their preferred policies. Mature

industries continued lobbying for more protection while normally free traders,

such as semiconductors, telecommunications, and airframe firms, actively started to

seek government assistance.


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New analytical tools.

While some economists had questioned classical trade theory for many years, they

were never able to provide rigorous alternatives. As a result, theories such as the

product life cycle, which incorporated ideas about imperfect competition, remained

outside the mainstream of academic economics. Industrial organization theorists had

developed new tools for analyzing economies of scale, economies of scope, learning

effects, R&D races and technological spillovers. These tools could explain why it

was sometimes beneficial for firms to engage in certain activities that otherwise did

not seem feasible or rational. A few economists began to speculate that if these models

of imperfect competition could be applied to international trade, we might better

understand the new patterns of international flows.

Origins of the New Trade Theory: Industrial Organization

While theories of trade under imperfect competition are a phenomenon of the 1980s,

the roots of these theories can be traced back 150 years to when industrial

organization (IO) first began describing how firms might behave when excess

profits were available

These types of behavior were referred to as strategic because firms could

consciously undertake them to capture control of markets and could anticipate the

reactions of rivals to their actions. Among the types of strategic behavior firms

could engage in were dumping (selling in markets below cost to develop

economies of scale), preemption in R&D, product introduction, market penetration, etc.

(moving before rivals to capture competitive advantage), and predation (incurring

losses from price cutting to drive rivals out of the marketplace).

Crossing Over From Industrial Organization to International Trade

An iconoclastic handful of trade theorists realized that there were reasons to be

concerned with market imperfections and with strategic behavior in the

international arena. The central proposition of the new trade theorists was that

firms and governments could behave in strategically self-conscious ways in

imperfect global markets, and thereby affect a countrys balance of trade and


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The profit-shifting argument was built on the assumption that a domestic

government seeks to maximize national welfare, and not the welfare of the world or

foreign consumers and producers. Based on the new trade theory, economists

believed that governments could help domestic firms to capture profits that would

otherwise accrue to foreign firms. Governments could use tax relief or subsidies,

for example, to increase the profitability of private investments. If government

policy facilitated domestically-based firms to make a credible commitment to

expand production facilities, foreign firms might be discouraged from expanding

their own operations. The result would be increased market shares and profits for

the domestic firms.

Empirical Research

By developing clear, mathematical formulations, the new trade theorists gave strategic

trade policy academic respectability. However, the models remained very tightly

tied to narrow and unrealistic sets of assumptions, which reduced their usefulness

for prescribing policy. To sort out which models were more or less robust,

economists turned to empirical research.

Research on trade under imperfect competition faced daunting obstacles such as the

lack of data. As a result, theorists mixed modeling techniques and relied on

educated guesswork to set missing parameters.

Implications for Trade Policy

These empirical limitations of the new trade theory left theorists cautious

about its application to real-world problems. What concerned economists most

was that governments generally lacked sources of unbiased data upon which to

base their decisions. Even when data was available there was a great deal of

uncertainty about its veracity. Mistaken estimates could lead to misguided policies. A

second concern was that few believed the models captured enough of the key

elements of real-world behavior to provide a satisfactory guide to decision making.

Even if the theory was refined sufficiently, it was unlikely that frontline policy

analysts would have the time and resources necessary to build models of sufficient

sophistication. Third, the sensitivity of the models to assumptions about the


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reactions of foreign firms and governments reduced the confidence of

policymakers and academics in making prescriptions. R&D investment that was

intended to be preemptive, as in the aircraft example, could also trigger an R&D

subsidy war rather than preclude entry. And fourth, the complexity of the

modelling could have made the policy process less transparent and, therefore,

more difficult to monitor for fairness.

Given these hesitations, some new trade theorists concluded that governments

would be wisest to follow a rule of conditional, cooperative trade initiatives.

Unconditional cooperative strategies (such as the U.S. will always support free

trade regardless of the behavior of other countries) invited foreign governments

to take a free ride at Americas expense. Conditional strategies which offered

the carrot of liberalized trade backed up by the stick of retaliation wereconsidered the most likely to induce cooperation as the foreign response.

Moreover, cooperative strategies avoided the potentially severe consequences of

miscalculating the foreign response to a noncooperative move.

Implications for Government Policy

Porter based his prescriptions for government policy on a number of premises that

differed from standard economic analyses. First, since firms competed, not

nations, the policies of governments should be set to encourage an environment

which creates competitive opportunities and pressures for continued innovations.

Governments were discouraged from undertaking direct interventions. Second,

sustaining national advantage demanded continuous innovation and change. Thus,

governments were discouraged from resorting to policies that conveyed short-

term, static advantages because they undermined innovation and dynamism. Third,

some bases for national competitive advantage were more sustainable than others.

As a consequence, governments were advised to encourage the development ofspecialized and advanced factors of production, superior product differentiation, and

unserved market segments. Fourth, national competitive advantage was created over

decades, not over one- or two-year business cycles. Thus, the most

beneficial government policies were the slow and patient ones, based on a long

planning horizon, not on short- term economic fluctuations. Finally, a nations


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firms and work force could not be relied upon to understand their own long-

term self interest. This meant that governments were encouraged to choose their

policies without undue regard for the immediate comfort or desires of their

constituents.

Summary

By the end of the 1980s, relatively few scholars or practitioners accepted the theory

of factor proportions and comparative advantage as an adequate explanation of the

observed patterns of trade, particularly for manufactured goods traded among

industrialized countries. To provide a new explanation, two very different types of

research were undertaken. Trade economists developed a new set of theoretical tools

for examining trade under imperfect competition and produced an eclectic basket of

models. Despite a growing number of empirical studies, inadequate data continued

to plague the field. In contrast to the trade theorists research, Michael Porter

chose an inductive approach and built a complex framework for analyzing the

competitiveness of nations.

While no definitive theory of international trade had yet emerged by the late

1980s, the decade produced significant advancement into new ideas and promising

areas of research. Perhaps the only certain policy conclusion was that free

trade had fallen from being considered an unequivocally superior policy to

being the preferred policy of economists in an imperfect world. Academic research

continued on work towards identifying the exceptions to this rule.

CHAPTER 2: ANALYZING FACTORS AFFECTING THE WORLD

TRADE PATTERN

Economical factors

Preferential Trade Agreements

Overview about preferential trade agreements


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Preferential Trade Agreements (PTAs) are agreements among a set of countries

involving

preferential treatment of bilateral trade between any two parties to the agreement relative to

their trade with the rest of the world.

Types of Trade Agreements

Financial Pact

Free Trade Agreement

Single External Tariff

Common Market

Monetary Areas

An overview of the economic effects of PTAs

The basic economic effects of preferential agreements can be illustrated in a simple model

(Baldwin, 2009). Consider a world composed of three identical countries called Home,

Partner and Rest of the World (RoW). Each country imports two goods from the other two


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nations, and exports one good to both destinations. The trade patterns of this model

economy are depicted in Figure C.1 below. Further assume that in an initial situation, all

countries impose on each other the same (non-discriminatory) tariff, referred to as the

Most- Favoured Nation (MFN) tariff. In this scenario, the domestic price is higher than the

border price faced by the two suppliers and imports are lower compared to open trade.

Importantly, however, the two suppliers share equally the reduction in exports due to the

imposition of an MFN tariff.

What are the effects of a preferential trade agreement? To help answer this question,

consider the case where Home and Partner form a free trade area (or a customs

union), so that Partner producers get duty-free access in the Home market, and Home

producers get duty free access in the Partner market

Focusing first on the market for good 1, the good that is imported by the Home economy,

the following price and volume effects take place. The domestic price falls relative to the

situation where there is a single MFN tariff as the supply of the good in the Home economy

is increased, but now there are two distinct border prices. The border price faced by Partner

is higher, as exporters no longer face a tariff in the Home market, while the border price

faced by exporters in RoW is lower, as they still face a tariff but the domestic price in the

Home economy is lower. As a result, exports from Partner expand, while exports from

RoW contract.


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As the PTA is reciprocal, the effects discussed above on the market for good 1 materialize

symmetrically for good 2. The only difference, intuitively, is that in this market the Home

economy is an exporter, while Partner is the importer. Therefore, in this market, Home

gains from a higher border price and greater exports to Partner, while RoW loses from the

drop in border price and the reduction in its exports in sector 2. Finally, the formation of a

preferential arrangement has no effect on the market for good 3, where RoW is the

importer, as that country is assumed to maintain the same MFN tariff.

A PTA has two types of effects on the export side. First, exporters in member countries

gain from improved market access as the tariff is removed. Secondly, these exporters also

benefit from the fact that tariff discrimination reduces imports from RoW. The latter effect

is sometimes referred to as the preference rent, as it would not exist if tariff liberalization

were carried out in a non-discriminatory fashion. On the import side, the preferential

agreement has ambiguous effects on member countries. Consider the market for good 1,

where the Home economy is the importer (the effects on Partner for good 2 are analogous).

The formation of the PTA has offsetting volume and price effects. The increased imports

allow the Home economy to benefit from the replacement of high-cost domestic production

with more efficient imports. The terms of trade (i.e. the price of exports relative to imports)

of Home improve relative to RoW and falls relative to Partner. Overall, whether the

members of a PTA gain or lose depends on the level of the initial MFN tariff and on the

elasticities of demand and supply (i.e. to what extent the demand and supply of a product is

sensitive to changes in its price).

A final consideration relates to the welfare effect of a PTA on non-members. As discussed

above, RoW suffers a reduction of its exports to the PTA member countries. In addition,

the non-member is hurt by a negative terms-of-trade effect, as the price of its exports

declines while the prices of its imports are unaltered. In other words, a preferential

agreement can be interpreted as a negative externality that PTA members impose on non-

members.

Trade creation and trade diversion


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In this theory, preferential liberalization has two main effects trade creation and trade

diversion and the net balance between the two determines whether a PTA increases

welfare for its members. As tariffs on trade between partners fall, some domestic

production is replaced by imports from more efficient producers from partners thus

resulting in trade creation and welfare gains. But since the PTA also discriminates

against non-members, imports from partners replace imports from more efficient outside

producers and the member countries end up paying more for the same good. This second

effect which harms members' welfare is known as trade diversion.

Global production networks

The global production network is a conceptual framework that is capable of grasping the

global, regional and local economic and social dimensions of the processes involved in

many (though by no means all) forms of economic globalization. Production networks

the nexus of interconnected functions and operations through which goods and services are

produced, distributed and consumed have become both organizationally more complex

and also increasingly global in their geographic extent. Such networks not only integrate

firms (and parts of firms) into structures which blur traditional organizational boundaries

through the development of diverse forms of equity and non-equity relationships but also

integrate national economies (or parts of such economies) in ways which have enormous

implications for their well-being. At the same time, the precise nature and articulation of

firm-centred production networks are deeply influenced by the concrete socio-political

contexts within which they are embedded. The process is especially complex because while

the latter are essentially territorially specific (primarily, though not exclusively, at the level

of the nation-state) the production networks themselves are not. They cut through state

boundaries in highly differentiated ways, influenced in part by regulatory and non-

regulatory barriers and local socio-cultural conditions, to create structures which arediscontinuously territorial.

In recent years there has been important development of production networks as firms

outsource parts of their production to lower wage locations. This phenomenon has

important implications for trade flows, involving increased trade in parts and components,


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and for trade policy, as location may be very sensitive to small trade frictions. Due to the

variety of forms in which international fragmentation of production can take place, the

phenomenon has been measured adopting very different indicators. First, the fragmentation

of production by MNEs (Multinational Enterprises) has been documented focusing on

parent-affiliates relationships and intra-firm trade. Intra-firm trade covers a large share of

total exports of US (45%), Japanese (30%) and Swedish (50%) parent companies.

Moreover, a large share of exports from US and Swedish parents to their subsidiaries is

made of parts and components for further reprocessing.

Second, a number of studies measure international fragmentation of production taking

place among independent firms acting as a network. One approach applied by Feenstra and

Hanson (1999) for the US and by Campa and Goldberg (1997) for Canada, Japan, the

United Kingdom and the US estimates the imported intermediate inputs used in production.

Also in this case the share of imported inputs is large and rising. Hummels, Ishii and Yi

(2001), use input-output tables to estimate the degree of vertical specialization of

international trade; that is the use of imported inputs in producing goods that are exported.

The role of imported intermediate inputs was also analysed by these authors. They find a

growth in vertical specialization between 1970 and 1990 for ten OECD countries and four

emerging market countries.

Finally, Yeats (2001), Ng and Yeats (1999) and Kaminski and Ng (2001) use foreign trade

statistics that classify goods in parts and components (a subset of intermediate goods) and

finished products. This distinction can be applied to a subset of products, mostly machinery

and equipment (SITC 7 and 8 categories), still accounting for a large share of world trade.

Yeats (2001) shows that, for the OECD countries, trade in parts and components has been

growing faster than total trade over 1976-1996 and that it now accounts for around 30% of

OECD trade. Ng and Yeats (1999) and Kaminski and Ng (2001) find similar results for

Eastern and Central Europe and East Asia.

In this section, we turn to the role of international production networks in encouraging the

establishment of deep PTAs that go beyond reducing tariffs. The econometric results

show that greater trade in parts and components is associated with the greater depth of


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newly signed agreements among PTA members. In addition, the analysis shows that the

greater the depth of an agreement, the bigger the increase in trade among PTA members.

The theoretical literature on PTAs suggests that the relationship between deep integration

and trade goes in both directions. On the one hand, PTAs may stimulate the creation ofproduction networks by facilitating trade among potential members of a supply chain. On

the other hand, countries already involved in the international fragmentation of production

are willing to sign preferential trade agreements with their partners in order to secure their

trading relationships as providers of intermediate goods and services.

Growth of developing countries

The changes in trade policies and the reductions in trade barriers that have occurred in

recent years have been associated with major changes in developing countries role in the

world economy. In particular, over the period in which developing countries have been

reducing their trade barriers, the composition of developing country exports has changed in

fundamental ways. Since the 1980s, developing countries have drastically increased their

reliance on manufactures exports, and increased their reliance on exports to other

developing countries. Further, exports of services have become much more important for

developing countries.

In details, we would mention the changes in export pattern of selected groups of relatively

commodity-dependent economies. Figure 1 shows the changes that have occurred in the

pattern of merchandise exports from developing countries as a group over the period from

1965 to 1998. This figure reveals the dramatic nature of the transformation in the

commodity specialization of developing country.


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Along with the changes in the commodity composition of exports have come substantial

changes in the direction of exports. As is shown in Figure 2, the shares of agricultural and

mineral products exported to other developing countries have risen substantially over time.

This increase in the importance of developing countries as markets for each others goods

reflects a number of factors, including growth in the share of developing countries in world

trade, and the liberalization of the developing country trade.


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Another important change in the pattern of world trade has been a substantial increase in

the importance of services trade. Figure 3 presents data on the shares of commercial5

services in exports of goods and services from major country groups.


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In summarized, the developing country export patterns enjoyed three striking changes

through brief survey of patterns of trade before.. The first is a rapid increase in the

importance of manufactures exports from developing countries. The second is a marked

shift in the direction of developing country exports towards other developing countries.

The third is a sharp increase in the importance of services exports from developing

countries. Together, these changes mean that there has been a fundamental shift away from

the traditional north-south model of the world economy in which developing countries

exporting commodities in return for imports of manufactures. This diversification of

exports and shift away from commodities has many important advantages. In particular, it

helps reduce the volatility of export returns, and diminishes the concerns about potential

price declines as exports expand (Martin 1993b).

Technological factors

Internet


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Although Internet came out in the 1960s, it is undoubtedly that Internet has proved its

motive role in world trade pattern. Probably, nowadays, people has become familiar with

two kinds of trade known as e-business and traditional business.. It is generally believed

that commercial use of the Internet has been a significant stimulant to the development of

international trade. The free, costless, and instantaneous flow of information is seen as a

critical factor in developing trading relationships. In additional, one result suggests that a

10 percentage point increase in the growth of web hosts in a country leads to about a 0.2

percentage point increase in export growth. Figure 4 shows that out of 20 countries with

highest number of internet users, there are 6 countries which are developing countries. It

also indicates the potential development of these countries, and lead to a rapid change in

the way people trade in a country or even across national borders. Thus, as you may know

that probably almost young milionares over the world today are businessmen in terms oftechnology-related field.


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International Payment System

Payment is an integral part of mercantile process. Negotiating the payment method is

equally as important as negotiating the additional aspects of transaction such as quantity,

price, shipping method of whether or not it is a recurring transaction.

Since the advent of the Internet, and in particular, the increase of emarketplaces since the

start of 21st century there have been a number of methods adopted in relation to payment

methods using online marketplaces. All payment methods carry a certain degree of risk,

and it is only by carrying out accurate due diligence on a potential business partner do you

alleviate some of that risk to your company.

One of the most widely available payment methods for participants in emarketplaces is that

of escrow services. Escrow services such as www.escrow.com, and Alibabas China-based

escrow services, Alipay, are available to companies for a free which is normally based as a

percentage cost of the overall transaction value.

An escrow service, in relation to an emarketplace, operates essentially as follows. The

buyer and seller participate in online negotiations over a particular material or service.

After negotiation the participants finalize the transaction online: normally agreeing on a

purchase order which would detail fields such as price, quantity, shipping method, buyers

inspection period. These finalized details would be passed to the Escrow service. The buyer

issues payment for merchandise to the escrow service once payment is confirming by the

escrow service, it is the escrow service who notifies the seller to ship the goods or services

to the buyer. On arrival, the buyer then has a set number of days to inspect the merchandise

as was previously set out in the purchase order. They buyer can accept of reject the goods

or services during this period. If they accept the seller is paid by the escrow service and

transaction is concluded. If the buyer rejects the merchandise, the buyer returns the goods

to the seller and payment is returned to the buyer by the escrow service. The risk toparticipants is lessened in comparison to using a method such as a wire transfer, for

example. Currently, the main risk in relation to escrow services is the proliferation of

fake escrow websites.
http://www.escrow.com/http://www.escrow.com/http://www.escrow.com/


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From experience, one of reasons why some SMEs (small and medium-sized enterprise) do

not engage in escrow services is the additional fee charged by the escrow provider. Once

the fee is factored-in to the profit on the transaction, unless its a particularly large

transaction, the transaction itself becomes economically unviable. Therefore, SMEs may

engage in more high risk payment methods in order to sustain a potential higher profit.

Paypal, and other online payment sites such as 2checkout.com, are prominent alternatives

used for making online payments. However, in relation to emarketplaces, currently, it

would appear that SMEs prefer to meet, negotiate and conclude business using the more

traditional payment methods that were outlined. This trend may change in future years,

however, as the next generation of business leaders will be much more comfortable in

using the various ebusiness solutions offered on the Internet.

Additional payment methods such as wire transfer, and payment using credit cards are also

available to SMEs, however, they also include a high degree of risk, particularly from a

buyer perspective.

As all payment methods carry a degree of risk, it is imperative that appropriate due

diligence is carried out on any prospective trading partner with particular focus on that

trading partners credit worthiness. After due diligence has been successfully finalized,

selection of an appropriate payment method whilst using an e-marketplace will be an

easier task.

International Transportation

The growth of the amount of freight being traded as well as a great variety of origins and

destinations promotes the importance of international transportation as a fundamental

element supporting the global economy. Economic development in Pacific Asia and in

China in particular has been the dominant factor behind the growth of international

transportation in recent years. Since the trading distances involved are often considerable,this has resulted in increasing demands on the maritime shipping industry and on port

activities. As its industrial and manufacturing activities develop, China is importing

growing quantities of raw materials and energy and exporting growing quantities of

manufactured goods. The outcome has been a surge in demands for long distance


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international transportation. The ports in the Pearl River delta in Guangdong province now

handle almost as many containers as all the ports in the United States combined.

International transportation systems have been under increasing pressures to support

additional demands in freights volume and the distance at which this freight is being

carried. This could not have occurred without considerable technical improvements

permitting to transport larger quantities of passengers and freight, and this more quickly

and more efficiently. Few other technical improvements than containerization have

contributed to this environment of growing mobility of freight. Since containers and their

intermodal transport systems improve the efficiency of global distribution, a growing share

of general cargo moving globally is containerized.

Consequently, transportation is often referred to as an enabling factorthat is not necessarily

the cause of international trade, but as a condition without which globalization could not

have occurred. A common development problem is the inability of international

transportation infrastructures to support flows, undermining access to the global market and

the benefits that can be derived from international trade.

International trade requires distribution infrastructures that can support trade between

several partners. Three components of international transportation facilitate trade:

Transportation infrastructure. Concerns physical infrastructures such as terminals,vehicles and networks. Efficiencies or deficiencies in transport infrastructures will

either promote or inhibit international trade.

Transportation services. Concerns the complex set of services involved in the

international circulation of passengers and freight. It includes activities such as

distribution, logistics, finance, insurance and marketing.

Transactional environment. Concerns the complex legal, political, financial and

cultural setting in which international transport systems operate. It includes aspectssuch as exchange rates, regulations, quotas and tariffs, but also consumer

preferences.

About half of all global trade takes place between locations of more than 3,000 km apart.

Because of this geography, most international freight movements involve several modes


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since it is impossible to have a physical continuity in freight flows. Transport chainsmust

thus be established to service these flows which reinforce the importance of intermodal

transportation modes and terminals at strategic locations. Among the numerous transport

modes, two are specifically concerned with international trade:

Ports and maritime shipping. The importance of maritime transportation in global

freight trade in unmistakable, particularly in terms oftonnageas it handles about

90% of the global trade. Thus, globalization is the realm of maritime shipping, with

containerized shipping at the forefront of the process. Theglobal maritime transport

systemis composed of a series of major gateways granting access to major

production and consumption regions. Between those gateways are major hubs

acting as points of interconnection and transshipment between systems of maritime

circulation.

Airports and air transport. Although in terms tonnage air transportation carries an

insignificant amount of freight (0.2% of total tonnage) compared with maritime

transportation, its importance in terms of the total value is much more significant;

15% of the value of global trade. International air freight is about 70 times more

valuable than its maritime counterpart and about 30 times more valuable than

freight carried overland, which is linked with the types of goods it transports (e.g.

electronics). The location of freight airportscorrespond to high technology

manufacturing clusters as well as intermediary locations where freight planes are

refueled and/or cargo is transshipped.

Road and railway modes tend to occupy a more marginal portion of international

transportation since they are above all modes for national or regional transport services.

Their importance is focused on their role in the "first and last miles" of global distribution.

Freight is mainly brought to port and airport terminals by trucking or rail. There are

however notable exceptions in the role of overland transportation in international trade. A

substantial share of theNAFTA trade between Canada, United States and Mexico is

supported by trucking, as well as large share of the Western European trade. In spite of

this, these exchanges are at priori regional by definition, although intermodal transportation

confers a more complex setting in the interpretation of these flows.
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Still, many challenges a impacting future developments in international trade and

transportation, mostly in terms of demographic, energy and environmental issues. While

the global population and its derived demand will continue to grow and reach around 9

billion by 2050, the aging of the population, particularly in developed countries, will

transform consumption patterns as a growing share of the population shifts from wealth

producing (working and saving) to wealth consuming (selling saved assets). The

demographic dividend in terms of peak share of working age population that many

countries benefited from, particularly China, will recede. As both maritime and air freight

transportation depend on petroleum, the expected scarcity of this fossil fuel will impose a

rationalization of international trade and its underlying supply chains. Environmental issues

have also become more salient with the growing tendency of the public sector to regulate

components of international transportation that are judged to have negative externalities.Also, international trade enables several countries to mask their energy consumption and

pollutant emissions by importing goods that are produced elsewhere and where

environmental externalities are generated. Thus international trade has permitted a shift in

the international division of production, but also a division between the generation of

environmental externalities and the consumption of the goods related to these externalities.

Political factors

Local policies

Figure 1 Predicted increase of world imports if all countries were democratic


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Figure 2 Predicted increase of world imports if all countries were democratic, accountingfor official trade policy

We re-examine the influence of a countrys political regime on its involvement in

international trade. Democratisation leads to trade liberalisation because political power

falls into the hands of a median voter who is in favour of free trade .Autocratic states dotrade less.

Globalization trend and World Organizations influences

Globalization


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Economic globalization is the life of a world economy that is open and does not recognize

territorial boundaries, or land between yanglain regions with each region. Here the world is

considered as a whole in which all regions can quickly and easily affordable. Side of trade

movements and inventory towards liberalization of capital so that all people are free to try any

time and place in this world.Economic globalization is a process of economic activity and trade, where countries in the world

of market forces increasingly integrated within the territorial limits without hindrance. The

globalization of the economy requires the removal of all restrictions and barriers to capital flows

of goods and services.

Impact of globalization on international trade

Positive impact:

World production could be improved

Prosperity in a country of the Community.

The development of the domestic market.

Can obtain more capital and better technology.

Provide additional funding for economic development.

Negative impact: Because the development of the foreign trade becomes more free, which can

inhibit the growth of the industry.

Can worsen the balance of payments.

The financial sector is increasingly unstable.

Exacerbate the process of long-term economic growth.

World Organization

The international organizations to strengthen international trade. Since its creation, the

WTO has promoted market access for corporations with trade agreements. These

agreements circumvent the democratic national rights of a country to determine domestic

polices regarding trade, natural resources and service provision.It includes GATT,GATS


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and TRIPS.For example: The General Agreement on Trade in Services (GATS) was agreed

at the World Trade Organization (WTO) in 1994. Its aim is to remove any restrictions and

internal government regulations in the area of service delivery that can be+ considered

barriers to trade". Such services include everything from marine fishing to provisions for

health and education. The agreement affectively abolishes a governments sovereign right

to regulate, subsidise and provide essential national services on behalf of its citizens.

The International Monetary Fund was conceived in July 1944 with a goal to stabilize

exchange rates and assist the reconstruction of the worlds international payment system.

Countries contributed to a pool which could be borrowed from, on a temporary basis, by

countries with payment imbalances. The IMF was important when it was first created

because it helped the world stabilize the economic system. The IMF works to improve the

economies of its member countries.The IMF working to foster global monetary

cooperation, secure financial stability, facilitate international trade, promote high

employment and sustainable economic growth, and reduce poverty.

The World Bank is one of two major institutions created as a result of the Bretton Woods

Conference in 1944. The World Bank (WB) is a multinational corporation aiming at the

alleviation of poverty. It facilitates various economies of the world in following sustainable

economic growth. The World Bank comprises of the following two institutions:

International Bank for Reconstruction and Development: The IBRD focuses

on low-income economies that have little access to global credit markets.

International Development Association: The IDA focuses on helping the

poorest nations.

Forecast about the future of world trade pattern

From above analyzing, we can see that international trade develop likely nowaday due to

factors such as: economical factors, technological factors, political factors. When nations

join free trade areas or sign bilatiral agreements with each other, they create an advantage

business environment for enterprises, and help reduce tariff barriers, non-tariff barriers.

And these things helped increase export and import of nations. For example, when


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VietNam join WTO, export and import increased 25%/year. Inaddition, global production

networks, foreign direct investment (FDI) helped enterprises reduce cost of production

because of cheap price of employee, materials, promote effective production, receive

technology. A clearly sample about these economical fators is the development of LDCs

such as VietNam with 8,5% growth in 2007 after joining WTO.

Technological factors promoted development of international trade. Internet helped

enterprises promote sales. Enterprises can sign contract with each other in two place have

far distance. Modern payment systems of banks helped transactions performed faster,

safer, easier Development of international transportation such as: ship, air plane, train

helped goods come to export faster, more convenient.

Political factors also help development of international trade. Open policies, integrate,globalization trend created opportunities for enterprises performed business actions in

potential market. For example, with motto integrate, coopration, development togather, and

stable political environment, VietNam is ideal destination for investors.

From above factors we can forecast future of development of world trade pattern when

economical factors, political factors and technological develop. Therefore, integrate

international trade is unique way so that nations develop.

Conclusion

Globalization has brought economic interaction among nations closer than ever before,

thanks in no small part to revolutions in information and transport technology and growing

openness in government policy. The trend towards increased inter- dependency has

rendered international economic co-operation more complex and multi-faceted.

This assignment has attempted to provide a better understanding of what factors have been

changing the world trade. This may seem a simple question, but it turns out to have several

answers. An historical review of trade relations since the establishment of the GATT/ WTO

strongly points to the importance of building and sustaining institutional arrangements to

underwrite international trade relations. At the same time, it has been repeatedly

demonstrated that if institutions and nations do not adapt to change, the will wither,


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becoming increasingly regarded as vestiges of an older world driven by different interests

than those that shape the present.

The recent global economic crisis has accelerated the rise of the BRICs, Brazil-Russia-

India-China. The forum for discussing issues of global economic governance has shiftedfrom the G-8 to a more comprehensive G-20. The G-20 has been praised for its more

balanced membership, as it brings together important industrial and emerging-market

countries from all regions of the world. Collectively, these countries represent around 90

per cent of global gross national product, 80 per cent of world trade and two-thirds of the

world's population. These numbers give the G-20 a considerable degree of legitimacy. The

raising voice of these countries has made the world trade balance to be shifted from

Developed countries to a more balanced point. The poorer country can gain from world

trade, not loss as we used to know.

Last but not least, technology always has it influences in many fields, and world trade is

one of them. The achievement of transport, information, payment systems revolutions

could be one of the root causes that turn international trade into a different one, in

compared with that in the past. These factors have made the world flat, exchange goods

and services in various ways our ancestors could have never imagined in last century.

But what of future challenges, of issues that are beginning to call a new effort and evolve

the world trade? We should concern more about the environmental factors as there are a lot

of human efforts to deal with the global warming and more government are introducing

laws and policies in protecting the contamination and pollution. How trade will contribute

to managing environmental challenges and vice versa is doubtless an issue about which we

shall hear a lot more.


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REFERENCES

Michael Porters book, Competitive Advantage of Nations

David Yoffie, American Trade Policy: An Obsolete Bargain?, in John Chubb,

ed., Can the Government Govern?, Washington, D.C.: The Brookings Institute,

1989

Paul Krugmans Rethinking International Trade, Business Economics, April

1988

Is Free Trade Pass?, Journal of Economic Perspectives, 1.2, Fall 1987

Intra-industry Specialization and the Gains From Trade, Journal of Political

Economy, 89.51, 1981


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The Theory of Intra-industry Trade which was published in I.A. McDougall

and Richard H. Snape

John von Neumann and Oskar Morgenstern, Theory of Games and Economic

Behavior

J. David Richardson, Empirical Research on Trade Liberalization with Imperfect

Competition: A Survey, Cambridge, MA: NBER Working Paper No. 2883

Alasdair Smith and Anthony Venables, Trade and Industrial Policy under

Imperfect Competition, Economic Policy, v. 1

Avinash Dixit, Optimal Trade and Industrial Policies for the U.S. Automobile

Industry,

World Trade Report 2011: The WTO and preferential trade agreements: From co-

existence to coherence

Multinational Corporations and Global Production Networks: The Implications forTrade Policy

Global production networks and the analysis of economic development

Aidt, T.S. and M. Gassebner. 2007. Do Autocratic States Trade Less?, CambridgeWorking Papers in Economics 0742, Faculty of Economics, University of Cambridge

Mansfield, E.D., H.V. Milner and B.P. Rosendorff. 2000. Free to Trade: Democracies,Autocracies, and International Trade,American Political Science Review

And other sources.

DUTY CHART


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Members name Task

V Th Thu Hng Title & abstract, Introduction and Conclusion

Kathkeo Vogpadith Nothing

L Thch Anh New theories of international trade

L Th NgcPreferential Trade Agreements + Global productionnetworks

Ng Th Ngc BchGrowth of developing countries + Internet + Classicaltheories of international trade + Edit the draft

Nguyn Khnh LinhInternational Payment System + InternationalTransportation

Phm Vn HLocal policies + Globalization trend and WorldOrganizations influences

Nguyn Vn Thin Forecast about the future of world trade pattern

Tieu luan ESP

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