ARBAMINCH UNIVERSITY
College of Agricultural Science
Department of Agricultural Economics
Assignment of International Agricultural Trade (AgEc 411)
Individual Assignment
1. HALIMA ALI HABIB
NSR/T AM/14 628
SUBMITTED TO Mr. GEDISHA k (MSc)
SUBMITTION DATE 12/09/2015 E.C
ARBA MINCH ETHIOPIA
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Contents
1Discuss shortly Trends and Structure of International Agricultural Trade ............................................. 3
1.1 Trends in international trade .............................................................................................................. 4
1.2Structure of international agricultural trade ....................................................................................... 5
1.3Challenges Facing International Agricultural Trade ............................................................................. 6
2Discuss Trends and Prospects Major Exports and Imports of Ethiopia ...................................................... 7
2.1Trends in Ethiopia's Major Exports ...................................................................................................... 7
2.2Trends in Ethiopia's Major Imports...................................................................................................... 7
2.3Prospects for Ethiopia's Major Exports ................................................................................................ 8
2.4Prospects for Ethiopia's Major Imports ............................................................................................... 8
2.5Challenges Facing Ethiopia's Major Exports ........................................................................................ 8
3. Evaluate the effects of various trade policy instruments on welfare of trading partners ..................... 10
3.1. The Effects of Trade Policy: Prices, Extensive Margin...................................................................... 11
3.2Instruments of Trade Policy ............................................................................................................... 11
4. Explain the role of multilateral trade negations and the proliferation of Regional and bilateral
agreements ................................................................................................................................................. 13
5. Discuss effects of international trade on economic growth and development ..................................... 17
5.1. Advantage of international trade in economic development ......................................................... 18
5.2Disadvantages Of International Trade On Economic Growth............................................................ 19
Reference .................................................................................................................................................... 21
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1Discuss shortly Trends and Structure of International Agricultural Trade
The trends and structure of international agricultural trade are constantly evolving. Currently,
there is a growing demand for agricultural products worldwide due to population growth and
changing dietary preferences. The top agricultural producing countries, such as the United States,
Brazil, China, and India, dominate international trade in terms of exports and imports. In the last
few decades, there has been an increase in trade agreements and free trade policies, which have
facilitated the movement of agricultural goods between countries. However, protectionist
measures such as tariffs and quotas continue to impact the agricultural trade market. The rise of
e-commerce platforms has allowed for easier access to international markets, but also presents
challenges for small-scale farmers as they may face stiff competition from larger corporations.
Additionally, the issue of food safety and environmental sustainability is becoming increasingly
significant in international agricultural trade, leading to the implementation of stricter regulations
and certification programs. Overall, the trends and structure of international agricultural trade are
influenced by various factors, including political, economic, social, and environmental issues. As
the world continues to evolve, so does the market for agricultural trade.
International agricultural trade has experienced a number of significant trends and structural
changes in recent years. Here are some of the most notable developments:
1. Growth and Diversification: International agricultural trade has been growing steadily for
several decades. In 2019, the total value of global agricultural trade was estimated at around
US$1.5 trillion. This growth has been driven by a number of factors, including rising global
population and increasing demand for food and agricultural products.
2. Trade Liberalization: Various free trade agreements have been signed between countries,
leading to reduced tariffs on agricultural goods. This has allowed for more fluid agricultural
trade between nations, leading to greater supply and demand of agricultural products.
3. Consolidation: Large agribusiness companies have approached mergers and acquisitions,
being one of the trends in international agricultural trade. This has given rise to greater
concentration of market power, particularly in inputs such as seeds and fertilizers.
4. Sustainability: There is a growing demand for agricultural products that are sustainably
produced and grown. This has led to a greater focus on issues such as environmental protections,
as well as social and economic sustainability in agriculture.
5. Regionalization: Certain regions have developed as major agricultural exporting and
importing hubs, such as the Americas, Europe, and Asia. There is a trend towards increased
intra-regional trade, with regional agreements facilitating this.Overall, international agricultural
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trade remains a vital part of the global economy, with ongoing changes in demand and market
forces shaping the trends and structure of trade
1.1 Trends in international trade
Over the last few decades, international agricultural trade has been characterized by several
notable trends:
1. Globalization: Agricultural trade has become increasingly globalized, with more countries
participating in trade and new markets opening up. This has been driven by advances in
transportation and communication, as well as the reduction of trade barriers.
2. Shift towards high-value products: There has been a growing demand for high-value
agricultural products, such as processed foods and fresh fruits and vegetables, particularly in
developed markets.
3. Increasing demand for organic and sustainably produced goods: Consumers are
increasingly interested in organic and sustainably produced agricultural products, driving
demand for these products and increasing their share of international trade.
4. Growth of regional trade agreements: The number of regional trade agreements, such as the
European Union’s Common Agricultural Policy, has increased in recent years, and they account
for a growing share of international agricultural trade.
5. Increased focus on food safety and traceability: As consumers become more concerned
with the safety and quality of their food, there has been a growing emphasis on ensuring food
safety and traceability throughout the supply chain.
6Increasing demand for organic and non-GMO products: Consumers are becoming more
health-conscious and are willing to pay higher prices for organic and non-GMO products. This
trend has led to increased demand for organic and non-GMO agricultural products.
7. The rise of e-commerce: E-commerce has made it easier for farmers to reach consumers
directly. This trend has led to an increase in the sale of agricultural products via e-commerce
platforms.
8. Trade agreements: Trade agreements have facilitated international trade by reducing tariffs
and other trade barriers. For example, the North American Free Trade Agreement (NAFTA) has
led to the increased trade of agricultural products between the United States, Canada, and
Mexico.
9. Change in consumer preferences: Consumer preferences are constantly changing. Today,
consumers are increasingly interested in environmentally friendly and sustainable agricultural
practices. As a result, there is a growing demand for products that are produced using sustainable
practices.
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10. Technological advancements: Technological advancements have led to an increase in
agricultural productivity. These advancements have also improved the quality of agricultural
products, which has led to an increase in international trade.
11. Increase in urbanization: The growth of urban areas has led to an increase in demand for
fresh produce. This trend has led to an increase in international trade of fresh produce.
1.2Structure of international agricultural trade
International agricultural trade refers to the buying and selling of agricultural products across
different countries. The structure of international agricultural trade is largely influenced by
demand factors, trade policies, and economic the following are some of the key aspects of the
structure of international agricultural trade:
1. Exporting Countries: Exporting countries are those which have a comparative advantage in
producing and exporting agricultural products produce agricultural products at lower cost
products or have a higher cost of production.
2. Importing Countries: Importing countries are those which do not produce enough
agricultural products to meet their domestic demand countries import agricultural products to
bridge the gap between demand and supply.
3. Trade Policies: Trade policies play a crucial role in the structure of international agricultural
trade. Tariffs, subsidies, and trade agreements influence the volume and direction of trade flows.
4. Economic Factors: Economic factors such as exchange rates, inflation, income levels, and
consumer preferences can affect the structure of international agricultural trade.
5. Market Concentration: International agricultural trade can be concentrated among a few
exporting countries or among a few importing countries. This can be due to factors such as cost
advantage, quality, and transport costs.
The structure of international agricultural trade is complex and is influenced by various factors
that determine the volume, direction, and composition of trade flowsInternationa agricultural
trade involves the exchange of raw materials, processed goods, and services related to the
agricultural industry between countries. The structure of international agricultural trade is
complex and can be influenced by a variety of factors, including regional trade agreements,
tariffs, import/export regulations, and changes in supply and demand.Some of the key players
involved in international agricultural trade include producers, exporters, importers, wholesalers,
retailers, and consumers. Major agricultural commodities traded globally include grains (such as
wheat, corn, and rice), oilseeds (such as soybeans and sunflower seeds), livestock (such as beef
and pork), dairy products (such as milk and cheese), and fruits and vegetables.Trade in
agricultural products is often characterized by significant price volatility and seasonal
fluctuations due to factors such as weather conditions, disease outbreaks, and changes in
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government policies. In addition, international agricultural trade can have important
environmental and social impacts, particularly with respect to issues such as deforestation, water
use, and labor rights
1.3Challenges Facing International Agricultural Trade
Despite the growth and importance of international agricultural trade, the sector faces several
challenges:
1. Trade tensions: Trade tensions between major trading partners, particularly the United States
and China, can disrupt agricultural trade and lead to uncertainty for producers and exporters.
2. Climate change: Climate change is expected to have a significant impact on agricultural
production, particularly in developing countries. Extreme weather events can lead to crop
failures and food shortages, which can disrupt trade.
3. Food safety concerns: Food safety concerns, particularly related to foodborne illnesses, can
limit trade and lead to increased regulation and inspection requirements.
4. Income inequality: Income inequality between developed and developing countries can lead
to unequal trade relationships, with developed countries often able to dictate terms and prices to
developing country exporters.
5. Protectionism: Protectionist policies, such as tariffs and subsidies, can limit trade and distort
markets. These policies can be used to protect domestic producers and limit imports from other
countries.
In conclusion, international agricultural trade has undergone significant changes in recent years,
with globalization, technological advancements, changing consumer preferences, and climate
change all contributing to its growth. The structure of international agricultural trade is complex
and dominated by developed countries and commodities, with developing countries playing an
increasingly important role. However, the sector faces significant challenges, including trade
tensions, climate change, food safety concerns, income inequality, and protectionism.
Addressing these challenges will be essential to ensuring the continued growth and sustainability
of international agricultural trade
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2Discuss Trends and Prospects Major Exports and Imports of Ethiopia
Ethiopia is an East African nation that is mainly known for exporting coffee and agricultural
products. However, the country has been diversifying its exports over the years, increasing its
competitiveness in the international market. Below are some of the major trends and prospects in
Ethiopia’s exports and imports:
2.1Trends in Ethiopia's Major Exports
Ethiopia’s major exports include agricultural products such as coffee, oil seeds, pulses, flowers,
vegetables, and fruits. Other significant exports are gold, leather products, livestock, and textiles.
In recent years, the country has also started exporting processed food products such as canned
and frozen foods. The trend in Ethiopia’s major exports has been the gradual increase in the
export of manufactured and processed products to diversify the economy and reduce reliance on
agricultural exports. Additionally, there’s a significant amount of foreign investment in the
textiles and manufacturing sectors, which is expected to boost exports of finished goods in the
coming years.
The growth in Ethiopia's major exports can be attributed to several factors, including the
following:
1. Government support: The Ethiopian government has implemented policies to support the
growth of key export sectors, including providing incentives for exporters and investing in
infrastructure.
2. Diversification: Ethiopia has diversified its export base beyond traditional commodities like
coffee and oilseeds. The country has developed new export industries, such as flower production
and textile manufacturing.
3. Global demand: Global demand for Ethiopian exports has increased, particularly from China
and other Asian countries. This has helped to boost exports and provide new opportunities for
Ethiopian producers and exporters.
4. Investment: Foreign investment in Ethiopia has helped to support the growth of export
industries. The country has attracted significant investment in sectors such as textiles, leather,
and agro-processing.
2.2Trends in Ethiopia's Major Imports
Ethiopia's major imports include fuel, machinery, vehicles, and pharmaceuticals. The country has
experienced significant growth in imports over the past decade, with the total value of imports
increasing from $8.5 billion in 2010 to $15.6 billion in 2020. The growth in Ethiopia's major
imports can be attributed to several factors, including the following:
1. Economic growth: Ethiopia's economic growth has led to increased demand for imported
goods, particularly in the construction and manufacturing sectors.
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2. Infrastructure development: Ethiopia has invested in infrastructure development, which has
led to increased demand for imported machinery and equipment.
3. Government policies: The Ethiopian government has implemented policies to support the
growth of key sectors, such as the construction and manufacturing sectors. These policies have
led to increased demand for imported goods
2.3Prospects for Ethiopia's Major Exports
The prospects for Ethiopia's major exports are generally positive, although the country faces
some challenges. Some of the key prospects for Ethiopia's major exports include the following:
1. Continued government support: The Ethiopian government is expected to continue to
support the growth of key export sectors, particularly through infrastructure investments and
incentives for exporters.
2. Diversification: Ethiopia is expected to continue to diversify its export base, developing new
industries and expanding into new markets.
3. Growing global demand: Global demand for Ethiopian exports is expected to continue to
grow, particularly from Asian countries. This is likely to provide new opportunities for Ethiopian
producers and exporters.
4. Investment: Ethiopia is likely to continue to attract foreign investment in key export sectors,
particularly as the country's business environment improve
2.4Prospects for Ethiopia's Major Imports
The prospects for Ethiopia's major imports are generally positive, although the country faces
some challenges. Some of the key prospects for Ethiopia's major imports include the following:
1. Continued economic growth: Ethiopia's economy is expected to continue to grow, which will
lead to increased demand for imported goods.
2. Infrastructure development: Ethiopia is expected to continue to invest in infrastructure
development, which will lead to increased demand for imported machinery and equipment.
3. Government policies: The Ethiopian government is likely to continue to implement policies
to support the growth of key sectors, which will lead to increased demand for imported goods
2.5Challenges Facing Ethiopia's Major Exports
Despite the positive prospects for Ethiopia's major exports, the country also faces some
challenges. Some of the key challenges facing Ethiopia's major exports include the following:
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1. Infrastructure: Ethiopia's infrastructure, particularly its transport and energy infrastructure, is
underdeveloped. This can make it difficult and expensive to transport goods to international
markets.
2. Quality: Ethiopia's export products often suffer from quality issues, particularly in the coffee
sector. This can make it difficult to compete with higher-quality products from other countries.
3. Trade barriers: Ethiopia faces trade barriers in some international markets, particularly in the
European Union. These barriers can limit the country's ability to export its products.
4. Political instability: Ethiopia has experienced political instability in recent years, which can
create uncertainty for investors and exporters.
In conclusion, Ethiopia's major exports and imports have played a significant role in the
country's economic growth. The country has experienced significant growth in key export
sectors, driven by government support, diversification, and growing global demand. The
prospects for Ethiopia's major exports and imports are generally positive, although the country
faces some challenges, including infrastructure development, quality issues, and political
instability. Addressing these challenges will be essential to ensuring the continued growth and
sustainability of Ethiopia's exports and imports.
Ethiopia is a country located in the Horn of Africa and is known for its diverse agricultural
products, including coffee, oilseeds, pulses, and livestock. The country has been experiencing
significant economic growth in recent years, and its exports and imports have been growing as
well. Here are some of the trends and prospects of Ethiopia's major exports and imports:
Major Exports:
1. Coffee: Ethiopia is the birthplace of coffee, and it is the country's most important export
commodity. The country is known for producing high-quality Arabica coffee, which is in high
demand in international markets.
2. Oilseeds: Ethiopia is one of the largest producers of oilseeds in Africa, including sesame
seeds, Niger seeds, and linseeds. These products are exported to various countries, including
China, India, and the European Union.
3. Pluses: Ethiopia is also a major exporter of pulses, including chickpeas, lentils, and beans.
These products are exported to various countries, including India, Pakistan, and the Middle East.
4. Flowers: Ethiopia has become a major exporter of flowers, particularly roses, which are
grown in large quantities in the country's highlands. These products are exported to various
countries, including the Netherlands, the United States, and Japan.
Major Imports:
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1. Machinery and Equipment: Ethiopia imports a significant amount of machinery and
equipment, including construction equipment, agricultural machinery, and industrial machinery.
2. Petroleum Products: Ethiopia is heavily dependent on imported petroleum products,
including gasoline, diesel, and jet fuel.
3. Chemicals: Ethiopia imports a significant amount of chemicals, including fertilizers,
pesticides, and pharmaceuticals.
4. Vehicles: Ethiopia imports a significant number of vehicles, including cars, trucks, and buses.
In terms of prospects, Ethiopia's exports and imports are expected to continue growing in the
coming years, driven by the country's economic growth and increasing trade relations with other
countries. However, there are also challenges, such as infrastructure constraints, trade barriers,
and political instability, which could impact the future of Ethiopia's exports and imports.
3. Evaluate the effects of various trade policy instruments on welfare of
trading partners
Trade policy instruments can have significant effects on the welfare of trading partners. Tariffs, for
example, can increase the cost of imported goods and reduce consumer surplus. Quotas can limit the
quantity of imports and lead to higher prices. Subsidies can distort markets and harm producers in other
countries. Overall, it is important to carefully consider the potential impacts of trade policy instruments
on trading partners’ welfare
The effect of trade policy plays a great role in the growing importance of international trade
remains pervasive, with one difference: the view is no longer confined to journalistic circles but
has now become dominant in academic research (Bhagwati, 2014). The main focus in recent
academic work, both theoretical and empirical/quantitative, has been on ―trade costs‖, which are
often measured as iceberg costs. Such costs are typically backed out from empirical
specifications that are informed by specific theoretical models without any attempt to relate them
to actual trade policy measures.
Taken at face value, Pritchett’s claim suggests that commercial policy has in fact had significant
effects in the past, and that its own success has rendered it irrelevant. However, early studies of
the effects of trade policies and agreements from the 1970s and 1980s tend to report small effects
of these policies for a review of this early evidence). Several later studies have employed
gravity-equation-based approaches in order to identify the relative contributions of trade policies,
reduction in transportation and other trade costs, and income growth or convergence of trading
partners to the growth of trade, yielding mixed results.
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3.1. The Effects of Trade Policy: Prices, Extensive Margin.
Effects on Prices
while studies on the effects of trade policy on trade flows abound, evidence on its effects on
prices is rare. Traditional trade models feature either perfect competition or monopolistic
competition with demand implying perfect pass-through of tariffs or other trade barrier changes
to prices. Accordingly, there has been relatively little interest in examining the response of prices
to trade reforms in the past. The standard premise has been that tariff or Government of Ethiopia
(GOE reductions led to a proportional decrease in the prices of imported products.
Effects on the Extensive Margin
the trade policy has attenuated effect effects on prices, how can it have large effects on trade
quantities and volumes? One possibility is that trade policy changes lead to the trade of new
products and varieties. Following the convention in the trade literature, we will use the term
―product‖ to describe genuinely new products, and the term ―variety‖ to refer to a
product/source
country pair. For example, if a policy change leads to the import of bananas, and bananas were
previously not imported, bananas will be considered a new product. If bananas were already
imported, but a trade policy change leads to imports from a new country, such as Ecuador,
Ecuadorian bananas will be referred to as a new variety. In addition to the introduction of new
imported products and varieties, trade policy may also indirectly lead to the introduction of new
domestic products
3.2Instruments of Trade Policy
Classic instruments of trade policy include tariffs and quantitative restrictions. Trade
negotiations, both at the multilateral level and through regional and bilateral trade agreements,
have traditionally focused on eliminating tariffs and non-tariff barriers to trade. This section will
explain some of these basic instruments of trade policy and their impact.
Classic trade policy instruments include:
 Tariffs


aints


Trade policy instruments such as tariff ,quotas ,and subsidies can have both positive and
negative impacts on welfare of trading partners
1tariff; can increase the price of imported goods making them less compitative in the domestic
market this can lead to a decrease imports and an increase in domestic production which can
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benefit domestic produces but harm foreign producers on the other hand tariffs can also generate
revenue for the government which can be used to fund public goods and services
2Quotas; which limit the quantity of imports can also have similar effects on the wakfare of
trading partners .they can protect domestic producers from foreign competition but they can also
lead to higher price for consumers and reduced access to foreign good
3subsidies which can provide financial support to domestic producers can also distort trade and
harm foreign producers .they can lead to over production and lower prices for domestic goods
which can harm foreign producers which are unable to compete
Over all the effects of trade policy instruments on the welfare of trading partners depend on a
variety of factors including the specific policy instruments, the level of trade between the
countries, and the overall economic conditions of the countries involved
Trade liberalization, through unilateral policy measures as well as through negotiated reductions
in trade distortions through the WTO and in regional free trade agreements, has diminished the
importance of some of these tools. For example, developing country tariffs are currently at an
average of about 4-5 percent, although tariff peaks -- high tariff rates (generally 15% or more) on
particular items -- still exist. Trade policy is focusing more and more on the direct and indirect
impacts of domestic regulatory regimes on international trade and investment flows. Some of
these new policy tools are also described below.
Tariffs: A tariff is a tax on imported goods. Three main types of tariffs are:
Ad valorem tariff: this is the simplest and most frequently used tariff type, under which the rate
is expressed as a percentage of the value of the goods. For example, a tariff of 6% of the value of
milk is an ad valorem tariff of 6 per cent of milk imports.
Specific tariff: a tariff that has a fixed per-unit value—for example, $OECS 2.00 per pound.
This type of tariff is often used for agricultural goods.
Variable tariff: a duty typically fixed to bring the price of an imported commodity up to a
domestic support price for the commodity.
The effect of a tariff is to raise the price of imported goods, thus making them generally less
competitive within the market of the importing country.
Tariffs can be used to accomplish various trade policy goals. The main goals are

raise revenue for the government.

-competing industry.
If the goal is the latter, a tariff can be set so high that no imports will enter. This is called a
"prohibitive tariff". Tariffs can also be set much higher than needed to protect the import
competing industry.
If imports would be eliminated with a 100% tariff, but the applied tariff is set at 150%, it is said
that there is "water in the tariff" -- that is, that the tariff is set at a level higher than is needed to
inhibit trade.
The imposition or removal of a tariff has an impact on consumers, producers, the government
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and the country as a whole. For a simplified analysis of the impact of a tariff, we will look only
at the importing country and assume that it is a small country (that is, that it cannot affect the
price of a good by buying or selling that good on the world market). The supply and demand
curves for the importing country are shown in the diagram below.
The diagram illustrates the impact of imposing a tariff
4. Explain the role of multilateral trade negations and the proliferation
of Regional and bilateral agreements
Multilateral trade negotiation Refer to negotiations between multiple countries to establish
common rules and regulations for international trade. These negotiations are typically conducted
under the auspices of international organizations such as the World Trade Organization (WTO).
The goal of multilateral trade negotiations is to promote free and fair trade among participating
countries, which can lead to increased economic growth and development. However, in recent
years, there has been a proliferation of regional and bilateral trade agreements. These agreements
are negotiated between two or more countries and typically focus on reducing trade barriers
between those countries. While these agreements can promote trade and economic growth, they
can also create a complex web of regulations and rules that can be difficult for businesses to
navigate. The role of multilateral trade negotiations in this context is to provide a framework for
these regional and bilateral agreements. By establishing common rules and regulations for
international trade, multilateral negotiations can help to ensure that regional and bilateral
agreements are consistent with each other and with the broader goals of free and fair trade. This
can help to reduce the complexity of international trade and make it easier for businesses to
operate across borders.
Multilateral trade agreements are commerce treaties among three or more nations. The
agreements reduce tariffs and make it easier for businesses to import and export. Since they are
among many countries, they are difficult to negotiate. .
Advantages
multilateral agreements make all signatories treat each other equally. No country can give better
trade deals to one country than it does to another. That levels the playing field. It's especially
critical for emerging market countries. Many of them are smaller in size, making them less
competitive. The Most Favored Nation Status confers the best trading terms a nation can get
from a trading partner. Developing countries benefit the most from this trading status.The
second benefit is that it increases trade for every participant. Their companies enjoy low tariffs.
That makes their exports cheaper. The third benefit is it standardizes commerce regulations for
all
the trade partners. Companies save legal costs since they follow the same rules for each
country. The fourth benefit is that countries can negotiate trade deals with more than one country
at a time. Trade agreements undergo a detailed approval process.
Note Most countries would prefer to get one agreement ratified covering many countries at
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once. The fifth benefit applies to emerging markets. Bilateral trade agreements tend to favor the
country with the best economy. That puts the weaker nation at a disadvantage, but making
emerging markets stronger helps the developed economy over time. As those emerging markets
become developed, their middle class population increases. That creates new affluent customers
for everyone.
Disadvantages
the biggest disadvantage of multilateral agreements is that they are complex. That makes them
difficult and time consuming to negotiate. Sometimes the length of negotiation means it won't
take place at all. Second, the details of the negotiations are particular to trade and business
practices. The public often misunderstands them. As a result, they receive lots of press,
controversy, and protests. The third disadvantage is common to any trade agreement. Some
companies and regions of the country suffer when trade borders disappear. The fourth
disadvantage falls on a country's small businesses. A multilateral agreement gives a competitive
advantage to giant multi-nationals. They are already familiar with operating in a global
environment. As a result, the small firms can't compete. They lay off workers to cut costs. Others
move their factories to countries with a lower standard of living. If a region depended on that
industry, it would experience high unemployment rates. That makes multilateral agreements
unpopular.
Pros
 Treats all member nations equally
 Makes international trading easier
 Trade regulations are the same for everyone
 Helps emerging markets
 Multiple nations are covered by one treaty
Cons
 Negotiations can be lengthy, risk breaking down
 Easily misunderstood by the public
4.1Multilateral Agreement
A multilateral agreement is a trade agreement established between three or more countries with
the intention of reducing barriers to trade, such as tariffs, subsidies, and embargoes, that limit a
nation‘s ability to import or export goods. They are considered the best method of encouraging a
truly global economy that opens markets to small and large countries on an equitable basis.
In general, trade agreements between nations are either bilateral, involving only two nations, or
multilateral. By their very nature, requiring concessions by several countries that have
traditionally used trade barriers to protect certain industries or domestic goods, multilateral
agreements are much more difficult to negotiate than bilateral agreements.
Examples of Multilateral Agreements
Multilateral agreements are usually negotiated between countries that share a geographic region,
and some of the most well-known regional agreements are the North American Free Trade
Agreement (NAFTA) and the Central American-Dominican Republic Free Trade Agreement
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(CAFTA). However, multilateral agreements can also be international in nature, with perhaps the
most successful international trade agreement being the General Agreement on Trade and Tariffs
(GATT), negotiated between 153 countries following the end of World War II.
There is a debate as to their effectiveness. For instance, those in favor of multilateral agreements
point to the economic benefits they provide smaller countries with emerging markets, while
those against them claim that they provide multi-national companies increased control over the
individual sovereignty of nations.
4.2Advantages of Multilateral Trade Agreements
Liberal economists are perhaps the leading proponents of using multilateral agreements as the
ideal way to encourage free and unencumbered global trade. The benefits they point to include:
 Granting of ―favored nation status‖ – No nation that is a party to a multilateral agreement
can be granted more favorable trading rights than any other party to the agreement. Each
country is treated as an equal partner.
 Best use of a nation‘s resources – Countries can focus on producing only those goods that
are deemed valuable by its partners to the agreement, creating efficiencies in the allocation
of resources.
 Exported goods are cheaper – Reduced tariffs mean that countries exporting their products
no longer face artificial barriers to trade.
 Standardization of regulations - Companies can more easily navigate trade between
signatory countries as a result of agreed upon rules of commerce. In addition, international
intellectual property rights can receive greater protection.
 One agreement versus many – While multilateral agreements are often complex by their
very nature, they actually save countries the time and effort it takes to negotiate separate
agreements with every potential trading partner.
 Emerging markets flourish – Bilateral agreements tend to favor the powerful. Multilateral
agreements level the playing field for all participants, particularly the little guys who have
been pushed around for years.
4.3Disadvantages of Multilateral Agreements
Multilateral agreements also have their opponents. Their reasons for seeing these agreements as
failing to provide any lasting benefits include:
 Ceding of sovereign rights – Countries that are partners in a multilateral agreement give up
degrees of sovereignty over the way they conduct business with other countries, which often
is in direct opposition to the democratic principles on which they were founded.
 Some parties win, but some parties lose – Certain industries within partner countries may be
adversely affected by the low cost of imported goods by competing nations.
 Complex and time-consuming negotiations – Due to the complex nature of an agreement
that must be negotiated by several countries with often competing interests, multilateral
agreements can take a great deal of time to complete. There is no guarantee that after years
of negotiation an agreement will actually be reached.
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 Misunderstandings and Misconceptions - Negotiations during an agreement are often
conducted in a confidential manner that breeds mistrust and controversy between
corporations, special interest groups, labor organizations, and the media.
 Rise of multi-national corporations – Smaller businesses often find it difficult to compete
with large corporations as traditional borders to trade are erased. This can lead to
unemployment in certain industries and lower standards of living as wages are cut in order
for these companies to compete.
4.4What Are Bilateral Negotiations
Bilateral negotiations are negotiations which involve only two parties. Bilateral
negotiations are frequently utilized in trade agreements between two countries. Because
they involve fewer interested parties than multilateral trade negotiations, bilateral trade
negotiations can sometimes be completed more easily and quickly. Bilateral trade
negotiations will sometimes be superseded by, or exist alongside, agreements created in
multilateral negotiations.
Bilateral trade agreements are international agreements that govern the trade relationship
between two countries. For example, before the North American Free Trade Agreement
(NAFTA) was created, the United States had bilateral trade agreements with both Canada
and Mexico. These agreements are usually created after successful bilateral trade
negotiations result in substantial consensus on major issues of trade and commerce.
4.5Advantages And Disadvantages of Bilateral Trade
Compared to multilateral trade agreements, bilateral trade agreements are negotiated more
easily, because only two nations are party to the agreement. Bilateral trade agreements initiate
and reap trade benefits faster than multilateral agreements.
When negotiations for a multilateral trade agreement are unsuccessful, many nations will
negotiate bilateral treaties instead. However, new agreements often result in competing
agreements between other countries, eliminating the advantages the Free Trade Agreement
(FTA) confers between the original two nations.
Bilateral trade agreements also expand the market for a country's goods. The United States
vigorously pursued free trade agreements with a number of countries under the Bush
administration during the early 2000s.
In addition to creating a market for U.S. goods, the expansion helped spread the mantra of trade
liberalization and encouraged open borders for trade. However, bilateral trade agreements can
skew a country's markets when large multinational corporations, which have
significant capital and resources to operate at scale, enter a market dominated by smaller
players. As a result, the latter might need to close shop when they are competed out of existence
The proliferation of regional and bilateral agreements
Refers to the increasing number of trade agreements that are being negotiated and signed
between countries or groups of countries. These agreements are designed to reduce barriers to
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trade, promote economic integration, and increase cooperation among the participating countries.
Regional agreements are trade agreements between countries in a specific geographic region,
such as the North American Free Trade Agreement (NAFTA) between Canada, Mexico, and the
United States. Bilateral agreements, on the other hand, are trade agreements between two
countries, such as the United States-Korea Free Trade Agreement (KORUS).The proliferation of
these agreements has been driven by a number of factors, including globalization, technological
advancements, and increased competition. Supporters argue that these agreements can lead to
increased trade, economic growth, and job creation. Critics, however, argue that these
agreements can lead to job losses, environmental degradation, and the erosion of labor rights.
Overall, the proliferation of regional and bilateral agreements is likely to continue as countries
seek to expand their trade relationships and increase economic growth. However, it is important
that these agreements are designed to promote sustainable and equitable economic development,
and that they take into account the concerns and interests of all stakeholders.
5. Discuss effects of international trade on economic growth and
development
International trade can have a significant impact on economic growth and development of
countries. Here are some of the effects of international trade on economic growth and
development:
1. Increased economic growth: International trade provides access to larger markets and a
broader range of goods and services, leading to increased economic growth. This is because
countries can specialize in the production of goods and services that they are more efficient in,
and import goods and services that are cheaper to produce elsewhere.
2. Increased employment: Due to increased production and export of goods and services,
international trade can create new jobs in a country. This helps to boost economic growth and
can also lead to a rise in the standard of living for people.
3. Increased competition: International trade can lead to increased competition among firms,
which encourages innovation, and leads to higher quality goods and services. This can also lead
to reductions in prices, improving the affordability of goods and services for consumers.
4. Increased investment: International trade can attract foreign investment, which may lead to
increased capital formation and technological advancements.
5. Increased diversification: International trade allows countries to diversify their economies,
reducing their dependence on the production of one or a few goods. This can provide protection
against external shocks, such as drops in the price of a commodity. Overall, international trade
has the potential to increase economic growth, create jobs, increase competition, attract
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investment, and diversify economies. However, for these benefits to be realized, countries need
to have supportive policies and institutions in place to facilitate international trade
International trade not only results in increased efficiency but also allows countries to participate in a
global economy, encouraging the opportunity for foreign direct investment (FDI). In theory, economies
can thus grow more efficiently and become competitive economic participants more easily.
5.1. Advantage of international trade in economic development
International trade is now not a new idea among different countries. In the past, there had been a
number of considerable cases of global trade. In 14th and fifteenth century traders used to transport silk
and spices via silk route. In the 1700s fast cursing ships used to transport tea from China to different
European countries. Foreign exchange also has a large effect on financial development.
The role of foreign trade can be judged by means of the following facts:
Foreign trade and economic development
All the nations export a lot of agricultural product to different nations and import capital goods.
Hence, the economic development of united states especially relies upon of overseas trade.
Foreign trade earning
Foreign trade provides overseas trade that is used to eliminate poverty and for different productive
purposes.
Market expansion
International trade plays a vital function in growing the production of any country. The overseas
exchange is a great element in increasing the market and encouraging producers. In nations where the
domestic market is restricted it is crucial to promote the product in other countries.
Increase in investment
Foreign trade encourages the businessmen to extend the investment to produce extra goods. So the
rate of funding increases.
Foreign investment
Foreign trade gives incentives for the overseas investors, besides nearby investment, to make
investments in these nations the place there is a lack of investment.
The importance of global trade on economic, political, and social conditions has been theorized in the
Industrial Age also. It is vital for the boom of globalization
International trade permits agencies to increase their commercial enterprise in unexplored markets and
territories. International trade additionally throws open the doors for Foreign direct investments, which
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means that you may want to make investments capital in a corporation primarily based in any other
country. It creates extra jobs domestically if you are exporting goods or services. Being capable to ship
your goods or services into different markets gives hazard mitigation to your business.
Economic benefits
with a strong international presence, companies can see major economic developments within
their countries when they allow for international trading. Things like tariffs and quotas ensure a
healthy profit in order to maintain the ability for the country to grow and gain a profit. It is, after
all, a business and other countries are expected to do the same. Demand calls for the importation
of certain products, and even the development of certain products within the walls of another
country. A good economy calls for a happier population, and maintaining that kind of stability
proves useful for many future endeavors for the country as a whole.
International relations
having a good relationship with a country could also prove to be a very beneficial aspect of
international trading. War and economic depressions are always a very likely possibility for any
unsuspecting country, so keeping a good relationship with exporters and importers means help
during those difficult times. It also means potential brakes and deals for when things get tough as
well.
5.2Disadvantages Of International Trade On Economic Growth
While international trade has its set of advantages, it really does come with an equal quantity of
pitfalls some of which are listed below:
While free trade is right for developed nations, it might also not be so for growing nations that
are flooded with cheaper good from different countries, consequently harming the local industry.
Such imbalance leads to protectionism and trade restriction (tariffs, subsidies, and quotas)
People in some international locations lose jobs because jobs pass to areas the place the team of
workers and the price of dwelling are low. A traditional example is IT and ITES (call centers)
outsourcing.
(i) Impediment in the Development of Home Industries:
International trade has an adverse effect on the development of home industries. It poses a threat
to the survival of infant industries at home. Due to foreign competition and unrestricted imports,
the upcoming industries in the country may collapse.
(ii) Economic Dependence:
The underdeveloped countries have to depend upon the developed ones for their economic
development. Such reliance often leads to economic exploitation. For instance, most of the
underdeveloped countries in Africa and Asia have been exploited by European countries
. (iii) Political Dependence:
International trade often encourages subjugation and slavery. It impairs economic independence
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which endangers political dependence. For example, the Bruisers came to India as traders and
ultimately ruled over India for a very long time.
(iv) Mis-utilisation of Natural Resources:
Excessive exports may exhaust the natural resources of a country in a shorter span of time than it
would have been otherwise. This will cause economic downfall of the country in the long run.
(v) Import of Harmful Goods:
Import of spurious drugs, luxury articles, etc. adversely affects the economy and well-being of
the people.
(vi) Storage of Goods:
Sometimes the essential commodities required in a country and in short supply are also exported
to earn foreign exchange. This results in shortage of these goods at home and causes inflation.
For example, India has been exporting sugar to earn foreign trade exchange; hence the exalting
prices of sugar in the country.
(vii) Danger to International Peace:
International trade gives an opportunity to foreign agents to settle down in the country which
ultimately endangers its internal peace.
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MihretT.,Mitku,F.,&Guadu,T. (2020). Dairy farming and its economic
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