9. International Trade

Competency Based Questions:

 1. As a policy advisor, suggest two strategies India should adopt to reduce its trade deficit.

Ans.

• Boost export-oriented industries like pharma, IT, textiles, and agriculture.
• Reduce dependency on crude oil imports by investing in renewable energy.

2. Imagine the Suez Canal is blocked for 2 months (as happened in 2021 with the ever-given incident). How would this impact India’s trade?
Ans.

• Exports to Europe & North America would be delayed, increasing shipping costs.
• Import of crude oil from the Middle East would face longer routes, raising energy costs.
• Could push India to diversify trade routes (Cape route, air freight).

3. Why is international trade considered the “barometer of a nation’s economic prosperity”?
Ans.

• Trade reflects the level of production, demand, and integration with the global economy.
• Countries with higher trade volumes usually have diverse industries, better infrastructure, and higher GDP.
• Example: Japan and Singapore, despite having limited natural resources, became prosperous through international trade.

4. India exports software services but imports crude oil in large quantities. What does this reveal about India’s resource base and trade structure?
Ans.

• India has a strong human resource base in IT, making it an exporter of software.
• Lack of sufficient domestic energy resources forces depend on crude oil imports.
• It shows India’s trade is based on comparative advantage.

5. Study a world trade map showing major sea routes. Why is the Suez Canal route more important for India’s trade than the Cape of Good Hope route?
Ans.

• The Suez Canal shortens the distance between India and Europe by 7,000 km.
• Saves time and cost of shipping.
• Example: India’s exports to Europe (textiles, IT services, gems) depend heavily on this shorter route.

6. International trade is not always favorable for developing countries. Justify with two examples.
Ans.

• Developing countries often export raw materials but import high-value finished goods, leading to trade imbalance.
• Example: African nations export crude oil but import expensive refined petroleum.
• Example: South Asian countries export raw cotton but import costly textiles and machinery.

7. Suppose India faces a sudden rise in crude oil prices globally. How will this affect India’s international trade balance?
Ans.

• Import bill will increase sharply, worsening the trade deficit.
• May lead to higher prices domestically (inflation).
• Government may try to diversify energy sources (renewables, nuclear) or negotiate long-term supply contracts.

8. Why are regional trade blocs like EU, ASEAN, and NAFTA formed?
Ans. Regional trade blocs like EU, ASEAN, and NAFTA formed to:

• Reduce trade barriers (tariffs, quotas).
• Promote intra-regional trade, making trade cheaper and faster.
• Increase global bargaining power of member nations.
• Example: EU common market benefits smaller European economies.

9. India’s trade data shows high imports of petroleum, machinery, and electronic goods, while exports include software, textiles, and agricultural products. What does this pattern indicate?
Ans.

• India imports capital-intensive and technology-based goods due to limited domestic production.
• Exports labor-intensive and service-based products due to surplus skilled manpower.
• Reflects India’s developing economy status with dependence on advanced economies for technology.

10. “Trade wars between nations affect the global economy.” Explain with a recent example.
Ans.

• Example: US–China trade war (2018 onwards).
• Both countries-imposed tariffs on each other’s goods and disrupted global supply chains.
• Result: Many countries faced higher prices for electronics, machinery, and raw materials.
• Shows how protectionism harms international trade.

11. Describe the development, history and categorize international trade.

Ans.

a) International trade: Refers to the exchange of goods, services, and capital between countries. Its development is closely linked with human civilization and economic growth:

• • Ancient period: Trade started as barter exchange between neighboring tribes and regions.
  • Medieval period: Growth of long-distance trade routes such as the Silk Route and Spice Route, connecting Asia, Europe, and Africa.
  • Colonial period: European powers established colonies and controlled trade in raw materials and markets (e.g., British trade in India).
  • Industrial Revolution (18th–19th century): Boosted production and demand for raw materials, expanding global trade.
  • Modern era (20th–21st century): Globalization, digital platforms, e-commerce, and World Trade Organization (WTO) have made trade faster, larger in scale, and more interdependent.

b) History of International Trade

• Prehistoric Times: Local barter of surplus food and tools.
• Early Civilizations: River valley civilizations (Mesopotamia, Egypt, Indus Valley, China) exchanged goods like grains, textiles, and metals.
• Classical Period: Roman, Greek, and Chinese civilizations expanded trade through land and sea routes.
• Age of Exploration (15th–16th centuries): Discovery of sea routes by Columbus, Vasco da Gama, and Magellan globalized trade.
• Colonial Domination (17th–19th centuries): Colonies supplied raw materials; colonial powers exported finished goods.
• Modern Global Trade: After World War-II, organizations like GATT (General Agreement on Tariffs and Trade) and later WTO (World Trade Organization) regulated world trade. Digital communication and container shipping revolutionized trade further.

c) Categorization of International Trade

International trade can be classified in several ways:

i) On the basis of Nature of Goods:

• Visible trade: Exchange of tangible goods (machinery, food, oil, clothes).
• Invisible trade: Exchange of services (banking, tourism, IT, shipping, education).

ii) On the basis of Volume:

• Bilateral trade: Between two countries (e.g., India and Japan).
• Multilateral trade: Among many countries at the same time (e.g., WTO system).

iii) On the basis of Direction:

• Import and Export trade:

iv) On the basis of Degree of Restrictions:

• Free trade: Unrestricted exchange of goods and services (e.g., within EU).
• Restricted trade: Regulated by tariffs, quotas, or trade barriers.

International trade developed from barter systems to digital globalization, shaped by history, and is categorized by goods, direction, partners, and regulations.

12. Explain the role of geological resources, mineral resources, climate, cultural factors, size of population, economic development and foreign investment in international trade.

Ans.

a) Geological Resources

• Landforms and soil types influence agricultural production and resource availability.
• Fertile plains (e.g., Indo-Gangetic Plain, Nile Valley) support agricultural exports.
• Coastal regions and natural harbors promote shipping and maritime trade.
• Mountainous or desert regions often limit trade connectivity.

b) Mineral Resources

• Countries rich in minerals (oil, coal, iron, copper, gold) have a strong export base.
• Example: Middle Eastern countries export crude oil; Australia exports iron ore and coal.
• Import-dependent countries (like Japan, South Korea) engage in trade to meet resource shortages.

c) Climate

• Climate determines agricultural products and their export potential.
• Tropical climates – coffee, cocoa, tea, spices (e.g., Brazil, India, Sri Lanka).
• Temperate climates – wheat, corn, dairy, machinery production.
• Unfavorable climates increase dependence on imports (e.g., cold countries importing fruits/vegetables).

d) Cultural Factors

• Common language, traditions, and historical ties promote trade.
• Example: English language supports trade among Commonwealth nations.
• Consumer preferences (food habits, fashion, lifestyle) shape trade in luxury goods, textiles, and services.
• Tourism (a cultural factor) contributes to invisible trade.

e) Size of Population

• Large populations create huge domestic markets (e.g., India, China).
• Population density affects surplus availability for export.
• Highly populated nations may be both large consumers (importers) and large producers (exporters).

f) Economic Development

• Developed nations: Export manufactured goods, high-tech products, and services.
• Developing nations: Export primary goods, raw materials, and cheap labor-intensive products.
• Economic development increases purchasing power – boosts imports.

g) Foreign Investment

• Foreign capital builds industries, infrastructure, and export capacity.
• Example: MNCs in India (like Samsung, Apple, Toyota) not only supply the domestic market but also use India as an export hub.
• Foreign investment brings advanced technology, raising the competitiveness of a country in international markets.

All these factors—natural (resources, minerals, climate) and human (culture, population, economy, foreign investment)—interact to shape the scale, type, and direction of international trade.

13. Evaluate the impact of globalization along with free trade on the international trade.

Ans.

a) Positive Impacts

• Expansion of Trade Volumes: Globalization has reduced trade barriers and encouraged free trade agreements (e.g., WTO, NAFTA, EU), leading to unprecedented growth in international trade.
• Market Integration: Countries are connected into a single global marketplace. Consumers get access to goods and services from all over the world.
• Specialization & Efficiency: Nations focus on producing goods where they have a comparative advantage (e.g., electronics in East Asia, oil in Middle East, software in India).
• Employment Opportunities: Outsourcing and global industries create jobs in developing countries.
• Technology Transfer: Free trade and FDI bring advanced technology, boosting competitiveness of developing economies.
• Cheaper Consumer Goods: Increased competition reduces prices and widens choices for consumers worldwide.

b) Negative Impacts

• Unequal Benefits: Developed countries and multinational corporations often gain more, while developing countries face dependency.
• Loss of Domestic Industries: Small-scale industries in developing countries struggle to compete with cheap imports.
• Overdependence: Heavy reliance on global trade makes economies vulnerable to global recessions (e.g., 2008 financial crisis, COVID-19 supply chain disruptions).
• Environmental Concerns: Free trade encourages mass production and long-distance transport, increasing carbon emissions.
• Cultural Homogenization: Global brands dominate, reducing local cultural identity in trade and consumption patterns.

Evaluation: –

• Globalization with free trade has accelerated economic growth and interconnectedness, turning the world into a “global village.”
• However, the benefits are unevenly distributed—wealthier nations and MNCs dominate markets, while poorer nations face exploitation and instability.
• Sustainable trade policies, fair-trade practices, and protection for vulnerable economies are necessary to balance the advantages of free trade.

14. Explains the roles and responsibilities of the World Trade Organization.

Ans. The World Trade Organization (WTO), established in 1995 (replacing GATT – General Agreement on Tariffs and Trade), is an international body that regulates global trade. It has 164 member countries (2025) and aims to ensure smooth, fair, and free flow of trade among nations.

a) Regulating International Trade

• Frames rules and agreements for trade in goods, services, and intellectual property.
• Ensures member countries follow fair and transparent trade practices.

b) Promoting Free Trade

• Works to reduce tariffs, quotas, and trade barriers.
• Encourages liberalization of markets to expand global trade.

c) Dispute Settlement

• Provides a platform to resolve trade disputes between member nations through consultation and arbitration.
• Example: WTO panels and appellate body handle disputes like tariff violations.

d) Trade Negotiations

• Organizes global trade negotiations (known as “rounds”), e.g., Doha Development Round.
• Helps members reach agreements on market access, subsidies, and tariffs.

e) Monitoring and Transparency

• Reviews trade policies of member nations regularly.
• Ensures that trade policies are consistent with WTO agreements.

f) Capacity Building for Developing Countries

• Provides technical assistance and training to developing and least-developed countries.
• Helps them participate effectively in global trade.

g) Promoting Fair Competition

• Prevents unfair trade practices such as dumping and excessive subsidies.
• Protects small economies from exploitation.

h) Cooperation with Other Organizations

• Works with IMF, World Bank, and UN agencies to maintain global economic stability.

15. Evaluate the positive and negative aspects of international trade.

Ans. Positive Aspects

• Economic Growth: Expands markets for goods and services, boosting national income.
• Employment Opportunities: Creates jobs in export-oriented industries (e.g., IT in India, manufacturing in China).
• Access to Resources: Countries obtain raw materials and goods not available locally (e.g., oil imports by Japan).
• Specialization & Efficiency: Encourages countries to focus on producing goods where they have comparative advantage.
• Technology Transfer: Trade with developed nations brings modern technology and innovations.
• Consumer Benefits: Provides a wider variety of goods at competitive prices.
• International Relations: Promotes interdependence among nations, reducing chances of conflict.

Negative Aspects

• Unequal Gains:
  Developed countries and multinational corporations often dominate trade; weaker economies may be exploited.
• Dependence:
  Over-reliance on imports can harm self-sufficiency and local industries.
• Economic Vulnerability:
  Global crises (e.g., 2008 recession, COVID-19 disruptions) heavily affect trade-dependent economies.
• Loss of Local Industries:
  Small-scale and traditional industries may collapse due to cheap foreign imports.
• Cultural Impact:
  Western consumer culture spreads, leading to loss of traditional practices.
• Environmental Damage:
  Increased production, shipping, and resource extraction harm the environment.
• Trade Disputes:
  Tariffs, sanctions, and trade wars can disturb international relations (e.g., US–China trade war).

International trade acts as both a boon and a challenge—its success depends on how equitably and sustainably it is managed.

16. Classifies ports as per traffic, location and specialized functions.

Ans.

a) On the Basis of Traffic

• Inland Ports:
  Located away from the coast, connected to the sea through rivers or canals.
  Example: Kolkata (India), Hamburg (Germany).
• Out Ports (Gateway Ports):
  Serve as collection and distribution centers for inland regions.
  Example: Mumbai, Rotterdam.

b) On the Basis of Location

• Natural Ports:
  Developed in natural harbors, safe for ships.
  Example: Mumbai, Sydney.
• Artificial Ports:
  Constructed with the help of engineering works (breakwaters, docks).
  Example: Chennai, Alexandria.
• Semi-Natural Ports:
  Where natural features are improved by artificial structures.
  Example: Visakhapatnam.

c) On the Basis of Specialized Functions

• Commercial Ports:
  Handle general cargo and passengers.
  Example: London, New York.
• Industrial Ports:
  Linked with large industries; import raw materials and export finished goods.
  Example: Marseilles (France), Vishakhapatnam (India – iron & steel).
• Comprehensive Ports:
  Handle multiple functions – passengers, cargo, industry.
  Example: Shanghai, Singapore.
• Oil Ports:
  Specialized in the trade of petroleum and oil products.
  Example: Abadan (Iran), Khark (Iran).
• Naval Ports:
  Used for defence and naval activities.
  Example: Karwar (India), Pearl Harbor (USA).
• Dry Ports (Inland Container Depots):
  Located inland, connected by rail/road to seaports, handle containerized cargo.
  Example: Tughlakabad (Delhi, India).
• Tourist/Passenger Ports:
  Serve mainly cruise ships and passenger ferries.
  Example: Miami (USA), Venice (Italy).

17. Justify why the chief gateways of the world of international trade are the harbors and ports.

Ans.

• Main Nodes of Trade: Harbours and ports are the points where land routes and sea routes meet, making them the primary entry and exit points for goods.
• Bulk Cargo Handling: Most international trade involves bulky, heavy, and low-cost goods (oil, coal, iron ore, grains) which can only be transported economically by ships through ports.
• Connectivity: Ports connect inland production centers with overseas markets via railways, roads, and pipelines.
  Example: Mumbai Port connects industrial hubs of Maharashtra with global markets.
• Global Integration: Modern ports act as multimodal hubs (sea–air–land), integrating global supply chains and facilitating container shipping.
• Economic Significance: Countries with efficient ports (e.g., Singapore, Rotterdam, Shanghai) dominate world trade because they provide speed, efficiency, and cost savings.
• Strategic Importance: Ports not only handle trade but also support naval security, tourism, and foreign exchange earnings, making them essential gateways.

Harbors and ports are rightly called the chief gateways of world trade because they act as the primary nodes of exchange, handle the largest share of global trade, and connect inland economies with the international market. Without them, the flow of goods in global trade would be impossible.

NCERT questions:

1. Choose the right answer from the four alternatives given below:

(i) Most of the world’s great ports are classified as:

a) Naval Ports

b) Oil Ports,

c) Comprehensive Ports

d) Industrial Ports

Ans. c) Comprehensive Ports

(ii) Which one of the following continents has the maximum flow of global trade?

a) Asia

b) North America

c) Europe

d) Africa

Ans. b) North America

(iii) Which one of the following South American nation is a part of OPEC?

a) Brazil

b) Chile

c) Venezuela

d) Peru

Ans. c) Venezuela

(iv) In which of the following trade blocs is India an associate member?

a) SAFTA

b) OECD

c) ASEAN

d) OPEC

Ans. a) SAFTA

2. Answer the following questions in about 30 words:

(i) What is the basic function of the World Trade Organization?

Ans. Basic function of World Trade Organization is to act as an international organization to deal with global rules of trade between nations. It sets the rule for the global trading and resolves the disputes between member nations. It is a permanent institution for looking after the promotion of free and fair trade amongst nations. WTO also covers trade in services such as telecommunication and banking and other issues such as intellectual rights.

(ii) Why is it detrimental for a nation to have negative balance of payments?

Ans. Negative balance of payments indicates that for a country the expenditure on imports is higher than the income from exports. This implies that a country is running down on its stock of foreign exchange and it has to bank upon international loans for funding the payments of imports.

(iii) What benefits do nations get by forming trading blocs?

Ans. Countries with geographical proximity, similarity and complementarities in trading items form trading blocs. These develop as a response to failure of global organization to speed up intra-regional trade. The main benefits arising from trade blocks are:

a) Increase intra-regional trade by improving trade tariffs within member nations.

b) Have a great say in international market as they have more power as trading bloc than as an individual nation.

3. Answer the following questions in about more than 150 words:

(i) How are ports helpful for trade? Give a classification of ports on the basis of their location.

Ans. The commercial part of a harbor containing facilities for embarking and disembarking passengers, loading and unloading and facilities for storage are called ports.

Ports are called gateways of international trade. 90 – 95% of international trade is carried out through them. Major part of the international trade is carried out through waterways and ports are two ends of a waterway, they become extremely important.

Cargos and travelers pass from one part of the world to another through these ports.

The ports provide facilities of docking, loading, unloading, storage facilities for cargo.

In order to provide these facilities, the port authorities make arrangements for maintaining navigable channels arranging tugs and barges and providing labor and managerial services.

On the basis of location, ports can be classified as:

a) Inland Ports: These ports are located away from the sea coast. They are linked to the sea through a river or a canal. Such ports are accessible to flat bottom ships or barrages. For example Manchester is linked with a canal; Memphis is located on the river Mississippi, Rhine has several ports like Manheim and Duisburg; Kolkata is located on the river Hugli a branch of the river Ganga.

b) Out Ports: These are deep water ports built away from the actual ports. These serve the parent ports by receiving those ships which are unable to approach them due to their large size. Classic combination, for example, Athens and its out port Piraeus in Greece.

(ii) How do nations gain from international trade?

Ans. International trade is the result of specialization in production. It benefits the world economy if different countries practice specialization and division of labor in the production of commodities or provision of services. Each kind of specialization can give rise to trade. Thus, international trade is based on the principle of comparative advantage, complementarity and transferability of goods and services and in principle, should be mutually beneficial to the trading partners. Undertaking international trade is mutually beneficial to nations as it leads to regional specialization:

High level of production: With availability of foreign technology and production equipment, even developing nations are able to increase their production level.

Better standard of living: With increased production and trade, there is an increase in exports and hence increased per capita income which gives rise to increased standards of living.

Worldwide availability of goods and services: Before liberalisation of international trade, all goods were not available in all parts of world, which deprived both consumers as well as producers of developing countries. With international trade, both consumers and producers benefit from availability of goods.

Question Bank:

Very short answer type questions:

1. Define trade.

Ans. Trade means voluntary exchange of goods and services where, for both the parties, trade is mutually beneficial.

2. What are the two levels at which trade can be conducted?

Ans. National and international level are the two levels at which trade can be conducted.

3. Why do countries trade with each other?

Ans. Countries need to trade to obtain commodities that they cannot produce themselves so they can get elsewhere at lower price.

4. What is meant by barter system?

Ans. Barter system is practiced in primitive society where direct exchange of goods take place

5. Which two countries were connected by the silk route?

Ans. Italy (Rome)and China were connected by the silk route.

6. Define slave trade.

Ans. 15^th century onwards the Europeans used to capture African natives and forcefully transport them to the newly discovered America’s for the labor in the plantation as slaves. So, slave trade was a lucrative business.

7. What is considered as volume of trade?

Ans. The total value of goods and services traded makes up the volume of trade.

8. What is balance of trade?

Ans. Balance of trade records the value of the goods and services imported as well as exported by the country to the other countries.

9. What is dumping?

Ans. Dumping is the practice of selling a commodity in two countries at a price that differs for reasons not related to cost.

10. When was WTO formed? Where are its headquarters?

Ans. In 1948 General Agreement for Tariffs and Trade (GATT) was formed. In 1994 it was decided to set up a permanent institution to look after free and fair trade among nations and thus GATT was transferred to World Trade Organization from 1^st January 1995. Its headquarters are located in Geneva Switzerland.

11. Where are the headquarters of the following located:

Ans.

ASEAN Jakarta

EU Brussels, Belgium

LAIA Montevideo, Uruguay

OPEC Vienna, Austria

CIS Minsk, Belarus

12. What is hinterland?

Ans. Hinterland is the area served by the port area of influence.

13. Kolkata port is located on which river?

Ans. Kolkata port is located on River Hooghly.

14. Name the packet stations across the English Channel.

Ans. Dover in UK, Calais in France are packet stations across English Channel.

15. What was the initial form of trade in primitive societies?

Ans. The initial form of trade in primitive societies was the barter system, where direct exchange of goods took place. For example, person producing wheat will exchange it for rice, clothes and other goods he needs from their respective producers.

16. How did the world’s salary come into use?

Ans. The world’s salary comes from the Latin word ‘salarium’ which means payment by salt. As in those times producing salt from seawater was unknown and could only be made from rock salt which was rare and expensive. That is why it became a mode of payment.

17. Why was silk route important in ancient times?

Ans. The silk route was connecting Rome to China. It was along 6000 km long route. The traders transported Chinese silk, Roman wool and precious metals and many other high value commodities from intermediate points in India, Persia and Central Asia.

18. When and how did slave trade begin?

Ans. Slave trade began in the 15^th century. The Portuguese, Dutch, Spaniards and British captured African natives and forcefully transported them to the newly discovered Americas for their labor in the plantations. Slave trade was a lucrative business for more than 200 years. Later on, it was banned.

19. What are important aspects of international trade?

Ans. International trade has three important aspects

a) Volume of trade

b) Sectoral composition of trade

c) Direction of trade

20. How do we evaluate the importance of a port?

Ans. The importance of a port is judged by the size of cargo and the number of ships handled. The quantity of cargo handled by a port is an indicator of the level of development of its hinterland.

21. What is the main objective of WTO?

Ans. The main objective of WTO is to promote international trade. It is the only international organization dealing with the global rules of trade among nations. It sets the rules for the global trading system and resolves disputes between its member nations. WTO also covers trade and services such as telecommunication and banking and other issues such as intellectual rights.

22. Write a brief note on NAFTA.

Ans. NAFTA stands for North American Free Trade Association. It was found in 1994. It deals in crude petroleum. Its aim is to coordinate and unify petroleum policies.

23. Write a brief note on OPEC.

Ans. OPEC stands for Organization of Petroleum Exporting Countries. It was formed in 1949. It deals in true petroleum. Its aim is to coordinate and unify petroleum policies.

24. Write a brief note on EU.

Ans. EU stands for European Union. It was formed in 1992. It has a single market with a single currency. Its headquarters is in Brussels Belgium. Its member nations are Austria, Belgium, Denmark, France, Finland, Ireland, Italy, Netherlands, Luxembourg, Portugal, Spain and Sweden.

25. What was the initial form of trade in the primitive society?

Ans. The initial form of trade in primitive societies was barter system where direct exchange of goods took place.

26. Name the regional trade bloc of which India is a member.

Ans. South Asian Free Trade Agreement (SAFTA).

Countries like Bangladesh, Maldives, Bhutan, Nepal, India, Pakistan and Sri Lanka are the members.

27. Which city is the headquarters of the Organization of Petroleum Exporting Countries (OPEC)

Ans. Vienna, Austria.

28. Categorize the international trade into two types.

Ans. International trade can be categorized into bilateral and multilateral trades.

29. What are naval ports? Give one example of Naval Port.

Ans. Naval ports are those which serve warships and have repair workshops for them example, Kochi port.

30. Assist the positive aspect of trade liberalization.

Ans. The positive aspect of ‘trade liberalization’ is it brings down trade barriers like tariffs and allows goods and services from everywhere to compete with domestic products and services.

31. Which decade shows the highest increase of total value of imports and exports of goods and services?

Ans. 1965 to 1975

32. Why does the need for trade arise.

Ans. The need for trade arises as:

a) International trade is the result of a specialization in production. It benefits the world economy. Each kind of a specialization can give rise to trade.

b) Definite in National Resources

c) Regional differences in production and productivity

d) Difference in economic development

33. Every January after the harvest season ‘Jonbeel Mela’ takes place in Jagiroad, 35 km away from Guwahati and it is possibly the only fair in India where barter system is still alive. A big market is organized during this fair and people from various tribes and communities exchange their products.’ In light of the above paragraph justify the values of barter system in the lives of the tribal communities.

Ans. Values of barter system in the lives of the tribal community:

a) The barter system fosters mutual cooperation

b) Sharing

c) Growing together

d) Goodwill

e) Mutual respect

f) Regard for each other

g) Strength and weaknesses

h) Value for products

i) Welfare and well-being of communities

Short answer type questions:

1. Why does international trade exist?

Ans. International trade is based on the principle of comparative advantage, complementarity and transferability of goods and services and in principle should be mutually beneficial to the trading partner. International trade is the result of a specialization in production. It benefits the world economy of different countries practice specialization and division of labor in the production of commodities or provision of services. Each kind of specialization can give rise to trade. It is the basis of world’s economy organization and is related to foreign policies of nation. It is essential as no country is self-sufficient.

2. Explain how ‘difference in national resources’ act as basis of international trade.

Ans. The world’s National Resources are unevenly distributed because of differences in their physical makeup i.e., geology, relief, soil and climate:

a) Geological structure: It determines the mineral resource base and topographical differences ensure diversity of crops and animals raised. Lowlands have greater agricultural potential whereas mountains attract tourists and promote tourism.

b) Mineral Resources: They are unevenly distributed world over. The availability of mineral resources provides the basis for industrial development.

c) Climate: It influences the type of flora and fauna that can survive in a given region. It also ensures diversity in the range of various products, e.g. wool production can take place in cold regions, bananas, rubber and cocoa can grow in tropical regions.

3. Explain how ‘population factor’ influence the basis of international trade.

Ans. The size, distribution and diversity of people between countries affect the type and volume of goods traded:

Cultural factor: Distinctive forms of art and craft develop in certain cultures which are valued the world over. E.g., China produces the finest porcelains and brocades. Carpets of Iran are famous while North African leather work and Indonesian batik cloth are prized handicrafts.

Size of population: Densely populated countries have large volume of internal trade but little external trade because most of the agricultural and industrial production is consumed in the local markets. Standard of living of the population determines the demand for better quality imported products because with low standard of living only a few people can afford to buy costly imported goods.

4. Write a short note on balance of Trade.

Ans. Balance of trade records the volume of goods and services imported as well as exported by a country to other countries. If the value of a imports is more than the value of a country’s export than the country has negative or unfavorable balance of trade. If the value of export is more than the value of imports then the country has a positive or favorable balance of trade. A negative balance would mean that the country spends more on buying goods than it can earn by selling its goods. This would ultimately lead to exhaustion of its financial reserves.

5. What is trade? What are the types of international trade?

Ans. Trade means voluntary exchange of goods and services were for both the parties trade is mutually beneficial. International trade may be categorized into two types:

Bilateral trade: Bilateral trade is done by two countries with each other. They enter into agreement to trade for specified commodities amongst them. For example, country A may agree to trade some raw materials with agreement to purchase some other specified item to country B or vice versa.

Multilateral trade: As the term suggests multilateral trade is conducted with many trading countries. The same country can trade with a number of other countries. The country may also grant the status of the most favored nation (MFN) on some of the trading partners.

6. Define free trade. What are its effects?

Ans. The act of opening up economies for trading is known as free trade or trade liberalization. This is done by bringing down trade ballots like tariffs. Trade liberalization allows goods and services from everywhere to compete with domestic products and services. Globalization along with free trade can adversely affect the economies of developing countries by not giving equal playing field by imposing conditions which are unfavorable. With the development of transportation and communication systems goods and services can travel faster and farther than ever before. But free trade should not only let rich countries enter the markets but allow the developed countries to keep their own markets protected from foreign products.

7. What are regional trade blocs? Why are they formed?

Ans. Regional trade blocs have come up in order to encourage trade between countries with geographical proximity, similarity and complementarities in trading items and to curb restrictions on trade of the developing world. Today 120 regional trade blocs generate 52% of the world trade. These trading blocs developed as a response to the failure of the global organization to speed up intra-regional trade. Though these regional blocs remove trade tariffs within the member nations and encourage free trade in the future it could get increasingly difficult for free trade to take place between different trading blocks.

8. What are advantages of international trade?

Ans. Undertaking international trade is mutually beneficial to nations if it leads to regional specialization, higher level of production, better standard of living, worldwide availability of goods and services equalization of prices and wages and diffusion of knowledge and culture.

9. What are the concerns related with international trade?

Ans. International trade can prove to be detrimental to nations if it leads to dependence on other countries, uneven levels of development, exploitation, and commercial rivalry leading to wars. Global trade effects many aspects of life; it can impact everything from the environment to health and well-being of people around the world. As countries compete to trade more production and the use of natural resources spiral up, resources get used up faster than they can be replenished. As a result, marine life is also depleting fast forests are being cut down and river basins sold off to private drinking water companies. Multinational corporation trading in oil, gas, mining, pharmaceuticals and agri business keep expanding their operations at all costs creating more pollution – their mode of work does not follow the norms of sustainable development. If organizations are geared only towards profit making and environmental and health concerns are not addressed then it could lead to serious implications in its future.

10. Explain the types of ports on the basis of type of traffic they control.

Ans. Generally, ports are classified according to the types of traffic which they handle. Types of port according to cargo handled are:

Industrial Ports: these sports specialize in bulk cargo like grain, sugar, ore, oil, chemicals and similar materials.

Commercial Ports: these ports handle general cargo packaged products and manufactured goods. These ports also handle passenger traffic.

Comprehensive Ports: Such ports handle bulk and general cargo in large volumes. Most of the world’s greatest polls are classified as comprehensive ports.

11. Define ports. Classify them on the basis of location.

Ans. Ports are collection and distribution centers for commodities for export and import. Cargoes and travelers pass from one part of the world to other through these ports.

Types of ports on the basis of location:

Inland Ports: These ports are located away from the sea coast. They are linked to the sea through a river or a canal. Such ports are accessible to flat bottom ships or barges. For example, Manchester is linked with a canal; Memphis is located on the river Mississippi; Rhine has several ports like Manheim and Duisburg and Kolkata is located on the river Hugli a branch of the river Ganga.

Out Ports: These are deep water ports built away from the actual ports. These serve as the parent ports by receiving those ships which are unable to approach them due to their large size. Classic combination for example is Athens and its out port is Piraeus in Greece.

12. What are the facilities that are provided by the ports?

Ans. The chief gateways of the world of international trade are the harbors and ports. Cargoes and travelers pass from one part of the world to another through these ports. The ports provide facilities of docking, loading, unloading and the storage facilities for cargo. In order to provide these facilities, the Port Authorities make arrangements for maintaining navigable channels, arranging tugs and barges and providing labor and managerial services. The importance of a port is judged by the size of cargo and the number of ships handled. The quantity of cargo handled by a port is an indicator of the level of development of its hinterland.

13. Explain the factors on which the international trade depends give example.

Ans. The basis of international trade is:

• Trade arises because of regional differences in production and productivity.
• It also arises because of great variation in the location and distribution of natural resources.

For example, countries differ in climate, mineral availability and geological structure therefore trade arises between them as no one country can produce everything whatever it requires.

14. How is the trade of services different from the trade of primary and manufacturing sector?

Ans. The trade in the service sector is quite different from trade in the products of primary and manufacturing sector as:

a) The trade in services can be expanded infinitely

b) It can be consumed by many at the same time

c) It is weightless

d) Once produced it can be easily replicated

Thus, service trade is capable of generating more profit than producing goods.

15. Explain how the global trade affects many aspects of life.

Ans. Global trade affects the environment, health and well-being of the people:

a) Due to competition between countries to trade more production and the use of natural resources has increased.

b) Resources are used faster than they can renew themselves. As a result, marine life and forest are depleting fast.

c) Multinational corporations trading in oil, gas, mining, pharmaceuticals and agri-business are exploiting local resources and creating more pollution.

d) Health and well-being of people is affected due to pollution and depletion of resources.

16. What are the impacts of negative balance of trade?

Ans. Negative balance of trade is detrimental for a nation because:

a) It results in fall in the value of domestic currency in terms of foreign currency.

b) It indicates poor production of a country.

c) It increases the pressure of international loans and hence of payment of not only sum but also of international interest. It increases the sway of international agencies like IMF in the functioning of economy.

d) It creates inflationary pressure in the domestic economy.

17. ‘In modern times international trade is the basis of the world economy’. Support the statement with examples.

Ans. International trade is the basis of world economy as:

a) Specialization in production

b) It is based on the comparative advantage complementarity and transferability of goods and services

c) Formation of foreign policy on the basis of international trade.

Long answer type questions:

1. Write a note on history of international trade.

Ans. In ancient times transporting goods over long distances was risky, hence trade was restricted to local markets. Only the rich people brought jewelry, costly dresses and this resulted in trade of luxury items. The Silk route is an early example of long-distance trade connecting Rome to China along the 6000 km route. The traders transported Chinese silk, Roman wool and precious metals and many other high value commodities from intermediate points in India, Persia and Central Asia. After the disintegration of the Roman Empire European Commerce grew during 12^th and 13^th century with the development of ocean-going warships trade between the Europe and Asia grew and the Americas were discovered.

15^th century onwards the Portuguese, Dutch, Spaniards and British captured African natives and forcefully transported them to the newly discovered Americas for their labor in the plantations thus slave trade emerged. Slave trade was a lucrative business for more than 200 years.

After the Industrial Revolution the demand for raw materials like grains, meat, wool also expanded but their monetary value declined in relation to the manufactured goods.

The industrialized nations imported primary products as raw materials and exported the value-added finished products back to the non-industrialized nations. In the latter half of the 19^th century regions producing primary goods were no more important and industrial nations became each other’s principal customers. During the World Wars I and II countries -imposed trade taxes and quantitative restrictions for the first time. During the post war Organizations like General Agreement for Tariffs and Trade (which later became the World Trade Organization) help in reducing tariffs.

2. Give the significance of ‘stage of economic development’ and ‘extent of foreign investments’ as basis of international trade in detail.

Ans.

a) Stage of economic development: At different stages of economic development of countries, the natures of items traded undergo changes. In agriculturally important countries agro products are exchanged for manufactured goods. Whereas industrialized nations export machinery and finished products and import food grains and other raw materials.

b) Extent of foreign investment: Foreign investment can boost trade in developing countries which lack in capital required for the development of mining, oil drilling, heavy engineering and lumbering and plantation agriculture. By developing such capital-intensive industries in developing countries, the industrial nations ensure import of food stuffs, minerals and create markets for their finished products. This entire cycle steps up the volume of trade between nations.

3. List the functions and criticism of World Trade Organization (WTO)

Ans. WTO is the only international organization dealing with the global rules of trade between nations. It sets the rules for the global trading system and resolves disputes between its member nations. WTO also covers trade in services such as telecommunication and banking and other issues such as intellectual rights. The WTO has however been criticized and opposed by those who are worried about the effects of free trade and economic globalization. It is argued that free trade does not make ordinary people’s lives more prosperous. It is actually widening the gap between rich and poor by making rich countries richer. This is because the influential nations in the WTO focus on their own commercial interests. Moreover, many developed countries have not only opened their markets to products from developing countries. It is also argued that issues of health, workers rights, child labor and environment are also ignored.

4. What are the types of ports on the basis of a specialized functions?

Ans. Types of ports on the basis of a specialized functions:

a) Oil Ports: These ports deal in the processing and shipping of oil. Some of these are tanker ports and some are refinery ports. Maracaibo in Venezuela, Esskhira in Tunisia, Tripoli in Lebanon are tanker ports. Abaddon on the Gulf of Persia is a refinery port.

b) Ports of Call: These are the ports which originally developed as calling points on main sea routes where ships used to anchor for refueling and taking food items. Later on, they developed into commercial ports. Adden, Honolulu and Singapore are good examples of ports of call.

c) Packet Station: These are also known as fairy ports. These packet stations are exclusively concerned with the transportation of passengers and mail across water bodies covering short distances. These stations occur in pairs located in such a way that they face each other across the water body e.g., Dover in England and Calais in France across the English Channel.

d) Enter Ports: These are collection centers where the goods are brought from different countries for export. Singapore is an entre-port for Asia Rotterdam for Europe and Copenhagen for the Baltic region.

e) Naval Ports: These are ports which have only strategic importance. These ports serve warships and have repair workshops for them. Kochi and Karwar are examples of such ports in India.

5. What factors act as a basis of international trade? Discuss.

Ans. International trade is the result of a specialization in production. The following factors act as a basis for international trade:

a) Difference in national resources: The world’s national resources are unevenly distributed because of differences in their physical makeup i.e., geology, relief, soil and climate.

• Geological structure: It determines the mineral resources base and topographical differences ensure diversity of crops and animal raised. Mountains attract tourists and promote tourism.
• Mineral resources: They are unevenly distributed in the world. The availability of mineral resources provides the basis for industrial development.
• Climate: Climate influences the type of flora and fauna that can survive in a given region. It also ensures diversity in the range of various products.

b) Population factors: The population size distribution and diversity of people between countries affect the type and volume of goods traded.

• Cultural factors: Distinctive forms of art and craft develop in certain cultures which are valued the world over.
• Size of population: Densely populated countries have large volume of internal trade.

c) Stage of economic development: At the different stages of economic development of countries the nature of items traded undergoes changes.

d) Extent of foreign investment: Foreign investment can boost trade in developing countries which lag in capital required for the development of mining, oil drilling, heavy engineering, lumbering and plantation agriculture. The industrial nations ensure import of food stuffs minerals and create markets for their finished products.

e) Transport: In olden times lack of adequate and efficient means of transport restricted trade to local areas. Only high value items e.g. gems, silk and spices were traded over long differences.

6. Explain different aspects of international trade.

Ans. International trade has three important aspects these are volume, sectoral composition and direction of trade:

a) Volume of Trade: The actual tonnage of goods traded makes up the volume. However, services traded cannot be measured in tonnage. Therefore, the total value of goods and services traded is considered to be the volume of trade.

b) Composition of Trade: It refers to the items of which trade consists of. The nature of goods and services imported and exported by countries have undergone changes during the last century. Trade of primary products was dominant in the beginning of the last century. Later manufactured goods gained prominence. Service sector which includes travel transportation and other commercial services have been showing an upward trend.

c) Direction of Trade: it reports to the countries with which a country has trade relations. Like Indias majority of trade was with UK during colonial rule. The developing countries of the present used to export valuable goods and artifacts etc. which were exported to European countries. During the 19^th century there was a reversal in the direction of trade. European countries started exporting manufactured goods for exchange of foodstuffs and raw materials from their colonies. Europe and USA emerged as major trade partners in the world and were leaders in the trade of manufactured goods. The World Trade pattern underwent a sea change during the second half of the 20^th Europe lost its colonies while India, China and other developing countries started competing with developed countries.

7. Distinguish between inland port and out port.

8. What is the role of World Trade Organization as an international organization? Why has the World Trade Organization been criticized by some countries? Explain role of World Trade Organization.

Ans. The role of World Trade Organization as an international organization is to deal with the global rules of trade between nations.

The functions of WTO are:

a) It looks after the promotion of free and fair trade amongst the nation.

b) It sets the rules for the global trading system and resolve disputes between its member nations.

c) It also covers trade in services, such as telecommunication and banking and intelligent rights also.

The WTO has been criticized by those who are worried about the effects of free trade and economic globalization because:

a) It is argued that free trade does not make ordinary people’s lives more prosperous.

b) It is actually widening the Gulf between rich and poor by making rich countries rich.

c) This is because the influential nations in the WTO focus on their own commercial interests.

d) Many developed countries have not fully opened their markets to products from developing countries.

e) It is also argued that issues of health, worker’s rights, child labor and environment are ignored.

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