The problems of international trade Today we will look at some of the problems that developing countries face with international trade and some of the solutions

What is trade? Countries trade when they sell and buy goods to each other. Imports are the goods that are sold abroad by a country. Exports are goods that are sold overseas.

TRADE BALANCE A country's trade balance is the difference between the value of its exports and the cost of its imports. If a country makes more money from its exports than it spends on its imports it has a trade surplus (a profit). However, if it has to spend more money on imports than it gets from its exports it has a trade deficit (a loss).

Types of goods Primary goods are raw materials. They include coal, grains and fish. Manufactured goods are goods that have been made. They include cars, machinery and computers.

Pattern of International Trade The main pattern of trade is that developing countries tend to export mainly primary goods, and import mainly manufactured goods. In developed countries the pattern is the other way around - they tend to import primary goods and export manufactured goods.

Developing Countries This graph shows that Colombia, which is a developing country, imports a lot of manufactured goods. Most of Colombia's exports are primary goods. http://www.bbc.co.uk/learningzone/clips/trade-deficits-ledcs-and-medcs/504.html

Interdependence Developed and developing countries are interdependent. This means they rely on each other. Developed countries need the raw materials for their manufacturing industries, and developing countries need to have a market for their goods. Primary goods are mostly cheap and go up and down a lot in price. Manufacturing goods are mostly expensive and usually go up in price.

International trade Developing countries believe they get a raw deal when it comes to international trade. These problems include Relying on only one or two primary goods as their main exports They cannot control the price they get for these goods The price they pay for manufactured goods increases all the time As the value of their exports changes so much long term planning is impossible Increasing the amount of the primary good they produce would cause the world price to fall http://www.bbc.co.uk/learningzone/clips/the-wealth-of-the-banana-trade/501.html

Problems of international trade Developing countries that try to export manufactured goods find that trade barriers are put in their way. There are two types of trade barrier - quotas and tariffs. A quota is a limit on the amount of goods a country can export to another country A tariff is a tax on imports

Problems 2 Other problems that developing countries face are they are short of the money that is needed to set up new businesses and industries. Also, developing countries have fewer people who have the wealth to buy the goods made in local industries. Work through unit up till page 10. General 2009 Q8 WEATHER QUESTION LAST 10 MINUTES

/ The value of that commodity may fall. Eggs are all in one basket! The world demand and price could fall. Having said all that. Oil is a very valuable commodity! Big market. Protection from other countries. Fewer taxes between countries. It can cost a lot to join. CAP is very wasteful. New laws don’t always suit every country.

Globalisation The ways in which goods and information are moved between countries are becoming easier. Information technology is driving these improvements by enabling companies to move money and ideas instantly at the click of a mouse. Consequently, people are becoming more interconnected and interdependent, a trend known as 'globalisation'

Multinational companies A multinational company has branches in may countries. Ford and Sony are examples.

TRANSNATIONALS By setting up factories in different countries to manufacture or assemble components, companies can produce goods more cheaply and efficiently. Today, these 'transnational' companies (TNCs) control two thirds of world trade. With more open trade, TNCs have greater freedom to shift location to developing countries where wages are lower and they are less restricted by environmental controls. Globalisation can mean that products are manufactured in more than one country: http://www.globaleye.org.uk/secondary_summer/focuson/index.html

Multinational companies do bring some benefits to developing countries. They provide jobs and increase the wealth of the local people. The country gains some wealth by way of taxes. Generating investment that can be used to educate local people to develop home grown skills and expertise. Local businesses benefit too as factory workers spend their earnings. South Korea is a country that has gained from these knock-on effects. By manufacturing goods cheaply, many Koreans now enjoy a standard of living similar to Europeans thanks to the profits from exports. China is now following suit. Fuelled by foreign investment, China is now the world's biggest exporter of clothes, toys, shoes and electronic goods, and average incomes in urban areas are ten times greater than they were 20 years ago.

MULTINATIONAL COMPANIES However, there are some problems as well. The jobs are often low-skilled and poorly paid. Much of the profit will go out of the country, and the company may pull out to relocate in a country where it can make a greater profit. Multinational companies are primarily interested in making profits for their shareholders. Paying wages is an expense that the company will try to reduce to as low a level as possible.

FAIR TRADE FOUNDATION Farmers all around the world are being helped by organisations such as the Fairtrade Foundation. They check that companies making products from crops grown in the developing world offer: Fair wages for their workers Fair terms of trade Decent working conditions Guaranteed prices and Long term contracts. Any company which reaches these standards is given the ‘fairtrade mark’ which is shown on their products.