Why is trade important?

Trade can be explained as the exchange of goods between those who produce them (the producers) and those who consume them (the consumers).

Trade is important as it is a vital interaction for every country in the world. Without trade, countries would have to provide their own resources for every aspect in their daily life. Take for instance items such as food, clothing and technology. This would mean that a country is completely self-reliant which is difficult as the resource capacity for each country is limited. This is a particular issue for developing or less developed countries that cannot fully provide for themselves due to a lack of technology or education. However, even a developed country would struggle if it had to be fully self-reliant. Look around the room you are in and pick up an item, it is very unlikely it will be made in the country you are in. Trade is also used within a country. For instance, a small farm may provide produce for a local shop.

Trading is also important as it contributes to the economy of a country. For instance, one country produces a good and then sells it to another country. This provides income which can then be used for development within the country such as by funding education and the emergency services. Trading also adds to the economy as it provides millions of jobs across the globe. Trade is also important as countries may import goods more cheaply than they can produce on their own.

A particularly important part of trade is the idea of fair trade. Fair trade enables that all those involved in the trading network have fair wages and good working conditions. This is particularly important for those in less developed countries that work in unsafe conditions on low wages but the goods they produce are then sold for a high price in the country that gains them. 

As movements in the terms of trade reflect changes in relative prices, it is often unclear how these movements affect the real economy. Although this has been debated extensively in the literature to date, there is still no consensus view about how trends in the terms of trade impact on economic growth.

The most common view is that the terms of trade has a positive impact on economic growth. An increase in export prices relative to import prices allows a larger volume of imports to be purchased with a given volume of exports. The implied increase in the real purchasing power of domestic production is equivalent to a transfer of income from the rest of the world and can have large impacts on consumption, savings and investment. The terms of trade can also be thought of as a rate of return on investment and therefore a secular improvement in the terms of trade leads to an increase in investment and hence economic growth. A graphical illustration of the income effect of a movement in the terms of trade is shown in Figure 2. Real gross domestic income (RGDI) measures the purchasing power of the total income generated by domestic production. The difference between real GDP and RGDI is defined as the terms of trade effect. The appreciation of the terms of trade over 2004 led to a boost in real incomes and this is shown by RGDI exceeding real GDP over 2004 and 2005.

Fair trade is important because in many poorer countries, prices are so low that workers are unable to earn enough to live off of. Also, some goods are produced in ways that are exploitative to workers, or ways that are unsustainable environmentally, damaging to the environment in the communities in which the goods are produced.Fair trade does not instantly solve all these problems, but it aims to potentially address some of them in ways that conventional trade does not.

Trade facilitation can provide important opportunities for Africa by increasing the benefits from open trade, and contributing to economic growth and poverty reduction. Removing trade barriers has contributed to the expansion of global trade in the decade after the conclusion of the trade negotiations of the Uruguay Round in 1994 and the subsequent establishment of the World Trade Organization (WTO). However, the quest for more open trade is not an end in of itself but driven by the experience that open trade provides more economic opportunities for people. Producers can offer their goods and services to more customers, and consumers have more choices, lower prices, and access to innovations. Open markets increase prospects of producing and selling new ideas and products locally, regionally and in global markets, which leads to more income opportunities and the improvement of living standards.

 However, most African countries face considerable challenges to achieving more open trade. One reason is that the costs of trading remain stubbornly high, which prevents potential African exporters competing in global and even in regional markets. Realizing this trend, policy makers have started paying more attention to addressing trade-discouraging non-tariff barriers.

 Trade facilitation measures have become a key instrument to create a better trading environment. The international community has acknowledged that for many lower income countries having better market access to industrial countries is insufficient  unless the capabilities to trade are addressed as well. The resulting trade capacity building activities evolved into a broader and comprehensive Aid for Trade agenda, with trade facilitation playing a major role in these efforts.

This chapter argues for approaching trade facilitation in a comprehensive way by addressing the new challenges to trade, which no longer arise predominantly from high tariffs but from barriers behind the border. This approach highlights the need for cross-sector analysis, for example along the value-chain of products, to address trade bottlenecks. However, the biggest obstacle to greater trade integration is the lack of accompanying policy and regulatory reforms. Trade facilitation can provide opportunities for African exporters if hard infrastructure and technical advice are backed by equally ambitious policy reforms.

important of trade

The reasoning behind the efforts to address the trade challenges beyond the traditional areas is the impact on trade costs of factors along the whole trading chain. The more comprehensive approach to trade facilitation examines the costs that traders and producers face from production until the delivery of their goods and services to the overseas buyer and thereby includes all the transaction costs both directly and indirectly associated with the trading process.

Trade facilitation measures must therefore be designed to assist countries to lower trade costs and become more competitive in regional and global markets. With the removal of most quotas and a general reduction of tariffs, the search for the causes of high trading costs is shifting towards:

Costs of transportation and logistics: determined by components such as availability and quality of logistics services, market structures and the degree of competition that they allow, transportation fleets, and regulatory environments;

Physical infrastructure: for example, hazardous roads, lack of capacity of ports and airports, and railways hampered by decaying networks;

Additional market entry barriers: mandatory or voluntary quality and safety standards which can inhibit the access to regional and overseas markets (particularly prevalent in food trade but also exist in a range of technical products); limited information about overseas markets marketing and consumer demands reduce opportunities.

The term “trade facilitation” has different interpretations. Even among international organizations engaged in trade promotion, such as the World Trade Organization (WTO), the Organization for Economic Cooperation and Development (OECD), and the World Bank slightly different approaches have emerged. However, the classic approach could be described as focused predominantly on the removal of barriers to the international movement of goods and. in particular, on the procedures at and around borders (e.g., simplification of customs procedures).

 The trade facilitation part of the WTO negotiations, for example, focuses on transactions at the border, such as documentary requirements, transparency of customs clearance and transit procedures, and disciplines on fees and taxes. This traditional view of trade facilitation is motivated to improve border and transit management procedures and their implementation and thereby remove obstacles to trade in goods at the border; less attention is paid to “behind and between the border” issues.

he U.S. says that "important progress" has been achieved during the latest round of talks aimed at crafting a wide-ranging trade pact with eight other Pacific nations.

The countries concluded their 13th round of negotiations on Tuesday in the western U.S. city of San Diego. U.S. trade officials said "particularly significant" progress was made on dealing with customs regulations, cross-border services, telecommunications and government purchases.

The Trans-Pacific Partnership scheduled another negotiating session in September outside Washington, with Canada and Mexico slated to join the talks in coming months. Besides the U.S., the partnership now includes Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam.

The office of U.S. Trade Representative Ron Kirk said the talks advanced in twenty areas of negotiation. U.S. President Barack Obama has said that a pact with the Pacific nations is a trade priority, which he sees as a way to cut into the U.S. trade deficit and boost the country's labor market.

One trade expert, Gary Hufbauer of the nonpartisan Petersen Institute for International Economics in Washington, said that after three years of talks, officials had hoped to wrap up an agreement this year. Although that timetable now seems unrealistic, he said an agreement could be reached next year and ratified in 2014.

"Other countries want us to liberalize some agricultural products, which have long not been liberalized: dairy products, sugar, beef," he said, adding that the U.S. is also being asked to liberalize barriers on clothing, textiles, and footwear. "They also want us to liberalize services which have not been liberalized, [such as] government procurement of services like contracts for data-processing, and so on."

Hufbauer said the U.S. is not alone in having to confront difficult issues on specific products, and that tough negotiations remain.

The outcome of the upcoming presidential election between Obama and Republican challenger Mitt Romney, he added, is unlikely to make much difference in the outcome of the talks, as both candidates have said they favor the new trade pact.

WE wish Gov. Chris Gregoire success on her trade mission to the British Isles. No doubt some folks will persist in dismissing such trips as junkets. In fact, they are important to the people of Washington.

The trip's focus is the annual air show, held this year at Farnborough, England. In aerospace, everyone who is anyone is there; to be an aerospace-component CEO is to be one ant on the hill. Having a governor along changes that. It opens doors for participating companies here.

That includes doors at Airbus Industrie, Boeing's rival. People here may think of Airbus as the enemy, but if you are one of 720 aerospace suppliers in Washington, Airbus is a potential customer — and a big one. One of Gregoire's tasks is to take Washington executives to talk to executives of the European aerospace giant.

Another of her tasks is to tell foreign companies that Washington is a good place to invest. Why? Because other states have officials touting their advantages, which may include subsidies. Washington has forbidden itself to offer those, which is all the more reason to have a governor, accompanied by successful business people, to tell investors in person that Washington wants their investments.

European Trade Commissioner, Karel De Gucht, discussed with members of the European Parliament's International Trade Committee (INTA) prospects of a transatlantic trade agreement and its possible impact on the EU and the US economies, emphasising the great potential for supporting jobs and growth.

Commissioner De Gucht underlined the importance of EU-US trade relations, pointing out that “more that €1.8 billion of goods are traded every day between the European Union and United States”. He stressed that during the November 2011 EU-US summit a high-level working group on jobs and growth was established. Subsequently, the US Chamber of Commerce called on creation of a tariff-free trade zone across the Atlantic.

important of trade

“Enhanced compatibility is in economic and political terms the most important challenge for an ambitious transatlantic agreement,” De Gucht said and pointed out that investment regimes between the EU and the US are already open. He emphasised that market access to government procurement should be substantially improved and reminded that both the US and the EU are committed to protection of intellectual property rights. 

President Ma Ying-jeou's government has spelled out interest in the U.S.-based Trans-Pacific Partnership (TPP), which it regards as crucial for export-dependent Taiwan to remain competitive in the region.

However, the chances of Taiwan being invited to join the Pacific Rim trade bloc are considered limited if it continues its long-running dispute with Washington over its refusal to import U.S. beef containing the leanness-enhancing drug ractopamine, which is banned in Taiwan.

Burghardt said that whether or not Taiwan should be allowed to join in the TPP negotiations is a "legitimate question."

"As Ma was startlingly frank in acknowledging in his remarks, Taiwan has acquired some really serious protectionist habits and gotten used to a protectionist approach to trade. And that's going to be hard to give up," he said.

The United States has hinted on many occasions that as long as Taiwan does not resolve the U.S. beef controversy it will not restart bilateral trade talks that have been stalled since 2007. The resumption of the talks is regarded as helpful to Taiwan's efforts to join the TPP bloc. 

In one of those odd NBA twists, the Lakers’ trade of Lamar Odom to Dallas before last season paved the way for Nash’s arrival. Los Angeles used the trade exception it got in the Odom deal to make the Nash move work.

The 38-year-old Nash was a free agent, but a sign-and-trade agreement was necessary for the Lakers to afford him. He agreed to a three-year, $27 million contract. In return, the Suns get four draft picks — first-rounders in 2013 and 2015 and second-rounders in 2013 and 2014.

Nash’s agent, Bill Duffy, said the deal was completed Wednesday about 9 p.m., EDT.

In a statement released by Duffy, Nash said that after he and the Suns agreed to part ways, he went back to the team and asked it to pursue a sign-and-trade deal with Los Angeles “because it is very important to me to stay near my children and family,” who live in Phoenix.

“They were very apprehensive and didn’t want to do it,” Nash said. “Fortunately for me, they reconsidered. They saw that they were able to get assets for their team that will make them better, assets they would not have otherwise had, and it made sense for them to do a deal that helps their team get better.”

Pour a cup of tea, let it steep, and then take a sip as you ponder this fact: After water, tea is the most popular beverage in the world, with 15,000 cups drunk per second. Tea is everywhere — in our cafes, our kitchens, our offices, schools and stores — but how many of us really know the story of each leaf as it travels from field to cup?

The tea supply chain is a complex trade network with many different players. Each and every farmer, worker, exporter, importer, processor, auctioneer, buying agent, retailer, café worker and tea drinker in the chain played an important role in bringing you the world’s favorite beverage.

Historically, low market prices for tea have led to poor labor and living conditions for both tea garden workers and tea farmers at the beginning of this supply chain, encapsulating them in a cycle of poverty and hardship.  Fair Trade certification seeks to stop this cycle, giving tea garden farmers and workers in eleven different countries the chance to lift themselves out of poverty, improve their communities, and protect their environment.

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This impact was driven by businesses like Honest Tea, Runa, Choice Organic Teas, Rishi Tea, and Numi Tea, and supplemented by growing awareness and demand from U.S. consumers. In fact, the annual growth rate of tea imports from 2010 to 2011 increased by 21 percent, reaching imports of over two million pounds for the first time in Fair Trade USA’s history.

This increase in imports means more impact for the tea garden workers (on large farms) and tea farmers (in a cooperative) who work so hard to grow and harvest our tea.

Tea farmers and workers across Asia and Africa benefit most when U.S. consumers care about where their tea comes from. When you look for tea bearing the Fair Trade Certified label, you know that the people who produced it are paid fair prices and wages, work in safe conditions, and protect the environment. Fair Trade Certified tea gardens and farms also form committees or associations of workers who then democratically determine how to manage and use their community development premiums. Many choose to invest in things like healthcare, education, environmental conversation, community infrastructure, quality and productivity.

Take, for example, United Nilgiri Tea Estates Co. Ltd (UNTE), a Fair Trade Certified tea garden located in South India who has greatly benefited from Fair Trade. UNTE is comprised of four neighboring tea estates: Chamraj, Korakundah, Allada Valley and Devabetta. Historically, the living and working conditions of the laborers on remote tea estates were notoriously poor. However, Fair Trade has helped to change this story. Thanks to their Fair Trade premiums, UNTE is now able to help fund the higher education of laborers’ children and expose them to new career opportunities.

Chamraj, one of the four tea estates of UNTE, provides secondary education in both Tamil and English through age 18, to prepare students for college and university.  In addition, UNTE used their Fair Trade premiums to build local school lab facilities and eight new classroom multimedia centers.  UNTE also purchased buses to help ensure that children who live up to 30km away have the opportunity to attend school every day. Additionally, the salaries of two secondary teachers are partly paid with Fair Trade premium funds.

 Similar impact can be seen in Dazhangshan Organic Tea Farmer Association (DOTFA), situated in the Wuyuan Mountains of China. The Dazhangshan Organic Tea Farmer Association was also the first producer organization in China to gain Fair Trade certification. The group has over 5,400 member households; additionally, the number of female members has increased dramatically since the cooperative’s inception. Today, women make up almost 35 percent of the organization.

The association extends membership not only to farmers, but also to technicians and tea processors who handle the teas and prepare them for sale to buyers. DOTFA has democratically elected to use their Fair Trade community development premium funds for organic agriculture training and education; high school and university scholarships for children of farm workers, and building a new school with a library, computer lab and student dormitory.

important of trade