INTERNATIONAL

TRADE AGREEMENT
EVOLUTION OF INTERNATIONAL
TRADE.
IT HAS BEEN THROUGH STUDIES
BY THE WORLD BANK AND
OTHERS THAT COMPANIES
PARTICIPATING IN
INTERNATIONAL TRADE ARE
THE WORLD TRADE
ORGANIZATION (WTO) is the
only global international
organization dealing with the
rules of trade between nations.
At its heart are the WTO
AGREEMENTS NEGOTIATED AND
WORLD’S TRADING NATIONS
AND RATIFIED IN THEIR
PARLAMENTS. THE GOAL IS TO
ENSURE THAT TRADE FLOWS AS
SMOOTHLY PREDICTABLY, AND
FREELY AS POSSIBLE AND TO
HELP PRODUCERS OF GOODS
EXPORTERS, AND IMPORTERS
CONDUCT THEIR BUSINESS.
WITH THE CREATION OF WTO,
THERE HAVE BEEN CONSTANT
EFFORTS MADE TO UNITE
COUNTRIES TO CREATE MORE
MARKETS, TO STANDARDIZE
LAWS, AS WELL AS TO REMOVE
TRADE BARRIERS IN TRYING TO
CREATE FREE MARKETS. BELOW
ARE SOME OF THE ROLES OF
WTO:
1. It operates a global system of
trade rules.
2. It acts as a forum for
negotiating trade agreements.
3. It settles trade disputes
between its members.
4. It supports the needs of
developing countries.
An International Trade
Agreement is a pact between
countries that impacts the
availability and prices of goods,
such as food and
pharmaceutical products, often
without considering the effects
A trade agreement is an
international treaty, on trade
conditions, for products and
services between countries,
which results from collective
bargaining contracts.
It defines the trade rules
between the signatories, and
describes each country's
preferential trade terms.
 The evolution of the international
trade theories reflect the ways
nations were addressing basic
economic problems due to unequal
distribution distribution of natural
resources or differences in
geographical locations.
 The main historical theories, are
called classical and are from the
perspective of a country, or country
based. The classical country-based
theories include mercantilism,
absolute advantage, comparative
advantage, and Heckscher-ohlin.
 The main historical theories, are
called classical and are from the
perspective of a country, or country
based. The classical country-based
theories include mercantilism,
absolute advantage, comparative
advantage, and Heckscher-ohlin
Theories. By the mid-twentieth
century, the theories began to shift
to explain trade from firm-rather
than a country-based perspective.
These theories are referred to
modern and firm-based or company-
based.
The modern firm-based or company-
based. The modern-firmed based
include country similarity, product
life cycle, global strategic rivalry and
Porter’s national competitive
advantage (lardbucker.org 2021)
There are also other theories like
liberalism, professionalism, free
trade theory, and the Leontiff
Paradox.
The evolution of what is
recognized as the Standard Theory
of International Trade
goes back to years when Adam
Smith’s Wealth of Nations (1776)
and David Ricardo Principles of
Economics (1951) were published.
One of the earliest efforts to develop
an economic theory, the theory is a
classical,
Country-based international trade
theory that states that a country’s
wealth is determined by its holdings
of gold and silver.
, The works of Smith and Ricardo
herald the formulation of a theory of
free trade,based on
 on the unprecented success of
England in the respective fields of
industry and trade. Smith
considered division of labor as
observed in the nascent large-scale
industries of his homeland England,
as the base for lowering
 labor costs, which ensured effective
competition across countries.
Division of labor is the separation of
a work process into a number of
tasks, with each task performed by a
separate person or group of persons
of persons to boost productivity and
efficiency and enhance
specialization. The possible
dilemmas in terms of the need for
monetary adjustments for countries
having a continuous trade surplus
with absolute advantage in all
traded goods
could be shelved aside by relying on
the automatic adjustments as
posited by Smith’s contemporary,
David Hume (1776)when he offered
the theory of the price-specie flow
mechanism. Trade surplus is the
amount by which
 the value of a country’s exports
exceeds the cost of its imports. It
was left to Ricardo to sort out the
basic premises of a theory of a free
trade, which Smith had initiated.
Industrial capitalism in Ricardo’s
England was at a
relatively advanced stage as
compared to what it was in Smith’s
time, Both with rapid growth of
large-scale industries and captive
markets in overseas colonies.
Industrial capitalism was the second
phase of
Capitalism in which
industries/factories became the
dominant factor in the production of
goods. Imports of wage goods (corn)
had a special role by cheapening
wage goods, hence, labor cost. Free
trade
Free trade as opposed to the
mercantilist policies of protection,
was championed by both Smith and
Ricardo as a rouate to achieve
production efficiency at a global
level.
In Free trade system, benefit from a
greater choice of affordable goods,
while mercantilism restricts imports
and reduces the choices available to
consumers. Ricardo’s cost
calculations, despite his concernes
for the introduction
of machinery on a large scale, were
based on labor hours which were
treated as a single homogeneous
input with production in a two-
commodity world, subject to
constant costs. It was comparative
advantage
and not absolute advantage, which
was considered both necessary, as
well as sufficient, to ensure mutually
gainful trade across nations,
warranting complete specialization
in the specific commodity with a
Comparative advantage and not
absolute advantage, which was
considered both necessary as well
as sufficient, to ensure mutually
gainful trade across nations,
warranting complete specialization
in the specific
Commodity with a comparative
advantage in terms of labor hours
used per unit of output
(levyinstitute.org 2021).
Marginal cost is the cost incurred in
producing an additional unit of a
product.
Opportunity cost means the value
you will get from an alternative that
you did not choose, For example,
you can earn interest on money if
you deposit in the bank, but you
opted to spend it or lend it to
somebody.
The interest you would have earned
in the bank is the opportunity cost of
the money you spent or lent to
somebody.
The Theory of International Trade
and Commercial Policy, still
considered to be one of the
 oldest branches of economic
thought, has evolved from
the Standard Theory of
International Trade
Theory of International Trade
From the ancient Greeks to
the present, government
officials, intellectuals, and
economists have deli
Deliberated about the
determinants of international
trade, have discussed wether
trade or beneficial to nations.
END OF DISCUSSION

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