International Trade 4

Importance of economic integration

Economic integration will ensure the following benefits for the member countries;

Availability of wider market for the goods and services produced by the member countries. This enables them to produce to their full capacity

It enables the country to specialize in the goods they produce best, making them to effectively utilize their resources

It leads to promotion of peace and understanding among the member countries through interaction

It leads to high quality of goods and services being produced in the country due to the competition they face

It allow members to get access to wider variety of goods and services which satisfy different consumer needs.

It leads to creation of employment for individuals living within the region, as they can work in any of the member country.

It increase the economic bargaining power in trading activities by the countries forming a trading bloc.

Improvement of the infrastructure in the region due to increased economic activities.

It brings about co-ordination when developing industries, as the members will assign the industries to each other to create balance
development and avoid unnecessary duplication

Free Trade Area

This is a situation where there is unrestricted exchange of goods and services between the countries.

It has benefits/advantages similar to those of economic integration.

Disadvantages of free trade area

Some of the problems it is likely to bring include;

It may lead to importation of inferior goods and services to the country, as the member country may not be able to produce high quality as compare to other non-member countries

It may discourage the growth of the infant industries due to competition from well developed industries in other countries

It may lead to reduced government revenue because no tariff may be charged on the goods and services

A country may be tempted to adopt technology not suitable for its level
of development.

If not controlled, it may lead to unfavourable balance of payment, where
a country imports more than it export

It may lead to importation of harmful goods and services, that may affect the members health such as illegal drugs

It may lead to lack of employment opportunities especially where more qualified people have moved from their country to secure job opportunities in the country

It may expose the country to negative cultural practices in other countries, interfering with their morals. For example the exposure to the pornographic materials.

Compromising political ideologies especially where member countries with different ideologies wants to fit in to the bloc

It may lead to over exploitation of non-renewable economic resources such as minerals.

Trade Restrictions

These are deliberate measures by the government to limit the imports and exports of a country.

They are also known as protectionism and includes the following;

• Tariffs which include taxes levied on both import and export.

It can be used to increase or decrease the level of both import and export.

• Quotas which is the restriction on the quantity of goods to be either imported or exported.

It can be increased or decreased to increase or
decrease the level of import or export respectively.

• Total ban (zero quota) where the government issues a direction illegalizing either the import or export of the products.

• Complicated import procedure in order to discourage some importers from importing.

• Subsidies on locally produced goods to discourage imports.

• Legislation against importation of certain goods.

• Setting the standards of products to be imported.

Reasons for trade restrictions

To prevent the inflow of harmful goods into the country, that may be harmful to the lives of the citizens

To protect the local infant industries that may not be able to compete favourably with well established industry

To give a country a chance to exploit its natural resources in producing their goods .

To protect strategic industry, since their collapse may make the country to suffer.

To minimize dependency of the country to other countries for their stability.

To create employment opportunity to its people by establishing the industries to produce the goods and services.

To prevent dumping of goods in the country by

the developed partners which may create unfair competition.

To correct balance of payment deficit by limiting import.

To protect good cultural and social values which may be influenced by unaccepted values they are likely to acquire from other country through interaction.

To expand market for locally produced goods by restricting the number of foreign goods in the market.

To enable the country earn foreign exchange through imposing taxes and other tariffs.

Advantages of trade restrictions

It promotes self reliance as industries have an opportunity to engage in the production of goods and services that were previously imported.

It protects the local industries from stiff competition that they may have faced from the well developed countries.

It may help to correct the balance of payment deficit.

It restrict the entry of harmful goods into the country as it controls the inflow of imports in to the country.

It enables the country to conserve their valuable social and cultural values from the external influence.

It help in creating more job opportunities through diversification in the production.

It promotes the growth of local/infant industries in the country.

Disadvantages of trade restriction

There will be availability of limited variety of goods in the country that will limit the consumer’s choices.

May lead to production of low quality goods as there will be no competition for the producing firms.

Other countries may also retaliate, leading to reduction in export from their country.

There is likely to be high prices charged on the locally produced goods.

since the small firms which produce them may not be enjoying the economies of scale.

The country is likely to be exposed to small market, should all countries restrict which may lead to reduction in trade.

As a result of the continued protection, some industries may develop a tendency of remaining young to still enjoy the protection, which limits the level of development.

It may lead to emergence of monopoly as the protected industry may end up remaining alone in the market, bringing about the problems of
monopolies.

Trends in International Trade

i. Liberalization that has led to removal of many trade restriction among the countries, increasing the levels of trade.

ii. Development of E-Banking which has enable the international trader to get access to their bank accounts from wherever they are in.

iii. Development of export processing zones (EPZ) by the government to allows the industries involved just concentrate in the exported goods
only. It enable the country enjoy the following benefits

(advantages of EPZ)

It creates job opportunities to the citizens

It creates market for locally produced raw
materials that they use in their production

It encourage the foreign investors to invest in the countries, i.e. in the processing zones, increasing the level of investment in the
country.

Encourages export in the country as the incentives given to them by the government makes them to produce more and more for export

It stimulates industrialization in the country in all sector including the ones producing for local consumptions.

However EPZ’s have the following problems/disadvantages

Most of them employs foreigners in their management team, denying the locals a chance to get employed.

They do not generate revenue to the government, especially during tax free periods

They are concentrated in few towns, bringing about imbalance regional development
Some of them encourages social evils such as prostitution in areas where they are developed.

iv. Development of e-commerce/website trading

which has promoted the selling and buying of items through the internet, with payments made
online.

E-commerce has the following benefits/advantages:

One is able to access the market worldwide, as the countries are connected to the internet

There is no discrimination, as both the small and large industries are able to transact through the internet

It is fast to transact the business through internet, as it saves on travelling time and therefore suitable for urgent transaction

It is cheap especially on the cost of sending, receiving and storing information

It is easy for firms to share valuable information about production.

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