International Relation Test - 1

The correct answer is International trade.

Key Points

• International trade is the exchange of goods and services between countries. Hence, option 2 is correct.
  • ​It is done through air, sea or land route.
• Through international trade, buyers find the markets in the foreign and sellers find a new market to sell.
• It allows countries to expand their markets and access goods and services that are otherwise may not have been available domestically.
• It helps countries in terms of tax incentives, support training initiatives to develop the national advantage.
• The WTO is an international organization authorised to supervise and adjudicate international trade.
  • It was created in 1995.
• Currently, China is the top trading partner of India.
  • The two-way trade between India and China stood at USD 77.7 billion for the year 2020.

Concept:

TRIPS:

• The WTO’s agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was negotiated from 1986-to 1994.
• It was the Uruguay Round of GATT negotiations where for the first time the rules relating to intellectual property rights were discussed and introduced as part of the multilateral trading system.
• Intellectual property means information with commercial values such as ideas, inventions creative expression and others.
• The agreement sets out the minimum standards of protection to be adopted by the parties in respect of seven intellectual properties.
• Those are copyrights and related rights, trademarks, geographical indication, industrial designs, patents, layout design of integrated circuits, and undisclosed information (trade secrets).

Explanation:

TRIPS objectives:

• These goals include reducing trade distortions and bottlenecks.
• It promotes effective and adequate intellectual property rights (IPR) protection.
• TRIPS ensure that measures and procedures for enforcing intellectual property rights (IPR) do not become hurdles to legitimate commerce.
• Provision on dispute settlement.

Thus, establishing barriers to international trade is not the objective of TRIPS.

Additional InformationTrade barrier:

• A trade barrier is a government or public-sector measure that makes imported goods and services less competitive than locally produced goods and services.
• It is a set of barriers erected by the government in order to restrict free trade between national economies.
• There are three major trade barriers - natural barriers, tariff barriers, and nontariff barriers.

Concept:

Regional Trade Blocs:

• 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 the trade in the developing world.
• Today, 120 regional trade blocs generate 52 per cent of the world trade.
• These trading blocs developed as a response to the failure of the global organisations 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 blocs.
• Examples of some major regional trade blocks are ASEAN (Association of South-East Asian Nations), CIS (Commonwealth of Independent States), SAFTA (South Asian Free Trade Agreement) etc.

Explanation:

The South Asian Free Trade Area (SAFTA):

• SAARC members signed the South Asian Free Trade (SAFTA) agreement which promised the formation of a free trade zone for the whole of South Asia.
• A new chapter of peace and cooperation might evolve in South Asia if all the countries in the region allow free trade across the borders.
• This is the spirit behind the idea of SAFTA.
• The Agreement was signed in 2004 and came into effect on 1 January 2006.
• The member nation of SAFTA is Bangladesh, Maldives, Bhutan, Nepal, India, Pakistan and Sri Lanka.
• SAFTA aims at lowering trade tariffs on interregional trade.

Thus, Singapore is NOT a member of The South Asian Free Trade Area (SAFTA).

Additional InformationASEAN (Association of South-East Asian Nations):

• This originated in Aug 1967.
• The headquarter of ASEAN is present in Jakarta, Indonesia.
• The member nation of ASEAN is Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
• The commodities under ASEAN are agro products, rubber, palm oil, rice, copra, coffee, minerals – copper, coal, nickel and tungsten and energy – petroleum and natural gas and software products.
• Other Areas of Cooperation under ASEAN are accelerated economic growth, cultural development, peace and regional stability.

The correct answer is Crude oil.

Important Points

• An import is a good or service bought in one country that was produced in another.
• Imports and exports are components of international trade.
• If the value of a country's imports exceeds the value of its exports, the country has a negative balance of trade (BOT), also known as a trade deficit.

Key Points

• India produces just 20% crude oil of its demand and rests 80% is imported from abroad.
• Crude oil and other related products account for around 22% total import of India.
• The second spot is obtained by the capital goods (machinery, base metal, transport equipment) which accounts for 19.2% of the total Indian imports.
• The third spot is obtained by the import of gems and jewellery (16.8 percent of the total imports), fourth and fifth spot is secured by the chemical & related products (12.7%), and electronic goods (11.4%) respectively.

Concept:

International trade:

• International trade is the exchange of goods and services among countries across national boundaries.
• Countries need to trade to obtain commodities, they cannot produce themselves or they can purchase elsewhere at a lower price.
• International trade is the result of specialisation in production.

Trade barriers:

• A trade barrier is a government or public-sector measure, that makes imported goods and services less competitive than locally produced goods and services.
• It is a set of barriers erected by the government in order to restrict free trade between national economies.
• There are three major trade barriers - natural barriers, tariff barriers, and nontariff barriers.

Explanation:

Protectionism:

• Protectionism is a term used to describe government policies that limit foreign trade in order to benefit home businesses. 
• For the sake of a domestic economy, protectionist policies impose certain limits on world trade.
• Protectionist policies are often implemented to boost economic activity, but they can also be prompted by safety or quality concerns.
• Tariffs, import quotas, product standards, and subsidies are some of the most common policy measures used by governments to implement protectionist policies.
• Supporters of protectionism claim that the measures can help, create jobs at home, boost GDP, and make a country's economy more globally competitive.

Thus, the use of trade barriers to protect a nation’s industries from foreign competition is called protectionism.
Additional Information

Free Trade:

• The act of opening up economies for trading is known as free trade or trade liberalisation.
• This is done by bringing down trade barriers like tariffs.
• Free trade allows goods and services from everywhere to compete with domestic products and services.

Balance of Trade:

• 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 imports is more than the value of a country’s exports, the country has a negative or unfavourable balance of trade.
• If the value of exports is more than the value of imports, then the country has a positive or favourable balance of trade.

Quota:

• A quota is a government-imposed trade restriction that restricts the number or monetary worth of commodities a country can import or export in a given period.
• In international trade, countries utilise quotas to help regulate the volume of trade between them and other countries.

The correct answer is Globalization.

Key Points

• Globalization is the process of rapid integration or interconnection between countries.
• MNCs play an important role in this process of Globalization.
• MNCs are Multinational Corporations that own or control the production in more than one country.
• These MNCs set up offices and factories in different nations which eventually leads to the interconnection between countries.
• Greater foreign investment and foreign trade have led to Globalization.

 Therefore, we can say that Globalization is the process of rapid integration between countries.

Concept:

Aid:

• Developed countries often give aid to developing countries.
• This aid can be categorised as tied aid and united aid.

Organisation for Economic Cooperation and Development (OECD):

• OECD was founded in 1961 to stimulate economic progress and world trade.
• This organisation talks about democracy and the market economy.
• It provides a platform to compare policy experiences.
• It seeks answers to common problems and Identifies good practices.
• OECD coordinates domestic and international policies of its members.

Explanation:

United aid:

• United aid gives the recipient the freedom to procure goods and services from virtually any country, it avoids unnecessary costs.
• United aid has no geographical limitation.
• This aid opens competition for aid funded procurement by removing the legal and regulatory barriers.
• In 2006 the Organization for Economic Cooperation and Development (OECD) estimated 41.7% or approximnately 42% of official development assistance is united. 
• This aid increases aid effectiveness.
• United Aid allows donors to take greater care in aligning their aid programmes.
• United Aid is mainly a direct aid that helps people in crisis by donation.

Thus, according to Organisation for Economic Co-operation and Development (OECD), as of 2006 42% per cent of official development funds is untied aid.

Additional InformationTied aid:

• Tied aid is foreign aid that must be spent in the country providing the aid (the donor country).
• This aid also be spent on a group of selected countries or a developed country.
• This aid mandates that the money is spent on goods or services produced in the selected country.

Concept:

WTO:

• The full form of WTO is World Trade Organization.
• It was founded in 1995 in Geneva.
• WTO is a permanent organisation created by an international treaty ratified by the governments and legislatures of member states.
• WTO is a successor to GATT, it is a much more powerful body than GATT.
• It governs trade not only in goods but also in services and intellectual property rights.
• As of 11th December 2005, there were 149 members of WTO.
• The basic objectives of WTO are raising standards of living and incomes, ensuring full employment, and expanding production and trade.

Explanation:

WTO guiding principles:​

There are five key guiding principles of WTO:

Non-discrimination:

• The most favoured nation (MFN) rule and the national treatment policy are the two main components of WTO.
• Both are enshrined in the core WTO rules on goods, services, and intellectual property, but the scope and character of each vary.
• According to the MFN rule, a WTO member must apply the same terms to all trade with other WTO members.
• WTO members must provide all other WTO members with the most favourable conditions under which it allows trade in a certain product type.
• According to WTO "If you do something unique for someone, you must do the same for all other WTO members."
• It says, imported commodities should be treated equally to domestically produced goods under national treatment.

Reciprocity:

• It represents an ability to limit the extent of possible free-riding as a result of the MFN regulation.
• It also desires to get better access to international markets.

Binding and enforceable commitments:

• A Schedule of concessions is a tariff commitment.
• It is made by the WTO members on the basis of multilateral trade negotiation and on accession is enumerated in a legal instrument.
• From the schedule, we can know about ceiling bindings.
• According to 'Ceiling binding' only after negotiating with its trading partners, a country can change its buildings.
• It means compensating them for the loss of trade.
• A country that is complaining can invoke the WTO settlement procedure if they don't get satisfaction.

​Transparency:

• WTO members must publish their trade regulations.
• That maintains institutions for the examination of official decisions that affect trade, replies to requests for information from other members, and notifies the WTO of any changes in trade policies.
• The WTO system also aims to increase predictability and stability by prohibiting the use of quotas and other restrictions on import amounts.

​Safety values:

• Governments can impose trade restrictions in certain circumstances.
• Members of the WTO can take steps to protect not only the environment, but also public health, animal health, and plant health.

​Thus, WTO has 5 guiding principles.

Concept:

​International trade:

• International trade is the exchange of goods and services among countries across national boundaries.
• Countries need to trade to obtain commodities, they cannot produce themselves or they can purchase elsewhere at a lower price.
• International trade is the result of specialisation in production.
• GATT is an agreement on tariffs and trade under international trade.

Explanation:

GATT or General Agreement on Tariffs and Trade:

• It was an international trade agreement.
• GATT was established in Geneva.
• GATT came into existence with effect in 1947 and remained in force till December 1994.
• GATT includes certain special agreements evolved to deal with specific non-tariff barriers.
• Some of the specific agreements contained in the GATT are listed in the bank on GATT 1994 major agreements.
• At the end of 1994, there were 120 countries were part of GATT.
• GATT was replaced by WTO in 1995.
• Reducing tariffs and quotas among member countries to liberalise trade was the main purpose of GATT.
• Different kind of steps taken by GATT leads to economic globalization.

Thus, General Agreement on Tariffs and Trade was signed in 1947.

Additional Information
WTO:

• The full form of WTO is World Trade Organization.
• It was founded in 1995 in Geneva.
• WTO is a permanent organisation created by an international treaty ratified by the governments and legislatures of member states.
• WTO is a successor to GATT, it is a much more powerful body than GATT.
• It governs trade not only in goods but also in services and intellectual property rights.
• As of 11th December 2005, there were 149 members of WTO.
• The basic objectives of WTO are similar to those of GATT, i.e., raising standards of living and incomes, ensuring full employment, and expanding production and trade.

Concept:

Developing countries:

• In comparison to other countries, a developing country is a sovereign state with a less developed industrial base and a lower Human Development Index (HDI).
• Examples: Bangladesh, India, Pakistan etc.

Developed countries:

• In comparison to other less industrialised nations, a developed country or high-income country is a sovereign state with a high quality of life, a developed economy, and advanced technological infrastructure.
• Gross domestic product (GDP), gross national product (GNP), per capita income and level of industrialization are the most prominent parameters used to assess economic development.
• Examples of developed countries are the USA, UK, Germany, and Australia.

Explanation:

Resource consumption:

• The indicator of a country's economic development is based on countries per head energy or resource consumption level.
• A country with well develop manufacturing, good provision of transport, good movements of goods and high employment have high energy of resource demand than developing countries.
• A 2010 survey on per capita energy consumption shows us that developing countries' per head energy consumption is 800 times lesser than developed countries like Canada, or the USA.
• Another cause of using lesser resources in developing countries is that proper resource exploitation is not implemented.
• Resources or energy consumption is less in developing countries because developed countries have a high concentration of industry, a high level of car ownership, and high domestic uses of home appliances that need high energy or resources than developing countries.

Thus, developing countries use lesser resources when compared developed nations.
Additional InformationResource:

• Everything available in our environment which can be used to satisfy our needs, provided, it is technologically accessible, economically feasible and culturally acceptable can be termed a 'Resource'.

Type of resource:

• Natural Resources: 
  • ​Resources that are drawn from Nature and used without much modification are called natural resources.
• Human-made Resources: 
  • People use natural resources to make buildings, bridges, roads, machinery and vehicles, which are known as human-made resources.
  • Technology is also a human-made resource.
• Human Resources: 
  • Education and health help in making people a valuable resource.
  • Improving the quality of people’s skills so that they are able to create more resources is known as human resource development.