Foreign Trade And Integration Of Markets

Foreign Trade And Integration Of Markets

• For a long time foreign trade have been the main channel connecting countries.
• In history you would have read about the trade routes connecting India and South Asia to markets both in the East and West and the extensive trade that took place along these routes.
• Foreign trade creates an opportunity for the producers to reach beyond the domestic markets, i.e., markets of their own countries.
• Producers can sell their produces not only in markets located within the country but can also compete in markets located in other countries of the world.
• Similarly, for the buyers, import of goods produced in another country is one way of expanding the choice of goods beyond what is domestically produced.
• With the opening of trade, goods travel from one market to another. Prices of similar goods in the two markets tend to become equal.
• Producers in the two countries now closely compete against each other even though they are separated by thousands of miles.
• Foreign trade thus results in connecting the markets or integration of markets in different countries.

CHINESE TOYS IN INDIA:

Chinese manufacturers learns an opportunity to export toys to India, where toys are sold at a high price. They start exporting plastic toys to India. Buyers in India now have the option of choosing between Indian and the Chinese toys. Because of the cheaper prices and new designs, Chinese toys become more popular in the Indian markets. Within a year, 70 to 80 per cent of the toy shops have replaced Indian toys with Chinese toys. Toys are now cheaper in the Indian markets than earlier.

As a result of trade, Chinese toys come into the Indian markets. In the competition between Indian and Chinese toys, Chinese toys prove better. Indian buyers have a greater choice of toys and at lower prices. For the Chinese toy makers, this provides an opportunity to expand business. The opposite is true for Indian toy makers. They face losses, as their toys are selling much less.

LIBERALIZATION:

To make economy free from director physical controls imposed by the government.

(a) Two components or steps taken under liberalization:

(i) To allow private sector to run those industries which were earlier restricted only to public sector.

(A) Many industrial activities are now opened for private sector also.

(B) Number of industries reserved for public sector has been reduced from 17 to 3.

(C) Private sector can also enter in core industries.

(ii) Relaxation in all the rules and regulations - Private sector was freed from:

(A) Licensing

(B) Permission to import raw materials

(C) Regulation in price and distribution

(D) Restriction on investment by large business companies

(b) "Developed countries want developing countries to liberlise their trade and investment":

(i) Developed countries wanted to invest in developing countries to earn high rate of returns.

(ii) According to developed countries trade barriers are harmful as they hinder growth of trade and investments.

Developed countries want that all developing countries should liberate their trade but they themselves have retained trade barriers. Developing countries should align with other developing countries with similar interests to fight against the domination of developed countries. They should negotiate with the WTO and other organisations for `fairer rules.'

(c) "Liberalisations of trade and investment policies helped the globalisation process."

Liberalisation means following a liberal policy in the filed of industry and trade. Liberalisation of trade and investment policies helped the golbalisation process in a number of ways:

• Since 1991, the Government of India began to follow a liberal policytowards foreign trade and foreign investments. As a result of the removal of the barriers on foreign trade and foreign investments, foreign companies were able to set up their factories and offices here. Like wise Indian companies were able to set up their factories and offices in other countries.
• As a result of liberalisation, businessmen from India and abroad were allowed to make decisions freely about what they wanted to produce, import or export.
• As a result of liberalisation of trade and investment, the government of India established many Special Economic Zones where all sorts of facilities were made available to foreign companies and relaxation of taxes for an initial period of five years was given.
• Foreign companies were allowed flexibility in labour laws so that they could employ workers for short periods and cut off the cost of their production.

All the above steps of liberalisation of trade and investment policies greatly helped the globalisation process.