Backdrop to International Trade

The backdrop to International Trade and International Trade Integration

The Backdrop to International Trade

Any student or professional wanting to understand more about Imports and Exports would have to understand the history and economic principles that have chartered the course of international trade to its current regime.

In the backdrop of the countries economic policies and financial conditions such as its balance of payments situation, the governments formulate rules and regulations that govern the countries trade with other countries.

World Trade Organization or WTO as it is called is the International Organization that deals with the global rules of trade between nations. Its primary function and goal are to facilitate the smooth and free flow of trade between countries.

WTO came into being on 1st January 1995 and is Head Quartered in Geneva, Switzerland. The organization was created at the Uruguay Round Negotiations and consists of 153 member countries. A Director-General and functions with a Secretariat Staff of 637 heads WTO.

WTO functions primarily as the Forum for trade negotiations between countries. Its main functions include Administering WTO Trade Agreements, Handling Disputes, Monitoring National Trade policies of member countries, Technical assistance to Member Countries. Considered to be one of the youngest of International Organizations, the WTO is regarded as a Successor to the GATT agreement that came into being in the warmth of the Second World War.

Historically treaties have been the agreements that ruled between two countries. Post Second World War and creation of WTO and other organizations have paved the way for more and more international co-operations in the field of politico-economic environment, with the result there have come to existence many regional, intraregional and global super nations groups engaging in regional trade agreements.

The creation of The European Union is one of the most important events in the History of our Civilization. EU, known as European Union was formed by Maastricht Treaty in 1991 and laid the foundation for an economic and monetary union that included the creation of one single currency across member nations.

The European Free Trade Association was set up in 1960 with one of the main aims to establish multilateral associations between the member countries to abolish customs barriers and creating a single free market across European Union.

Some of the other associations and agreements that have come into being are;

  • The North American Free Trade Agreement (NAFTA) signed by Canada, Mexico and US in 1994.
  • The Association of Southeast Asian Nations (ASEAN).

Complexities arise in International Trade due to the nature of economies of countries all over the world. Less Developed Countries and Developing Countries economies are agriculture-based and seasonal and their reliance on export markets is very high.

They in turn import manufactured goods from developed countries wherein the cost of imports is fairly stabilized. With the variation in export earnings and high or stabilized imports, the countries stand to face huge fluctuations in terms of international trade which in turn affects their domestic economy.

However, amongst the developed countries the international trade has always been beneficial. In fact, most of the EU member countries have managed to increase their incomes due to the removal of trade barriers within the EU. But the trade relations between developed and underdeveloped countries have always been the bone of contention and controversies. 

The business orientations of the Multi-National Companies that establish manufacturing as well as selling in countries where labor and resources are cheaper is seen as a form of exploitation.

WTO meetings and conferences are used as a platform by various interest groups to bring to the table various issues concerning public health and safety, environmental impact, and other evils arising out of international trade.

International Trade Integration

No doubt international trade has existed spanning civilizations, in the current global economic situation no country can keep away without participating in international trade. Countries are moving cautiously away from the capitalistic and protectionist outlook and engaging in trade with other countries.

With the creation of WTO, there have been constant efforts made to unite countries to create more markets, to standardize tariffs and trade laws as well as remove trade barriers in trying to create free markets.

We have seen very many bi-lateral and multi-lateral agreements taken place that has harmonized international trade to a large extent. Together with the agreements, several countries have begun to form unions to harmonize and free trade regulations within themselves in a bid to create free markets.

One such example is the Economic Union of European Countries. Initially, the EU was a Customs Union that further developed into Economic Union.

Countries have also formed several other types of unions as well as zones in a bid to give impetus to international trade. We shall discuss a few of them briefly in this article.

Customs Union

Customs Union refers to a coming together of member countries to form a union wherein they allow free trade amongst the member countries without customs duties and tariffs. However, they formulate a common external trade policy to determine common import duties that are levied for imports from a third party country other than the member country.

Customs Union is the first step towards harmonizing and removing trade barriers to facilitate smoother and increased trade flow within the member groups. This would result in increased economic efficiency and improve political relationships amongst the members too paving the way for further economic integration.

The Customs Union of Zollverein which was formed out of the coming together of German States is another example of the Customs Union. Customs Union can also be called Free Trade Zones with common Trade Tariffs and Policies.

Free Markets and Economic Integration

Customs Union can also be called Free Trade Zones with common Trade Tariffs and Policies.

Customs Union is the first step towards building Economic integration that leads to the formation of common markets and economic unions and federation.

Common markets allow free movement of all resources including labor, capital as well as other resources without tariffs and formalities.

Economic Union

Economic Union is a trade bloc, which consists of both free markets and Customs Union within the member community.

Economic Unions involve close coordination and integration of economic and fiscal policies of the member countries.

Examples: European Union, CARICOM – Single Market and Economy of Caribbean Community.

Customs and Monetary Union

The creation of an Economic Union paves way for creating a Monetary Union and further evolves into a Customs and Monetary Union.

Under this Union, member countries enjoy a common economic union with free markets with no restriction on movement of goods, labor, capital, and resources across member countries, common tariffs for external trade, besides combining it with a common monetary currency system.

Examples: Common Monetary and Economic Community of Central Africa.

Economic Integration

Economic Union and Monetary Unions finally lead up to Complete Economic Integration as the final stage. In Economic Integration, the member countries operate with a single currency and fiscal policy coupled with a single economic policy and function as a single economy.

To achieve and stabilize a single economy necessitates political integration, which brings into being the concept of United Countries with autonomous states governed by the federal government. The United States of America is an outstanding example of such integration evolving into one Nation.


Congratulations! You have officially learned the backdrop to international trade. Now start booming and make the world your business!

Also, if you would like to learn more about international trade, here is a link to our international trade for beginners guide. You can also watch videos on my YouTube channel.

Now I would like to hear your thoughts:

What’s your first takeaway lesson from this article?

Or maybe you have a question about the topic.

Either way, leave a comment below right now.

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Hi everyone! Murat here. I’m an entrepreneur who learned about global business because I had to. Like so many other people who have faced hardships in their jobs, I was forced to adapt—and quickly—to support myself and my family. Today, I’m well into my career.
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