International Trade and Economic Institutions: Key Objectives, Features and Benefits

Posted on Oct 15, 2026 in Business Administration and Management (BAM)

Objective of India-ASEAN FTA?

Introduction: The India-ASEAN Free Trade Agreement was signed on 13th August 2009 in Bangkok and came into force on 1st January 2010. It is one of India’s most important FTAs.

Objectives:

  1. To Increase Bilateral Trade: To increase trade from $80 billion to $200 billion.
  2. Elimination of Tariffs: To reduce duties on 80% of goods.
  3. Market Access: To create a large free market of 1.8 billion people.
  4. Investment Promotion: To promote mutual investment through CECA.
  5. Economic Cooperation: Cooperation in services and technology.
  6. Consumer Welfare: To provide cheaper goods to consumers.
  7. Competitiveness: To make Indian industries more competitive.

Objective of ASEAN?

Introduction: ASEAN (Association of South-East Asian Nations) was established on 8th August 1967 at Bangkok. It has 10 members.

Objectives:

  1. To accelerate economic growth, social progress and cultural development.
  2. To promote regional peace and stability.
  3. To promote active collaboration in economic, social and scientific fields.
  4. To promote free trade through AFTA.
  5. To provide assistance in training and research.
  6. To maintain close cooperation with the UN and other organizations.

Conclusion: ASEAN has successfully promoted economic growth and peace in South-East Asia and has become an important trade partner for India.

3. Objective and Benefits of European Union (EU)?

Introduction: The EU was established by the Maastricht Treaty in 1993. It is the most successful regional economic integration in the world, with 27 members.

Objectives:

  1. To promote free movement of goods, services, capital and labour.
  2. To establish a single currency, the Euro.
  3. To promote economic and political integration.
  4. To maintain peace, prosperity and security.
  5. To establish a common foreign policy.

Benefits:

  1. Free Trade: No tariffs among members.
  2. Large Market: A huge market of 45 crore people.
  3. Employment: Citizens can work in any EU country.
  4. Consumer Benefits: Cheap, quality goods.
  5. Strong Bargaining Power: A strong voice in the WTO.
  6. Economic Development: Development funds for backward regions.

Objective and Functions of IMF?

Introduction: The IMF was established in 1944 at the Bretton Woods Conference. Its headquarters is in Washington D.C. It is called the lender of last resort.

Objectives:

  1. To promote international monetary cooperation.
  2. To ensure exchange rate stability.
  3. To facilitate balanced growth of international trade.
  4. To promote a high level of employment and real income.
  5. To help correct Balance of Payments disequilibrium.
  6. To provide short-term financial assistance.

Functions:

  1. Lending: Provides short- and medium-term loans for BOP problems.
  2. Surveillance: Keeps watch on the world economy.
  3. Technical Assistance: Training to central banks.
  4. Issuing SDRs: Creates Special Drawing Rights as a reserve asset.
  5. Consultancy: Acts as an advisor to member countries.

Features of International Financial Institutions?

Introduction: International Financial Institutions such as the IMF, World Bank and ADB were established after the Second World War to help in global economic development.

  1. Membership: Associations of many member countries. The IMF has 190 members.
  2. Global Finance: Provide long-term and short-term loans for development and BOP crises.
  3. Promote Economic Stability: Aim to promote global monetary cooperation and financial stability.
  4. Technical Assistance: Provide technical advice, training and research.
  5. Controlled by Governments: Voting power depends on capital contribution.
  6. Promote International Trade: Help promote balanced growth of world trade.

Factors Determining Gains from Trade?

Introduction: Gains from trade are the benefits or advantages a country gets by participating in international trade. They are not the same for all countries.

  1. Differences in Cost Ratio: Greater the difference in comparative costs, greater the gain.
  2. Terms of Trade: If terms of trade are favourable, the gain is greater.
  3. Level of Productivity: Higher efficiency and productivity give more gain.
  4. Size of the Country: Small countries gain more than large countries.
  5. Nature of Goods Exported: If a country exports high-demand goods, the gain is greater.
  6. Market Conditions: If production is under decreasing cost, the gain is greater.

Types of Terms of Trade?

Introduction: Terms of Trade (TOT) was first explained by Taussig. It shows the rate at which one country’s exports exchange for its imports.
Formula: TOT = (Export Price Index / Import Price Index) x 100

  1. Net Barter TOT: Ratio of export prices to import prices. N = Px / Pm. Given by Taussig.
  2. Gross Barter TOT: Ratio of quantity of imports to exports. G = Qm / Qx.
  3. Income TOT: Shows import capacity. I = (Px/Pm) x Qx. Given by Dorrance.
  4. Single Factorial TOT: Considers productivity of the export sector. Given by Jacob Viner.
  5. Double Factorial TOT: Considers productivity of both export and import sectors.
  6. Real Cost and Utility TOT: Based on real cost and utility.

Conclusion: If TOT is favourable (more than 100), a country gains from trade. If it is unfavourable (less than 100), a country loses. So a favourable TOT is always beneficial.

Types of International Trade?

Introduction: On the basis of movement of goods, international trade is classified into three main types.

  1. Export Trade: When a country sells goods to another country, it is called export trade. It brings foreign exchange. E.g., India exports tea.
  2. Import Trade: When a country buys goods from another country, it is called import trade. E.g., India imports crude oil.
  3. Entrepot Trade: Also called re-export trade. It means importing goods from one country and exporting them to another after some processing. E.g., Singapore and Hong Kong are entrepot centres.

Other Types:

  1. Bilateral Trade: Trade agreement between two countries.
  2. Multilateral Trade: Trade agreement between many countries under the WTO.

Conclusion: All three types of trade are important, and every country participates in export, import and entrepot trade as per its needs.

Scope of International Trade?

Introduction: In earlier times, international trade meant only trade in physical goods. Due to globalization and the WTO, its scope has become very wide and now includes services, technology and capital.

  1. Merchandise Trade: Trade of tangible goods: raw materials, agricultural products, machinery, consumer goods.
  2. Trade in Services: Also called invisible trade. It includes banking, insurance, shipping, tourism, software and consultancy.
  3. Trade in Technology: Exchange of patents, trademarks, copyrights, technical know-how and licences.
  4. Movement of Capital: Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), foreign aid and loans.
  5. Trade in Intellectual Property Rights (IPR): Trade related to intellectual property under the WTO.

Conclusion: The scope of international trade is not limited to goods only; it covers almost all economic activities of the world economy.