1.8.2. Commentary and Notes to Text 1.8.1

1. межотраслевой — interbranch

2. народнохозяйственный — national economic

3. углубление — intensification

4. производительные силы — productive forces

5. объективные различия — objective distinctions (differences)

6. наладить производство — to set up (organize) production

7. внешний рынок — foreign (external, outer, overseas) market

8. экономическая целесообразность — economic expediency

9. внутренняя цена — inside price

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10. услуги — services

11. части продуктов — partial (fractional) products

12. электровоз — electric locomotive

13. прокатный стан — rolling mill

14. динамичная форма — dynamic form

15. подшипник — bearing

16. колесный трактор — wheel (-type) tractor

17. гусеничный трактор — caterpillar tractor

18. траншейный экскаватор — trencher (trench) excavator

19. одноковшовый экскаватор — single-bucket excavator

20. производственно-техническое сотрудничество — production and technical cooperation

21. совершенствование управления производством — improvement of managerial machinery

of production

22. торгово-экономические процессы — trade and economic processes

23. послепродажное обслуживание техники — a ftersale technical service

24. индекс открытости — index of openness

25. интегрирующий показатель — integration indicator

26. объем экспорта — volume of exports, export volume

27. величина годового валового продукта — size (amount) of annual gross product

28. вовлеченные страны — participating countries

29. взаимозависимость — interdependence

30. стимулировать экономический рост — to stimulate economic growth

1.9. Oral Practice. Round Table

Hold a business play.

International division of labour and specialization play an increasing role in the world economy.

Let us answer the following questions on the subject of the unit and hold the discussion:

1. Are the ratios of comparative costs so different that two nations should develop specialization?

In case they are, which product should each of both nations produce?

2. Two points are the basis of world trade excluding political interferences.

Give briefly your opinion about them.

a) Economic resources are distributed among nations unevenly.

b) The efficient production of various goods requires certain technologies or combinations of

resources.

3. What are the similarities of domestic and foreign trade? What are their differences, according to

you?

1.10. Written Practice

Summarize the unit in a paragraph of about 300—350 words.

Unit 2. Foreign Trade and Economic Relations

2.1. Preview

In this unit we will give consideration to the

peculiarities of international trade, international

trade agreements, and some problems of foreign

trade and economic relations.

2.2. Warm-up

Before you start reading the unit think and try to answer the following questions:

1. What do we understand by foreign and trade economic relations?

2 What are the problems of foreign and trade economic relations of the developing countries?

3. Does the U.S. share in international trade increase or decrease?

4. What do we know about the results of world trade in the last decades of the 20th century?

2.3 . Rapid Reading (skimming, scanning, reading for general understanding

of the basic Text 2.4)

Work in pairs or small groups.

1. Read the text rapidly and try to understand what it is about and what information is of primary

importance or new to you.

2. Tell us in what way you can use the given information working in your special field.

3. Underline the words in the text in which the author expresses his main idea(s) in the most

laconic way.

4 Quickly skim the text to find the factors which limit the migration of real capital over international

boundaries.

2.4. Basic Text. International Trade

Table 2.1 provides us with the data on merchandise as a percentage of GNP for a number of

representative countries varying from 10 to 58 percent. Many nations which have restricted

resource bases and limited domestic markets simply cannot produce with reasonable efficiency

the variety of goods they want to consume. For such countries, imports are the route for

obtaining goods they desire and therefore imports may run from 25 to 35 percent or more of

their GNP.

Other countries — the United States, Russia, France, Germany, for example — have rich and

highly diversified resource bases and vast internal markets and are therefore less dependent upon

world trade. But they cannot exclude the international trade because the economy efficiency will

sharply decline.

Table 2.2 reflects the growth of both absolute and relative indices of exports and imports in

American economy. Since 1974 the United States' exports and imports in their absolute value have

increased about 10 and 14 times correspondingly and are each nearly 10 and 15.2 per cent of GNP.

Thus in 1947 the U.S. supplied about one-third of the world’s total exports as compared to about

one-tenth today. World trade has increased even more rapidly for other nations than it has for the

United States. But in terms of absolute volumes of imports and exports the United States is the world’s

leading trading nation.

Basic notions

trade and economic relations

absolute volumes of imports and exports

international trade

value of net exports

mobility of resources

disbalance of trade

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Table 2.1. Merchandise exports as a percentage of gross national product,

selected countries, 2001*

Country Percentage of GNP Total volume (billions of dollars)

The Netherlands 58 216

Canada 38 260

Germany 30 571

New Zealand 28 14

France 23 296

Italy 22 244

United Kingdom 19 267

Japan 10 404

Source: United Nations: 2002 International Statistics Yearbook, volume 2

Table 2.2. Trade in the U.S. economy,

1974—2004** (billions of dollars)

1974 1984 1994 2004

Amount Percent of

GNP

Amount Percent of

GNP

Amount Percent of

GNP

Amount Percent of

GNP

Exports of

Goods and

Services

26,7 8,4 302,4 7,7 720,9 10,2 1175,5 10

Imports of

Goods and

Services

27,5 8,5 405,1 10,3 814,5 11,5 1781,6 15,2

Net

exports

0,8 -0 ,1 -102,7 2,6 -9 3 ,6 1,3 -606,1 5,2

Source: Department of Commerce

a) The significance of foreign trade and economic relations

It is hard to overestimate the significance of foreign economic trade links. There practically can

be no question as to any nation’s dependence upon the world economy, including the U.S., Russia,

Germany, France, Great Britain, Japan.

The United States, for example, is almost entirely dependent upon the imports from the countries

for such products as diamonds, bananas, coffee, tea, cocoa, nickel, tin, and natural rubber.

Russia depends upon the imports of food stuffs, computers, television and electronics technology.

Japan depends upon raw resources, etc.

However, a number of countries manufacture similar production of high quality.

Casual observation suggests that imported goods compete strongly in many of the American

domestic markets: Japanese cameras and video recorders, French and Italian wines, English bicycles,

and Japanese motorcycles and autos are a few cases in point. Foreign cars have made persistent

gains in American markets and now account for about 25 percent of total sales in the United

States. Even the great American pastime — baseball — relies heavily upon imported gloves!

But world trade is a two-way street, and a host of American industries are highly dependent

upon foreign markets. Almost all segments of agriculture rely heavily upon foreign markets — rice,

wheat, cotton, and tobacco exports vary from one-fourth to more than one-half of total output.

The chemical, aircraft, automobile, machine tool, coal, and computer industries are only a few of

many American industries which sell significant portions of their output in international markets.

Russia successfully exports timber, oil, gas, steel, complex kinds of armament and many other things.

Trade patterns are of great significance.

Firstly, the exports of goods are substantially in excess of the imports of goods, which is characteristic

of any developed country. There must not be any disbalance in the international trade.

* Source: The World Bank, Wor ld Development Report, 2002.

** Data are on a national income accounts basis.

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Secondly, it is important to know: 1) to what countries the main part of exports is practised and

2) what kind of production it is.

In the case of the export trade with highly developed countries currency receipts increase.

Changes in net export, that is, in the difference between the value of a nation’s exports and that

of its imports, have multiple effects upon the level of national income in roughly the same fashion

as do fluctuations in the various types of domestic spending. A small change in the volume of

imports and exports of any nation have magnified repercussions upon the domestic levels of income,

employment, and prices.

With these points in mind, we need not belabor the significance of international trade for such

nations as the Netherlands, Japan, Australia, and Great Britain, whose volumes of international

trade constitute substantially larger fractions of their national incomes.

b) The peculiarities of international trade

Aside from essentially quantitative considerations, world trade has certain unique characteristics

which require us to devote special attention to it.

Mobility differences. Though the difference is a matter of degree, the mobility of resources and

production is considerably less among nations than it is within nations. American workers, for

example, are free to move from Iowa to California or from Maine to Texas. If workers want to

move, they can do so. Crossing international boundaries is a different story.

Immigration laws, not to mention language and cultural barriers, put severe restrictions upon

the migration of labor between nations. But over the past decades great changes took place. A number

of European countries joined the Union to promote free trade, in which a single currency — the

Euro, was launched. A single labor and capital market came into effect in this Union.

But on the whole, different tax laws, different governmental regulations, different business practices,

and a host of other institutional barriers limit the migration of real capital over international

boundaries.

International trade is a substitute for the international mobility o f resources. If human and property

resources do not move readily among nations, the movement of goods and services can provide

an effective substitute.

Each nation uses a different currency. Hence, an American firm distributing Hondas or Jaguars in

the United States must buy yen or pounds to pay the Japanese or British automobile manufacturers.

Objectively, conclusion, as we will note shortly, is that the international trade is subject to political

interferences and controls which differ markedly in degree and kind from those applying to

domestic trade.