This document discusses international trade law and theories of international trade. It begins by defining international trade and outlining the key developments that led to its growth, such as the industrial revolution, imperialism, and advances in transportation and technology. It then lists several advantages and disadvantages of international trade. The main body of the document outlines six economic theories of international trade law: Mercantilist Theory, Classical Theory (including Absolute and Comparative Cost Advantage), Heckscher-Ohlin Theory, and several New Trade Theories including Neo-Technological, Intra-Industry, and Strategic Trade Policy models. Each theory is concisely described.

1. INTERNATIONAL TRADE LAW
By
Jaimol Thomas
Assistant Professor
CSI College for Legal Studies
Kanakkary, Kottayam

2. ORIGIN & NATURE OF INTERNATIONAL TRADE
• International Trade – trade between States or Nations
entirely foreign to each other – trade between the
residents of two Countries
• Industrial revolution
• Imperialism
• 2nd World War
• Sea transportation
• Air transportation
• Emergence of national companies to MNCs
• Quick transport &communication facilities
• Improvement in science & technology
JAIMOL THOMAS, Asst.Professor, CSI College for Legal Studies, Kanakkary, Kottayam

3. Advantages of International Trade
International trade:
1. Encourages the development of the most efficient sources of
supply
2. Enables specialisation on a large scale with expanded market
3. Makes goods available in a comparatively cheaper rate
4. Increases real income and consumption, expansion of
employment
5. Foster economic growth
6. Makes the goods available which cannot be domestically
produced
7. Enable countries to conserve certain resources which are
scarce
JAIMOL THOMAS, CSI College for Legal Studies, Kanakkary, Kottayam

4. Disadvantages of International Trade
1. The gains from trade are not equally distributed. There is a
general feeling that major gains are obtained by developed
countries.
2. Int. trade leads to fast exhaustion of non- replenishable
resources
3. Int. Trade sometimes ruins domestic industries and
competition
4. Int.trade sometimes disturbs domestic economic institution
and structures as well as social and political set ups
JAIMOL THOMAS, Asst. Professor, CSI College for Legal Studies, Kanakkary, Kottayam

5. THEORIES OF INTERNATIONAL TRADE LAW
There are 6 economic theories under International Trade Law which are
classified in four:
(I) Mercantilist Theory of Trade
(II) Classical Theory of trade -1) Absolute Cost Advantage Theory,
2) Comparative Cost Advantage Theory
(III) Modern Theory of Trade – 1) Heckscher – Ohlin Theory
(IV) New Theories of Trade (A) Neo – technological trade theories
(B) Intra-industry trade models
(C) Strategic trade policy models .
JAIMOL THOMAS, Asst.Professor, CSI College for Legal Studies, Kanakkary, Kottayam

6. I. Mercantilist Theory of Trade (Mercantilism)
• This theory was popular in the 16th and 18th Century. Mercantilists,
during this period stated that all these precious stones denoted the
wealth of a nation, they believed that a country will strengthen only
if the nation imports less and exports more. They said that this is the
favourable balance of trade and that this will help a nation to
progress more.
• Mercantilism thrived during the 1500's because there was a rise in
new nation-states and the rulers of these states wanted to strengthen
their nations. The only way to do so was by increasing exports and
trade, because of which these rulers were able to collect more capital
for their nations. These rulers encouraged exports by putting
limitations on imports. This approach is called “protectionism” and
it is still used today.
JAIMOL THOMAS, Asst.Professor, CSI College for Legal Studies, Kanakkary, Kottayam

7. II. Classical Theory of Trade
1) Absolute Cost Advantage Theory
• According to Adam Smith, mutually beneficial trade is based on the principle of
absolute advantage. Trade between two countries will be beneficial if one country
could produce one commodity at an absolute advantage over other country, and
the other country could, in turn, produce another commodity in an absolute
advantage over the first. The principle of absolute cost advantage points that a
country will specialize and export a commodity in which it has an absolute cost
advantage.
2) Comparative Cost Advantage Theory
• According to David Ricardo, it is not the absolute but the comparative differences
in costs that determine trade relations between two countries. The law of
comparative advantage indicates that each country will specialize in the
production of those commodities in which it has the greatest comparative
advantage or the least comparative disadvantage. Thus, a country will export
those commodities in which its comparative advantage is the greatest and import
those commodities in which its comparative disadvantage is the least.
JAIMOL THOMAS, Asst.Professor, CSI College for Legal Studies, Kanakkary, Kottayam

8. III. Modern Theory of Trade
 Heckscher – Ohlin Theory
- Heckscher & Ohlin have explained the basis of international
trade in terms of factor endowments. –ie, regions or countries
have different factor endowments. It means that some
countries are rich in capital while some are rich in labour. In
this theory, the concept of factor endowments or factor
abundance is used in relative terms and not in absolute terms.
Moreover, they have defined the concept of factor endowment
or factor abundance in terms of two criteria (a) Price criterion
and (b) Physical criterion .
JAIMOL THOMAS, Asst.Professor, CSI College for Legal Studies, Kanakkary, Kottayam

9. IV. New Theories of Trade
A) Neo – technological Trade Theories
1) Kravis’Theory of Availability- int. trade takes place because of differences in
the availability of certain products among countries. Availability influences
trade through demand and supply forces.
2) Linder’s Theory of Volume of Trade and Demand Pattern- As per this theory,
international trade takes place between those countries which have similar
income levels and demand patterns.
3) Posner’s Imitation Gap or Technological Gap Theory - more realistic – it
analyses the effect of technical changes on the pattern of international trade.
4) Vernon’s Product Cycle Theory - It states that the development of a new
product moves through a cycle or a series of stages in the course of its
development, and its comparative advantage changes as it moves through the
cycle. These stages are - (a)New product stage, (b) Maturing product stage and
(c) Standardized product stage.
JAIMOL THOMAS, Asst.Professor, CSI College for Legal Studies, Kanakkary, Kottayam

10. B) Intra-industry Trade Models
1) Krugman’s Model (1979)- trade is possible between the two countries
having identical tastes, technology, factor endowments & income levels,
because of product differentiation and internal economies of scale in
production
2) Brander – Krugman Model (1983) (Reciprocal dumping Model)- The
Brander- Krugman model considers a situation in which two firms of two
countries resort to dumping in each other’s domestic market.
C) Strategic Trade Policy Models .
1) Krugman’s Model (1984) - import protection of domestic producers could
lead to export promotion
2) Brander & Spencer’s Model (1985)- export subsidies could help domestic
producers to capture third country markets at the cost of foreign rivals. -
two stage model in which governments choose subsidy levels in the first
stage and firms choose output levels in the second stage -firms produce
only for the third country market.
JAIMOL THOMAS, Asst.Professor, CSI College for Legal Studies, Kanakkary, Kottayam