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    UNIT 1 : DEVELOPMENT OF INTERNATIONAL TRADE

    1.1 Introduction

    Trade is the traffic of goods conduct by gift, barterer sales trade is one of the

    most

    widespread of all social institutions.

    International trade is the exchange of capital, goods, and services across

    international borders or territories. In most countries, international trades

    represent a significant share of product.

    International trades receive a huge impact from Industrialization, advanced

    transportation, globalization, multinational corporations, and outsourcing.

    Increasing international trade is crucial to the continuance of globalization.

    Without international trade, any nations would be limited to the goods and

    services produced within their own domestic product.

    International trade is in the same perception from domestic trade as the

    motivation and the behaviour of parties involved in a trade do not change

    basically where the trade is across the border or not. The main difference is

    that international trade is more expensive than domestic trade. It is because

    the international borders do have a lot of additional costs such as rates, time

    costs due to border delays and costs associated with country differences

    such as language, the legal system or culture.

    Besides that, there is a difference between domestic and international trade

    which is that factors of production such as capital and labour are typically

    wider within a country than across countries. Thus international trade is

    mostly restricted to trade in the shape of goods and services, and only to a

    decrease the extension to trade in capital, labour or other factors of

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    production. The trade in goods and services also may be a substitute for

    trade in factors of production.

    Instead of importing a factor of productions, a country could import goods

    that can be made into an intensive use of the factor of production and create

    the respective factor. International trade is a branch of economics and

    together with international finance will form the larger branch of

    international economics.

    1.2 History Of International Trade

    Until the late 19th century, most people virtually everywhere were peasants

    who produced food and also knew how to fashion many tools and other

    necessities. They could not make for themselves they bought in neighboring

    towns in exchange for their small agricultural surplus and a few handicrafts.

    Long distance trading was rare, because output of all products was low and

    because transportation was expensive, slow, and dangerous. Whatever

    international trade did occur was usually monopolized by government

    licensed private organizations like the British East India Company. Only

    goods with a high value in relation to their weight, like precious stones,metals, spices, special fabrics particularly wool and silk cloth, furs, and wine,

    could be taken to faraway places and sold profitably. Grain too was

    sometimes traded abroad but it would seem in small quantities.

    For centuries, trade was concentrated along the shores of the Mediterranean

    seas and Baltic seas and around the Asian caravan routes to which they were

    linked. The focal points of international exchange were the Italian cities of

    Venice, Genoa, and Florence, the German cities of Augsburg and Nirenberg,

    the towns of Flanders and the Hanseatic ports along the southern and

    eastern shores of the Baltic. Trade hardly touched the lives of ordinary

    people, however. Neither was their lived much altered by the discovery of

    the Americas and the circumnavigation of Africa and South America. But

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    those feats of courage and skill did divert trade from the inland seas of

    Europe to the Atlantic and Indian oceans.

    The Industrial Revolution

    In the 17th and 18th centuries, technological innovations in Britain opened

    the way to higher productivity first in agriculture, then in manufacturing.

    New machinery enabled larger units to manufacture cheap textiles and a bit

    later iron. These first steps toward mass production led to the mass

    movement of goods from country to country, for they were accompanied by

    improvements in transportation and communications. British industry was

    soon imitated in France and Belgium.

    Despite the remarkable progress of the previous hundred years, international

    exchanges of goods and services at the beginning of the 19th century

    represented only about 3 percent of the value of world output. But then the

    industrial revolution spread to such countries as Germany, the United States,

    and Japan. In the second half of the 19th century, new industries emerged to

    produce machine tools, electricity, and chemicals. These industries soon

    accounted for a substantial proportion of world trade. Railroads and

    steamships transported bulk loads over long distances the telegraph

    facilitated the worldwide circulation of information. As a result of these

    developments, foreign trade so increased that by 1913 about one-third of

    everything produced in the world was exchanged over national borders.

    The spread of industrialization boosted the demand for raw materials,

    initially cotton and timber, later metals and fuels. About half of these primary

    products originated in European countries; the other half came in part from

    plantations, mines, and similar enterprises established in the colonies to

    supply goods to Europe. Enclaves emerged in many colonial economies more

    closely connected with customers abroad than with the societies in which

    they were physically located, societies where peasants continued to farm in

    the traditional manner. Some countries have yet to overcome this division.

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    However the importance of primary products in the international exchanges

    of the 19th century, trade was dominated by Europe. Before World War 1,

    less than 25 percent of world trade was transacted among non-European

    countries about 40 percent represented the trade of European countries with

    each other, and 35 percent, European trade with the rest of the world. Britain

    remained the chief trading nation, but its share in international exchange

    decreased, absolutely in view of the rapid development of continental

    Western Europe, North America, and Japan.

    1.3 Important Happenings

    Important happenings are the list of important event that occur in the history

    of international trade from the ancient times until the modern era. Below are

    the arrangements of important events:

    1.3.1History of international trade in ancient times

    According to Periplus Maris Erythraei, which was a Greek travel

    manuscript, written in the 1st century, there used to be extensive

    trade between Romans and the Indians.

    The Arabian nomads carried out long distance trading activities with

    the help of camels. They traded silk and spices in Far East.

    The Tyrian fleet of ships known as "Ships of Tar shish sailed back with

    ivory, silver, gold and precious stones from the east.

    The Egyptians carried out extensive trading activities in the Red Sea.

    They imported spices from Arabia and from the "Land of Punt".

    Ptolemaic dynasty which is a Greek dynasty was the first to carry out

    trade with India before the Romans did.

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    People belonging to the Kingdom of Qataban, cultivated and traded

    aromatics as well as spices. The Kingdom's economy was dependent

    on this trade. Spices and aromatics were exported to Abyssinia,

    Mediterranean and Arabia.

    Berencie and Myos Hormos became important trading ports during the

    1st century.

    There was an increased demand in aromatics with Indian culture being

    introduced in Java and Borneo. These places consider importance as

    reputed trading points. These were to fulfill the Arab as well as Chinese

    markets, in the years to come.

    Pre Islamic Meccans benefited from demand of Romans for luxury

    articles. For this, the Pre Islamic Meccans used the Incense Route.

    Myos Hormos, Arsinoe and Berenice were three main Roman ports,

    where goods brought in from East Africa were set land.

    1.3.2History of international trade in the middle ages

    The Song Dynasty created the first paper printed money. Aden, Siraf,

    Damietta and Alexandria were used as ports through, which the

    Abassids entered China and India.

    Industrial manufacturing, processing and distribution of wine, tea, salt

    were nationalized by Wang Anshi of China.

    Market rights as well as trade privileges were secured by Hanseatic

    League in England for goods in the year 1157.

    Brocade workshops as well as silk factory were supported by the Song

    Dynasty in Kafeing and eastern state.

    1.3.3History of international trade in modern times

    Foreign trade licenses were introduced by Japan to prevent piracy and

    smuggling in the year 1592.

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    Dutch convoys sails back in the year 1599 with products from East

    India. The convoy also brings in spices.

    Dutch East India Company is established in the year 1602. The

    company declared bankruptcy in 1799 because of a rise in competition

    in free trade.

    The French constructed military forts during the eighteenth century.

    These forts acted as trading and communication ports for trade of fur.

    1.3.4History of international trade in later modern era

    During the government of Napoleon III, the Free Trade Agreement

    (year-1860) was struck between France and Britain.

    In the year 1815, first nutmeg shipment sailed back from Europe.

    In 1868, Japanese Meiji Restoration opened its doors for

    industrialization by means of free trade.

    In the year 1946, the Bretton Woods System was introduced. This

    international economic model was introduced to stop wars and

    depressions.

    In 1947, as many as 23 nations give their consent to the

    implementation of GATT (General Agreement on Tariffs and Trade).

    Formation of Zangger Committee takes place in 1971. It was set up

    with a view of interpreting nuclear goods in perspective of international

    trade.

    International trade of nuclear goods was moderated by NSG (Nuclear

    Suppliers Group) which was established in the year 1974.

    NAFTA was formed on 1st January, 1994.

    On 1st January, 1995, the WTO (World Trade Organization) came into

    being promoted free trade between other countries.

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    1.4 EVOLUTION OF INTERNATIONAL TRADE

    For hundreds of years international trade has occurred between countries

    each with the intention to make benefits from trade. The emphasis was

    based on the mercantilism theory, from the mid-sixteenth century, that

    encouraged exports but discouraged imports. In the last century there were

    high amounts of trade barriers across most countries which still exist today

    these acts as protection measures for domestic trading, against international

    competitors.

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    Early trade

    Early trade for evolution of international trade is start from the discovery of

    Non local objects at many archaeological sites strongly suggests that trade

    existed in prehistoric time. Anthrophologist and other explorers have found

    trade institutions among diverse people throughout the world. However,theceremonially elaborate kula trade rings of Trobriand Islands, the gift-giving

    potlatch of Canada's, and the desert caravan Of Africa and the Arabian

    Peninsula are among the more famous examples. In the Western World a

    number of peoples, including the Egyptians, Sumerians, Cretans,

    Phoenicians, and Greeks at one time or another dominated trade.The

    Crusades did much to widen European Trade horizons and prefaced the

    passing of trade superiority from Constantinople to Venice and other cities of

    Italy.

    The Commercial and Industrial Revolutions

    In the 15th and 16th century, with the sudden expansion of Portuguese and

    Spanish holdings, the so-called commercial revolution reached a high point.

    After Antwerp began its long career of glory when the Spanish were losing

    their hegemony and the Dutch briefly triumphed in the race for world

    commerce in the 17th century. The Dutch in turn lost to British-French

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    rivalry, which by 1815 left Britain paramount, in the 18th and 19th centuries.

    Considerably aided the development of commerce of the industrial

    revolution.

    World commerce was also aided materially by the invention of the astrolabe,

    the mariner's compass by the application of steam to both land and water

    transport and more recently by national road networks and the

    accompanying growth of the trucking industry. The development of

    communication devices such as the telephone, telegraph, cable, radio, and

    satellite data transmission systems and inventions such as refrigeration, the

    gasoline engine, the electric motor, the airplane, and the computer have also

    contributed to the growth of trade.

    Modern Trade

    The theory of commerce as imposed by the national state has varied from

    the mercantilism of the 17th and 18th centuries and the protective tariff of the 19th

    and 20th century and the protective tariff of the 19th and 20th century. To the

    free trade that Britain long upheld. Since World War II a realization of the need for

    commercial expansion has led to the creation of regional trade zones, the primeexample being that of the European Union.

    A trade agreement among the United States, Canada, and Mexico, called the

    North American Free Trade Agreement (NAFTA), was signed in 1992, and in

    2001 34 nations committed themselves to the development of a free trade

    area encompassing the Western Hemisphere. Less geographically restricted

    trade systems, such as the General Agreements on Tariffs and trade and

    also have a arisen is a world Trade Organization. In a modern time

    International marketing had a political role. However, the nations often use

    trade either to solidify old political relationships or to create new ones.

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    The principles of efficient marketing have been applied to domestic and

    international trade in the industrialized countries, which has attained

    enormous volume.

    1.5 Risk In International Trade

    An organization who is dealing an international business across international

    borders may face many of the same risks as would normally be evident in

    strictly domestic transactions. The risk that organization may faced are,

    Buyer insolvency - A situation where purchaser cannot pay. Non-acceptance - Buyer are rejecting goods which were different from

    the agreed upon specifications.

    Credit risk A condition where the buyers are allowed to take

    possession of goods prior to payment.

    Regulatory risk - Changes of regulatory that would prevents the

    transaction from being held.

    Intervention Government may take any action to prevent the

    transaction from being completed.

    Political risk - Changes in leadership of a nation may interfere with the

    transactions or prices of goods.

    War and other uncontrollable events.

    Unfavorable exchange rate movements and the potential benefit of

    favorable movements.

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    UNIT 2 : FACTORS THAT INFLUENCE THE

    DEVELOPMENT OF INTERNATIONAL TRADE

    Geostrategic Environment

    Our country is located in the most strategic places in the world. Located

    in the middle of trade routes between the Far East to the Middle East

    enabled it to control trade routes. As a result, we lead the nation's foreign

    policy and independent. Our country is constantly striving to ensure the

    area is protected from outside forces and pressures make

    this a safe area, free and independent.

    Economic Structure

    Our country is rich in raw materials such as petroleum, rubber, tin, palm oil

    and so forth. As a result, our country needs more trade partners to market its

    products and the country. So we must study the foreign policy aspects

    of the practice is not detrimental to the existing trading partners, the

    opposite to attract many more trading partners.

    Political Structure

    Ours is a nation that practices parliamentary democracy that emphasizes

    democracy, freedom and prosperity. So we will liaise with the countries that

    are also fighting for the same principles.

    Demographics

    The state of our country consists of all races and thus the country's foreign

    policy practice that emphasizes the principles of human solidarity and the

    principles of respect for human rights. Evidence of a policy of our

    country is our country has opposed the apartheid policies in South

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    Africa that threatens human rights and contrary to the practice

    of solidarity that exists in our country.

    National Security

    Our foreign policy is also influenced by national security. For example, the

    communist terror in our country does not lead our country in relation to the

    communist country. Political unrest in Indo-China led the country against the

    Vietnam invaded Cambodia and the outside powers who tried

    to undermine political stability in Southeast Asia.

    Regional Political Situation

    Political and regional security situation also affects our foreign

    policy. Our foreign policy aims to establish regional peace and

    stability clearly seen when the country played an active

    role in all discussions on Cambodia. Our country has tried to resolve the

    conflict in that country for security and political stability exists in the country.

    International Institutions

    International institutions, it is meant as the United Nations (UN). UN is an

    organization that has always tried to uphold world peace

    and prosperity. UN is also trying to protect human rights. Then, when

    the country joined this organization, our country will be affected by these

    principles and coordinate our foreign policy to be consistent with theprinciples of the organization. Besides the UN, our country is also a member

    of the Association of Non-Aligned Movement (NAM), the Commonwealth and

    others.

    Diplomatic Relations

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    At first, the name of our country is not recognized by other countries in the

    world. To enable our country known all over the world, then our

    country has established diplomatic relations with other countries. Because

    of the forged diplomatic relations enables us to acquire interests in the

    political, economic and social development of the country, the

    policy adopted by our country will be formulated to suit the situation.

    International Law

    Our foreign policy is influenced by the international legal system. Our

    country respects the principles outlined in the Uncharter and the laws setby international bodies. International bodies have set various rules of

    ethics that outlines the actions of all countries,

    particularly the legal rules of diplomacy, respect for the integrity of other

    countries, communication and mechanisms to

    resolve a conflict. Thus, our foreign policy is also shipped with the follow-

    laws.

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    UNIT 3 : MALAYSIA INTERNATIONAL TRADE

    3.1 Introduction Of International Trade In Malaysia

    Malaysia is well known as one of the most successful non-western countries

    to have achieved a relatively smooth transition to modern economic growth

    over the last century.

    Since the late 19th century Malaysia has been a major supplier of primary

    products to the industrialized countries such as tin, rubber, palm oil, timber,

    oil, liquefied natural gas and many more domestic products. But, in 1970s

    the leading sector in development has been a range of export-oriented

    manufacturing industries such as textiles, electrical and electronic goods,

    rubber products and other goods.

    Government policy has generally give a central role to the foreign capital,

    while at the same time working towards more substantial participation for

    domestic, especially indigenous, capital and enterprise. By 1990 the country

    had finally met the criteria for a Newly-Industrialized Country (NIC) status

    which was 30 percent of exports to consist of manufactured goods.

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    Thus, Malaysia is perhaps the best example of a country in which the

    economic roles and interests of various racial groups have been well

    managed in the long-term period. Malaysia is developing rapidly and had

    been listed consistently consider as developing country in Newly-

    Industrialized Country (NIC).

    3.2 History Of Malaysia International Trade

    Malaysia has a long history of internationally valued exports, being known

    from the early centuries. Malaysia international trade history started in the

    era of Malacca Sultanate.

    After Malacca was established, Parameswara started developing the area

    and ordered residents to plant the crop-farming, banana, sugarcane, yam

    and other crops as a food source. In a short time, news about the city of

    Melaka was spread throughout Malaya, Sumatra, Java and India, which led

    many traders, came to Melaka to trade.

    Soon, news about the city of Melaka which became a trading centre has

    come to China. Yung-lo, Emperor of China who ruled from 1402 until 1424,

    has sent a mission called Ying Ching to Malacca in 1405. Arrival Ching Ying

    has paved the way in establishing friendly relations between Singapore and

    China. Chinese traders began to call at the port of Malacca, and they can be

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    considered among the earliest traders set up bases in Singapore.

    Parameswara had made Malacca as a commercial centre developed over his

    command over twenty years.

    Political stability and a fair legal system have attracted traders from all over

    the Malay archipelago to Singapore. The traders from China, Indian

    subcontinent, Burma and Pegu in Arab lands has come to Melaka to trade.

    Malaysia used to be the provider for international trades as a source of gold,

    tin and exotics goods such as birds' feathers, edible birds' nests, aromatic

    woods and tree resins, food stuffs such as various types ranging from rice,

    salted fish, belacan and medicine. Other domestic commodities included

    spiauter, tin, tutenage, rattan, Japanese copper, aromatic wood and Chinese

    porcelain.

    The growth of Malacca as an emporium where Europeans, Indians and

    Chinese traders conducted business alongside local traders was facilitated by

    a liberal commercial policy, which welcomed all traders.

    International trade of Malaysia had been developing since then until now.The outgrowth of the Malaysia International Trade had made Malaysia to be

    on the list by World Trade Organization and the World Fact Book by being the

    23rd place for the list of the most country that has the highest exports, and

    26th place for the most country that has the highest imports in the world.

    3.3 Malaysia Latest International Trade Performance

    As referred from Malaysia External Trade Statistics, Malaysia has developed

    a huge increasement in Malaysia International Trade from year to year.

    Malaysia was the 26th country in the list of country by imports and the 23rd

    country in the list of country by exports based on the World Trade

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    Organization (WTO) and The World Fact book.

    Based on the latest MALAYSIA EXTERNAL TRADE STATISTICS, The Minister of

    International Trade and Industry (MITI), YB Dato Sri Mustapa Mohamed

    announced that in November 2010, Malaysias exports had an increasement

    from 5.3% to RM52.70 billion compared with last November 2009. Likewise,

    the imports industries had expended by 6.1% to RM43.70 billion, this

    increasement had resulting in a total trade of RM96.40 billion, an increase of

    5.6% from the corresponding month in 2009.

    Malaysia has been making trade surplus since November 1997. And last

    year, at the period of January to November 2010, a trade surplus of RM9.0

    billion was registered, making it the 157th consecutive month of trade

    surplus since November 1997.

    3.3.1 Total Export from January November 2010

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    39%

    8%6%6%

    4.7%

    4.7%

    3%

    3%

    3%3%

    20%

    Total Export from Jan -Nov 2010Electrical & Electronic Products

    Palm Oil

    Chemical & Chemical Products

    LNG

    Crude PetroleumRefined Petroleum Products

    Machinery,Appliances & Parts

    Optical & Scientific Equipment

    Manufactures of Metal

    Rubber Products

    Other Products

    Table 3.3.1

    The above pie chart shows the total export by product from the period of

    January until November 2010. In this latest statistic, the most exported

    product was an Electrical & Electronic product which is calculated to the total

    of RM 19.2 billion, which is 39% of the total export.

    While the 2nd product that is highly exported was palm oil. The total export of

    palm oil was 8% of the total export that is RM 5.1 billion. Chemical &

    Chemical products and LNG was the most exported product after Electrical &

    Electronic product and palm oil. The Chemical & Chemical products exported

    was valued RM 3.5 billion and RM 3.2 billion for LNG.

    Crude petroleum and refined petroleum products both had the total export

    which is RM 2.5 billion, 4.7% of the total export for both products. Having the

    same percentage of 3% of the total exported products were machinery,

    appliances & parts, optical and scientific equipment, manufactures of metal

    and rubber product. Another 20% of the exports were attributed by other

    product that the total value of exports was RM 10.6 billion.

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    The increase in exports in November 2010 of RM2.63 billion from a year

    before was mostly contributed by higher exports of palm oil, liquefied natural

    gas (LNG), refined

    petroleum products, chemicals and chemical products, manufactures of

    metal, crudeaa

    rubber as well as optical and scientific equipment.

    3.3.2 Total Import from January November 2010

    36%

    9%8%7%

    5%5%

    4%

    3%3%

    2%19%

    Total Import from Jan -Nov 2010Elecrical and Electronic Products Chemical & Chemical Products

    Machinery,Appliances & Parts Manufacturer of Metal

    Transport Equipment Refined Petroleum Product

    Iron & Steel Product Crude Petroleum

    Optical & Scientific Equipment Processed Food

    Other Products

    Table 3.3.2

    Above pie chart explain Malaysia total imported product from January to

    November 2010. Apart from exporting, Malaysia also imports electrical and

    electronic products. The total of electrical and electronic products imported

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    was 36% of the total import which is calculated to the value of RM 173.9

    billion. For the total of RM 41.4 billion, Chemical & Chemical products

    contribute 9% of the total imports.

    The 3rd products that value RM 39.9 billion for imports in Malaysia were

    machinery, appliances and parts. Manufacturer of metal has put in the total

    of 7% of the imports at the total of RM 26.4 billion.

    Transport equipment and refined petroleum products both have contribute

    5% of the total imports each. While RM 19.4 billion of the import value came

    from iron and steel products while crude petroleum and optical and scientific

    equipment were valued 3% of the imported goods. Malaysia also spent RM

    9.7 billion on the imported processed food and RM 89.6 billion were spent on

    other products.

    3.4 Conclusion

    Malaysia had a lot of factors that influence the successful historical economicrecord and international trades. . Geographically it lies close to major world

    trade routes bringing early exposure to the international economy. The

    population and labour force has been supplemented by immigrants, mainly

    from neighbouring Asian countries with many becoming permanent position.

    The economy has always open to external influences such as globalization.

    On a less positive evaluation, the country has exchanged dependence on a

    limited range of primary products (such as tin and rubber) to the

    dependence on an equally limited range of manufactured goods, notably

    electronics and electronic components. These industries are facing

    competition usually from the lower-wage countries, such as India and China.

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    There is an urgent need to continue the search for new industries in which

    Malaysia may enjoy a comparative advantage in world markets.

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    Jones, Ronald W. (1961). "Comparative Advantage and the Theory of

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    McKenzie, Lionel W. (1954). "Specialization and Efficiency in WorldProduction". The Review of Economic Studies

    Samuelson, Paul (2001). "A Ricardo-Sraffa Paradigm Comparing the

    Gains from Trade in Inputs and Finished Goods". Journal of Economic

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    http://finance.mapsofworld.com/trade/history-international.html

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    http://en.wikipedia.org/wiki/Timeline_of_international_trade

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    http://azfarmkh.blogspot.com/2009/08/faktor-faktor-yang-mempengaruhi-dasar.htmlhttp://azfarmkh.blogspot.com/2009/08/faktor-faktor-yang-mempengaruhi-dasar.htmlhttp://finance.mapsofworld.com/trade/history-international.htmlhttp://finance.mapsofworld.com/trade/history-international.htmlhttp://www.questia.com/search/international-trade-historyhttp://eh.net/encyclopedia/article/drabble.malaysiahttp://en.wikipedia.org/wiki/International_trade#Risk_in_international_tradehttp://en.wikipedia.org/wiki/International_trade#Risk_in_international_tradehttp://www.matrade.gov.my/cms/brand/http://azfarmkh.blogspot.com/2009/08/faktor-faktor-yang-mempengaruhi-dasar.htmlhttp://azfarmkh.blogspot.com/2009/08/faktor-faktor-yang-mempengaruhi-dasar.htmlhttp://finance.mapsofworld.com/trade/history-international.htmlhttp://www.questia.com/search/international-trade-historyhttp://eh.net/encyclopedia/article/drabble.malaysiahttp://en.wikipedia.org/wiki/International_trade#Risk_in_international_tradehttp://en.wikipedia.org/wiki/International_trade#Risk_in_international_tradehttp://www.matrade.gov.my/cms/brand/