UNITUNIT I I

INTERNATIONAL TRADEINTERNATIONAL TRADE

MeaningMeaning•International trade is the exchange of goods and services between countries.

•This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events.

•IN BUSINESS point of view “The exchange of goods or services along international borders. This type of trade allows for a greater competition and more competitive pricing in the market.

DefinitionDefinitionAccording to Wasserman and

Haltman, “ international trade consists of transaction residents of different countries”

According to Anatol Marad, “International trade is a trade between nations”

According to Edgeworth, “ International trade means trade between nations”

BENIFITSBENIFITSGreater variety of goods availableEfficient allocation and utilizationPromotes Efficiency in productionMore employmentConsumption at cheaper costReduced trade fluctuationsUtilization of surplus produceFosters peace and goodwill

BASIS FOR INTERNATIONAL BASIS FOR INTERNATIONAL TRADETRADE

•International specialization•Difference in costsAbsolute costs difference- based on countriesComparative costs difference-based on all goods•Non- availability of a specific factor•Product differentiation- Ex –textile-saree (varieties)

FOREIGN TRADE and ECONOMIC GROWTHFOREIGN TRADE and ECONOMIC GROWTH

•Diversified consumption•Promotes capital formation•Enables a country to produce goods which are more economical, competitive and develops economic bond between countries•If there is No trade, no stimulus for growth

FACTORS•Capital through international investment•Means of development•Technical know-how

BALANCE OF TRADEBALANCE OF TRADEThe balance of trade is the difference between the monetary value of exports and imports in an economy over a certain period of timeDEFINTION Balance of trade of a company is the relation over a period between the values of exports and imports of physical goods

B1= E-MB1– balance of tradeE– value of exportsM– value of imports

Types BALANCE OF TRADETypes BALANCE OF TRADE

•Favorable BoTE>M•Unfavorable BoTE<M•Equilibrium BoTE=M

Debit and Credit in BOTDebit and Credit in BOT

•Debit items -imports, foreign aid, domestic spending abroad and domestic investments abroad.

•Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy

Balance of PaymentBalance of PaymentThe balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international Economic Transactions for that country during a specific time period, usually a year.

The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits).

Types of economic Types of economic transactionstransactions

•Purchase or sale of goods- quid pro quo

•Barter transactions•Exchange of financial transactions•A unilateral gift in kind•A unilateral financial gift

Accounting principlesAccounting principles

Debit and creditCapital outflow and capital inflowValuationTiming

Current trendsCurrent trendsForced dynamismCooperation among countriesLiberalization of cross bordersTransfer of technologyGrowth in emerging marketsIncreasing influence of states on

international trade

Barriers to international Barriers to international tradetrade

•Non- tariff barriers•Tariff barriers•Quotas

TARIFFTARIFF•Tax levied on goods•Levied on export- export tariff•Levied on import- import tariff•Tariff which levied on goods that pass through nation- transit tariff•Import tariff more used than export tariff

EFFECTS:•Raises prices of goods•Leads to gain for government•Gain for domestic producers•Loss for consumers•Reduction in overall efficiency

CLASSIFICATIONCLASSIFICATION Import Tariff- levy on importing goodsExport Tariff- levy on exporting goodsProtective Tariff- protect home industry against

foreign countriesRevenue Tariff- to generate tax for governmentTariff Surcharge- temporary actionCountervailing Duty- permanent surchargeSpecific Duties- specified amount for certain quantityAd valorem duties- according to valueCombined rate- combination of specific and ad

valoremSingle stage- collected only one point of productionVATCascade taxes- collected at each point in

manufacturingExcise taxes- one time charge

NONTARIFF BARRIERSNONTARIFF BARRIERSNon tariff barriers are trade barriers that restricts imports but are not in the usual form of a tariff. (for quantities, ex.WTO as a rule framing)

TYPESSubsidiesQuotas- quantitative form of restriction

voluntary export restraints- when it exceeds maximum quantitative

Administrative policy- discouraging export and import

Anti dumping policy-charging extra import duty

Local contents requirementsStandardsReciprocal requirements-

instead of currency need to buy goods from our country

Customs variation- ad volrem duty

VOLUNTARY CONSTRAINTVOLUNTARY CONSTRAINTCountry voluntarily restricts or

stops imports from coming inUsed to limit competition

WTOWTO•The WTO was set up in 1995 as a successor to GATT.

•The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.

OBJECTIVES:•The goal is to help producers of goods and services, exporters, and importers conduct their business.

OBJECTIVES•To improve standard of living•To ensure full employment•To enlarge production and trade goods•Realizing these aims consistently with sustainable development and environmental protection•Secure proper share in the growth of international trade

FUNCTIONSFUNCTIONS•Helping developing and transition economies.•Specialized help for export•WTO in global economic policy making•Taking information•Giving information to public•Encouraging development and economic reform

Structure of WTOStructure of WTOMinisterial conference- policy

making and strategy making General council- dispute

settlement body and review of trade policy

Councils- for goods and for services(supervisors)

Committee and management bodies- ◦ sees issues regarding trade and

development◦ Balance of payments◦ Budget finance and admin works

BENEFITSBENEFITSPromotes peace with nationsDisputes are handled constructively

Rules makes life easierFree tradeChoice of productsTrade raises incomeMore efficientGood governance

LIMITATIONSLIMITATIONSFundamentally undemocraticTramples labor and human rights

InequalityHurts poor and small countries

Undermines local level decision making

EXIMEXIMMEANING•The foreign trade of a country consists of inward and outward movement of goods and services, which results into outflow and inflow of foreign exchange- EXIM TRADE.

For orderly growth,•Foreign trade of India is governed by FOREIGN TRADE(DEVEOPLMENT & REGULATION) ACT, 1992•Payment for exports and imports- foreign exchange management act, 1999•Customs act, 1962- physical movements of goods and services•For quality export and import- exports(quality control & inspection)Act, 1963

PRIMARY REASONSPRIMARY REASONS

Availability- some goods cannot create in home country

Cachet- for an image- example foreign brands

Price- low price – example Mexican clothing, toys from Korea

Export TradeExport TradeThe term export refers to “selling goods and services produced in home country to other country markets.”◦ Export of goods◦ Export of services

CLASSIFICATION OF EXPORT TRADEMerchandise exports-readymade, garments etc.,Services exports- software, telecommunicationProject exports- establishment of projects in another

countryDeemed exports-the transfer of infrared camera

technology to a Chinese national in the U.S. may be regulated as if the transfer of the technology was made to the Chinese national in China.   The transfer is thus “deemed” to be to China even though all activities take place in the U.S.

Export ProcessExport ProcessRegistration Stage

Pre-shipment stage

Shipment stage

Post- shipment stage

1.Registration Stagea) Registration of organization• - companies act 1956• Partnership act, 1932• Sale trader must get permission from local

authorityb)Opening bank Account- current account- bank

also helps for pre-shipment and post shipmentc) IEC no- prior to IEC, CNX number issued by RBI.

Director General for Foreign Trade (DGFT)- Fees Rs.1000

d) PAN number- for claiming exemptions and deductions under Income Tax

e) Sales Tax number- must register under Sales Tax Authority- for exemption

f) Registration with Export Promotion Council ( EPC)- “Registration cum Membership Certificate” (RCMC)

e) Registration with ECGC- financial assistance, risk assistance

g) Registration with other authority- FIEO, ITPO, COC etc.,

2. Pre shipment Stage Approaching foreign buyers- for adopting

techniques Inquiry and offer- about description of the product

from the importer after inquiry the export must process immediately in form of Performa invoice

Confirmation of order- finalizing terms and conditions- exporter must send three copies of Performa for confirmation and importer signs these copies and sends back to exporter

Opening letter of credit- for secured payment method on the finalization of export contract- importer opens in favor of exporter

Pre-shipment finance- for procuring raw materials and necessary things.

Production or procurement of Goods- Packing and marking- destination address, port of

shipment, weight, etc. Pre-shipment inspection- Export Inspection Agency-

inspection certificate Central excise clearance- (1) export under rebate (2)

export under bond Insurance cover- ECGC- insurance Appointment of C & F- clearing and forwarding

3. Shipment Stage•Reservation of shipping space- must obtain Shipping Order•Arrangement of internal transportation up to port of shipment- either by railways or roadways•Preparation and process of shipping document•Letter of contract•Commercial invoice•Packing list or packing note•Certificate of origin•GR form•ARE-I form•Certificate of inspection•Marine insurance policy

•Customs clearance- verification of documents•Obtaining Carting Order from Port Trust Authorities- for moving the cargo inside the dock•Let Export order•Let ship order•Bill of lading- issued by shipping company to C & F agent

4. Post shipment Stage• Submission of documents by C & F to Exporter• Shipment advice to importer- informing about the

shipment• Presentation of document to bank for negotiation-

submission of documents to bank for getting payment from the bank

• Dispatch of documents- after verification – sends to importers bank

• Acceptance of bill of exchange- • Types1. Documents against payment- cash on delivery2. Documents against acceptance- promising to

pay3. Letter of indemnity- security or protection

against a loss or other financial burden.4. Realization of export proceeds-importer pays

amount to exporter• Processing of GR form- verification – then export

considered to be completed• Realization of export incentives- for any claims

Benefits and Benefits and LimitationsLimitations

Import tradeImport tradeThe import is any good or service

brought in from other country for use in trade

Import goods or services are provided to domestic consumers by foreign producers

An import in the receiving country is an export to the sending country

Import processImport processTrade enquiry

Obtaining import license

Obtaining foreign exchange

Placing the indent order

Letter of credit

Shipping documents

Clearing agent

Taking delivery

Benefits and LimitationsBenefits and Limitations

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