UNIT I

INTERNATIONAL TRADE
Meaning
•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.
Definition
 According 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”
 BENIFITS
 Greater variety of goods available
 Efficient allocation and utilization
 Promotes Efficiency in production
 More employment
 Consumption at cheaper cost
 Reduced trade fluctuations
 Utilization of surplus produce
 Fosters peace and goodwill
TRADE

•International specialization
•Difference in costs
Absolute costs difference- based on
countries
Comparative costs difference-based on all
goods
•Non- availability of a specific factor
•Product differentiation- Ex –textile-saree
(varieties)
FOREIGN 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 TRADE
The balance of trade is the difference
between the monetary value of exports and
imports in an economy over a certain period of
time
DEFINTION
Balance of trade of a company is the relation
over a period between the values of exports and
imports of physical goods

B1= E-M
B1– balance of trade
E– value of exports
M– value of imports
Types BALANCE OF TRADE
•Favorable BoT
E>M
•Unfavorable BoT
E<M
•Equilibrium BoT
E=M
Debit and Credit in BOT

•Debit items -imports, foreign aid,

domestic spending abroad and
domestic investments abroad.

•Credititems include exports, foreign

spending in the domestic economy
and foreign investments in the
domestic economy
 Balance of Payment
 The 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).
 Economic
Transactions

Requited Unrequited
Types of economic
transactions

•Purchase or sale of goods- quid pro quo

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

Debit and credit

Capital outflow and capital inflow
Valuation
Timing
 COMPONENTS

Current A/C Capital A/C Reserve A/C

direct
Merchandise Invisible
investment

Service Portfolio
investment

Transfer Capital flows

Current trends
 Forced dynamism
 Cooperation among countries
 Liberalization of cross borders
 Transfer of technology
 Growth in emerging markets
 Increasing influence of states on
international trade
Barriers to international trade

•Non- tariff barriers

•Tariff barriers
•Quotas
TARIFF
•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
 CLASSIFICATION
 Import Tariff- levy on importing goods
 Export Tariff- levy on exporting goods
 Protective Tariff- protect home industry against foreign
countries
 Revenue Tariff- to generate tax for government
 Tariff Surcharge- temporary action
 Countervailing Duty- permanent surcharge
 Specific Duties- specified amount for certain quantity
 Ad valorem duties- according to value
 Combined rate- combination of specific and ad valorem
 Single stage- collected only one point of production
 VAT
 Cascade taxes- collected at each point in manufacturing
 Excise taxes- one time charge
 NONTARIFF BARRIERS
Non 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)
TYPES
 Subsidies
 Quotas- 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 requirements
 Standards
 Reciprocal requirements-
instead of currency need to
buy goods from our country
 Customs variation- ad
volrem duty
VOLUNTARY CONSTRAINT
 Country voluntarily restricts or stops
imports from coming in
 Used to limit competition
 WTO
•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
 FUNCTIONS
•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 WTO
 Ministerial 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
BENEFITS
 Promotes peace with nations
 Disputes are handled
constructively
 Rules makes life easier
 Free trade
 Choice of products
 Trade raises income
 More efficient
 Good governance
LIMITATIONS
 Fundamentally undemocratic
 Tramples labor and human rights
 Inequality
 Hurts poor and small countries
 Undermines local level decision
making
 EXIM
MEANING
•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 &
 PRIMARY 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 Trade
The 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 TRADE
 Merchandise exports-readymade, garments etc.,
 Services exports- software, telecommunication
 Project exports- establishment of projects in another country
 Deemed 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
Export Process
Registration Stage

Pre-shipment
stage

Shipment
stage

Post- shipment
stage
1. Registration Stage
a) Registration of organization
• - companies act 1956
• Partnership act, 1932
• Sale trader must get permission from local authority
b)Opening bank Account- current account- bank also helps for
pre-shipment and post shipment
c) 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
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
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-
• Types
1. Documents against payment- cash on delivery
2. Documents against acceptance- promising to pay
3. 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
Limitations
Benefits Limitations
 Sources of revenues  Financial management
 Market diversification efforts
 Excess production  Customer demand
capacity  Communication
 Purchasing power technologies
 Operation stability improvement
 Management mistakes
 Lifecycle extension
 Product improvement
 Lower unit costs
 Economies of scale
 Untapped markets
Import trade
 The 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

Consumer Industrial Intermediat

Services
goods goods e goods

1.Intangabilty and
1. Installations importing
2. Accessory equipment 2. Perish ability and
1. Convenience
importing
goods 3. Raw materials
3. Inseparability
2. Shopping goods 4. Fabricated parts and
materials 4. Variability
3. Specialty goods
5. Industrial supplies
Import process
Trade enquiry

Obtaining import license

Obtaining foreign exchange

Placing the indent order

Letter of credit

Shipping documents

Clearing agent

Taking delivery
Benefits and Limitations
Benefits Limitations
 Development of  Financial risk
economy  Operational risk
 Meet shortages  Regulatory risk
 Imports for better  Political risk
living standards  Cultural risk
 Quality production
 Comparative
advantage
 Importing easy
END