INTERNATIONAL TRADE

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    • Benefits of International trade to a country:
      • More choices available for consumer
      • Countries sometimes import capital goods to produce consumer goods
      • Money is earned by selling the surplus goods of a country
      • Foreign exchange is earned
      • Competition is increased
      • Countries can get goods which they don’t have

     

    • The Interdependence of countries within a global market:
      • Each country exploits its natural resources
      • Each country concentrates on those things which it does best
      • Each country sell its surplus produce
      • Each country uses its surpluses to buy the goods it does not produce itself
      • Every country cannot produce enough goods and services to fulfill its requirements
      • Thus, it need to trade with other countries

     

    • Some Important Definitions:

     

    • Imports:
      • Purchasing goods and services from another country
      • Outflow of cash
    • Exports:
      • Selling of goods and services to another country
      • Inflow of cash
    • Visible trade:
      • An account which is maintained when a country trades goods with another country
    • Invisible trade:
      • An account which is maintained when a country trades in services with another country

     

    • Balance of Trade:
      • Difference in value between visible exports and visible imports
    • Visible exports – visible imports
    • Includes goods only
    • If negative: Deficit Balance of trade
    • If Positive: Surplus Balance of Trade

     

    • Balance of Payments:
      • Difference in value between the sum of visible and invisible exports and the sum of visible and invisible exports
    • (visible exports + invisible exports) – (visible imports + invisible imports)
    • Includes both goods and services

     

    • Custom Authorities:

     

    They are the authorities which inspect the inflow at outflow of goods at borders. Here are there functions:

     

    1. Gather information about export and import items.
    2. Collect tax duties/tariffs:
    3. Control trade of prohibited items
    4. Control bonded ware house
    5. Enforce quotas to ensure that the amount of a certain good entering or leaving the country does not exceed the set quota
    • Trading Blocs:

     

    Members of a trading bloc reduce duties on trade amongst themselves and impose high duties on non members. Some examples are European Union, ASEAN, SADC, NATTA

     

    Advantages Disadvantages
    Low cost for consumer due to less duties Government generates less revenue
    Increase in trade Tough competition for local manufacturers
    Local manufacturers will improve their quality No control of government on prohibited items
      Sometimes goods will be exported at the cost of domestic consumption

     

    • Importance of free ports in International Trade:

     

    • Free ports are ports where no custom duties are levied on goods entering and leaving it
    • Free flow of goods promotes trade
    • Minimum custom formalities make the process of trade more convenient
    • Facilitate re-exportation of goods
    • Goods can be unloaded, repacked, sorted, cleaned, broken from bulk and processed without any duty

     

    • Protectionism:

     

    • Sometimes governments place certain restrictions on traders to discourage trade with particular countries.
    • Some measures are listed below:
    1. Embargoes, such that a govt completely bans trade without another country
    2. Increase the tariffs so much that traders are discouraged to trade with that country
    3. Place quotas to limit the quantity or amount of goods being traded
    4. Giving subsidies to locally produced goods so that market for imported goods decreases

     

    • Difficulties Faced by Exporters:

     

    • Lack of local legal knowledge e.g. cultural, religious, social issues which may affect their market
    • Language barrier
    • Difference in measurement terms
    • Variation in social standards of people
    • Variation in local demands
    • Complex documentation
    • Risk of non payment