International Trade Class 11 Notes

The unit opens by defining the trade itself and by stating what it does for the two parties to it, which are the nation and the individual business firm, and the definition is the one that has to be written first in every question of this unit.

• International trade is the exchange of goods and services between two or more countries, that is the buying and the selling of the goods and the services across the national frontiers, and it may be the trade between two nations, the bilateral trade, or between more than two nations, the multi-lateral trade.
• The scope of the international trade to a nation is four-fold, and it is the exports that it makes, the imports that it brings in, the services that it sells to the other countries, and the earnings of the foreign exchange that arise from both of them, and the size of the trade is measured by the value of the exports and the imports together.
• The benefit to the nation is the foreign exchange, which pays for the imports and which strengthens the balance of payments and the reserves of the country, and it is earned by the exports of the goods, of the services and of the human resources such as the services of a software company that sells abroad.
• The benefit to the nation is also the availability of the things it cannot produce, the resources, the raw materials, the technology and the capital, and a country that cannot grow the coffee or the oil or the bauxite buys it from the country that can, and the trade is cheaper for both than the production at home.
• The benefit to the nation is the wider choice for the consumer and the better quality, because the goods of the cheaper or the better producer of another country enter the market, and it is the pressure of the competition that improves the domestic producer instead of letting it become lazy.
• The benefit to the nation is the improvement of the international relations, because the countries that trade with each other have an interest in keeping the peace, and the trade gives the two governments a reason to talk to each other.
• The benefit to a business firm is the wider market, because the firm is not confined to the demand of one country, and it is the specialisation, because a firm that produces what it can produce best and exports it is more efficient than a firm that attempts to make everything, and it is the reduction of the competition, because the firm is not competing only against the firms of its own country.
• The benefit to a business firm is also the use of the large quantity of the raw material and the labour that a foreign market offers, and the earning in the currency of the country with a strong currency, but there is a cost as well, and it is the risk of the foreign market and the cost of the transport that the firm has to weigh before it enters.

The export trade is the outward half of the international trade, and the syllabus asks for three things about it, the meaning, the objectives and the procedure, and the procedure is the part that carries the most marks.

• The export trade is the trade in which the goods and the services are sold by a person or a firm in one country to a person or a firm in another country, and the seller is the exporter and the buyer in the other country is the importer, and the movement of the goods is outwards, so the export earns the foreign exchange for the country.
• The objectives of the export trade are the earning of the foreign exchange, which is the first of them, the expansion of the market beyond the home market, the diversification of the risk of the business, since a firm that sells only in one market is exposed to the changes of that market alone, the increase of the sales and the profits, the satisfaction of the excess of the production, and the building of the goodwill of the country abroad.
• The first step of the procedure is the identification of the market, that is the selection of the country and of the buyers in it, and the exporter must study the demand, the competition, the rules and the duties of that country before he commits himself.
• The second step is the getting of the registration and the licences that the country requires, that is the export licence where one is needed, the registration of the firm with the authority concerned, and the arranging of the payment through the banking channel so that the foreign exchange is received through the authorised route.
• The third step is the receiving of the order or the communication of the order, which is the confirmation of the purchase, and the exporter then has to determine the terms of the sale, the price, the credit period, the delivery date and the currency of the payment.
• The fourth step is the getting together of the goods and the packing, the grading and the marking, and the marking must comply with the labelling rules of the importing country and the packing must be of the type that the mode of the transport will bear.
• The fifth step is the arrangement of the transport and the insurance, that is booking the shipping space or the cargo, choosing the mode of the transport by sea, by air or by land, taking the marine insurance cover for the shipment, and arranging the export licence and the shipping documents.
• The sixth step is the receiving of the payment, either in advance before the shipment or through a letter of credit or against the documents, and the seventh step is the despatch of the documents to the bank for the collection of the payment, which closes the export procedure, and after the goods are despatched the exporter keeps the copy of the documents and the proof of the shipment for the purpose of the tax and the claim.

The import trade is the inward half, and the same three questions are asked about it, the meaning, the objectives and the procedure, and the procedure runs in the reverse of the export procedure.

• The import trade is the trade in which the goods or the services are brought into a country from another country, and the person or the firm that sells abroad is the exporter and the person or the firm that buys is the importer, and the movement of the goods is inwards, and the import trade is the means by which a country obtains the things that it cannot produce.
• The objectives of the import trade are to make available the goods and the services that the country does not produce and cannot produce, such as the raw materials, the technology, the capital goods and the consumer goods that are cheaper abroad, to widen the choice of the consumer, to use the surplus of the foreign exchange that has been earned by the exports, and to obtain the technology and the expertise that the country has yet to develop.
• The first step of the procedure is the search for the suppliers and the selection of the exporter in the other country, by the advertisement, by the trade fairs, by the enquiry through the chambers of the commerce, and by the government or the trade promotion bodies that name the exporters who are reliable.
• The second step is the placing of the order and the confirmation of it, and the terms of the sale are settled, the price, the quantity, the quality, the delivery terms, the payment terms and the currency, and the two common terms are the FOB, under which the risk passes as soon as the goods are on board the ship, and the CIF, under which the seller pays the freight and the insurance up to the port of the destination.
• The third step is the arranging of the finance by the importer, either from his own funds or from a loan against the order, and the fourth is the opening of the letter of credit, where one is agreed, and the importer is the applicant and his bank issues it in favour of the exporter.
• The fifth step is the shipment of the goods by the exporter and the transmission of the documents to the importer's bank, and the sixth is the clearance of the customs, which is the examination by the customs authority of the goods and the levy of the customs duty and the other taxes, and this is the point at which the government may direct the goods to be examined in detail or to be held.
• The seventh step is the release of the goods and the payment to the exporter, and after the goods are released to the importer the payment is made through the bank in accordance with the terms of the letter of credit, and the importer also bears the cost of the transport from the port, the insurance, the storage and the loss of the market, so that the importer is the one who carries the risk of the unsold stock.

Every international transaction is carried on paper, and the syllabus names the documents that must be understood, and the importance of the documents is that the goods and the title in the goods and the payment are separated from one another, so the document is what the bank pays against.

• The indent is the document by which an importing firm asks the exporting firm or the indent house to supply the goods, and it contains the description of the goods, the quantity, the price, the terms of the payment, the period of the delivery and the terms of the shipment, and it is the document that starts the import transaction.
• The letter of credit is an undertaking given by the bank of the importer to the exporter that the bank will pay the amount of the bill of exchange drawn by the exporter on it, provided that the documents that are stipulated are presented, and it is the most secure instrument of the payment, and it is the importer's bank that issues it in favour of the exporter.
• The bill of exchange is the unconditional written order by the exporter to the importer to pay a certain sum at a certain date, and the exporter draws the bill on the importer, and the bill of exchange is the document on which the payment is made, and it is transferred through the banking channels and it is usually drawn for the period of 60, 90 or 120 days after the date of the shipment.
• The bill of lading is the document issued by the shipping company in favour of the shipper, and it serves three purposes at once, it is the evidence that the goods have been shipped on board the named vessel, it is the contract of the carriage, and it is the document of the title in the goods, so the person who holds the bill of lading holds the right to the goods, and an endorsement of it therefore transfers that right, which is why a bill of lading made out to order can be negotiated through the banks.
• The documents are divided into two groups, the public documents and the private documents, and the private ones are the invoice, the packing list, the insurance policy, the inspection certificate, the weight certificate and the transport document, and the public ones are the bill of lading, the letter of credit, the bill of exchange and the certificate of origin, and the bank examines the public documents in the letter of credit transaction because it deals with documents and not with goods.

The two documents that belong to the shipment itself are the shipping order and the mate's receipt, and together with the bill of lading they are what the syllabus means by the importance of the documents, because without them the shipment cannot be proved, the customs cannot clear it and the payment cannot be collected.

• The shipping order is the instruction given by the exporter to the shipping company, and it is signed in triplicate in the exporter, the carrier and the consignee copies, and it is the authority to the shipping company to ship the goods, and the shipping bill is the document issued by the shipping company against the shipping order, and it is the evidence of the shipment that is used for the insurance and for the claim.
• The mate's receipt is the document that the officer in charge of the cargo on the vessel signs when the goods are loaded, and it acknowledges the receipt of the goods on board the ship, and it is the evidence of the date on which the risk passed from the seller to the buyer, and it is the document on which the claim for the loss of the goods is made.
• The importance of the documents is that without them the goods cannot be cleared by the customs of the importing country, the importer cannot get the goods released, and the exporter cannot get the payment, because the bank pays against the documents and not against the goods, so the document is the evidence of the contract, of the shipment and of the title in the goods.
• The importance is also that a discrepancy in a document allows the bank to refuse to pay even when the goods have been shipped and are perfectly good, and this is the reason why the wording of the documents and their presentation within the time allowed by the letter of credit are the parts of the export procedure that the exporter must control.

The last part of the unit is about the institution that governs the international trade, and the syllabus asks for its meaning and for the objectives with which it promotes the trade, and the date of its establishment and its relation to the GATT are usually part of the answer.

• The World Trade Organization is an international organisation that regulates and facilitates the international trade, and it was established on the first of January, 1995, and it replaced the General Agreement on Tariffs and Trade of 1948, the GATT, which had set the rules of the trade for nearly five decades but had no organisation of its own behind it.
• The objective of promoting the international trade is to reduce the barriers to it, that is the tariffs on the goods, the quantitative restrictions and the other obstacles, so that the goods can flow more freely between the countries.
• The objective is also the elimination of the discrimination among the trading partners, and the principle of the most favoured nation, on which every member extends to the goods of every other member the lowest duty that it gives to any other country, so no country can be given a preference and the number of the agreements to sign falls.
• The objective is the liberalisation of the trade and the reduction of the protectionism, and the way the organisation does it is by the negotiation of the rounds, the Uruguay Round of 1986 to 1994 being the last and the widest, which brought the developing countries into the system and the GATT itself was replaced by the WTO.
• The objective is the promotion of the competitiveness of the products and of the trade, and the promotion of the economic development and of the standards of living in the member countries, and the objective of the protection of the environment and of the sustainable development, and the objective of the co-operation among the member countries.
• The WTO works through the ministerial conferences of the member countries and through the secretariat at Geneva, and its members accept the rules and settle the disputes between themselves by the panel that it appoints, and the disputes are settled by the appeal to the appellate body, and this arrangement of the rules and the dispute settlement is what the organisation actually adds to the old GATT.