INTERNATIONAL TRADE AND PROCEDURES

International trade refers to the exchange of goods, services, and capital between countries. It plays a crucial role in the global economy, facilitating the flow of goods and services across borders. International trade can take various forms, including exports and imports, and it involves interactions between buyers and sellers in different nations. Here are key aspects of international trade:

Challenges in International Trade:

  • Trade Barriers: Tariffs, quotas, and non-tariff barriers can hinder the free flow of goods and services.
  • Political and Economic Instability: Political conflicts, economic crises, and uncertainties can disrupt international trade.
  • Protectionism: Some countries may adopt protectionist measures to shield domestic industries from foreign competition, which can lead to trade tensions. read ways to grow an economy here

 TYPES OF INTERNATIONAL TRADE

International trade can be categorized into various types based on different criteria. Here are some common types of international trade: although some may categorize it in terms of import and export trade.

  • Merchandise Trade:
    • Exports and Imports of Goods: This type of trade involves the exchange of tangible goods between countries. It includes products such as machinery, vehicles, textiles, and agricultural products.
  • Service Trade:
    • Exports and Imports of Services: Service trade encompasses the exchange of intangible services between nations. Examples include financial services, tourism, consulting, and software development.

  • Bilateral Trade:
    • Trade Between Two Countries: Bilateral trade involves the exchange of goods and services between two countries. The trading relationship can be based on agreements or market dynamics.
  • Multilateral Trade:
    • Trade Involving Multiple Countries: Multilateral trade involves transactions among more than two countries. This often occurs within the framework of international organizations or trade agreements involving multiple nations.

  • Intra-Industry Trade:
    • Trade Within the Same Industry: Intra-industry trade involves the exchange of similar types of goods or services between countries. This type of trade is characterized by countries both exporting and importing products within the same industry.
  • Inter-Industry Trade:
    • Trade Between Different Industries: Inter-industry trade occurs when countries specialize in different industries, and the goods or services they trade are not directly competitive.

trade and Market
Dionnebears on Hyde Market by Gerald England is licensed under CC-BY-SA 2.0
  • Barter Trade:
    • Exchange of Goods Without Currency: Barter trade involves the direct exchange of goods and services between two parties without the use of money. While less common today, barter trade still occurs in certain circumstances.
  • Countertrade:
    • Exchange of Goods or Services for Other Goods or Services: Countertrade involves the reciprocal trade of goods or services, where payment is made in the form of other goods or services rather than currency.

  • Triangular Trade:
    • Trade Involving Three Countries: Triangular trade involves a trade route with goods flowing between three countries. Each country may export and import goods from different partners in a triangular fashion.
  • E-commerce Trade:
    • Online Trade of Goods and Services: E-commerce trade involves the buying and selling of goods and services over the internet. It has become increasingly important in the modern global economy.

  • Fair Trade:
    • Trade Focused on Social and Environmental Responsibility: Fair trade emphasizes equitable trading relationships and environmentally sustainable practices. It aims to ensure fair wages and working conditions for producers in developing countries.
  • Free Trade:
    • Trade with Minimal Trade Barriers: Free trade involves the exchange of goods and services with minimal barriers such as tariffs and quotas. Countries participating in free trade agreements aim to promote open markets and economic integration.

 INTERNAL TRADE

Definition: Internal trade, also known as domestic trade or home trade involves the exchange of goods and services among the people within a particular country. Internal trade involves the buying and selling of goods and services within a particular country e.g. Nigeria. The items of Internal trade include those goods which are produced and sold locally. In Nigeria for example, the , are yam, coffee, maize and rice which are locally manufactured goods.

SIMILARITIES AND DIFFERENCES BETWEEN INTERNATIONAL AND INTERNAL TRADE

  •  Similarities
  •  Both international trade and internal trade involve the use of money as a medium of exchange.
  •  They both involved a degree of specialization between the trading partners, since specialization causes exchange. read this detailed post on specialization
  • Both forms of trade involve the activities of middlemen. read more here
  • Both trades involve the buying and selling of goods and services.
  •  Both of them arise due to inequitable distribution of natural endowments and production resources.
  •  Differences
  • Foreign trade involves the exchange of goods and services across national frontiers while internal trade involves the exchange of goods within the borders of a country.
  • In foreign trade, buyers and sellers use different currencies whereas buyers and sellers in home trade use the same type of currency.
  • There is possibility of restriction – tariffs, import duties, export duties, quotas, embargoes – when goods are exchanged across national boundaries while this does not occur in home trade. here is a post on the details of trade tarrifs

  •  There are differences in systems of weighing and measuring in one country vis-a-vis another. A country has only one system of such weighing and measuring.
  •  Differences in transport cost due to distance between buyers and sellers, documentation requirement, need for insurance in respect of foreign trade distinguish foreign trade from home trade.
  •  There are also differences in legal systems and culture under international trade but the legal system are the same in domestic trade.
  •  Foreign trade requires knowledge of new languages and interpretations while in domestic trade, a common language is used.

             REASONS OR BASIS FOR INTERNATIONAL TRADE

Countries engage in international trade for the following reasons:

  •  Uneven distribution of natural resources: Natural resources unevenly distributed. While sc countries are naturally blessed, others have little or no natural resources, necessitates international trade.
  •  Differences in climatic condition: climatic condition of the earth caries from one region to another. This variation gives rise to another. This variation gives rise to growth of different crops (read more here) hence the need for exchange.
  • Differences in technology: The of technology differs from one nation the world to another. Some countries with advanced technology can produce some industrial products at reduced cost and sell to the less developed countries.

  • Differences in skills: The inhabitants of a region may develop special skills in the production of a commodity such that it acquires special reputation for its skill. This can necessitate foreign trade.
  • Expansion of market for products: Foreign trade came into existence because of the need to widen the market for goods produced by a country.
  • Differences in the efficient use of natural resources: Foreign trade may arise because of differences in efficiency in the use of natural resources.
  • Differences between patterns of production and consumption: The differences between patterns of production and consumption in different countries necessitate international trade. check out this post on consumption pattern
  • Differences in taste: Differences in the taste of various countries call for international trade.

BARRIERS OR PROBLEMS OF INTERNATIONAL TRADE
  • Language Problems: Different languages are spoken by different countries of the world. Communication between, business men from various countries with different linguistic background may be difficult.
  • Problems of Distance: It may take days or weeks before one moves from one country to another because of the long distances involved. This may delay quick exchange of goods and services, e.g. Nigeria and Japan.
  •  Numerous Documents: The documents used in international trade are too many. This makes the processing of foreign trade too long and sometimes cumbersome e.g. bills of exchange, ship manifest and certificate of origin.
  • Difference in Currency: Every country has its own currency which is different from the currency of other countries. In foreign trade, the currency must be converted before meaningful transactions can take place.

Factors Affecting International Trade:

  • Exchange Rates: Fluctuations in currency exchange rates can impact the competitiveness of exports and the cost of imports.
  • Trade Policies: Tariffs, quotas, and other trade policies implemented by governments can affect the volume and pattern of international trade.
  • Transportation and Logistics: Efficient transportation and logistics networks are crucial for the smooth flow of goods across borders.
  • Technology: Advances in technology, such as the internet and communication technologies, have facilitated global trade by reducing information and communication barriers.

  •  Tariff: A country can impose import duties (tariff) on imported goods and this will make the goods to be more expensive.
  • Trade Imbalance: International trade often leads to trade imbalance among nations with the effect that viable countries may not transact business with the weaker ones.
  •  Government Policy: Foreign trade can be hindered by the political ideologies of different countries. As country can deliberately decide not to trade with another country because of its political differences, e.g. the USA and Libya in 1988.
  • Weight and measures: There is no international uniformity in the system of weighing and measuring of goods. The system is not standardized, hence it has to be converted and this hinders trade.
  •  Artificial Barriers: Foreign trade can be hindered through the imposition of outright ban on products, quota system or imposition of licenses on goods.
  • Transport/Communication: Businessmen from different countries, especially African countries, find it difficult to contact their partners in other countries because of poor communication and transport facilities. This hinders foreign trade greatly.
  • Religion/Culture: Religious beliefs and culture differ from one country to another and these can constitute a hindrance to International trade.

          ADVANTAGES OF IMPORT AND EXPORT TRADE

  • Source of Revenue: International trade is a source of revenue for nations of the world. Nigeria derives 90% of its
    revenue from the sale of crude oil to other countries. Taxes can also be imposed on exported and imported
    goods.
  • Promotion of economic development: International trade helps countries to gain technical knowledge which accelerates economic developments e.g. farmers in Nigeria can now import tractors,
    harvesters, etc. practice large scale farming.
  • Provision of employment opportunities: As a result of international trade contacts, foreign investors can

establish firms in sister countries which will create employment opportunities for its citizens.

  • It leads to international specialization: Through international trade, countries will specialize in the

production of goods for which they have comparative advantage over others. This will make prices of such goods cheaper.

  • Increase in world output: countries specialize in goods and services in which they comparative advantage and where utilization of resources is made, world output will increase.
  • Availability of variety of goods: Through foreign trade, wide variety of goods are made available. West countries can import cars, electronics, shoes and equipment etc. from countries. New products are for markets.
  • Acquisition of skills and ideas: Through international trade, new ideas, skills and techniques can be acquired to improve the quality of goods services.
  • It fosters closer international relationship: Foreign trade brings about prospects for peace in the world. There is familiarity, understanding, and harmony in the world when from different races trade together.
  • Increase in standard of living: there is exchange of different goods services among countries, the standard of living increases. People can get what they need which they cannot ordinarily produce.
  • Equitable distribution of national resources: Natural resources found in one country of the world through foreign trade.

DISADVANTAGES OF IMPORT AND EXPORT TRADE

  • Encouragement of Dumping: International trade can lead to dumping of goods into the less developed countries by multi-national companies from the developed nations. This countries therefore become dumping grounds for all kinds of products.
  • It affects infant industries: Foreign trade also affects newly established industries (infant industries) negatively as they cannot complete favourably with their well- established foreign counterparts.
  • Destruction of cultural values of a country: Importation of a certain goods such as x-rated films and immoral fashion can destroy the moral and cultural values of a country. It can thus lead to decadence in social norms. For example in Nigeria, massive importation and use of indecent attire or clothes from Western World is anti-cultural and against our social norms.

  • Importation of dangerous or harmful goods: Through foreign trade, harmful or dangerous goods can be imported into a country by unscrupulous businessmen.
  • Creation of balance of payment deficit: This is possible when foreign trade is not restricted and the level of import is higher than export. This may lead to a drain in the foreign exchange reserve which can result in balance of payment problems.
  • Unemployment: Foreign trade can lead to unemployment because continued importation of cheaper products from foreign countries may reduce the level of production of local industries producing similar products and this may result in retrenchment of workers.
  • Reduction of effort to attain self- reliance: Uncontrolled and unrestricted

inflow of goods can reduce effort to attain self-reliance because the people can always get what they want from abroad, hence the culture of self- sufficiency will be destroyed.

  • It leads to exploitation: The developed nations which are highly industrialized may use their advantageous position to exploit the less developed countries.

DIVISIONS OF INTERNATIONAL TRADE

International trade can be divided into three, import, export and entrepot trades.

  • Import Trade

Definition: Import trade is defined as the act of buying goods and services from other countries. It is sometimes restricted to control a country’s balance of payment. The goods are imported either in response to direct orders or on consignment. Import trade is divided into: Visible and invisible trade.

  •  Visible imports: Visible imports consist of goods that can be seen and touch i.e., tangible goods which come from other countries; Nigeria’s visible import, for example are: automobiles, electronics and plants and machinery.
  •  Invisible imports: Invisible imports consist of services rendered by other countries that cannot be seen or touched. Examples of invisible imports are banking, tourism and aviation. This will appear in the balance of payments.
  • Export Trade

Definition: Export trade may be defined as the act of selling goods and services to other countries. It is the selling of a country’s product abroad. Some governments frequently attempt to encourage exporters by introducing export subsidy. Export can equally be divided into visible and invisible exports.

  •  Visible Exports: These consist of goods which are sold in overseas markets e.g. to other countries. In Nigeria, visible exports are cotton, groundnut, palm oil, crude oil and textiles.
  •  Invisible Exports: Invisible exports consist of services rendered to other countries. Such services are transport, banking, insurance and other consulting service.
  • Entrepot

BALANCE OF TRADE AND BALANCE OF PAYMENT

Balance of trade: Balance of trade refers to the total value of goods sold and bought by a country during a given period, usually a year. When visible exports equal visible imports in monetary terms, we have balance of trade. A positive balance of trade means that a country is exporting more in monetary terms than it is importing while a negative or unfavourable balance of trade means that a country is importing more in monetary terms than it is exporting.

Balance of Payment: Balance of payment may be define as a statement or record showing the relationship between a country’s total payment to other countries and its total receipts from them in a year. A country s\’ balance of payment c be grouped into three parts namely cu\” account, capital account and monetary movement account.

  • Current Account: Current account  is composed of receipts and payments for visible and invisible services. Invisible services are insurance, banking, transport, interest payment and tourism while visible goods are automobiles, cocoa, cotton and crude oil.
  • Capital Account: Capital account is made up of the inflow and outflow capital both in long and short term consists of capital movement in the form of  investments, loans and grants.
  •  Monetary movement account: account shows how the balance of both current and capital accounts are settled.
  • Favourable balance of payment: Favourable balance of payment occurs when the receipts from invisible and visible export trade greater than payments to other countries invisible and visible imports. A credit balance can be used to increase investment abroad or to add to a country’s gold reserve.
  • Unfavourable balance of payment: Unfavourable balance of payment  is used for debit balance in the balance of payments. It means that payments on visible and invisible import is greater than receipts on invisible exports. It can be referred to as adverse or deficit balance. For more discussion on balance of payment, see previous post here not all, read this post on currency devaluation

PROCEDURES FOR INTERNATIONAL TRADE

For international trade to take effect, certain procedures must be followed. The step-by-step procedures are:

  • The importer and exporter are brought together through different means e.g. letter of inquiry.
  •  The next step is for the producer to send quotations to the buyer in response to the letter of inquiry. The quotation will show the description and features of the products.
  •  After receiving the quotation, the importer will place an order with the manufacturer. The indent will show details of goods, prices and date of delivery.
  • The next step is to make arrangement for payment through any agreed means of payment e.g. documentary credit and telegraphic mail transfer.

5)       Then, an agreement for the goods to be shipped through a shipping company will be made. The shipping agent will get all the necessary documents like shipping note, calling forward note etc. The goods will then be pack and well arranged in containers.

  • The exporter will then prepare and send copies of bill of lading to the importer in advance. Other documents that will accompany the consignment will be prepared and sent.
  •  When the goods arrive, the clearing agent will process and complete all necessary documents. The agent will check the manifest to ensure that the goods are on board. The customs personnel will assess the consignment and compute the duties to be paid.
  • The goods will be taken to the warehouse after all necessary documentations have been completed.