International trade: Concept Traditionally – exchange of goods between countries. Exchange of tangible goods Concept of international trade has grown over the years It also includes services like international travel and tourism, transportation, communication, banking, warehousing, advertising etc It expands the markets for both goods and services International trade brings in greater competition and therefore competitive prices There is a difference between International trade and International business

International Business International Business includes the following: International Trade Export and import of services Licensing & Franchising Foreign Investments

Why do Nations Trade? Unequal Distribution of Natural Resources Availability of Factors of Production differ from Country to Country Cost of Production Varies Countries Specializes in Production of Different Goods and Services

Characteristics of International Trade Two or more countries Foreign currency Legal obligations Involves risks Law of comparative cost advantage Facilitates Specialization Reciprocal of technical assistance Documentation

Advantages of IT Earning of foreign exchange Optimum utilization of resources Accelerates economic growth Increases employment opportunities Increases standard of living Higher profits for business enterprises Prospects for growth Promotes division of labour and specialization Desire to excel and expand Alternative to intense domestic competition

Limitations / Problems of IT Different currencies involved Nationality of buyers, sellers and other stakeholders Mobility of factors of production Customer heterogeneity across markets Difference in business systems and practices Political system and risks Business regulations and policies

Internal Trade VS External Trade Basis of Difference: Concept Nationality of buyers & sellers Currency for payments Mobility of factors of production Business rules & regulations Mode of transport Nature of customers Business systems & trade practices Cost of transportation No. of documents used Government registrations Political systems and risks

Modes of entry into International Business Exporting and Importing Contract Manufacturing Licensing and Franchising Joint Ventures Wholly Owned subsidiaries

Export Trade Procedure Receipt of enquiry and sending quotations Receipt of order of indent Assessing importer’s creditworthiness and securing a guarantee for payments – Letter of Credit Obtaining export licence: (DGFT) Open a bank account Apply for import export code number Registering with app. export promotion council (RCMC) Registering with Export Credit & Guarantee Corporation

Export Trade Procedure Obtaining pre shipment finance Production or procurement of goods Pre shipment inspection Excise clearance Obtaining certificate of origin Reservation of shipping space Packing and forwarding Insurance of goods

Export Trade Procedure 13. Customs clearance – shipping bill – carting order 14. Obtaining Mate’s Receipt 15. Payment of freight and issuance bill of lading 16. Preparation of invoice 17. Securing payment: Bills of Exchange Documents against sight / Sight Draft Documents against acceptance / Usance Draft Letter of indemnity

Summary of documentation related to export Product Shipment Payment Indent Mate’s receipt Letter of credit Commercial invoice Shipping Bill Bills of exchange (Sight of Usance) Packing list Bill of Lading/ Airway Bill Bank certificate against payment received Certificate of origin Insurance Policy Certificate of inspection

Import Trade Procedure Trade enquiry – information, proforma invoice Procurement of import licence Obtaining foreign exchange Placing order or indent Obtaining letter of credit Arranging for finance Receipt of shipment advice Retirement of import documents

Import Trade Procedure 9. Arrival of goods 10. Customs clearance and release of goods Receiving the delivery order Payment of freight Payment of dock charges 11. Bill of entry 12. Payment of custom duty and delivery of goods

Summary of documentation related to Import Product sold Shipment Payment Trade enquiry Import general manifest Application to secure sanction of foreign exchange Indent/ import order Shipping advice Letter of credit Commercial invoice Bill of entry Bills of exchange (Sight or Usance) Packing list Insurance policy Certificate of origin Bill of lading / Airway bill Certificate of inspection

World Trade Organisation WTO was formed as a consequence of the decision of GATT in 1994 As an institution to look after the promotion of free trade amongst nations All decisions are taken by member governments on the basis of general consensus It governs trade not only in goods but also in services and intellectual property rights It is a place for governments to settle trade disputes It is a place where the member governments try to sort out the trade problems they face with each other

Objectives of WTO Ensure reduction of tariffs & other trade barriers Engage in activities that improve standard of living, create employment, increase income and demand, facilitate higher production and trade Facilitate optimal use of world’s resources Promote an integrated, more viable and durable trading system Sustainable development to ensure preservation and protection of the environment

Functions of WTO Promotes an environment for member countries to mitigate their grievances at WTO Formulate a code of conduct that is acceptable to all Act as a dispute settlement body To consult IMF and IBRD and other affiliated agencies to create better understanding and cooperation in global economic policy making Supervise on a regular basis the operations of the revised agreements and ministerial declarations relating to goods, services and trade related intellectual property rights

Benefits of WTO Promotes international peace and facilitate international business Disputes are settled with mutual consultations Rules make international trade smooth and predictable Free trade improves the living standard Variety of quality products are available Fast economic growth Encourages good government Helps fostering growth of developing countries by providing them with special and preferential treatment in trade related matters

Four Agreements of WTO Agreement on textile and clothing (ATC) Agreement on agriculture (AoA) General agreement on trade in services (GATS) Agreement on trade related aspects of intellectual property rights (TRIPS)

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