08-16-2017, 10:46 PM
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OBJECTIVE OF PROJECT
To study the foreign trade policy.
To cheak-out the growth rate of foreign trade.
To cheak-out the 5 years analysis of foreign trade.
How foreign trade support in economic growth.
INTRODUCTION
Term foreign trade Definition:
Exchange of goods and services between countries. The inclination for one country to trade with another is based in large part on the idea of comparative advantage--which says that any country, no matter how technologically disadvantaged it might be, can always find some sort of good that will let it enter the game of foreign trade. In this sense, foreign trade is just an extension of the production, exchange, and consumption that's a fundamental part of life. The only difference with foreign trade is that producers and consumers reside in separate countries.
Foreign trade can be considered a number of different things, depending on the type of trade one is talking about. Generally speaking, foreign trade means trading goods and services that are destined for a country other than their country of origin. Foreign trade can also be investing in foreign securities, though this is a less common use of the term.
Foreign trade is all about imports and exports. The backbone of any foreign trade between nations is those products and services which are being traded to some other location outside a particular country's borders. Some nations are adept at producing certain products at a cost-effective price. Perhaps it is because they have the labor supply or abundant natural resources which make up the raw materials needed. No matter what the reason, the ability of some nations to produce what other nations want is what makes foreign trade work.
In some cases, the products produced in a foreign trade situation are very similar to other products being produced around the world, at least in their raw form. Therefore, these products, known as commodities, are often pooled together in one mass market and sold. This is called trading commodities. The most common commodities often sold in foreign trade are oil and grain.
There are a number of issues with imports and exports that must be taken into consideration when conducting foreign trade. For example, some countries have industries they may want to protect. These industries may be in competition with foreign companies for the opportunity to sell products domestically. To protect domestic trade, countries may institute tariffs, which are taxes on certain foreign goods. While this is a way to generate revenue, its real value lies in helping those domestic companies.
For example, to encourage domestic production of ethanol in the United States, a tariff has been imposed on Brazilian ethanol. This protects the ethanol market in the United States, which would not otherwise be able to compete with Brazilian ethanol based on cost. In Brazil, ethanol is made from sugar, which produces far more ethanol gallons per acre than corn, the primary crop used for ethanol in the United States.
In addition to tariffs, currency issues are another factor in foreign trade. Some companies selling products overseas prefer to be paid in a certain type of currency, such as the US Dollar or Euro. This protects the company in case the country involved in a trade experiences a rapid devaluation in currency. Most foreign trade will always involve a relatively stable currency.
Concept Of Foreign Trade-
Foreign Trade is exchange of capital and goods across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While foreign trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries.
Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing foreign trade is crucial to the continuance of globalization. Without foreign trade, nations would be limited to the goods and services produced within their own borders.
International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture.
Another difference between domestic and international trade is that factors of production such as capital and labour are typically more mobile within a country than across countries. Thus foreign trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Then trade in goods and services can serve as a substitute for trade in factors of production.
Instead of importing a factor of production, a country can import goods that make intensive use of the factor of production and are thus embodying the respective factor. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor the United States is importing goods from China that were produced with Chinese labor.
Foreign trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics.
Classification of Foreign Trade
Here we classified the foreign trade under three heads which are as follows:
1. Import Trade
2. Export Trade
3. Entrepot Trade
1. Import Trade- It refers to purchase of goods from a foreign country. Countries import goods which are not produced by them either because of cost disadvantage or because of physical difficulties or even those goods which are not produced in sufficient quantities so as to meet their requirement.
2. Export Trade- It means the sale of goods to a foreign country. In this trade the goods are sent outside the country.
3. Entrepot Trade- When goods are imported from one country and are exported to another country, it is called entrepot trade. Here the goods are imported not for consumption or sale in the country but for re-exporting to a third country. So importing of foreign goods for export purposes is known as entrepot trade.
ADVANTAGES OF FOREIGN TRADE
There are various advantages of foreign trade i.e.-
Optimal use of natural resources
Availability of all types of goods
Specialisation
Advantages of large-scale of production
Stability in prices
Exchange of technical know-how and establishment of new industries
Increase in efficiency
Development of the means of transport and communication
International co-operation and understanding
Ability to face natural calamities
Increase the standard of living
Benefits to consumers
Reasons of foreign trade
There are various reasons for conducting business on an international scale. Trade between countries arises because it is to their mutual advantage. If a country is enjoying a monopoly is the production of a certain commodity, it will have an absolute advantage in the production of that commodity over other countries. The other nations have to import that commodity. International trade arises because some countries have a comparative advantage in the production of some goods over other goods.
Those countries concentrate on the production of those commodities and trade for other goods which they need from other countries. There are countries which are capable of producing raw material. The other nations have no other alternative but to import them. There are many goods which can be produced by sophisticated equipment.
The countries which do not have advance technology are compelled to import such equipments from advanced industrial nations of the world. If a country exports goods to other countries it earns foreign exchange. The country utilizes this foreign exchange to pay the imports of goods and meet its production and development needs. There are many special incentives and privileges which are given by a government to an exporter. These privileges are not available to other traders.
MIDDLEMEN IN FOREIGN TRADE
There are a number of middlemen in foreign trade. Because of complex and intricate procedures in foreign trade the role of middlemen is very important. Middlemen have become almost a necessity in foreign trade.
Middlemen in Importing country
I. Clearing Agent- A clearing agent is appointed by an importer. He completes various formalities when goods reach the port. He gets the goods cleared by observing customs formalities and then despatches them to the destination of the importer either by road or by rail as the case may be. A clearing agent charges a commission for his services.
II. Import Agent- An import agent acts on behalf of the wholesaler. He completes the complicated procedure involved in importing goods on behalf of the wholesaler. He gets a fixed commission for his services and the risk involved in the business is to be borne by the wholesaler. An import agent has a specialised knowledge of the goods in which he deals.
II. Wholesaler and Retailers- The person buying and selling goods in larg quantities is called wholesaler and on the other hand the person sells goods in small quantities to consumers is called retailer.
Middlemen in Exporting Country
I. Export Agent- He acts on behalf of the foreign buyer. He collects goods as per the instructions of the foreign buyers and despatches them these goods after completing various formalities. He charge commission as per the agreement for his services.
II. Forewarding Agents- Forewarding agent is appointed by the exporter to act on his behalf. He performs various export formalities and arranges for the export of goods and charges commission as per agreement.
II. Shipping Company- A shipping company may also act as an agent of the exporter. It despatches goods to the country of the importer by collecting them form the exporter.
BENEFITS OF FOREIGN TRADE
Foreign trade leads to specialization and encourages production of different goods in different countries.
Foreign trade helps every country to make optimum use of its natural resources. Each country can concentrate on production of those goods, for which its resources are best suited. Wastage of resources is avoided in this way and people in general get a feeling that their government is concerned about them, their resources and their money.
Foreign trade enables a country to obtain goods, which it cannot produce. Sometimes a country can produce goods but the production cost turns out to be very high. In such a scenario also, importing goods is a better option. Naturally, on such type of goods heavy import duty is not placed. This is done for the good of the public in general.
Foreign trade leads to specialization and encourages production of different goods in different countries. Goods can be produced at comparatively low cost due to advantages of division of labor. Due to foreign trade, goods are produced not only for home consumption but for export to other countries also. Nations of the world, in this way, can dispose of those goods in the foreign market that they have in surplus.
This also introduces an extra caution for maintaining quality that is able to meet the international standards. Such quality-control equipments and procedures thus become available to domestic producers also. The entire state of affairs ultimately benefits the customer.
What s more foreign trade leads to production at large scale and thus the advantages of large scale production can be obtained by all the countries of the world that indulge in mutual trade. Foreign trade reduces wild fluctuations in prices to a large extent and in the process equalizes the prices of goods throughout the world.
Under developed countries can establish and develop new industries with the machinery, equipments and technical know-how imported from developed countries. This helps in the development of these countries and the economies of the world at large.
Due to foreign competition, the producers in a particular country attempt to produce better quality goods at the minimum possible cost. This increases the efficiency and benefits the consumers all over the world regardless of any national or international boundary.
Barriers Involved in Foreign Trade
A foreign trade barrier is any barrier that impedes a company s ability to trade in a foreign company. The most common trade barriers are listed below:
Tariff and Customs,
Service Barriers,
Standards, testing, labeling, or Certification,
Rules of Origin,
Government Procurement Contracting,
Intellectual Property Protection Problems,
Excessive Government Requirements,
Excessive Testing or Licensing Fees,
Bribery, and
Investment Barriers
Foreign Trade Policy of India