Foreign Trade

Foreign trade involves buying and selling goods and services between countries, allowing nations to obtain products they lack domestically and providing markets for surplus goods. This trade occurs among individuals, companies, or governments and facilitates access to a variety of goods and services, contributing to economic diversity and international relations.

Reasons for Engaging in Foreign Trade

Countries engage in trade for several reasons, including the need to acquire goods that cannot be produced locally due to unsuitable climates, or to supplement their local markets with additional products. Trade fosters diplomatic relations and widens the market for each country's goods and services. Additionally, foreign trade allows countries to sell surplus goods, import necessary raw materials for industries, and generally enhance the standard of living by offering a broader range of consumer goods.

Advantages and Disadvantages of International Trade

International trade offers multiple benefits, such as access to otherwise unavailable goods, an outlet for surplus products, and cost savings through cheaper imports. Trade also brings foreign currency into the economy and encourages the exchange of technology. However, international trade can also lead to the overuse of natural resources, and some harmful goods (e.g., firearms or narcotics) may enter the country. Other risks include the potential for foreign goods to dominate the market (known as dumping), which may harm local industries, and economic dependence on other nations.

Documents Used in International Trade

The Bill of Lading is issued when goods are shipped by sea, serving as both a receipt and a document of title, which may be transferred to another party. It is quasi-negotiable and contains the contract details for the carriage of goods, including the condition of goods at departure.

An Indent is an order from a foreign buyer detailing the goods to be imported. It may include specific items (close indent) or allow the seller some freedom in choosing the goods (open indent).

The Charter Party is a contract between a transporter and a buyer for hiring a ship for transporting goods. It specifies the hiring terms, whether for a single voyage (voyage charter) or a set period (time charter).

A Manifest is a document prepared by the shipping company listing goods loaded, used by customs officials to verify goods being exported.

The Customs Specification is a document prepared by exporters to provide detailed information on exported goods. This data is essential for compiling import/export statistics and confirming goods during export.

Customs and Excise Authorities

Customs authorities regulate the entry and exit of goods, collect trade data, and prevent illegal goods from crossing borders. They also oversee bonded warehouses, ensure public health standards, and review trade documentation.

The Functions of Customs Authorities include supervising vehicles, ships, and aircraft entering or leaving the country, compiling statistics on trade volumes, deterring smuggling, and managing bonded warehouses. Authorities collect statistics to provide detailed information on imports and exports, which helps the government understand trade balances, track economic trends, and make informed policy decisions.

Enforcing Quotas restricts the quantity of imported goods to avoid dumping, protect domestic industries, and manage trade balance. Authorities also monitor bonded warehouses to ensure customs duties are paid on stored goods before release.

Customs Duties are charges on imported goods to raise government revenue, support local industries, and deter harmful imports. They include Ad Valorem Duty (charged as a percentage of goods' value) and Specific Duty (charged based on the quantity of goods).

Excise Duty is a charge applied to specific locally produced goods, such as cigarettes and alcohol, to generate government revenue and regulate consumption.

Additional Terms in International Trade

Customs Drawback refers to the refund of customs duty paid on goods that are later re-exported. Entrepôt Trade involves temporarily importing goods for processing before re-exporting them to other countries, often applied to products like diamonds and spirits.