Foreign trade Flashcards
Forms of foreign trade
- Pure foreign trade - exchange of goods between a country or union of countries and another country
- International trade - trade between several countries
- Global trade - sum of all foreing trades of countries included in the international division of labour
Causes of foreign trade
- International division of labour
- Resource distribution
- Specialization
- Absolute adventage
- Comparative advantage
International division of labour
Refers to the conception of economic production as internally transnational and internally interdependent on labour power based in different places:
The old IDL refers that labour power enjoys comparative adventage based on finished products
The new IDL defines comparative adventage on the basis of tasks and processes
Resource distribution
Natural resources like land, climate, location, human resources and capital resources determine which products can a country produce
Specialization
When a country produces only a certain products rather than be self-sufficient
Absolute adventage
A country has an absolute adventage if it can produce higher amount of given product with given resources
Comparative adventage
A country has a comparative adventage on a product that it can produce most efficiently given all the products in could produce
Fundamentals principles of foreign trade
- Export of goods which are produced in given country or exit in sufficient amount
- Import of goods which are not produced in given country or don’t exit in sufficient amount
Subjects of foreign trade
Tangible goods
Intagible goods - services, valuable rights
Economic importance of foreign trade
Foreign trade allows countries to specialize in production of products intended for export
Foreign trade increases employement opportunities in exporter’s country
Foreign trade allows countries to gain rising revenues
Foreign trade ensures that products which are not product in a given country can be importet
Foreign trade provides information about products and production technologies of foreign countries
Foreign trade increases competition in given country
Political importance of foreign trade
Consolidates friendly relationships with other countries
World peace
Cultural importance of foreign trade
Foreign trade allows consumers to learn about culture, history, life, art of foreign countries
Internal conditions of countries involved in foreign trade
Natural conditions (climate, natural resources)
Historical conditions
Economic conditions
Technical conditions
Demographic conditions
External conditions of countries involved in foreign trade
Geographical location
The maturity of neighbouring countries
Political and economic relations with neighbouring countries
The international political situation
Interest in good relations and economic co-operation
Negative aspects of foreign trade
Imported products compete with products from domestic producers, because of this, some domestic producers may go out of business.
A country can become too dependent on another country.
Foreign trade operations according to the direction of the goods
Export means sending products across the international border with the aim of selling and exchange of goods
Import means bringing goods of foreign origin into a given country across international border
Re-export means export of products which have already been imported to the given country from another foreign country
Foreign trade operations according to the organisation of purchase and sale
Direct and indirect
Direct export, import, re-export
Export - selling products to the foreign customer without the use of intermediary
Import - buying goods from foreign producer without the use of intermediary
Re-export - selling products to a foreign country purchased in another country without passing through the re-exporter’s country
Indirect export, import, re-export
Export - selling products to a domestic intermediary who will sell the products to the foreign customer
Import - buying products from a domestic intermediary who bought them from a foreign producer
Re-export - importing products from a foreign country to the re-exporter’s country and then exporting them to another country
World trade organisation
Only global organisation dealing with the rules of trade between countries.
Ensures the smooth flow of trade.
Settles trade disputes.
Slovak Investment and Trade Development Agency (SARIO)
It’s aim is to use any type of stimuli to increase the influx of foreign investors.
EXIMBANKA SR
Aim is to support the maximum export volume while ensuring the return on investment through the minimisation of the financial risks.
Structure of foreign trade
The territorial structure of foreign trade
The commodity structure of foreign trade
The territorial structure of foreign trade
The total export and import of products sorted by continets/economic groupings/countries.
Distribution of trade flows between separate countries
EU Export Least: Ireland, Greece
EU Import Least: Finland, Denmark, Greece
EU Export Most: Germany, Czechia
EU Import Most: Czechia, Germany
Non EU Export Least: Brazil, Costa Rica, India
Non EU Import Least: Australia, Argentina, Egypt
Non EU Export Most: US, China
Non EU Import Most: China, Korea
The commodity structure of foreign trade
The total export and import of products sorted by the Harmonized Commodity Description and Coding System.
HS - System of classification that allows countries to classify traded products on common basis for customs purposes.
Most Exported: Machinery, electrical equipment, vehicles
Least Exported: Works of art
Most Imported: Machinery, electrical equipment, vehicles
Least Imported: Works of art
Foreign trade balances
They compare inputs and outputs which are represented by imports and exports
Balance of trade
The difference between the value of imported and exported goods.
The official term for net export that makes up the balance of payments
Favourable balance of trade
Export > Import
Favourable for domestic producers
Unfavourable for consumer cause money
Unfavourable balance of trade
Import > Export
Unfavourable for domestic producers
Favourable for consumer cause money
Equlibrium balance of trade
Export = Import
Balance of payments
It is a statement that monitors every transaction made between entities of a country and the rest of the world over some period of time
International Monetary Fund - guidelines
A balance of payments surplus
Revenues > Expenditures
A balance of payments deficit
Revenues < Expenditures
A balance of payments equilibrium
Revenues = Expenditures
Current account
Measures the foreign trade, the net income on investments and direct payments
Goods, Services, Primary income, Secondary income
Capital account
It includes any financial transactions that don’t affect economic output
Capital transfers, Gross acquisitions
Financial account
It describes the change in international ownership of assets
Direct investment, Portfolio investment, Financial derivatives, Other investment, Reserve assets
Foreign trade legislation
Payment system Act, Commercial code, Foreign exchange act, Decrees of National bank of Slovakia, Customs law, European and International trade law
Commercial treaty
A legal agreement between countries for the purpose of establishing mutual economic relationships. It is an act whereby a definite arrangements are entered into by each contracting party towards each other
It is concluded by the heads of countries and validated by governments
It is concluded for longer period 2 - 5 y
It can be bilateral (2 countries), plurilateral (between more than 2), multilateral (multiple countries)
It governs the tax, legal and customs conditions
Bilateral trade agreement
A formal agreement between two countries for the purpose of specifying conditions of mutual exchange of goods, based on existitng commercial treaty
It is more detailed than a commercial treaty
It is concluded by relevant ministers
It contains a list of contingent goods that can be mutually exported and imported
It governs the licensing and payment methods
Other agreements
Payment agreement - governs mutual payment system methods
Credit agreement - governs mutual credit relations between countries
Co-operation agreement - governs the co-operation between countries in the fields of research, development, education, culture
Foreign trade participants
All entities engaged in foreign trade, they should have relevant information about the situation at foreign market, relevant business contacts and business skills
Trading companies specialized in foreign trade
Industrial companies that perform foreign trade for their own needs
Organisations supported by foreign capital
Individual persons that import foreign products for their own consumption
Business intermediaries
Business intermediaries
They have knowledge of specific goods and foreign markets for which they are intended. They are independent merchants that perform foreign trade operations in favour of commissioner
Sales representative
Has standing business connections with the commissioner and trade in his own name
Obligations: provide information to commmisioner, protect the interests of commissioner, monitor the situation of foreign market
Rights: to receive the brokering commission, the reimburstments of expenses
Broker
Has temporary business connections with the commissioner and trade in his own name
Merchant broker - deals with goods
Stock broker - deals with stock
Shipping broker - mediates the lease of ship space and charters
Insurance broker - conclusion of insurance contracts
Commission agent
Has tspecial business connections with the commissioner and trade in commissioner’s name
Advantages: lower risk, unsold goods are returnd to commissioner, he receives the brokering commissions
Disadvantages: Lower provision, he trades in commissioner’s name
