BASIC CONCEPTS OF INTERNATIONAL TRADE

TERMS OF TRADE

This refers to the trade at which goods and services are exchanged between nations.

When the values of a country’s exports are higher than the value of her imports she is said to have favourable terms of trade.

Unfavourable terms of trade are when a country’s export values are not enough to pay for the imports.

BALANCE OF PAYMENT

This refers to the difference between receipts from imported goods and services and the payments for the goods and services.

Favourable balance of payment is when the receipts exceed the payments.

Unfavourable balance of payment is when the payments are more than the receipts.

BALANCE OF TRADE

This refers to the difference between the values of goods a country imports and the value of exports during a year.

Favourable balance of trade is when a country exports more than it imports during a year. If her imports exceed her exports the difference is called unfavourable balance of trade.

EXCISE DUTY

These are taxes charged on goods which are produced within the country like beer and clothes.

SPECIFIC DUTY

This is a tax levied on the commodity according to the quantity purchased.

ADVOLOREM DUTY

This is the tax imposed on commodities in proportion to their value that is price.

CUSTOMS DRAWBACK

This is a refund of money on the goods where customs duty has been charged and later re-exported.

EXERCISE DRAWBACK

This is the refund of money on goods which have been taxed and are subjected to being exported.

ENTRE-POT TRADE

It refers to re-exportation of goods that were previously imported.

ADVANTAGES OF INTERNATIONAL TRADE

1. It promotes the standard of living of the people through giving a variety of goods and services.
2. The activities involved in foreign trade are able to earn revenue for the government.
3. It enables a country to get what it can not produce for herself.
4. It promotes international peace and understanding among the countries.
5. During times of calamity like foods famine members get help from each other.
6. It enables a country to earn foreign exchange through the exports.
7. It encourages specialisation among the countries where every country concentrates on producing what it can produce best.
8. It provides employment opportunities for the people.
9. It provides market for surplus production which would otherwise have been wasted domestically.
10. It encourages competition between local and foreign producers and leads to improvement in quality and reduction in prices.
11. It enables a country to transfer skills and technology especially from developed countries.

DISADVANTAGES OF INTERNATIONAL TRADE

1. It tends to reduce the rate of growth of domestic industries especially where most of the goods are imported.
2. Because of foreign trade local producers may be out competed by importers.
3. Too much specialisation by a country may be dangerous in case of unexpected fall in demand.
4. It encourages dumping that is selling goods at much lower price than in home market.
5. Balance of payment problems are likely to be experienced if much is spend on imports.
6. It may bring about political instability due to importation of fire arms.
7. Fluctuation of prices may affect countries which depend on the export commodities.
8. Handling charges and taxation makes the final prices of imported goods very expensive.
9. Due to the desire to export and earn more foreign exchange over exploitation of domestic resources is likely to exist.
10. It leads to importation of dangerous and undesirable commodities like expired drugs.
11. International trade may bring about inflation in case you buy goods from a country experiencing inflation.