WEEK 1

FOREIGN TRADE / INTERNATIONAL TRADE.

Foreign trade, otherwise called international trade is the buying and selling of goods and services between residents of two or more countries. It also involves exchange of services between two or more countries. The principle underlying the buying and selling between one country and another is specialisation.

REASONS FOR FOREIGN TRADE

            Foreign trade has assumed a significant dimension for two important reasons. 

1.  There is inequality in distribution of natural resources among the nations of the world.
2. Nations differ in efficiency and technology in the use of natural resources for the production of goods .It is therefore desired for nations to export those goods which they can produce with greater relative efficiency in exchange for those goods which they cannot produce efficiently. Other reasons may include :
3. Differences in climatic condition which gives rise to growth of different crops.
4. Expansion of market for products i.e. to widen the market for goods produced by a country.
5. Differences between pattern of production and consumption
6. Desire to improve the standard of living of the people.

Division of foreign trade

Foreign trade: there are three divisions or types of foreign trade

1. Import
2. Export
3. Entreport . 

Goods brought into Nigeria for sale are called imports while goods dispatched from Nigeria for sale in other countries are called exports.  Imports and exports may be visible or invisible items.  Visible items indicate tangible goods which move between countries e.g. cars and electronics move into Nigeria from other countries. While crude, petroleum, palm oil and cocoa move out of Nigeria into other countries.  Invisible items are mere services which require payments of money. For instance Nigeria pays for services rendered in Nigeria by non-Nigerians.  In the same vein, Nigeria receives payment for services rendered by Nigerians in other countries. These services could be educational, cultural, commercial etc.

Entreport : Entreport  trade occurs when a member of a trading block (like the ECOWAS) charges lower tariffs to countries outside the trading block to win trade and then re-exports the same goods  tariff- free within the trading block(i.e. to other members of the trading block).  It involves export without further transformation or processing –i.e.  in the same state as the goods had earlier been imported from outside the trading block.

 In simple terms, it is a trade that refers to importing of goods into a country and exporting them in virtually the same conditions to another country. An example would be, if a Ghanaian resident imports electronics from the UK to Ghana and then exports it to Nigeria (in practically the same state, i.e. without processing the goods further before exporting them to Nigeria.

Advantages of foreign trade  

1. Increase in standard of living through exchange of different goods and services among countries.
2. Sources of revenue: Nigeria derives 90% of its revenue from the sale of crude oil to other countries.  taxes can also be imposed on exported and imported goods.
3. Promotion of economic development.
4. Provision of employment opportunities.
5. It leads to international specialisation.
6. Increase in world output.
7. Availability of variety of goods.
8. Acquisition of skills and ideas.
9. It fosters closer  international relationship
10. Equitable distribution of natural resources.

Disadvantages of international trade 

1. Encouragement of dumping
2. It affects infant industries
3. Destruction of cultural values of a country.
4. Importation of dangerous or harmful goods.
5. Creation of balance of payment deficit 
6. Unemployment
7. Reduction of efforts to attain self reliance.

                Assessment questions   

1a. What is international trade?

b.  What are the reasons for foreign trade ?

2a. What five benefits does Nigeria derive from engaging in foreign trade?

Sir Bede.

Happy resumption .

WEEK 2

 PROCEDURES FOR INTERNATIONAL TRADE 

Discussed here are the methods of international trade and the functions of each method.

1. Advertisement and Circulars :  
   • Goods can be advertised in the trade journals which circulate in countries of the potential importers similarly; circulars and catalogues can be dispatched to the potential customers.
2. Representatives :
   • Nigeria exporters employ representatives or agents in countries which hold potential for customers. The duty of such representatives would be to establish contacts with foreigners interested in Nigerian goods. In the same way, representatives of foreign organisations can be asked to visit Nigeria in order to see for themselves Nigerian export items. The representatives can then make selection from the available items.
3. Opening of depots abroad :
   • Nigerian exporters can open depots abroad. Such depots serve as showrooms for prospective customers. Foreign organisations interested in opening a trading link with Nigeria may similarly open depots in Nigeria as outlets for their goods.
4. Trade fairs and exhibitions :
   • By attending trade fairs and exhibitions in other countries, Nigerian exporters can get their goods exposed to potential foreign buyer. Also, by organising international trade fair within Nigeria, Nigerian exportable items are exposed to potential foreign buyers.

Other important procedures include:

1. Trade inquiries
2. Getting important license
3. Procurement of foreign exchange
4. Order placement
5. Letter of credit
6. Arranging payments
7. Advice of shipment
8. Important documents     

AGENTS EMPLOYED IN FOREIGN TRADE   

In order to minimise the problems created by the barriers of foreign trade, different types of agents are employed in foreign trade. This includes:

1. Import merchants :
   • Essentially, import merchants are middle men between importers and exporters. It is the duty of import merchants to convey the goods from the ports of entry into the warehouse, and then to effect distribution of such goods. 
2. Import agents :
   • Foreign suppliers often appoint selling agents in other countries. It is the responsibility of the foreign suppliers to convey the goods into Nigeria. In this transaction, the foreign suppliers are known as principals. The role of the import agents in Nigeria is to sell the goods and remit the net proceeds to the principals. An import agent has an insurable interest in the goods, can give credit and receive payments.
3. Import brokers:
   • An import broker is an agent whose role is to get foreign buyers for Nigerian exportable goods. The import broker also links the Nigerian exporter with foreign buyers. Many import brokers do not specialise in any particular line of product but merely take advantage of favourable market conditions.
4. Del credere  agents:
   • These are foreign trade agents who receive additional commission, called del credere, if they can guarantee immediate payment for any consignment dispatched to an importer.  

Bilateral and multilateral foreign trade.

Bilateral trade, which is also called reciprocal trade or countertrade is a trade between two countries whereby exports to and imports from each other are made to be equal. That is import from one country are offset by export to that country. By this, the use of foreign currency to pay for import and receipt of foreign exchange from export become unnecessary or even inapplicable.

 Multilateral trade

Multilateral trade is foreign trade whereby the exports to and imports from a particular trading partner do not have to be related, as exporters are  not required to reciprocate by also importing from the buying country. This means that trade between any two trading partners would not normally balance.  

Sir Bede  Madu.

Stay safe.

Best of luck.

WEEK 3

 PROBLEMS ENCOUNTERED IN INTERNATIONAL TRADE (challenges of international trade) OR BARRIERS TO FOREIGN TRADE.

1. Differences between the domestic currency and the currencies of other countries.
2. Factors of production are less mobile between nations. This importers and exporters cannot travel freely across borders but have to subject themselves to travel regulations including that of entry visa.
3. Artificial barriers such as tariffs (tax on imported goods), quotas and exchange controls serve to restrict movements of goods across the borders of trading countries.
4. Transport, postal and telecommunications facilities often pose problems  for foreign trade.
5. Natural barriers such as differences in languages and customs serve to restrict the movement of goods across the borders of trading nations.
6. The distance between nations is a clear barrier to foreign trade the greater the distance between nations the greater the cost of transport.
7. Political differences between nations can and do affect trade between nations e.g  some decades ago, Nigeria did not trade with south Africa because of the apartheid  policy of the government in south Africa then.
8. There is also a greater difference in the legal system including pieces of legislation or laws that affect buying and selling.
9. Units of measurements do often vary from one country to another. These units of measurements include weight, lengths, volumes etc. . Since buyers and sellers do not use the same measures, inaccuracies are likely to arise in the quantities of goods supplied.

KEY DIFFERENCES BETWEEN HOME TRADE AND FOREIGN TRADE.

Domestic and foreign types of trade differ in good number of respects including the following

1. Means of payments could differ in domestic trade, payments are normally made in domestic currency as opposed to foreign currency. But  in foreign trade payments are made in many cases, in foreign currency which can be the currency of the home country of the seller or alternatively an internationally accepted currency,  like the US dollar or the British pound.
2. Legal and regulatory requirements often differ. In home trade the technical qualities of the traded goods and services are supposed to meet only the domestic laws, rules and regulation for instance, goods traded within Nigeria are supposed to meet only the regulations prescribed by the standard  organisation of Nigeria (SON) and the NAFDAC among others. For instance commodities bought in china would often have to meet not only the Chinese specifications but also the Nigerian regulatory requirements, including those required by NAFDAC, SON etc.
3. Trade barriers exit in international trade unlike in home trade. In home trade, restrictions such  as customs duties, exchange restrictions, fixed quotas or embargos do not exist since the goods only move within the country. In foreign trade such restrictions exist serving to restrict the movement of specific goods to specified countries.
4. Units of measurements may not be the same between trading partner countries. Units of measurements may differ across the countries involved in foreign trade.
5. Cultural differences are often more pronounced between different countries than within a particular country. These pertain to language, religion, attitudes Etc. The same applies to physical outlook including height as well as the colour of the skin and texture of the hair. All these affect the type of goods and services  required by the would be buyers and sellers have to take into considerations.
6. Greater distances are also often involved in international trade. Distance is yet another area of difference. In most cases commodities trade across borders have to transported or shipped over longer distances, than the distance involved in home trade.
7. Most complicated type of documents and documentations are involved in foreign trade. The types of documents involved in foreign trade( eg  certificate of origin, packing list) are greater than those involved in home trade. Also the relatively few documents used in home trade are comparatively simple and easy to understand and follow than the various sets of documents which must be filled in every instant of foreign trade.
8. Volumes involved in foreign trade are often greater. While most of the sales and purchase made in foreign trade are in large bulks, sometimes taking a whole ship to carry. Sales and purchase made in domestic trade are in small lots, with just a lorry or at most a truck or trailer, the goods are carried.
9. Many traders are not resident in the country where they trade internationally leading to a high degree of inequality in access to market information. In domestic trade, all traders are resident in the country where they do business.
10. Greater risks exist in foreign trade. Political and diplomatic risks (eg  sudden development of hostility and war between the trading partner countries exist in foreign trade)

SIMILARITIES BETWEEN THE HOME TRADE AND FOREIGN TRADE 

Despite the differences there are a number of similarities between the foreign trade and the home trade. The important areas of similarities are as follows

1. Both trade need ancillary services :  AS they are both trade, they need ancilliary services namely transport communication, warehousing, advertising, banking  and insurance for instance goods have to be transported in both home and foreign trade.
2. Both need substantial documents and documentations : Although the requirements for documentation and documents are higher for trade, both need a lot of these more than most forms of productive activities.
3. High labour intensity and low capital intensity : both are labour intensive to carry out and they are less automated or capital intensive, especially when compared with primary and secondary production activities. Like mining and manufacturing.

SIR BEDE.

 STAY SAFE.

WEEK 4

WHY  TARIFF  AND   PROTECTIONIST  LAWS   ARE  IMPOSED .

Tariffs or restrictions to trade.

Definition:  Tariffs are taxes or duties imposed on imported and exports by the government of  a country. The idea behind tariffs is to restrict the volume of trade or improve the international terms of trade.  The reasons why countries impose tariffs or restrictions on international trade include the following.

1. To  protect infant industries.
   • Tariffs are imposed to protect infant industries from undue completion with foreign firms.
2. Generation of revenue.
   • Tariffs are imposed to generate revenue for the country. Many countries derive their revenue from import and export duties.
3. To prevent dumping.
   •  Tariffs are also imposed to prevent dumping of goods  from foreign countries this is to prevent foreign goods from being sold at prices lower than the home prices.
4. To improve balance of payments deficit. By imposing tariffs on imported goods the unfavourable balance of payments can be corrected, because importation will be discouraged.
5. Retaliatory Measures. This can be used in retaliation against countries which impose taxes on their import. This encourages trade negotiations.
6. To prevent importation of dangerous goods. Dangerous or harmful goods from other countries are prevented from being imported through restriction.
7. Employment generation. Countries impose tariffs to encourage the establishment of local industries or enhance the expansion and growth of existing ones so as to provide job opportunities
8. Political motive. Tariffs can be introduced as discriminatory measure against unfriendly countries.
9. To promote self sufficiency. Tariff are also imposed on imported goods to enable a country be self sufficient in production of numerous goods

EXPORT  PROMOTION  OR  EXPORT DRIVE 

Export  promotion, also called export drive  is defined as any policy by which government encourages producers of goods for export to produce and export more in order to earn more foreign exchange.  

MEASURES TAKEN BY GOVERNMENT TOWARDS EXPORT PROMOTION.

1. Reduction of export duties. Export can be promoted by reducing export duties.
2. Subsidy for export based industries. The cost of producing commodities  by export based industries can be subsidised.
3. Granting of tax incentives. Tax incentives can be given to export based industries.
4. Setting up of export promotion agencies. Export promotion agencies to encourage exporters can be set up eg export processing zone (EPZ) in Calabar.
5. Retention of part of foreign exchange earned by exporter.
6. Infrastructural development .  Infrastructural facilities like seaports, airports, and communication should be developed so as to facilitate or promote exportation of goods.
7. Reduction of freight rate.  Freight rate on exports can be reduced to encourage exporters.
8. Granting of credit facilities. Credit facilities can be granted or offered to exporters in order to promote export.
9. Devaluation of local currency. This is reduction of the value of our local currency
10. Organising international trade fairs. 

Sir Bede.

Thanks and stay safe.

WEEK 5

TOOLS OR INSTRUMENTS OF TRADE RESTRICTIONS

The main types of trade restrictions are

1. Tariffs
2. Quota
3. Embargoes
4. Licensing   requirements
5. Foreign exchange control
6. Devaluation of currency
7. Import monopoly
8. Preferential duties
9. Standards
10. Subsidies

1. TARIFFS: Tariffs are taxes or duties imposed on imports and exports by the government of the country.
2. QUOTA: Import quota restricts imports by imposing a limit on the quantity of goods that can be imported in a particular country.
3. EMBARGOES: This is the prohibition or the outright ban placed on some imported goods.
4. LICENSING REQUIREMENTS: Import licence is a permit that allows an importer to bring a certain quantity of foreign goods into a country and allows him to purchase the foreign currency required to pay for them.
5. FOREIGN EXCHANGECONTROL: Trade can be controlled by reducing the foreign exchange available for trade transactions.
6. Devaluation of currency: By lowering the country’s vis-a-avis others, importation becomes costly which export becomes cheaper.
7. IMPORT MONOPOLY: This refers to the situation in which government of a country takes over the importation of certain goods which are only essential to the country.
8. PREFERENTIAL DUTIES: In order to either discourage or encourage the importation of certain goods discriminate duties are charged.
9. STANDARDS: Importing only standardised goods into the country which are approved by regulatory bodies like NAFDAC etc.
10. SUBSIDIES: Government financial support to manufacturing companies in order to encourage them produce more of local goods.

WHY DO WE BLOCK TRADE

1. To halt unemployment in the country.
2. To protect crucial domestic industries.
3. To protect new infant industries in the country.
4. To isolate and punish totalitarian government and regimes that support terrorism, genocide and nuclear weapon programs.

ASSESSMENT   QUESTIONS

1. What are all the different types of trade restriction.
2. How does each one work.