INTERNATIONAL TRADE

Assignment No.1:

Q.1 Discuss the Changing environment of international trade.

Changes in the Global Trade Environment

Changes in the Global Trade Environment

Significant changes in international trade took place in recent decades as the

economy became increasingly globalized. Although it is difficult to clearly separate
the specific phases of globalization, three can be suggested:

• Immobile factors of production. For reasons mainly linked with regulations

(customs restrictions, restrictions on foreign investment and ownership) and
transport costs, commodities (minerals, oil, grain) tended to be the most
traded. International trade mainly took place to cope with scarcity, implying
that countries were trading products that they did not readily have available.
 Any other product which could, in theory, be produced nationally was subject
to a variety of protectionist policies. International transport was dominantly
serviced by bulk point-to-point services since the most suitable mean to this
type of trade.

• Mobility of factors of production. Through the 1970s a new trade regime

came into play, which incited higher mobility of the factors of production,
particularly through foreign direct investments and the diffusion of
containerization. Much of the international trade framework was liberalized
with lower duties and simpler custom procedures. The outcome was a
significant increase in the level of economic efficiency as lower labor (input)
costs and economies of scale were achieved. In several sectors a
concentration of production took place. Cheaper and more efficient
containerized transportation supported such a process to locations that
previously were mainly outside global economic trends, namely China. This
process has long been advocated by economic and trade theory (e.g. Adam
Smith and Ricardo) but never took place at a notable scale. Still, some level of
economic integration existed before the 1970s, such as in North America
(USA – Canada) and Western Europe (early stages of the EU).

• Global value chains. From the 1990s, the application of supply chain
management permitted the emergence of integrated supply chains servicing
global markets. A global division of labor was quickly emerging. By setting or
capturing a value chain, a corporation is able to generate added value and
compete more effectively on global markets. Containerization has become
imbedded in freight distribution, supporting trade flows and acting as
a transport, production and distribution unit.
Q. 2. Write Short notes On:

a) International Incoterms:

Incoterms 2020 rules are the official terms published by the International Chamber
of Commerce (ICC). They are a voluntary, authoritative, globally-accepted, and
adhered-to text for determining the responsibilities of buyers and sellers for the
delivery of goods under sales contracts for international trade. Incoterms closely
correspond to the U.N. Convention on Contracts for the International Sales of
Goods. Incoterms are known and implemented by all major trading nations.

Incoterms are only part of the whole export contract. They don’t say anything about
the price to be paid or the method of payment that is used in the transaction.
Furthermore, Incoterms 2020 rules don’t deal with the transfer of ownership of the
goods, breach of contract, or product liability; all of these issues need to be
considered in the contract of sale. Also, Incoterms 2020 rules can’t override any
mandatory laws.

The Origin of Incoterms

Differences in trading practices and legal interpretations between traders of

different countries necessitated a need for a common set of rules. These rules
needed to be easy to understand by all of the participants in order to prevent
misunderstandings, disputes and litigation.

Incoterms were first conceived by the ICC in 1921, and the first Incoterms rules were
created in 1936. They were officially designated as Incoterms in 1936. Since then,
Incoterms have evolved into a codified worldwide contractual standard. They are
periodically updated as events in international trade occur and require attention.
Amendments and additions were made in 1953, 1967, 1976, 1980, 2000, 2010 and
2020.

Who Decides Incoterms Rules?

It’s no small task to be in charge of an international standard. These international

trade terms are decided upon by 13 ICC commissions made up of experts from the
private sector from across the world. These individuals specialize in everything from
fields of immediate concern to international business.
How Are Incoterms Rules Revised?

The Incoterms 2020 drafting group, led by co-chairs Christoph Martin Radtke and
David Lowe, were in charge of revising the Incoterms rules. According to the ICC,
“The group is formed by experts from various nationalities chosen for their
extraordinary contribution to international commercial law and to the International
Chamber of Commerce along the years.”

Here’s a look at the process followed to revise Incoterms rules:

After the drafting group made its revisions, the revised drafts were circulated
broadly and internationally through ICC National Committees, with the resulting
comments and suggestions channeled back to the drafting group.

The final draft, once approved by the ICC Commission on Commercial Law and
Practice, was submitted for adoption by the ICC Executive Board.

This broad, international consultation aimed to ensure that official ICC products
possess an authority as representing the true consensus viewpoint of the world
business community.

Incoterms 2020 Rules

The most current revision of the terms, Incoterms 2020, went into effect on January
1, 2020, and consists of 11 Incoterms.

The latest revision’s changes include the following:

• The most obvious change is renaming the term Delivered at Terminal (DAT)
to Delivered at Place Unloaded (DPU).

• The most significant change relates to the term Free Carrier (FCA). Under this
term, the buyer can now instruct its carrier to issue a bill of lading with an
on-board notation to the seller so that they may satisfy the terms of a letter
of credit.

• Under the revised term CIP, the seller is now responsible for purchasing a
higher level of insurance coverage—at least 110% of the value of the goods
as detailed in Clause A of the Institute Cargo Clauses. The insurance
requirement hasn't changed for CIF.
• Incoterms 2020 rules recognizes sellers who may use their own transport to
deliver the goods. The terms now expressly state that sellers can make a
contract for carriage or simply arrange for the necessary transportation.

• Incoterms 2020 rules now specifically call out the import and export security
requirements and identify whether the buyer or seller is responsible for
meeting those requirements.
b) Foreign Exchange Determination System :

Foreign Exchange Rate Determination

Foreign Exchange Rate is the amount of domestic currency that must be paid in
order to get a unit of foreign currency. According to Purchasing Power Parity theory,
the foreign exchange rate is determined by the relative purchasing powers of the
two currencies.

Example: If a Mac Donald Burger costs $20 in the USA and Re 100 in India, then the
exchange rate between India and the USA will be (100/20=5), 1 $ = 5 Re.

Forces Behind Exchange Rate Determination

Foreign Exchange is a price of one country currency in relation to other country

currency, which like the price of any other commodity is determined by the demand
and supply factors. The demand and supply of the foreign exchange rate come from
the residents of the respective countries.

Demand for Foreign Exchange (Foreign Supply of Foreign Exchange

Money goes out) (Foreign Money Comes in)

Foreign Currency is needed to carry out The source of foreign currency

transactions in foreign countries or for the available to the domestic country
purchase of foreign goods and services are foreigners purchasing our
(IMPORTS). goods and services (Exports).

Foreigners investing in Indian

Foreign currency is needed to invest in
Stock markets, Assets, Bonds etc.
foreign country assets/shares/bonds etc.
(FPIs and FDIs)

Foreign currency is needed to make transfer Transfer payments. Example:

payments. Example: Indian Parents sending Indian working in the USA,
Money to his/her son/daughter studying in sending money to his/her old
the USA. aged parents.
 Foreigners holding assets in Indian
Indians holding money in overseas Banks
Banks.

Indians Travelling abroad for Tourism

Foreigners travelling to India.
Purpose.

• The DD curve represents the demand for foreign exchange by India. The SS
curve represents the supply of foreign exchange to India.

• The point where both DD and SS curves intersect is the point of equilibrium.
At this point demand for foreign exchange is exactly equal to the supply of
foreign exchange.

• At equilibrium point E0, the exchange rate is 1 $ equal to 5 Re.

• In normal day to day functioning of markets, the exchange rate may

fluctuate. If at any point in time, the exchange rate is at E1, then the demand
for foreign exchange falls short of supply of foreign exchange, as a result at
this point Indians are demanding less foreign currency due to which Re will
appreciate vis-à-vis foreign currency. The appreciation mainly occurs due to a
favourable balance of payment situation (Surplus).
 • By the same token at point E2, demand for foreign exchange is greater than
the supply of foreign exchange, at this point Indians are demanding excess
foreign exchange than what the foreigners are willing to supply, as a result,
at E2 Re will depreciate vis-à-vis foreign currency. The depreciation mainly
occurs due to the unfavourable balance of payments situation(Deficits).

( alternate answers Attached in PDF Format).

Assignment No. 2

Discuss the documentation and custom Clearance Procedure for Imported Goods.

Import Procedure

1. The initial step engaged in importing a product is to accumulate information

about the nations and firms which send out the item required by the exporter. It
can be accumulated from trade directories, trade organizations, and associations.
The exporter readies a quotation otherwise called Performa Invoice and sends it
to the importer.

2. The Importer Consults the export-import (EXIM) Policy in power, all together to
know whether the merchandise that he/she needs to import are subjected to
import licensing or not.

3. In the situation of an import transaction, the provider resides in a foreign nation

and subsequently requests the installment of foreign cash. This includes the trade
of Indian Currency into foreign money. The Exchange Control Department of
the Reserve Bank of India (RBI) manages foreign trade exchange in India.
According to rules, each merchant needs to secure the sanction of foreign trade.

4. The importer puts in an import request or indents with the exporter for the
supply of merchandise. The request contains information with respect to cost,
quality, quantity, size and grade of goods instructions with respect to packaging,
delivery shipping, a method of payment and so on.
 5. At the point when the payment terms concur between the importer and the
overseas provider, the importer gets the letter of credit from its banker and
forwards it to the overseas provider.

6. The importer arranges for money in advance to pay the exporter on arrival of
goods at the port this empowers the importer to avoid huge penalties on the
imported goods lying uncleared at the port for the need of payment.

7. The overseas supplier after loading the merchandise on the ship dispatches the
“Shipment Advice” to the importer. It gives information with respect to the
shipment of goods like receipt number, bill of lading/airway bill, the name of the
ship with date description of merchandise and amount and so forth.

Furthermore,

8. After dispatching the merchandise, the abroad exporter hands over the different
documentation like an invoice, bill of lading, insurance certificate of origin to his banker
for their forward transactions to the importer when he receives the bill of exchange
drawn by the provider. The acknowledgment of a bill of exchange by the importer to get
a confirmation of delivery is known as the retirement of import documents.

9. At the point when the sent merchandise comes in the importer’s nation, the individual
accountable for the merchandise conveys the officer in control at the dock or the airport
about it. The individual responsible for the ship or airway gives the report with respect to
import.

10. Imported merchandise are subjected to customs which is an exceptionally extensive

process and includes a considerable time to complete. The importer more often than not
appoints a C&F operator for completing these customs.

Essentially, the merchant acquires a delivery order which is otherwise called an

endorsement for delivery. This order allows the importer to take to take the delivery of
merchandise subsequent to pay the cargo charges.

Importer likewise needs to pay dock dues for getting port trust dues receipts for which
he submits two duplicates filled in the form is known as “application to import” to the
Landing and “Delivering Dues Office”. Subsequent to paying dock dues the importer gets
back one copy of the application as a receipt which is called as ‘port trust levy receipts’.
At long last, the importer fills in a frame known as ‘bill of entry’ for appraisal of customs
import duty. An inspector inspects the merchandise and gives his report regarding the
bill of entry. This bill is then introduced to the port administration which on getting the
important charges, issues the discharge arrangements.

Documents Used in an Import Transaction

• Proforma Invoice: It is a record that contains points of interest with regards to the
quality, review, design, mass, weight, and cost of the exported merchandise and
the terms and conditions on which their transportation will occur.

• Import order or Indent: It is a documentation in which the importer orders for

supply of imperative merchandise to the supplier. The order containing the data,
for example, amount and nature of merchandise value, a technique for sending
the merchandise, packing process, method of payment and so forth.

• Shipment counsel:– The exporter sends shipment advice to the importer for
telling him that the merchandise has been dispatched. It contains invoice number,
bill of lading/airway bill number and date, the name of the vessel to date, the
port of export, description of products and amount and the date of cruising of
the vessel.

• Bill of lading:– It is readied and marked by the captain of the ship recognizing the
receipt of merchandise on board. It contains terms and conditions on which the
products are to be taken to the destination.

• Bill of entry:– It is a form provided by the customs office to the importer who
filled it at the duration of getting the merchandise. It must be in triplicate and is
to be submitted to the customs office.

• Letter of credit:- It is a document that contains a certification from the

importer bank to the exporter’s bank that it is attempted to respect the payment
up to a specific sum of the bills issued by the exporter for transportation of the
products to the importer.

• Trade Enquiry: It is a written request made by a logistic firm to the abroad

provider for giving data in regards to the cost and different terms and conditions
for trading merchandise.
q.2 Discuss the Meaning and Importance of Global Sourcing.

Global sourcing is the act of searching for a domestic or foreign manufacturer to

produce a product. Besides giving businesses a chance to reduce their manufacturing
costs, this strategy offers many other advantages and possibilities, ranging from
product improvement to compliance to regulations. However, it also comes with
certain risks.

Global sourcing refers to a procurement strategy that a business uses to find the
most cost-effective location for manufacturing one or more of its products. For
instance, if a toy manufacturer discovers that it is more cost-efficient to have its
products manufactured in a foreign country because of the lower wages of
employees in that country, it may shut down its factory and outsource
its manufacturing to a foreign manufacturer instead. Global sourcing involves more
than just searching for products globally. It is also an effort to improve certain
aspects of manufacturing, such as:

• Supplier selection and performance

• Speed to market

• Estimation of product costs

• Trade compliance

• Auditing

Global sourcing may also refer to acquiring components or raw materials that go into
products from other countries, not just the country where the company is
headquartered. For instance, Starbucks purchases its coffee from places such as
Colombia and Guatemala. The main advantages of global sourcing are lower cost and
higher quality. It offers many possibilities for companies, from purchasing the finest
cocoa beans for producing chocolate to buying high-quality yet low-cost aluminum
from Iceland.

Levels of Global Sourcing

There are five levels of global sourcing, including:

• Level 1: Domestic purchases only

• Level 2: International purchases made on an as-needed basis

• Level 3: Sourcing strategy that includes global purchasing

 • Level 4: Centrally-coordinated purchasing across global locations

• Level 5: Global coordination and integration with other functional groups

If you know where your company stands within these levels, you will have the
opportunity to maximize your business's long-term performance. This information
enables you to make informed decisions to take your organization's performance to
another level.

Importance:

Benefits of sourcing overseas

Cost-savings are one of the main advantages of global sourcing. Many foreign suppliers and
manufacturers offer their services at a competitive price, especially in low-cost regions.
Manufacturing costs are generally lower and businesses can often buy goods at a lower unit
price. For businesses with tight budgets, this can be a great way to maximise their bottom line.
However, keep in mind that other factors can affect any potential cost-savings, such as costly
international administration or communication, transport costs or duty rates.

Besides the often-cheaper unit price, other things can tip the scale in favour of sourcing
overseas. For example:

• availability of world-class technology that exists in certain markets

• access to cutting-edge research, design or specialised knowledge
• proximity to raw materials that may be unavailable domestically
• manufacturing capabilities that may unavailable domestically
• higher quality goods compared to domestic products
• a great number of potential suppliers you can choose from
In addition, businesses that source overseas are often able to enhance their competitive
position in the supplier home country by getting to know the market.