Introduction:-

Buying and selling of goods & services in our own country is home/domestic trade. Open economy is a country that imports & exports goods & services. Importing: buying goods & services from other countries. Exporting: selling goods & services to other countries. Trade takes place when it is in the interest of both parties. Virtually all economists are free trade advocates. If one nation has a production advantage in one good and another has a production advantage in a second good, the two should work out a trade agreement Specialization & Exchange Specialization increases the potential for maximum production Productivity Cost of Production Lowered Total Production Increased Every modern economy specializes

Nations will export the goods & services they can produce efficiently (cheaper than other nations) and import the goods & services that other nations produce more efficiently Historically, U.S. has had advantages in agriculture and related technology (Farm Equipment, Seed, Etc) Also, in recent years, U.S. has been a leading exporter of computer software and Entertainment goods and services The U.S. used to be a major exporter of steel and textiles, but today other countries have advantages in these products and U.S. has become a major importer Following WWII, U.S. exported petroleum

Direct exporting:Direct exporting involves selling directly to your target customer in market. This could be from New Zealand through the internet and regular trade visits, or by setting up a branch, office or company in the target country. Selling directly to customers prevents other businesses taking parts of your margin. However this approach requires a large commitment of financial and human resources. It takes time to make contacts and build relationships, negotiate deals, understand the market and carry out marketing.

Advantages of direct exporting The advantages of exporting directly are:

you are in control of pricing you are in full control of your brand you get a direct understanding of buyers' or end users' needs and an ability to customise accordingly you maintain the customer relationship you are able to identify possible new opportunities your customers may prefer dealing directly with the producer.

Disadvantages of direct exporting The disadvantages of exporting directly are:

it will take a lot of time, energy, staff resources and money competitors with a local presence will be perceived as lower risk to buy from after-sales commissioning and service may require local language capability daily follow up of genuine leads in-market can come second to business based in New Zealand prompt troubleshooting may not be able to be done remotely and will require additional visits growth will be slower. A commitment to an in-market presence will have to be made at some stage should the business continue to grow.

Getting started 1. Conduct market research and draw up a short list of prequalified customers in each target country.

2. Plan your strategy; either to market from New Zealand, or set up a local presence. Develop an export plan that outlines how you will successfully sell direct.

Indirect exporting:Selling to or through an intermediary is a relatively cheap and straightforward way to enter a new market. Intermediaries are typically agents or distributors based in your target export market who sell your products or services to end users. A good intermediary will have in-market experience, reputation and contacts. Using them can be a quick way to get your products and services to the end user. They will generally require a level of support in the overseas marketing and selling of your product. Some intermediaries are based in New Zealand. Using a New Zealand based intermediary means you will not have to contend with international freighting and customs issues. The disadvantages of using an intermediary are:

the intermediary still requires sales support the intermediary takes a margin you have no direct contact with the end customer you will have less control over the actual final transaction you dont get to learn about the overseas market, which could slow down longer term expansion plans.

Exporting procedure:1. Obtaining import license and quota 2. Obtaining foreign exchange 3. Placing an order 4. Despatching letter of credit 5. Appointing clearing and forwarding agents 6. Receipt of shipment device 7. Receipts of documents 8. Bill of entry 9. Delivary order 10. Clearing of goods 11. Payment to clearing and forwarding agent 12. Payment to exporter 13. Follow up
Step 1. Obtaining import license and quota

In all countries there are many government regulations to be followed. Sanction of government is necessary. Importer has to apply to the controller of imports for getting necessary permission. Importer has to attach the following documents to his application form :-

1. Receipt which shows that import license fee has been paid. 2. Certificate from a Chartered Accountant showing the total value of goods to be imported. 3. Verification Certificate for income tax. An import license may be general or specific. A general license allows imports from any country. But specific license allows imports from specific country only. The importer also has to obtain import quota certificate from the concerned authority. It mentions the maximum quantity of goods which can be imported.

Step 2. Obtaining foreign exchange

Before placing any order, the importer must apply to the Exchange Control Department (ECD) of RBI (India's Central Bank) for the release of requisite foreign exchange. The importer should forward the application through his bank. The ECD verifies the application of the importer, and if found valid, sanctions the foreign exchange for the particular transaction.

Step 3. Placing an order

The importer may either place the order directly or through the indent house (Agent). In case of canalised items, he obtains the imports through the canalizing agency. (Canalisation means channelisation of goods through a government agency like MMTC). The importer cannot directly import such canalized items. They have to place an

order with the canalizing agency who shall import and supply the same.

Step 4. Despatching letter of credit

After getting the confirmation from the supplier regarding the supply of goods, the importer requests his bank to issue a Letter of credit in favour of supplier. It can be defied as "an undertaking by importer's bank stating that payment will be made to the exporter if the required documents are presented to the bank".

Step 5. Appointing clearing and forwarding agents

The importer makes arrangement to appoint clearing and forwarding agents to clear the goods from the customs. Since clearing of goods is a specialized job, it is better to appoint C & F agents.

Step 6. Receipt of shipment device

The importer receives the shipment advice from the exporter. The shipment advice states the date on which the goods are loaded on the ship. The shipment advice helps the importer to make arrangement for clearance of goods.

Step 7. Receipts of documents

The importer's bank receives the documents from the exporter's bank. The documents include bill of exchange, a copy of bill of lading, certificate of origin, commercial invoice, consular invoice, packing list, and other relevant documents. The importer makes payment to the bank (if not paid earlier) and collects the documents.

Step 8. Bill of entry

This is a document required in case of import of goods. It is like shipping bill in case of exports. A Bill of Entry is the document testifying the fact that goods of the stated value and description in specified quantity are entering into the country from abroad. The customs office supplies this form which is prepared in triplicate. Three different colours are used to prepare bill of entry.One copy is retained by custom department, other is retained by port trust and the third is kept by the importer.

Step 9. Delivary order

The clearing agents obtains the delivery order from the office of the shipping company. The shipping company gives the delivery order only after payment of freight, if any.

Step 10. Clearing of goods

The clearing agent pays the necessary dock or port trust dues and obtains the port Trust Receipt in two copies. He then approaches the Customs House and presents one copy of Port Trust Receipt, and two copies of Bill of. Entry to the customs authorities. The customs officer endorses the Bill of Entry Forms and one copy of Bill of Entry is handed back to the importer. The importer then pays the customs duty and clears the goods. In case, the customs duty is not paid, then the goods are stored in the bonded warehouses. As and when the duty is paid, the goods are cleared from the docks.

Step 11. Payment to clearing and forwarding agent

The importer then makes the necessary payment to the clearing agent for his various expenses and fees.

Step 12. Payment to exporter

The importer has to make payment to exporter. Usually, the exporter draws a bill of exchange. The importer has to accept the bill and make payment.

Step 13. Follow up The importer then informs the exporter about the receipt of goods. If there are any discrepancies or damages to the goods, he should inform the exporter.

Import Procedures :-

e-filing of documents Import manifest or Import Report Entry Inwards Risk Management System Bill of Entry for home consumption on payment of customs duty

Goods should arrive at customs port/airport only. Most of customs procedures are computerised. E-filing of documents is required. Person in charge of conveyance is required to submit Import Manifest or Import Report. Goods can be unloaded only after grant of Entry Inwards. Self Assessment on basis of Risk Management System (RMS) has been introduced in respect of specified goods and importers. Importer has to submit Bill of Entry giving details of goods being imported, along with required documents. Electronic submission of documents is done in major ports. White Bill of Entry is for home consumption. Imported goods are cleared on payment of customs duty. Yellow Bill of Entry is for warehousing. It is also termed as into bond Bill of Entry as bond is executed. Duty is not paid and imported goods are transferred to warehouse where these are stored. Green Bill of Entry is for clearance from warehouse on payment of customs duty. It is for ex-bond clearance. Bill of Entry is noted, Goods are assessed to duty, examined and pre-audit is carried out. Customs duty is paid after assessment. Bond is executed if required if assessment is provisional (PD bond) or concessional rate of customs duty is subject to certain post import conditions. Goods can be cleared outside port after Out of Customs Charge order is issued by customs officer. After that, port dues, demurrage and other charges are paid and goods are cleared. Demurrage is payable if goods are not cleared from port/airport within three days. Goods can be disposed of if not cleared from port within 30 days.

Bill of Entry for warehousing

Noting, examination and assessment Bond

Out of customs charge order

Demurrage if clearance from port delayed

Trade imbalance:Trade imbalance is a common term that appears in economics. The correct definition of trade imbalance or balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. In other words, it is the relationship between any nations imported products and exported products. A positive balance is when the amount of exports is greater than the amount of imports, and this is known as a trade surplus. Whereas the opposite (a negative balance), where there are greater imports than exports, is known as a trade deficit or trade gap. Like most things in economics, a balance of trade is not really something that can be predicted as it is forever changing every single day. In export-led growths such as oil and other industrial goods, the balance of trade has been found to greatly improve when an economic expansion is occurring. However, in the case of domestic demand led growth, for example in the United States and Australia, the trade balance will always worsen at the same stage in the business cycle. Overall though, the balance of trade is likely to vary at different stages of the business cycle. There are a number of factors that can affect the overall balance of trade. Some of these include: The cost of

production in the exporting company, the availability and cost of raw materials that are used to create these products, the current exchange rates, any unilateral, bilateral or multilateral taxes or restrictions that impede the movement of certain products and the current prices of goods that are manufactured at home. Small trade deficits, a negative balance, are generally not viewed as being a great threat to both the importing and exporting companies. However, if these small deficits continue to grow and expand then problems could be encountered.

Balance of Trade/Payments can be.

Surplus: Exports greater than Imports Deficit: Imports greater than Exports Balanced: Exports = Imports

What problems will a Balance of Payments deficit cause?

-Too much money leaving the country. -Government will have to raise taxes of borrow. -Irish people will loose their jobs.

Free Trade:Countries can buy and sell without any trade barriers or restricitions eg. customs duties being imposed. The 27 countries of the EU enjoy free trade.

Protectionism:Countries try to stop foreign imports. Countries try to help their own businesses export. They do this by using trade barriers. Eg. Tariff, quota, embargo, subsidy. Trade Barriers:1. Tariff: Is a tax that a coutry adds on to imports. Eg. customs duty/import duty. This makes imports dearer & less attractive to consumers.

2. Quota: Countries put a limit on the amount of a good that can be imported. Consumers then must by from indigenous businesses. The EU has a quota on the no. of Chinese garments it will allow into the EU.

3. Embargo: Countries puts a complete ban on goods being imported from a certain country. Consumers have no choice but to buy home produce. The USA has a trade embargo with Cuba. During apartheid Ireland had a trade embargo with South Africa. 4.Subsidy: Is a direct payment to a producer. It reduces the cost of production.

 It makes exports cheaper. It boosts employment. It improves the balance of trade. World Trade Agreements and Free Trade Zones: Mercosur (Argentina, Brazil, Paraguay and Uruguay with associate members Bolivia and Peru [1991] Fourth largest integrated market in the world after NAFTA and EU Eliminated all tariffs within the region while establishing common tariffs for products coming from outside the region However, some trade restrictions among the members have remained General Agreement on Trade and Tariffs (GATT) [1947] Ultimately signed by 146 nations Uniform system of rules for conduct of international trade Advantages for the U.S. Foreign nations generally impose more trade restrictions than the U.S.

 Intellectual property rights addressed such as patents, copyrights, trademarks Open markets for business services such as advertising, accounting, computer services, and engineering where U.S. excels Agriculture supposed to come under international trade rules World Trade Organization [1995] as a successor to GATT Liberalization of Trade Nondiscrimination Most favored nation status defined Members must offer all other members granted status the same trade concessions No unfair encouragement of exports Reductions of subsidies that encourage exports Been a major point of contention among all nations

World Trade Agreements & Free Trade Zones: Examples of Free Trade Agreements General Agreement on Trade and Tariffs (GATT) [1947]

 World Trade Organization [1995] European Union [1992] North American Free Trade Agreement [1993] Central American Free Trade Agreement [Pending?]