Foreign Trade

Chapter No. 1 Page No. 2

International Finance
FOREIGN TRADE CONSUMER PROTECTION IN INDIA

FOREIGN TRADE

FOREIGN TRADE OF A COUNTRY IS :
ITS EXPORTS AND IMPORTS OF MERCHANDISE FROM
AND TO OTHER COUNTRIES UNDER CONTRACT OF
SALE.

NO COUNTRY IN THE WORLD PRODUCES ALL THE
COMMODITIES IT REQUIRES.

THE COMMODITIES WHICH A COUNTRY PRODUCES IS
AT ADVANTAGE, BECAUSE IT CAN EXPORT.



INLAND TRADE:

IF THE PURCHASER AND THE SELLER ARE THE
RESIDENTS IN THE SAME COUNTRY AND DO THE
BUSINESS.

FOREIGN TRADE / INTERNATIONAL TRADE:

WHEN THE RESIDENTS OF TWO OR MORE DIFFERENT
COUNTRIES DO THE TRANSACTIONS OF SALE AND
PURCHASE OF GOODS OR SERVICES.



FEATURES OF FOREIGN TRADE:

INVOLVEMENT OF DIFFERENT MONETARY UNITS.

IMPOSITION OF RESTRICTIONS IN IMPORT AND
EXPORT BY VARIOUS COUNTRIES.

IMPOSITION OF RESTRICTIONS ON RELEASE OF
FOREIGN CURRENCIES.

EXISTENCE OF MULTIPLE REGULATIONS, LEGAL
PRACTICES AND RULES IN DIFFERENT COUNTRIES.



IMPORT

FOREIGN TRADE: EXPORT

IMPORT: IF THE SELLER IS ABROAD, AND THE BUYER IS IN
THE HOME COUNTRY.

EXPORT: WHEN THE SELLER IS IN THE HOME COUNTRY
AND THE PURCHASER IS ABROAD.
_____________________________________________________
VISIBLE TRADE : WHICH CAN BE SEEN e.g. TRADE OF
GOODS
INVISIBLE TRADE: WHICH CAN NOT BE SEEN e.g.
EXCHANGE OF SERVICES (TRANSFER OF TECHNICAL KNOW
HOW)



DUMPING:
MANUFACTURERS WHO SEND THEIR GOODS FOR
SALE AT PRICES BELOW THEIR COST OF PRODUCTION
TO MARKETS IN WHICH THEY DID NOT NORMALLY
SELL.
DUMPING

SPORADIC PREDATORY PERSISTENT

WHEN A MANUFACTURER SELLS ABROAD AT A HIGHER PRICE
THAN AT HOME IS A REVERSE DUMPING.



BALANCE OF TRADE:

DIFFERENCE BETWEEN A COUNTRY’S IMPORTS OF
MERCHANDISE AND ITS EXPORTS.

WHEN A COUNTRY EXPORTS COMMODITIES IT GAINS
FOREIGN EXCHANGE.

IF THE IMPORTS EXCEEDS EXPORTS, IT RESULTS IN
NET PAYMENT BY THE COUNTRY OF FOREIGN
EXCHANGE TO OTHER COUNTRIES.



TO COME OUT OF
THE UNFAVORABLE BALANCE OF TRADE POSITION

CORRECTIVE MEASURES :

EXPORT PROMOTION.
IMPORT RESTRICTIONS.
FINANCE.
MONETARY MEASURES.
FISCAL MEASURES.
DEVALUATION.



BALANCE OF PAYMENTS

IT IS A SYSTEMATIC RECORD OF ALL THE ECONOMIC
TRANSACTIONS BETWEEN THE RESIDENTS OF THAT
COUNTRY AND THE RESIDENTS OF FOREIGN
COUNTRIES DURING A GIVEN PERIOD.

THE BALANCE OF PAYMENT ACCOUNTING HAS TWO
TYPES:

1. CURRENT ACCOUNT.
2. CAPITAL ACCOUNT.



DISEQUILIBRIUM

THE DEBIT AND CREDIT ITEMS IN A BALANCE OF
PAYMENTS SELDOM BALANCE.

RESULT

THE BALANCE OF PAYMENTS IS EITHER IN SURPLUS
OR IN DEFICIT.



CORRECTING THE DEFICIT

IMPORT CURTAIL: RESULTS IN BALANCE OF PAYMENTS
IMPROVE, BUT WHEN IMPORTS CONSISTS OF RAW
MATERIALS IT MAY NOT BE WISE TO RESTRICT.

EXPORT PROMOTION: (MEASURES) REDUCING THE RATE
OF INTEREST, GIVING PACKING CREDIT AND EXPORT BILL
PURCHASES, DUTY DRAWBACKS, CASH INCENTIVES
ABOLISHING EXPORT DUTY.

MONETARY MEASURE: IF EXCESSIVE PURCHASING POWER
OF A COUNTRY COMPARED WITH THE AVAILABLE SUPPLY,
LENDING BANKS ARE RESTRICTED BY RAISING THE
STATUTORY LIQUIDITY RATIO AND / OR BY OPEN MARKET
OPERATIONS BY THE CENTRAL BANK.
CONT…..



CORRECTING THE DEFICIT

FISCAL MEASURES: THESE RELATE TO A GOVT.’S
REVENUE AND EXPENDITURE AND INCLUDE
BUDGETING FOR A SURPLUS BY PRUNING ITS OWN
EXPENDITURE, LEVYING HIGH TAXES, EXTENDING THE
AREAS OF TAXES.

DEVALUATION: REDUCTION BY THE GOVT. IN THE
COUNTRY’S OFFICIAL RATE OF EXCHANGE BETWEEN
ITS OWN CURRENCY AND OTHER CURRENCIES. THIS IS
EFFECTED BY REDUCING THE PAR VALUE OF THE
CURRENCY IN TERMS OF GOLD.



FOREIGN CONTRACTS
CONTRACTS SPECIFY:
QUALITY.
QUANTITY.
PRICE.
PERIOD OF SUPPLY.
MODE OF DELIVERY.
TERMS OF PAYMENT OF GOODS.
FREIGHT AND INSURANCE CHARGES AND THEIR MODE
OF PAYMENT.



FOREIGN CONTRACTS
c.i.f. (COST, INSURANCE AND FREIGHT) :
COST: GOODS SHOULD BE INVOICED AT THE AGREED
PRICE.
INSURANCE: FULLY COVERED BY INSURANCE BY THE
SELLER.
FREIGHT: REQUIRED FREIGHT SHOULD BE PREPAID BY THE
SELLER.
c.& f. (COST AND FREIGHT)
COST: GOODS SHOULD BE INVOICED AT THE AGREED
PRICE.
FREIGHT: SHOULD BE PREPAID BY THE SELLER.
o INSURANCE IS THE CONCERN OF THE BUYER.



FOREIGN CONTRACTS

f.o.b. (FREE ON BOARD)
BUYER NAMES THE VESSEL AND SPECIFIES THE DATE
BY WHICH THE GOODS ARE TO BE SHIPPED. THE
RESPONSIBILITY OF THE SELLER CEASES THE
MOMENT THE GOODS SOLD ARE PLACED ON BOARD.
ALL EXPENSES BORNE ARE INCLUDED IN THE
INVOICE.

f.a.s. (FREE ALONGSIDE SHIP)
SELLER IS RESPONSIBLE FOR THE DELIVERY OF THE
GOODS WITHIN THE SPECIFIED TIME ALONGSIDE THE
SHIP. ALL EXPENSES BORNE ARE TO THE ACCOUNT
OF BUYER.



INTERNATIONAL TRADE AGREEMENTS / INSTITUTIONS

GATT

G.A.T.T. IS THE ABBREVIATION OF THE GENERAL
AGREEMENT ON TARIFFS AND TRADE, WHICH WAS
SIGNED AT GENEVA BY 23 COUNTRIES IN 1947,
EFFECTIVE JANUARY 1948. IT IS A WORLD
ORGANIZATION DESIGNED TO BRING ABOUT THE
MAXIMUM POSSIBLE RATE OF GROWTH IN WORLD
TRADE BY REDUCING TARIFF BARRIERS AMONG THE
MEMBER COUNTRIES.



SPECIAL FEATURES OF DUNKEL DRAFT
a) REMOVING NON-TARIFF BARRIER TO TRADE OF
AGRICULTURAL COMMODITIES.

b) THE ORDINARY CUSTOMS DUTIES SHALL BE REDUCED BY
36% WITHIN A MINIMUM RATE OF REDUCTION OF 15% FOR
EACH TARIFF BETWEEN THE YEAR 1993 TO 1999.

c) EVERY COUNTRY WILL HAVE TO IMPORT MINIMUM 3% OF
THEIR CORRESPONDING DOMESTIC CONSUMPTION.

d) EXPORT SUBSIDIES ON AGRICULTURE PRODUCTS SHALL
BE REDUCED BY DEVELOPING COUNTRIES AT 24% OF
BUDGETARY OUTLAY AND 16% QUANTITATIVE OUTLAY
WITH ABOVE REQUIREMENTS.




TRIMS: AS PER REQUIREMENTS ALL EXPORT
SUBSIDIES ARE PROPOSED TO BE
ABOLISHED.

TRIPS: THE INDIAN PATENTS ACT WOULD BE
REQUIRED TO BE AMENDED WITHIN A
PERIOD OF 5 TO 10 YEARS.

SERVICES: TELECOM, HOTEL, CONSTRUCTIONS,
COMPUTER AND MEDICAL SERVICES WILL
BE OPEN TO FOREIGN FIRMS. CONT….



TEXTILE & CLOTHING:

QUANTITATIVE RESTRICTIONS ON TEXTILE IMPORTS FROM
INDIA BY EUROPEAN COUNTRIES. TARIFFS ON IMPORTS BY
EUROPEAN COMMUNITY ARE PROPOSED TO BE REDUCED.

AGRICULTURE:

DUE TO REDUCTION IN SUBSIDIES BY THE MEMBER
COUNTRIES, THE PRICE OF AGRO-PRODUCTS ARE
EXPECTED TO GO UP AND INDIAN EXPORTERS CAN FETCH
BETTER PRICES AND DUE TO SEED PATENTING, THE INDIAN
FARMERS CAN GET A BETTER QUALITY.



UNDER THE TERMS OF AGREEMENT

INDIA WAS TO MEET ALL OBLIGATIONS TILL YEAR 2005, OF THE
TRIPS AGREEMENT.

INDIA HAS TO ACCEPT APPLICATIONS FOR PRODUCT PATENTS
ON PHARMACEUTICALS AND AGRICULTURE CHEMICALS.

INDIA HAS TO GIVE EXCLUSIVE MARKETING RIGHTS FOR 5 YEARS
TO HOLDERS OF PRODUCT PATENTS ISSUED IN ANOTHER WTO
MEMBER COUNTRY.

AFTER 2005 INDIA WILL HAVE TO PROVIDE PATENT PROTECTION
TO PHARMACEUTICAL PRODUCTS IN ADDITION TO PRODUCTION
PROCESSES UNDER INDIA PATENTS ACT 1970.



THE EUROPEAN ECONOMIC COMMUNITY (EEC)
(EUROPEAN COMMON MARKET)

THE TREATY PROVIDES FOR FREE MOVEMENT OF
GOODS, PERSONS, SERVICES AND CAPITAL AMONG
THE MEMBER COUNTRIES, AND HAS LED TO THE
ESTABLISHMENT OF A CUSTOMS UNION AMONGST
THEM IN ORDER TO CORRECT THE DISEQUILIBRIUM IN
THE BALANCE OF PAYMENTS.

(FRANCE, WEST GERMANY, ITALY, BELGIUM, HOLLAND AND
LUXEMBOURG)



OPEC

(ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES)

CONSISTS OF

IRAQ, SAUDI ARABIA, UAE, KUWAIT, ALGIERS, LIBYA,
NIGERIA, INDONESIA, VENEZUELA, EQUADOR etc.

CONTROLS THE PRICES OF PETROL AND PETROLEUM
PRODUCTS AND PROTECTS THE INTEREST.



ASIAN CLEARING UNION (ACU)

HEAD QUARTER TEHERAN (IRAN)

ESTABLISHED ON 9TH DECEMBER1947
MEMBERS:
THE RESERVE BANK OF INDIA.
THE BANGLADESH BANK.
THE BANK OF MARKAZI OF IRAN.
THE NEPAL RASHTRA BANK.
THE STATE BANK OF PAKISTAN.
THE CENTRAL BANK OF SRI LANKA.
THE UNION OF BURMA BANK. (JOINED IN APRIL 1977)



OBJECTIVES OF ASIAN CLEARING UNION (ACU)

TO FACILITATE PAYMENTS FOR CURRENT INTERNATIONAL
TRANSACTIONS WITHIN THE ESCAP REGION.
TO REDUCE / ELIMINATE USE OF EXTRA-REGIONAL
CURRENCIES TO SETTLE TRANSACTIONS BY PROMOTING
THE USE OF PARTICIPANTS CURRENCIES.
TO EFFECT THEREBY ECONOMIES IN THE USE OF FOREIGN
EXCHANGE AND A REDUCTION IN THE COST OF MAKING
PAYMENTS FOR SUCH TRANSACTIONS.
TO CONTRIBUTE TO THE EXPANSION OF TRADE AND
PROMOTION OF MONETARY COOPERATION AMONG THE
COUNTRIES OF THE AREA.



ALL ELIGIBLE PAYMENTS BETWEEN INDIA AND THE OTHER
MEMBER COUNTRIES EXCEPT NEPAL ARE REQUIRED TO BE
SETTLED THROUGH THE ACU.
PAYMENTS EXCLUDED FROM SETTLEMENT THROUGH THE
ACU ARE ON ACCOUNT OF :
TRAVEL.
CONTRACTS MADE UNDER LOANS FROM AN
INTERNATIONAL FINANCIAL INSTITUTION LIKE THE WORLD
BANK.
EXPORT / IMPORT TRANSACTIONS UNDER BILATERAL
LINES OF CREDIT BETWEEN THE GOVT. OF INDIA AND THAT
OF OTHER MEMBER COUNTRY.
DEFERRED PAYMENTS FACILITIES EXTENDED BY ONE
MEMBER COUNTRY TO ANOTHER MEMBER COUNTRY.



BENEFITS ACCRUING FROM THE ACU

APPRECIABLE SAVINGS OF THE LIQUID FOREIGN
EXCHANGE RESERVES.
REDUCTION OF THE WORKING BALANCES IN THE
FOREIGN EXCHANGE.
ELIMINATION OF THE NEED FOR DOUBLE CONVERSION
OF CURRENCIES AND THEREBY SAVINGS IN THE COST
OF SETTLEMENT.
CURTAILMENT OF THE TIME NEEDED BEFORE FOR
SETTLEMENT OF TRANSACTIONS BY THE ELIMINATION
OF THE INTERMEDIARY CORRESPONDENTS.



EURO - MONEY
IT IS A MONETARY SYSTEM OF ELEVEN EUROPEAN COUNTRIES.
STARTED FUNCTIONING SINCE JAN 1999.
THIS IS THIRD STRONG CURRENCY AFTER DOLLAR(U.S).
NEITHER IT HAS GOLD BACKING NOR ANY NATURAL
GOVERNMENT.
FROM JAN 2002, CURRENCIES OF ALL ELEVEN COUNTRIES ARE
CONVERTED INTO EUROS.
COUNTRIES- ITALY, GERMANY, AUSTRIA, BELGIUM, FINLAND,
FRANCE, IRELAND, LUXEMBURG, NETHERLANDS, PORTUGAL
AND SPAIN.
GREAT BRITAIN, FRANCE, DENMARK, EGYPT AND SWEDEN HAVE
NOT JOINED THE EURO DUE TO ECONOMIC AND POLITICAL
REASONS.



METHODS OF FOREIGN TRADE

ON OPEN ACCOUNT BASIS: WHERE THE CREDIT STATUS OF
THE IMPORTER IS HIGH, GOODS MAY BE SENT DIRECT TO
HIM IN EXPECTATION OF PAYMENT IN DUE COURSE ON
PRESENTATION OF RELATIVE DOCUMENTS THROUGH
BANK. EXPORTS ON THIS BASIS ARE NOT PERMISSIBLE IN
INDIA.
UNDER BILL OF EXCHANGE: THE EXPORTER MAY DRAW
BILL OF EXCHANGE ON THE IMPORTER FOR THE VALUE OF
THE EXPORTS AND COLLECT THE BILLS THROUGH A BANK.
UNDER LETTER OF CREDIT: THE EXPORTER MAY AGREE TO
EXPORT THE GOODS ONLY AGAINST A LETTER OF CREDIT
OPEN IN HIS FAVOUR.



EXIM BANK (IMPORTANT ITEMS)

GRANTING LOANS AND ADVANCES IN AND OUTSIDE INDIA
FOR PURPOSE OF EXPORT AND IMPORT.
REFINANCING LOANS AND ADVANCES GRANTED BY BANKS
AND OTHER NOTIFIED FINANCIAL INSTITUTIONS FOR
EXPORT AND IMPORT.
REDISCOUNTING USANCE EXPORT BILLS OF BANKS.
PROVIDING INVESTMENT FINANCES TO INDIAN COMPANIES
TOWARDS THEIR EQUITY PARTICIPATION IN JOINT
VENTURES ESTABLISHED ABROAD.
GRANTING OBLIGATIONS, JOINTLY WITH BANKS ON
BEHALF OF PROJECT EXPORTERS ENGAGED IN THE
EXECUTION OF CONSTRUCTIONS AND TURNKEY
CONTRACTS ABROAD.



FACILITIES PROVIDED BY EXIM BANK

a) CONSULTANCY AND TECHNOLOGY SERVICES
FINANCE PROGRAMME.
b) OVERSEAS INVESTMENT FINANCING PROGRAMME.
c) PRE-SHIPMENT CREDIT.
d) FINANCIAL ASSISTANCE TO E.O.U.
e) COMPUTER SOFTWARE EXPORTS.
f) EXPORT MARKETING FUNDS.
g) EXPORT PRODUCT DEVELOPMENT.
h) PROJECT PREPARATORY SERVICES OVERSEAS.



FREE PORT / FREE TRADE ZONE

A FREE PORT IS A PORT DECLARED BY THE
GOVERNMENT OF THE COUNTRY IN WHICH IT IS LOCATED.
AT A FREE PORT SHIPS BELONGING TO ANY COUNTRY
MAY LOAD OR UNLOAD CARGO WITHOUT HAVING TO PAY
CUSTOMS OR ANY OTHER DUTIES BARRING THE
HARBOUR CHARGES.
FREE TRADE ZONE IS AN AREA DECLARED WITH A VIEW
TO GETTING THE BENEFITS OF FREE TRADE WITH OTHER
COUNTRIES.
THERE ARE NO QUANTITATIVE RESTRICTIONS ON
IMPORTS INTO OR EXPORTS FROM FREE PORT OR A FREE
TRADE ZONE.



FREE TRADE ZONE IN INDIA
THERE ARE TWO FREE TRADE ZONES IN INDIA.
1. KANDLA FREE TRADE ZONE IN GUJARAT.
FOR THE IMPORT OF CAPITAL GOODS, RAW MATERIALS,
COMPONENTS etc. THE PROVISION OF FINANCE AT
CONCESSIONAL RATE. EXEMPTION FROM GUJARAT SALES
TAX ON SALES MADE WITHIN THE ZONE. ALLOTTED 92
TENEMENTS TO INDUSTRIALISTS, NUMBER OF UNITS NOW
OPERATING IS 40.
2. ELECTRONIC EXPORT PROCESSING ZONE (EEPZ)
SANTA CRUZ MUMBAI.
30 UNITS SET UP WITH 100% EXPORT ORIENTED
ELECTRONIC EQUIPMENT, COMPONENTS AND
CONSUMABLE DURABLES.



OFF-SHORE BANKING OPERATIONS
BENEFITS TO HOST COUNTRIES:
INFLOW OF INTEREST-FREE FOREIGN CAPITAL INTO THE
COUNTRY.
EARNING FOREIGN EXCHANGE FOR SERVICES IN
CONVERTING RAW MATERIALS INTO FINISHED GOODS.
EXEMPTION FROM MINIMUM RESERVE REQUIREMENTS.
LOW OR NON-EXISTENT TAXES AND LEVIES.
ENTRY IS RELATIVELY EASY, ESPECIALLY FOR LARGE
INTERNATIONAL BANKS.
LICENSE FEES ARE GENERALLY LOW.
CLOSE PROXIMITY TO THE IMPORTANT LOAN OUTLETS OR
DEPOSIT SOURCES.



OFF-SHORE BANKING OPERATIONS

THE OFF-SHORE BANKING UNITS SET UP IN SEZs ARE ALSO
BE ALLOWED 100% INCOME-TAX EXEMPTION FOR 3 YEARS
AND 50% FOR NEXT 2 YEARS UNDER SECTION 80-LA OF
THE INCOME TAX ACT 1961.
THERE ARE 27 SPECIAL ECONOMIC ZONES IN INDIA TILL
2005.
THEY ARE LOCATED IN :
KOLKATA, MADHYA PRADESH, U.P., RAJASTHAN, GUJARAT,
KARNATAKA, NEW MUMBAI, A.P.,ORISSA, KERALA,
TAMIL NADU, JHARKHAND, MUMBAI STATES.



IBU INTERNATIONAL FINANCE LTD.

THE FIRST EVER INTERNATIONAL FINANCIAL
ORGANIZATION SPONSORED BY A CORPORATION OF
INDIAN NATIONALIZED BANKS, SUCH AS INDIAN BANK,
BANK OF BARODA AND UNION BANK OF INDIA WAS
ESTABLISHED IN HONG KONG AS A DEPOSIT TAKING
ORGANIZATION WITH OFF-SHORE AND OTHER
ACTIVITIES. THE ORGANIZATION IS ELIGIBLE TO
ACCEPT DEPOSITS OF HONG KONG DOLLARS 50,000
AND ABOVE.



EUROPEAN CURRENCY UNIT (ECU)

ECU HAS BEEN RECOGNIZED AS A FOREIGN
CURRENCY OFFICIALLY BY ITALY, FRANCE, BELGIUM
AND LUXEMBOURG AND DE FACTO BY THE UNITED
KINGDOM, EIRE, NETHERLANDS AND DENMARK.

JAPAN AS WELL AS THE RESERVE BANK OF INDIA HAS
ALSO RECOGNIZED THE ECU FOR THE PURPOSE OF
FOREIGN EXCHANGE TRANSACTIONS.

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