Thursday, February 7, 2008


World Trade Organization :

Meaning :

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between the nations. The goal is to help producers of goods and services, exporters, nations. The goal is to help producers of goods and services, exporters, and importers in the conduct of international trade. Its main aim is to ensure smooth flow of trade. The World Trade Organization (WTO) was established in 1995. In 1999, there were 135 member countries in the WTO.

Functions :
The following are the functions of WTO.

1. It facilitates the observations, implementations and administration of the objectives of Trade agreements.

2. It provides negotiation facilities among member countries for smooth world trades.

3. It helps for the settlement of disputes between the member countries.

4. It co-operates with International Monetary Fund and the Word Bank to get greater coherence in global economic policy making.


1. The system helps to promote peace.

2. Disputes are handled constructively.

3. Rules make life easier for all.

4. Free trade cuts the costs of living.

5. It provides more choice of products and qualities.

6. Trade raises incomes.

7. Trade stimulates economic growth.

8. The basic principles make life more efficient.

9. Governments are shielded from lobbying.

10.The system encourages good government.


Introduction :

Trade is the process of taking goods from the source of product or place of procurement to the consumers. It also implies exchange of goods. Trade may be classified into internal trade, external trade, wholesale and retail trade. The exchange of goods within the country is called Internal trade. The exchange of goods between the countries is called external or foreign trade. In wholesale trade, goods are sold to retailers in large quantities. In retail trade goods are sold in small quantities to the consumers. In this section, we shall discuss about the meaning, need, merits, demerits, types, agencies involved in internation trade, mutinational companies, globalizations and world trade organizations.


Trade between two or more nations is called international trade or foreign trade. For example, India’s trade with U.S.A, Japan, France, Pakistan etc., is called foreign trade or external trade. Foreign trade may be bilateral or multilateral. Trade between two countries is called as bilateral trade. Trade among many countries is called multilateral trade.

Types of foreign trade:

The foreign trade transactions are classified into three types as follows.

1. Import Trade

2. Export Trade

3. Entreport Trade


When goods are purchased from a foreign country it is called as import trade. For example when India buys petrol from Kuwait it is called as import trade.

Import Trade policy:

In almost all the countries, the government controls the import trade. The objectives of such control are

a)proper use of foreign exchange,

b) restrictions on imports of non-essential and luxury gods and

c)developing indigenous industries.


Import trade procedure:

Import trade procedure differs from country to country. The following are the general procedure of import trade

1. Trade enquiry :
In this step the intending importer makes trade enquiry from the possible exporters. An enquiry is a written request from the intending buyer or his agent for getting informations about the Price of the products, its quality, design, size and the terms of payments and conditions of delivery.

2. Obtain import license and quota:
As imports of goods are controlled by the imports and exports (Control) act1947, the person interested should get license for importing goods from the licensing authority. The import license may either be general license or specific license.

3. Obtaining foreign exchange:
After obtaining the license, the importer has to make arrangements for getting the necessary amount of foreign currency since the importer has to make payment to exporting country in their currency.

4. Placing the indent or order:
After obtaining the import license and requisite amount of foreign exchange, the importer is to place order or indent for import of the goods. An indent is an order placed by an importer with an exporter for the supply of certain goods.

Indents are classified in to three Types :

a) Open indent :
If the selection of goods and other details are left to the agent’s discretion in the foreign country it is called open indent.

b) Closed indent :
If an indent contains full particulars of the exact goods required it is called closed indent.

c) Confirmatory indent :
If the importer’s agent places an order subject to the conformation it is called confirmatory indent.

5. Arranging letter of credit :
It is an undertaking by the importer’s bank that the bills of exchange drawn by the foreign exporter on the importer will be honoured on presentation.

6. Obtaining shipping documents :
After receiving the order and the letter of credit, the exporter ships the goods. The Exporter then intimates the importer about the dispatch of goods by sending an advice note to the importer. The advice note informs the destination port.
If the bill of exchange is marked as Documents against acceptance, the documents will be delivered to the importer on the acceptance of the bill. Usually 30 to 90 days are allowed for the payment of the bill.

7. Clearing the goods:
After taking the possession of the documents of title to goods, the importer awaits for the arrival of the ship. After the arrival of the ship, the importer arranges for the clearance of the goods from the customs office by paying unloading charges, import duty or customs duty and port trust dues etc.


Meaning :

When goods are sold to a trader in any foreign country it is known as export trade. For example when India sells goods to other countries it is called as export trade.

Export trade procedure :

Imports and exports (Control) Act 1947 regulates the exports of goods from India. The procedure involved in exporting goods differs from country to country. However, the following procedures are followed:

1. Receiving enquiries :

In the first stage, the exporter receives a trade enquiry from an importer about the price, quality of goods and terms and conditions of export.

2. Receipt of order or indent :

In second stage the exporter receives the orders directly from the importer or through some specialized agency like indent houses.

3. Obtaining letter of credit:

After receiving the confirmed order, the exporter enquires about the credit worthiness of the importer. Generally, the exporter asks the importer to send a Letter of Credit to him.

4. obtaining Export License or Quota :

The export trade is regulated by the Import and Export (Control) Act 1947 and also by the Foreign trade (Development and regulation) Act 1992. Goods which are subject to control cannot be exported without getting a valid export license.

5. Compliance of foreign exchange regulations :

As per foreign Exchange Regulation Act 1947 (FERA), every exporter has to furnish a declaration that the exporter will surrender the foreign exchange to the extent of full value of goods to the Reserve Bank of India within a prescribed time.

6. Packing, marking and forwarding :

Packing and marking are made as per the instructions of the exporter. This is made to ensure the safe delivery of goods. Certain formalities are to be fulfilled before boarding the ship for export. Forwarding agents may fulfill these formalities.

7. Preparation of Invoice and Consular invoice :

The next step after receiving the forwarding agent’s advice or after shipping the goods is the preparation of invoice by the exporter. It contains details about the name of the ship, particulars about the shipments, destination, indent numbers, details regarding packing and marking, price of the goods and other expenses. It is prepared as per the terms and conditions agreed between the parties.

8. Obtaining certificate of origin :

To avail the concessions in payment of duties, the certificate of origin has to be obtained by the exporter for sending it to the importer.

9. Receiving payments :

The exporter receives the payments for the goods exported from the importer as per the agreement between them. The various methods of receiving payments are given below.

1. Documentary bills of exchange:

The exporter draws a bill of exchange for the value of goods and sends necessary documents to the importer along with bills of exchange. If the documents are released against payment, the arrangement is called Documents against Payment (D/P).

2. Discounting documentary bills of exchange :

If the exporter needs immediate payment, then the bills can be discounted with the bank. For document authorizes the bank to sell the goods in case of dishonour of the bill by the importer.

(a) Documentary letter of Credit

(b) Payment through foreign draft

10. Obtaining various export incentives:

To encourage export, the government gives various types of incentives such as duty draws backs, import replenishment license and excise duty refund and various income tax incentives.


Entreport trade :

Meaning :

If goods are imported from one country with the purpose of re-exporting to another, it is called Entrepot trade. Import duty is not levied on these goods. The important centers for entrepot trade are London, Hong Kong, Amsterdam and Singapore.

Features :

The following are the special features of this type of trade:

1) No import duty is imposed on such goods.

2) These goods are processed and re-packed for re-export.

3) Such goods are kept in the Bonded warehouses till they are Re-exported.

Need :

Under the following circumstances such trade is allowed.

1) When adequate banking facilities are not available in the importing country

2) When the volume of trade does not justify to have regular foreign trade

3) When it is difficult to establish direct link between the exporting country and the consuming country.



Meaning :

Globalization is the integration of international markets for goods and services, technology,

finance and to some extent labour it is the integration of the country with the world economy.

It implies that the linkage of a nation’s market with the global market. Globalization

encourages Foreign Direct Investment (FDI) the FDI not only. Augments the domestic

ingestible resources but also stimulates exports. The International Monetary Fund (I.M.F.),

World Trade Organization (W.T.O.) and the World Bank is global bodies that are viewed as

the agents of this globalization process. The so-called ‘free trade’ agreements, such as the

General Agreement on Tariffs and Trade (G.A.T.T.) and the North American Free Trade

Agreement (N.A.F.T.A.) are seen as catalysts for increasing the globalization activities.

Multinational Company (MNC):

Meaning: A Multinational Company is one whose ownership is accommodated in more than

one country. Products are manufactured in many countries and sold in many countries. For

example. Toyota of Japan, General Motors of U.S.A. Indian Oil Company of India is

Multinational companies. Jacques Maisonrogue, the president of IBM world Trade

Corporation defines MNC as a company that meets the following five criteria.

1) It operates in many countries at different levels of economic development.

2) Multinationals manage its local subsidiaries.

3) It maintains complete industrial organizations, including Research and Development and

manufacturing facilities in several countries.

4) It has multinational central management.

5) It has multinational stock ownership.