The Two Aspects of Foreign Trade

Importing and exporting are the two aspects of foreign trade: a country spends money on goods it imports and gains money through its exports. Valuable though foreign trade is for keeping domestic prices down by creating competition at home and providing large markets abroad, governments may have to put restrictions on it, which they usually do by subjecting imports to customs duties or by restricting some types of exports.

Customs authorities must make sure that imported goods are not sold at a lower price than that in their country of origin; to assess the domestic price they require consular invoices or certificates of value and origin.

Large firms may have their own import and export departments, but both large and small firms deal with clearing and forwarding agents who handle all the details of transporting cargo.

When goods are sold abroad, buyers who are stockists will have to pay for stocks for which they will not receive payment for some time; they must, therefore, work on a higher profit margin to cover this. Many buyers prefer to become foreign agents who work on commision; they will not then have to pay for the goods but they must obtain the highest possible prices when the goods are sold.

So, after careful market research, a manufacturer can sell to a large export market if he has the right products, of the right quality, and sells them at the right price.

VISIBLE AND INVISIBLE IMPORTS AND EXPORTS

Goods, such as cloth and televisions, are visible (you can see them). Goods you sell abroad are visible exports. When you sell exports, money will come into your country. When you buy visible imports, money leave your country. Some imports and exports are invisible. For example, if an engineering expert from country A goes to Country B to help them improve their engineering industry, he will earn money from B and bring it back to A. The expert is providing a service (which is his knowledge or expertise). For B this is an invisible import (because money leaves the country), but for A it is an invisible export (because money comes into the country).

Ex. 1. Answer the following questions:

1. What is the role of foreign trade in the economy of a country?

2. Why do governments sometimes put restrictions on import?

3. Why do customs authorities require consular invoices or certificates of value and origin?

4. Why should buyers work on a higher profit margin?

5. What is implied by invisible imports and exports?

T E X T 4