CLASS XI BUSINESS STUDIES

CHAPTER X
INTERNATIONAL TRADE
Business transaction taking place within the geographical boundaries of a nation is called domestic or
national business. International business comprises all commercial transactions that take place
between two or more countries. It refers to all those business activities which involve cross-border
transaction of goods and services between two or more countries. It involves not only international
movements of goods, services and resources but also of capital, tourism, technology, personnel and
intellectual property such as patents, copyrights, trademarks etc. International trade and international
business are often used interchangeably, but it is not true. International trade, comprising export and
import, is only a part of international business.

Importance of International Business

No nation is economically self-sufficient. Every nation, for one reason or another, depends on other
nations for its requirements. Diversity and unequal distribution of natural resources warrant such
requirements. The benefits of international business to the nations and the business firms are:
Benefits to Nations
1. Price Stabilization External trade can be used as an instrument for stabilizing price. If the prices of
any commodity tend to increase due to short supply, the country can import such goods to control
price. Similarly excess output can be exported to avoid sharp fall in prices.
2. Improves quality of products In order to compete with foreign goods, domestic firms try to
improve the quality of their products. They introduce new technology, better management tools etc. 3.
Promotes Co-operation among nations External trade helps a country to establish trade relation
with other countries. The establishment of trade relations among nations reduces conflict and promote
co-operation among them.

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4. Optimum utilization of resources External trade facilitates international division of labour and
specialization. Different countries are gifted by nature with different resources. Through external trade
every country can specialize in the production of those products which it can manufacture most
economically. It need not spend huge money for producing goods which can be easily imported at a
lower cost. Eg: India can produce agriculture products more efficiently than Gulf countries. On the
other hand, Gulf countries can produce petroleum products more efficiently than India. Such
specialization results in optimum utilization of the country's resources.
5. Earning of foreign exchange External trade has a significant influence on country's economic
growth. The international business helps in earning foreign exchange by exporting goods and services.
This foreign exchange can be utilized for the import of essential commodities. Also, a country can
export its surplus output.
6. Generate Employment opportunities External trade helps to increase production. It accelerates
the economic growth and employment opportunities of a country.
7. Increased Standard of living: Foreign trade helps in raising the standard of living of a country by
providing better quality products.

Benefits to Firms
1. Increased Capacity Utilization It helps the firm in using their surplus production capacities and
improving the profitability of their operations. Large scale production helps to reduce the cost of
production.
2. Prospects for growth It helps firms in improving their growth prospects by creating demands for
their products in foreign countries.
3. Enhances competition External trade enhances competition, which compels the domestic firms to
improve technology of production, production process and quality of products.
4. Improved business vision It improves business vision as it makes firms to grow, more competitive
and diversified.

Export Procedure
1) Receipt of Enquiry, Sending Quotations & Receipt of Order: The prospective buyer of a
product sends an enquiry to different exports requesting them to send information about price, quality
and terms of payment etc. The exporter sends a reply to the enquiry in the form of a quotation. If the
buyer is satisfied with the export price and other terms and condition, he places the order or indent for
the goods.
2) Obtaining export License When the exporter is assured about the payment, he initiates steps
relating to fulfilment of export formalities. In India, export of goods is subject to fulfilment of
customs laws, according to which the exporter must have export license before he proceeds with
exports. Following is the procedure for obtaining export license:
1) To open an account with any RBI approved bank.
2) To obtain Import Export Code number (IEC) from Regional Import Export Licensing Authority
3) To obtain Registration - Cum Membership Certificate (RCMC) from Export Promotion Council,
Commodity Boards or Federation of Indian Export Organisation.
4) To get registered with Export Credit Guarantee Corporation (ECGC) is necessary in order to
protect overseas payments from political and commercial risks.

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3) Assessing importer’s creditworthiness and securing a guarantee for payments After receipt of
the indent, the exporter makes necessary enquiry about the creditworthiness of the importer. To
minimize such risks, most exporters demand a Letter of Credit from the importer.
4) Production or procurement of goods Exporter, after obtaining pre-shipment finance from the
bank, proceeds to get the goods ready as per the orders of the importer. Then, he gets the goods
inspected by Export Inspection Council. The customs authority permits the shipment of goods only if
there is inspection certificate.
5)Reservation of Shipping Space The exporting firm applies to the shipping company for provision
of shipping space. It has to specify the types of goods to be exported, probable date of shipment and
the port of destination. Then the shipping company issues a shipping order.
6)Insurance of Goods The exporter then gets the goods insured with an insurance company to protect
against the risks of loss or damage of the goods due to the perils of the sea during the transit.
7)Customs Clearance The goods must be cleared from the customs before these can be loaded on the
ship. For obtaining customs clearance, the exporter prepares the shipping bill. After obtaining the
requisite order, the cargo is physically moved into the port area and stored in the appropriate shed.
8)Obtaining Mates Receipts The goods are then loaded on the board the ship for which the mate or
the captain of the ship issues Mates receipt to the port superintendent. The port superintendent, on
receipt of port dues, hands over the mate’s receipt to the exporter or his C&F agent.
9)Payment of Freight and Receipt of Bill of Lading The clearing and forwarding agent (C&F)
surrenders the Mates receipt to the shipping company for computation of freight. After receipt of
freight them, the shipping company issues a bill of lading which serves as evidence that the shipping
company has accepted the goods for carrying them to the destination.
10)Securing Payments After the shipment of the goods, the exporter informs the importer about the
shipment of goods. Necessary documents are sent by the exporter through his bank. These documents
are required by the importer for getting goods cleared from the customs. The exporter get payment
from his bank on the submission of necessary documents.

Import Procedure
Following are the various steps involved in the process of import.
1 Trade Enquiry It is a written request by the importer to the exporter for supply of relevant
information regarding the price, quality, quantity, terms and conditions of export etc. Then, the
exporter prepares the quotation and sends to the importer. This quotation is known as proforma
invoice.
2 Obtaining Import license In India it is compulsory to every importer to get registered with
Director General of Foreign Trade or Regional Import Export Licensing authority and obtain an
Import Export Code Number (IEC).
3 Obtaining Foreign Exchange As foreign exchange transactions are controlled by RBI, the importer
has to submit an application along with necessary documents to the RBI to issue foreign exchange.
4 Placing Order or Indent After obtaining the import license, the importer places an import order or
indent with the exporter for supply of specified products.
5 Obtaining letter of credit The importer must obtain letter of credit and send it to the exporter.

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6 Arranging for finance The importer should make arrangements in advance to pay to the exporter
on arrival of goods at the port. Advance planning for financing is necessary so as to avoid penalties on
the imported goods lying unclear at the port for want of payments.
7 Receipt of Shipment Advice After loading the goods on the ship, the exporter dispatches the
shipment advice to the importer. It contains information about the shipment of goods.
8 Retirement of Import Documents After shipping the goods, the exporter prepares necessary
documents and hands over to his banker for their onward transmission to the importer which will be
delivered to the importer when he makes necessary payments of goods.
9 Arrival of Goods When the goods arrive in the importer’s country, the person in charge of the ship
informs the officer in charge of the dock about it.
10 Customs Clearance and Release of goods: The importer fills a form called Bill of Entry for
assessment of customs duty. After payment of customs duty, bill of entry has to be presented to the
dock superintendent. After his examination, it is handed over to port authority. After receiving
necessary charges, the port authority issues the release order.

World Trade Organisation (WTO)

• Agreement for Tariffs and Trade (GATT) was transformed into World Trade Organisation
(WTO) with effect from 1-1-1995.
• The headquarters of WTO are situated in Geneva, Switzerland. WTO deals with global rules
of trade between nations.
• Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
• It is concerned with solving trade problems between countries and providing forum for
multilateral trade negotiations. India is a founding member of WTO.

Objectives of WTO
1) To ensure reduction of tariffs and other trade barriers imposed by different countries.
2) To engage in activities which improve the standards of living, create employment, increase
income facilitate higher production and trade.
3) To facilitate optimal use of the world’s resources.
4) To promote integrated, more viable and durable trading system.

IMPORTANT DOCUMENTS INVOLVED IN INTERNATIONAL

TRADE
1. Bill of Lading: It is an agreement between the shipping company and the forwarding agent,
wherein the shipping company agrees to carry goods to the destined port against the payment of
freight. It is a title to goods as it gives ownership right to the person who is holding it. It is freely
transferable by endorsement and delivery. The captain of the ship gives delivery of goods to the
importer only when he presents the copy of the Bill of lading. It is evidence of the contract of
shipment.
2.Mate’s Receipt: It is a document acknowledging the receipt of goods on the ship. It is a receipt
issued by the captain of the ship or his assistant mate when the cargo is loaded on the board. It
contains the information about the name of the vessel, date of shipment, description of packages,
marks and numbers, condition of the cargo at the time of receipt on board the ship etc.

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3. Letter of Credit A Letter of Credit is a guarantee issued by the importer’s bank that it will honour
payment up to a certain amount of export bills to the bank of the exporter. Letter of credit is the most
appropriate and secure method of payment adopted to settle international transactions.
4.Shipping Bill: It is a document prepared by the exporter and on the basis of which the customs
office gives the permission for export. Shipping bill contains particulars of the goods being exported,
the name of the vessel, the port of shipment and destination, exporters name and address etc.
5. Indent: It is a document for placing an import order which contains information regarding the
price, quantity, quality of goods ordered, port of shipment, destination etc
6. Marine Insurance Policy: It is a certificate of insurance contract whereby the insurance company
agrees in consideration of premium to indemnify the insured against the loss incurred by perils of the
sea.
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