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FOREIGN TRADE — Economics STD 12 Commerce — Question

Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsFOREIGN TRADE5 Marks
Question
Explain clearly the Features of Foreign Trade.
✓

Answer

$1.$ Introduction:
  • Geographical boundaries of every country are determined. When business activities are done crossing the boundaries of the nation it is called ‘foreign trade’ or ‘international trade’.
  • Foreign trade is always carried out with the objective of earning income or profit.
  • Form of international trade means such special features and aspects of trade which gives it a unique identity from other activities.
  • The nature of international trade is determined by the circumstances affecting trade, policies and laws governing trade.
$2.$ Nature of International $($Foreign$)$ Trade:
$(1)$ Geographical and occupational mobility of resources:
  • Degree of mobility of labour, capital, and means of production is less in different countries than in one country.
  • Due to political and social reasons labour is less mobile.
  • Immigration laws, citizenship, qualifications, language, environment etc. prevents international mobility of labour.
  • Capital due to its prohibitions and tangible and intangible nature is less mobile.
  • Mobility of land is zero and of entrepreneurs is less like the mobility of labour.
  • In the present world with the acceptance of globalization mobility of entrepreneurs has increased considerably. E.g. In industrial development the contribution of entrepreneurs and foreign capital is noteworthy.
  • In short in internal trade the means of production are more mobile, compare to International trade which distinguishes it from internal trade.
$(2)$ Trade in many varieties of Goods:
  • In foreign trade products or services are made available according to the demand of different standards of people.
  • So variety of product / services is observed. e.g. In India Ambassador and Fiat cars were available when there were restrictions on foreign cars.
  • When foreign trade of car has become free, various cars of Germany, Japan are made available and variety is the base of success and prosperity.
  • Demand of the product / service depends on the condition of the country e.g. In the country of scarcity of electricity, manually operated machines are in great demand and where electricity is in abundance the demand Will be for complete automated machines.
$(3)$ More Challenging in Nature:
  • Risk factors are more in foreign trade than internal trade. $80$ foreign trade is more challenging.
  • In every country climate, language, customs, habits, choice are different and product should be manufactured considering all these factors, to capture market, e.g. China produces goods of weaker quality and sells it at lower price in the country where quality is emphasized.
$(4)$ Diplomatic Efforts:
  • Only business efforts by business man are not sufficient to establish and developed foreign trade.
  • Government too should make diplomatic efforts for development of foreign trade.
  • For development of foreign trade to hold informal meetings related to trade, to organize trade fairs.
  • Nation has to inform traders to produce products which has global market for foreign trade.
  • This information can be supplied through informal meeting and trade fairs. e.g. Vibrant Gujarat summit is held every year in Gujarat to promote foreign trade.
  • Representatives of various countries are invited.
  • They are made familiar with the policy of the government and favorable business environment in Gujarat.
  • In every country the natures of political and economic policies are different.
  • Along with the efforts of business-men the diplomatic efforts are necessary as well as important.
$(5)$ Rates of different currencies and assumption of their value:
  • Every country has its own currency.
  • If a product / service is imported from foreign country, payment is to be made in the currency of the concerned country or internationally recognized currency.
  • Trader has to obtain international currency against local currency.
  • He should know the rise and fall in currency exchange rate.
  • Lack of this knowledge sometimes causes great loss.
  • Sometime expert's advice is sought in this matter for foreign trade.
  • In short in foreign trade various problems of foreign currency and its exchange rate are being faced.
$(6)$ Joint Effort of Nation and International Organizations:
  • To develop international trade on global level, government of the nations and world trade organizations have to make joint efforts.
  • World trade policy is made keeping in view the interest of all nations.
  • Every country has to remove maximum possible restrictions for the development of foreign trade and encourage it.
  • Favourable economic policy should be framed. E.g. To develop foreign trade, India adopted the policy of "Globalization, Liberalization and Privatization" in $1991$ and implemented it.
  • It became the member nation of $W.T.O$ for foreign trade development.
  • Co-operation of social and culture group is required.
  • Industries group also should consider public interest and co-operate government in this regard.
  • They should not be self-centered and looking towards their interest only.
$(7)$ Impact on Political and Social Ideology:
  • The political and social Ideologies deeply affect the foreign trade of the concerned countries. e.g. Relations with many countries get disturbed due to the world war, and transportation of goods and doing business with other countries become risky and foreign trade gets reduced.
  • When the leaders of the world make attempts to increase world trade, then risk of the world trade gets reduced and it is promoted for development. e.g. China changed its political ideology, instead of communism, which increased world trade in considerable size.
  • In the same way after $1991$ regulations foreign trade, policy has been relaxed and implemented as a result of which notable changes have come in size, nature and direction of foreign trade.
  • In short the nature of any country‘s foreign trade is greatly influenced by political and social ideologies of the country.
  • The most important is its relations with other countries.
$(8)$ Very Large Scale $($Vast Scale$)$ Trade:
  • The scale of global trade is very vast because it involves several countries, variety of goods, several rules and many international institutions.
  • Political changes also influence foreign trade.
  • In international trade packing also is up to international standard.
  • As global trade is vast in size it involves high degree of risk too.
$(9)$ More Permissions and Taxes:
  • Trade process in internal trade is simple and less expensive.
  • Various licenses are not to be obtained.
  • While the process of foreign trade is complex and complicated.
  • Every country, carrying out trade with another country should undergo all legal procedure of the concerned country and pass through many types of quality tests and permissions.
  • Under foreign trade import excise, import quota, import dimension, import license, export excise etc. regulations are many.
  • Prior to the starting of trade the traders has to show evidences of the license of the product / service, quality test, certificate, arrangement of transport etc.
  • Trader should have the knowledge of the manufacturing procedure of various countries, their standard of quality, etc. and then he has to manufacture the product.
  • Packing should be of international standard of every country.
  • Regarding food and drugs are different so information in this regard is also essential and accordingly product should be manufactured. Production for export must be made accordingly.
$(10)$ High Degree of Competition and Risk:
  • One product is manufactured by many countries in the world and sold in the global market.
  • There is high degree competition among sellers.
  • In the same way the customer countries of similar product I service are many.
  • Here there is high degree competition among buyers.
  • In international trade the degree of risk is quite high.
  • High quality of product is to be maintained and it requires promotional expense for advertisement.
  • Even after all these if the traders fail to export goods / services he makes huge loss.
  • In international trade there is vast difference in circumstances created by man which leads to very high degree of risk.
  • Political and economic changes occurring in the countries carrying out foreign trade greatly affect international business.

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