International trade concepts

What is international trade?

International trade: In the process of international trade, it is important that the parties to an international trade transaction have a general and general understanding of some basic political, legal and economic concepts within which international trade takes place. For this purpose, this article explains the general principles that should exist in international trade transactions and introduces you to international trade education and its concepts.

1) A list of significant political, legal and economic issues in international trade

Before conducting an international trade transaction, the parties to the transaction must consider the political, legal and economic frameworks in which this transaction takes place. That is, they should pay attention to the following:

Political/government policies and their potential impact on the transaction, including:

• Restrictive government policies
• Exchange controls
• Quota restrictions and tariffs
• Expropriations (confiscation of property)
• Export and import licenses
• Trade sanctions
• Price-busting regulations
• Price comparison/pre-shipment inspection
• Price restrictions on resale
• Health regulations
• Policies applied to dangerous goods
• Taxes

Currency policies of exporting and importing countries; The risks involved and the ability of the parties to comply with them include:

• Foreign exchange policies and procedures
• Licenses
• Shortage of convertible currencies
• Exchange rate fluctuations
• Foreign exchange hedging and supply transactions to hedge the risk of currency depreciation/appreciation

Possibility of fraud in transactions or documents

Payment against documents for the import of goods cannot eliminate the risk of fraud in the case of a seller who is not known or who does not have a fully satisfactory record. Identifying the party to the transaction may be even more important than “how the transaction is conducted”. Furthermore, it is not possible to ship goods or provide services only against a “declaration of payment commitment”, a paper that is not fully verified and reliable.

Legal and Judicial Issues to Consider:

Dispute Resolution

• Place of Performance
• Access to Legal Representation
• Legal Policies for Foreign Companies
• Required Legal Issues
• About the Quality of Goods and the Method of Providing Services
• About the Specifications of Goods or Services
• About Labeling
• About the Packaging/Marking of Goods
• About the Protection of Ownership of Goods, Intellectual Property Rights
• Registration of Trademarks, Patents or Copyrights at the National and International Level

Trade Terms or Shipping Terms in International Trade

Trade terms are among the essential elements in international sales contracts. These amendments define the duties of the parties to a transaction, according to their individual responsibilities. When transporting goods from one country to another under a formal sales contract, the buyer and seller can be sure that their respective responsibilities are defined in a simple and reliable manner.

This eliminates the possibility of any misinterpretation and related disputes. In the 1920s, the International Chamber of Commerce conducted a study on the meanings of important commercial terms. This study revealed that the terms used in different countries have different interpretations. Therefore, the outcome of a dispute between a seller and a buyer often depends on the dispute resolution authority and the law governing that country.

As a result, this creates the possibility of legal disputes for either the seller or the buyer, which may lead to serious disputes and have detrimental effects on their future commercial relations. For this reason, the International Chamber of Commerce considered it necessary to develop and develop rules for the interpretation of commercial terms that would be acceptable to the parties to a sales contract. These rules, called Incoterms, were first published in 1936.

Currently, the main commercial terms commonly used in international trade are Incoterms 2020.

These terms are usually used in the following ways:

• By including them in the sales contract
• As an international commercial custom
• By accepting that the parties to the transaction wish to use them.

2) Required documents (required financial and commercial documents)

The parties to an international commercial transaction should pay attention to the following points related to documents.

• Buyer: What type of document(s) does the buyer need?
• Seller: What type of document(s) is the seller able to provide?
• Exporting country: What type of documents are required according to the export laws and regulations in the exporting country?
• Importing country: What type of documents are required according to the import laws and regulations in the importing country?

3) The main objectives of the parties to the transaction

The objectives of the buyer are:

Performance of the contract:

• Receive the goods or services requested in the agreed quantity and quality
• Receive the purchased goods or services requested at the specified date and place
• Ensure that he is not obliged to pay the seller until he is certain that he has fulfilled his obligations.
• Credit
• Managed cash flow with the possibility of obtaining bank financing
• Postponing payment as long as possible

Convenience:

The convenience of using a third party as an intermediary who is trusted by both the buyer and the seller – such as a bank specializing in letters of credit – for the time when payment is due.

The objectives of the seller are:

Performance of the contract:

• Ensure that the payment is received in full within the agreed time
• Deliver the goods or services subject to the contract as soon as possible

Quick receipt of payment:

• In order to improve the liquidity of his business entity, the seller expects to receive payment immediately after the
• fulfillment of the obligations under the contract.
  Receive the contract amount in full and in the agreed currency

Convenience:

Ease of receiving funds from one’s own bank or another bank in one’s own country

Advantages of International Trade

International trade brings various strategic advantages to all countries involved, including:

• Countries can focus exclusively on producing goods and services that are specific to their geography, skills, and capacity. This is a culture of differentiation and specialization.
• International trade enables a country to obtain high-quality goods and services at extremely affordable prices to meet the specific needs and wants of its people.
• Global trade creates a flow of competition in the local market. Domestic producers and suppliers strengthen their capacities with the aim of uniquely competing with foreign ones.
• To facilitate international trade, a number of countries have begun to conclude exclusive trade agreements. These agreements emphasize the transfer of technology from more advanced countries to less developed countries, as a result of which they can improve their production capabilities.
• The world of international trade also opens many doors in terms of job creation and employment. Countries that trade with each other tend to have more career opportunities than their non-trading counterparts.

Disadvantages of International Trade

However, international trade, if conducted without scrutiny and control, also has the potential to create several disadvantages. These include:

• Over-dependence on other countries for goods and services
• High costs of transportation, communication, distance and logistics
• Risk and uncertainty in global trade due to unforeseen events
• Import, export and customs restrictions imposed by governments
• Documentation, currency, information and payment-based problems
• Lack of proper understanding of foreign markets