Why the trade between the nations is takes place?



Trade between nations takes place because:

(i) There are economic advantages in refraining from the production of some commodities;

(ii) For climatic and other reasons no country is able to produce all the natural products it needs.

Clearly Britain cannot grow cotton or jungle hardwoods, and although some products like tobacco can be grown here the finishing processes cannot be completed before winter sets in. Similarly we cannot mine ores that are not buried our soil. Nature has been haphazard in the way she has distributed her resources.

At one time Britain produced enough wheat to feed her own people and even exported it to the Continent at certain times, Britain still grows excellent crops of wheat, probably the best in the world, yet she could grow still more. She does not do so because she can import wheat more cheaply from other countries.

Britain can therefore enjoy a higher standard of living if she takes advantage of the international specialization of labour. She has herself concentrated on secondary and tertiary production, i.e. manufacturing and services, and may be said to grow her wheat in automobile factories and in the offices of banks and insurance companies.

Trade is a two-way affair in the modern world, and no nation can hope to sell its own goods abroad unless it is prepared to buy goods in return. A nation which wishes to import must also be prepared to export and must keep her exports of such a quality and at such reasonable prices as will enable her to achieve a balance of trade.

If a balance of trade cannot be achieved, some other way of paying for the excess imposts must be devised. These matters are dealt with later.

Documentation of Import Cargoes

A full explanation of the documentation of overseas cargoes is given in the Export Trade but a word here on customs procedures is necessary. Goods arriving in the United Kingdom must be entered for customs clearance on a form known as an 'Entry' these entries are made on forms for.

(i) Non-dutiable goods-here the interest is largely a statistical one-About 70 per cent of imports today are duty free.

(ii) Dutiable goods-the interest is also statistical, but the inspection of goods and collection of duty is the chief purpose.

Possession of the consignment cannot be obtained from the shipping company until the necessary documents are presented to them. One of these documents is the bill of Lending which represents the title to the goods.

The other is copy of the "Entry' form confirming that the duty had been paid. Different entry forms are used for different classes of imports. Details of the correct form to be used may be found in the Customs and Excise Tariff, a volume published by her Majesty's Stationery Office.

Entry' forms are usually prepared in quadruplicate, one copy for the importer, one for the Exchange Control, two for the Customs, who return one copy to the importer on payment of duty. It is this copy, with the bill of Lading, which secures delivery of the goods from the shipping company.

Some goods carry a value added tax as well as a customs duty When these classes of goods are imported value added tax must also be paid on entry, and the appropriate adjustments made.

The Pattern of Import Trade

Almost one half of Britain's imports are primary products, foods, fuel, and raw material. The other half consists of various types of manufactured goods.

We should certainly expect the bulk of Britain's imports to be primary products, for her own natural resources have been largely used up in the 200 years since the Industrial Revolution began, but in recent years we have imported more manufactured goods.

Most of the primary goods come from the less-developed regions of the world, from commonwealth countries which were formerly part of the British Empire, from the Middle East, the Far East, Africa, and south and Central America.

The semi-manufactured and manufactured goods come mainly from the advanced nations in Europe and the United States of America. In many cases they are goods we could produce for ourselves, but because some nations have special skills in design or manufacture we enrich the variety of goods available to home consumers by importing them in exchange for British products which incorporate our special skills.

The important trade handles these very different types of product in different ways. Primary commodities are brought in as bulk cargoes as far as possible, and are usually handled by middlemen whose function is to finance, transport, and warehouse these goods until they are required. This is the type of goods handled on the Commodity


Where there is a need to ensure regular supplies of the raw material, or where a particular firm has built up 'most favoured customer' link with overseas, direct importation by a manufacturing firm may be the usual thing. Imports of secondary goods are not usually dealt with by middlemen, since technical knowledge is often important.

Such products are usually imported either directly by the importing organization of the firm that will sell the product, or by agents appointed to handle the goods in this country by the foreign organization. The latter may also set up its own office in this country to handle its exports trade, and to state exhibitions and displays of its goods.

Restriction on free Trade in Imports

If every nation specialized in the things it does best the wealth of the world would be at its greatest, and an optimum position in production would be reached. Goods would be produced in the country with the greatest economic advantages in that class of goods, and the resulting output would be traded freely around the world.

In fact it is difficult to get nations to agree to allow free trade in this way, because it condemns many countries to being primary producers only. For example, the United States during the nineteenth century was very much opposed to free trade, and pursued a protectionist policy which protected her home industries even though this meant a lower standard of living for her people.

The present prosperity of the United States is the result of the strong industrial tradition created in that century. Today the United States is a strong advocate of free trade, but other nations are not so keen. Britain plays what part it can in promoting free trade, but is adversely affected if other nations 'dump' their goods on the British Market. To jump' goods is to sell them abroad at a lower price than they are being sold at home, in order to earn foreign exchange.

If this is done it represents unfair competition to the home industries of the nation on which they are dumped. It is particularly serious for Great Britain, which in any case usually faces a very high import bill for necessary foodstuffs and raw materials. Systems of import licensing, exchange control, and customs procedures help to control imports.

(i) Import licenses

The Board of Trade issues import licenses which cover the import of 1 goods into the United Kingdom, but in many cases the only use made of them is for statistical purposes, and open general licence being given on schedules of gods which may enter the country unrestrictedly. For goods not listed of the schedules an individual licence has to be obtained. These may be of two chief sorts: open individual licence and specific individual licences.

The specific licences specify what volume or value of the goods names may be imported, and from which areas of the world. Such licences are often called 'quota' licences, restricting the imports to a given quota which has been approved. This is not always satisfactory, for if quota licences of this sort artificially restrict the supply of goods available, the price rises and the foreign exporter may receive more money for the gods than is really fair. Licensing is one device for keeping control of the volume of imports. Another device is exchange control.

(ii) Exchange control

When we try to buy goods from overseas we have to pay the foreign exporter in his own currency, or in a currency that is acceptable to him. Some countries will accept Sterling pounds as a satisfactory medium of payment, but other countries will not. They prefer to e paid in dollars or in gold. Whatever import must therefore be paid for in foreign exchange of some sort. For many years it was difficult for Britain to earn all the foreign exchange she required, and a system of exchange control was operated by the Bank of England.

These controls were abandoned in 1979, but it is always possible that they could be reimposed. Customs procedures were at one time a method of raising revenues for the "exchequer, but the duties collected toady are relatively insignificant, and customs duties have become more important as a method of controlling imports.

There are two types of duty; specific duties are imposed on a commodity per unit of quantity imported, irrespective of the price at which the goods were bought; ad valorem duties are imposed on the value of the merchandise. By variations in the duty rates a county can give "most favoured nation' treatment to a particular country or group of countries, as Britain did for many years to common wealth countries and as she does to the E.E.C. countries today.

Specialists in the Import Trade-Merchants, Agents, and Brokers

Merchants by good of their own account agents make deals on behalf of other businessmen who are therefore the principals to the contracts which the agent has arranged. Brokers are middlemen who specialize in bringing together people in a particular market who are anxious to trade but, because of lack of knowledge of the market, do not know whom to trade with.

These specialists operate in most markets, but are particularly useful in import and export trade where distance, language difficulties, and expense would often prevent a small trade form making his needs known.

Import merchants with connections in a particular country of group of countries will buy goods or produce from growers or manufacturers. By paying promptly they can often buy at competitive prices, for they are relieving the foreign exporter of the risks of the enterprise.

They transport, warehouse, and display the produce and by dealing on the commodity markets, or direct with larger- scale retailers or wholesalers, dispose of the goods at a profit. An import commission agent deals with goods for foreign exporters on a consignment basis. This involves the import of the goods by the price obtainable, using their expert knowledge of the British market. They will then render a document called an 'Account sales' to the foreign exporter showing the gross proceeds, the commission deducted, and possibly a further deduction for Del credere commission. Del credere means "in the belief that.'

The agent believes that a buyer has been found who will honour the bargain made in due course. By accepting a Del credere commission the agent agrees to assume the risk of any debts. The overseas manufacturer or grower is clearly unable to follow up a debt as easily as a person in the importation country. Having deducted these commissions, the agent remits the net proceeds to the overseas client.

Re-exports, Transhipment and Process Inwards Relief

Customs duties represent an increase in the price of goods to home consumers. Anomalies therefore arise where goods are not consumed at home but are re-exported. Their price would be increased by the amount of the duty, and this would render British goods less competitive in overseas markets.

In practice, goods for re-export and for transhipment are entered on special 'Entry' forms and must be exported within one month. For some goods a Transhipment band Note must be completed. In addition to this, where an import pays duty and is manufactured into a finished product which is subsequently exported, the exporter can claim a 'process inwards relief,' formerly called 'Drawback,' from the customs authorities. Primary imports embodied into secondary exports are therefore free from customs duty, thus keeping their export prices as competitive as possible.

Membership of the European community

Entry to the E.E.C. in 1973 has had a considerable influence on the import trade of the United Kingdom. Goods produced in members countries are said to be 'free circulation 'within the Community, and may cross frontiers without paying import duties. This means that imports from Germany, Holland, etc., cannot be restricted in any way, except by the competitive nature of British-made goods.

If British citizens believe goods from other member nations to be better value for money, or more durable or convenient than home-made products, there is nothing home producers can do to stop a flood of imports. We can only hold-up the influx of foreign goods by ensuring that our products are better designed and better made than the goods produced elsewhere, and are price competitive with them.

Goods moving between members nations are documented by a system of documents called the community Transit system. This system gives evidence of entitlement to preferential tariff rates.

The Simple 'movement certificate' provides evidence that the goods are in free circulation in the country of export, and consequently may circulate freely in other member countries. The more advanced documents are called 'transit documents.' They not only signal free circulation, but also entitle goods to move across frontiers without being inspected by Customs. Food are sealed in their containers or vehicles on departure, and only opened up in the final country of destination.

Bonded Warehouses

The payment of duties is a very considerable cost to some firms. For instance the tobacco industry in Britain pays about Rs. 80 million every day in duty. The duty is payable in advance, before entry is allowed, and firms therefore have considerable quantities of capital tied up in this duty. To reduce the burden somewhat a system of bonded warehouses permits the landing of cargo on which duty has not been paid.

The owners of such warehouses give a bond to the authorities promising not to release goods from the warehouse until the duty has been paid and customs officer is present. The bond names a penalty to be paid should any infringement occur.

Importers may own their own bonded warehouse, or may simply hire space in one when required. The advantage is that goods can be graded, sorted, and, in some countries, even manufactured while in bond, the duty being payable only on removal of the goods for sale on the home market.

The wholesale trade of the United Kingdom

Wholesale trade in the United Kingdom has been through a period of change as the retail trade has been modified by successive Resale Prices Acts. Traditional ways of marketing through wholesalers are often by-passed by manufacturers and growers, who sell direct to retailers, or to the public.

Wholesalers themselves have branched out into new fields of activity, like selling direct to the consumer by a mail order. It is therefore difficult to lay down a definition that applies to all wholesalers today, and unwise to specify which activities a wholesaler will perform.

Traditionally a wholesaler is a person who buys in very large quantities and sells in bulk to retailers, performing in the intermediate period the functions of warehousing and transportation. Today these functions may also be performed by the manufacturer, or the purchasing organization of a large-scale retailer.

Whoever handles the distribution of primary and secondary goods, it is obviously as important to have an efficient distribution system as it is to have efficient production. Distribution expenses amount to about 40 percent of retail prices.

Whether manufacturers handle these matters, themselves or hand them over to the specialist attentions of wholesalers, the public have to pay the distribution costs as an increase in the retail price. A new management technique-physical distribution management-seeks to keep these costs as low as possible.