What is International Trade? (Complete Explanation)

International Trade

Updated On — 6th Nov, 2020

Last Updated on November 6, 2020 by admin

1. What is international trade

I: Second, the classification of international trade
II: Third, the characteristics of international trade
III: Fourth, common payment methods in international trade
IV: Five, the basic process of international trade

Cross-border e-commerce is a part of international trade. Countless sellers are engaged in cross-border e-commerce, but compared with a large number of people, they are not familiar with international trade. The basic knowledge still needs to be understood in detail.

The editor of this article will discuss with you, what is the international trade and what is the import and export process of international trade? Please see.

What is international trade

International trade refers to the exchange activities of goods and labor in various countries (or regions) in the world. It is the circulation of goods and services between different countries. International trade is composed of two parts: import trade and export trade, so it also becomes an import and export trade.

Of course, for a country, international trade is usually foreign trade. Therefore, many sellers often confuse the concepts of international trade and foreign trade.

Second, Classification of International Trade

Glaucoma can make different distinctions according to different directions such as the moving direction of the commodity, the form of the commodity, the relationship between the two parties to the transaction, and the number of participating countries, as follows:

Classified By The Moving Direction Of The Goods

● Import Trade:

Import foreign goods or services into the domestic market for sale.

● Export Trade:

Export domestic goods or services to foreign markets.

● Transit Trade:

The goods of country A are transported to the market of country B through the territory of country C, which is transit trade for country C. Due to the hindrance of transit trade to international trade, WTO members do not engage in transit trade with each other.

2. Classified By Commodity Form

● Visible Trade:

Import and export of goods in physical form. For example, machinery, equipment, furniture, etc. are all commodities in physical form, and the import and export of these commodities are called tangible trade.

● Invisible Trade:

Import and export of technology and services without physical form. The transfer of patent use rights, tourism, and the transnational provision of services by financial and insurance companies are all commodities that have no physical form, and their import and export are called invisible trade.

3. Classified By The Number Of Participating Countries

● Bilateral trade:

Refers to the trade between the two countries on the basis of bilateral settlement through an agreement. In this type of trade, each party pays for imports from the other with the exports of one party. This method is mostly practiced in foreign exchange control countries. In addition, bilateral trade also refers to trade exchanges between the two countries.

● Multilateral trade:

Refers to the trade in which three or more countries conduct mutual trading on the basis of multilateral settlement through agreements. Obviously, under the trend of economic globalization, multilateral trade has become more common.

4. Classified by settlement method

● Spot trade:

Refers to the use of freely convertible currencies for settlement in international trade. This settlement method is now mainly used in international trade. Sometimes, the trading parties lack freely convertible currencies and can be settled by barter, that is, the goods exchanged by the two parties are exchanged with different goods of equal value after being priced.

● Barter trade:

Barter trade between governments requires the signing of trade agreements and payment agreements, so it is also called agreement trade. Compensation trade is a non-governmental barter trade. In practice, there are also situations where spot foreign exchange trade and barter trade are used together.

5. Classification According To The Relationship Between The Two Parties To The Transaction

● Direct Trade:

Refers to the behavior of commodity-producing countries and commodity consuming countries not to buy and sell commodities through a third country. The exporting country of trade is called direct export, and the importing country is called direct import.

● Indirect Trade and Transit Trade:

This refers to the behavior of commodity-producing countries and commodity consuming countries to buy and sell commodities through third countries. The producing countries in indirect trade are called indirect exporting countries, and the consuming countries are called indirect imports. The third country is an entrepot trade country, and the third country is engaged in entrepot trade.

Third, The Characteristics Of International Trade

● The trading entities are of different nationalities, making credit investigation difficult

● As it involves import and export, it is easily affected by bilateral relations and national policies

● The transaction amount is often larger, the transportation distance is longer, and the performance time is longer, so the trade risk is greater

● In addition to the parties to the transaction, it also involves transportation, insurance, banking, commodity inspection, customs and other departments

● There are many parties and the legal relationship between the parties is more complicated

4. Common payment methods in international trade

A. Cash advance

Before the goods are shipped, the importer pays the exporter in full. This payment method is usually used for small transactions or ordered goods.

B. Documentary Credit (D/C)

This is a document that the buyer requires the bank (issuing bank) to issue, proving that the bank promises to pay the seller a specified amount if the seller meets the specific requirements of the documentary credit.

C. Documentary Collection

1. Documents against payment (D/P)

The exporter, through the collecting bank, instructs the collecting bank to issue ownership and other shipping documents to the importer after receiving the payment.

2. Documents against acceptance (D/A)

Through the collecting bank, the exporter instructs the collecting bank to issue ownership and other shipping documents after the importer accepts the draft.

D. Credit

The seller delivers the goods directly to the buyer, first issues invoices and other shipping documents, and then bills later. The buyer’s and seller’s credit arrangements did not guarantee payment in writing. In this payment method, the exporter has limited evidence of arrears, so the risk is greater.

Five, The Basic Process Of International Trade

1. Preparation before export trade

The preparation work usually needs to be done before trade has the following aspects:

● Conduct research on the target market and target customers, and select the target market

● Develop relevant operation plans and price plans

● Organize product production plan

● Carry out advertising operations and expand the market

2. Signing the export trade contract

After the international trader has determined the trade relationship with the customer, both parties to the transaction will conduct substantive negotiations on the specific content of the trade, which is also called transaction negotiation. Usually, it will go through the steps of inquiry, offer, counter-offer, acceptance, etc. After determining the content of the transaction, the two parties will sign a written contract to clarify responsibilities and performance.

3. Fulfillment of export contract

Contract fulfillment performed by both parties in international trade usually refers to the logistics process of international trade, including stocking, packaging, customs clearance, transportation, bill of lading, and foreign exchange settlement. details as follows:

1) Stocking

The main content of stocking:

● The quality and specifications of the goods shall be verified according to the requirements of the contract.

● Quantity of goods: guarantee to meet the quantity requirements of the contract or letter of credit.

● Stocking time: According to the provisions of the letter of credit, combined with the shipping schedule to facilitate cargo connection.

2) Packaging

The packaging needs to choose different packaging forms according to the different commodities and the requirements of the logistics operator, usually:

● General export packaging standards: Packaging is carried out according to the general standards for trade and export.

● Special export packaging standards: export goods packaging according to customers’ special requirements.

● The packaging and markings (transportation marks) of the goods: should be carefully checked and verified to meet the requirements of the letter of credit.

3) Customs clearance procedures

The customs clearance procedures are extremely cumbersome and extremely important. If the customs clearance cannot be completed, the transaction cannot be completed.

4) Transportation

The forms of transportation include ordinary land transportation, sea transportation, air transportation, express delivery, etc. General traders will choose different transportation methods according to contract requirements and the scale of goods, and different transportation methods are also different.

5) Bill of lading

The bill of lading is the document used by the exporter to sign out by the exporter after completing the export customs clearance procedures and customs clearance for the importer to pick up the goods and settle the foreign exchange.

The bill of lading is issued in accordance with the number of copies required in the letter of credit, usually three copies. The exporter keeps two copies for tax refund and other businesses, and one copy is sent to the importer for handling procedures such as delivery.

When shipping goods by sea, the importer must hold the original bill of lading, packing list, and invoice to pick up the goods. (The exporter must send the original bill of lading, packing list, and invoice to the importer.)

If it is air cargo, you can directly use the bill of lading, packing list, and fax to pick up the goods.

6) Settlement

After the export goods are loaded, the import and export company should correctly prepare the documents (packing list, invoice, bill of lading, export origin certificate, export settlement) and other documents in accordance with the provisions of the letter of credit. Within the validity period of the presentation, as stipulated in the letter of credit, it shall be submitted to the bank for settlement of foreign exchange through negotiation.

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