Vital steps are taken when processing an international trade. Taking into account import trade, export trade and trade, the trade balance and the balance of payments are also essential elements for an international trade to be successful.
Procedures for international trade
For international trade to take effect, certain procedures must be followed. The step-by-step procedures are:
1. The importer and the exporter meet through different means, for example, a consultation letter.
2. The next step is for the producer to send quotes to the buyer in response to the inquiry letter. The quote will show the description and characteristics of the products.
3. After receiving the quotation, the importer will place an order with the manufacturer. The indentation will show details of goods, prices and delivery date.
4. The next step is to arrange for payment through any agreed payment method, eg, letter of credit, wire transfer, etc.
5. Then, an agreement will be made for the merchandise to be sent through a transport company. The shipping agent will get all the necessary documents like shipping note, reship note, etc. the merchandise will be packed and well arranged in containers.
6. The exporter will prepare and send copies of the bill of lading to the importer in advance. Other documents will be prepared and sent to accompany the shipment.
7. When the merchandise arrives, the clearing agent will process and complete all the necessary documents. The agent will check the manifest to verify that the merchandise is on board. Customs personnel will evaluate the shipment and calculate the duties to be paid.
8. The merchandise will be taken to the warehouse once all the necessary documentation has been completed.
International trade divisions
International trade can be divided into three: import trade, export and trade:
Import trade: This is the act of buying goods and services from other countries. Sometimes it is restricted to control the balance of payments of a country. Goods are imported in response to direct or consignment orders. The import can be visible or invisible. Visible imports consist of goods that can be seen and touched, that is, tangible goods that come from other countries, for example cars, electronics, plants and machinery, etc. Invisible imports, on the other hand, consist of services provided by other countries that cannot be seen or touched. Examples of invisible imports are banking, tourism, aviation, etc. This will appear in the balance of payments.
Export trade: Export trade can be defined as the act of selling goods and services to other countries. It is the sale of products from a country abroad. Some governments frequently try to encourage exporters by introducing export subsidies. The export can be divided equally into visible and invisible exports.
Deposit: It is a form of foreign trade in which goods sent to a port are subsequently re-exported to another port. If customs duties have been paid on imported goods that are then re-exported, the duty can be claimed. In short, entrepot is the re-export of goods imported from other countries.
Trade balance and balance of payments
The trade balance refers to the total value of goods sold and bought by a country during a given period, usually a year. When visible exports are equal to visible imports in monetary terms, we have a trade balance. A positive trade balance means that a country is exporting more in monetary terms than it is importing, while a negative or unfavorable trade balance means that a country is importing more in monetary terms than it is exporting.
The balance of payments is a statement of account or record that shows the relationship between a country’s total payments to other countries and its total income from them in a year. The balance of payments of a country can be grouped into three parts, namely, current account, capital account and account of monetary movements.
There are many technicalities when processing an international trade, but here are the simple basics to get an idea that foreign trade is not just about buying from another country or selling to them.