2. International Business (International Trade, Export and Import, World Trade Organization, Business across Cultures) (Unit 7, cm 290)

7.1 International business

International trade is the exchange of goods and services between countries. It enables countries to obtain some goods and services more cheaply than they could produce them for themselves of to consume goods and services which would otherwise be unobtainable from domestic supply sources.

Through international trade countries can improve their living standards. International trade keeps domestic prices down by creating competition at home and provides large markets abroad.

Governments can control international trade. The most common protectionist measures are tariffs (a tax on imported goods), quotas (the maximum quantity of a product allowed into a country during a certain period of time), exchange controls. They raise the price of imported goods to protect national producers.

The international trade that takes place without barriers such as tariffs, quotas and exchange controls is called free trade.

Free trade area is a form of trade integration between a number of countries, in which members eliminate all trade barriers among themselves on goods and services, but each continues to operate its own barriers against with the rest of the world.

7.2 Export and Import

Exporting and importing are two aspects of foreign trade.

Exports are goods and services produced in one country but sold in another. Trade in goods is known as visible exports and trade in services is known as invisible exports. Exports are important because they allow a country to earn foreign exchange which can be used for buying imports from abroad.

Imports are those goods and services which are consumed in one country but which have been purchased from another country. Imports of goods such as food, raw materials, or manufactured goods are known as visible imports; imports of services such as insurance, tourism, freight are known as invisible imports.

Imports are paid for by foreign currency earned by exporters, or by borrowing from foreign governments and agencies like the International Monetary Fund.

The balance of trade is the difference between payments for imports and payments for exports.

If exports exceed imports there is a trade surplus or a positive balance or trade. If imports exceed exports there is a trade deficit or a negative balance of trade.

7.3 World Trade Organization

The World Trade Organization (WTO) is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. It does this by:

• Administering trade agreements

• Acting as a forum for trade negotiations

• Settling trade disputes

• Reviewing national trade policies

• Assisting developing countries in trade policy sues through technical assistance and training programmes

• Reducing protectionism

• Cooperating with other international organizations

At the heart of the system are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading nations. These agreements are the legal ground rules for international commerce. Essentially, they are contracts guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody’s benefit. Their main purpose is to help producers of goods and services, exporters and importers conduct their business.

The WTO is one of three major organizations that oversee international economic relations among governments. The other two are the International Monetary Fund, which works to improve payment arrangements and other financial dealings between countries, and the World Bank, which provides loans to poorer nations. The WTO headquarters are in Geneva, Switzerland.