Section 4: Trade and Commerce - Part 2: Imports and Exports

4.3 International Trading

Replace the underlined words and expressions in the text with the words and expressions in the same meaning:

     (1) Countries import some goods and services from abroad, and export others to the rest of the world. Trade in (2) raw materials and goods is called visible trade in Britain and merchandise trade in US. Services, such as banking, insurance, tourism, and technical expertise, are invisible imports and exports. A country can have a surplus or a deficit in its (3) difference between total earnings from visible exports and total expenditure on visible imports, and in its (4) difference between total earnings from all exports and total expenditure on all imports. Most countries have to pay their deficits with foreign currencies from their reserves, although of course the USA can usually pay in dollars the unofficial world trading currency. Countries without currency reserves can attempt to do international trade by way of (5) direct exchanges of goods without the use of money. The (imaginary) situation in which country is completely self-sufficient and has no foreign trade is called autarky.

     The General Agreement on Tariff and Trade (GATT), concluded in 1994, aim to maximize international trade and to minimize (6) the favouring of domestic industries. GATT is based on the comparative cost principle, which is that all nations will raise their income if they specialize in producing the commodities in which they have the highest relative productivity. Countries may have an absolute or a comparative advantage in producing particular goods or services, because of (7) inputs (raw materials,cheap or skilled labour, capital, etc.), (8) weather conditions, (9) specialization of work into different job, (10) savings in unit costs arising from large-scale production, and so forth. Yet most governments still pursue protectionist polices, establishing trade barriers such as (11) taxes charged on imports, (12) restrictions on the quantity of imports, administrative difficulty, and so on.

(1)   = nations

(2)   = commodities

(3)   = balance of trade 

(4)   = balance of payments

(5)   = barter or couter-trade

(6)   = protectionism

(7)   = factors of production

(8)   = climate

(9)   = division of labour

(10) = economies of scale 

(11) = tariffs

(12) = quotas      

•  Does your country have a trade surplus or deficits?   

           In Vietnam: surplus

• Does it have a balance of payments surlus or deficits?

         In Vietnam: deficits

• What are its chief exports?

         In Vietnam: Mostly agricultural products such as rice, coffee, rubber or cat fish

• Which industries or sector are protected?
• Which do you think should be protected?

4.4 Imports and Exports
4.4.1 These are methods of payment used in international trade:
1.  A pro-forma invoice is the first draft of an exporter's bill to importer counting estimated prices, according to which the importer will decide whether to buy or not.
2.  A commercial bill or a bill of exchange is written order instructing someone (usually an importer) to pay someone else (usually an exporter) a certain sum on a given date.
3.  The opposite is a letter of credit - a paper issued by a buyer's bank as proof that the seller will be paid; the seller can then sell the letter (at a discount) on the commercial paper market.
4.  Exporter can also sell their bills of exchange, at a discount, to accepting houses or other merchant banks (if the bank believes that the debtor will pay up).
5.  A bill of lading is a document giving title to goods that acts as a receipt and a contract to ship them; shippers can use them as security when discounting bills of exchange.
6.  Most industrialized countries, eager to increase their exports, have government agencies that either give loans to exporters awaiting payment or guarantee exporters against bad debts.
7.  Some countries go even further, giving loans to developing countries so that they can (eventually) buy their exports.
8.  A company short of liquidity and with a lot of "receivables" can sell them at a discount to someone who will try to collect the debt (at full value); this is known as factoring.

4.4.2 Add appropriate words to these sentences:
1.  Selling a bill or a financial instrument at a discount means selling it at less then 100%
2.  Letters of credit can be traded like other financial assets.
3.  An accepting houses is specialized merchant bank.
4.  A bill of lading proves the ownership of goods.
5.  Factoring is a way of trading debts.
 

4.6 Financing Foreign Trade

     One way of financing international trade is by a letter of credit. The foreign buyer transfers money from its bank to a correspondent bank in the exporter’s country. This bank then informs the exporter that a letter of credit for a a sum of money is available when it presents a bill of lading (a document prepared by the shipowner or his agent which acknowlegdes that the goods have been received on board the ship), a commercial invoice, and an insurance certificate.

     Another possibility is to pay by a bill of exchange, as in the following example of the export of a shipment of goods from Britain to Argentina.

     On receiving an order from Argentina, a British manufacturer produces the goods. After arranging insurance, manufacturer will send the goods to the port, with an invoice and a bill of lading, to be loaded onto a ship. When the goods have been shipped on board, the ship’s master signs and return the bill of lading to the producer.

     The exporter will draw up a bill of exchage requiring the buyer to pay a certain sum of money on an agreed date, and present the bill to a London correspondent bank of the buyer’s bank.

     The London bank accepts a bill of exchange for the same amount. It will then send the bill of lading and the bill of exchange to Argentina.

     Meanwhile, the British manufacturer can sell the bill of exchange (at a discount) to an accepting house in London, so that it does not have to wait for payment.

     When the documents arrive in Argentine, they will be given to the importing company when it accepts to original bill of exchange.

     When the ship reaches its destination, the importer presents the documents to the master of the ship, and collect the goods. (If the goods do not arrive, the buyer will have to make an insurance claim.)

     On the agreed date, the importer honours the bill of exchange.

1.       1.  Find five verbs in the text that partner the noun goods.

             Produce – send – load – ship – collect

2.     2       Find six verbs in the text that partner the noun bill of exchange.

            Draw up – present – accept – send – sell – honour

3.      3.  Find five different financial documents mentioned above.

-          Letter of credit

-          Bill of lading

-          Commercial invoice

-          Insurance certificate

-          Bill of exchange.