2.9. Oral Practice. Round Table

None of the countries has ever succeeded in creating strong economy by isolating itself from the

world economic system.

Translate the following questions for the discussion and hold it:

1. What basis are the foreign trade economic relations exercised on?

2. What influence does the competitiveness of goods and services exert on the growth of nations’

exports and, in general, on foreign trade ties?

3. What are the main trends in foreign trade relations anticipated in the near future?

2.10. Written Practice

Summarize the unit in a paragraph of about 300—350 words.

U n i t 3 . I n t e r n a t i o n a l T r a d e . F o rm s

a n d M e t h o d s

3.1. Preview

In this unit we are going to examine: trade (comerce), discounts agent

• specified methods and forms of international

trade (intermediary, intermediator, )re laed

• advantages and disadvantages of free trade

• interaction of different countries and international

organizations- in the intensification

of international trade

3.2. Warm-up

Before you start reading the unit think and try to answer the following questions:

1. How do we picture international trade?

2. What forms and methods are applied in international trade?

3. What is known to us about the main participants of trade?

4. What principles is foreign trade policy based on?

3.3. Rapid Reading (skimming, scanning, reading for general understanding of the

basic Text 3.4)

Work in pairs or small groups.

1. Quickly skim the text to find the difference between perfect and imperfect forms of trade. Do

not try to understand the text in detail at this stage.

2. Try to find the key sentence in each part of the text.

3. Compare one or more aspects of international trade that particularly interest you after having

looked through the first section of the text with the rest of the class.

4. Say whether the information gained from the text extends your professional knowledge.

3.4. Basic Text. Forms of International Trade

International trade is the exchange of goods and services between one country and another. This

exchange takes place because of differences in costs of production between countries, and because

it increases the economic welfare of each country by widening the range of goods and services

available for consumption. Ricardo showed by the law of comparative advantage that it was not

necessary for one country to have an absolute cost advantage in the production of a commodity for

it to find a partner willing to trade. Even if a country produced all commodities more expensively

than any other, trade to the benefit of all could take place provided only that the relative costs of

production of the different commodities were favourable.

Differences in costs of production exist because countries are differently endowed with the resources

required. Countries differ as to the type and quantity of raw materials within their borders,

their climate, the skill and size of their labour force, their stock of physical capital and their institutions

(institutional economics). Countries will tend to export those commodities whose production

requires relatively more than other commodities of those resources (factors of production) of which

it has most (Heckscher-Ohlin principle). By increasing the scope for the specialization of labour

(division of labour) and for achieving economies of scale by the enlargement of markets, there is

a presumption that international trade should be free from restrictions (free trade).

B a s i c n o t io n s

auction,transaction

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dealer)

The classical economists (classical economics) condemned mercantilism for its advocacy of government

control over trade in order to achieve export surpluses, and from the nineteenth to the early

; twentieth century there was a presumption in favour of free trade. This philosophy gave place to

economic protectionism (protection) in the 1930s, but it was revived again in the General Agreement

on Tariffs and Trade in 1948. The latter has had some success in reducing tariffs on imports, culmin

ating in the creation of the World Trade Organization. However, many trade restrictions still remain,

i At the same time there has been an increase in the number of customs unions and free-trade areas.

While these agreements do establish free trade between member countries, they discriminate against

outsiders. World trade has expanded faster than world output. Over the past fifty years, trade has

grown on average at about 6 per cent per annum, about 50 per cent more than world output.

There exist developed (perfect) and imperfect forms of international trade. Let us consider

these forms. Within the frames of a developed form of trade export — import operations are exercised

separately on the commercial currency basis.

Export is the selling of goods produced in a given country to the buyers of another country, i.e.

trade partners. By export we mean selling goods to a foreign country.

By import we mean bringing in goods from another country.

Imperfect form of trade is a form of international trade within the frames of which the transactions

are made on the condition of exchanging goods (complete or partial). In case we have an

imperfect form of trade it is the difference in size that is refunded. Countertrade is an example of

imperfect trade.

Countertrade is a form of barter in international trade in which the buyer requires the seller to

accept goods (of the buyer’s choosing) in lieu of currency. The seller has the task of marketing the

goods. Another form of countertrade is the agreement by a seller of plant and machinery to “buy

back" the products produced by the plant and machinery in settlement of the debt.

Countertrade developed rapidly as a favoured trading method by Communist states and by

developing countries with nonconvertible currencies and a shortage of foreign exchange. Countertrade

may take the form of the exchange of one commodity for another or the exchange of a mixed

selection of commodities. Multinational firms and banks have specialist divisions to advise on

countertrade and firms have been established specializing in the giving of advice on conducting

countertrade.

Forms of countertrade:

• barter

• counter purchases

• compensation agreements

Barter stands for acquiring goods or services by means of exchange for other goods or services, rather

than for money. A form of barter has grown in recent years in the USA and Australia into a serious

business activity. Corporations specializing in barter deals offer to buy surplus products in exchange for

credits which the company disposing of the goods can use to buy other goods and services, such as TV

advertising time, specified by the barter corporation. These corporations have sufficient financial weight

to be able to obtain large discounts for the goods and services they offer for trade.

Two main methods of operations — direct and indirect — are applied in international trade.

By a direct method we mean making operations directly between producers and buyers.By an indirect method we mean making operations through agent,or intermediary.

On the world market there act the following intermediaries:

• brokers (common intermediaries)

• agents on behalf of the seller or the buyer

• market makers

• stockjobbers

• stockists

• distributors

Broker is an intermediary between a buyer and a seller in a highly organized market, e.g. a

stockbroker, commodity broker or a market operator working on his own account, e.g. a pawnbroker,

bill broker. On the stock exchange, a broker is the intermediary between a market maker and

the public.

Market maker is a broker-dealer who is prepared to quote buy and sell (bid and offer) prices and

to buy and sell specified securities at all times at these prices and is thus “making a market” in

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them. Prior to the Big Bang* this function was carried out by the jobbers, who were not allowed to

deal with the public. Since the Big Bang all members of the stock exchange have been able to deal

with the public as broker-dealers, some of whom specialize as market makers and others as stockbrokers.

Market makers help to provide liquidity on the stock market, particularly for less frequently

traded shares.

Stockist is a person who executes operations on the basis of the commission agreement (consignment).

Such form of agreement is characteristic of selling large-scale goods. On these conditions

an exporter (consignor) supplies the goods to the intermediary’s (consignee’s) warehouse for

selling within some period of time. A consignee can return the goods that are not sold by a fixed

time. Thus, an exporter provides credits for an intermediary.

Stockjobber is a member of a stock exchange who buys and sells stocks and shares so as to take

advantage of variations in their prices, dealing with stockbrokers but not with the general public.

Distributors are independent trade firms which serve as dealers between buyers and sellers on

the basis of purchase and sale agreements.

Agent is a person who acts for, or manages the affairs of, other people in business, i.e. acts on

behalf of ah exporter or importer (principal) on the basis of the agreement. This agreement includes

extra agent’s obligations. The principal hires an agent to perform tasks on his behalf (advertising,

marketing, monitoring, etc.). Specific intermediaries in international trade are mercantile

markets (exchanges), international tenders and international auctions.

Let us consider these specialized institutions.

Mercantile exchange. The deals (transactions) in a mercantile exchange determine the prices of

goods, insurance rates and freight tariffs for carriage by land and waterways, and in a more general

sense of everything what may be quoted, i.e. is a homogeneous mass. The rates and prices should be

certified by brokers.

In France the decision about setting up or cancelling mercantile exchanges is made only by the

government. The deals in mercantile exchanges may be of three kinds: 1) with cash payment when

the delivery of goods is realized immediately (promptly); 2) immediate (prompt) deals when the

goods should be delivered by the expiry date; 3) the deals on special exchange terms.

In France there are about 70 mercantile exchanges realizing operations with the goods in the

markets of oil, coffee in Havre, food items (in particular, sugar and com) in Paris, etc.

Trade in commodities with specific properties is realized at international auctions. The main

commodities offered at auctions are as follows: furs, wool, tea, tobacco, horses, coffee, cocoa,

vegetables, etc.

Trade is exercised by lots.

What is an auction and how is it held?

Auction is a type of transaction in which the buyer of an item and the price that is paid for it are

chosen after a number of different potential buyers has each made some declaration of their willingness

to pay for the item. Auctions can be held in a variety of forms: the English auction, in which

the bidders sequentially offer higher prices, with the last remaining bidder paying his last offered

price; the Dutch auction, in which a list of sequentially lower prices are offered by the seller, until a

potential buyer accepts one of these prices and then pays that price for the product; the sealed-bid

auction, in which each bidder is given one chance to make an offer, in ignorance of the offers of

other bidders, and in which the highest offer is accepted; and the second-price (or Vickrey) auction,

which is exactly like a sealed-bid auction, except that the highest bidder has to pay only the price

offered by the second-highest bidder.