Basic Concepts of International Trade

The international trade structure is a reflection of worldwide economic development, industrial structure and service development. It refers to the shares of commodities in variety occupying in the general international trade volume. So we can learn about the current situation of the world economy through that way.

The foreign trade dependence can reflect the development levels, open-up degrees, scales of domestic market of countries. It refers to the proportion of the foreign trade volume in the general domestic product.

The terms of trade can reflect the country's current situation in foreign trade. It refers to the proportion of the price index of export occupying the price index of import, namely foreign trade index of the current year.

The quantum of foreign trade can reflect the scale of the foreign trade of the country. But how to calculate it? Quantum of Foreign Trade = foreign trade / price index of Im./Ex. goods.    Price Index = price of current period / price of base period * 100%.

The foreign trade volume consist of the total import volume and the total export volume of  a country for a period of time.

The international trade volume consist of the total export volume of all countries and regions all over the world.

The CIF price is higher than the FOB price by cost adding freight and insurance.

Two payment ways: Free-Liquidation Trade and Barter Trade. Free-Liquidation trade is on the payment by currency(including Dollar, Euro, Pound, Yen, and Swiss Franc etc.) while Barter Trade is on the payment by valuated goods.

The visible trade has to go through customs while invisible trade doesn't. The visible trade can be indicated in customs statistics while invisible trade can't. But invisible trade can be indicated on the international balance sheet.

The general trade will classify import and export by country's border while special trade by country's customs frontier. The bonded warehouse can be located between country's customs frontier and border, where primary products can be transited into border, be proceeded and then transited out of the border. It's called re-export of foreign merchandise. The bonded warehouse thing is very important. And the re-export of foreign merchandise can avoid going through customs. But this kind of thing doesn't suit in China because China adopt the general trade system.

The difference between entrepot trade and transit trade is the way they make profits. Entrepot trade makes profits by having an addtion on the price while transit trade by charging for extra money. And in entrepot trade, the ownership of goods will be moved from the producting country to the third country, and then to the consuming country. But in transit trade, the ownership of merchandise will be moved directly from the producting country to the consuming country.

The countries or regions engaged in entrepot trade usually boast the advantages of superior geographic location, well-developed traffic, convenience in making settlement, and free trade policies. They are suited to be distribution centers such as Hong Kong of China, Rotterdam of Holland and the like.

Memorizing these words will help you in later study or work:

insular countries: It refers to the countries or regions whose mainland is located in an island.

produce: create or manufacture a man-made product.

proceed: follow a procedure.

domestic market: It usually refers to the financial market within the border of a country and sometimes the single market consist of all citys' and regions' markets within a country. The latter one puts it in an abstract way.

abroad market: It refers to the financial market out of a country. It can be all over the world.

merchandise: commodities offered for sale.

sb. charge for sth.: It refers to when somebody asks another person for some money because of the convenience he provided for him.

inland countries: countries without coastline.

non-neighboring country: countries that don't border on each other.

border on: part of a country's boundary are connected to another country's boundary.

customs frontier: jurisdiction where customs impose tariff and implement the law.

jurisdiction: the territory within which power can be exercised.

territory: a region marked off for administrative or other purposes.

indirect trade: It refers to the business trade made by the producing country and the consuming country through the third country.

entrepot trade: It refers to the business involving three parties, two of which are the producing country and the consuming country. They don't have direct business relationship to each other, so they transport merchandise through the third country, which has direct business relationship to both the two countries respectively.

the both parties of: two sides involved in legal proceedings.

make negotiation: discuss the terms of an arrangement.

conclude a deal: notary way in business trade, aiming to constrain each other in reality.

make settlement: to sum up and check the balance for a period of time.