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International Trade (Unit 16)
The history of trade is largely the history of civilization. First it was what we call barter, a simple
exchange of goods. Goods like cloth and glass beads were taken to places and exchanged for things
like oriental spices. Sometimes this was dangerous and risky business. Today trade is not confined to
visible exports and imports, but also includes invisible items like services, transportation, insurance,
expenditure by tourists, etc. The balance of trade indicates the difference between imports and
exports of visible goods. The balance of payments also includes invisible items. If the total value of
the goods imported is higher than that of the goods exported, the balance of trade is bad, deficit, but
when the balance of trade is good, it shows surplus. What a country can achieve in international
trade is shown by the terms of trade. The terms of trade is the rate at which a countrys exports are
exchanged for its imports. The terms of trade become even more favorable if the demand for a
countrys exports increase, or if the demands for its import decrease, for then its import prices will
fall and its export prices will rise.
The Means of Controlling Foreign Trade (Unit 17)
The government can control foreign trade activities in different ways. It can encourage exports and
control imports. The commercial policy of a country is always closely connected with its foreign
policy. This is reflected not only by various restrictions, for example establishing quotas, raising
taxes and introducing license systems. The government can control foreign trade activities directly or
indirectly. Administrative measures control these activities directly, foreign exchange regulations
indirectly. The government can also subsidize prices, which means that it allows goods to be sold at
a price lower than the market price. The aim is to prevent the decline of a company or industry.
Customs (Unit 17)
The tariff policy of a country usually protects the interest of the home economy by enabling its
products to penetrate foreign markets while protecting its own markets from being flooded by
foreign goods. Import tariffs are therefore kept as high as possible and export tariffs very low, if
applicable at all. Besides import and export duties, there are transit duties. A transit duty is a tax
levied on goods passing through a customs area. Tariffs are often classified as either protective or
revenue. Protective tariffs are designed to shield domestic production; revenue tariffs are designed to
obtain revenue for the government. Tariffs are imposed according to the weight of goods, or
according to their quantity and quality. The customs tariff of a country is either a double-column
tariff or a single-column tariff. A single column tariff is used when the rates are valid in all
countries. When different rates are used, a double column tariff is used.
Foreign Exchange (Unit 18)
Centuries ago gold or silver coins were used as money. The value of each nations money was
determined by the gold (or silver) content of each coin. Today, each country ha its own currency,
with names such as forint, dollar, pound, ruble, etc. A distinction is made between domestic currency
and foreign currency. Also between foreign currency and foreign exchange. Foreign exchange means
the system of dealing in and converting the currency into that of another. Currencies can be free or
convertible (hard currencies), transferable currencies which can be transferred from one bank to
another, and closed currencies (soft currencies), which can only be used by special arrangement. The
price at which one currency can be exchanged for another is called the exchange rate. Under a
floating exchange rate the rates of exchange are determined by market trading, based on the supply
of and demand for specific currencies. Under a fixed exchange rate the government keeps the price
fixed. Some countries ably a non-commercial exchange rate (e.g. tourism) and a commercial
exchange rate for exports and imports. This was the practice in Hungary. Since 1981 the National
Bank of Hungary has published the exchange rates of convertible currencies once a week.
Decision Making and Economic Systems (Unit 19)
Those who make decision in business are usually faced with the following fundamental questions:
1.
What goods or services should be produced or offered?
2.
How will the goods or services be produced?
3.
How will they be marketed (sold to public)?

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First, the market situation should be analyzed. When a new product is to be launched, the producer
must decide whether there is any demand for it and, if so, he must watch the competitors. A
company should also consider how to produce it, and this raises a number of questions:
- Are a trained labour force and suitable machinery available to start production?
- How can raw materials be obtained?
- How can transport problems be solved?
- How can goods be marketed?
It is usually the sales managers responsibility to define the sales strategy and to decide which
markets can be reached at what price. The problems of the market should be considered in the wider
context of the economic and political systems of the country. Today most countries claim to have
free market system. This system may differ from one country to another. In some countries
government control is important. In these countries industries that are central to the nations
economy are government-owned to varying degrees. Typically, such industries are
telecommunications, public utility companies and mining. Less critical industries like textile
manufacturing or retail trading tend to be dominated by private enterprise. These systems are
sometimes called mixed economies. By contrast, the economic system in which the government
controls the whole economy is called a planned economy. Now there are only a few countries that
still believe in this system.
The Eurpean Economic Community (Unit 20)
After 1945 Europe was in ruins both: politically and economically. A number of countries had to
rebuild or repair their economies. In these years the concept of a united Europe emerged. A more
modest form of a cooperation was established, first the uniting the coal and steel industries of France
and West Germany. This was followed by the establishment of the European Coal and Steel
Community in 1951. The ECSC was the predecessor of the European Economic Community. The
European Economic Community (EEC) also called the Common Market was founded by the Treaty
of Rome in 1957. The first member countries were France, West Germany, Italy. The Netherlands,
Belgium, and Luxemburg. Britain, the Irish Republic and Denmark joined the Common Market in
1973. Since then Greece, Spain and Portugal have also become a member countries. The purpose of
the EEC is to promote the economies of the member states. One of the most important objectives is
to remove restrictions on trade and on movements of labour and capital between its members. Entry
and exit visas and work permits between member countries are no longer required, but passports and
residence permits are still necesarry. The EEC also fixes minimum prices for various farm products.
The EEC has its headquarters in Brussels. Today the EEC is simply called European Community
(EC).
The World Bank and the IMF (Unit 20)
Bretton Woods is the name of a town in New Hampshire, USA. An international conferncewas
convened in July 1944 to discuss ways and means of avoiding the international economic difficulties
which were expected to occur after the Second World War. As a result the International Bank for
Reconstruction and Develpoment, known as the World Bank, was established in December 1945.
Thwe World Bank is owned by more than 125 member countries and has its headquarters in
Washington D.C. The World Bank extends long-term loans to member countries for development
projects such as dams electrification, agricultural development, and public health. Loans are to be
repaid in the same currency within 25 years. The Bretton Woods conference also established the
International Monetary Fund (IMF) whit its headquarters in Washington D.C. Its objectives are (1)
to stabilize rates of exchange, (2) to facilitate multilateral clearing systems, and (3) to eliminate
unecesarry restrictions on foreign trade. The IMF provides short-term loans of about five years to
countries in balance of payments difficulties.
Marketing an Advertising (Unit 21)
The most important function of marketing is to buy at as low a price as possible and sell at a price
high enough to ensure a good profit. In order to achieve that, research is carried out to provide
information on the size of the market and the price for which product or service can be sold or
bought. Marketing is concerned with packaging, promoting and distributing the product and also
deals with after-sales service. The aim of advertising is to inform the public of the advantages of a
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product or service (what can be obtained, and where, for how much, etc.). Advertising dates back to
ancient times. In the Middle Ages street vendors cried the names of the goods they wanted to sell. In
the 12th century in France the criers went through the streets giving samples of their drink. Printed
advertising came later. Outdoor advertising became popular in England. Posters appeared on every
wall. Today, the most important advertising media are: newspapers, magazines, radio and television
commercials, outdoor advertising and direct mail advertising. It is important for a company to
maintain good public relations. By public relations we mean the relations between a company and
the general public. These relations must be kept friendly in various ways. Public relations are big
business today.
Fairs and Exhibitions (Unit 21)
Exhibition is a display of manufactured goods. Fairs are places, what were used for the exchange of
goods.
Hungarys Foreign Trade Relations (Unit 23)
Though Hungarys economy greatly depends on its external relations, the share of Hungary in worl
trade-owing to the countrys small size-is only about 1 per cent. If we look at the value of Hungarian
imports and exports, we can see a continuous rise. In 1950 the valueof imports and exports was
about 20 per cent of the national income, today it is around 50 per cent. Hungary has close trade
realtions with the neighbouring countries, with most Western European countries, and with a number
of develpoing countries. Hungary depends on imports because the country has only limited supplies
of energy and raw materials. 40 per cent of the materials used in Hungary is covered by imports. The
most important import items are: metals, iron ore, cotton, wool, timber, and basic chemicals. The
best-known Hungarian export items are: Ikarus buses, railway engines, food-meat, salami, poultry,
wine, honey, vegetables, and fruit.
The Control of Foreign Trade in Hungary (Unit 23)
After the Second World War new political and economic conditions in Hungary manifested
themselves in a shift from private to government ownership. Hungarian foreign trade was
nationalized and the foundations were laid for the government monopoly of foreign trade. Today the
meaning of state monopoly in foreign trade has changed. Earlier specialized foreign trade
companies were only allowed to engage in foreign trading activities, today any company that wants
to engage in such activities in free to do so. Earlier only foreign trade companies were entitled to
conclude foreign trade contracts whit foreign companies. Other Hungarian companies could conduct
foreign trade activities, if they had been granted foreign trading rights. Foreign Trade activities
include the following: (1) the conducting of market research, (2) providing information to foreign
companies on matters concerning foreign trade activities (price of goods and delivery conditions),
(3) the actual buying and selling of commodities. Besides the government some other bodies such as
the National Bank, the Hungarian Foreign Trade Bank Ltd and the Hungarian Chamber of
Commerce play an important role in foreign trading activities.
The Hungarian Customs System (Unit 23)
All goods brought from abroad are liable to duty until they have been cleared. Only import duties
exist in Hungary. The flow of foreign merchandise is controlled by the Customs Office, which is
supervised by the Ministry of Finance. There are a lot of prohibitions and restrictions. The list of
such restrictions includes strict rules on the importation of plants and live animals, narcotic drugs,
firearms, explosives, etc. In 1973 Hungary became a signatory to GATT. This means that Hungary
has a tariff system in accordance with international regulations and customs. Customs duties are
levied according to the rates contained in the Commercial Customs Tariff. It is based on the Brussels
nomenclature.
The Contract of Sale (Unit24)
A contract is a legally binding agreement between two or more person to do something in return for
something else. A contract may be written or oral. Both parties should reasonably suppose that the
agreement is legally binding. In most cases, however, writing is necessary to make a contract, as
once it is made in writing, neither party can change it or interpret in different ways. A sales contract
must be written clearly and precisely. It must state who buys what, from whom, for how much and
under what conditions. A sales contract usually contains the following points:
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The description of the goods, detailed specification is necessary. In some cases samples may be
required.
- The quantity of the goods. Certain goods are sold by piece, pair, dozen or score.
- Price and payment. The contract must state in what currency payment should be made.
- Delivery terms
- The delivery date
- The packing of the goods
Conditions of Sale (Unit 24)
The General Conditions of Sale are usually printed on the back of the Order Form.
1. The present contract will only become obligatory when the form overleaf is filled in and signed
by both parties.
2. The purchase prices are to be understood in the currency set down in this contract.
3. The time of delivery is always roughly estimated and fixed
4. In case of force major both parties are released from their obligations.
5. Packing and delivery should be carried out in every detail at the Buyers instructions.
6. Any complaint regarding quality and quantity must be made to the Seller within 10 days.
7. Payments must be effected at the seat of the Seller.
Commercial Terms (Unit25)
Standardization of Commercial Terms
Contracts of international sales usually include commercial terms which are not customary in home
trade. This is because sending goods from one country to another can be a risky business. If the
goods are lost or damaged on the way, disputes may arise between buyer and seller. To avoid such
disputes, it is usual to agree, who bears the costs and risks of the delivery of the goods and up to
what point. In the course of the long history of international trade, special commercial terms have
been developed. These terms make it possible for the buyer and seller to mutually agree on the terms
of the sale of the goods without having to define in detail their respective responsibilities in each
particular case. The best-known such terms are Incoterms. They were first formulated by the
International Chamber of Commerce.
Incoterms (Unit25)
The latest edition of Incoterms contains more than a dozen commercial terms.
EXW (Ex Works) The seller places the goods at the disposal of the buyer at the factory.
The buyer bears all charges and risks from the time the goods have been placed at his disposal. He
pays the price, bears the expenses of customs duties and taxes, of freight and insurance. He pays for
the documents that he may need.
FOB (Free on board) The seller places the goods on board a ship named in the sales
contract. The buyer bears the risk of loss of or damage to the goods from the time the goods have
passed the ships rail. The buyer will bear all the expenses and charges of the freight, insurance, etc.
CIF (Cost, insurance and freight) The seller delivers the goods to the named port of
destination and pays the freight charges. Buyer bears the risk of loss of or damage to the goods from
the time the goods have passed the ships rail. The seller must also provide all the necessary
documents.
CFR (Carriage and freight) is essentially the same as CIF, except that it doesnt include
insurance.
DCT (carriage paid to the named point of destination) DCT means that the seller pays the
freight for the carriage of the goods to the point of destination. The buyer bears the risk from the
time the goods have been placed to the first carrier. DCT is used in all kinds of transport, including
ferries, containers and trucks.
CIP (carriage and insurance paid to) The same as DCT, expect that the seller must
provide for transport, and insurance against the risk of loss of or damage.
DES (Ex ship) The seller must make the goods available to the buyer on board the ship at
the destination named in the contract. The seller bears the full cost and risk of bringing the goods
there.
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DAF (Delivered at frontier) The goods are carried by rail or by road. The seller places the
goods at the buyers disposal at the frontier. The buyer bears all the costs and risks from the time the
goods have been placed at his disposal.
DDP (Delivered duty paid)
Documents in Foreign Trade (Unit 26)
Documents Used in foreign Trade
The most important documents used in foreign trade are the following:
1. Shipping documents the most important shipping document is the Bill of Lading (B/L). The
Bill of Lading is made out by the ship-owner usually in sets of three originals with two copies.
The originals are sent to the buyer, one remains with the seller and one is given to the master of
the ship. The B/L states the name of the ship carrying the goods, the port of embarkation and the
port of destination, and the rate of freight. It also gives the quantity, quality and value of the
goods taken on board. A Waybill is made out, when the goods are carried by rail or road. It
contains the description of the goods and the names of the importer and the exporter. A Railway
Consigment Note is a document used in international railway transport similar to the B/L, made
out by the sender of the goods. An Air Waybill is used when the goods are transported by air
freight.
2. Insurance documents 10 percent of the value of the goods
3. Invoices These usually give the full description of the goods (quantity, quality and price), the
name and address of the buyer and seller etc.
- Commercial Invoice
- Consular Invoice
- Customs Invoice
4. Various certificates
- The certificate of Origin, which states the country from which the goods have originated.
- Certificate of Quality