This detailed article will help SS1 students understand the essential concepts of foreign trade, including its procedures, documents, and structures. It will cover various aspects of international business, from the basics of foreign trade to the transportation methods and ports involved in global trade. Each section is designed to be clear and informative, ensuring that students with little prior knowledge of the subject can follow along.
1. Foreign Trade: Introduction
Explanation: Foreign trade refers to the exchange of goods and services between countries. It is essential for nations to access resources they cannot produce domestically, thus fostering economic growth and development. Foreign trade allows countries to expand their markets, access cheaper goods, and benefit from international expertise.
- Exports: Goods and services sold to other countries.
- Imports: Goods and services purchased from other countries.
Example: Nigeria exporting crude oil and importing machinery.
Reading Assignment: Research why countries engage in foreign trade and the benefits they derive from it.
Evaluation Questions:
- What is the primary purpose of foreign trade?
- How does foreign trade benefit a country’s economy?
2. Balance of Trade, Terms of Trade, and Balance of Payments
Explanation:
- Balance of Trade: The difference between a country’s exports and imports. If exports exceed imports, it’s a trade surplus; if imports exceed exports, it’s a trade deficit.
- Terms of Trade: Refers to the rate at which one country can trade its exports for imports. It reflects the relationship between a country’s export prices and its import prices.
- Balance of Payments (BOP): A financial statement that records all economic transactions between a country and the rest of the world. It includes the balance of trade, foreign investments, and loans.
Example:
- Balance of Trade: If Nigeria exports ₦1 billion in oil and imports ₦800 million in goods, the balance of trade is positive.
- Terms of Trade: If Nigeria can trade 1 ton of oil for 5 tons of wheat, the terms of trade are 1:5.
Reading Assignment: Review real-life examples of a country’s balance of payments and balance of trade.
Evaluation Questions:
- What is the difference between balance of trade and balance of payments?
- How do terms of trade impact a country’s foreign trade?
3. Foreign Trade: Structure and Procedures
Explanation: The structure of foreign trade involves the flow of goods and services between countries, governed by a set of procedures to ensure smooth transactions.
- Structure: Involves suppliers, buyers, and intermediaries such as freight forwarders, customs brokers, and financial institutions.
- Procedures: Include negotiating contracts, securing financing, arranging for transportation, and completing customs documentation.
Example: A Nigerian company exporting goods may work with a customs broker, a freight forwarder, and a bank to facilitate the export.
Reading Assignment: Learn about the various parties involved in foreign trade and their roles.
Evaluation Questions:
- Who are the main players in foreign trade?
- What steps are involved in exporting goods?
4. Foreign Trade: Stages and Documents
Explanation: Foreign trade is a multi-stage process that involves specific documents at each stage to ensure legality and transparency in international transactions.
- Stages:
- Negotiation of terms between buyer and seller.
- Shipment of goods.
- Customs clearance.
- Payment and receipt of goods.
- Documents: Key documents in foreign trade include:
- Invoice: Lists the goods and their prices.
- Bill of Lading: A receipt for the goods shipped.
- Certificate of Origin: Certifies the country of origin of the goods.
- Letter of Credit: A document issued by a bank ensuring payment to the exporter.
Example: A Nigerian exporter ships goods to a U.S. company with the necessary Bill of Lading and Invoice for customs clearance.
Reading Assignment: Study the different types of documents used in foreign trade.
Evaluation Questions:
- What are the key documents required for exporting goods?
- What are the stages involved in the foreign trade process?
5. Customs and Excise Authority
Explanation: Customs and Excise Authorities are government agencies responsible for enforcing the laws related to international trade. They handle the regulation of goods entering or leaving the country, ensuring proper duties and taxes are paid.
- Customs: Regulates imports and exports and ensures compliance with trade laws.
- Excise: Deals with goods that are produced within the country and taxed, like tobacco and alcohol.
Example: When importing a vehicle into Nigeria, the customs authority ensures that the correct duties are paid before the vehicle is released.
Reading Assignment: Research the role of customs and excise authorities in your country.
Evaluation Questions:
- What is the role of the customs authority in foreign trade?
- How do excise duties affect local businesses?
6. Terms of Quoting Prices / Methods of Payment in Foreign Trade
Explanation: Terms of quoting prices are the agreements between a buyer and a seller regarding the price, delivery conditions, and the responsibilities of both parties. Common terms include:
- FOB (Free on Board): The seller’s responsibility ends once the goods are on board the ship.
- CIF (Cost, Insurance, and Freight): The seller is responsible for the cost, insurance, and freight until the goods arrive at the port of destination.
Methods of Payment:
- Letter of Credit: A bank guarantees payment to the seller once conditions are met.
- Cash in Advance: The buyer pays before goods are shipped.
- Open Account: Goods are shipped before payment is made, typically on a trust basis.
Example: A Nigerian exporter sells goods to a U.S. company on CIF terms, with payment via a letter of credit.
Reading Assignment: Learn the differences between common methods of quoting prices and payment methods.
Evaluation Questions:
- What are CIF and FOB terms, and how do they affect the buyer and seller?
- What is the role of a letter of credit in international trade?
7. Ports Authority
Explanation: Ports Authorities are responsible for overseeing the management, maintenance, and operation of ports. They ensure that the infrastructure is in place for the smooth import and export of goods.
- Functions: Includes controlling port operations, providing facilities for unloading and loading ships, and enforcing port laws.
Example: The Nigerian Ports Authority (NPA) manages ports like Lagos Port, where goods are loaded and unloaded.
Reading Assignment: Study the role of the Nigerian Ports Authority or any other relevant port authority in your country.
Evaluation Questions:
- What are the main responsibilities of a ports authority?
- How does the efficiency of a port affect international trade?
8-9. Transportation
Explanation: Transportation is a critical component of foreign trade, enabling the movement of goods between countries. Various modes of transportation are used, including:
- Air Transportation: Fast but expensive, used for high-value or perishable goods.
- Land Transportation: Trucks and railways for moving goods within countries.
Example: A company may use air transportation to send perishable goods like fruits abroad, and trucks to distribute goods domestically.
Reading Assignment: Compare the benefits and challenges of different transportation methods in foreign trade.
Evaluation Questions:
- How does transportation affect the cost and speed of foreign trade?
- Why might a company choose air transportation over sea transportation?
10. Water Transportation
Explanation: Water transportation is one of the most commonly used methods for international trade, especially for bulk goods such as oil, coal, and agricultural products. It is cost-effective for large volumes of goods but slower compared to air transport.
- Shipping: Involves using cargo ships to transport goods across oceans and seas.
- Containers: Goods are often shipped in containers, which are standardized for easier handling and storage.
Example: Nigeria exports oil through water transportation to global markets, using large oil tankers.
Reading Assignment: Learn about the types of cargo ships used in international trade.
Evaluation Questions:
- Why is water transportation a popular choice for foreign trade?
- What are the advantages and disadvantages of water transportation?