Forms of international busimess. International trade

“cowboy capitalism ” the land was so rich and the resources so vast that people could abuse their environment with impunity. They could cut down trees, kill buffalo, and plow the grass land. And if erosion began to take theland or the animals got sparse, the answer was easy: move on to a virgin territory. I n the 1960 “spaceship earth” All persons are part of one survival system. Each one's actions affect everyone else on the spaceship.We must recycle resources and use them again. There are five forms of International Business: International trade An exchange of goods, results of intellectual labour, services and work force on the international level. The main reason for people and nations to trade is the benefit derived from specialization. International production cooperation Production relations for joint activities in terms of international labour division. Joint ventures and multinationals are the examples of this form. International services Economic goods which do not take a tangible and storable form but bring benefit to the consumer. They include consulting, transport, insurance, scientific and technical, tourist and other services. International finance and credit relations World business related to the operations with money and securities. International investments The activity based on international capital transfer from one country to another aiming at profit gaining and social effect. Reasons for International Trade 1) It enables countries to obtain the benefits of specialization. 2) It enables the benefits of large-scale production to be obtained. 3) It increases competition. 4) It promotes beneficial political links between countries. Examples of this are the EC.

The nominal price is the price quoted in money while the relative or real price is The relative price is the price of a commodity such as a good or servicservice in terms of another, i.e. the ratio of two prices. The distinction is made to make sense of inflation. Balance of payments - is an overall statement of a country’s economic transactions with the rest of the world over some period, often a year. It is the net result of all transac­tions, including trade in goods, between one country and all others. A table of the balance of payments shows amounts received from foreign countries and amounts spent abroad. Divided into the current account and the capital account and changes in official foreign exchange reserves (These include gold or convertible foreign currencies). The current account records payments and receipts for immediate transactions, such as the sale of goods and rendering of services. It is subdivided into visible account, comprising the movement of goods; and invisible account, comprising the movement of services. The capital account shows money movements not immediately devoted to trade, such as investments; it is a record of international exchanges of assets and liabilities. Subdivided into: Long-term capital is again subdivided into foreign direct investment (FDI) capital, and portfolio investment capital. FDI give the right to control property. Portfolio investments do not provide the right to control property; they only give a profit or yield; short-term capital, the former relating to capital employed for investment purposes, the latter to bank advances, trade credit and the like..

According to Adam Smith, trade between two nations is based on absolute advantage. When one nation is more efficient than another in the production of one commodity but is less efficient than the other nation in producing a second commodity, then both nations can gain by each specializing in the production of the commodity of its absolute advan­tage. In 1817 Ricardo.According to the law of comparative advantage, even if one nation is less efficient than (has an absolute disadvantage with respect to) the other nation in the production of both commodities, there is still a basis for mutually beneficial trade. The first nation should specialize in the production and export of the commodity in which its absolute disadvantage is smaller and import the commodity in which its absolute disadvantage is greater. Protectionism - a theory, or a policy, of defending the producers in a country from foreign competition in the home market by the imposition of such discriminating duties on goods of foreign production as will restrict or prevent their importation Non-Economic Arguments 1)To encourage the production of a good of strategic importance 2) To foster closer political ties 3)To prosecute political objectives 4) To promote social policies Economic Arguments Having Some Justification 1)To raise revenue to the budget 2) To improve the terms of trade 3)To protect an “infant” industry 4) To enable an industry to decline gradually 5) To prevent dumping 6) To correct a temporary balance of payments disequilibrium Economic Arguments Having Little Validity 1) To retaliate against the tariffs of another country 2)To maintain home employment in a period of depression 3) To protect home industries from “unfair” foreign competition Methods of Controlling International Trade 1 price-based constraints: Customs duties are duties imposed on imported and export­ed goods. Tariffs can be of various kinds. Revenue tariff serves as a source of revenue for the government. Protective tariff is intended to protect domestic industrial or agricultural production from foreign competition. Prohibitive tariff is so high that it makes the importation of goods subject to it practically impossible. Preferential tariff promotes and supports the development of trade between two countries, the duties on their goods being lower than those on the goods coming from other countries. Subsidies are a financial aid supplied by a government for reasons of public welfare, the balance of payments, etc. 2 Quantity limits Quotas is a prescribed number or quantity, as of items to be manufactured, imported, or exported. A quota may be set as a minimum or a maximum. Embargo –is a complete ban, may be placed on the import or export of certain goods. 3 Buers or sellers cartels (OPEC (Organization of Petroleum-Exporting Countries), the International Sugar Agreement (ISA)) 4Limits on foreign direct investments

The General Agreement on Tariffs and Trade (GATT) The General Agreement on Tariffs and Trade, established in 1947, has three major objectives: 1) to reduce existing trade barriers; 2) to eliminate dis­crimination in international trade; and 3) to prevent the establishment of further trade barriers by getting nations to agree to consult one another rather than take unilateral action.