THIS ARTICLE IS WRITTEN BY PRIYANSHI PUROHIT OF DHARMASHASHTRA NATIONAL LAW UNIVERSITY, JABALPUR.,COURSE: BA LLB Hons (2023-2028), DURING HER INTERNSHIP AT LeDroit India.
ABSTRACT
Foreign trade refers to the exchange of goods and services between countries, Understanding foreign trade is essential for governments, businesses, and individuals involved in international commerce.
This article gives an overview of the definition, history, impact on the balance of payment, and recent amendments in foreign trade policies.
DEFINITION
Foreign trade also known as international trade has been defined by Cambridge Dictionary as “the activity of trading goods and services with other countries”.
Well, International trade involves the exchange of capital, goods, and services across borders due to demand or need. It plays a significant role in many countries’ economies and has grown in importance over recent centuries.
Conducting international trade is more complex than domestic trade, as it is influenced by factors like currency, government policies, economies, legal systems, and markets. To promote and simplify trade between countries with different economic statuses, international economic organizations like the World Trade Organization were established. These organizations focus on facilitating and expanding global trade, and official trade statistics are published by various governmental and intergovernmental agencies.
FOREIGN TRADE HISTORY
In today’s world, global commerce is an integral part of our daily lives, allowing us to easily purchase items from around the world through online platforms. However, for most of human history, this level of international trade was non-existent. The roots of international trade date back millennia, but its significant expansion occurred during the modern era following the Industrial Revolution.
INCIDENTS THAT LED TO FOREIGN TRADE:
SILK ROAD:
International trade has been a part of human history since ancient times, with the Silk Road being the initial prime route for trade linking the west and east. It served as a significant trade route for more than two millennia, connecting Asia and Europe through the Middle East.
The Silk Road’s inception followed the expansion of the Han Dynasty (206 BC–220 AD) into Central Asia, enabling Chinese individuals to venture into Central Asia and establish commercial endeavors there. This historical route was often referred to as “the road of silk” due to its role in transporting silk from China to Rome.
THE INDUSTRIAL REVOLUTION:
The Industrial Revolution in the 18th and 19th centuries led to significant advancements in technology, transportation, and manufacturing, boosting global trade.
Steamships and railways facilitated the movement of goods, while factories increased production capabilities.
THE GREAT DEPRESSION:
Following World War I, the Great Depression ensued, stemming from various causes like excessive production, intensified corporate rivalry, steep tariffs on foreign goods, and reduced export prices. These elements collectively contributed to reduced consumer demand for products and services, leading to staggering unemployment rates, reaching as high as 25% in countries like the United States and Canada. It took several years after the Great Depression’s conclusion for consumers to regain confidence in making purchases due to apprehensions about job security, which deterred excessive spending.
MERCANTILISM:
Mercantilism was an economic doctrine that gauged a nation’s prosperity based on its accumulation of gold reserves and the surplus of exports over imports. When a country managed to sell more products abroad than it purchased from other nations, it would achieve a favorable balance of payments (BOP) and amass additional gold reserves.
CONTEMPORARY TRADE:
In the modern era, globalization has continued to expand, with advancements in technology, transportation, and communication connecting markets across the world.
Trade agreements and partnerships, such as the European Union and NAFTA (now USMCA), have further promoted international trade.
The history of foreign trade is marked by a continual evolution, shaped by technological advancements, geopolitical shifts, and changing economic ideologies. It remains a critical driver of global economic development and inter-connectedness.
POST-WORLD WAR 2:
The post-World War II era witnessed a significant upsurge in global trade, accompanied by a growing number of nations becoming members of the United Nations. Consequently, this led to an expansion in the number of free trade agreements among member countries.
Furthermore, during this period, numerous multinational corporations (MNCs) emerged as formidable players in the global economic landscape. These MNCs were able to manufacture products cost-effectively due to the advantages of economies of scale and innovative mass production methods. Consequently, they gained substantial control over worldwide trade and established themselves as influential entities in their own right.
Their influence extended beyond the economic sphere, as they could shape political decisions by engaging in government lobbying efforts, leverage their power over consumers through extensive advertising campaigns, and even acquire competitors that posed a threat to their market dominance.
IMPACT ON BALANCE OF PAYMENT:
Foreign trade has a notable influence on a nation’s balance of payments, which keeps a record of all economic dealings between the country and the rest of the world. This impact can be seen in two key areas:
CURRENT ACCOUNT:
The import and export of goods and services directly shape the current account balance. A trade surplus (where exports exceed imports) has a positive effect on the current account balance because it signifies a net inflow of foreign currency.
Conversely, a trade deficit (where imports surpass exports) has a negative impact, diminishing the current account balance.
CAPITAL ACCOUNT AND FINANCIAL ACCOUNT:
Foreign trade also has implications for capital movements and financial transactions. A trade surplus can lead to an influx of foreign investment as trading partners invest in the surplus country.
In contrast, a trade deficit may necessitate efforts to attract foreign investment or seek loans to cover the deficit.
In summary, whether a country has a trade surplus or deficit, it has consequences for the current account, capital account, and financial account within the balance of payments. It is crucial to maintain a sustainable trade balance for overall economic stability.
FOREIGN TRADE POLICY
Let us first know what exactly is foreign trade policy, well it is also known as trade policy, it is a government’s carefully planned strategy for handling its interactions with other nations regarding international trade.
This strategy involves a broad spectrum of economic and political goals designed to advance a nation’s interests in the global market.
ESSENTIAL ELEMENTS:
1) TRADE LIBERALIZATION: A commitment to reducing barriers to trade such as tariffs, quotas, and non-tariff barriers to facilitate the flow of goods and services across borders.
2) EXCHANGE RATE POLICIES: The management of exchange rates to influence trade competitiveness and uphold macroeconomic stability.
3) EXPORT PROMOTION: Tactics to increase exports, including financial incentives, export credit, and measures to simplify trade to support domestic industries.
4) IMPORT CONTROL: Policies designed to regulate and manage imports for safeguarding domestic industries, national security, or other strategic aims.
5) BILATERAL AND MULTILATERAL AGREEMENTS: Engagement in trade deals and organizations like the World Trade Organization (WTO) for trade rule negotiations and dispute resolution.
6) ECONOMIC DIPLOMACY: Involvement in diplomatic activities to cultivate favorable trade relations with other nations, encompassing trade missions and negotiations.
7) INTELLECTUAL PROPERTY RIGHTS: Safeguarding and enforcing intellectual property rights to encourage innovation and protect domestic industry interests.
FOREIGN TRADE POLICY 2023
FTP 2023 which came into effect on 1st April 2023 was launched by the Union Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles, SHRI PIYUSH GOYAL.
FTP 2023 is a policy statement that is flexible and receptive to the demands of trade while also building on the continuity of tried and true programs that facilitate exports. The goal of the policy which was founded on the ideas of partnership and trust with exporters, is process automation and re-engineering to make it easier for exporters to conduct business.
GOVERNMENT’S GOALS AND TARGETS:
- to boost India’s total exports to $2 trillion by 2030, with merchandise and services sectors each making contributions.
-To promote the usage of Indian rupee in international trade, leveraging a payment settlement framework introduced which was introduced by RBI in July 2022. This could be especially beneficial in trade with countries where India has a surplus.
IMPORTANT FEATURES OF FTP 2023:
AMNESTY SCHEME
It includes the introduction of an online registration portal, allowing exporters a six-month period to participate. This program aims to address all outstanding cases of noncompliance with export obligations, permitting regularization by paying custom duties corresponding to unmet export obligations.
EXPANSION OF THE TOWNS OF EXPORT EXCELLENCE (TEE):
This program has recently been extended to encompass four additional towns: Faridabad, Mirzapur, Moradabad, and Varanasi, in addition to the existing 39 towns. Prime concerns will be given to funds that promote exports via the MAI scheme will be granted to TEEs, and they can also take advantage of the benefits offered by Common Service Providers (CSPs) for export fulfillment under the Export Promotion Capital Goods (EPCG) Scheme.
EXPORTER’S RECOGNITION:
Exporting companies that reach specific export performance benchmarks will now have the opportunity to participate in capacity-building programs, resembling the idea of “each one teaches one.” Firms that have earned a rating of 2 stars or above will be incentivized to offer trade-related training using a standardized curriculum to individuals who express interest. The criteria for recognizing the status of these firms have been modified to enable more exporters to attain 4 and 5-star ratings, thereby improving their ability to establish and promote their brands in international export markets. - CONCLUSION:
Foreign trade is in itself a wholesome topic touching many areas including international laws and domestic production capacity. To expand its exports, India has prepared policies related to foreign trade, it has been growing in this field ever since.
In conclusion, foreign trade plays a vital part in the global economy, fostering international cooperation, economic growth, and specialization in production. Countries can access a wider range of products at cheaper prices as a result of foreign trade.
