Ecodev - Chapter 7

Republic of the Philippines
BATANGAS STATE UNIVERSITY

The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
E-mail Address: cabeihm.pb@g.batstate-u.edu.ph | Website Address: http://www.batstate-u.edu.ph
College of Accountancy, Business, Economics and International Hospitality Management
CHAPTER 7: INTERNATIONAL TRADE AND DEVELOPMENT
IN PARTIAL FULFILLMENT OF THE COURSE SUBJECT
ECO 310
SUBMITTED TO:
MR. EDS MENDOZA
INSTRUCTOR
BACHELOR OF SCIENCE IN MANAGEMENT ACCOUNTING
BSMA 1202 - 1205
Submitted by:
Arellano, Stephanie
Catibog, Bea
Domingo, Joy
Macatangay, Mikylla
Manalo, Mark Andrei
Pumarada, Khrizia
Rizo, Khacy Annia
BSMA 1202 – BSMA 1205
2022 - 2023
Leading Innovations, Transforming Lives, Building the Nation

Pablo Borbon Campus
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
INTRODUCTION
In early years, when the nations like Assyrian, Babylonian, Egyptian, and even
Phoenician civilizations caught up on this activity, the trading system, they have recognized
that the trade or trading itself can be a cause for the improved quality of life for their citizens.
INTENDED LEARNING OUTCOMES
After studying this module, the students will be able to:
1. Define International Trade;
2. Explain the advantages or benefits of International Trade;
3. Explain the different forms of Trade protection;
4. Discuss the bases of International Trade;
5. Discuss the different classification of Imports; and
6. Explain the Philippine Export-Import Policy Guidelines.
lNTERNATIONAL TRADE
International trade is the exchange of capital, goods, and services across

international borders or territories because there is a need or want of goods or services. In
most countries, such trade represents a significant share of gross domestic product.
International trade is referred to as the exchange or trade of goods and services between
different nations. And they all up that this kind of trade contributes and increases the world
economy. The most commonly traded commodities are television sets, clothes, machinery,
capital goods, food, raw material, etc.

Pablo Borbon Campus
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
BENEFITS OF INTERNATIONAL TRADE
1. Increases Customer Satisfaction — consumers can have the power to look and
analyze what are the best quality products with the lowest price range they can have
that can conclude to the increase of the customer satisfaction.
2. Improve Standard of Living — through international trade, other countries can offer
the others a more sustainable products and services that can be a cause to improve
their quality of life.
3. Promote Product Specialization — countries produce a surplus of the product in

which they specialize and trade it for a different surplus good of another country.
4. Accelerates Economic Development — these benefits apply to less developed

countries.
5. Generates Foreign Exchange Earnings — to less developed countries like our country
Philippines, the availability of sufficient foreign exchange is significant for the
attainment of economic stability and growth.
6. Stimulates Production — a profitable and large market is the best incentive for
production.
BASES OF INTERNATIONAL TRADE
1. Technological differences - All other things being equal, a country with better
technology has definitely an advantage in production.
2. Price differences - Countries with lower prices attract importers while countries with
higher prices attract exporters.
3. Distribution of natural resources - When a top Japanese government official saw the
vast natural resources of Australia, he said that God was unfair.
THEORY OF COMPARATIVE ADVANTAGE
Comparative Advantage refers to the ability of a party to produce a particular

good or service at a lower marginal and opportunity cost over another. Even if one country is
more efficient in the production of all goods (absolute advantage in all goods) than the other,
both countries will still gain by trading with each other, as long as they have different relative
efficiencies.

Pablo Borbon Campus
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
FORMS OF TRADE PROTECTION
1. Quota is a government-imposed trade restriction that limits the number or monetary

value of goods that a country can import or export during a particular period.
2. Tariffs give a price advantage to locally-produced goods over similar goods which
are imported, and they raise revenues for governments.
3. State Trading are defined as governmental and non-governmental enterprises,

including marketing boards, which deal with goods for export and/or import.
4. Exchange Controls aim to restrict the buying and selling of a national currency or to
preserve foreign currency reserves.
5. Government Regulations in overseas markets can protect the health and safety of
consumers or be a barrier to trade.
PHILIPPINE EXPORT-IMPORT POLICY GUIDELINES
Classification of Imports
a. Freely Importable Commodities refer to goods that may be freely imported

into the Philippines without the need for import permits, clearances or licenses,
unless otherwise provided by law or regulation.
b. Regulated Commodities goods which are subject to regulation can be

imported only after securing the necessary goods declaration, clearances,
licenses, and any other requirements, prior to importation. Submission of
requirements after arrival of the goods, but prior to release from customs
custody shall be allowed, but only in cases provided for by governing laws or
regulations.
c. Restricted Commodities are goods which may be imported or exported ONLY

when authorized by law or regulation.
d. Prohibited Commodities are goods which are, by their nature, unlawful to be

imported or exported. These goods are otherwise called as “contrabands”.
LETTER OF CREDIT
Letter of Credit is a letter from a bank guaranteeing that a buyer's payment to a

Pablo Borbon Campus
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
seller will be received on time and for the correct amount. In the event that the buyer is
unable to make payment on the purchase, the bank will be required to cover the full or
remaining amount of the purchase. Letter of Credit, simply defined, is a written instrument
issued by a bank at the request of its customer, the Importer (Buyer), whereby the bank
promises to pay the Exporter (Beneficiary) for goods or services, provided that the Exporter
presents all documents called for, exactly as stipulated in the Letter of Credit, and meet all
other terms and conditions set out in the Letter of Credit. A Letter of Credit is also commonly
referred to as a Documentary Credit.
NO DOLLAR IMPORT
No Dollar Import is a special privilege given by the government to returning

residents and other qualified individuals to bring motor vehicles into the country for personal
use under certain conditions.
A. Basic Requirements
Importer
• Has resided abroad for at least one (1) year (accumulated within 3 year period of his/her
stay abroad up to the date of filing of the application)
• Immigrants holding 13g or 13a visa or Dual Citizen
• SRR Visa Holder under the Philippine Retirement Act
• 47(a)(2) Visa Holder under the Balik-Scientist Program
Motor Vehicle
• Left Hand Drive
• Not to exceed 3,000 kgs GVW
• Registered under the name of the qualified importer for at least six (6) months prior to the
submission of the application to the Bureau of Import Services (BIS)
• Certificate of Emission Compliance (CEC) from country of origin duly authenticated by
the Philippine Embassy abroad (under CAA RA 8749)

Pablo Borbon Campus
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
B. Documentary Requirements for Philippine Passport Holders
• Completely filled-out and notarized BIS Application Form
• Completely filled-out and notarized Affidavit of Undertaking
• 1 copy of 2X2 picture with signature
• Original or authenticated copy of complete pages of old and new passport (for time period
refer to I.A.1)
• Original or authenticated copy of Car Title or Registration with English translation if
necessary
• Processing fee of One Thousand Five Hundred Pesos (P1,500.00) for cars and Nine
Hundred Pesos (P 900.00) for motorcycle
Methods of Payment in International Trade
To succeed in today’s global marketplace and win sales against foreign

competitors, exporters must offer their customers attractive sales terms supported by the
appropriate payment methods. Because getting paid in full and on time is the ultimate goal
for each export sale, an appropriate payment method must be chosen carefully to minimize
the payment risk while also accommodating the needs of the buyer.
FOREIGN MARKET EXCHANGE
1. exchange of one currency for another or the conversion of one currency into another
currency.
2. foreign exchange is usually abbreviated as "forex".
3. made up of banks, commercial companies, central banks, investment management

firms, hedge funds, and retail forex brokers and investors.

Pablo Borbon Campus
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
Bangko Sentral ng Pilipinas (BSP) maintains a floating exchange rate system.

Exchange rates are determined on the basis of supply and demand in the foreign exchange
market. The role of the BSP in the foreign exchange market is principally to ensure orderly
conditions in the market.
EXCHANGE RATE IN SUPPLY AND DEMAND
Supply and Demand
Prices of goods, commodities and exchange rates are determined on open markets under
the control of two forces, supply and demand.
The laws of supply and demand show that:
 High supply causes low prices, and high demand causes high prices.
 When there is an abundant supply of a given commodity then the price should fall.
 When there is a scarce supply of a given commodity then the price should increase.
 Therefore, an increase in the demand for a commodity would cause it to appreciate
in value, whereas an increase in supply would cause it to depreciate.
DEMAND CURVE
It demonstrates how popular the Filipino Peso is in the US. The curve is a typical

Pablo Borbon Campus
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
downward-sloping demand curve, meaning that when the value of the peso declines in
relation to the dollar, Americans desire more of the currency. When the peso is weaker and
the dollar is stronger, Filipino items are less expensive for Americans to purchase.
Americans will transfer from purchasing goods and services from US companies or third
parties to Filipino vendors as the peso depreciates. They must convert their dollars for
Filipino pesos before they may buy products created there. As a result, the amount of
Philippine pesos sought has surged along with the demand for Filipino commodities.
SUPPLY CURVE
The supply curve illustrates the relationship between the price of a good or service
and the volume supplied over a specific time period. In a typical illustration, the quantity
supplied will be shown on the horizontal axis and the price will be shown on the left vertical
axis.
The figure shows the visual representation of how supply curve occurs. The supply
curve slopes up because Filipino firms and consumers are willing to buy a greater quantity
of American goods as the dollar becomes cheaper (i.e. they receive more dollars per peso).
Before Filipino customers can buy American goods, however, they must first convert peso
into dollars, so the increase in the quantity of American goods demanded is simultaneously
an increase in the quantity of foreign currency supplied to the United States.
The current exchange rate of Philippine peso to US Dollars is (Php 1.00 = $ 0.0018).
Meaning to say, since there was an increase to dollars per peso on the given example,
supply also ventured upward in the stock markets of America. This only shows that the

Pablo Borbon Campus
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
product price and quantity supplied are directly related. Simply putting this as the price of
the commodity moves into upward slope, this thus happen at the same time with the
amount of supplied goods.
EQUILIBRIUM PRICE
Demand and supply factors are balanced at an equilibrium price. Prices have a
propensity to return to this equilibrium unless certain demand or supply characteristics
change. When demand, supply, or both move or change, the equilibrium price will change.
EQUILIBRIUM QUANTITY
In economics, the equilibrium price is calculated by setting the supply function

and demand function equal to one another and solving for the price. Basically, to understand
this in an easier way, let us just simply put this in which at an equilibrium QUANTITY
DEMANDED AT PRICE is equal to QUANTITY SUPPLIED AT PRICE, as shown in the formula
presented on the image.

Pablo Borbon Campus
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
In conclusion, suppliers and consumers meet at a particular quantity and price at

which they are both satisfied. Figure 3 combines the supply and demand curves. The
intersection determines the market exchange rate and the quantity of dollars supplied to
United States. At the exchange rate R, the demand and supply of Philippine peso to the
United States is Q. This is known as the equilibrium or the market’s clearing point.
The equilibrium price is where the supply of goods matches demand. When a
major index experiences a period of consolidation or sideways momentum, it can be said
that the forces of supply and demand are relatively equal and the market is in a state of
equilibrium. Economists find that prices tend to fluctuate around the equilibrium levels. If the
price rises too high, market forces will incentivize sellers to come in and produce more. If
the price is too low, additional buyers will bid up the price. These activities keep the
equilibrium level in relative balance over time.
CHANGES IN DEMAND
It describes changes in the aggregate demand curve caused by various reasons

(orders, income, prices of substitutes and complements, expectations, population, etc.).
In this case, the entire demand curve shifts to the left or right.
So, there are two possible changes in demand:
• Increase (shift to the right) in demand
• Decrease (shift to the left) in demand.

Pablo Borbon Campus
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
Changes in supply
A shift in supply refers to a shift in the entire supply curve caused by changes
such as taxes, production costs, and technology. It means that the entire supply curve shifts
left or right.
Balance of Payment
The balance of payments (BOP) is the method that countries use to monitor all
international monetary transactions at a specific period.
Within these three categories are sub-divisions, each of which accounts for a
different type of international monetary transaction.
• Current Account
— Current accounts are used to mark the inflow and outflow of goods and services into
a country.
• Capital Account
— All international capital transfers are recorded in the capital account.
• Financial Account
— Financial statements document international financial flows related to investments in

companies, real estate, bonds and stocks.

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Republic of the Philippines

BATANGAS STATE UNIVERSITY

College of Accountancy, Business, Economics and International Hospitality Management

CHAPTER 7: INTERNATIONAL TRADE AND DEVELOPMENT

IN PARTIAL FULFILLMENT OF THE COURSE SUBJECT

MR. EDS MENDOZA

BACHELOR OF SCIENCE IN MANAGEMENT ACCOUNTING

BSMA 1202 - 1205

Manalo, Mark Andrei

Rizo, Khacy Annia

BSMA 1202 – BSMA 1205

Leading Innovations, Transforming Lives, Building the Nation

College of Accountancy, Business, Economics and International Hospitality Management

INTENDED LEARNING OUTCOMES

After studying this module, the students will be able to:

1. Define International Trade;

2. Explain the advantages or benefits of International Trade;

3. Explain the different forms of Trade protection;

4. Discuss the bases of International Trade;

5. Discuss the different classification of Imports; and

6. Explain the Philippine Export-Import Policy Guidelines.

International trade is the exchange of capital, goods, and services across

Leading Innovations, Transforming Lives, Building the Nation

College of Accountancy, Business, Economics and International Hospitality Management

BENEFITS OF INTERNATIONAL TRADE

3. Promote Product Specialization — countries produce a surplus of the product in

4. Accelerates Economic Development — these benefits apply to less developed

BASES OF INTERNATIONAL TRADE

THEORY OF COMPARATIVE ADVANTAGE

Comparative Advantage refers to the ability of a party to produce a particular

Leading Innovations, Transforming Lives, Building the Nation

College of Accountancy, Business, Economics and International Hospitality Management

FORMS OF TRADE PROTECTION

1. Quota is a government-imposed trade restriction that limits the number or monetary

3. State Trading are defined as governmental and non-governmental enterprises,

PHILIPPINE EXPORT-IMPORT POLICY GUIDELINES

a. Freely Importable Commodities refer to goods that may be freely imported

b. Regulated Commodities goods which are subject to regulation can be

c. Restricted Commodities are goods which may be imported or exported ONLY

d. Prohibited Commodities are goods which are, by their nature, unlawful to be

Letter of Credit is a letter from a bank guaranteeing that a buyer's payment to a

Leading Innovations, Transforming Lives, Building the Nation

College of Accountancy, Business, Economics and International Hospitality Management

No Dollar Import is a special privilege given by the government to returning

• Immigrants holding 13g or 13a visa or Dual Citizen

• SRR Visa Holder under the Philippine Retirement Act

• 47(a)(2) Visa Holder under the Balik-Scientist Program

• Left Hand Drive

• Not to exceed 3,000 kgs GVW

submission of the application to the Bureau of Import Services (BIS)

• Certificate of Emission Compliance (CEC) from country of origin duly authenticated by

the Philippine Embassy abroad (under CAA RA 8749)

Leading Innovations, Transforming Lives, Building the Nation

College of Accountancy, Business, Economics and International Hospitality Management

B. Documentary Requirements for Philippine Passport Holders

• Completely filled-out and notarized BIS Application Form

• Completely filled-out and notarized Affidavit of Undertaking

• 1 copy of 2X2 picture with signature

• Original or authenticated copy of Car Title or Registration with English translation if

Hundred Pesos (P 900.00) for motorcycle

Methods of Payment in International Trade

To succeed in today’s global marketplace and win sales against foreign

FOREIGN MARKET EXCHANGE