CHAPTER 7

International Trade
and Development
 Intended learning outcomes:
01 Define International Trade;
02 Explain the advantages or benefits of International Trade;
03 Explain the different forms of Trade protection;
04 Discuss the bases of International Trade;
05 Discuss the different classification of Imports; and
06 Explain the Philippine Export-Import Policy Guidelines.
 International Trade
Is exchange of goods and services that is conducted
beyond the political boundaries of a country. It
constitutes a vital element of international economics.
The proper allocation and efficient use of scarce
resources are the fundamental activities of economics.
These do not apply to the operations of the national
economy but also to the international economy.
 Bases of International Trade

Technological Distribution of natural

differences. resources.

Price differences.
 Technological differences.
All other things being equal, a country with a better
technology has definitely an advantage in production. Such
technology helps a given business enterprises in terms
of lower unit cost, better quality and greater volume of
output. This is a plus factor in international trade.
 Price differences.

Countries with lower prices attract importers while

countries with higher prices attract exporters.
 Distribution of natural resources.
When a top Japanese government official saw the vast
natural resources of the Australia, he said that God was
unfair. Japan is extremely very poor in natural resources.
Because of geographic differences, countries do not have
the same natural resources. Our own country is very rich in
natural resources which are suitable for agricultural
production.
 BENEFITS OF
INTERNATIONAL TRADE
 Benefits of International Trade

Increases consumers’ satisfaction.

The best goods and services are winners in the
world markets. Those with the lowest price
and with best quality are in great demand.
 Benefits of International Trade

Improves standard of living.

With the presence of different goods and services
coming all parts of the world, people definitely
enjoy a very comfortable and convenient life.
 Benefits of International Trade

Promotes product specialization.

To survive market competition, the best option is
to specialize in the production of goods and
services based on natural comparative advantages.
 Benefits of International Trade

Accelerates economic development.

These benefits apply for the less developed
countries. These countries need better machines and
proper technologies for their development projects.
 Benefits of International Trade

Generates foreign exchange earnings.

The availability of sufficient foreign exchange is
significant for the attainment of economic stability
and growth.
 Benefits of International Trade

Stimulates production.
A profitable and large market is the best incentive
for production. To prove, the existence of foreign
markets encourages more local production of
goods and services.
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.
 Forms of Trade Protection
Protection refers to an advantage given to domestic producers in
competing against foreign goods
in the domestic market.
 Forms of Trade Protection
1. Quotas.
It refers to a quantitative restriction in limiting imports of a
particular product to a specified number of units, or to a
certain value in a given period of time.
2. Tariffs.
It refers to a tax imposed on imports as they enter a
country.
 Forms of Trade Protection
3. State trading.
Governments, especially those with socialist and communist
economies, sometime grant monopoly importing rights to
state enterprises.

4. Exchange controls.
The Bangko Sentral ng Pilipinas restricts the sale of
foreign exchange like for example US dollars to
importers.
 Forms of Trade Protection

5. Government regulations.
These constitute a sort of protection for the domestic
protection for the domestic products. Safety and
health standards for imported goods are an example of
these.
PHILIPPINE EXPORT-IMPORT POLICY
GUIDELINES
Classification of Imports

Before any importation into the Philippines can be

made; the particular item or sub-item is identified
within the Philippine Standard Commodity
Classification Manual (PSCM) as to where the imported
goods belong to.
a. Freely Importable.
These are commodities, which importation is neither regulated nor
prohibited.
b. Regulated Commodities.
These are commodities which importation requires
clearances/permits from appropriate government gencies including
the Bangko Sentral ng Pilipinas (BSP).
c. Prohibited or Banned.
These are commodities which importation is not allowed under the
existing laws.
Absolutely Prohibited:
Those specifically listed under Section 101 of the Tariff and
Customs Code of the Philippines
Used Clothing and Rags under Republic Act (RA) 4653, dated 06
June 1966
Toy Guns under LOI 1264, dated 31 July 1982
Right-Hand Drive Vehicles under RA 8506 dated 13 February 1998
Laundry and Industrial Detergents containing hard surfactants
under RA 8970 dated 31 October 2000
Conditionally Prohibited:
Ammunitions, firearms
Cinematographic films, photographs, paintings, drawings or other
representation of any
obscene/immoral character
Heroin or other synthetic drugs
 LETTER OF CREDIT
and
NO DOLLAR IMPORT
Letter of Credit
a letter from a bank guaranteeing that a buyer's
payment to a 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.
No Dollar Import
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)
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
New Payment Risk Diagram – To Be Created by Designer
FOREIGN EXCHANGE MARKET
The exchange of one currency for another or the conversion of
one currency into another currency. Foreign exchange also
refers to the global market where currencies are traded
virtually around-the-clock. The term foreign exchange is usually
abbreviated as "forex".
Exchange Rates and 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
Supply Curve
EQUILIBRIUM PRICE

Suppliers and consumers

meet at a particular quantity
and price at which they are
both satisfied.
Changes in Demand and Supply
Changes in Demand
Changes in Supply
BALANCE OF PAYMENTS
Balance of payments (BoP) accounts
an accounting record of all monetary transactions
between a country and the rest of the world. These transactions
include payments for the country's exports and imports of
goods, services, financial capital, and financial transfers.
Thank you!
GROUP 2 – CHAPTER 7