What are the characteristics of the exports

Foreign trade

characterization

Foreign trade includes trade relations that cross state borders. It forms the basis of the international division of labor. The difference between foreign trade and domestic trade can be seen gradually and is determined by the diversity of the framework conditions between national and international business. These are expressed through different political, economic, legal and cultural framework conditions between the participating countries. The more strange the framework, the higher the requirements for business initiation and the design and processing of foreign trade relations. The more similar these are, the more international trade relations lose their foreign trade character and approach domestic trade. Ultimately, trade relations that transcend state borders are constitutive for foreign trade. Domestic trade, on the other hand, exists when it is a question of domestic trade relations. The entirety of all trade relations that cross national borders is called world trade. In world trade, a distinction is made between intra-regional trade and inter-regional trade. Intra-regional trade concerns the foreign trade relations between the member states of an economic integration area (e.g. European Union), whereas interregional trade covers the trade relations between economic integration areas. From the point of view of the European Union, interregional trade concerns trade between the member states of the European Union and non-member states. World trade is heavily concentrated in the three strongest economic regions in the world, the so-called triad of world trade (Europe, North America and South-East Asia).

Forms of foreign trade

The basic forms of foreign trade include export, import and transit trade. Export is understood to mean the cross-border provision of economic services to foreign customers (non-residents). In contrast, the import refers to the cross-border purchase of economic services from non-residents. Merchanting is a combination of export and import between three countries. In merchanting, a merchant based in a transit country imports goods from a country of origin and exports them to a customer in a country of destination. Foreign trade can be done directly or indirectly. The decisive factor for the distinction between direct and indirect foreign trade is the indirect nature of the contractual trade relationships between domestic and foreign companies. In direct foreign trade, the contractual business is concluded directly between the domestic and foreign company. In the case of indirect foreign trade, a legally independent intermediary based in Germany between domestic and foreign companies is involved. In the Foreign Trade Act (AWG), instead of the terms export and import, the terms export (export trade) and import (import trade) are used. The scope of the German Foreign Trade Act is the economic area, which is defined as the sovereign territory of the Federal Republic of Germany. In addition to these basic forms of foreign trade, there are various special forms and combined business systems of foreign trade that are related to foreign trade transactions. These include compensation trading and international cooperation, international license trade, processing trade and, in a broader sense, direct investment.

Foreign trade from an economic point of view

If the term foreign trade is used in economics, it refers to cross-border trade relations from a macroeconomic perspective. In macroeconomic terms, the foreign trade activities are combined to form the external contribution. The external contribution is part of the overall economic demand. It records the balance of all exports and imports of goods and services between residents and non-residents within one accounting period. The external contribution results from the balance of trade and services. The balance of trade and services are in turn part of the national balance of payments. The object of foreign trade theory is to provide explanations for the formation and effects of foreign trade relationships from a macroeconomic perspective (cause-effect relationships). The main determinants for the establishment of foreign trade are: (1) the unavailability of goods in the importing country, whereby a distinction must be made between absolute and relative unavailability, (2) cost advantages between at home and abroad, which in the form of absolute and comparative cost advantages ( comparative advantages) and (3) the expansion of the choice of goods through foreign trade. Foreign trade policy (also called trade policy) deals with the various models, objectives and instruments for influencing foreign trade relations. The task of foreign trade policy is to shape international trade relations. Either free trade or protectionism can serve as models of trade policy for the derivation of concrete trade policy goals and measures. A free trade policy is characterized by the dismantling of trade barriers. Protectionism, on the other hand, means state influencing foreign trade with the aim of restricting imports in order to protect the domestic economy or promoting one's own export economy through targeted state measures. Import restrictions can exist in the form of tariff and non-tariff trade barriers. Tariff barriers to trade are barriers to trade in the form of tariffs. Non-tariff trade barriers are all non-tariff-based trade barriers that restrict or hinder foreign trade. These include above all: (1) trade quotas, (2) trade bans, (3) self-restraints and (4) administrative barriers to trade. Export promotion can take the form of state subsidies for the export industry or in the form of dumping. In reality, complete free trade is no more possible than complete trade self-sufficiency. Usually there is therefore a mixed form of both models, in which either free trade as the basic principle of the market economy is in the foreground or protectionism in the form of state restrictions and interventions.

Foreign trade of Germany

Source: Federal Statistical Office for Foreign Trade Statistics

Ranking of Germany's most important trading partners

Source: Federal Statistical Office for Foreign Trade Statistics

Foreign trade from a business perspective

If the term foreign trade is used in business administration for those companies whose main value creation focus is foreign trade, then one speaks of institutional foreign trade. The institutional foreign trade course is a branch of the economy that deals with the special features of foreign trade companies. There is a separate job description for foreign trade, namely that of a clerk in wholesale and foreign trade. However, the exercise of foreign trade activities is not limited to companies that are active as export, import or transit trading companies, but refers to all companies that maintain foreign trade relations. In this regard, foreign trade is an economic function that relates to the area of ​​activity of cross-border trade by companies. The volume of sales and customer structure are characteristic of the foreign trade business. The typical On average, foreign trade business is a large-volume trade business in terms of the individual trade transaction compared to retail business, as a rule in terms of the quantity and value of the goods. With regard to the customer structure, the foreign trade business is predominantly not aimed directly at the end consumer, but primarily relates to trade relationships between domestic and foreign companies. Foreign trade documents play an important role in the processing of foreign trade transactions. Foreign trade documents are required for export and import processing, cross-border transport as well as for international payment transactions and payment security for documentary letters of credit (letter of credit) and documentary collection transactions. In contrast to domestic trade, there are additional risks in foreign trade. Foreign trade risks primarily include: political risks, country risks, exchange rate risks, conversion and transfer risks, payment prohibition and moratorium risks as well as intercultural communication risks. Depending on the legal position of the trading partners in relation to one another, a distinction is made between inter-organizational and intra-organizational foreign trade. The interorganizational foreign trade concerns cross-border trade relations between independent parties. In contrast, intra-organizational foreign trade occurs in cross-border trade between affiliated companies. Intra-organizational foreign trade is also known as international intra-company trade. It concerns foreign trade in international group of companies. According to the direction of the intra-organizational foreign trade relations, a distinction is made between the international intra-company export and the international intra-company import.

Documents in foreign trade processing

Source: Büter C (2017) Foreign Trade - Basics of International Trade Relations, 4th edition, Springer Gabler, Wiesbaden.

Foreign trade statistics

Foreign trade transactions are notifiable in Germany due to legal regulations. The obligation to report foreign trade transactions primarily serves statistical purposes, such as the preparation of the balance of payments and foreign trade statistics. Foreign trade statistics in Germany are compiled by the Federal Statistical Office. Due to Germany's membership in the European Union, a distinction is made between two statistical forms of survey for foreign trade. Extrastat, i.e. the extra trade statistics, concern the cross-border movement of goods between the member states of the European Union and the non-member states. The data on foreign trade relations with third countries are recorded by the customs authorities. Intrastat, i.e. intra-trade statistics, relates to the movement of goods between the member states of the European Union. In Germany, intra-community deliveries (dispatches) and intra-community acquisitions (receipts) must be reported directly to the Federal Statistical Office by the companies. Direct reporting of intra-community movement of goods is necessary, as there is no customs registration of the movement of goods within the European Union. The foreign trade statistics also differentiate between general trade and special trade. General trade includes the import and export of goods with the exception of goods in transit, which are not taken into account in the foreign trade statistics. In contrast, the specialty trade only covers those goods that come in for use, consumption, treatment or processing in Germany and the goods that originate and go out of production, treatment and processing in Germany. In the specialty trade, the import of goods to the warehouse and the export of goods from the warehouse are essentially not recorded. In order to obtain statistical statements about the ratio in which goods are exchanged in foreign trade, the real exchange ratio, the so-called Terms of Trade (ToT), is calculated. The terms of trade are calculated as the quotient of the export goods price index and the import goods price index in domestic currency.