Import processes and Procedures:

Import trade refers to the purchase of goods from a foreign country. The procedure for import trade
differs from country to country depending upon the import policy, statutory requirements and
customs policies of different countries. In almost all countries of the world import trade is controlled
by the government. The objectives of these controls are proper use of foreign exchange restrictions,
protection of indigenous industries etc. The imports of goods have to follow a procedure. This
procedure involves a number of steps.

The steps taken in import procedure are discussed as follows:

(i) Trade Enquiry:

The first stage in an import transaction, like any other transaction of purchase and sale relates to
making trade enquiries. An enquiry is a written request from the intending buyer or his agent for
information regarding the price and the terms on which the exporter will be able to supply goods.

The importer should mention in the enquiry all the details such as the goods required, their
description, catalogue number or grade, size, weight and the quantity required. Similarly, the time
and method of delivery, method of packing, terms and conditions in regard to payment should also
be indicated.

In reply to this enquiry, the importer will receive a quotation from the exporter. The quotation
contains the details as to the goods available, their quality etc., the price at which the goods will be
supplied and the terms and conditions of the sale.

(ii) Procurement of Import Licence and Quota:

The import trade in India is controlled under the Imports and Exports (Control) Act, 1947. A person
or a firm cannot import goods into India without a valid import licence. An import licence may be
either general licence or specific licence. Under a general licence goods can be imported from any
country, whereas a specific or individual licence authorises to import only from specific countries.

The Government of India declares its import policy in the Import Trade Control Policy Book called
the Red Book. Every importer must first find out whether he can import the goods he wants or not,
and how much of a certain class of goods he can import during the period covered by the relevant
Red Book.

For the purpose of issuing licence, the importers are divided into three categories:

(a) Established importer,

(b) Actual users, and

(c) Registered exporters, i.e., those import under any of the export promotion schemes.

In order to obtain an import licence, the intending importer has to make an application in the
prescribed form to the licensing authority. If the person imported goods of the class in which he is
interested now during the basic period prescribed for such class, he is treated as an established
importer.

An established importer can make an application to secure a Quota Certificate. The certificate
specifies the quantity and value of goods which the importer can import. For this, he furnishes
details of the goods imported in any one year in basic period prescribed for the goods together with
documentary evidence for the same, including a certificate from a chartered accountant in the
prescribed form certifying the c.i.f. value of the goods imported in the selected year.

The c.i.f. value includes the invoice price of the goods and the freight and insurance paid for the
goods in transit. The quota certificate entitles the established importer to import upto the value
indicated therein (called Quota) which is calculated on the basis of past imports. If the importer is an
actual user, that is, he wants to import goods for his own use in industrial manufacturing process he
has to obtain licence through the prescribed sponsoring authority.

The sponsoring authority certifies his requirements and recommends the grant of licence. In case of
small industries having a capital of less than Rs. 5 lakhs, they have to apply for licences through the
Director of Industries of the state where the industry is located or some other authority expressly
prescribed by the Government.

Registered exporter importing against exports made under a scheme of export promotion and
others have to obtain licence from the Chief Controller of Exports and Imports. The Government
issues from time to time a list of commodities and products which can be imported by obtaining a
general permission only. This is called as O.G.L. or Open General Licence list.

(iii) Obtaining Foreign Exchange:

After obtaining the licence (or quota, in case of an established importer), the importer has to make
arrangement for obtaining necessary foreign exchange since the importer has to make payment for
the imports in the currency of the exporting country.

The foreign exchange reserves in many countries are controlled by the Government and are released
through its central bank. In India, the Exchange Control Department of the Reserve Bank of India
deals with the foreign exchange. For this the importer has to submit an application in the prescribed
form along-with the import licence to any exchange bank as per the provisions of Exchange Control
Act.

The exchange bank endorses and forwards the applications to the Exchange Control Department of
the Reserve Bank of India. The Reserve Bank of India sanctions the release of foreign exchange after
scrutinizing the application on the basis of exchange policy of the Government of India in force at
the time of application.

The importer gets the necessary foreign exchange from the exchange bank concerned. It is to be
noted that whereas import licence is issued for a particular period, exchange is released only for a
specific transaction. With liberalisation of economy, most of the restrictions have been removed as
rupee has become convertible on current account.

(iv) Placing the Indent or Order:

After the initial formalities are over and the importer has obtained the licence quota and the
necessary amount of foreign exchange, the next step in the import of goods is that of placing the
order. This order is known as Indent. An indent is an order placed by an importer with an exporter
for the supply of certain goods.

It contains the instructions from the importer as to the quantity and quality of goods required,
method of forwarding them, nature of packing, mode of settling payment and the price etc. An
indent is usually prepared in duplicate or triplicate. The indent may be of several types like open
indent, closed indent and Confirmatory indent.

In open indent, all the necessary particulars of goods, price, etc. are not mentioned in the indent,
the exporter has the discretion to complete the formalities, at his own end. On the other hand, if full
particulars of goods, the price, the brand, packing, shipping, insurance etc. are mentioned clearly, it
is called a closed indent. A confirmatory indent is one where an order is placed subject to the
confirmation by the importer’s agent.

(v) Despatching a Letter of Credit:

Generally, foreign traders are not acquainted to each other and so the exporter before shipping the
goods wants to be sure about the creditworthiness of the importer. The exporter wants to be sure
that there is no risk of non-payment. Usually, for this purpose he asks the importers to send a letter
of credit to him.

A letter of credit, popularly known as ‘L/C or ‘L.C is an undertaking by its issuer (usually importer’s
bank) that the bills of exchange drawn by the foreign dealer, on the importer will be honoured on
presentation upto a specified amount.

(vi) Obtaining Necessary Documents:

After despatching a letter of credit, the importer has not to do much. On receipt of the letter of
credit, the exporter arranges for the shipment of goods and sends Advice Note to the importer
immediately after the shipment of goods. An Advice Note is a document sent to a purchaser of
goods to inform him that goods have been despatched. It may also indicate the probable date on
which the ship is expected to reach the port of destination.

The exporter then draws a bill of exchange on the importer for the invoice value of goods. The
shipping documents such as the bill of lading, invoice, insurance policy, certificate of origin,
consumer invoice etc., are also attached to the bill of exchange. Such bill of exchange with all these
attached documents is called Documentary Bill. Documentary bill of exchange is forwarded to the
importer through a foreign exchange bank which has a branch or an agent in the importer’s country
for collecting the payment of the bill.
There are two types of documentary bills:

(a) D/P, D.P. (or Documents against payment) bills.

(b) D/A, D.A. (or Document against acceptance) bills.

If the bill of exchange is a D/P bill, then the documents of title of goods are delivered to the drawee
(i.e., importer) only on the payment of the bill in full. D/P bill may be sight bill or usance bill. In case
of sight bill, the payment has to be made immediately on the presentation of the bill. But usually a
grace period of 24 hours is granted.

Usance bill is to be paid within a particular period after sight. If the bill is a D/A bill, then the
documents of title of goods are released to the drawee on his acceptance of the bill and it is retained
by the banker till the date of maturity. Usually 30 to 90 days are provided for the payment of the bill.

(vii) Customs Formalities and Clearing of Goods:

After receiving the documents of title of the goods, the importer’s only concern is to take delivery of
the goods, when the ship arrives at the port and to bring them to his own place of business. The
importer has to comply with many formalities for taking delivery of goods. Unless the following
mentioned formalities are complied with, the goods lie in the custody of the Custom House.

(a) To obtain endorsement for delivery or delivery order:

When the ship carrying the goods arrives at the port, the importer, first of all, has to obtain the
endorsement on the back of the bill of lading by the shipping company. Sometimes the shipping
company, instead of endorsing the bill in his favour, issues a delivery order to him. This endorsement
of delivery order will entitle the importer to take the delivery of the goods.

The shipping company makes this endorsement or issues the delivery order only after the payment
of freight. If the exporter has not paid the freight, i.e., when the bill, of lading is marked freight
forward, the importer has to pay the freight in order to get green signal for the delivery of goods.

(b) To pay Dock dues and obtain Port Trust Dues Receipts:

The importer has to submit two copies of a form known as ‘Application to import’ duly filled in to the
‘Lading and Shipping Dues Office’. This office levies a charge on all imported goods for services
rendered by the dock authorities in connection with lading of goods. After paying the necessary
charges, the importer receive back one copy of the application to import as a receipt ‘Port Trust
Dues Receipt’.

(c) Bill of Entry:

The importer will then fill in form called Bill of Entry. This is a form supplied by the custom office and
is to be filled in triplicate. The bill of entry contains the particulars regarding the name and address
of the importer, the name of the ship, packages number, marks, quantity, value, description of
goods, the name of the country wherefrom goods have been imported and custom duty payable.

The bill of entry forms are of three types and are printed in three colours-Black, Blue and Violet. A
black form is used for non-dutiable or free goods, the blue form is used for goods to be sold within
the country and the violet form is used for re-exportable goods, i.e., goods meant for re-export. The
importer has to submit three forms of bill of entry along-with Port Trust Dues Receipt to the customs
office.

(d) Bill of Sight:

If the importer is not is a position to supply the detailed particulars of goods because of insufficiency
of information supplied to him by the exporter, he has to prepare a statement called a bill of sight.
The bill of sight contains only the information possessed by the importer along-with a remark that he
is not in a position to give complete information about the goods. The bill of sight enables him to
open the package and examine the goods in the presence of custom officer so as to complete the bill
of entry.

(e) To pay Customs or Import Duty:

There are three types of imported goods:

(i) Non dutiable or free goods,

(ii) Goods which are to be sold within the country or which are for home consumption, and

(iii) Re-exportable goods i.e. goods meant for re-export. If the goods are duty free, no import duty is
to be paid at the custom office.

Custom authorities will permit the delivery of such goods after usual examination of the goods. But if
the goods are liable for duty, the importer has to pay custom or import duty which may be based on
weight or measurement of goods, called Specific Duty or on the value of imported goods Ad-valorem
Ditty.

There are three types of import duties. On some goods quite low duties are levied and they are
called revenue duties. On some others, quite high duties are charged to give protection to home
industries against foreign competition. While goods imported from certain nations are given
preferential treatment for the levy of import duties and in their case full protective duties are not
charged.

(f) Bonded and Duty paid Warehouses:

The port trust and custom authorities maintain two types of warehouses-Bonded and Duty paid.
These warehouses are situated near the dock and are very useful to importers who do not have
godown of their own to store the imported goods or who, for business reasons, do not wish to carry
them to their own godowns.

The goods on which the duty has already been paid by the importer can be kept in the duty paid
warehouses for which a receipt called ‘warehouse receipt’ is issued to him. This receipt is a
document of title and is transferable. The bonded warehouses are meant for goods on which duty
has been paid by the importer. If the importer cannot pay the duty, he may keep the goods in
Bonded warehouses for which he is issued a receipt, called ‘Dock Warrant’. Dock Warrant, also like
warehouses receipt, is a document of title and is transferable.
The bonded warehouses are used by the importer when:

(i) He has no godown of his own.

(ii) He cannot pay the duty immediately.

(iii) He wants to re-export the goods and thereby does not want to pay the duty.

(iv) He wants to pay the duty in installments.

A nominal rent is charged for the use of these warehouses. One special advantage of these
warehouses is that the importer can sell the goods and transfer the title of goods merely by
endorsing warehouse receipt or dock-warrant. This will save the importer from the trouble and
expenses of carrying the goods from the warehouses to his godown.

(g) Appointment of clearing Agents:

By now we understand that the importer has to fulfill many legal formalities before he can take
delivery of goods. The importer may take the delivery of the goods himself at the port. But it
involves much of time, expenses and difficulty. Thus, to save himself from the botheration of
complying with all the complicated formalities, the importer may appoint clearing agents for taking
the delivery of the goods for him. Clearing agents are the specialised persons engaged in the work of
performing various formalities required for taking the delivery of goods on behalf of others. They
charge some remuneration on performing these valuable services.

(viii) Making the Payment:

The mode and time of making payment is determined according to the terms and conditions as
agreed to earlier between the importer and the exporter. In case of a D/P bill the documents of title
are released to the importer only on the payment of the bill in full. If the bill is a D/A bill, the
documents of title of the goods are released to the importer on his acceptance of the bill. The bill is
retained by the banker till the date of maturity. Usually, 30 to 90 days are allowed to the importer
for making the payment of such bills.

(ix) Closing the Transactions:

The last step in the import trade procedure is closing the transaction. If the goods are to the
satisfaction of the importer, the transaction is closed. But if he is not satisfied with the quality of
goods or if there is any shortage, he will write to the exporter and settle the matter. In case the
goods have been damaged in transit, he will claim compensation from the insurance company. The
insurance company will pay him the compensation under an advice to the Export

PROCESSES AND PROCEDURES IN EXPORTING GOODS AND

SERVICES FROM NIGERIA
1.You should start by registering with the Nigerian Export Promotion Council (NEPC), upon
registration, an Export Certificate is issued. To register with fill the form that appears on the page
and the system shall take you through the next steps;

2.Then open up an account in any bank in Nigeria. Upon opening up an account, you shall be issued
with six (6) copies of the Nigerian Export Proceeds Form (NXP Form) by the bank to be filled in
respect of each export transaction;

3.After obtaining the Nigerian Export Proceeds Form (NXP Form), complete it all copies and return
them back to the bank accompanied with a proforma invoice;

4.When documents are received, the bank after assessing and approving registers and endorses the
form, it keeps the original copy and sends the other copies (five) to the Inspection Agents and you
(the exporter) remains with a photocopy of the form which you will be using as reference where
required;

5.Thereafter you should proceed with making payment for the Nigerian Export Supervision Scheme
(NESS) Administrative charge to designated bank. The Nigerian Export Supervision Scheme (NESS)
Administrative charge is always 0.5% and 0.15%

6.You are then required to pay to a designated bank, the Nigerian Export Supervision Scheme (NESS)
Administrative charge of 0.5% of FOB value for non-oil exports and 0.15% of FOB value for oil / gas
exports;

7.Then obtain a Request for Information (RFI) Form from the Inspection Agent which you are
required to fill carefully and accurately. The purpose of this form is to enable the inspection agent
get in touch with the you (the exporter), the form enables the agent get a suitable time and place for
which inspection may be carried out;

8.After filling the Request for Information (RFI) Form, submit it to the agent with all relevant
documents

9.Upon receipt of the documents, the inspection agent opens up a file accordingly and will carry out
the inspection. In the due course shall insect the quality and quantity of all exports and their true
value of goods to the consignee;

10.When the agent has completed the inspection, it / he / she completes its respective section on
the Nigerian Export Proceeds Form (NXP Form), after filling the agent retains one copy and send the
remaining four (4) copies to the Nigeria Customs Service;

11.The Inspection Agent after the inspection and upon satisfaction issues eight (8) original copies of
a Clean Certificate of Inspection (CCI) in respect of such goods. The first copy is issued to the
exporter, the send is sent to the bank, the fourth is sent to the Nigerian Export Promotion Council
(NEPC), the fifth to the Nigeria Customs Service, the sixth to the Federal Ministry of Finance, the
seventh to Central Bank of Nigeria and the last copy is sent to the Nigeria Ports Authority/Federal
Airports Authority of Nigeria and a certified true copy of each certificate issued to each the above is
issued to Nigeria Customs Service (Headquarters), Bureau of Statistics (BOS) and Weights and
Measures Department of the Federal Ministry of Commerce and Industry;

12.When the inspection agent sends the Nigerian Export Proceeds Form (NXP Form) and the Clean
Certificate of Inspection (CCI) to the Nigeria Customs Service, the Exporter should also obtain, fill and
submit the Single Goods Declaration Form to the Nigeria Customs Service. Then the goods if
documents approved can be loaded and transported;

13.The Nigeria Customs Service after shipment of goods and after fills its respective section, keeps
one copy of the Nigerian Export Proceeds Form (NXP Form), sends a copy to the Central Bank of
Nigeria, sends another copy to the Nigerian Export Promotion Council (NEPC) and gives the last copy
to the you (the exporter);

14.Thereafter shipment within ninety (90) days from date of transportation, the export proceeds are
enter into an export proceeds Account that you opened up earlier in your respective bank. The is
done with proof that the exports were received;

Foreign Trade DefinitionForeign trade is the exchange of capital,

goods, and services across international borders or territories.

In most countries, it represents a significant share of gross domestic product (GDP). Industrialization,
advanced transportation, globalization, multinational corporations, and outsourcing are all having a
major impact on the international trade system.

Increasing international trade is crucial to the continuance of globalization. International trade is a

major source of economic revenue for any nation that is considered a world power.

Without international trade, nations would be limited to the goods and services produced within
their borders.

What is Foreign Trade? Foreign trade is the exchange of goods across national boundaries. Prof. J.L.
Hanson said; “An exchange of various specialized commodities and services rendered among the
corresponding countries is known as foreign trade.”

Foreign trade is in principle not different from domestic trade as the motivation and the behavior of
parties involved in a trade does not change fundamentally depending on whether a trade is across a
border or not.

The main difference is that international trade is typically more costly than domestic trade. The
reason is that a border typically imposes additional costs such as tariffs, time costs due to border
delays and costs associated with country differences such as language, the legal system or a
different culture.
Foreign trade is all about imports and exports. The backbone of any foreign trade between nations is
those products and services which are being traded to some other location outside a particular
country’s borders.

Some nations are adept at producing certain products at a cost-effective price.

Perhaps it is because they have the labor supply or abundant natural resources which make up the
raw materials needed. No matter what the reason, the ability of some nations to produce what
other nations want is what makes foreign trade work.

Types of Foreign Trade

Import

Importing is the purchasing of goods or services made in another country.For example, importing
edible oil from Chinese producers to sell in Africa.

Export

Exporting is selling domestic-made goods in another country.

For example, Hameem Garments exports Readymade Garments (RMG) products to Western
Countries.

Re-export

When goods are imported from a foreign country and are re-exported to buyers in some other
foreign countries, it is called re-export.

For example, Firm/ Readymade Garments located at EPZs imports raw materials (cotton) from Korea
and produces Readymade Garments products by Thai cotton and then those products to Canada.

Reasons / Need / Importance / Advantages of Foreign Trade

The following points explain the need and importance of foreign trade to a nation.

Division of Labor and Specialization

Foreign trade leads to the division of labor and specialization at the world level. Some countries have
abundant natural resources.

They should export raw materials and import finished goods from countries which are advanced in
skilled manpower.

This gives benefits to all the countries and thereby leading to the division of labor and specialization.

Optimum Allocation and Utilization of Resources Due to specialization, unproductive lines can be
eliminated and wastage of resources avoided.
In other words, resources are canalized for the production of only those goods which would give the
highest returns.

Thus there is rational allocation and utilization of resources at the international level due to foreign
trade.

Equality of Prices

Prices can be stabilized by foreign trade.

It helps to keep the demand and supply position stable, which in turn stabilizes the prices, making
allowances for transport and other marketing expenses.

Availability of Multiple Choices Foreign trade helps in providing a better choice to the consumers.

It helps in making available new varieties to consumers all over the world.

Ensures Quality and Standard Goods Foreign trade is highly competitive. To maintain and increase
the demand for goods, the exporting countries have to keep up the quality of goods.

Thus quality and standardized goods are produced.

Raises Standard of Living of the People Imports can facilitate the standard of living of the people.
This is because people can have a choice of new and better varieties of goods and services.

By consuming new and better varieties of goods, people can improve their standard of living.

Generate Employment Opportunities

Foreign trade helps in generating employment opportunities, by increasing the mobility of labor and
resources.

It generates direct employment in the import sector and indirect employment in other sectors of the
economy.

Such as Industry, Service Sector (insurance, banking, transport, communication), etc.

Facilitate Economic Development Imports facilitate the economic development of a nation. This is
because, with the import of capital goods and technology, a country can generate growth in all
sectors of the economy, agriculture, industry, and service sector.

Assistance During Natural Calamities During natural calamities such as earthquakes, floods, famines,
etc., the affected countries face the problem of shortage of essential goods.

Foreign trade enables a country to import food grains and medicines from other countries to help
the affected people.

Maintains Balance of Payment Position Every country has to maintain its balance of payment
position.

Since, every country has to import, which results in an outflow of foreign exchange, it also deals in
export for the inflow of foreign exchange.
Brings Reputation and Helps Earning Goodwill A country which is involved in exports earns goodwill
in the international market.

For example, Japan has earned a lot of goodwill in foreign markets due to its exports of quality
electronic goods.

Promotes World Peace Foreign trade brings countries closer. It facilitates the transfer of technology
and other assistance from developed countries to developing countries.

It brings different countries closer due to economic relations arising out of trade agreements.

Thus, foreign trade creates a friendly atmosphere for avoiding wars and conflicts.

It promotes world peace as such countries try to maintain friendly relations among themselves.

Trade Controls

Describe the ways in which governments and international bodies promote and regulate global
trade.

The debate about the extent to which countries should control the flow of foreign goods and
investments across their borders is as old as international trade itself. Governments continue to
control trade. To better understand how and why, let’s examine a hypothetical case. Suppose you’re
in charge of a small country in which people do two things—grow food and make clothes. Because
the quality of both products is high and the prices are reasonable, your consumers are happy to buy
locally made food and clothes. But one day, a farmer from a nearby country crosses your border
with several wagonloads of wheat to sell. On the same day, a foreign clothes maker arrives with a
large shipment of clothes. These two entrepreneurs want to sell food and clothes in your country at
prices below those that local consumers now pay for domestically made food and clothes. At first,
this seems like a good deal for your consumers: they won’t have to pay as much for food and
clothes. But then you remember all the people in your country who grow food and make clothes. If
no one buys their goods (because the imported goods are cheaper), what will happen to their
livelihoods? Will everybody be out of work? And if everyone’s unemployed, what will happen to
your national economy?

That’s when you decide to protect your farmers and clothes makers by setting up trade rules. Maybe
you’ll increase the prices of imported goods by adding a tax to them; you might even make the tax
so high that they’re more expensive than your homemade goods. Or perhaps you’ll help your
farmers grow food more cheaply by giving them financial help to defray their costs. The government
payments that you give to the farmers to help offset some of their costs of production are called
subsidies. These subsidies will allow the farmers to lower the price of their goods to a point below
that of imported competitors’ goods. What’s even better is that the lower costs will allow the
farmers to export their own goods at attractive, competitive prices.

The United States has a long history of subsidizing farmers. Subsidy programs guarantee farmers
(including large corporate farms) a certain price for their crops, regardless of the market price. This
guarantee ensures stable income in the farming community but can have a negative impact on the
world economy. How? Critics argue that in allowing American farmers to export crops at artificially
low prices, U.S. agricultural subsidies permit them to compete unfairly with farmers in developing
countries. A reverse situation occurs in the steel industry, in which a number of countries—China,
Japan, Russia, Germany, and Brazil—subsidize domestic producers. U.S. trade unions charge that this
practice gives an unfair advantage to foreign producers and hurts the American steel industry, which
can’t compete on price with subsidized imports.

Whether they push up the price of imports or push down the price of local goods, such initiatives will
help locally produced goods compete more favorably with foreign goods. Both strategies are forms
of trade controls—policies that restrict free trade. Because they protect domestic industries by
reducing foreign competition, the use of such controls is often called protectionism. Though there’s
considerable debate over the pros and cons of this practice, all countries engage in it to some
extent. Before debating the issue, however, let’s learn about the more common types of trade
restrictions: tariffs, quotas, and, embargoes.

Tariffs

Tariffs are taxes on imports. Because they raise the price of the foreign-made goods, they make
them less competitive. The United States, for example, protects domestic makers of synthetic
knitted shirts by imposing a stiff tariff of 32.5 percent on imports (Insider Online, 2009). Tariffs are
also used to raise revenue for a government. Shoe imports are worth $2 billion annually to the
federal government (Carney, 2011).

Quotas

A quota imposes limits on the quantity of a good that can be imported over a period of time. Quotas
are used to protect specific industries, usually new industries or those facing strong competitive
pressure from foreign firms. U.S. import quotas take two forms. An absolute quota fixes an upper
limit on the amount of a good that can be imported during the given period. A tariff-rate quota
permits the import of a specified quantity and then adds a high import tax once the limit is reached.

Sometimes quotas protect one group at the expense of another. To protect sugar beet and sugar
cane growers, for instance, the United States imposes a tariff-rate quota on the importation of
sugar—a policy that has driven up the cost of sugar to two to three times world prices (Edwards,
2007). These artificially high prices push up costs for American candy makers, some of whom have
moved their operations elsewhere, taking high-paying manufacturing jobs with them. Life Savers, for
example, were made in the United States for ninety years but are now produced in Canada, where
the company saves $10 million annually on the cost of sugar (Will, 2004).
An extreme form of quota is the embargo, which, for economic or political reasons, bans the import
or export of certain goods to or from a specific country. The United States, for example, bans nearly
every commodity originating in Cuba.

Dumping

A common political rationale for establishing tariffs and quotas is the need to combat dumping: the
practice of selling exported goods below the price that producers would normally charge in their
home markets (and often below the cost of producing the goods). Usually, nations resort to this
practice to gain entry and market share in foreign markets, but it can also be used to sell off surplus
or obsolete goods. Dumping creates unfair competition for domestic industries, and governments
are justifiably concerned when they suspect foreign countries of dumping products on their markets.
They often retaliate by imposing punitive tariffs that drive up the price of the imported goods.

The Pros and Cons of Trade Controls

Opinions vary on government involvement in international trade. Some experts believe that
governments should support free trade and refrain from imposing regulations that restrict the free
flow of goods and services between nations. Others argue that governments should impose some
level of trade regulations on imported goods and services.

Proponents of controls contend that there are a number of legitimate reasons why countries engage
in protectionism. Sometimes they restrict trade to protect specific industries and their workers from
foreign competition—agriculture, for example, or steel making. At other times, they restrict imports
to give new or struggling industries a chance to get established. Finally, some countries use
protectionism to shield industries that are vital to their national defense, such as shipbuilding and
military hardware.

Despite valid arguments made by supporters of trade controls, most experts believe that such
restrictions as tariffs and quotas—as well as practices that don’t promote level playing fields, such as
subsidies and dumping—are detrimental to the world economy. Without impediments to trade,
countries can compete freely. Each nation can focus on what it does best and bring its goods to a fair
and open world market. When this happens, the world will prosper. Or so the argument goes.
International trade hasn’t achieved global prosperity, but it’s certainly heading in the direction of
unrestricted markets.

Key Takeaways

Because they protect domestic industries by reducing foreign competition, the use of controls to
restrict free trade is often called protectionism.
Though there’s considerable debate over protectionism, all countries engage in it to some extent.

Tariffs are taxes on imports. Because they raise the price of the foreign-made goods, they make
them less competitive.

Quotas are restrictions on imports that impose a limit on the quantity of a good that can be
imported over a period of time. They’re used to protect specific industries, usually new industries or
those facing strong competitive pressure from foreign firms.

An embargo is a quota that, for economic or political reasons, bans the import or export of certain
goods to or from a specific country.

A common rationale for tariffs and quotas is the need to combat dumping—the practice of selling
exported goods below the price that producers would normally charge in their home markets (and
often below the costs of producing the goods).

Some experts believe that governments should support free trade and refrain from imposing
regulations that restrict the free flow of products between nations.

Others argue that governments should impose some level of trade regulations on imported goods
and services.

Exercise

(AACSB) Analysis

Because the United States has placed quotas on textile and apparel imports for the last thirty years,
certain countries, such as China and India, have been able to export to the United States only as
much clothing as their respective quotas permit. One effect of this policy was spreading textile and
apparel manufacture around the world and preventing any single nation from dominating the world
market. As a result, many developing countries, such as Vietnam, Cambodia, and Honduras, were
able to enter the market and provide much-needed jobs for local workers. The rules, however, have
changed: as of January 1, 2005, quotas on U.S. textile imports were eliminated, permitting U.S.
companies to import textile supplies from any country they choose. In your opinion, what effect will
the new U.S. policy have on each of the following groups:

1. Firms that outsource the manufacture of their apparel

2. Textile manufacturers and workers in the following countries

 THE IMPACT OF MULTINATIONAL COMPANIES ON THE NIGERIAN ECONOMY .

INTERNATIONAL BUSINESS

Definitions of Multinational Corporation

A Multinational Corporation is one which is incorporated in one country (called the home country);
but whose operations extend beyond the home country and which carries on business in other
countries (called the host countries) in addition to the home country.

A Multinational Corporation can be defined as a corporate organization that owns or controls

production of goods or services in at least one country other than its home country.

) A Multinational Corporation (MNC) is a company that operates in its home country as well as in
other countries around the world.

It is pertinent to note that a Multinational Corporation (MNC) has facilities and other assets in at
least one country other than its home country. A multinational company generally has offices and/or
factories in different countries and a centralized head office where they coordinate global
management. These companies, also known as international, stateless, or transnational corporate
organizations tend to have budgets that exceed those of many small countries.

A Multinational Company maintains a central office located in one country, which coordinates the
management of all its other offices, such as administrative branches or factories.

According to the Fortune Global 500 List, the top five multinational corporations in the world as of
2019 based on consolidated revenue were Walmart ($514 billion), Sinopec Group ($415 billion),
Royal Dutch Shell ($397 billion), China National Petroleum ($393 billion), State Grid ($387 billion).

Characteristics of Multinational Corporations (MNCs)

The following are the salient characteristics of Multinational Corporations:

(i) Huge Assets and Turnover:

Because of operations on a global basis, Multinational Corporations have huge physical and financial
assets. This also results in huge turnover (sales) of Multinational Corporations. In fact, in terms of
assets and turnover, many Multinationals are bigger than national economies of several countries.

(ii) International Operations Through a Network of Branches:

Multinational Corporations have production and marketing operations in several countries;

operating through a network of branches, subsidiaries and affiliates in host countries.

(iii) Unity of Control:

Multinational Corporations are characterized by unity of control. Multinational Corporations control

business activities of their branches in foreign countries through head office located in the home
country. Managements of branches operate within the policy framework of the parent corporation.

(iv) Mighty Economic Power:

Multinational Corporations are powerful economic entities. They keep on adding to their economic
power through constant mergers and acquisitions of companies, in host countries.

(v) Advanced and Sophisticated Technology:

Generally, a Multinational Corporation has at its command advanced and sophisticated technology.
It employs capital intensive technology in manufacturing and marketing.

(vi) Professional Management:

A Multinational Corporation employs professionally trained managers to handle huge funds,

advanced technology and international business operations.

(vii)Aggressive Advertising and Marketing:

Multinational Corporations spend huge sums of money on advertising and marketing to secure
international business. This is, perhaps, the biggest strategy of success of MNCs. Because of this
strategy, they are able to sell whatever products/services, they produce/generate.

(viii) Better Quality of Products:

A Multinational Corporation has to compete on the world level. It therefore, has to pay special
attention to the quality of its products.

Categories of Multinational Corporations

There are four main categories of multinationals that exist. They include:

1) A decentralized corporation with a strong presence in its home country.

2) A global, centralized corporation that acquires cost advantage where cheap resources are
available.

3) A global company that builds on the parent corporation’s research and development (R&D)

4) A transnational enterprise that uses all three categories. There are four main categories of
multinationals that exist. They include:

1) A decentralized corporation with a strong presence in its home country.

2) A global, centralized corporation that acquires cost advantage where cheap resources are
available.

3) A global company that builds on the parent corporation’s research and development (R&D)

4) A transnational enterprise that uses all three categories.

The following are the different models of multinational corporations:

1. Centralized Model

In the centralized model, companies put up an executive headquarters in their home country and
then build various manufacturing plants and production facilities in other countries. Its most
important advantage is being able to avoid tariffs and import quotas and take advantage of lower
production costs.

2. Regional Model

The regionalized model states that a company keeps its headquarters in one country that supervises
a collection of offices that are located in other countries. Unlike the centralized model, the
regionalized model includes subsidiaries and affiliates that all report to the headquarters.

3. Multinational Model

In the multinational model, a parent company operates in the home country and puts up
subsidiaries in different countries. The difference is that the subsidiaries and affiliates are more
independent in their operations.

Some Multinational Companies That Exist in Nigeria and Their Activities

Some Multinational companies operating in Nigeria and their activities are:

1. Chevron

An American based oil and gas firm, Chevron have offices/branches in over 180 countries across the
globe, including Nigeria – where they are one of the top oil producing companies.

The oil and gas giant was ranked 19th in 2017 on the fortune 500 lists or top us closely held and
public corporations, and 16 on the fortune 500 lists of the top 500 corporations worldwide.
Headquartered in the United States, Chevron has 5 refineries in the US, and 3 abroad – Thailand,
Canada, and South Africa as well as nonoperational stakes in five foreign refineries in South Korea,
Singapore, Australia, Pakistan, and New Zealand.

2. Shell

Shell started out as a small English company involved in oil transport before it was merged with the
Royal Dutch, who was involved in oil exploration and production, and since then, it has grown to
become one of the major players in the oil and gas sector globally. They are one of the six oil and gas
supermajors in the world, and as of 2018, the 6th largest company in the world by revenue, and the
largest based in Europe. In 2013, they were first in the fortune global 500 list of the world’s largest
companies. They are said to have a presence in about 143 countries, with over 2000 branches, and
with a staff strength of over 9000 personnel. They are also said to provide services to the patronage
of over 25 million customers across the globe.
3. British Airways

British Airways is the largest airline based in the United Kingdom in terms of fleet size, international
flights, and international destinations, and was until 2008, the largest airline by passenger numbers.
In 2008, the company transported 34.6 million passengers across the globe. It has its head office,
Waterside, at Harmondsworth, a village that is near London’s Heathrow airport, while its main base
is at the London Heathrow airport, but it also has a presence at Gatwick airport.

4. Coca-cola

An American multinational corporation, and manufacturer, retailer, and marketer of non-alcoholic

beverages concentrate, and syrups, Coca-cola is famed for its flagship product Coca-cola, which was
invented in 1886 by pharmacist John Stith Pemberton in Atlanta, Georgia. The Coca-cola company
sells beverage products in more than 200 companies worldwide and of the more than 50 billion
beverage servings consumed across the globe, beverages under the trademark “Coca-Cola” account
for about 1.5 billion of them.

5. Unilever

One of the largest multinational companies in Nigeria, with a product range in consumer goods,
Unilever was formed in 1930, with the merger between the Dutch margarine producer, Margarine
Unie, and the British soapmaker, Lever Brothers. The company currently owns 400 brands, with the
notable products in their product range being; Axe/Lynx, Dove, Omo, Becel/Flora, Heartbrand ice
creams, Hellmann’s, Knorr, Lipton, Lux, Magnum, Rama, Rexona/Degree, Sunsilk, and Surf.

6) British American Tobacco

Popularly known as BAT, British American Tobacco is the largest publicly traded tobacco company in
the world, as well as the number 1 manufacturer and marketer of tobacco in Nigeria. The company is
said to have been in the country for over a century.

7. General Electric

With it’s headquarters in Boston, Massachusetts, General Electric is an American company with
presence in nations across the globe, including Nigeria. The company operates in various sectors
including; aviation, healthcare, power, renewable energy, digital, additive manufacturing, venture
capital and finance, lighting, transportation, and oil and gas. Its four largest-selling brands include
Dunhill, and the US brands Lucky Strike, Kent and Pall Mall. It also markets popular brands like
Benson & Hedges and Rothmans.
8. KPMG

Said to be one of the Big 4 auditors – alongside Deloitte, Ernst & Young and Price Waterhouse
Cooper – KPMG (or Klynveld Peat Marwick Goerdeler) is one of the largest employers of labour in
the world, with a staff strength of over 180,000 personnel. Its focus is majorly on financial audit, tax,
and advisory.

9. Airtel Nigeria

One of the leading telecommunications companies in the world, Bharti Airtel International
(Netherlands) B.V. operates in Africa as Airtel Africa and in Nigeria as Airtel Nigeria.

The African subsidiary provides telecommunication services in 15 African countries with Nigeria and
Ghana being its two most profitable markets.

As of March 2017, the telecommunication giant is said to have had 78 million subscribers on the
continent.

10. MTN

A South African based multinational telecommunications company, with presence in about 20

countries across Africa, Asia, and Europe, MTN, is by far, the most popular name when it comes to
telecommunication services in Africa and Nigeria. It has its headquarters in Johannesburg, South
Africa. Despite its wide global reach, MTN Nigeria is responsible for one-third of the MTN’s revenue
with an estimated 35% market share.

11. Nestlé

Nestlé is the largest food and drinks multinational company in the world with operations in over 194
countries including Nigeria. It has a wide product range which includes; baby food, medical food,
bottled water, breakfast cereals, coffee and tea, confectionery, dairy products, ice cream, frozen
food, pet foods, and snacks.

12. PZ Cussons

PZ Cussons is a British owned firm which specializes in the manufacture and sales of personal
healthcare products and consumer goods. It has a presence in Europe, Africa, and Asia, but is
especially established in Africa and Commonwealth nations. The main brand in its wide product
range is the Imperial Leather range of soaps, bath and shower, and cosmetic products.