Problem in External Trade

External Trade ( exports and imports) is affected due to the following problems or difficulties :

1) Problem of Training Blocs :

The countries who are not the members of trading blocs like NAFTA, European Union, ASEAN, etc., do face problems while dealing with the member countries of the trading bloc. The trading blocs try to eliminate or if possible reduce trade barriers on the member nations, However, they impose common external trade barriers or non-member nation.

2) Three-faced Competition :

Exporters in the international market have to face strong challenges from the three-faced competition. There is direct competition from similar products and indirect competition from subtitute products.

3) Trade Barriers :

Foreign trade is subject to a number of tariff and non-tariff barriers. Various importing countries do impose a variety of taxes and other formalities. This creates difficulty for the smooth flow of goods and services ammong countries. However, efforts are being made at WTO to reduce and simplify trade barriers.

4) Different Currencies, Weights and Measures :

Different countries in the world have their own system of weights and measures. Again, every country has its own currency. Each currency has different exchange rates. The currencies of some countries are subject to heavy fluctuations in exchange rates.

5) Custom Formalities :

There are a number of custom formalities in the export of goods from one country to another. Again, there are custom formalities for the buyer, i.e., custom formalities of the importing country.

6) Documentation Formalities :

There are a number of documents to be prepared in foreign trade. In India, there are as many as 25 documents ( 16 commercial documents and 9 regulatory documents) to be filled in. However, alogned documentation sysytem (ADS) has simplified export documentation procedure.

7) Difficulties of Distance :

Foreign markets are spread over long distances. Naturally, the exporter will find difficulty in catering to long distance markets. Longer the distance, the more will be the transport xosts. There are also possibilities of dealys in supplies of export goods to the customers.

8) Diverse Languages, Customs and Traditions :

The foreign markets differ in languages, customs and tradition. The exporter may be not be able to cope up with these diversities. Therefore, he has to be selective. He should deal in only such markets where he can easily handle or overcome such differences or diversities.

9) High Risks and Uncertainties :

Foreign marketing is subject to risks and uncertainties. The risk may be due to war, civil disturbances, etc. The commercial risks involvency of the buyer. In India, such risks are insured by ECGC.

10) Foreign Exchange Regulations :

Foreign marketing is subject to foreign exchange regulations. For instance, in India, the exporters have to give a declaration in form GR to the Reserve Band of India (RBI) that they will realise the full value of exports within a period of 180 days.