Economics: Foreign Trade

Concept of Foreign Trade

Exchange of goods and services is simply said trade. Such exchange between the people of different countries is called foreign trade. Foreign trade means the exchange of goods and services between two or more countries. Foreign trade creates a specialization in production and provides benefits of specialization. Foreign trade plays important role in the economic development of a country. An important aspect of the foreign trade is an efficient allocation of scarce resources among different countries.

Growth and Trend of Nepalese Foreign Trade

Export and import are the two components of foreign trade. The difference between export and import is called trade balance. If export is greater than import, it is called surplus trade balance. If import exceeds export than it is called deficit trade balance.

Foreign trade of Nepal was confined only to India and Tibet in the past. Nepal's trade with overseas countries started only since 1956 A.D. During fiscal year (FY) 1856/57, Nepal had total exports equivalent to Rs. 95.5 million. Total import was equivalent to Rs. 169.9 million. Therefore, the volume of foreign trade was equivalent to Rs. 265.4 million.

Composition of Nepalese Foreign Trade

The composition of foreign trade commonly shows what goods and services a country sells to foreign countries and that goods and services does it buy from outside. Table 11.2 shows comparative values of export and import of Nepal by SITC group for the fiscal year 2010/11 and 2011/12.

Table 11.2

Direction of Nepalese Foreign Trade

India and Tibet are the major traditional trading partners of Nepal. The direction of foreign trade means the countries to which a country exports its goods and the countries from which it imports. Thus direction consists of a destination of one country's exports and sources of the country's imports. The Direction of Foreign Trade of Nepal can be presented by the following table:

Problems of Foreign Trade

The problem of foreign trade in Nepal are as follows:

1. Geographical Location : Nepalis a landlocked country.Itis surrounded by India on three sides and by China on one side.The transit facilities have to depend on India's will. Past experience has shown that Nepal faced various difficulties with respect to transit facilities.
   
   
2. Concentrated on few Goods and few Countries : Nepal's export is concentrated only to few goods such as woolen carpets and readymade garments. But their export is also declining due to the fall in quality and the use of child labour.
   
   
3. Low-Quality Production: Due to slow development of industries production level is very low in Nepal. Still now, Nepal is not self-sufficient in basic necessities. Except for a few commodities like carpet and readymade garments the export of Nepal depends mainly on primary products.
   
   
4. Illegal Trade between Nepal and India: Nepal has a long border with India. Due to the long and open border between Nepal and India, various types of smuggling are taking place. Goods imported to Nepal from third countries are smuggled to India to take advantage of the Indian Market.
   
   
5. Defective Government Policy: The government has adopted liberal trade policy, which consists of commodity wise and country wise trade diversification, less interference by the government and increase in private sector participation.
   
   
6. Tough Competition with Foreign Goods: Nepal has implemented free trade policy. The flow of foreign goods has highly dominated the products of Nepal in terms of price, quality and quantity. As a result, Nepalese products are losing their position not only in international markets but also its position is threatened in a domestic market.
   
   
7. Based on Primary Goods Productions: Nepalese industries are mostly concentrated in the production and export of primary products such as animal skin, tea, pulses, wooden and bamboo goods. It is very difficult to make a good profit from the trade of primary products in a foreign market.
   
   
8. Lack of Capital: Sufficient capital investment is essential to establish and develop foreign trade of the country. Well, developed capital market of a country can provide sufficient amount of credit for the export-oriented industries.