IMPORTING



Importing 317
Photo by:  filmfoto

Importing is the purchasing side of trade and takes place when one region acquires goods or services from another region. The region that sells the goods or services is the exporter, whereas the region the buys the goods or services is the importer. Importing most often refers to purchases from other countries. Importing is linked with international trade and generally is distinguished from trade within a specific nation because importing involves government regulation, whereas interstate importing does not. While the U.S. government can impose a variety of trade barriers and quotas on other countries in accordance with various trade agreements, a state cannot impose such trade barriers on other states, because the Constitution reserves this power for Congress only.

Because certain regions can produce and manufacture goods that other regions cannot (e.g., petroleum, precious metals, minerals, and agricultural products), countries lacking these resources and goods must import them from the regions that have and produce them. In addition, various economic factors may facilitate producing goods or offering services in one region or country, but not in another.

Importing in contemporary society is bound by several multinational trade agreements and their regulations as well as by respective national trade policies. National trade policies generally include tariffs and duties on imported goods, expect for countries with "most-favored nation" status or countries participating in mutual trade agreements. National trade policies tend to restrict importing certain products from certain countries, whereas trade agreements encourage importing certain products from certain countries.

Countries import both raw materials such as aluminum, steel, glass, and wood, as well as finished products such as automobiles, appliances, furniture, and clothing. In addition, countries import partially finished products, which they in turn finish and sell domestically or export to other countries.

Examination of a country's imports in relation to its gross national product indicates the approximate significance of imported goods to its economy. The U.S. ratio was about 10 percent in the early 1990s, while Germany's was 23 percent and Japan's 6.5 percent. In addition, imports generally increase in tandem with exports as countries become accustomed to international trade and trading with specific partners.

THE EVOLUTION OF TRADE AND TRADE
THEORY

Since ancient times, nations and other organized societies have relied on importing and exporting goods to meet their needs. Because certain regions could not produce certain goods or could not produce enough of them, they had to import them from outside regions. In addition, city-states, such as those of ancient Greece, lacked diversified economies and therefore needed to import goods and resources from other areas.

The beginning of European colonialism around 1500 marked the beginning of modern international trade. At this point, trade became part of national policy. European countries attempted to gain as much wealth —precious metals in particular—as possible from their colonies and trading partners as inexpensively as possible. This method of international trade, referred to as mercantilism, remained in place from the 16th through the 18th centuries. The mercantilist philosophy typically held that one country's gain through international trade was another country's loss. Hence, mercantilists commonly believed that international commerce always had a loser. European empires of this period attempted to increase and maintain tain their power by amassing gold and silver coins. Simultaneously, these empires imposed numerous trade restrictions and protectionist policies to ensure that they exported more than they imported—i.e., to maintain a positive balance of trade.

With the development of nation-states in the 17th and 18th centuries, international trade continued to evolve towards its present state. Leaders of the nationstates realized they could increase not only their wealth but also their power by promoting and facilitating trade, thereby solidifying the power and stability of their respective nations.

During this period, economists began formulating theories of international trade and conceiving of liberalized trade policies. Scottish economist Adam Smith (1723-1790) is usually credited with founding the theoretical study of international trade. Based on some doctrines of the French economist François Quesnay (1694-1774), Smith developed the theory of "absolute advantage," arguing that, given the limited supply of natural resources and materials, countries should produce only those products they can manufacture more cheaply and efficiently than their trading partners. Consequently, Smith postulated that countries should import the products they cannot produce cheaply and efficiently and export the products they can. Smith believed that international trade also brought about greater productivity by introducing a greater division of labor, allowing workers to specialize in the production of particular goods.

English economists Robert Torrens (1780-1864) and David Ricardo (1772-1823) modified this theory in 1815, proposing that countries import and export goods according to the principle of "comparative advantage." This principle stipulates that a country can still produce and export a product even though it cannot produce the product as cheaply as some of its trading partners, if this more expensively produced product can gamer stronger revenues in a foreign market than in the domestic market. Conversely, a country may choose to import a product, even if it costs more than its domestic counterpart, if the country can earn greater profits importing the product than selling it in the country's own home market.

In addition, economists of this period reasoned that international trade was inherently beneficial in that it brings about greater and more efficient world production and allows countries with limited natural resources to consume more than they would if they were not importing goods from other countries.

Another key step in the development of contemporary international trade theory was the rise of "national" economists who proposed theories primarily aimed at benefiting their respective nations. In the late 18th and early 19th centuries, these theories began to unfold based on the ideas of American politician Alexander Hamilton (1755-1804) and others. Hamilton helped develop the notion of political economy, which refers to active government involvement in economics, including international trade. Hamilton argued that the Congress should enact policies that would make the United States self-sufficient in the area of essential goods and resources, such as military supplies and equipment, in order to avoid reliance on importing these essential goods.

Early in the 20th century, the Heckscher-Ohlin theory of international trade became the most influential version of the comparative advantage theory. Borrowing from their predecessors, Eli Heckscher and Bertil Ohlin predicted that countries would export goods that they could produce efficiently given their land, labor, natural resources, and production technology, and import goods they could not produce efficiently given the same factors. Consequently, Heckscher and Ohlin believed countries achieved comparative advantage through a combination of factors such as financial resources, natural resources, and production technology, in contrast to Ricardo's formulation of comparative advantage, which attributed the advantage to labor productivity.

Some economists, however, have dispensed with the principle of comparative advantage altogether because it has failed to account for a variety of economic and trade phenomena, including several U.S. industries' lack of competitiveness. Despite its skilled workforce, leading scientists, and financial resources, the United States has seen its market share decline in industries such as appliances, electronics, machine tools, and semiconductors—industries where the country appears to have a comparative advantage.

Instead, more modern explanations of why countries export and import specific products rely on concepts such as competitive advantage, overlapping demand, economies of scale, and economies of scope. According to the competitive advantage theory of Michael E. Porter, a country can excel at trading if it has the right demand conditions, competitive environment, production factors, related and supporting industries, structure, and strategy. If a country lacks these conditions for a particular industry or product sector, however, it will most likely rely on importing these goods. Focusing on manufactured goods, Staffan Linder's theory of overlapping demand holds that after a company launches a product in response to domestic market demands, it will seek markets with similar consumer demands and similar per capita income with which to trade. Consequently, countries import goods from other countries with similar consumer tastes and levels of income, according to this theory.

The "new trade theory" assumes that the global economy can support only a limited number of companies producing any given good. Hence, the first companies to produce certain goods will capture a significant share of the market, hold patent rights, lead in development, and achieve economies of scale and scope. Economies of scale afford countries trade advantages, because companies can charge less for products when they increase the size of their production facilities, since this increase will enable them to produce more goods. Economies of scope refer to the integration of supplier, manufacture, and retail activities into a single company, with such integration allowing the company to produce and sell goods less expensively than independent manufacturers and retailers can. Once companies hold these advantages, other companies face formidable obstacles trying to compete against them.

Finally, the growth of multinational corporations, especially in the 1980s and 1990s, contributed to the importance and necessity of international trade. With production and marketing operations in many countries, these corporations account for a significant amount of the world's sales, assets, and human resources in both their home countries and in their host countries and their divisions trade materials and products between home and host countries. Many contemporary economists view multinational corporations as the facilitators of efficient international trade. Multinational corporations also have access to the raw materials and natural resources of a number of countries, which traditional comparative advantage theories do not take into consideration.

THE BENEFITS AND DRAWBACKS OF
IMPORTING

Many economists, businesses, and politicians continue to rely on the principle of comparative advantage and it still influences import theories and policies. Consequently, countries continue to import products because they can obtain them less expensively abroad. Moreover, while trade policies, regulations, and theories have undergone numerous changes over the centuries, a basic motivation for countries to import goods from other countries remains the same. When certain countries lack goods and resources, they either must import them or make do without them.

In addition, given the technology, labor costs, government incentives, and subsidies of different countries, one country may be able to produce goods more efficiently than other countries. Hence, other countries will seek to import these goods because of price and perhaps quality advantages. For example, other countries import aircraft from the United States, while the United States imports clothing from other countries such as India and the Philippines.

Importing allows countries to achieve higher standards of living by obtaining products and resources that cannot be obtained domestically. For example, in order for the United States to maintain its standard of living, it must import petroleum, since the country cannot produce a sufficient amount to satisfy consumer demand. In addition, the United States also depends on imports for many of its cars, obtaining many of them from Japan. Japan, on the other hand, relies on imports for raw materials to produce and export finished goods such as cars and appliances; such imports help Japanese workers earn higher wages and the Japanese economy prosper.

Events of the 20th century provide evidence that international trade leads to greater productivity, consumption, and living standards. During periods of trade expansion such as the boom after World War II, the global economy has grown dramatically. Conversely, during periods of trade declines such as the Great Depression of the late 1920s and 1930s, the global economy has slowed down. Although trade growth accompanies global economic growth, economists cannot say for certain what the causal relationship is—that is, whether global trade expansion causes global economic growth or vice versa. Nevertheless, most governments and economists believe trade is vital to national and international economic growth.

Despite the advantages of importing, many economists and governments believe that importing goods can lead to the erosion of their national economies—especially when imports exceed exports. In the case of the United States, for example, some contend that importing goods such as cars and appliances leads not only to the loss of jobs for U.S. workers but also to a host of related consequences such as higher welfare reliance, the devaluation of real estate, the closure of plants, and the decline of cities and states. Estimates suggest that the United States loses 20,000 jobs for every $1 billion in the trade deficit.

Importing goods poses other problems such as the tacit acceptance of social values that conflict with domestic values. Importing goods from countries that pay low wages, for instance, can cripple domestic industries that cannot compete because they have a minimum wage, obligations to labor unions, and so forth; such importing also allows the exporting countries to continue to keep their workers impoverished. Furthermore, importing cheap goods, especially textiles, from countries that force employees—even children—to work in sweatshop conditions overlooks the type of treatment of employees that the United States and many other countries condemn.

IMPORT REGULATIONS AND TRADE
AGREEMENTS

IMPORT REGULATIONS AND RESTRICTIONS.

Because countries consider it in the interest of their national economies to export more than they import, they rely on a number of methods designed to restrict imports and protect their markets from international competition. In addition, countries also attempt to increase the amount of money they hold in their reserves and reduce the amount of their respective national currencies held by other countries. These concerns have led countries to impose a variety of trade restrictions such as import quotas, tariffs, and trade barriers, especially in the first half of the century. But countries have also established preferential trade agreements with favored nations that granted such nations reduced tariffs and trade barriers.

In order to limit the flow of goods from elsewhere, countries implement import quotas, which set maximum limits on the number of various goods a country will import. When confronted with a trade deficit, countries impose trade quotas as a quick remedy to prevent the growth of the trade imbalance. Countries also use import quotas to protect their markets from competition. In addition, countries have resorted to prohibiting of certain imports altogether, especially during the mercantile period.

Nations also impose tariffs, or taxes, on imported goods to limit the number of imports that are entering the country. The buyer of imported products pays the tariffs, making the price higher for the goods in the country that imported them. The higher price from the tariffs decreases any price advantage these goods might have over similar domestic products. Governments increase their revenues through tariffs and tariffs also subsidize domestic producers, providing them with motivation to produce the goods other countries try to export. Tariffs take the form of duties calculated as a percentage of the value of the goods imported—usually about 4 percent—and as fixed tariffs applied to a specific quantity of an imported product. But tariffs often benefit one sector of a domestic economy while harming another. Tariffs on imported steel, for example, protect the domestic steel industry from international competition, but they force car manufacturers to pay higher steel prices, and the car manufacturers in turn pass the higher prices on to consumers.

Countries also restrict imports by using nontariff barriers, that is, by establishing voluntary restraint agreements. With these agreements, exporters voluntarily limit the quantity of goods they ship to importing countries. Japanese car manufacturers, for example, reached a voluntary restraint agreement with the United States in the early 1980s to restrict the number of automobiles they export, thereby decreasing U.S. imports of Japanese cars.

Besides these direct methods of limiting imports, various domestic policies and programs work indirectly—and sometimes unintentionally—to restrict imports; these policies and programs function therefore as trade barriers. These trade barriers take the form of health and safety regulations, tax policies, and product labeling laws. Government support of certain industries, such as agriculture, also functions as a trade barrier, giving domestic producers an advantage over outside producers.

TRADE AGREEMENTS.

By the middle of the 20th century, countries began to reach trade agreements limiting tariffs and trade barriers on specific products for all participating countries. In addition, countries in various regions such as Western Europe, North America, and Central America began to form trading blocs that eliminated tariffs and trade barriers for member nations.

The General Agreement on Tariffs and Trade (GATT) stands out as the most expansive trade agreement, involving 123 countries with numerous other countries seeking to participate. Originally, GATT governed trade from 1948 to 1994 and was among the first trade agreements that sought to promote importing by reducing tariffs and other trade barriers. A revised version of GATT took effect in 1994 as a result of the Uruguay Round of negotiations which occurred between 1986 to 1994. The new version of GATT called for continued liberalization of international markets and the reduction and elimination of tariffs and trade barfiers. The agreement mandates the reduction and elimination of tariffs designed to impede and to control competition in favor of domestic businesses. GATT also established a formal organization for the implementation of systematic global trade policies, the World Trade Organization.

One of the most important trading blocs to the United States is the one that resulted from the North American Free Trade Agreement (NAFTA). Implemented in 1994, NAFTA will gradually eliminate trade barriers such as tariffs and trade restrictions among Canada, Mexico, and the United States enabling freer trade among these nations. Its main policies include the reduction and elimination of tariffs on a variety of products and the establishment of initial trade quotas to protect individual countries from overimporting while the agreement is being implemented. Most of the safeguard tariffs and quotas will end in 2004 and the rest will expire in 2005.

The democracies of North, Central, and South America plan to create a trading bloc for the entire Western Hemisphere that will reduce and eliminate tariffs and trade barriers restricting imports. These countries began negotiating the new trade agreement known as the Free Trade Area of the Americas (FTAA) in 1998 with the goal of implementing the agreement by 2005. The 34 participating countries are attempting to develop multilateral trade policies that will provide all countries in the Western Hemisphere with the same kind of trading privileges afforded to NAFTA members.

IMPORTING SERVICES

While the discussion, theory, and practice of trade and importing has focused on products over the centuries, importing services has become a common occurrence, fueled in part by the General Agreement on Trade in Services (GATS). GATS, the service industries counterpart of GATT, covers almost all commercial services including financial services, telecommunications services, air transportation services, and maritime transportation services. Financial services in particular have undergone globalization enabling various countries to import and export credit, investment banking, insurance, and related services. For example, international insurers accounted for about 10 percent of total U.S. premiums in the late 1990s.

Ratified in 1994 and implemented in 1995, GATS includes legislation that will reduce barriers to the trade of services in much the same way as GATT will reduce barriers to the trade of goods. Under the agreement, participating countries will gradually reduce trade barriers for specific service sectors according to schedules that are unique to each country. Furthermore, GATS provides the rules that govern the trade of services and prohibits national policies that discriminate in favor of domestic services over imported ones. In addition, the FTAA also will have a component devoted to the trade of services.

THE U.S. IMPORTATION PROCESS

To import products, companies must first establish agreements with international producers in accordance with national and international regulations and trade covenants. Companies considering importing products often begin their research into what products to import by contacting various international consulates, which can offer information on the manufacturers and distributors in their respective countries that are interested in exporting products to the United States. Furthermore, some countries have special agencies to promote international trade and the respective consulates can provide information on these agencies, too.

Importers must obtain the appropriate licenses from the government, which authorizes them to import goods. The importation of certain goods, such as pharmaceuticals and alcoholic beverages, is restricted and controlled by related government agencies such as the Food and Drug Administration and the Bureau of Alcohol, Tobacco, and Firearms. Importers then must follow the procedures of the U.S. Customs Service to bring about the legal "entry" of imported goods. When the shipment of these goods arrives at one of the country's officially designated ports of entry, the importer must file entry documents with the port director. The U.S. Customs Service must authorize the delivery of the goods and then the importer must pay all relevant duties.

Importers must provide evidence of their right to enter imported goods. Under U.S. Custom Service regulation, only the owner, the purchaser, or a licensed customs broker can enter imported goods. Importers can enter goods for consumption, storage at the port of arrival, or transportation to another port of entry following the same procedures as for the port of arrival. The entry of imports for consumption involves two steps. First, importers must file the mandatory documents within five days of the arrival of the goods to have the goods released from customs' custody. Second, importers must file documents for duty assessment. If importers want to store the incoming merchandise at the port of entry, they may have it placed in a customs warehouse as a warehouse entry for up to five years. During this period, importers may enter the stored merchandise for consumption following the appropriate procedures.

Customs officials usually examine portions of all incoming goods in order to assess duties, to ensure compliance with regulations governing the imported goods, to determine if these goods require special labeling or packaging, to see if the goods are accurately invoiced, and to prevent drug trafficking by intercepting any smuggled drugs. The U.S. Customs Service considers certain kinds of merchandise such as textiles trade-sensitive and, therefore, tends to examine them more thoroughly and frequently than other goods.

An invoice must accompany all imported goods and the invoice must be prepared following the regulations of the U.S. Customs Service. The invoice must include essential information such as the port of entry, the names of the importer and exporter, a detailed description of the goods, the quantity of the goods, the value of the goods, the currency, and the country of origin. Specific products or kinds of products may require the inclusion of additional information in the invoice.

SEE ALSO : Exporting

[ Karl Hell ]

FURTHER READING:

Cloney, Gordon J. "It's a Small World After All for Insurers." National Underwriter Property and Casualty Risk and Benefits Management, 6 July 1998, 11.

Ekelund, Robert B., Jr., and Robert D. Tollison. Mercantilism as a Rent-Seeking Society. College Station, TX: Texas A&M University Press, 1981.

Hall, Kevin E. "34 Nations Begin to Bargain over Free Trade." Journal of Commerce, I June 1998, IOA.

Lanze, L. B. Import/Export Can Make You Rich. Englewood Cliffs, NJ: Prentice Hall, 1988.

Maneschi, Andrea. Comparative Advantage in International Trade: A Historical Perspective. Cheltenham, United Kingdom: Edward Elgar, 1998.

Markusen, James R., and others. International Trade: Theory and Evidence. New York: McGraw-Hill, 1995.

Moon, Bruce E. Dilemmas of International Trade. Boulder, CO: Westview Press, 1996.

Porter, Michael E. The Competitive Advantage of Nations. New York: Free Press, 1990.

U.S. Customs Service. Importing into the United States. Washington: GPO, 1994.

Weiss, Kenneth D. Building an Import/Export Business. New York: Wiley, 1987.

Yoffie, David B. Beyond Free Trade: Firms, Governments, and Global Competition. Boston: Harvard Business School Press, 1993.



User Contributions:

1
Report this comment as inappropriate
Feb 21, 2017 @ 10:10 am
this is a really great article and helped me a lot with my essay, but I need to reference my work and I would like to know the author of this article as well as the year in which it was published an also when this information was accessed. will you be able to provide me with this information since I couldn't access this on the website .Hoping for a reply soon , thank you.

Comment about this article, ask questions, or add new information about this topic:

CAPTCHA