International Business

Difference Between Domestic and International Trade

Trade means exchange of goods and services for the satisfaction of human wants. The process of exchange includes purchase and sales of goods and services. The trade might happen within the geographical boundaries of a country or may be extended to across the border. So there is difference between Domestic and International Trade. When trade is confined to the geographical limits of a country, it is a domestic or national trade. In national trade, both the buyer and the seller are of the same countries and they enter into trade agreements subject to the national laws, practices and customs of trade. But international or foreign trade refers to the trade between two countries. Purchaser and seller are citizens of two different countries and are subject to international or bilateral laws of trade and tariffs.

Difference Between Domestic and International Trade

Technically, domestic, trade and international trade are more or less identical and are  based on the same basic principles of trade. But practically, there are certain differences between internal and international trade. It was on the basis of their differences, that the old classical economists propounded a separate theory for international trade. The main Differences between Domestic and International Trade  are as follows:

1. Difference in Currencies. There is only one currency acceptable over the country and therefore there no difficulties in making payments in internal trade. But, each country has its own monetary system which differs from others. Exchange rates between the two currencies are fixed by the monetary authorities under the rules framed by the International Monetary Fund. All payments for imports are to be made in the exporting country’s currency which is not freely available in importers country. The scarcity of foreign currency may, sometimes, limit the size of imports from other countries.

2. Difference in Natural and Geographical Conditions. Natural resources like availability of raw materials, composition of foil, fertility of soil, rainfall, and temperature, etc. differ widely from country to country. On the basis of this specialty, countries specialize themselves in the production of certain selected commodities and therefore they produce better quality of goods at lower rates and them yin the, international market. It causes difference in domestic trade and foreign trade.

3. Mobility of Factors of Production. Mobility of different factors, of production is less as between nations than in the country itself. However, with the advent of air transport, the mobility of labor has increased manifold. Similarly, mobility of capital has increased with the development of international banking. In spite of these developments, mobility of labor and capital is not as much a it is within the country itself.

4. Sovereign Political Entities. Each country is an independent Sovereign Political Entity. Different countries impose different types of restrictions on imports and exports in the national interests. The importers and exporters shall have to observe such restrictions while entering into agreements. These restrictions may be:

i. Imposition of tariffs and customs duties on imports and exports

ii. Quantitative restrictions like quota etc.

iii. Exchange, control, and

iv. Imposition of more local taxes, etc.

No such restrictions are imposed on domestic trade or restrictions imposed on internal trade are quite different.

5. Different Legal Systems. Different legal systems are operated by different countries and they all widely differ from each other. The existence of different legal systems makes the task of businessmen more difficult as they have to follow legal provisions of the two countries as regards the particular trade. Such type of difficulties does not arise in internal trade as laws are the same and buyer and seller are to follow the same rules. Besides, both the parties to the contract are well conversant of these rules and laws. In international trade both the parties are not well versed in the legal provisions of the other country. They have to seek help of the legal advisors.

As there are differences between the domestic trade and the International trade on many counts as stated above, the two trading systems are quite different. As each country has to protect its own political, financial and social interests, it puts a number of restrictions on foreign trade. Though domestic trade is not altogether free from restrictions, they however, are followed by all and are also applicable equally in all parts of the country.

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