PRICES IN INTERNATIONAL TRADE
Theory of the question and classification of prices
The concept, content and essence of the price. According to economic theory, the price - is a converted form of value. Price (value) is an internal measure of the volume (scale, significance) of the product. If the value is expressed in money, it determines the price. From the time of Aristotle, it is customary to divide the concepts of consumer and exchange values. Consumer value reflects the ability of a product to meet a person's needs. The exchange value is the value of the commodity in terms of its ability to exchange for other goods. The exchange ratio of the two goods is the relative prices of these goods, expressed in a constant monetary commodity. The exchange value of a commodity is determined by the costs of production (wages, profit and rent). So explained the price of the goods A. Smith, who proceeded from the fact that the costs of production determine the natural chain of the goods, relative to which, depending on the changes in demand, the actual prices fluctuate. The founder of the labor theory of value (value) D. Ricardo argued that "the value of a commodity ... depends on the relative amount of labor necessary for its production."
In the second half of the XIX century. economists of the neoclassical school concentrated their attention not on the intrinsic value, but on the factors that determine the market price. Unlike their predecessors, when developing a theory of exchange value, they turned to the utility of the commodity. The price is determined by marginal utility, which is the cause and source of exchange value. On this basis A. Marshall put forward the idea that the market price is determined by the interaction of supply and demand. Modern economic theory continued to develop in this direction, rejecting the Marxist approach, according to which the theory of value and the theory of pricing were divided in the process of analysis.
In the scientific and special economic literature and international trade practice, there are many definitions of price. Here are some of them:
• fair price (just prise) - a price that is estimated as correct from a moral point of view. It is based on the principles of natural justice and, unlike the market price, the NS acts as a resource allocation function;
• natural price (natural prise) - the term used by A. Smith to describe the value (value) of the commodity, relative to which its market price fluctuates. The natural price, in fact, is the price of long-term equilibrium and depends on the cost of production;
• alternative cost (opportunity cost) - the working time required to produce a unit of one product, expressed through the working time required to produce a unit of another product;
• transfer prices (transfer prices) - prices that differ from the market prices of intra-corporate trading between divisions of the same corporation located in different countries; they are used to transfer profits and reduce taxes;
• shadow price (shadow price) - the conditional price of a product or service that does not have a market price. Where market prices do not reflect alternative costs, in analyzing the results of costs resorted to shadow prices. The term is also used in the analysis of the shadow economy, where there are adequate (but not having anything to do with the scientific approach), shadow prices.Historically, the first exit of any company or individual trader with a specific commodity for its sale beyond the national border meant a search for a higher rate of profit, while the price factor played a key role. The price of the goods (sold or purchased) is one of the most significant aspects of the contract of sale. Accordingly, each foreign trade transaction necessarily contains a price condition as a key element of the entire transaction.
The diversity of prices in world markets. In world markets, there is a great deal of prices for the same goods produced by different firms, in different countries or even by the same companies selling their products in different countries or different cities of the same country. The spread of prices in world markets is largely determined by the diversity of international trade relations, differences in production factors in different countries, regions of the country, and by the presence of other factors that either increase or decrease the prices of goods, including political factors. These factors include:
• differences in the structure of the market;
• tax, budget, customs policy;
• differences in mobility (ability to move) resources between countries (compared to internal mobility);
• Different levels of state interference in domestic and foreign trade, etc.
It should be noted that the world market is a much more complicated phenomenon than any national market. World markets, in particular, are characterized by more intense competition and specific forms of state intervention. Each country has laws that affect price formation and price movements in different ways. Here it is necessary to take into account the costs of studying the conjuncture of the world market for a particular product (and its substitutes), the promotion of goods on the market, etc. This is the so-called transactional, or marketing, costs.
Kinds of prices. For the purpose of accounting and analysis of the market situation on the world market, the following types of prices are used and regularly published:
• reference prices ( requested prices prices that are lower when sold);
• prices of foreign trade statistics (reflecting the transactions performed and the dynamics of foreign trade prices);
• prices of exchange quotations (fix deals made on stock exchanges with corresponding prices);
• prices of actual transactions and contracts (most fully reflect market prices for specific types of goods).
In the contract price, the unit of measure of the price, the basis, the currency, the fixing method and the price level are determined.
Unit of measure of the price. The contract price can be set in different units of measure:
• in the form of weight, length, area, volume, pieces or in counting units (hundreds, dozens, etc.);
• in weight units, based on the basic content of the main substance in the commodity (ores, chemicals, etc.);
• in weight units, depending on the presence (and fluctuation) of foreign impurities and humidity;
• the price with subsequent fixation is established in the process of execution of the contract; in this case, the conditions of fixation and the principle of determining the price level are specified (these are the so-called on-call prices).
The price base - is an important element of the contract, as it establishes the most significant conditions, in particular, whether the transportation, insurance, warehouse and other costs for the delivery of goods in the price goods.
Price currency. Most often, the price in a contract is expressed in the currency of the exporting country or importer; but, as a rule, in binding to the third currency country (with a stable currency).
How to fix the price. Depending on the way the price is fixed in the contract, the following types are usually distinguished: solid, mobile, sliding (with subsequent fixation). Each of them may have certain reservations, most often they are used when establishing a mobile price. Usually the contract specifies the allowable minimum deviation of the market price from the contract price in the range of 2-5%.
The exporter and importer in the context of contract pricing. Since the exporter and importer proceed from the opposite interests in pricing issues, their role is different and, accordingly, the approaches to contract pricing are also different. Each side seeks, first, to avoid damage and, secondly, to profit, profit. Therefore, many factors that can influence the implementation of the transaction (transportation costs, fees, financing costs, insurance costs, commission, packing of goods, unforeseen expenses, etc.) are taken into account.
Methods for determining prices in foreign trade. The practice of foreign trade usually uses two methods of determining prices. In accordance with the first method, the total production costs are calculated and the percentage premium added to the aggregate costs received is added as the profit that a particular firm plans to receive. The second method involves the use of marginal costs; in this case, only those costs that are directly related to the production of goods entering the external market are taken into account.
Two price groups. World prices are divided into two large groups:
1) prices for manufactured products;
2) the price of raw materials.
The prices of the first group are formed on the basis of export prices of large firms with a general orientation to domestic prices. When determining the prices of the second group, the main role is played by the supply-demand ratio in world markets and the prices of large countries exporting or importing raw materials. For primary commodities, the world prices are the prices of the main producers of these goods and the prices of the US, China and Western European markets. For example, the prices of large stock exchanges and auctions (non-ferrous metals prices determine stock quotes of the London Stock Exchange of non-ferrous metals) are practically world prices for the corresponding products or prices of OPEC (through the definition of quotas) - world oil prices.The law of a single (world) price is based on the assumption that in specific markets, in the absence of transportation costs and official trade barriers (duties), goods must be sold in different countries for the same price, expressed in the same currency. The formula for a single price is as follows:
where - the dollar price of the commodity i when it is sold to the United States; - the corresponding price of the goods in euros; - the ratio of American and European commodity prices. In this case, the law of a single price assumes that the dollar price of the commodity i will be the same, wherever it is sold in the world.
The influence of the state on foreign trade prices. The government's extensive activities to regulate domestic prices and subsidize exports, support imports, and conduct customs and tariff policies - all this has the most significant impact on foreign trade prices. The state regulates the prices of the domestic market mainly with the help of two instruments: guaranteeing producers the level of selling prices and providing subsidies to cover the costs of production. Widely known examples are the policy of state support of agriculture in the US and the agricultural policy of the EU. In the United States, the government grants subsidies if the prices are below the guaranteed level. A special government organization at guaranteed prices accepts agricultural products as a pledge from producers, and if market prices exceed collateral, the producer buys out his goods and sells it on the market, and if prices are lower than mortgages, then the goods remain in the ownership of the government organization. Almost a third of the entire consolidated budget of the EU goes to support and state regulation of agricultural production and livestock in the EU countries. All this has a powerful impact on pricing and distorts the natural nature of the price.
The secret alliances. The nature and practice of pricing for the products supplied show that any decisions taken by exporters - setting prices, determining production volumes, purchases, investments, etc. - require the study of the reaction of competitors. Informal agreements of the main competitors play an important role in preserving the relative stability of the situation in matters of world pricing. In the course of special negotiations, agreements are reached on fixing prices, on the division of sales markets, and on the volume of production. These are the so-called secret or overt conspiracies of the oligopoly, which often border on outright fraud. Secret conspiracies remain secret (often they are called gentlemen's agreements, concluded on friendly lunches or dinners); As for explicit forms, the most classic example is OPEC, since the early 1970s. regulating prices in the world oil market.Cartels. In a number of specific cases, the need for coordination in the world market led to the creation of special mechanisms, through which it became possible to influence with a sufficiently high degree of efficiency. A well-known international form of such a mechanism is the cartel, which involves an agreement on production volumes and price policy. Companies agree on the division of sales markets in order to maintain agreed price levels. A classic example is the same OPEC.
For companies involved in the operation of such mechanisms, there is a tendency to maximize profits, and their actions are similar to those of pure monopolies.
Dumping. The establishment of understated prices (usually below the cost of domestic goods) is often called dumping. In most countries, the law prohibits import of goods at dumping prices. This legislation is usually applied only if the imported products destroy domestic production. If such domestic production is not available, the only effect of dumping for the importing country will be subsidizing consumers in this way. As for the country producing products, its consumers and taxpayers seldom realize that they actually subsidize foreign countries. American anti-dumping legislation is extremely contradictory. For example, a firm can be fined if its export price is 0.5% lower than the domestic price, while fluctuations in the exchange rate may give even greater discrepancies. One of the reasons for the state impact on trade is the theory of the optimal tariff, which proceeds from the assertion that a foreign producer will reduce its prices if its products are taxed; in this case, the benefits will be transferred to the importing country. While the foreign producer is going to reduce its price, there is some shift in favor of the importing country and the customs tariff is considered as optimal. It is known that any measures taken by any one country to influence its foreign trade always have a corresponding reaction abroad and the response of governments of other countries is a potential obstacle to achieving the desired goals. Therefore, when choosing tools to implement the tasks of foreign trade, it is necessary to take into account the fact that domestic and foreign population groups will react to them in completely different ways. Influence on trade can be provided with the help of funds, affecting, first, the change in the volume of sales of goods by regulating prices for them and, secondly, directly on the flows of goods themselves. The tariff and non-tariff barriers affect trade in different ways. Tariff barriers affect prices, and non-tariff barriers - either on prices or directly on sales.
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