Impact of Trade Agreements on Exporters and Importers

This assignment delves into the world of trade agreements, focusing on their rules of origin, tariff reduction, and elimination. It also explores the liberalization of services and investment sectors, as well as economic cooperation between countries. The analysis provides insights into how trade agreements affect both importers and exporters, making it a valuable resource for students of international trade.

Table of Contents
1. Introduction................................................................................................................ 1
2. Background................................................................................................................. 1
2.1 Factors.............................................................................................................. 2
2.1.1 Buyer Credit Facility........................................................................................... 2
2.1.2 Overseas Project Financing Facility.........................................................................2
2.1.3 Guarantee Facility.............................................................................................. 2
2.1.4 Supplier Credit Facility........................................................................................ 2
2.1.5 Export of Services Facility.................................................................................... 2
2.1.6 Export Credit Refinancing.................................................................................... 3
2.1.7 Comprehensive Policies (Shipments/ Contracts/ Services rendered).................................3
2.1.8 Bank Letter of Credit Policy.................................................................................. 3
2.1.9 Buyer Credit Guarantee........................................................................................ 3
2.1.10 Overseas Investment Insurance.............................................................................3
3. Objectives.................................................................................................................. 3
4. Recommendation’s....................................................................................................... 4
4.1 Opportunities.................................................................................................... 4
4.2 Risks.................................................................................................................. 6
4.2.1 Product Risks.................................................................................................... 6
4.2.2 Manufacturing Risks........................................................................................... 7
4.2.3 Transport Risks.................................................................................................. 7
4.2.4 Currency Risks.................................................................................................. 7
4.3 Strategies.......................................................................................................... 9
5. Conclusion................................................................................................................ 11
6. References................................................................................................................ 11

1. Introduction
This report discussed on international trade finance point of view focuses on export import bank
of Malaysia berhad (EXIM bank) international trade activities, and strategic opportunities in
further expansion of company market (Felbermayr, & Yalcin, 2013). On this perception the
report explains on company background, key success factors, and objectives in seeking the
foreign investment in Malaysia (Ask´enazy, Caldera, Gaulier, & Irac, 2011). Finally the
recommendation’s towards foreign country for company direct investment, new business
opportunities, risks and management strategies. International trade finance is emphasizing on
financing for trade at domestic and international trade transactions on new projects (Becker,
Chen, & Greenberg, 2013; Morel, 2011). On this perception the key players are seller, buyer on
goods and services transactions. Therefore the different intermediaries are such as banks and
financial institutions providing international trade transactions (Eaton, Kortum, Neiman, &
Romalis, 2011), therefore this report discussing international trade transactions on Honda
Malaysia, business investments.
2. Background
The export import bank of Malaysia berhad (EXIM bank) is started in 1995 as a government
control development financial institutions (Almunia, Benetrix, Eichengreen, O’Rourke, & Rua,
2010). Its key task is providing effective financing and insurance solutions for cross border. The
importance of the bank is promoting reverse investment as well as export of strategic areas
particularly infrastructure products, capital goods, shipping, benefits to the Malaysian industries
to new markets and value added production products as well as nontraditional markets
(Felbermayr, & Yalcin, 2013).
Vision of the company is preferred financier and advisor for global business; mission is
contributing growth of Malaysia’s economy to international trade transactions partnership
worldwide (Wakasuki, 2009).
Export Import Bank of Malaysia Berhad (EXIM Bank). EXIM Bank’s objective is to drive the
development of Malaysian exports and foreign investments abroad by providing a range of
export financing, guarantees and export credit insurance facility (Eck, Engemann, & Schnitzer,
2011).

2.1 Factors
2.1.1 Buyer Credit Facility
To provide opportunities to the Malaysian exporters and contractors in bidding for overseas jobs
and contracts. The loan is extended directly to a foreign buyer or a lending institution to facilitate
the import of Malaysian goods and services (Almunia, Benetrix, Eichengreen, O’Rourke, & Rua,
2010). Loan disbursements are made directly to the Malaysian exporter/contractor
2.1.2 Overseas Project Financing Facility
The facility supports Malaysian investors undertaking projects overseas such as manufacturing,
infrastructure and other developmental projects. Available to Malaysian companies or controlled
joint-venture companies incorporated overseas for the purchase of Malaysian goods (Ask´enazy,
Caldera, Gaulier, & Irac, 2011). Loan disbursements are generally made directly to the
Malaysian exporters or contractors.
2.1.3 Guarantee Facility
The guarantee facilities are available to facilitate the issuance of bonds or guarantees such as
advance payment bond and performance bond for overseas contract undertaken by Malaysian
contractors (Topalova, & Khandelwal, 2011).
2.1.4 Supplier Credit Facility
Malaysian manufacturers, exporters and suppliers of Malaysian made goods can take advantage
of this facility to boost their exports into international markets through pre and post shipment
supplier credit facility (Shaver, 2011).
2.1.5 Export of Services Facility
Facilitate Malaysian companies to export their professional services overseas which may be in
the form of consultancy, in areas like information technology, construction, telecommunications,
management or other technical services (Van Der Veer, 2010).
2.1.6 Export Credit Refinancing
Export Credit Refinancing Scheme promote the exports of Malaysian manufactured products,
agricultural products and primary commodities by offering competitive interest rate to Malaysian
exporters via commercial banks participating in the Scheme (Felbermayr, & Yalcin, 2013).

2.1.7 Comprehensive Policies (Shipments/ Contracts/ Services rendered)
A policy that provides protection for exporters against any losses arising from non-payment in
respect of goods/services exported on credit terms of not more than 180 days (Topalova, &
Khandelwal, 2011).
2.1.8 Bank Letter of Credit Policy
A policy covering Malaysian banks that negotiates or discounts without recourse Irrevocable
Letter of Credit issued by overseas banks in respect of Malaysian exports (Shaver, 2011).
2.1.9 Buyer Credit Guarantee
Guarantee of repayment of fixed or floating rate loans lent to foreign buyer for Malaysian goods.
The minimum credit term is one year up to ten years (Van Der Veer, 2010).
2.1.10 Overseas Investment Insurance
A policy to cover non commercial risks of loss to the investment or business established overseas
by Malaysian enterprises such as transfer restriction, expropriation, war & civil disturbances and
breach of contract (Morel, 2011)
3. Objectives
Trade agreements regulate international trade between two or more nations. An agreement may
cover all imports and exports, certain categories of goods, or a single category (Morel, 2011).
Several general trade agreements have shaped trade policy on broad levels. The most important
general trade agreement is called, simply enough (Shaver, 2011).
To a large degree, the role of general agreement on tariffs and trade as an organization has been
superceded by the World Trade Organization (Felbermayr, & Yalcin, 2013).
To liberalize trade, promote economic growth, and provide equal access to markets among the
member nations (Shaver, 2011).
Trade agreements, provides a forum for trade negotiations and resolving trade disputes, monitors
trade policies, and provides technical assistance and training for developing countries
(Felbermayr, & Yalcin, 2013).

Protectionism from those who stand to lose from free trade, the world has clearly been
liberalizing trade policy, lowering barriers to trade, and forming regional trade blocs (Wakasuki,
2009).
Long term objective, desiring to adopt a Framework Agreement on Comprehensive Economic
Cooperation between home and host collectively, the parties, or individually referring to India or
to an ASEAN Member State as a party that is forward looking in order to forge a closer
economic partnership in the 21st century (Ask´enazy, Caldera, Gaulier, & Irac, 2011).
Desiring to minimize barriers and deepen economic linkages between the parties, lower costs,
increase intra regional trade and investment, increase economic efficiency, create a larger market
with greater opportunities and larger economies of scale for the businesses of the parties, and
enhance the attractiveness of the parties to capital and talent (Topalova, & Khandelwal, 2011).
4. Recommendation’s
4.1 Opportunities
Trade in services with a view to expediting the expansion of trade in services, the parties agree to
enter into negotiations to progressively liberalise trade in services on a preferential basis with
substantial sectoral coverage (Eaton, Kortum, Neiman, & Romalis, 2011). Such negotiations
shall be directed to progressive elimination of substantially all discrimination between or among
the parties and prohibition of new or more discriminatory measures with respect to trade in
services between the parties (Wakasuki, 2009; Van Der Veer, 2010), except for measures
permitted under the world trade organization (WTO) General Agreement on trade in services
(GATS), expansion in the depth and scope of liberalization of trade in services (Felbermayr, &
Yalcin, 2013).
Free Trade Area in goods, services and investment, and to strengthen and enhance economic
cooperation through the progressive elimination of tariffs and non tariff barriers in substantially
all trade in goods (Ask´enazy, Caldera, Gaulier, & Irac, 2011), progressive liberalization of trade
in services with substantial sectorial coverage, establishment of a liberal and competitive
investment regime that facilitates and promotes investment within the India ASEAN RTIA,

provision of special and differential treatment to the new ASEAN member states provision of
flexibility to the parties in the India ASEAN RTIA negotiations (Ask´enazy, Caldera, Gaulier, &
Irac, 2011).
The tariffs minimizations, tariffs revenue supports to the nations in terms of losses by collecting
amounts on imports and exports (Ask´enazy, Caldera, Gaulier, & Irac, 2011). Non tariff barriers
on international trade agreements is also focuses to eliminate the issues and increase the foreign
trade systems to move global market positively with the support of subsidies on agriculture,
textiles and other sectors like health and medical (Shaver, 2011).
Measures for economic cooperation the parties agree to enter into negotiations in order to
establish an India, ASEAN Regional Trade and Investment Area (Becker, Chen, & Greenberg,
2013; Morel, 2011).
World trade organization (WTO) member focuses on international trade agreements and also
provided the trade negotiations to solve the trade disputes, policies, technical issues for both
countries (Almunia, Benetrix, Eichengreen, O’Rourke, & Rua, 2010; Wakasuki, 2009). the world
trade organization (WTO) also discussed on the problems in terms of trade and liberalizing trade
policy as well as minimizing the barriers in trade and forming strong regional segments (Eck,
Engemann, & Schnitzer, 2011). The world trade organization (WTO) results are emphasizing on
international trade freedom to between the countries and their international trade agreements.
The General agreement on tariffs and trade (GATT) rounds emphasize on general barriers to
international trade agreements (Ask´enazy, Caldera, Gaulier, & Irac, 2011), it is lasso emphasize
on problems in terms of intellectual property rights as well as environmental issues. The major
issue in terms of international trade agreements on trade zones liberalizes the trade process and
also supports the both nations in accessing balanced markets (Eck, Engemann, & Schnitzer,
2011). The world trade organization (WTO) is also emphasizing on trade between the countries
and its issues particularly on international trade agreements (Becker, Chen, & Greenberg, 2013;
Morel, 2011).
Example: Bilateral trade between the UK and China presents significant opportunities for both
markets when look at the facts (Ask´enazy, Caldera, Gaulier, & Irac, 2011). With an estimated
$77bn trade finance market for goods and services flowing in this trade corridor, most of which

is currently done on open account terms, several opportunities exist around trade financing,
technology and partnerships (Almunia, Benetrix, Eichengreen, O’Rourke, & Rua, 2010). The
UK is a leader in cross border lending, with an 18% global market share, as well as a 37% global
market share in foreign exchange trading (Felbermayr, & Yalcin, 2013).
As a leading global financial centre, the UK retains its competitive advantage in financial and
related professional services (Wakasuki, 2009; Van Der Veer, 2010). The UK’s financial sector
offers sizeable export opportunities, with an estimated $441bn worth of export in trade services
to China. Meanwhile, China is the world’s second largest economy and a leading trading hub,
accounting for 30% of global trade (Eck, Engemann, & Schnitzer, 2011). Over two thirds of
trade financing $6.3tn USD comes out of the asia pacific region, with China leading this growth.
With continued developments in opening up policy, looser export laws and the Belt and Road
Initiative, engaging with Chinese businesses could be rewarding (Felbermayr, & Yalcin, 2013).
4.2 Risks
Risk due to differences in language, culture, politics, legislation and currency, understanding the
dynamics and complexities of an international trade are important for buyers, sellers and lenders
(Topalova, & Khandelwal, 2011). Mitigating risk via the type and method of trade finance is
crucial in ensuring successful trade. Below we have summarized the different types of risk under
product, manufacturing, transport and currency risks (Ask´enazy, Caldera, Gaulier, & Irac, 2011)
4.2.1 Product Risks
Product related risks are those which the seller automatically has to accept as an integral part of
their commitment (Ask´enazy, Caldera, Gaulier, & Irac, 2011), for example, specified
performance warranties, agreed maintenance or service obligations. The buyer must consider
how external factors such as how negligence during production or extreme weather during
shipping could affect their product (Eaton, Kortum, Neiman, & Romalis, 2011). These matters
could well lead to disputes between the parties, even after contracts are signed. It is important for
the seller that the contract is worded correctly (Topalova, & Khandelwal, 2011), such that any
changes that could affect the product will by default include compensation or corresponding
changes in the seller’s commitments (Becker, Chen, & Greenberg, 2013; Morel, 2011).

4.2.2 Manufacturing Risks
Manufacturing risks are particularly common for products which are tailor-made or have unique
specifications (Becker, Chen, & Greenberg, 2013; Morel, 2011). Often the seller would be
required to cover costs of any readjustments of the product until the buyer sees fit, because the
product can not be resold to other buyers. Such risks can be addressed as early as the product
planning phase (Almunia, Benetrix, Eichengreen, O’Rourke, & Rua, 2010), which often means
the buyer has to enter payment obligations at a much earlier stage of the transaction. To mitigate
the risks for both the buyer and the seller, the terms of payment are often delivered into part
payments and separate guarantees throughout the design, production and delivery of the product
(Ask´enazy, Caldera, Gaulier, & Irac, 2011).
4.2.3 Transport Risks
Aside from risks associated with the product itself, lies the movement of the goods from the
seller to the buyer (Felbermayr, & Yalcin, 2013). Cargo and transport risks are reduced through
cargo insurance, which is usually defined by standard international policy wordings issued by the
Institute of London Underwriters or the American Institute of Marine Underwriters (Almunia,
Benetrix, Eichengreen, O’Rourke, & Rua, 2010). One area of cargo insurance that a seller should
be aware of is who should arrange the insurance this is often determined by the agreed terms of
delivery. Another area of cargo insurance is the risk of the buyer arranging insurance according
to some terms of delivery (Wakasuki, 2009; Van Der Veer, 2010). If the buyer fails to insure the
cargo shipment in a proper way, the insurance could be invalid if, for example, the port or
transport route changes and the items arrive in damaged condition (Topalova, & Khandelwal,
2011).
4.2.4 Currency Risks
In recent years markets have been difficult and foreign exchange levels have remained uncertain;
more so than any time in history (Ask´enazy, Caldera, Gaulier, & Irac, 2011). All of these factors
mean that the currency risk management strategy of a company needs to be strong. There is
further pressure to reduce risk due to greater regulatory and governmental scrutiny involved in
the financing markets and ever tightening margins (Eaton, Kortum, Neiman, & Romalis, 2011).
Currency risk policies have historically taken a back seat and been relatively basics (Becker,
Chen, & Greenberg, 2013). There are a range of financial instruments available today and all

need the correct risk management policies in place. Due to the increasing volatility seen in the
market and the need to operate in various currencies, policies need to be flexible and cater
accordingly (Ask´enazy, Caldera, Gaulier, & Irac, 2011).
Exchange rate volatility can affect all sizes of business (Shaver, 2011; Morel, 2011), this is
important when there are changes to the value of assets, liabilities and cash flows; this is
certainly the case when denominated in a foreign currency (Eck, Engemann, & Schnitzer, 2011).
Volatility will also affect contracts where business have agreed to sell products at a future point
internationally, or where such items are open to exchange rate fluctuations. These moves will
have an effect on business profit margin (Wakasuki, 2009; Van Der Veer, 2010). Prior to
developing a strategy, a company should look at what proportion of a business relates to imports
or exports, the currencies that are being used, when payments are to be made, and what currency
is used when payments and invoices are made (Felbermayr, & Yalcin, 2013).
The specified tariff rates and tariff preferences to be mutually agreed between the parties
pursuant set out only the limits of the applicable tariff rates and preferences or range for the
specified year of implementation by the parties (Topalova, & Khandelwal, 2011).
The negotiations between the parties to establish the India ASEAN RTIA covering trade in
goods shall also include. (Shaver, 2011; Morel, 2011), but not be limited to the modalities,
including detailed rules governing the tariff reduction or elimination, rules of origin, treatment of
out of quota rates, modification of a party’s commitments under the agreement on trade in goods
based on world trade organization (WTO) agreements (Eaton, Kortum, Neiman, & Romalis,
2011).
Non tariff measures and barriers, including, but not limited to (Becker, Chen, & Greenberg,
2013; Morel, 2011), quantitative restrictions or prohibition on the importation of any product or
on the export or sale for export of any product, as well as sanitary and phytosanitary measures
and technical barriers to trade, safeguards based on the world trade organization (WTO)
agreements, disciplines on subsidies and countervailing measures and anti dumping measures
(Almunia, Benetrix, Eichengreen, O’Rourke, & Rua, 2010), based on the existing world trade
organization (WTO) agreements and facilitation and promotion of effective and adequate
protection of trade related aspects of intellectual property rights based on existing world trade

organization (WTO), World Intellectual Property Organization (WIPO) and other relevant
agreements (Eaton, Kortum, Neiman, & Romalis, 2011).
General agreement on tariffs and trade (GATT) role shows the level of polices impact on the
organizations in international trade agreements between the organizations (Wakasuki, 2009; Van
Der Veer, 2010). The General agreement on tariffs and trade (GATT) signed on different
international trade agreements to liberalize the process in interntional trade (Topalova, &
Khandelwal, 2011). The important element in General agreement on tariffs and trade (GATT)
round particularly minimizes the tariffs on particular countries in trade products (Felbermayr, &
Yalcin, 2013).
4.3 Strategies
Recognizing the important role and contribution of the business sector in enhancing trade and
investment between the parties and the need to further promote and facilitate their cooperation
and utilization of greater business opportunities provided by the India (Topalova, & Khandelwal,
2011). Trade in goods 1 with a view to expediting the expansion of trade in goods, the parties
agree to enter into negotiations in which duties and other restrictive regulations of commerce
except, where necessary, those permitted the world trade organization (WTO) General
Agreement on Tariffs and Trade (GATT) shall be eliminated on substantially all trade in goods
between the parties (Eaton, Kortum, Neiman, & Romalis, 2011). The applied Most Favoured
Nation (MFN) tariff rates shall refer to the respective applied rates of the parties as of 1 July
2004, and non tariff measures shall include non tariff barriers (Felbermayr, & Yalcin, 2013).
Upon signing of the agreement, the parties shall commence consultations on each other’s trade
regime, including (Eaton, Kortum, Neiman, & Romalis, 2011), but not limited to the, trade and
tariff data, customs procedures, rules and regulations, non tariff measures including (Becker,
Chen, & Greenberg, 2013), but not limited to import licensing requirement and procedure,
quantitative restrictions, technical barriers to trade, sanitary and phytosanitary, intellectual
property rights rules and regulations and trade policy (Ask´enazy, Caldera, Gaulier, & Irac,
2011). The tariff reduction or elimination programme of the parties shall require tariffs on listed
products to be gradually reduced and, where applicable, eliminated in accordance (Topalova, &
Khandelwal, 2011).

The products which are subject to the tariff reduction or elimination programme under all
products not covered by the Early Harvest Programme (EHP) and such products shall be
categorized into two tracks (Ask´enazy, Caldera, Gaulier, & Irac, 2011), that is normal track,
products listed in the normal track by a party on its own respective applied MFN tariff rates
gradually reduced or eliminated in accordance with specified schedules and rates to be mutually
agreed by the parties over a period from (Eaton, Kortum, Neiman, & Romalis, 2011).
In respect of those tariffs which have been reduced but have not been eliminated, company shall
be progressively eliminated within timeframes to be mutually agreed between the parties (Morel,
2011). Sensitive track, the number of products listed in the sensitive track shall be subject to a
maximum ceiling to be mutually agreed among the parties (Ask´enazy, Caldera, Gaulier, & Irac,
2011).
Products listed in the sensitive rack by a party on its own applicable, have their respective
applied MFN tariff rates progressively (Ask´enazy, Caldera, Gaulier, & Irac, 2011). Reduced or
eliminated within timeframes to be mutually agreed between the parties. The commitments
undertaken by the parties under Agreement shall fulfill the world trade organization (WTO)
requirements to eliminate tariffs on substantially all the trade between the parties (Shaver, 2011).
ASEAN member states under the GATS (Felbermayr, & Yalcin, 2013), and enhanced
cooperation in services between the parties in order to improve efficiency and competitiveness,
as well as to diversify the supply and distribution of services of the respective service suppliers
of the parties (Felbermayr, & Yalcin, 2013). Timeframes for trade in goods, negotiations on the
agreement for tariff reduction or elimination and other matters as set out in agreement.
Address their sensitive areas in the goods, services and investment sectors with (Becker, Chen, &
Greenberg, 2013; Morel, 2011), such flexibilities to be negotiated and mutually agreed based on
the principle of reciprocity and mutual benefits. establishment of effective trade and investment
facilitation measures, including, but not limited to (Almunia, Benetrix, Eichengreen, O’Rourke,
& Rua, 2010), simplification of customs procedures and development of mutual recognition
arrangements, expansion of economic cooperation in areas as may be mutually agreed between
the parties that will complement the deepening of trade and investment links between the parties

and formulation of action plans and programmes in order to implement the agreed sectors/areas
of cooperation (Van Der Veer, 2010; Wakasuki, 2009).
As per the above information between two countries are on products international trade
agreements shows that the regulations are the impact on both importer and exporter (Eaton,
Kortum, Neiman, & Romalis, 2011). Exporter Indonesian processed 320 international trade
agreements to the exporter as per the agreement. The general trade international trade agreements
policies are important to the importers and exporters process (Ask´enazy, Caldera, Gaulier, &
Irac, 2011).
5. Conclusion
The negotiations on rules of origin for trade in goods and modality for tariff reduction and
elimination shall be concluded no later than 31 July 2004. For trade in services and investments,
the negotiations on the respective agreements shall commence in 2005 and be concluded by
2007. The identification, liberalization, of the sectors of services and investment shall be
finalized for implementation subsequently, in accordance with the timeframes to be mutually
agreed, taking into account the sensitive sectors of the parties, and with special and differential
treatment and flexibility for the new ASEAN member states. For other areas of economic
cooperation, the parties shall continue to build upon existing or agreed programmes set out in
this Agreement, develop new economic cooperation programmes and conclude agreements on
the various areas of economic cooperation. The parties shall do so expeditiously for early
implementation
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