Classification of Trade — Internal and External

Trade is broadly classified on the basis of the geographical area within which it is carried on. This gives us two principal categories: internal trade (also called home trade or domestic trade), which takes place entirely within the boundaries of one country, and external trade (also called foreign trade or international trade), which takes place between two or more different countries.

Internal trade is conducted using the country's own domestic currency, is governed entirely by the country's own internal laws, and does not attract customs duty because no national boundary is crossed. A trader selling cotton cloth from Coimbatore to a shop in Chennai, or a wholesaler in Madurai supplying groceries to retailers across several districts of Tamil Nadu, is engaging in internal trade — the entire transaction, from negotiation to delivery to payment, happens inside India. Internal trade is itself further divided, based on the scale and stage at which goods change hands, into wholesale trade and retail trade — a division explored in detail in the next two sections of this chapter.

External trade, by contrast, involves at least two countries, generally requires payment or conversion in a foreign currency (or an internationally accepted medium such as the US dollar), is subject to each country's customs laws and international trade regulations, and typically needs additional documentation — export/import licences, shipping bills, bills of lading, certificates of origin, letters of credit, and so on — that a purely domestic sale never requires. External trade is further divided into export trade, import trade, and entrepot (re-export) trade, based on the direction in which goods move relative to the trading country.

This two-way classification — internal versus external — is the master classification of trade; wholesale/retail and export/import/entrepot are, so to speak, the second-level branches growing out of each half of that first split. It is useful to think of the whole chapter as a simple tree: Trade splits first into Internal and External; Internal splits further into Wholesale and Retail; External splits further into Export, Import, and Entrepot. Keeping this structure in mind makes it far easier to place any given real-world example — a supermarket selling packaged snacks, a spice exporter shipping pepper to Europe, a trading company importing electronic components purely to resell them to a neighbouring country — into its correct box. …