Tag: International Business

Management Notes

Promissory Note, Characteristics, Types

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Promissory note is a financial instrument that contains a written promise by one party (the maker or issuer) to pay another party (the payee) a definite sum of money, either on demand or at a specified future date. Promissory notes are used in many financial transactions, including personal loans, business loans, and various types of financing.

Promissory notes are indispensable tools in the financial landscape, offering a structured and legally binding way to document and manage debt obligations. They facilitate a wide range of financial activities, from personal loans to sophisticated corporate financing, by providing a clear, enforceable record of the terms under which money is borrowed and repaid. Understanding the nuances of promissory notes, from their creation and execution to their enforcement, is crucial for both lenders and borrowers to safeguard their interests and ensure the smooth execution of financial transactions.

Definition and Characteristics

Under the Negotiable Instruments Act, 1881, a promissory note is defined as an instrument in writing (not being a banknote or a currency note), containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

Key characteristics:

  • Written and Signed: It must be in writing and signed by the maker.
  • Unconditional Promise: It contains an unconditional promise to pay.
  • Certainty of Amount: The sum payable must be certain.
  • Payee Must be Certain: The person to whom it is payable must be certain.
  • Payment in Money: The payment should be in terms of money.

Legal Framework

The legal framework governing promissory notes in India is the Negotiable Instruments Act, 1881. This Act defines what constitutes a promissory note, its characteristics, and the rules regarding its negotiation, endorsement, and payment. The Act also outlines the rights and duties of the parties involved.

Importance in Finance

Promissory notes play a critical role in the financial world by facilitating loans and credit transactions. They provide a formal mechanism for acknowledging debt and specifying the terms of repayment, which helps in creating trust between parties. For businesses, they are tools for managing cash flow, financing operations, or investing in opportunities. For individuals, they are often used in personal loans, real estate transactions, and private financing.

Types of Promissory Notes

  1. Simple Promissory Notes

A simple promissory note outlines a loan’s basic elements: the amount borrowed, the interest rate (if any), and the repayment schedule. These notes do not typically include extensive clauses or conditions and are often used for personal loans between family and friends.

  1. Commercial Promissory Notes

Commercial promissory notes are used in business transactions. They are more formal than personal promissory notes and usually involve larger sums of money. These notes may include specific conditions regarding the loan’s use, repayment terms, and what happens in case of default. They are often used by businesses to secure short-term financing.

  1. Negotiable Promissory Notes

Negotiable promissory notes meet the requirements set out in the Uniform Commercial Code (UCC) or equivalent legislation in other jurisdictions, making them transferable from one party to another. This transferability allows the holder to use the note as a financial instrument that can be sold or used as collateral.

  1. Non-Negotiable Promissory Notes

Non-negotiable promissory notes cannot be transferred from the original payee to another party. These notes are strictly between the borrower and the lender and do not have the features that make a promissory note negotiable under the law, such as being payable to order or bearer.

  1. Demand Promissory Notes

Demand promissory notes require the borrower to repay the loan whenever the lender demands repayment. There is no fixed end date, but the lender must give reasonable notice before expecting repayment. These are often used for short-term financing or open-ended borrowing agreements.

  1. Time Promissory Notes

Time promissory notes specify a fixed date by which the borrower must repay the loan. The payment date is determined at the time the note is issued, providing both parties with a clear timeline for repayment. This type of note may also outline installment payments leading up to the final due date.

  1. Secured Promissory Notes

Secured promissory notes are backed by collateral, meaning the borrower pledges an asset to the lender as security for the loan. If the borrower defaults, the lender has the right to seize the asset to recover the owed amount. Common forms of collateral include real estate, vehicles, or other valuable assets.

  1. Unsecured Promissory Notes

Unlike secured notes, unsecured promissory notes do not require the borrower to provide collateral. Because these notes carry a higher risk for the lender, they may come with higher interest rates or more stringent creditworthiness assessments.

  1. Interest-Bearing Promissory Notes

Interest-bearing promissory notes include terms for interest payments in addition to the principal amount of the loan. The interest rate must be clearly stated in the note, and these notes outline how and when the interest should be paid.

  1. Non-Interest-Bearing Promissory Notes

Non-interest-bearing promissory notes do not require the borrower to pay interest. The borrower is only obligated to repay the principal amount of the loan. Sometimes, to comply with tax laws or regulations, these notes might include an implied interest rate or be discounted to reflect the interest implicitly.

Creation and Execution

To create a valid promissory note, certain elements must be included:

  • The names of the payer and payee.
  • The amount to be paid.
  • The date of issuance.
  • The maturity date, if applicable.
  • The payment terms, including interest rates, if any.
  • The signature of the issuer (maker).

Practical Considerations

  • Legal Implications:

he parties should understand the legal obligations and rights associated with promissory notes. Failure to comply with the terms can lead to legal action.

  • Interest and Repayment:

The terms of interest rates, repayment schedules, and any provisions for late payments or defaults should be clearly defined.

  • Security and Collateral:

Some promissory notes are secured by collateral, providing the payee with a claim to specific assets if the payer defaults.

  • Negotiability:

The negotiability aspect allows promissory notes to be transferred, making them a flexible financial instrument for financing.

  • Enforcement:

In case of non-payment, the payee has the right to enforce the note through legal means, which may include filing a lawsuit to recover the debt.

Management Notes

International Monetary Fund (IMF) History, Objectives and Functions

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International Monetary Fund (IMF) is an international organization established in 1944, headquartered in Washington, D.C., consisting of 190 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The IMF provides policy advice and financing to its members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. Key activities include surveillance over economic, financial, and exchange rate policies, lending to countries with balance of payments problems, and providing technical assistance and training to help countries improve their economic management. The IMF aims to stabilize the international monetary system and act as a forum for cooperation on international monetary problems.

International Monetary Fund (IMF) History:

International Monetary Fund (IMF) was established in December 1945, with its origins tracing back to the Bretton Woods Conference held in July 1944. This pivotal event in the wake of World War II saw delegates from 44 Allied nations gather in Bretton Woods, New Hampshire, USA, to create a new international monetary order. The primary aim was to prevent future economic crises and facilitate post-war reconstruction. The IMF’s initial role was to oversee a system of fixed exchange rates to ensure financial stability and promote international economic cooperation. Over the years, the IMF has evolved. Its functions have expanded to include providing monetary cooperation and financial stability, facilitating international trade, promoting high employment and sustainable economic growth, and reducing poverty around the world. Today, the IMF plays a crucial role in offering financial assistance and policy advice to its member countries facing economic challenges.

International Monetary Fund (IMF) Objectives:

  • Promoting International Monetary Cooperation:

Through a permanent institution that provides a framework for international monetary cooperation.

  • Facilitating the Expansion and Balanced Growth of International Trade:

This aids in promoting and maintaining high levels of employment and real income, contributing to the development of the productive resources of all member countries.

  • Promoting Exchange Stability:

To maintain orderly exchange arrangements among members and avoid competitive exchange depreciation.

  • Assisting in the Establishment of a Multilateral System of Payments:

For current transactions between members and in the elimination of foreign exchange restrictions that hamper the growth of world trade.

  • Providing Resources to Members with Balance of Payments Problems:

The IMF provides temporary financial assistance to member countries to help them address balance of payments problems, thereby providing an opportunity to correct maladjustments in their balance of payments without resorting to measures destructive to national or international prosperity.

  • Reducing the Duration and Degree of Imbalances in International Balances of Payments:

The IMF seeks to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

International Monetary Fund (IMF) Functions:

  • Surveillance:

The IMF monitors the economic and financial developments of its member countries and provides policy advice aimed at fostering stability and growth. This surveillance process helps identify potential risks to the global economy and advises on necessary policy adjustments.

  • Financial Assistance:

The IMF provides financial resources to countries facing balance of payments problems. This support is often conditional on the implementation of economic reform programs designed to restore economic stability and growth.

  • Technical Assistance and Training:

The IMF offers technical assistance and training to help member countries improve their capacity to design and implement effective policies. Areas of assistance include fiscal policy, monetary and exchange rate policies, banking and financial system supervision, and statistics.

  • Capacity Development:

Beyond immediate financial assistance and policy advice, the IMF works to build the institutions and capacity necessary for countries to manage their economies effectively. This involves strengthening governance, combating corruption, and promoting sustainable economic practices.

  • Promoting International Trade:

By working to ensure economic stability and providing mechanisms for crisis prevention and resolution, the IMF facilitates international trade. Stable currencies and economies create an environment conducive to trade.

  • Exchange Rate Stability:

IMF plays a role in promoting exchange rate stability and orderly exchange arrangements among countries. This helps to avoid competitive devaluations and promotes a stable international monetary system.

  • Facilitating Balanced Growth of International Trade:

Through its surveillance, lending, and capacity development functions, the IMF supports policies that foster economic stability, reduce vulnerabilities, and enable balanced growth. This, in turn, contributes to high levels of employment and income.

  • Special Drawing Rights (SDRs):

IMF issues an international reserve asset known as Special Drawing Rights (SDRs) that can be exchanged among governments for freely usable currencies in times of need.

  • Crisis Prevention and Resolution:

IMF plays a key role in preventing economic crises through its surveillance activities and policy advice. When crises do occur, it helps resolve them by coordinating policy responses among countries and providing financial support.

Management Notes

Performance of contract of sale

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The performance of a contract of sale involves various obligations and duties that both the seller and the buyer must fulfill for the transaction to be completed satisfactorily. The Sale of Goods Act, 1930, in India, outlines these responsibilities in detail, ensuring that there is clarity and fairness in commercial transactions involving the sale of goods.

Duties of the Seller

  • Delivery of Goods:

The seller is required to deliver the goods to the buyer as per the terms of the contract. This involves making the goods available to the buyer at the designated location and time, in the correct quantity and quality, and in a deliverable state.

  • Transfer of Property:

The seller must ensure that the property in the goods is transferred to the buyer, giving the buyer the right to own, use, and dispose of the goods as they see fit, subject to the terms of the contract.

  • Transfer of Title Free from Encumbrances:

The seller should ensure that the title transferred to the buyer is free from any charges or encumbrances, unless explicitly agreed upon.

Duties of the Buyer

  • Acceptance of Delivery:

The buyer is obligated to accept the goods when they are delivered in accordance with the contract. This involves taking physical possession of the goods and acknowledging that the delivery fulfills the contract terms.

  • Payment:

The buyer must pay the price for the goods as stipulated in the contract. The payment should be made at the time and place agreed upon in the contract, and in the absence of such agreement, payment is to be made at the time and place of delivery.

Delivery of Goods

  • Place of Delivery:

The place for the delivery of goods is determined by the contract. In the absence of such a stipulation, the goods are to be delivered at the place where they are at the time of the sale.

  • Time of Delivery:

If the contract specifies a time for delivery, the goods must be delivered accordingly. In contracts where time is not specified, the delivery should be made within a reasonable time.

  • Delivery in Installments:

Unless otherwise agreed, the goods must be delivered in a single delivery, and payment is to be made accordingly. Delivery by installments may be allowed if the contract so specifies or if it is customary in the trade.

  • Expenses of Delivery:

The cost of putting the goods into a deliverable state is generally borne by the seller unless there is an agreement to the contrary.

Acceptance of Goods

  • Examination of Goods:

The buyer has the right to examine the goods on delivery to ensure they conform to the contract. The examination should be done within a reasonable time after delivery.

  • Acceptance:

Acceptance of the goods by the buyer occurs when the buyer intimates to the seller that the goods are accepted, does something in relation to the goods that is inconsistent with the ownership of the seller, or retains the goods without intimation of rejection within a reasonable time.

Payment

  • Manner of Payment:

The payment is to be made in the manner prescribed in the contract. If not specified, it should be made in cash.

  • Time of Payment:

Unless agreed otherwise, the payment is due on the delivery of the goods. If the goods are to be delivered at a different time from that of payment, payment is to be made at the time agreed upon.

Remedies for Breach

Both the seller and the buyer have specific remedies available to them in case of a breach of the contract by the other party. These include the right to sue for damages, the right to repudiate the contract, and specific performance, among others.

Lucknow University BBA Notes / Management Notes

Possible Errors in Appraisal Process

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Rating errors are factors that mislead or blind us in the appraisal process. Armstrong warned that “appraisers must be on guard against anything that distorts reality, either favorably or unfavorably.” These are the 10 rating errors seen most often. They’re where managers and other raters are most likely to go offtrack.

  1. Central tendency. Clustering everyone in the middle performance categories to avoid extremes of good or bad performance; it’s easy, but it’s wrong. This isn’t fair to employees who are really making an effort, and it can be demoralizing.
  2. Overlooking the flaws of favored or “nice” employees, especially those whom everyone likes.
  3. Excusing below standard performance because it is widespread; “Everyone does it.”
  4. Guilt by association. Rating someone on the basis of the company they keep, rather than on the work they do.
  5. The halo effect. Letting one positive work factor you like affect your overall assessment of performance.
  6. Holding a grudge. A dangerous luxury that may result in your ending up in court. Never try to make employees pay for past behavior.
  7. The horns effect. The opposite of the halo effect letting one negative work factor or behavior you dislike color your opinion of other factors.
  8. Allowing your bias to influence the rating. Bias can come from attitudes and opinions about race, national origin, sex, religion, age, veterans’ status, disability, hair color, weight, height, intelligence, etc.
  9. Rating only recent performance, good or bad. Data should be representative of the entire review period. If you’re not keeping good notes, you may not remember the whole period. Armstrong noted that “you want to make sure, again, that you’re keeping records so that you can adequately describe performance over an entire performance period.”
  • The sunflower effect. Rating everyone high, regardless of performance, to make yourself look good or to be able to give more compensation.
Management Notes

General Agreement on Tariffs and Trade (GATT) History, Objectives and Functions

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General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade. Established in 1947, its main objective was to reduce trade barriers such as tariffs, quotas, and subsidies, promoting economic recovery post-World War II. GATT provided a forum for negotiating trade agreements, settling trade disputes, and enforcing members’ commitments to reduce trade barriers. It laid the foundation for the rules-based trading system, emphasizing non-discrimination and transparency in international trade practices. GATT went through multiple negotiation rounds, each aiming to further liberalize global trade. The most notable was the Uruguay Round, which concluded in 1994, leading to the establishment of the World Trade Organization (WTO) in 1995. The WTO replaced GATT as the global organization overseeing international trade rules, incorporating and expanding on its principles and structures.

History of GATT:

General Agreement on Tariffs and Trade (GATT) was established in the aftermath of World War II, with its genesis rooted in the desire to create a stable trade framework that would prevent the protectionist trade policies that many believed had contributed to the economic downturns and international tensions of the 1930s. The idea was to establish an International Trade Organization (ITO) as part of the Bretton Woods system of international economic cooperation, which also included the International Monetary Fund (IMF) and the World Bank. However, the ITO never came into existence due to the failure of the United States to ratify it. As a provisional workaround, 23 countries signed the GATT in 1947, which then came into effect on January 1, 1948.

GATT was initially intended to be temporary, pending the establishment of the ITO, but it effectively served as the global framework for trade regulation for almost five decades. Its primary aim was to reduce tariffs and other trade barriers, and to provide a platform for the negotiation of trade liberalization. Over the years, GATT underwent several rounds of negotiations, which were named after the host city or country (e.g., Geneva, Annecy, Torquay, Geneva again, Dillon, Kennedy, Tokyo, and Uruguay).

The most significant of these was the Uruguay Round (1986-1994), which led to the creation of the World Trade Organization (WTO) on January 1, 1995. The WTO absorbed GATT, bringing it into a new legal framework and expanding its scope to include not just goods, but also services and intellectual property. The transformation marked a shift from a provisional agreement to a permanent institution, reflecting the evolution of the global economy and the increasing complexity of international trade.

Objectives of GATT:

  • Trade Liberalization:

The primary goal was to reduce tariffs, quotas, and other trade barriers among member countries, facilitating smoother and more accessible international trade.

  • Non-Discrimination:

GATT emphasized the principle of non-discrimination through two key policies: the Most Favored Nation (MFN) clause, which ensured that any trade advantage a country offers to one GATT member must be extended to all members, and the national treatment policy, which required foreign goods to be treated no less favorably than domestically produced goods once they had entered a market.

  • Predictability:

By encouraging countries to bind their tariffs (agree not to raise them beyond agreed levels), GATT aimed to create a more predictable trading environment. This predictability was intended to encourage investment and long-term business planning.

  • Fair Competition:

GATT sought to level the playing field in international trade by establishing rules aimed at fair competition, thereby discouraging practices such as dumping (selling goods abroad at unfairly low prices).

  • Dispute Resolution:

Establishing a formal mechanism for resolving trade disputes between countries was an essential objective. This mechanism was intended to provide a structured process for addressing grievances and conflicts arising from trade relations, helping to avoid unilateral actions that could lead to trade wars.

  • Economic Growth and Development:

Ultimately, GATT aimed to contribute to economic growth and development worldwide, particularly in post-war recovery, by fostering an open and non-discriminatory trading system. This goal was based on the belief that freer trade would lead to more efficient resource allocation, increased production and employment, and a higher standard of living globally.

Functions of GATT:

  • Trade Negotiations:

GATT provided a forum for member countries to negotiate the reduction or elimination of tariffs and other trade barriers. These negotiations occurred in a series of trade rounds, including the notable Kennedy Round, Tokyo Round, and the Uruguay Round, which led to significant reductions in tariffs and the expansion of international trade.

  • Trade Liberalization:

Central to its functions, GATT worked towards liberalizing trade by encouraging member countries to reduce trade barriers. The aim was to create a more open and efficient international trading system.

  • Enforcement of Trade Rules:

GATT established a set of rules governing international trade. These rules were designed to ensure that trade occurred on a stable, predictable, and fair basis. GATT provided mechanisms to enforce these rules and resolve disputes between countries over trade issues.

  • Monitoring and Surveillance:

GATT was responsible for monitoring the trade policies and practices of its member countries. This function involved reviewing national trade policies to ensure compliance with GATT rules and commitments, thereby promoting transparency and accountability in international trade.

  • Dispute Resolution:

An important function of GATT was to provide a mechanism for the resolution of trade disputes between member countries. The dispute resolution process aimed to resolve conflicts in a structured and legal manner, thereby avoiding unilateral actions that could lead to trade wars.

  • Technical Assistance and Training:

GATT provided technical assistance and training for developing countries to help them understand and implement GATT rules and benefit from the international trading system. This function was essential for integrating developing countries into the global economy.

  • Promotion of Economic Development:

Through its efforts to liberalize trade and reduce barriers, GATT aimed to promote economic development and raise living standards across the globe. By facilitating increased international trade, GATT sought to contribute to economic growth in both developed and developing countries.

Management Notes

World Trade Organization (WTO) History, Objectives and Functions

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World Trade Organization (WTO) is an international body established to oversee and regulate international trade. Founded in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT), the WTO aims to facilitate smooth, free, and predictable trade flows between its member countries. It provides a framework for negotiating trade agreements, a dispute resolution mechanism to enforce members’ adherence to WTO agreements, and a forum for trade negotiations and discussions. The organization’s primary goal is to ensure that trade flows as smoothly, predictably, and freely as possible, thereby contributing to economic growth and development worldwide. By promoting lower trade barriers and providing a platform for the resolution of trade disputes, the WTO helps to create a more open and equitable global trading system.

History of WTO:

World Trade Organization (WTO) was established on January 1, 1995, succeeding the General Agreement on Tariffs and Trade (GATT) that had been in operation since 1948. The creation of the WTO marked a significant evolution in international economic governance, reflecting the need for a more comprehensive and legally binding system to manage the complexities of international trade in the post-Cold War global economy.

The origins of the GATT can be traced back to the aftermath of World War II, when countries sought to rebuild their economies and establish a stable and predictable framework for international trade. The GATT was initially meant to be a temporary arrangement until the establishment of the International Trade Organization (ITO). However, the ITO never came into existence due to the failure of the United States to ratify the agreement, making the GATT the de facto framework for international trade.

Over nearly five decades, the GATT provided the rules for much of world trade and witnessed considerable liberalization, particularly through its trade negotiation rounds. The most notable of these was the Uruguay Round, conducted from 1986 to 1994, which led to the creation of the WTO. This round of negotiations was ambitious in its scope, addressing not only tariffs but also non-tariff barriers, agriculture, textiles, services, intellectual property, and the creation of a dispute settlement mechanism.

The establishment of the WTO brought several new dimensions to global trade governance, including the incorporation of trade in services and intellectual property rights into the multilateral trading system and the introduction of a more robust and legally binding dispute resolution mechanism. Today, the WTO remains the primary international body governing world trade, with a mandate to facilitate trade negotiations, solve trade disputes, and enforce adherence to WTO agreements among its member countries.

Objectives of WTO:

  • Promoting Free Trade:

Reduction of tariffs, elimination of import quotas, and dismantling of other trade barriers to facilitate smoother and freer flow of goods and services across international borders.

  • Ensuring Non-Discrimination:

Implementing the principle of non-discrimination through Most-Favored-Nation (MFN) status and national treatment, ensuring that each member country treats its trading partners equally and without prejudice.

  • Enhancing Predictability and Stability:

Providing a stable, predictable, and transparent trading environment by enforcing trade rules and commitments among member countries, thereby reducing the risk associated with international trade and investment.

  • Promoting Fair Competition:

Aiming to create a level playing field for all traders by establishing and enforcing rules on fair competition, including addressing subsidies, dumping, and other practices that distort the market.

  • Encouraging Development and Economic Reform:

Assisting developing and least-developed countries in their economic development through trade by providing them with technical assistance and support in building their trade capacity, as well as integrating them into the global economy.

  • Protecting the Environment:

Recognizing the importance of ensuring that environmental measures and trade policies are mutually supportive towards sustainable development, the WTO works towards promoting environmental protection alongside open trade.

  • Safeguarding the Interests of Developing Countries:

Ensuring that the needs and interests of developing countries are taken into account in WTO negotiations, aiming to enhance their trade opportunities and support their efforts to integrate into the global trading system.

  • Resolving Trade Disputes:

Providing a mechanism for the resolution of trade disputes among countries, thereby preventing conflict and retaliation in international trade relations.

Functions of WTO:

  • Administering WTO Trade Agreements:

The WTO is responsible for administering a collection of international trade agreements that set legal ground rules for international commerce. These agreements are negotiated and signed by the bulk of the world’s trading nations.

  • Serving as a Forum for Trade Negotiations:

The WTO provides a platform for negotiating trade agreements among its members. These negotiations cover various areas, including tariffs, subsidies, trade barriers, and other issues that impact international trade.

  • Handling Trade Disputes:

The WTO operates a comprehensive system for resolving disputes between countries over the interpretation and application of the agreements. By providing a structured process for settling disputes, the WTO helps ensure that trade flows smoothly and that trade rules are enforced.

  • Monitoring National Trade Policies:

A key function of the WTO is to review and monitor the trade policies and practices of its member countries. This transparency helps to ensure that trade policies are predictable and that they adhere to WTO agreements.

  • Technical Assistance and Training for Developing Countries:

The WTO offers technical assistance and training programs specifically designed for developing countries. These programs aim to help these countries build their trade capacity, understand WTO agreements, and comply with international trade rules.

  • Cooperation with Other International Organizations:

The WTO collaborates with other international and regional organizations to ensure a coherent global policy framework for trade and economic development. This includes working with the International Monetary Fund (IMF) and the World Bank to achieve greater economic stability and development.

  • Enhancing Transparency in Global Economic Policy-making:

Through its regular monitoring and reporting processes, the WTO promotes transparency and informed dialogue on trade and economic policy issues. This includes publishing a wide range of reports on global trade issues, economic research, and trade statistics.

  • Trade Facilitation:

The WTO works to simplify and standardize customs procedures among member countries through the Trade Facilitation Agreement (TFA). This agreement aims to expedite the movement, release, and clearance of goods, reduce costs, and improve efficiency in international trade.

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