International Trade: INCOTERMS, Payment Methods, and Export Support

Flashcards covering international trade terminology including INCOTERMS 2000, payment instruments (Letters of Credit), international contracts, and financial/technical support programs from Bancomext.

INCOTERMS

International Commerce Terms defined by the International Chamber of Commerce (CCI) which serve as facultative rules defining the rights and obligations of buyers and sellers regarding risk transfer, cost distribution, and documentation.

INCOTERMS 2000

The specific version of terms updated in January $2000$ referenced in the notes for uniform interpretation of costs, risks, and international trade procedures.

EXW (Ex Works)

A Group E (Departure) term where the seller delivers goods at their factory or warehouse, and the buyer assumes all costs and risks, including loading and export clearance.

FCA (Free Carrier)

A Group F term where the seller delivers the goods to a carrier designated by the buyer after they have been cleared for export.

FAS (Free Alongside Ship)

A maritime-only term where the seller places the goods next to the vessel at the dock; the buyer handles loading and subsequent costs.

FOB (Free On Board)

A maritime term where the seller loads the goods onto the vessel; risk is transferred once the goods pass the ship's rail (borda).

CFR (Cost and Freight)

A maritime term where the seller pays the freight to the port of destination, but the risk transfers to the buyer upon loading (passing the ship's rail).

CIF (Cost, Insurance and Freight)

Similar to CFR, but the seller must also contract a minimum insurance policy in favor of the buyer.

CPT (Carriage Paid To)

A multi-modal term similar to CFR where the seller pays for transport to a destination, but risk transfers when the goods are handed to the first carrier.

CIP (Carriage and Insurance Paid To)

A multi-modal term equivalent to CIF where the seller pays for transport and insurance to a designated point.

DAF (Delivered At Frontier)

A terrestrial term used when the seller delivers the goods at a specific border point before the customs of the neighboring country.

DDP (Delivered Duty Paid)

A term representing maximum seller obligation where the seller assumes all costs and risks, including import duties and taxes, until the goods reach the final destination.

RAFTD

An obsolete set of American trade definitions (Revised American Foreign Trade Definitions 1941) still used by custom in the US, which differ from INCOTERMS regarding packaging and transport modes.

Additive Base Method

A pricing methodology recommended for SMEs that adds costs (packaging, labeling, documentation, transport, taxes) to the initial EXW production cost.

Bank Draft (Giro bancario)

A check issued by one bank against another; it is considered high risk for exporters as they must wait to receive the physical original before shipping.

Documentary Collection (Cobranza documentaria)

A payment method regulated by URC 522 where banks handle financial and commercial documents (invoices, bills of lading) and deliver them against payment or acceptance.

Letter of Credit (Carta de crédito)

An agreement (UCP 500) where an issuing bank, at the request of an applicant (buyer), commits to pay a beneficiary (seller) upon delivery of documents that match strict terms.

Irrevocable Letter of Credit

A credit that cannot be modified or canceled without the consent of all parties (issuer, confirmant, and beneficiary); it is the default type if not specified (Art. 6 UCP 500).

Confirmed Letter of Credit

A credit where the seller's bank adds its own firm commitment to pay, providing the maximum level of security for the exporter.

Red Clause (Cláusula roja)

A special modality in a letter of credit that allows the beneficiary to receive an advance payment against a simple receipt.

Stand by Letter of Credit (ISP 98)

A payment guarantee used in case of non-compliance, not exclusively limited to the purchase and sale of goods.

Vienna Convention 1980

The UN convention that establishes general principles for international contracts of the sale of goods, of which Mexico is a member.

Arbitral Clause (Cláusula compromisoria)

A fundamental contract clause where parties agree to submit future disputes to an international arbitration body rather than judicial courts.

Compromex

A mixed Mexican commission (Secretary of Bancomext) created in 1956 to act as a conciliator/arbitrator and issue expert reports on international trade controversies.

PAT (Programa de Asistencia Técnica)

A Bancomext assistance program covering up to $50\%$ of costs (capped at $100,000\,\text{pesos}$) for export business plans, certifications, and process improvements.

B2B (Business to Business)

An e-commerce modality involving transactions between companies using formal contracts, credit terms, and pre-arranged logistics.

Crediexporta Capital de Trabajo

A loan facility for financing production and inventory, providing up to $70\%$ of the value of orders or invoices for direct exporters or their suppliers.

Reportos (Repo)

The sale of warehouse deposit certificates to Bancomext with an obligation to repurchase them later, with a purchase price at a maximum of $80\%$ of market value.

Buyer's Credit (Crédito Comprador)

A mechanism where Bancomext finances a foreign importer so they can buy Mexican goods, allowing the Mexican exporter to be paid in cash while the importer pays in installments.

GIN / IND

The Grade of National Integration or Net Foreign Exchange Income, which must be $\ge 30\%$ for a product to qualify for Bancomext international financing.

Forward

A financial service for the purchase/sale of dollars at a future date (terms of $28$ to $365\,\text{days}$) to hedge against exchange rate fluctuations without a premium.

Export Credit Insurance

A policy covering $90\%$ of net losses due to commercial risks (insolvency or prolonged default of $120\,\text{days}$).

Political Risk Guarantee

Coverage for non-payment caused by political events such as license cancellations, war, or currency inconvertibility, providing $90\%$ coverage.