MGT 422 test 3

Types of International Trade Barriers

• Tarrifs

• Duties

• Non tarrifs barriers

Tarrifs

• Taxes applied on imported goods/import duties

• Calculated as a % of the value of the product (ad valorem duty)

Duties

• Indirect taxes imposed on the consumer

Non-tariff barriers

• Quotas

• Import licenses

• Government standards and testing

• Government procurement barriers

• Other trade regulations

Trade Regulations

Marking and labeling

Marking and Labeling

• Marking country of origin

• Ingredients

• Nutritional content

• Safety warnings

Info on Trade Barriers

• Export.gov (market research)

• Country Commercial Guide from National Trade Data Bank

• PriceWaterhouse Information Guide (Doing Business In)

• Country desk officer (need harmonized code Schedule B of the product)

• Foreign buyers

• U.S. Department of Commerce

Info on Trade Regulations

• U.S. Customs

• The concerned agency, for example:

  • Food/medications/meat: Food and Drug Administration; U.S. Dept of Agriculture

  • Textiles/Consumer Products: Federal Trade Commission; Consumer Products Safety Commission

  • Motor vehicles: Department of Transportation

• Consulting agencies (e.g., Food Products Laboratory in Oregon)

• Export/Import companies

Agencies involved (alcohol)

• Alcohol and Tobacco Tax and Trade Bureau (TTB)

• Certificate of label approval (COLA)

• Food and Drug Administration (FDA)

• Registration for bioterrorism compliance (to obtain Federal Registration Number)

• 24 hour prior notice for shipments State agencies involved

• California Dept of Alcoholic Beverage Control (ABC)

• Certificate of compliance

Import license

• Must contract with an importer who has such license from TTB and ABC

• The importer contracts with customs broker, required to pay excise taxes and duties

Harmonized Codes

• Way of classifying products for the purpose of consistency between sellers and buyers

• Used by governments and other organizations to collect statistics

• Important in collecting country/market data as well as for importing products into the country

• ISN (International System of Numbering), SIC (Standard Industry Classification), NAICS (North American Industry Classification System), SITC

Structure of Harmonized System

• 22 sections

  • 97 chapters (first 2 digits)

    • Headings (first 4 digits)

      • Subheadings (first 6 digits) – harmonized globally

        • Commodity codes (fist 10 digits)

Classification of Goods

• Section 01: Live Animals; Animal Products

  • Chapter 1: Live Animals

    • Subheading 0101: Live Horses

      • 0101.10: Purebred

        • 0101.10.10: Males

  • Chapter 02: Meat

    • Etc.

• Section 02: Vegetable Products

• Section 11: Textile

• Section 17: Vehicles

Harmonized Codes (scheduling )

• Schedule B

  • Used for exporting from the U.S.

• HTS (Harmonized Tariff Schedule)

  • Used for importing into the U.S.

Searching in Harmonized Schedules

• Look at through all chapters before deciding on the classification of
  your product

• The dreaded words: not elsewhere specified or included (n.e.s.o.i.)

• HTS –3 columns identifying rates of duty:

  • Column 1:

    • General (WTO members)

    • Special (e.g.,AU)

  • Column 2 (WTO non-members, non-friendly to U.S.)

Notes on Sourcing in Mexico

• Advantages

  • USMCA (replacing NAFTA)

  • Geographic proximity

  • Capabilities (in certain industries)

  • Explosive growth of e-commerce due to Sect 321 rule
    

• Rules of Origin

  • Criteria for qualifying for “originating good”

    • Certain percentage of the value of the good must come from the
      USMCA territory

    • Goods from non-originating materials must go through a process of “substantial transformation”

TTB and ABC

The importer contracts with customs broker, required to pay excise taxes and duties

Certificate of Origin (C/O)

• No prescribed format

• Importer, exporter or producer can prepare it

• E-format allowed

• May be provided on invoice

Vetting Suppliers

• Ownership structure

• Unit price

• Geographical location

• Product line & capacity

• Size and average employee tenure

• Raw materials supplier

• Minimum order quantity (MOQ)

• Landed cost

• Product engineering & testing

• Payment terms

• Knowledge of customs procedures

• Security issues (OTR risk)

• Compliance with Environmental standards

Tariffs, or import duties, are the same across countries and products. True or False?

False

A minimum order quantity (MOQ) is an important factor that can impact a choice of a supplier. True or False?

True

Exporting Basics

• International Sales

• Contract

• Transport Logistics

  • How is it traveling

• Documentation

  • MUST HAVE

• Incoterms

• Payment Method

• Landed Cost

International Sales Contracts

• Offer

  • What we are giving up

• Acceptance

  • There has to be clarity that buyer accepts the terms

• Consideration

  • How much 

• Subsequent conduct of parties

CISG 

World wide treaty accepted format of contracts

Formation of ISC

• Technically, contract not necessary but written contract recommended

• Formation of a contract based on “documentation trail”

• Method for interpretation parties’ intent

  • CISG (Convention for International Sales of Goods)

ISC Key Clause

• Contract date

• Identification of parties

• Applicable law

• Dispute resolution

• Description of goods

• Quality, quantity grade,size & condition

• Price of goods

• Currency of sale

• Country of origin of the goods

• Warranty & repair of goods

• Remedies & Liquidated damages

• Mode of transportation

• Incoterms

• Type & timing of payment

Transport Logistics

• Intermodal and Containerized Cargo 

  • Efficient handling

    • Ex. Container? Boat? Train?

  • Lower risk of pilferage(theft)

  • Lowering price of international transportation of goods

The Role of Freight Forwarders/Brokers

Handle the export process
Brokers = specializing in imports
3PLs

Handle the export process

• freight cost quotation

• shipping arrangements (e.g., containerization, consolidation, warehousing/packing)

• export documentation(e.g., export license, insurance, bill of lading, export declaration, inspections)

• foreign customs clearance

Marine Cargo Insurance

• Most companies purchase Basic Marine insurance coverage on 110% of the final delivered value of shipment

• General average clause

General Average Clause

Covers a loss resulting when extraordinary expenses or losses are incurred in saving the vessel or its cargo from danger at sea. All parties to the voyage contribute to a loss incurred whether or not their cargo was damaged or lost.

Exporting Documentation

1. Quotation

2. Pro forma invoice

3. Commercial invoice

4. Packing list

5. Electronic Export Information (EEI) (via AES Direct)

6. Bill of lading or air waybill

   1. Most important

7. Certificate of origin/Export license

   1. Where does it come from

8. Insurance certificate

9. Draft

Incoterms

• Internationally accepted commercial terms defining the respective roles of the buyer and seller in the arrangement of transportation and other responsibilities

• Devised by the International Chamber of Commerce (ICC)

Incoterms specifics (determine)

• Geographic location at which the buyer becomes responsible for the goods

• Delivery – when obligation of the seller/buyer was met

• Obligations of buyer and seller with respect to customs clearance/duties

• Who incurs costs (i.e. pays shipping, handling, inland and ocean freight)

• Who bears risk (i.e. pays for insurance)

Incoterms dont determine

• Transfer of title of ownership

• Payment

• Revenue recognition

Incoterms falls within

• Processes Involved

• Customs

• Harmonized code

• Tariffs

Incoterms ® 2020 Groups

• Group E: Departure Terms.

• Group F: Main Carriage Unpaid.

• Group C: Main Carriage Paid

• Group D. Arrival.

Incoterms Group E Departure Terms

• The seller makes the goods available to. the buyer at the seller’s own premises.

  • EXW. Ex-works. Risks and costs pass to buyer (including payment of all transportation and insurance cost) at the seller's door. Used for any mode of transportation.

Incoterms Group F: Main Carraiger Unpaid

• The seller delivers the goods to a carrier.

  • FCA. Free Carrier At.

  • FAS. Free alongside Ship. [ocean shipping only]

  • FOB. Free on Board. [ocean shipping only]

Incoterms Group D. Arrivals

• The seller has to bear all costs and risks needed to bring the good to the country of destination.

  • DPU. Delivered at Place Unloaded.

  • DAP. Delivered at Place.

  • DDP. Delivered Duty Paid.

Group C Main Carriage Paid.

• The seller is responsible for arranging for carriage to the named place.

  • CPT. Carriage Paid To.

  • CIF. Cost, Insurance & Freight.

Payment Methods

• Types of international risk affecting the choice of payment:

  • Political risk

  • Foreign exchange risk

  • Credit risk

    • specific to buyer and seller

  • The loneger the time, the longer the risk

Payment Method Options

• Cash in Advance

• Letters of Credit

• Collections

• Open Account

Cash in Advance

• No Risk on Seller

• High Risk on Buyer

• Usually a wire transfer (SWIFT)

• Credit Cars

• Buyer receives the goods after payment

• Low cost

Letters of Credit

• Most international businesses use this

• Documentary credit

• A commitment by a (foreign) bank to act as an intermediary and pay the amount of the L/C if certain conditions are met by the seller

• A compromise between cash in advance and an open account

• Governed by Uniform Customs & Practice for

• Low risk/high cost *between .25 and 2% of the transaction

• Simple arrangement

Problems with Letters of Credit

• Discrepancies

• Date of shipment

• Partial shipments

• Cost

Collection

• Documentary collections, payment against documents

• Once the goods are shipped, the seller forwards the documents to the foreign buyer’s bank which holds the documents until the payment term is met

• Risky for the seller if foreign bank/forwarder not reliable

• Buyer receives goods after fulfilling payment terms

• Lower cost

Open Account

• High Risk on Seller

• No Risk on Buyer

• Long-term relationships

• Seller Sends Goods, Paid After Goods Received

• Low Cost

  • Foreign receivables insurance

    • Private sector

    • ExIm (Export-Import) Bank

    • If doing sale on account its not guaranteed that the seller pay

    • It is a way to take out insurance a d protect

    • Guaranteed loans for international sales

Landed Cost

• A total charge associated with getting a shipment to its destination

• Dependent on the country of import, INCOTERMS and other factors

• How do we pull it all together

• Shipping cost

Shipping Cost (Landed Cost)

• Insurance

• Currency conversion

• Storage

• Regulatory fees, including export licenses

• Fraud prevention

• Handling fees (e.g packing, un/loading)

• Payment processing

Bill of lading

a legal document that serves multiple purposes in the shipping process:

In the Bill of Lading

• Contract: A BOL is a contract between the shipper and the carrier that outlines the terms and conditions of the shipment.

• Receipt: A BOL is a receipt for the goods being shipped.

• Document of title: A BOL proves that the shipper owns or controls the goods being shipped.

• Proof of delivery: A BOL serves as evidence that the goods have been delivered to the recipient.

• Shipment information: A BOL lists the goods being shipped, the shipper and consignee, the origin and destination, and other important information

True or False: The door 2 door container service always the best option for international entrepreneurship?

False

True or False? All international buyers and sellers must use Incoterms when shipping goods overseas?

False