Export/Import Briefing

Foreign Trade Agency Services EXPORT/IMPORT BRIEFING This page is intented for those manufacturers and wholesalers who have no experience and knowledge of foreign trade but interested to export or import their products to/from foreign markets and would like to have some general idea about export/import transactions.
THE DIFFERENCE BETWEEN HOME & FOREIGN TRADE
Basically home and foreign trade are both commercial transactions but they differ great deal because of the differences in languages,
currencies,transport,legal and economic systems which exist in each country hence the existence of numerous regulations for transport,banking and customs necessiating the knowledge and work of a specialist of these fields.As a result of this in foreign trade the number of middlemen will be greater than in home trade because there are more specialist functions to be performed.The greater the amount of specialization that is introduced into distribution the greater will be the number of middlemen employed between the producer and the retailer.But this should result in a much higher standard of efficiency at each stage of the work and in consequence a reduction and not an increase in the cost of distribution for this has been the effect of the introduction of division of labour into other branches.The commonly held view that the fewer the middlemen the higher the profits will be both for the buyer and the seller is a misconception as this can be true for home trade but can be very costly for the foreign trade as is the case for exporters and/or importers who avoid middlemen doing some specialist work in order to lower the cost of export/import transaction and end up with great loses because of a wrongly performed procedures or prepared paperworks related with the export/import transactions of the countries involved.The governments tend to be suspicious of imports and they are anxious to count the volume/value of goods coming in and out of the country.Hence numerous documentary requirements have evolved over the years intended to control,enumerate tax and other flows of merchandise.Further complicating international flows of goods are the complex transportation documentary requirements of all sorts of common and contract carriers.Virtually every government in the world regulates such companies and shippers who must comply with all relevant requirements.Consequently any mistakes on these documents or procedures on the part of the seller or buyer result in costly delays for the delivery of the goods.
BASIC PRINCIPLES
When one first encounters any of the several hundred documents often found covering an international shipment,the usual reaction is to forget what the game is all about in the first place.But as with all business transactions , the basic principle is very simple.One has a customer who desires some goods.The firm making the sale has to get the goods from point of manufacturer to point of delivery.The fact that the
customer is in another country may complicate documentation,finance and transportation , but the fundementals are always the same.
THREE FLOWS IN FOREIGN TRADE
1) The physical flow of the merchandise : This typically more complicated than a domestic flow because there are usually more terminals
and transshipments in an international shipment than in a domestic one.
2) Trade document flows : Commercial documents (e.g.invoice,packing list,quality inspection etc.) , offical documents (e.g.health certificate,
import licence,certificate of origin etc) , transport documents (e.g. bill of lading,CMR roadwaybill,airwatbill etc).
3) Financial document flows: Bank commitment letters,drafts,letter of credits,insurance policy ,bid bond,performance bond,certificate of deposits , letter of guarantee etc.
DELIVERY TERMS (inco terms)
Every sales contract should include the terms of delivery,that is,every sales contract should clearly indicate the responsibilities of parties in connection with the charges and responsibilities that are experienced in an international sale transaction.The basic price of the goods is their ex warehouse (works) price in the country of origin.To this the following standard additions plus any other charge (if any) have to be made :
1-The cost of carrying the goods to the docks at the port of embarkation.
2-Dock dues and any other charges for loading the goods on to the ships.
3-The freight charger for carrying the goods from the port of embarkation to the port of destination.
4-Insurance of the goods while they are in transit.
5-The charge for carrying the goods from the port of destination to the importers warehouse.
6-Insurance : to cover the risk of carriage required as per trade regulation of most of the countries.
As a result of this,in foreign trade ,there is a greater variety in the method of quoting prices.So it is of the utmost importance to both the importer and the exporter to state exactly what is included in a quoted price.
In 1936 the international chamber of commerce published the rules and practices of international commerce.These rules known as "incoterms"
govern the terms of sales in particular of delivery in international commerce.The responsibilities and obligations of the seller and the buyer are specified in all cases.In short incoterms are internationally standardised definations setting out the rights and responsibilities of exporter and importer regarding the arrangements and payment for the delivery of goods in international sales.For the full list of incoterms the reader of this briefing is strongly recommended to read the latest revised edition of incoterms published by the international chamber of commerce in Paris.In here only the most widely used six incoterm involved with a sea carriage are mentioned to give the reader an idea about them as well as to show with the step by step approach for the stages experienced in the delivery of an export/import transaction.
BUYER/SELLER RESPONSIBILITIES (the point where buyer take possession,the point where buyer take ownership...)

(s )seller responsibility , (b) buyer responsibility , (x) point where buyer takes possession , (o) point where buyer takes ownership
BUYER/SELLER RESPONSIBILITIES	EXWORKS (FACTORY) (WAREHOUSE)	FOB Port	C&F port of Import	CIF Port of Import	Ex Quay duty not paid	Delivered Duty paid
Sellers Plant Provide invoice and packing slip Provide Certificate of manufacture Provide certificate of origin	s s s s	- s s s	- s s s	- s s s	- s s s	- s s s
Load on to Carrier Provide and Pay inland transport Insurance Cost Pay for freight	xo b b b	s s b b	s s b s	s s s s	s s s s	s s s s
Obtain export documents Deliver to port Unload at port Pay port dues	s b b b	s s s s	s s s s	s s s s	s s s s	s s s s
Give notice of name of vessel Give notice of sailing date Give notice of loading berth Give notice of required delivery time	b b b b	b b b b	s s s s	s s s s	s s s s	s s s s
Load on ship Pay loading charges Provide Bill of lading/airwaybill	b b b	xos s b	xos s s	s s s	s s s	s s s
Unload at port of import Pay unloading charges	b b	b b	b b	xob b	s s	s s
Pay Port Dues Pay custom duties and taxes Provide import documentation	b b b	b b b	b b b	b b b	xob b b	s s s
Pay Inland Transport Receive at inland port Unload from carrier	b b b	b b b	b b b	b b b	b b b	s s xob

(List of Inco Terms 2000)

PAYMENT TERMS
In the export/import trade,payment of the price is normally affected under a collection arrangement or a documentary credit.In both cases the seller draws a bill of exchange.But now a days it is more usual to employ either a bank draft (bankers cheque) or a bank transfers with SWIFT transmission by means of which deposits are transferred from one bank to another.Under the collection arrangement ,a bank at the buyers
place is instructed to present that bill to the buyer and on his acceptance or payment depending on the terms of contract of export sale to deliver the bill of lading and other shipping documents to him as the bill of lading will enable him to take delivery of the goods when the ship carrying the goods arrives.Whereas under a documentary credit ,finance is provided for the seller by a bank in his own country on delivery of the shipping documents to the banks.This is done either by the bank discounting or purchasing the sellers bill drawn on the buyer or by the seller drawing directly on the bank for payment.In the case of documentary drafts ,the draft drawn by seller on foreign buyer which can be either a sight or time draft.Drafts are usually accompanied by a full set of shipping documents.They are nothing more than a bill of exchange with various shipping documents e.g.bill of lading,insurance certificate.etc required in connection with that particular transaction which are surrendered to the buyer upon payment or acceptance as the case may be in order that he can obtain the shipment from the carrier and clear it through customs.While in the case of documentary credits that is letter of credits which are also known as reimbursement credit,they are classified operationaly as either an import or export credit depending on who the bank's customer is.It is a document issued on behalf of an overseas customer by a banker aggreing to pay the purchase price of an article provided it is supported to him in a way specified in the letter of credit.This method of payment requires the opening of a credit at a bank in the country of the seller.There are various and numerous
payment methods that have evolved over the years to accommadate the different payment method requirements of exporters/importers
involved in international trade.Collection arrangements and the documentary credits are governed by international regulations sponsored by the international chamber of commerce and applied by most banks in the world.Collection arrangements are governed by the "UNIFORM
RULES FOR THE COLLECTION OF COMMERCIAL PAPER" and being issued with the title "UNIFORM RULES FOR COLLECTION" as publication no 322
and "DOCUMENTARY CREDITS" by the "UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS" and published in the ICC publication no 400.Again the reader is strongly recommended to read the latest issues/publications of the mentioned ICC publications in order to have
an idea about the most suitable payment method suitable for his own particular needs currently used in the international trade.It is again
another misconception that the payment risks are greater in the foreign trade than the payment risks that exist in the home trade.The risks
for payments in foreign trade are almost non existance except for force majeure cases if the seller and the buyer correctly applies the rules and regulations issued in the above mentioned publications of ICC through the intermdiary of a sound commercial bank.The banks do things exactly according to the instructions of their clients within the framework of the above mentioned ICC rules and the terms and conditons of
the sale agreeement signed by the exporter and importer to an extend that if one of the parties to the contract,the exporter or the importer
does not fullfil their obligations exactly as per the written instructions and the conditions of the sales agreement the whole transaction comes to a halt until further instruction this in turn cause losses in the operation of the sale agrement that is either the seller can not get his payment or the buyer can not clear or take the delivery of goods.The reason of this is a simple one because the banks can only do/check thing
according to the things written on the documents and will not do anything that is not written/stated in the documents of the transaction.So it is utmost important that the exporter and the importer has to mention everything in their bank instructions they want and carry out the operation as per these instructions if they don't want to have a problem and risky export import transaction.

(List of Payment Methods)

A SAMPLE SALE/PURCHASE CONTRACT USED IN FOREGN TRADE
The sale/purchase contracts used in the foreign trade are different than the contracts used in the home trade and contain more terms and
conditions than the ones used in home trade A typical sale/purchase contract used in foreign trade should generaly include the following
term and conditions listed in the below table.


1)Subject/product 2)Quantity, packing,weight determ. 3)Quality;specs,sampling, testing,analysis,inspection	4)Carriage,loading/ discharging conditions 5)Price (as per inco terms) 6)Payment (as per uniform rules for collection)	7)Insurance 8)Performance; penalties,premiums 9)Force Majeure 10)Arbitration	11)Others -correspondance address -Banking charges, -Cancellation of contract

The above list by no means is a complete one nor every sale/purchase contract contains the same number and order of conditions mentioned here as above.Every sale/purchase contract has its own particular sets of terms and conditions which makes it different from one another.
But the fact remains the same for all sale contracts that it is the most important piece of document of the whole export/import transaction
which determines / governs all aspects of an export/import operation and as such the full attention has to be given in the preparation of all
the terms and conditions mentioned in the contract in order not to have any problems or disputes during its application and operation.Like the work of a computer you get what you put into your sale/purchase contracts.Since this a briefing it is not possible to mention every aspect and factors of foreign trade here.It is hoped that the reader finds the above information useful and helpful for the preparation of his likely future export/import businesses.


	Welcome to Foreign Trade Agency Services Tuncay Yurdal (mr) Independent Trade Agent