Freight Forwarders: (Agente Transitario) The International Bank IMPORTER-EXPORTER FREIGHT FORWARDER IT- 2: PARTIES INVOLVED IN INTERNATIONAL TRADE.

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1 IT- 2: PARTIES INVOLVED IN INTERNATIONAL TRADE. SALES CONTRACTS. CUSTOMS PROCEDURES. DOCS. IMPORTER-EXPORTER FREIGHT FORWARDER PARTIES INVOLVED IN INTERNATIONAL TRADE CUSTOMS BROKER INTERNATIONAL BANKER INTERNATIONAL CHAMBERS OF COMMERCE CONSULATES AND OTHER INSTITUTIONS INTERNATIONAL TRADE EXPERTS. Freight Forwarders: (Agente Transitario) An international freight forwarder is like a travel agent who deals with freight rather than passengers and is only involved in international dealings. Every exporter has at one time or another used the services of a freight forwarder. A good international freight forwarder can save you time and money through its contacts and experience. While it is always good practice to keep track of your own export transactions and recheck the process, your freight forwarder can act as your agent to move your cargo from origin to destination. Many smaller sized export companies, in fact, consider the freight forwarder the external shipping department to the company, essentially their travel agent for all export products. The forwarder can act as adviser, strategist, even freight carrier and can arrange for payment on goods. Who you choose as your freight forwarder, therefore, is an important decision to make, one that can effect the profit margin of your foreign sales. The International Bank When getting into international trade you have to know what services you need, whom to contact for those services, and how best to use them for your business. 1

2 A visit to the bank to explain your plans on imports and exports should be done. You also must ask them to explain you the international services they have available and what their fees are. They should be able to give you a printed list of charges for everything from letters of credit to international money orders. If you plan to work with business people in a specific foreign country, ask your international banker if the bank has a branch in that country, that could ease the relationship between you and your customer or supplier transferring the money as efficiently as possible. The Customs Broker (Agente Aduanero) If you will be importing, the person you will work with on a regular basis is the Customs Broker. That person has a responsibility to both the importer and the government that the correct amount of duty is deposited with the Customs Service. Their responsibilities involve knowledge, honesty, and a strict, meticulous attitude to paperwork. CONTRACTS IN INTERNATIONAL TRADE. The most frequent contracts refer to the sale and purchase of goods, therefore, this chapter will concentrate on the steps to follow in a good international operation. Every contract must consider at least the following aspects: *Detailed information about seller and buyer, items, price, quantity, method of payment, place and date of issuing and signature and availability date. *Requirements on delivery of goods, place and date. *Payment requirements including currency. *Regulations in case of incidences. The PRO-FORMA INVOICE, a normal invoice document visibly marked Pro- Forma, is the method most often used to initiate negotiations. It is a quotation, subject to the importer s (buyer s) approval. Sellers are often requested to submit a Pro-Forma invoice with or instead of a quotation. Pro-Forma invoices are not for payment purposes but are essentially quotations in an invoice form. It is in your best interest to clarify all terms of shipping and payment between you and your buyer before presenting your Pro-Forma invoice as it is your final opportunity to communicate inexpensively before letters of credit are issued. When considering the type and structure of the quotation or Pro-Forma exporters should bear in mind: *The competitive and sophisticated markets such as USA and Germany that need precise and comprehensive quotations. *The background of exporter s business such as stability of raw material prices and predictability of freight rates. *The duration of the contract because it is difficult to quote firm prices if there is a large period of time contract. *The type of the market considering its economical and political stability. 2

3 The Pro-Forma invoice and an appropriate cover letter are probably the most important documents an exporter prepares. THE EXPORT PRICE LIST shows EXW prices for various products. From that the importer can determine the actual costs of goods. Definite dates during which your list is effective should be remarked. THE COMMERCIAL INVOICE is a document of fundamental importance because fulfils the following functions: *Supplier s bill for goods and services. *Detailed list showing unit prices, totals, weights and other specifications (packing and delivery charges). *Check list for the customer and permits to identify the consignment. *Key document when used as evidence of value (insurance claim). The commercial invoice is a bill that conforms in all respects to the agreement between importer and exporter. It could have the exact terms of the pro-forma invoice first offered in response to a quotation or it could differ in those terms that were the result of final negotiations. In any case, there should be no surprises for the importer. The commercial invoice does not have to be in a specific format. It needs to have the pricing as the packing list needs to show how the goods are packed, but you can use your letterhead, or a plain piece of paper. CUSTOMS PROCEDURES AND DOCUMENTS CUSTOMS BROKERS Like the freight forwarder for exporting, the Customs Broker is licensed to assist importers in the movement of their goods. Some brokers are sole proprietors with a single office at one port of entry, while others are large corporations with branches in many ports throughout the countries. The importer employs the Customs Broker as his/her agent. Most experienced importers will recommend the services of a broker because of the extras they offer including the comfort of knowing that a professional is supporting your project. A broker provides advice on the technical requirements of importing, preparing and filing entry documents, obtaining the necessary bonds, depositing import duties, securing release of the product, arranging delivery to the importer s premises or warehouse, and obtaining drawback refunds. The broker often consults with Customs to determine the proper rate of duty. Another reason to use a broker is that your time will become more valuable to you in managing your company and marketing your product that it might be in handling the paperwork of an entry. 3

4 THE WORK OF THE CUSTOMS In nearly every country the Customs collect import (and sometimes export) duties, issue export and import licences and collect import and export statistics. THE PROCESS AT CUSTOMS ENTRY. When a shipment of goods arrives at a port of entry the agent or owner must decide whether to enter the goods for consumption or place them into a bonded warehouse or free trade zone. Customs Officers assist agents and check the entry documents and verify evidence of a bond. Free trade zones. Under legislation of nations where they are located are considered outside the customs territory of that country. The concept dates back to Egyptian times. Goods entering the zone pay no tariff or other taxes under a guarantee (bond) that they will not be entered into the domestic market. Should they enter the domestic market, all duties must be routinely paid. While in these free zones, goods can be altered, assembled, manufactured, and manipulated. Customs bonded warehouses. It is a building or other secured area within customs territory where dutiable foreign merchandise can be placed for a period up to five years without payment of duty. Only cleaning, repacking, and sorting is allowed. There are different types of bonded warehouses depending on the size and variety of the merchandise. VALUATION. It determines the value of the goods for purposes of applying any tariffs or duties. Customs use information from the invoices to assess duty, they usually examine the goods to determine their value and suitability for entering. VALIDATION. It consists of checking the classification of the goods to ensure correct valuation. The Harmonized Tariff System is an international, multipurpose classification system designed to improve the collection of import and export statistics, as well as for Customs purposes. Intended to serve as a core for national systems, it promotes a high degree of international uniformity in the presentation of Customs tariffs and foreign trade statistics. It is a complete product classification system, organized in a framework that employs a numbering system. To assist the user, a section in the front of the book gives instructions. AUTHORIZE ENTRY. After the classification and valuation, as well as other required import information have been reviewed for correctness, proper appraisement, and agreement of the submitted data, the merchandise may be authorized for actual import. LIQUIDATION. If the goods are accepted without changes, they are liquidated as entered. 4

5 RELEVANT TERMINOLOGY: BONDS All importers must post a surety bond with the Customs Service to ensure payment of the proper amounts of duties, taxes, and other charges associated with entry. Bonds can be for single entry or continuous. Based on the value of the shipment, the Customs Service determines the value of the required bond. DRAWBACK Drawback is the refunding of duties paid on imported goods and their derivatives if they are subsequently exported. Using duty drawback an importer registers the goods at the time of entry, and deposits the applicable duties and taxes with foreign customs. In Europe, duties and taxes range from 20-30% of the value of the goods and often this deposit and payment has to be made in cash in the currency of the country being entered. At the time of departure, the exporter presents the goods and appropriate paperwork to the customs inspector. Assuming that everything is in order, exporters can expect to receive a full refund of the duties and taxes posted at some future point. PREFERENCES In duty terminology means that you pay a lower rate of import customs duty or none at all on the goods you import. In some cases there are restrictions on the quantity of certain goods that can be imported under preference. These are known as Ceilings or Tariff Quotas. In the European Union the document Form EUR 1 is prepared by exporters stating that the goods meet the rules of origin. IMPORT QUOTAS The importation of certain products is controlled by quantity. Quotas for this control are established by specific legislation, usually to protect infant industries or established industries under marketing pressure from foreign countries. DOCUMENTS FOR CUSTOMS PURPOSES Many countries require a license to import. Certain classes of merchandise might be prohibited or restricted by countries to protect the economy and the security of the country, to safeguard health, or to preserve domestic plant and animal life. Licenses are also used when exporting cultural and historical objects, antiques, and those with military or strategic character. Commercial invoices are needed by Customs to assess the duty. If Officials want to be sure that the details on the commercial invoice are correct 5

6 require a special document signed by the consul. That document must conform in every respect to the invoice and is called Consular Invoice. Certificates of Origin are documents that certify to the buyer the country in which the goods were produced. A recognized Chamber of Commerce usually performs the certificate of the origin of merchandise. When preparing a certificate, make sure that the letter or form originates from the address of the product manufacturer and that a responsible person within the manufacturing company signs the letter. It will not be accepted if it is from an outside sales office or distributor. Its main purpose is to make it harder for importers to falsify the country of origin in order to pay lower duties, avoid quotas or bring merchandise from prohibited countries. Customs Entry Forms are filled by importers giving details of the goods and where they are coming from. Phytosanitary Inspection Certificate is required on shipments of produce, plants and plant materials. Certifies the goods have passed inspection, conforming to any foreign quarantine import regulations. Sanitary Certificates are required when dealing with animals and related products. Single Administrative Document (SAD) is the document in general use between the EU countries and countries outside the European Union. It is usually not required for cross-border trade for countries in the EU unless the goods originate from outside the area. The SAD documents consist of a set of eight forms. The first three copies of the eight-form set are for use in export, numbers 4 and 5 for transit purposes and copies 6-8 for import usage. Variations in the number of copies used do occur as not all will be used by exporters in every transaction. Some of the information may not be included with the documents travelling with the goods for commercial reasons and has to be provided separately by the importer. In practice, many importers prepare import declarations before the goods arrive in order to minimise delays. This is increasingly happening as importers input data electronically to the customs at those locations where they are computerised. 6