International Trade: Essential Documents, Incoterms, and Export Considerations
International Trade Documents and Procedures
Essential Shipping Documents
- Bill of Lading (Negotiable or Straight): Carrier’s obligation to transport goods and transfer ownership.
- Airway Bill: Used for air freight shipments.
- Preshipment Inspection Certificate: Ensures the quality and quantity of goods.
- Consular Invoice: Certifies a shipment and provides information about it (required in some countries).
- Certificate of Value: Used to avoid “double invoicing” in customs duties (sometimes certified by the Chamber of Commerce).
- Certificate of Origin: Certifies the origin of goods for customs purposes.
- Customs Declaration: Used to declare goods and pay import duties (required to obtain goods).
Harmonized System (HS) and Taric
The Harmonized System (HS) is an international product nomenclature developed by the World Customs Organization (WCO). It serves as the basis for many countries’ customs tariffs and the collection of international trade statistics. The HS comprises about 5,000 commodity groups, each with its own coding, contributing to the harmonization of customs and trade procedures.
TARIQ is the Integrated Tariff of the European Community, comprising all customs duty rates and Community rules applicable to the Community’s external trade. It is managed by the Commission and based on the Combined Nomenclature, including additional Community subdivisions called “Taric subheadings” used to describe goods and their code numbers, customs duty rates depending on origin, and other trade policy measures. TARIQ also provides a means of collecting data on Community external trade statistics.
Single Administrative Document
The Single Administrative Document is the documentary basis for customs declarations in the EU. It aims to ensure openness in national administrative requirements, reduce administrative documentation, and standardize and harmonize data. It covers trade with EFTA countries and the movement of non-EU goods within the EU, encompassing the placement of any goods under any customs procedure, regardless of the mode of transport used. It does not prejudice the development of computerized procedures.
Incoterms and Payment Methods in International Trade
“C” Incoterms
“C” Incoterms, including CIF (Cost, Insurance, and Freight), CFR (Cost and Freight), CPT (Carriage Paid To), and CIP (Carriage and Insurance Paid To), require the seller to arrange and pay for transportation to a specified destination. The risk transfers to the buyer once the goods are loaded onto the carrier.
Benefits for Sellers:
- Control over the transportation process
- Ensured timely delivery
- Potential reduction in shipping costs through bulk rates
- Simplified logistics
- More attractive offers, especially to buyers unfamiliar with international transport and insurance
Benefits for Buyers:
- Reduced procurement complexity
- No need to arrange transport or insurance to the destination
- Benefit from the seller’s expertise, potentially securing better shipping and insurance terms
Documentary Credit (D/C)
From an exporter’s perspective:
- D/C at sight: Payment is received immediately upon presenting the required documents.
- D/C accepted: Payment is deferred until a specified future date, exposing the exporter to potential credit risk.
From an importer’s perspective:
- D/C accepted: More beneficial as it allows the importer to defer payment, providing additional time to sell the goods and generate revenue before paying the exporter, improving cash flow management, and reducing the immediate financial burden.
Key Export Considerations for Businesses
Five important issues a company needs to consider regarding its product when exporting:
- Domestic Market Share: The product’s current market share domestically influences potential export demand and competitive positioning abroad.
- Local Price Competitiveness: Directly impacts international pricing strategies and market penetration.
- Payment Terms: Significantly affect cash flow management and risk mitigation in international trade.
- Transport Costs: Costs over long distances influence pricing decisions and logistics planning for exports.
- Product Durability: Durability in harsh conditions affects packaging requirements and customer satisfaction in foreign markets.
