International Trade Terms & Customs Procedures: A Comprehensive Guide

Posted on Aug 23, 2024 in Economy

International Trade Terms & Customs Procedures

Incoterms (International Commercial Terms)

Delivery Terms:

EXW (Ex-Works):

Seller makes goods available at their premises (factory, warehouse, etc.). Buyer is responsible for all transportation and risks from that point.

FCA (Free Carrier):

Seller delivers goods to the carrier designated by the buyer at a named place. Risk transfers to the buyer upon delivery to the carrier.

FAS (Free Alongside Ship):

Seller delivers goods alongside the vessel at the named port of shipment. Buyer is responsible for loading and all costs and risks from that point.

FOB (Free On Board):

Seller delivers goods on board the vessel at the named port of shipment. Buyer is responsible for all costs and risks from that point.

CFR (Cost and Freight):

Seller delivers goods on board the vessel at the named port of shipment and pays for the cost and freight to the named port of destination. Buyer bears the risk of loss or damage from the time the goods pass the ship’s rail.

CIF (Cost, Insurance and Freight):

Seller delivers goods on board the vessel at the named port of shipment and pays for the cost, insurance, and freight to the named port of destination. Buyer bears the risk of loss or damage from the time the goods pass the ship’s rail.

CPT (Carriage Paid To):

Similar to CFR but used for transportation other than by sea. Seller pays for carriage to the named destination, but risk transfers to the buyer when the goods are handed over to the first carrier.

CIP (Carriage and Insurance Paid To):

Similar to CIF but used for transportation other than by sea. Seller pays for carriage and insurance to the named destination, but risk transfers to the buyer when the goods are handed over to the first carrier.

DAF (Delivered at Frontier):

Seller delivers goods, cleared for export, at the named point and place on the frontier. Buyer is responsible for all costs and risks from that point.

DES (Delivered Ex Ship):

Seller delivers goods on board the vessel at the named port of destination. Buyer is responsible for all costs and risks from that point.

DEQ (Delivered Ex Quay):

Seller delivers goods on the quay (wharf) at the named port of destination, cleared for import. Buyer is responsible for all costs and risks from that point.

DDU (Delivered Duty Unpaid):

Seller delivers goods to the buyer at the named place of destination, not cleared for import. Buyer is responsible for import duties, taxes, and customs formalities.

DDP (Delivered Duty Paid):

Seller delivers goods to the buyer at the named place of destination, cleared for import, and pays all import duties, taxes, and customs formalities.

Documentation:

Bill of Lading:
  • Bill of Lading (Sea)
  • Air Waybill (Air)
  • Coupon Code (Postal)
  • Consignment Note (Ground/Rail)
Other Documents:
  • Cargo Manifest
  • Certificate of Dangerous or Radioactive Goods
  • Certificate of Origin

Payment Methods:

Bank Collection:

Documents are accompanied by a bill of exchange, check, or promissory note, and are released to the buyer upon payment or acceptance.

Direct Collection:

No bank intervention; direct relationship between the supplier and the importer.

Letter of Credit (L/C):

A payment instrument where the issuing bank guarantees payment to the seller upon presentation of compliant documents.

Types of Letters of Credit:
  • Revocable L/C: Can be modified or canceled by the issuing bank without notice.
  • Irrevocable L/C: Can only be modified or revoked with the consent of all parties.
  • Confirmed L/C: Advising bank adds its guarantee of payment.
  • L/C at Sight: Payment made upon presentation of documents.
  • L/C at Term (Supplier): Payment made at a predetermined future date.
  • Transferable L/C: Beneficiary can transfer the credit to a third party.
  • Non-Transferable L/C: Only the beneficiary can receive payment.

Advance Payment:

Buyer pays for the goods before shipment.

Customs Procedures:

Key Terms:

  • Customs: Public service that controls the flow of goods across borders.
  • Customs Tariff: Schedule of duties and taxes applied to imported and exported goods.
  • Declaration: Document submitted to customs declaring the goods and their intended customs procedure.
  • Customs Destination: The intended customs procedure for the goods (e.g., import, export, transit).
  • Import: Legal entry of foreign goods for use or consumption in the country.
  • Export: Legal exit of national or nationalized goods for use or consumption abroad.
  • Cargo Manifest: Document listing all cargo on board a vessel or vehicle.
  • Customs Value: The transaction value of the goods, used to calculate customs duties and taxes.
  • Free Zone: Designated area with special customs regulations, often offering tax benefits.
  • Primary Zone: Area where goods are loaded, unloaded, and inspected for customs purposes.
  • Customs Zone: Territory under the jurisdiction of a specific customs office.

Customs Charges:

  • Ad-Valorem Duty: Duty calculated as a percentage of the customs value.
  • Specific Duty: Duty calculated based on a unit of measure (e.g., per kilogram, per liter).
  • VAT (Value Added Tax): Tax applied to the value of goods and services.
  • Additional Taxes: May include luxury taxes or other special levies.