Exporting and Importing

The Essentials

Exporting

Deciding to Export Is the product exportable?

o Legally exportable according to the Export Administration Regulations (EAR)• http://www.bis.doc.gov/licensing/exportingbasics.htm

o Easily imported into the targeted foreign market• Taxes (duties) or administrative expenses

o Exempted from market-related restrictions• Unit size, nature of the product, modification costs

o Possesses unique qualities• Competitive edge in new market (low cost vs differentiation)

o Satisfies demand• AND can meet demand both in the domestic and

international marketo No existing prejudice against country of origin

• US

Market Entry Options

Three basic modes of entry for exporting1. Stocking Distributors

• Majority of export sales are done through distributors• Responsible for all aspects of marketing and distribution in the

country importing the product• Purchase in stocking quantities and ship to customers from

warehouse• http://www.dcbattery.com/

2. Piggybacking• Seeking out and tying in with other non-competitive,

complimentary product line exporters in your industry• Learn from others – specifics of overseas distribution• Establish relationships

3. Export Management Companies (EMCs)• Work on salary or retainer plus commission – solicits business• Export Trading Companies (ETC) take title to goods and does

the actual exporting

Follow Through with an Export Order

You go to an expo and a prospect (Mr. X) later contacts you with an order inquiry and request for a quoteo You – pro forma invoice = describe merchandise specifics,

packaging, unit price, and payment terms. Mr. X – responds with a purchase order, including

payment confirmation.o Mr. X arranges financing through banko You begin production

Follow Through with an Export Order

Mr. X (the importer) has bank verify company’s credit worthiness, prepare necessary documents, and informs you (through your bank) that all financial requirements have been satisfied.o You prepare goods for export and contact a freight forwarder to

pick up shipment When the shipper receives goods – you are given a Bill

of Lading (B/L) or air way-bill) = contains full description of shipment contents.o You prepare required documents (insurance policy, consular

invoice, permits, etc) – these go to your bank who notifies Mr. X’s bank

Mr. X’s bank then sends payment to your banko Meanwhile the goods are en route and Mr. X receives the

transaction documents from your bank to claim goods on entry.

Export Administration Regulations

BIS = Bureau of Industry and Securityo Primary agency for implementing and enforcing EARso EEA (Export Enforcement Arm of the BIS) protects

• National Security• Foreign Policy• Economic Interests

o Concerned with exporters, freight forwarders, carriers, consignees, and other involved parties

o Intercepts illegal exports, investigates violations, and prosecutes violators of export control laws• BIS will negotiate settlements• VSDs – voluntary self-disclosure = violator admits to wrong

doing

Export Control Reasons1. National Security

o Strategic commodities or technology

2. Foreign Policyo May be commodity oriented or country specific

3. Short Supplyo To protect domestic economy from the excessive drain

of scarce resources and reduce inflationary impact of foreign demand (petroleum products)

Anti-Terrorism (AT), Missile Technologies (MT), Nuclear Proliferation (NP), Chemical and Biological Weapons (CB), Crime Control (CC), Regional Stability (RS), Computers (XP), UN Controls (UN)

EAR and Dual-Use Items

Agencies in the EAR – http://www.bis.doc.gov/licensing/index.htm#factsheets

Dual-Use Itemso Regulated by BISo Commercial application but ALSO potential military or

proliferation use (www.gpo.gov/bis/) • Weapons of extreme violence, conventional arms, or end-

use violations by terrorists

Regulations are complexo Freight forwarders used as resource

Foreign End-User Foreign end-user of US high tech products

o VEU = Validated End User – legitimate exports to civilian end-user

o Allows for export of eligible items to specified end-users in eligible locations without a license.• www.bis.doc.gov/finalchina.html - China VEU explanation

Competition and Transparency

Keys to US recovery and securityo Economic Competitivenesso Innovation

Exporters need:o Sufficient information to support security and

competitiveness goalso Transparency fosters awarenesso Communication and participation with reforms

Anti-boycott provisionso allow businesses to refuse participation in foreign boycottso must report boycott-related requests

Export Licensing Any item sent from the US to a

foreign destination is an export! Transfer (even if temporary) and Transaction (does not matter how it gets

there)

Small percentage of total US exports require an export license from the BIS Depends on technical characteristics,

destination, end-user and end-use

What are you Exporting?

ECCN = Export Control Classification Numbero Alpha-numeric code identifying the level of export

controlo Listed in the Commerce Control List (CCL) o Commerce Country Charter (CCC) contains licensing

requirements based on destination and Reasons for Controls

o http://www.bis.doc.gov/licensing/exportingbasics.htm

Classifying is essential – you may submit a request to BISo Determine which of the 10 categories of the CCL your

included ino Then the five specific product groups your exports apply

Classification

Commerce Control List Categories 0 = Nuclear materials, facilities and equipment (and miscellaneous items)1 = Materials, Chemicals, Microorganisms and Toxins2 = Materials Processing3 = Electronics4 = Computers5 = Telecommunications and Information Security6 = Sensors and Lasers7 = Navigation and Avionics8 = Marine9 = Propulsion Systems, Space Vehicles, and Related Equipment

Five Product GroupsA. Systems, Equipment and ComponentsB. Test, Inspection and Production EquipmentC. MaterialD. SoftwareE. Technology

Where are your Exports Going?

OFAC = Office of Foreign Assets Control o in Treasury Departmento Administers and enforces economic and trade sanctionso Acts under presidential wartime and national emergency

powers or under authority granted by specific legislation

Embargoed countries have most restrictionso Cuba, Iran, Sudan, Taliban controlled Afghanistan, Syria

If sanctions are international – require cooperation with allied governments

Where are your Exports Going?

Trade sanctions o could be revocation of preferential treatment such as

Most Favored Nation (MFN) status or barriers against a country not abiding by agreed international rules of trade.

Economic sanctions are disciplinary in nature and meant to isolate the target. o Economic sanctions may include trade embargoes or

boycotts, freezing of assets, bans on cash transfers, bans on technology transfer and restrictions on travel.

o Embargo – disposition of the state (between countries)o Boycott – private non-state initiative

Control Needed Once you have classified the item, the next step

is to determine whether you need an export license based on the “reasons for control” and the country of ultimate destination. o Compare the ECCN with the Commerce Country Chart

(Supplement No. 1 to Part 738). o “Reason for Control” (e.g., NS for National Security, AT

for Anti-Terrorism, CC for Crime Control, etc.). Below this, you will find the “Country Chart” designator which shows the specific export control code(s) for your item (e.g., NS Column 2, AT Column 1, CC Column 1, etc.). These control codes for your ECCN must be cross-referenced against the Commerce Country Chart.

Control Needed Question: You have polygraph equipment

classified as 3A981 for export to Honduras. Would you be required to obtain an export license from the Department of Commerce before selling and shipping it to your purchaser?

Answer: Yes. 3A981 is controlled for Crime Control (CC) reasons under CC Column 1 and the Country Chart shows that such items require a license for Honduras.

Cross-Referencing the ECCN with the CCC

Cross-referencing the ECCN with the Commerce Country Chart o identifies the “reasons for control” aka reasons for export

license

Table 5.3

The Receiver Violators

o Entity List – risk of diverting exportso Designated Nationals & Blocked Persons

List o Denied Persons List –

www.bis.doc.gov/dpl/thedeniallist.asp o Debarred Listo Unverified List –

www.bis.doc.gov/enforcement/unverifiedlist/unverified_parties.html

Export Authorization Majority of US commercial exports do not require a license

Three types of export authorization1. No License Required (NLR)2. License – export license # and expiration3. License Exception

Export application – through BISo http://www.bis.doc.gov/snap/index.html

Export assistance – NTIS EAR Marketplaceo https://bxa.ntis.gov/ o http://www.ntis.gov/products/export-regs.aspx

Export Documents SED or Form 7525-V = Shipper’s Export Declaration

o Gov’t required for every export item over $2,500o Electronically filed using AESDirect

• http://www.aesdirect.gov/ Automated Export System

Commercial Invoiceo Bill for the goods from the seller to the buyer

Certificate of Origino Required by some countrieso Special trade agreements (NAFTA Certificate of Origin)

CE Mark Requirementso EU – Conformite Europeenne

Exporter’s Bill of Ladingo Contract between the owner of the goods and the carrier

1. Straight Bill of Lading – no negotiating2. Negotiable or shipper’s order bill of lading

Export Documents Continued…

Insurance Certificate = assure the buyer Export Packing List = detailed itemization Import License = not always required but responsibility of the

importer Consular Invoice = describes shipment and transaction

o In language of importing country Inspection Certificate = guarantee that goods shipped are the

same as those ordered Dock Receipt and Warehouse Receipt = transfers accountability Destination Control Statement = item can be exported only to

certain destinations Export License = US gov’t document required for

o “Dual Use” exports (commercial items with military applications)o Exports to embargoed countries

Exporting Steps1. Verify export under US Dept of Commerce

(USDOC)2. Classify item CCL and ECCN

• Export Control Classification Number• Listed in the Commerce Control List (CCL)

3. Cross-reference the ECCN against the CCC to see if license is required

• Commerce Country Charter (CCC)

4. Check legality and end-user/uses issues5. EXPORT!

o With ECCN on export documentation (Shipper’s Export Declaration)

Importing

Why Import Number 1 reason = consumer demand and to

make a profit

http://www.cnn.com/video/#/video/international/2011/05/23/mpa.africa.imports.china.bk.a.cnn?iref=videosearch

How is ChinaHurting AfricaHelping Africa

Importing US = largest importing nation in the world

o We want stuff and can pay for stuff

Risks to Importingo Languageo Lawso Forms of protectiono Lead time = time between ordering goods and

receiving shipment• Import controls may impact entry• 70,000 shipments every day• 80% of shipments by infrequent importers

• Container Security Initiative (CSI) – threat of terrorist use of shipments

Reasons for Importing Consumer demand (the market) Offer a unique assortment of

goods/services Price

IMPORT TRADERS – those who import goods for resale

MANUFACTURERS – those who import goods for productiono Components needed

Cost and Delivery First Price = the manufacturer’s

selling price in the factory show roomo Landed Cost = includes all

shipping, entry costs, and duty charges to the port of foreign entry.• Delivered-into-store cost• Delivery and insurance• Overhead expenses• Profit margin• Resale Price

SWOT Analysis for Importing

Analyze domestic and international competitors Is importing a must?

o Is the good you’re seeking already being imported? From where?

o Domestic suppliers can be found in trade association directories, manufacturers’ indexes, or industry journals.• Trade Publications and Shows

If there is a domestic supplier, why import???

Competitive SWOT vs. Environmental SWOTo EXAMPLES???

American Fashion Imports

1. Explain why fashion is a global industry.2. What is fashion week all about?3. How does technology serve the fashion

industry?4. What does the article mean by “new

seasons”?o Opportunity or Concern?

What is the biggest concern for the fashion industry? o (this was not explicitly stated in the case study)

Locating Foreign Suppliers

Identify a country or group of countries where the product is available.o Assistance through gov’t agencies, trade commissions,

chambers of commerce, exhibitions, journals, INTERNET• National Trade and Professional Trade Association Directory,

by Columbia Books

Most foreign manufacturers are eager to export to the USo Why???

Why are relationships important? How do trade shows help?o Meet, Greet, and Compete!o Why do trade shows get overlooked?

Import Penetration The US market became attractive for

manufacturers in Japan, South Korea, Taiwan, and Hong Kong

Protectionism occurred o Tariffs, quotas, and anti-dumpingo Currency revaluation – gov’t changes the

value of country’s currency relative to other currencies, increasing costs of imports

Yet, Americans kept importing

E-Commerce and Manufacturing

Speeds up transactions, increased world tradeo What are e-tailers?

Global sourcing – the process of purchasing imported goods from markets around the world

Sourcing options1. Buy ready2. Buy components3. Off-shore production???• Where is the most attractive location today?

80% of this country’s assembly factories are foreign owned!

Importing by Manufacturers

What has contributed to global sourcing? What are the benefits and what are the

dangers?o Developing countries have almost doubled their share of

world clothing exports since the early 1970s to account for more than half of all exports today.

What has led to the restructuring of the apparel industry?1. Competition2. Mass marketing stores3. Discount retailers4. Consumer attitudes

Apparel Manufacturing Reduce cycle time

o For designo Manufacturingo Delivery

Quick Response = replenishment systems that allow retailers to…o Trim their inventoryo Respond more quickly to changes in preferenceso Restock almost instantlyo Offer wider choices

In the current economic climate – what is the main concern facing the apparel industry?

Production Domestic Production – Foreign Materials

o Produced in the US with foreign raw material components

Foreign Production – Foreign Materialso Produced overseaso Specification Buying: the domestic

company has designed the product and the foreign manufacturer creates it.

Production Foreign Production – Domestic Materials

o Going off-shore… why?o Tariff applied on the value-added portion

Manufacturer-owned Foreign Productiono Low-cost suppliers to supplement US

productiono Contract out assembly operations to

overseas contractorso Shift production• Outsourcing – delegation of non-core

operations from internal production to an external entity specializing in the mgmt of that operation.

Import Debate - Drugs Two Concerns

o Quality and Safetyo “Made (Deadly) in China”

20% generic & over-the-counter drugs, and more than 40% of active ingredients for drugs made in the US, come from India & China.o In 15 years, 80% of key ingredients for drugs will come

from India and China

Import Debate - Food The US FDA inspects less than 1% of

all foods and food ingredients entering the US and tests only .5%

Customs inspections have been decreased for two reasons:1. Food imports have grown dramatically2. Food oversight activities have been reduced due

to lack of funds

China has increased overall its food sales to the US by over 20% in one year

Import DebateProtectionism vs Free Trade

Isolationism – limiting international tradeo Import restrictions to create “level playing field”o Protect domestic manufacturers of unfair competition

Fair Trade – forms of international trade that provide for human rights including o fair wages, safe conditions, environmental protection

Free Trade – voluntary exchange meets the demands of justiceo Exchange augments wealth

Import Planning1. Evaluate Market Demand2. Locate Foreign Suppliers3. Review Import Regulations – HTSUS number4. Pricing Your Imports – freight & insurance5. Comply with US Customs Policies and Procedures

o Customs Automated Commercial System (ACS)o Automated Broker Interface (ABI)

6. Learn Basic Vocabulary – terms o Incoterms – created by the International Chamber of

Commerce (ICC), are rules used for the interpretation of the import-export terms.• What is included or not included in selling price and

responsibility aka “transfer of title”