Exporting and Importing

Exporting and ImportingThe EssentialsExportingDeciding to ExportIs the product exportable?Legally exportable according to the Export Administration Regulations (EAR)http://www.bis.doc.gov/licensing/exportingbasics.htm Easily imported into the targeted foreign marketTaxes (duties) or administrative expensesExempted from market-related restrictionsUnit size, nature of the product, modification costsPossesses unique qualitiesCompetitive edge in new market (low cost vs differentiation)Satisfies demandAND can meet demand both in the domestic and international marketNo existing prejudice against country of originUSMarket Entry OptionsThree basic modes of entry for exportingStocking DistributorsMajority of export sales are done through distributorsResponsible for all aspects of marketing and distribution in the country importing the productPurchase in stocking quantities and ship to customers from warehousehttp://www.dcbattery.com/ PiggybackingSeeking out and tying in with other non-competitive, complimentary product line exporters in your industryLearn from others specifics of overseas distributionEstablish relationshipsExport Management Companies (EMCs)Work on salary or retainer plus commission solicits businessExport Trading Companies (ETC) take title to goods and does the actual exporting

Follow Through with an Export OrderYou go to an expo and a prospect (Mr. X) later contacts you with an order inquiry and request for a quoteYou pro forma invoice = describe merchandise specifics, packaging, unit price, and payment terms.Mr. X responds with a purchase order, including payment confirmation.Mr. X arranges financing through bankYou begin production

Follow Through with an Export OrderMr. X (the importer) has bank verify companys credit worthiness, prepare necessary documents, and informs you (through your bank) that all financial requirements have been satisfied.You prepare goods for export and contact a freight forwarder to pick up shipmentWhen the shipper receives goods you are given a Bill of Lading (B/L) or air way-bill) = contains full description of shipment contents.You prepare required documents (insurance policy, consular invoice, permits, etc) these go to your bank who notifies Mr. Xs bankMr. Xs bank then sends payment to your bankMeanwhile the goods are en route and Mr. X receives the transaction documents from your bank to claim goods on entry.

Export Administration RegulationsBIS = Bureau of Industry and SecurityPrimary agency for implementing and enforcing EARsEEA (Export Enforcement Arm of the BIS) protectsNational SecurityForeign PolicyEconomic InterestsConcerned with exporters, freight forwarders, carriers, consignees, and other involved parties

Intercepts illegal exports, investigates violations, and prosecutes violators of export control lawsBIS will negotiate settlementsVSDs voluntary self-disclosure = violator admits to wrong doingExport Control ReasonsNational SecurityStrategic commodities or technologyForeign PolicyMay be commodity oriented or country specificShort SupplyTo 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 ItemsAgencies in the EAR http://www.bis.doc.gov/licensing/index.htm#factsheets

Dual-Use ItemsRegulated by BISCommercial 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 complexFreight forwarders used as resourceForeign End-UserForeign end-user of US high tech productsVEU = Validated End User legitimate exports to civilian end-userAllows 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 TransparencyKeys to US recovery and securityEconomic CompetitivenessInnovation

Exporters need:Sufficient information to support security and competitiveness goalsTransparency fosters awarenessCommunication and participation with reforms

Anti-boycott provisionsallow businesses to refuse participation in foreign boycottsmust report boycott-related requestsExport LicensingAny 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 BISDepends on technical characteristics, destination, end-user and end-use

What are you Exporting?ECCN = Export Control Classification NumberAlpha-numeric code identifying the level of export controlListed in the Commerce Control List (CCL) Commerce Country Charter (CCC) contains licensing requirements based on destination and Reasons for Controlshttp://www.bis.doc.gov/licensing/exportingbasics.htm

Classifying is essential you may submit a request to BISDetermine which of the 10 categories of the CCL your included inThen the five specific product groups your exports applyClassificationCommerce 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 EquipmentFive 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 in Treasury DepartmentAdministers and enforces economic and trade sanctionsActs under presidential wartime and national emergency powers or under authority granted by specific legislation

Embargoed countries have most restrictionsCuba, Iran, Sudan, Taliban controlled Afghanistan, Syria

If sanctions are international require cooperation with allied governments

Where are your Exports Going?Trade sanctions 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. Economic sanctions may include trade embargoes or boycotts, freezing of assets, bans on cash transfers, bans on technology transfer and restrictions on travel.

Embargo disposition of the state (between countries)Boycott private non-state initiative Control NeededOnce 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. Compare the ECCN with the Commerce Country Chart (Supplement No. 1 to Part 738). 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 CCCCross-referencing the ECCN with the Commerce Country Chart identifies the reasons for control aka reasons for export license

Table 5.3

The ReceiverViolatorsEntity List risk of diverting exportsDesignated Nationals & Blocked Persons List Denied Persons List www.bis.doc.gov/dpl/thedeniallist.asp Debarred ListUnverified List www.bis.doc.gov/enforcement/unverifiedlist/unverified_parties.html Export AuthorizationMajority of US commercial exports do not require a license

Three types of export authorizationNo License Required (NLR)License export license # and expirationLicense Exception

Export application through BIShttp://www.bis.doc.gov/snap/index.html

Export assistance NTIS EAR Marketplacehttps://bxa.ntis.gov/ http://www.ntis.gov/products/export-regs.aspx Export DocumentsSED or Form 7525-V = Shippers Export DeclarationGovt required for every export item over $2,500Electronically filed using AESDirecthttp://www.aesdirect.gov/ Automated Export SystemCommercial InvoiceBill for the goods from the seller to the buyerCertificate of OriginRequired by some countriesSpecial trade agreements (NAFTA Certificate of Origin)CE Mark RequirementsEU Conformite EuropeenneExporters Bill of LadingContract between the owner of the goods and the carrierStraight Bill of Lading no negotiatingNegotiable or shippers order bill of ladingExport Documents ContinuedInsurance Certificate = assure the buyerExport Packing List = detailed itemizationImport License = not always required but responsibility of the importerConsular Invoice = describes shipment and transactionIn language of importing countryInspection Certificate = guarantee that goods shipped are the same as those orderedDock Receipt and Warehouse Receipt = transfers accountability Destination Control Statement = item can be exported only to certain destinationsExport License = US govt document required for Dual Use exports (commercial items with military applications)Exports to embargoed countries

Exporting StepsVerify export under US Dept of Commerce (USDOC)Classify item CCL and ECCN Export Control Classification NumberListed in the Commerce Control List (CCL) Cross-reference the ECCN against the CCC to see if license is requiredCommerce Country Charter (CCC)Check legality and end-user/uses issuesEXPORT!With ECCN on export documentation (Shippers Export Declaration)ImportingWhy ImportNumber 1 reason = consumer demand and to make a profithttp://www.cnn.com/video/#/video/international/2011/05/23/mpa.africa.imports.china.bk.a.cnn?iref=videosearch How is ChinaHurting AfricaHelping AfricaImportingUS = largest importing nation in the worldWe want stuff and can pay for stuff

Risks to ImportingLanguageLawsForms of protectionLead time = time between ordering goods and receiving shipmentImport controls may impact entry70,000 shipments every day80% of shipments by infrequent importersContainer Security Initiative (CSI) threat of terrorist use of shipmentsReasons for ImportingConsumer demand (the market)Offer a unique assortment of goods/servicesPrice

IMPORT TRADERS those who import goods for resaleMANUFACTURERS those who import goods for productionComponents neededCost and DeliveryFirst Price = the manufacturers selling price in the factory show roomLanded Cost = includes all shipping, entry costs, and duty charges to the port of foreign entry.Delivered-into-store costDelivery and insuranceOverhead expensesProfit marginResale Price

SWOT Analysis for ImportingAnalyze domestic and international competitorsIs importing a must?Is the good youre seeking already being imported? From where?Domestic suppliers can be found in trade association directories, manufacturers indexes, or industry journals.Trade Publications and ShowsIf there is a domestic supplier, why import???

Competitive SWOT vs. Environmental SWOTEXAMPLES???

American Fashion ImportsExplain why fashion is a global industry.What is fashion week all about?How does technology serve the fashion industry?What does the article mean by new seasons?Opportunity or Concern?

What is the biggest concern for the fashion industry? (this was not explicitly stated in the case study)Locating Foreign SuppliersIdentify a country or group of countries where the product is available.Assistance through govt agencies, trade commissions, chambers of commerce, exhibitions, journals, INTERNETNational Trade and Professional Trade Association Directory, by Columbia Books

Most foreign manufacturers are eager to export to the USWhy???

Why are relationships important? How do trade shows help?Meet, Greet, and Compete!Why do trade shows get overlooked?Import PenetrationThe US market became attractive for manufacturers in Japan, South Korea, Taiwan, and Hong Kong

Protectionism occurred Tariffs, quotas, and anti-dumpingCurrency revaluation govt changes the value of countrys currency relative to other currencies, increasing costs of imports

Yet, Americans kept importingE-Commerce and ManufacturingSpeeds up transactions, increased world tradeWhat are e-tailers?

Global sourcing the process of purchasing imported goods from markets around the worldSourcing optionsBuy readyBuy componentsOff-shore production???Where is the most attractive location today? 80% of this countrys assembly factories are foreign owned!

Importing by ManufacturersWhat has contributed to global sourcing? What are the benefits and what are the dangers?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?CompetitionMass marketing storesDiscount retailersConsumer attitudesApparel ManufacturingReduce cycle time For designManufacturingDelivery

Quick Response = replenishment systems that allow retailers toTrim their inventoryRespond more quickly to changes in preferencesRestock almost instantlyOffer wider choices

In the current economic climate what is the main concern facing the apparel industry?ProductionDomestic Production Foreign MaterialsProduced in the US with foreign raw material componentsForeign Production Foreign MaterialsProduced overseasSpecification Buying: the domestic company has designed the product and the foreign manufacturer creates it.ProductionForeign Production Domestic MaterialsGoing off-shore why?Tariff applied on the value-added portionManufacturer-owned Foreign ProductionLow-cost suppliers to supplement US productionContract out assembly operations to overseas contractorsShift productionOutsourcing delegation of non-core operations from internal production to an external entity specializing in the mgmt of that operation.Import Debate - DrugsTwo ConcernsQuality and SafetyMade (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.In 15 years, 80% of key ingredients for drugs will come from India and ChinaImport Debate - FoodThe 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:Food imports have grown dramaticallyFood 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 yearImport DebateProtectionism vs Free Trade

Isolationism limiting international tradeImport restrictions to create level playing fieldProtect domestic manufacturers of unfair competitionFair Trade forms of international trade that provide for human rights including fair wages, safe conditions, environmental protectionFree Trade voluntary exchange meets the demands of justiceExchange augments wealthImport PlanningEvaluate Market DemandLocate Foreign SuppliersReview Import Regulations HTSUS numberPricing Your Imports freight & insuranceComply with US Customs Policies and ProceduresCustoms Automated Commercial System (ACS)Automated Broker Interface (ABI)Learn Basic Vocabulary terms 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