Import & Export
April 14, 2005
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Agenda
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Customs & Compliance
Trade Documents
Trade Finance
Security
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Customs
• Customs Function: Control imports and exports to
conform with government regulations
• Customs Goals:
– National security
• Prevent dangerous goods from entering the country
– longhorn beetles in wooden pallets etc.
• Prevent strategic goods from leaving the country
– Controls on exporting encryption technology
• Protect industries important to national defense
– Cabotage
– Revenue
• US Customs funded the government for its first 125 years
• In 2000, collected $31 billion in duties
– Promote economic development
• Duties to “level the playing field”
Customs Cont’d
– Gray market & smuggling
– Illegal imports
• Summary: Customs is a complex combination of
issues and objectives
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Financial
Security
Political & Economic
Diplomatic
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Customs tools
• Ports of Entry – where goods and people are
allowed to enter the country
• Limits
– Embargo: Entry prohibited
– Quota
• Absolute limit
• Tariff rate quota
– Visas – export country’s response to quota
– License
• Duties
• Information
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Customs Clearance
• Actors
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Shipper: party that contracts carriage
Carrier: party that moves the goods
Consignee: party that receives the goods
Exporter: fulfills export regulations
Importer: fulfills import regulations
Importer of record: the single party held
responsible
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Export Clearance
• Some goods are restricted
• Some destinations are restricted
• Export Declaration
– Enforcement
– Trade statistics
• Typically managed by a customs broker
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Import Clearance
• Where to clear customs
– Port of entry
– In-bond
– Free Trade Zone
• Duties
– Classification
• Harmonized Tariff Schedule (HTS)
• www.usitc.gov/tata/
• Based on classification according to the international
Harmonized Commodity Description and Coding System
(HS), administered by the World Customs Organization in
Brussels
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Import Clearance
• Duties cont’d
– Value
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What is actually paid or payable
Transfer price for intra company transfers
Does not include international transport costs
Can be abused to manipulate corporate taxes
– Country of Origin
• Last country where the goods underwent a “substantial
transformation”
• Last country where the goods underwent a change in tariff
classification
• CKD (complete knock down)
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Bonded Activities
• Admitting merchandise provisionally to a country without
payment of duties
• The duties are collected when the goods are withdrawn for
delivery or consumption.
• Duties paid on the value of the goods at the time of
withdrawal
• If the goods are withdrawn for exportation or for
exportation, no duties are required.
• Can clean, sort, re-label, re-package, and do other
operations (but not manufacture)
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Advantages
• Delay payment of duties
• Can re-export without paying duties
• Can lower duty rates
– dried, sorted, graded, cleaned, repackaged
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Foreign Trade Zones
• Areas where domestic and imported
goods can be stored and manufactured
free from duties and customs
procedures until they leave the zone.
• As though the entire area were bonded.
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Uses of FTZs
• Transhipment points
• Assemble foreign (and
domestic) goods for export
• Holding goods for import
• Inverted Tariff. If the finished product has a
lower duty than the foreign inputs
• Goods held for export are exempt from
state/local inventory taxes. FTZ status may
also make a site eligible for state/local
benefits which are unrelated to the FTZ Act.
• Roughly 250 in the US
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Trade Documentation
• Both the documents and the process to
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Enforce regulations,
Manage liability and risk
Provide records
Ensure common understanding
• Types:
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Transport: physical movement
Banking: financial transaction
Commercial: sale and purchase terms
Government: regulatory
• Evolution: From paper to electronic
documents
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The Main Documents
• Purchase Order: a contract between buyer and seller
that includes terms of sale
• Bill of Lading: title to and receipt of goods and
contract for carriage
• Waybill: contract for carriage without conveying title
• Invoice: List cargo and its characteristics
• Certificate of Origin: Certifies nationality of cargo
• Sanitary Certificate: to ensure the goods will not
transmit noxious pests
• Carnet: Permission for sample goods to enter without
paying duties
• Export Declaration: Documents exports
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Insurance and Liability
• Many parties from many jurisdictions
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Seller
Buyer
Bank
Shipping line
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• When something happens, who’s liable
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Liability
• Historically, the carrier owned the
goods and provided the insurance
• Negotiated away liability with
disclaimers in the Bill of Lading
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Bill of Lading
• Issued by the carrier or integrator
• Components:
– Contract of carriage
– Documentary evidence of title
– Receipt of goods
• Cargo description
– Written by carrier
– Important for customs, documentary credit, …
• ICC Uniform Customs & Practice for
Documentary Credits (UCP500)
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Liability
• Commercial terms of sale determines who owns
the cargo at any point in time and so has the risk
• Historically, ocean voyages took so long and were
so uncertain, that captains owned and insured the
cargo. Carrier had all the liability
• 1892 Harter Act limited carrier’s liability
• 1924 The Hague rules also limited carrier’s
liability
– $9.07/lb
– $500/package
• 1978 Hamburg rules not widely adopted
• Visby Ammendments
– $1000/package
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Trade Finance
• More risk involved in international
trade:
– Multiple jurisdictions
– Difficulty and expense in collecting debt
– Distance, time and expense in resolving
issues
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Financing Options
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Cash-in-Advance
Cash-on-Delivery
Consignment
Open Account (seller’s credit)
Letter of Credit
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Letters of Credit
• Letter to the seller from the bank on
behalf of the buyer, promising to pay
the seller if he conforms with
conditions of sale
• ICC’s UCP – not law, but accepted
standard
• Rely on Bank’s credibility,
• Provides liquidity
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LC Transaction
• Buyer sends PO
• Buyer applier to Issuing Bank for LC
• Issuing Band delivers LC to Notification
Bank
• Notification Bank informs seller LC was
issued
• Seller ships goods and gives documents to
Notification bank
• Notification bank delivers documents to
Issuing Bank including Draft
• Issuing Bank pays seller,
• Buyer pays Issuing Bank
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LC
• Issuing Bank is extending credit to the buyer
• Sets terms on the LC
– Caution necessary
– Terms may state:
• Proof of delivery
• Buyer accepts delivery (may refuse cargo)
– BL, Draft, Insurance certificates, etc.
• Either pays or issues an Acceptance
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Kinds of LCs
• Documentary LC (all commercial
transactions)
• Irrevocable LC (all parties must agree to
changes)
• Confirmed LC (both Issuing bank and
sellers bank agree to honor it)
• Revolving LC
• Back-to-Back LC (Buyer’s customer must
also obtain an LC)
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Discrepancies
• Any discrepancies in the documents
can nullify the LC!
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Other Issues
• Currency Issues
• Insurance Issues
• Security Issues
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