Export Reference Guide
Essential information for all Victorian
exporters and intending exporters
page 2
Victorian Export Reference Guide
Contents
1Introduction
1.1
1.2
Why export?
The benefits and risk of exporting
2 Marketing entry strategy
2.1
2.2
2.3
Export entry modes Contractual entry modes
Investment entry modes
3 Export pricing methods
3.1
3.2
3.3
3.4
Cost-plus pricing
Top downwards (reverse) pricing
Differential (marginal) pricing
Export pricing considerations
4 Export finance
4.1
Factors to consider in choosing finance
5. Legal issues
5.1 Types of legal systems
5.2Contracts
5.3Incoterms
6 Intellectual property (IP)
6.1
6.2
Categories covered by
IP protection laws
International IP protection
7 Licences and concessions
7.1
7.2
Prohibitions and licences
Facilitation and concession schemes
8 Freight and logistics
8.1
8.2
Sea freight
Air freight
9 Export insurance
9.1
9.2
9.3
Loss or damage of goods during transit
Default of buyer
Default of seller
10 Export documentation
10.1
10.2
10.3
10.4
Commercial documents
Transportation documents
Finance and payment documents
Insurance documents
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11 Getting paid
24
12 For further information 25
Victorian Export Reference Guide
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1 Introduction
This export reference guide outlines various business strategies that must
be considered before exporting. It highlights potential challenges, such as
legal, intellectual property and licensing issues that businesses may face. The
guide is essential reading for any Victorian business exporting or considering
exporting goods or services. It has been developed in conjunction with the
Developing an Export Strategy booklet.
1.1 Why export?
Exporting is a key aspect of international trade and involves
the sale, purchase or exchange of goods and services across
national borders. The exports of one country form the imports
of another.
The global value of international trade is estimated to
be more than $18 trillion a year. With the rapid spread of
globalisation in recent years, world trade has consistently
grown faster than world output.
Exporting may make perfect business sense but it is not
something that should be entered into lightly. In developing a
well thought out export strategy and action plan the benefits
and risks of exporting must be considered.
The benefits
Businesses commence exporting for a variety of reasons,
and sometimes start almost accidentally by responding to
overseas requests for their products and services.
While world trade is still dominated by merchandise in
the form of manufactured goods, minerals and agricultural
commodities, the export of services has been increasing
rapidly and now accounts for more than 20 per cent of the
total value.
>> Gaining economies of scale through growth and
Exporting is important to Australia as it is a major contributor
to our economic growth, competitiveness and prosperity.
>> Gaining seasonal advantages by evening out
The Department of Foreign Affairs & Trade (DFAT) has
estimated that:
>> Exports contribute about 22 per cent of Australia’s
Gross Domestic Product (GDP)
>> More than 1.6 million jobs – 14 per cent of all jobs –
are export related
>> Exporting companies generate higher incomes, and
provide better public infrastructure and services
>> Exporting diversifies Australia’s national income and
can reduce our vulnerability to global downturns.
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1.2 The benefits and risk
of exporting
Victorian Export Reference Guide
There are a number of common benefits that long-term,
sustainable exporters have identified. These include:
expansion into new markets
Australian seasonal sales fluctuations through sales to
the northern hemisphere markets in the reverse season
>> Extending the life of products or services that have
become outmoded in Australia but may still be in
demand in foreign markets
>> Exposure to new ideas, technologies and business
processes – this provides opportunities for you to
improve your knowledge and increase your
competitiveness
>> Improved return on investment (ROI) in the longer
term. As the result of competing in world markets,
often companies improve efficiency and performance
– which translates to their bottom line.
The risks
As with all business activity, when exporting, a certain
degree of risk is inevitable.
Key risk areas to recognise include:
>> Different cultures may influence business decisions
and processes in different ways
>> Political instability in international markets may pose
new challenges to your business
>> Legal systems more than likely will vary from that of
Australia. It is important to understand what you need
to do to comply with legal requirements in all elements
of the export process
>> Communication issues need to be considered
carefully as you are likely to be operating remotely
from your export markets and customers
>> Protecting intellectual property in overseas markets
can be difficult and complex
>> Exporting places extra pressure on business
resources
>> Additional funding required for export, trading terms
and dealing in foreign currencies may place pressure
on your cash flow and financial situation.
It is recommended that you seek out organisations and
bodies that can help you manage and minimise these risks.
Victorian Export Reference Guide
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2 Marketing entry
strategy
Having determined that your product or service is likely to be accepted in
overseas markets, your first decision will be choosing a market entry strategy
that best suits you and your business.
The strategy you select will be determined by the nature
of your product or service and by the conditions and
requirements in your potential markets. There are several
ways of getting started in exporting. Which path you
choose will depend on your business’s broad strategy, its
commitment to export and its capacity to handle complexity.
1. Export entry modes
• Direct exporting
• Indirect exporting
• Counter trade
2. Contractual entry modes
• Licensing
• Franchising
3. Investment entry modes
• Strategic alliances
• Joint ventures
• Wholly owned subsidiaries
2.1 Export entry modes
Indirect exporting
The most suitable mode of entry to export depends on your
ambitions, your product, the size of your business, your
willingness to accept risk and many other factors.
Indirect exporting is where you enter into a contractual
relationship with an intermediary. The type of intermediary
you choose is usually determined by the extent to which you
are prepared to commit resources of your business to overseas,
rather than domestic activity.
Direct exporting
Direct exporting gives you a direct contractual relationship
with the overseas importer and your products and services
are sold directly to buyers. Sales might not occur directly
between you and end-users but might be made through
local sales representatives who promote your goods and
services without taking ownership. Alternatively, you may
prefer to work through distributors, who will take ownership
of the goods when they arrive in country and therefore accept
the associated risks. Distributors on-sell to wholesalers,
retailers and end-users through their own distribution channels.
If you choose to use distributors, you will reduce your degree
of risk, however you will also lose control over the prices at
which your products are marketed.
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Victorian Export Reference Guide
The most common form of indirect exporting is through agents.
These are individuals or organisations that typically represent a
number of indirect exporters who are not in direct competition
with each other. Agents are paid a commission on sales. There
is a danger that they may focus their efforts on exporters who
are paying the highest rates of commission. It is critical to select
agents carefully and they should be thoroughly vetted before
appointment. Victorian Government Business Offices (VGBOs)
and Austrade can advise you on agent selection.
Alternatively, as an indirect exporter you may prefer to work
through an export management company or an export trading
company.
2.2 Contractual entry modes
For further information on agent selection
contact:
Victorian Government Business Office locations
detailed on export.vic.gov.au
Export management companies operate contractually,
either as agents or distributors, and usually provide services
on a retainer basis. Services may include providing market
information, devising promotional strategies, researching
customer credit and organising shipping and export
documentation.
An export management company simplifies the business
of exporting, but by taking on the administration and risk
associated with exporting, they may hinder the development
of your own international expertise.
Export trading companies may also offer you access to
distribution channels, storage facilities, and trade or
investment management projects. Much of Australia’s trade
with Japan and Korea has developed through export trading
houses such as Mitsubishi, Mitsui, Sumitomo, Hyundai and
Samsung.
Countertrade
A less common, but still practised, form of exporting is
countertrade, in which goods and services are paid for in
full or in part with other goods and services. This practice
was previously common in trade between the former Soviet
Union, China and Eastern Europe. It arose because of the
shortage of hard currencies and prevented the development
of more traditional trading patterns.
Common forms of countertrade include barter, payment-in-kind
or promises to make future purchases. While countertrade is
unlikely to be an attractive option for the first-time exporter, it
can provide valuable access to markets that may otherwise be
off-limits.
For further information on countertrade visit:
The Australian Countertrade Association –
netspeed.com.au/jholmes
Contractual entry modes are principally used for trading
intangible products or services that cannot be traded on open
markets. They permit the marketing of highly specialised
assets and skills. The two main forms are licensing and
franchising.
Licensing
Licensing allows an individual or company that owns
intangible property to grant another party the right to use that
property for a specified period of time. Commonly licensed
intangible property includes: patents, copyrights, special
formulas, designs, trademarks and brand names.
Payment is made in the form of royalties,
which are based on revenue generated.
Licensing of process technologies is common in the
manufacturing sector. Companies sell technical know-how to
an overseas manufacturer through a manufacture-underlicence (MUL) agreement.
Licensing can be an effective way for companies to finance
international expansion. It can reduce risk and reduce the
likelihood of products appearing on the black market.
Licensing agreements must be carefully examined. They have
the potential to restrict your future activities, reduce global
consistency of your product and reveal details of strategically
important property to a potential future competitor.
Franchising
Franchising is common in the services sector, which includes
hotel and fast food chains and car rental companies. The
most important asset of an international franchisor is often a
brand name or trademark.
Franchising can be a low-cost, low-risk entry mode that
allows for rapid geographic expansion. However, if expansion
is too rapid, franchisors can lose organisational flexibility.
Intangible property and assistance are usually provided to
franchisees over an extended time and compensation to the
franchisor takes the form of fees or royalties.
Other forms of contractual market entry include
management contracts, where specialised knowledge
or management skills are transferred between companies,
and turnkey projects, which usually apply to large-scale
infrastructure facilities involving government participation.
Victorian Export Reference Guide
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2.3 Investment entry modes
Foreign Direct Investment (FDI) is the most complex
investment entry mode. It can also be the most costly
and risky method of internationalising as it involves the
establishment or purchase of plant and equipment in a
foreign country and ongoing involvement in local operations.
Joint ventures occur in a variety of configurations:
FDI can be pursued in a number of ways, the most
common being:
>> forward integration, where parties invest in
Strategic alliances
>> backward integration, where parties invest in
Strategic alliances involve developing a relationship with
an overseas partner to achieve strategic goals. Alliances
may be formed between a company and its suppliers,
customers or even its competitors in certain circumstances
and can be formed for short, medium or long periods
depending on the goals.
Entering into a strategic alliance can help reduce the cost of
an international investment project by sharing the risk. It may
also allow you to acquire valuable competitive advantages
from your partners.
On the other hand, you must consider the potential for conflict
if partners disagree and the possibility that you may be
creating a future competitor.
Joint ventures
Joint ventures are logical extensions of a strategic alliance,
with both partners creating a separate company – that they
jointly own – to achieve their stated objectives.
Joint ventures can reduce the cost and risk of international
expansion and may enable you to enter markets that may
otherwise be closed.
Forming a joint venture with a foreign partner is often the
only way for Australian companies to enter developing
markets.
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Joint ventures can provide access to distribution systems
and, where governments are involved, may enable projects
to be fast-tracked. However, as with strategic alliances, there
is always the possibility of conflict between partners and
potential loss of control by one of the parties.
Victorian Export Reference Guide
‘downstream’ business activities, such as computer
companies establishing retail outlets
‘upstream’ activities, such as steel companies investing
in raw materials suppliers
>> buyback, where inputs are provided by each partner
and outputs are absorbed by them
>> multistage, where one partner integrates downstream
and the other invests upstream.
Wholly owned subsidiaries
Wholly owned subsidiaries are facilities entirely owned
and operated by a parent company and established either
by acquiring an existing facility or building a new plant or
facility – greenfield investment. Wholly owned subsidiaries
are generally established in the final and most complex stage
of the investment process. They are unlikely to be undertaken
by companies at an early stage of internationalisation due to
their cost and the time required to construct new facilities,
hire and train the workforce and commence production.
While establishing a wholly owned subsidiary allows you to
retain complete control of operations in your target market,
and to acquire valuable processes and technologies, the cost
may be prohibitive for small to medium companies.
Risk exposure is high with wholly owned subsidiaries because
of the substantial costs involved.
3 Export pricing
methods
Setting a price for manufactured goods and services is a key issue for all
exporters. Ultimately the price will be determined by balancing what the
market is willing to pay with the need to obtain a reasonable return for the
exporter.
The most common methods of determining export prices are:
>> cost-plus pricing
>> downward pricing
>> differential pricing
3.2 Top downwards (reverse) pricing
3.1 Cost-plus pricing
Cost-plus pricing is the most straightforward and traditional
method of export pricing. Export prices are established by
adding the costs of exporting to the domestic manufacturing
cost.
Costs include export administration, freight forwarding,
distributor margins and customs charges, and will depend
upon how the transaction is negotiated. A typical cost-plus
price is calculated as follows:
Item
Factory (ex-works) price
The above example clearly shows that products for the
domestic and export markets can begin at the same level but
the final consumer price is considerably higher once the costs
of exporting are included.
$
50.00
Top downwards pricing is the reverse of the cost-plus
method: prices are calculated by working back from the
market price that you will have to meet in order to be
competitive.
A simple example would be:
Item
$
Consumer price
50.00
Less retail margin (30 per cent)
35.00
Less importer/distributor mark-up
(15 per cent)
29.25
Domestic freight
1.50
Less import duty (10 per cent)
26.32
Export documentation
0.75
Less ocean freight/insurance
1.20
Ocean freight and insurance
1.20
Less export documentation
0.75
Import duty (10 per cent of landed cost)
5.34
Less domestic freight
1.50
Importer/distributor mark-up 15 per cent)
8.00
Ex-works price
Retail mark-up (30 per cent)
20.00
Final consumer price
86.80
While this method is relatively simple to adopt and calculate,
the resulting prices can quickly make your product or service
uncompetitive.
22.87
The key issue with this approach is whether the ex-works
price will cover your production costs and offer a reasonable
profit margin. There may be a wide differential between the
market price and basic cost of production because of the
added costs of the export process.
Victorian Export Reference Guide
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3.3 Differential (marginal) pricing
Economies of scale and breakeven point
Differential or marginal pricing is a commonly used export
pricing technique. This method treats exports as additional
business and consequently a reduced contribution is made to
the business’s fixed costs.
The concept of differential pricing is based on separating
costs into fixed and variable costs.
Variable costs include raw materials, labour and power
service costs, attributable to the volume of the production
process.
Profit margins are the realised differences between
production and distribution costs and the selling price.
Additional export costs may be incurred if there is a need to
modify products for the export market. But export costs may
decrease if the export products are either less sophisticated
versions of the domestic range or they can be manufactured
without increasing the fixed costs.
Differential pricing is particularly useful if a company has
excess production capacity and needs to keep its export
prices down in order to remain competitive. The resulting
price may be particularly competitive if the domestic business
is producing stable revenues.
Differential pricing enables you to calculate a break-even
point that becomes the minimum price at which you can
sell your product, cover your costs and receive a reasonable
return on funds invested.
1400
1200
1200
1000
1000
$
800
BREAK EVEN
POINT
800
600
600
400
400
200
200
0
100
200
300
400
Units of production
Fixed Costs
Cost per unit
Total Costs
Variable costs
Sales
The chart above illustrates the following concepts:
>> As volumes increase, unit costs decrease
>> Fixed costs do not increase as production increases
>> Spreading fixed costs over more units results in lower
unit costs
>> Breakeven sales = total costs
>> Production of more than 200 units produces breakeven.
A simple example of differential costing is outlined below.
This example assumes a selling price of $10 per item.
Unit Sales
40 000
$/unit
20 000
$/unit
Revenue
$400 000
10.00
$200 000
10.00
Variable costs
$160 000
4.00
$80 000
4.00
Contribution
$240 000
6.00
$120 000
6.00
Fixed costs
$150 000
3.80
$150 000
7.50
$90 000
2.20
-$30 000
-1.50
Net profit/loss
Acknowledgement: Austrade
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Victorian Export Reference Guide
0
Cost per unit
Fixed costs are items of expenditure that do not vary with
the volume of goods produced. Fixed costs include rent,
interest charges, depreciation, administration costs, fixtures
and executive salaries. They can also include a fixed provision
for maintenance, repairs and tooling.
Economies of Scale
1400
The contribution margin is the difference between the selling
price and variable costs (in each case $6.00) divided by the
sales price ($10.00) equals 60 per cent.
The break-even point is calculated by dividing the fixed costs
($150,000) by the contribution ($6.00).
In this simple example the company would need to sell 25
000 units to break even.
3.4 Export pricing considerations
Analysis of costs, market demand and competition
determines pricing. A number of factors must be considered
during the pricing process including:
Your cost structure – if you underestimate your costs, your
profit margin will be lower than expected and you may face
a loss. Make sure you understand the difference between
your fixed costs and direct costs at varying levels of activity.
Ensure you include all exporting costs, such as insurance,
tariffs and customs fees in your calculations.
>> Competitiveness – do your export prices reflect the
quality of your products or services? You may need to
consider modifying your product or service to meet
market conditions (by, for example, producing a lower
priced version)
>> Market positioning – will your product or service be
pitched at a budget market or at the premium end? Can
you create different products or services to sell at
different price points?
>> Timeframe – should you pursue long-term market
penetration or a more opportunistic short-term
strategy?
>> Market culture – will local cultural practices require
you to offer discounts or allowances in your export
pricing
>> Legalities – are your prices likely to be viewed as
being fair or is there a danger of anti-dumping laws
being invoked? International agreements prohibit
exports from being sold below their reasonable cost.
>> Initial price position – once a market price is
established it may prove difficult to increase. Avoid
unnecessary concessions on price to gain an initial order.
>> Market demand – how will demand for your product
or service be influenced by price changes (price
sensitivity)?
Victorian Export Reference Guide
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4 Export finance
Competition in export markets is often intense and you may be required to offer
attractive payment terms to your overseas customers in order to make a sale.
As an exporter negotiating a contract, you will want to be paid as quickly as
possible while your importer will aim to delay payment until they have received
or on-sold the goods. Export financing is often required to cover the time
needed to complete an overseas transaction.
4.1 Factors to consider in choosing
finance
Terms of sale
Meeting your buyer’s expectations regarding terms of sale
may help to make your product or service more competitive,
but the terms of sale should not be detrimental to your
business. Do not place undue financial pressure on yourself
to secure an order. Consider the negotiated length of delivery
and sale time when choosing your finance.
Cost of finance
Interest rates and fees may vary widely and you will be
expected to assume some or all of the financing costs. Take
early advice from your bank or financier and understand
how the costs of finance will affect your pricing and profit
projections.
Factors such as the political and economic stability of the
buyer’s country need to be considered. Risky transactions
are harder, and more costly, to finance. Lenders may require
secure methods of payment such as letters of credit, export
credit insurance or credit guarantees.
Exchange rate risk
If your goods and services are to be priced in another currency,
you may be exposed to exchange rate risk if there is an
unfavourable movement against the Australian dollar. The
Victorian Employers’ Chamber of Commerce and Industry
(VECCI) and the Australian Industry Group, or your bank, can
advise on ways of minimising or offsetting exchange rate risks.
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Victorian Export Reference Guide
Type of finance
Your business may require additional finance at different
stages of the export process.
Pre-shipment finance
Funds may be required to purchase raw materials,
components and parts if an unusually large export order or
orders are received. Pre-shipment finance helps to alleviate
unexpected strains on working capital.
Working capital
Most businesses require access to finance for day-to-day
operations such as labour costs, equipment maintenance and
overheads. Inadequate working capital will inevitably restrict
your capacity to expand and fulfil your export potential.
You will need additional funds to cover export-related
costs such as market research, visits, communications and
promotional activities.
Post-shipment finance
Additional finance may be required to fund your ongoing
operations during the period between the production and
dispatch of your goods and receipt of payment.
Sources of finance
Export financial plan
Finance is commonly sourced from commercial banks and
lending institutions that may offer export financing advice
and solutions to qualified clients. Many have specialist
international business departments that can advise you on all
aspects of raising capital to fund overseas business activities.
An export financial plan is similar to any other financial plan
– it is a document that describes your current financial status,
your financial goals and when you want to achieve them, as
well as strategies to meet those goals.
Government grants may also be available to assist with the
costs of eligible marketing expenditure.
For further information on government
grants and export finance visit:
Your export financial plan should form an integral part of your
export strategy document and should represent a realistic
assessment of your funding sources and requirements. It
should include elements such as:
>> market development costs (visits, communications,
publicity)
>> costs of modifying your products and services
for export
Victorian Government – export.vic.gov.au
Austrade – austrade.gov.au
Export Finance and Insurance Corporation – efic.gov.au
Applying for finance
When you apply for finance, your bank or financial institution
will require certain information about your business. This
information will be similar to that asked for by any potential
lender. Your export strategy document will be a good starting
point to demonstrate that you are serious in intent.
Asking a financial or other institution to provide finance for
your export activity is similar to applying for any other loan
-– with one important difference. Export markets can be very
specialised. If you have done your research, you will know
the potential of the market and the nature of the risks better
than the bank. You are likely to have to educate any would-be
lender about the strength of your plans.
>>
>>
>>
>>
cost of investment to increase productive capacity
freight and logistics costs
requirements for pre- and post-shipment costs
anticipated costs of credit insurance, currency hedging
or performance bonds (a form of insurance used to
guarantee project completion in the service industries).
Your financial model should cover best- and worst-case
scenarios and, above all, be realistic. You should initially
adopt a conservative approach and not over-estimate export
revenues.
Take detailed financial advice from a wide range of reputable
sources and act on that advice. Above all, do not over-extend
yourself financially in chasing export orders, as this may put
your domestic operations in jeopardy. Proceed with financial
caution.
Victorian Export Reference Guide
page 13
5.Legal issues
Legal systems vary enormously throughout the world and have a significant
impact on the way business is done. For the potential exporter it is
particularly important to understand the implications for contracts and their
legal enforceability.
5.1 Types of legal systems
Theocratic (religious) law
There are essentially four types of legal systems across the
world: common, civil (or code), theocratic and bureaucratic
law. These broad categories are not mutually exclusive and
elements of common law can co-exist with various types of
civil law.
Theocratic law is based on rules relating to faith and the
practice of a particular religion. In countries governed by
theocratic law there is often an absence of due process and
appeals procedure. Such countries may have strict attitudes
towards charging interest or may prohibit importation of
certain goods (such as alcohol to some countries in the
Middle East).
Common law
Civil
(code law)
Theocratic
(religious) law
Bureaucratic law
Common law
Common law evolved in the United Kingdom and extended to
include the United States, Canada, Australia, New Zealand
and the West Indies. It relies on tradition, precedent and
usage – the decisions of the judiciary on a case-by-case basis
– and is adversarial in nature.
The evolution of common law has resulted in legal variations
between countries. For example, product liability law is much
more stringent in the US than the UK and Australia.
Common law countries depend not only on case law but also
statutory law (legislation), which varies between countries –
and even between state jurisdictions.
Civil (code) law
Civil law, the world’s most common legal system, is based
on an explicit written codification of what is permissible and
what is not.
Laws are documented in criminal, civil and commercial codes
which can be used to settle disputes. The precise wording
of legal codes means the system is less adversarial than
common law and issues can usually be resolved by referring
to the relevant code. This system is widespread in continental
Europe, including France, Germany, and the Netherlands, and
throughout Asia and Africa.
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Victorian Export Reference Guide
You will need the advice and support of local intermediaries
when operating in these countries.
Bureaucratic law
A number of countries operate under totalitarian regimes and
dictatorships, so laws are largely determined and enacted
by the bureaucracy. The way laws are interpreted and
applied is often inconsistent and appeals procedures may be
rudimentary or non-existent.
As with theocratic law, you will need to work closely with
reliable local intermediaries to avoid complex and costly
legal conflicts that could rapidly affect the profitability of your
business.
While individual countries have their own legal systems, the
progressive breaking down of trade barriers and the rise of
international trade organisations such as the World Trade
Organisation (WTO) has led to the development of uniform
rules or international trade conventions and treaties.
These conventions, however, may still be subject to
interpretation, and definitions have been known to change
when incorporated into domestic law. The Vienna Convention
on the Law of Treaties, for example, does not cover issues
such as services, contracts for the processing of goods or
legal issues relating to contract validity and property transfer.
It is essential to pay particular attention to the contractual
relationships you will enter into with your overseas partners
and their enforceability in the event of a dispute.
5.2 Contracts
Contracts are extremely important in international trade. They
should be clearly worded, formal documents that cover all key
clauses and are best drawn up by an experienced lawyer who
knows your business and the intricacies
of exporting.
For further information on the settlement
of commercial disputes and procedural
aspects of arbitration visit:
The International Chamber of Commerce on Arbitration –
iccwbo.org
At a minimum, your export contract should cover:
>> Description of goods, where the description should be
sufficiently detailed to avoid any dispute between
exporter and importer and enable the correct
classification to be applied by customs on arrival.
>> Price, where per unit should be clearly expressed – cost
per unit or per tonne – and any discounts for quality
stated. The sale currency should be clearly specified.
>> Trading terms, should be explicit and relate to the
internationally accepted Incoterms (see section 6.3).
These specify allocation of responsibilities for freight,
insurance and other elements between buyer and seller.
>> Packing details, which should be outlined so buyers
know how the goods will be packed in terms of numbers
of units, weights and dimensions. This will have
implications for transport and storage of goods on arrival
in market
>> Payment terms, where terms of payment are usually
agreed during negotiation and should be clearly stated to
avoid misunderstanding and dispute. This issue is
explored further in section 12 – Getting Paid.
>> Choice of law, where the state of jurisdiction
determines the law under which disputes (including
arbitration, conciliation or other means of settlement) will
be conducted.
As in domestic commerce, care needs to be taken to avoid
becoming committed under the imprecise terms of a binding
oral contract. Contracts are deemed to exist as soon as an
export offer has been accepted by the importer. At that point
they are legally binding and are often difficult to withdraw or
amend.
Contracts or legal agreements with intermediaries will govern
the degree of control you have over their operations and
whether you can dissolve the arrangement in the event of
irreconcilable differences.
It is essential you retain the services of a qualified legal
professional who is familiar with the business ethics, customs
and laws of your target country. A contract is worthless unless
it is enforceable. You should be aware
of the likely cost of enforcement should legal proceedings
be necessary.
5.3 Incoterms
Incoterms are International Commercial Terms that govern
the allocation of responsibility and risk between buyers and
sellers in international transactions. They closely correlate to
the UN Convention on Contracts for the International Sale of
Goods.
Incoterms cover all aspects of international delivery of
goods including transport, customs clearance, payment
responsibilities, ownership of risk, and the condition of the
goods at various locations in the transit process. They do not
deal with transfer of title.
Incoterms were devised and published by the International
Chamber of Commerce and endorsed by the United Nations
Commission on International Trade Law (UNCITRAL).
The most commonly used terms are:
Ex-works
The seller makes the goods available at
his premises
FAS
Delivered free to a named port. Since
2000, sellers have been responsible for
clearing goods for export. Suitable for
maritime transport only.
(free alongside ship)
FOB
(free on board)
CIF
(cost, insurance
& freight)
One of the most commonly used terms.
Seller loads the goods on board a
designated vessel and the costs and
risks are transferred at the ship’s rail
Another common arrangement, under
which the seller pays all costs of
freight and insurance up to the port of
destination.
Although originally used in sea transport, many of the 13
terms have been updated to cover other multimodal transport
systems.
For further information on Incoterns visit:
International Chamber of Commerce – iccwbo.org/incoterms
Victorian Export Reference Guide
page 15
6 Intellectual
property (IP)
A critical area commonly overlooked by Australian exporters is the protection of
intellectual property rights. Intellectual property does not mean only the product
of one’s mind or intellect; in a business sense it covers all types of proprietary
knowledge.
This means your business may be at risk as soon as you
begin to search for overseas partners, provide any technical
or commercially sensitive material about your products, send
samples to potential buyers or provide detailed information
about services.
You should regard your business’s IP as a valuable asset.
IP covers a wide range of activities and processes and
encompasses everything that has been created by your
organisation, including ideas, technologies, literature,
products and services.
IP arises from the talents and abilities of people and
organisations and may include diverse items such as graphic
designs, written publications, computer software, machinetool designs and secret formulas.
IP rights are the legal rights to these resources and to any
income that they may generate. IP can be assigned (sold) or
licensed (in return for fees and royalty payments).
For further information on intellectual
property protection visit:
IP Australia – ipaustralia.gov.au
6.2 International IP protection
Patents
Trademarks
However, these issues can be mitigated:
Copyrights
>> Insist on confidentiality agreements when providing
The principal categories covered by IP protection laws are:
Circuit layout rights
Plant breeders’ rights
Trade secrets
IP laws across the world are becoming more consistent
from one country to another as a result of increased world
trade, extensive international agreements and the growing
importance of trade blocs. The movement towards uniform
IP regimes – known as legal harmonisation – has resulted in
much of this area of law being codified.
page 16
Certain measures may be taken to protect technical
information, proprietary knowledge (know-how) and other
confidential information from being used by unauthorised
parties. One of the most common forms is the confidentiality
agreement, which may have to be signed by all parties who
have knowledge of the particular secret.
Protection of IP in overseas markets may be more complex
than in Australia, because it will need to be sought according
to each country’s laws and conventions. This may be a
long and costly process, particularly if applications must be
submitted in foreign languages.
6.1 Categories covered by
IP protection laws
>>
>>
>>
>>
>>
>>
The law relating to confidentiality and trade secrets is
more inconsistent and less explicit (in many countries it is
determined by common law rather than legislation).
Victorian Export Reference Guide
any kind of know-how and technical information,
whether it is covered by patents or not.
>> Provide only basic information about products and
services until you have established sound, long-term
relationships with overseas partners. Remember the
need-to-know principle.
aximise your sales (and profits) quickly before competitors
M
have had an opportunity to copy your product or service.
For further information on International
Intellectual Property Protection and
International Trade Agreements and
Conventions for the Protection of
Intellectual Property visit:
World Trade Organisation – wto.org
World Intellectual Property Organisation – wipo.int
International agreements should make it easier for you
to obtain rights in other countries once you have sought
protection in one. However, time limits may apply to
subsequent applications.
Securing IP protection can be protracted and expensive, but
failure to obtain adequate protection can severely harm the
profitability of your business.
Enforcement is an issue and copying is still endemic
in certain markets despite local laws and international
conventions.
At the very least you should obtain detailed legal advice from
a reputable IP law specialist such as a patent attorney who
knows the local conditions and can advise on the pitfalls you
are likely to encounter.
For further information on reliable sources
of in-market IP information visit:
Austrade austrade.com.au or contact a Victorian
Government Business Office locations detailed on
export.vic.gov.au
Victorian Export Reference Guide
page 17
7 Licences and
concessions
You no longer require a licence to export most goods from Australia.
However there are exceptions, and certain goods may be prohibited either
absolutely or conditionally.
Australian authorities administer a number of schemes which allow you to
import goods at free or concessional rates and to defer payment of duty.
7.1 Prohibitions and licences
Most goods and services can be exported from Australia
without licences. But certain products are subject to controls,
either in the form of absolute prohibitions or restrictions, and
you will need to obtain written permission to export them
from the country.
The Australian Customs Service also administers schemes
that can benefit exporters by lowering or deferring duties on
some imported goods.
Three schemes are available:
The Australian Customs Service is responsible for policies
relating to the recording of Australia’s international trade
flows and enforcing the prohibition of certain categories of
goods from export. Categories excluded include protected
wildlife, heritage items, certain weapons and other
dangerous goods. Absolute prohibitions also apply where
Australia has a trade embargo in place.
>> Duty drawback, which enables exporters to obtain a
The following goods may not be exported until all necessary
permits are obtained from the relevant authorities:
>> Manufacturing-in-bond, which allows goods to be
>>
>>
>>
>>
>>
primary products including meat, wheat and wine
materials covered by international agreements
refund of customs duty paid on imports that will be
incorporated into goods for export or are re-exported
unused
>> Customs warehouses, which hold goods ‘in bond’
with duty deferred or not imposed if goods are
re-exported
manufactured using imported parts and components on
which duty has not been paid, where there is a clear
intention for these goods to be exported.
defence-related goods and dual-use technologies
fauna and items of cultural significance
certain minerals and merino sheep.
Customs regulations stipulate that goods may not be
exported without the granting of approval by means of a
cleared Export Declaration Number (EDN). A Certificate of
Clearance must also be obtained before the goods on a ship
or aircraft depart Australia.
For further information on customs visit:
Australian Customs Service – customs.gov.au
page 18
7.2 Facilitation and concession
schemes
Victorian Export Reference Guide
For further information on facilitation and
concession schemes visit:
Australian Customs Service – customs.gov.au
AusIndustry, the business arm of the Australian Government
Department of Industry, Innovation, Climate Change, Science,
Research and Tertiary Education, administers the Tradex
Scheme. This provides up-front exemptions from customs
duty and GST on imported goods that are intended for direct
export or inputs used to manufacture other goods intended
for export.
The advantage of this scheme is that rather than exporters
paying duty and applying for a drawback, duties are not levied.
This provides significant cash-flow benefits to exporters.
For further information on the Tradex
Scheme visit:
AusIndustry – ausindustry.gov.au
It is your responsibility to ascertain whether the products or
services you intend to export are either partly or completely
prohibited, or whether you will require a permit or licence.
You should also check your eligibility for one of the
facilitation or concession schemes available as these can be
of considerable benefit to your business.
Information and advice is available from government
organisations, industry bodies, freight forwarders and
export consultants.
Victorian Export Reference Guide
page 19
8 Freight and
logistics
Merchandise exporters must consider how their goods will be transported
from their place of origin to their final overseas destination. The first decision
to make is whether to consign goods by sea or air. This will usually become
evident by the relative costs of the two forms of transport, but will also be
influenced by a product’s size, weight, value or perishability.
Commodities such as wheat or iron ore have a low value-todensity ratio and are transported by sea. The reverse is true
for certain high-technology items or gemstones, for which
airfreight is normally used.
Sea freight is usually much cheaper than airfreight but
transit times are considerably longer. Although air freight is
more expensive, it may be more economic to transport small
consignments by air (the minimum charge for sea freight can
be high).
8.1 Sea freight
If your products are to be exported by sea, you should be
aware of how freight rates are established and maintained.
For example a number of regular sailings between popular
destinations have been set up by groups of ship-owners.
Known as Shipping Conferences, ship-owners collaborate
to determine freight rates and sailing schedules.
Conference rates can benefit exporters as they are unlikely
to change in the short term and without warning. Conference
members offer identical rates for the transport of cargoes
over specified routes and sailings are at regular intervals, so
you can plan your pricing and delivery schedules accordingly.
Australian Freight Council – freightcouncils.com.au
Exporters may require the services of an experienced freight
forwarder to ensure their goods are delivered to overseas
customers in the most efficient and cost-effective manner.
You should engage a freight forwarder with expertise in your
particular area of business. Some specialise in livestock or
delicate cargo such as high-technology items; others focus on
bulk shipments.
For further information on freight
forwarding visit:
Australian Federation of International Forwarders –
afif.asn.au
Shipping conferences adopt policies such as customer
allocation, loyalty schemes and open price contracts. While
they are generally exempt from competition laws, this
position is being increasingly challenged to promote greater
competition and choice for exporters.
Freight forwarders provide a number of key services for
exporters including:
>> Negotiating space and freight rate deals with major
sea and air carriers to ensure that you choose the best
way of exporting your product – they will also be able
to source competitive rates from the freight companies
8.2 Air freight
>> Advice on the most economical mode of transportation
Air transport of merchandise exports has become increasingly
popular and economical in recent years, but capacity to
certain destinations is constrained.
Most international airlines have all-cargo subsidiaries and a
number of specialised carriers have emerged to provide
services exclusively for the transport of freight.
page 20
For further information on air freight and
transport including pricing reviews, training
services and statistical data visit:
Victorian Export Reference Guide
– sea, air or a combination of the two
>> Booking cargo space with shipping companies
and airlines
>> Advice on controlling costs by consolidating freight
>> Detailed advice on despatching perishable and other
specialised cargoes.
9 Export
insurance
As with any other type of business activity, all exporters should consider taking
out insurance to cover risk and loss. Coverage is usually considerably different
from domestic insurance so details need to be carefully checked.
There are three major risks in export: goods are lost or damaged; a buyer can’t
(or won’t) pay; and you become unable to fulfil the terms of a contract.
9.1 Loss or damage of goods
during transit
Export goods may suffer damage, loss or delay during their
journey from seller to overseas buyer. Cargo insurance may be
taken out to cover these contingencies.
Marine cargo insurance covers shipments by sea and
international air carriers normally offer cover for their
consignments.
The responsibility of taking out insurance for exports will
depend upon the terms under which the contract is being
transacted.
If the contract is FOB (free-on-board), responsibility rests with
the buyer. Under a CIF (cost-insurance-freight) contact, the
seller organises insurance cover.
Even if the terms of sale make the foreign buyer responsible
for insurance, the exporter is strongly advised to obtain
written confirmation that adequate cover has been arranged.
Failure to do so may cause exporters to suffer considerable
financial loss even if insurance has not been their
responsibility.
Although sellers and buyers may agree to cover different
aspects of insurance through negotiation, it is generally
agreed that coverage should be for about 110 per cent of CIF
value so that all costs can be recouped in the event of
complete loss.
For further information on agencies offering
export insurance visit:
The National Insurance Brokers Association of Australia –
niba.com.au
9.2 Default of buyer
Export credit insurance is available if there is a risk that your
buyer cannot, or will not, pay for your goods, regardless of the
terms negotiated.
Insurance is available for short, medium and long-term credit
risk covering:
>>
>>
>>
>>
>>
buyer default
buyer insolvency
delivery affected by unforeseen events
war, hostilities or civil disturbances
government intervention.
9.3 Default of seller
A third class of risk is your own inability to fulfil a contract. The
contract may stipulate that you insure against this risk through
a kind of completion guarantee known as a performance bond.
This is one of many instruments available through the Export
Finance and Insurance Corporation (EFIC).
EFIC is the Australian Government’s agency for export finance
and insurance. It offers exporters a wide range of policies
under its export payments insurance scheme. It also offers
cover for political risk, direct loans, export finance guarantees,
and export working guarantees.
If your product has the potential to cause damage or personal
injury, you should investigate the possibility of taking out
product liability insurance. When exporting to markets where
litigation is common, such as the United States and some
European countries, such cover may be mandatory.
Failure to obtain adequate cover can have disastrous
consequences for your business.
For further information on EFIC’s range of
insurance and other services visit:
The Export Finance and Insurance Corporation – efic.gov.au
Victorian Export Reference Guide
page 21
10Export
documentation
Export documentation is a vital aspect of international trade and you will need
to understand the key documents required. Failure to ensure that all documents
are correct may mean you will not be paid on time or your customer may not be
able to assume ownership of your goods and services.
Export documentation falls into four broad categories: commercial,
transportation, finance and payment insurance.
10.1 Commercial documents
10.2 Transportation documents
Commercial invoice a description of the goods that are the
subject of the transaction. It may be required by your bank,
insurance company or customs authorities.
The two most important transportation documents are the
Bill of Lading and the Airway Bill.
Packing list outlines precise contents of a consignment that
is ready for shipment. Inclusion of a packing list should
facilitate customs clearance at the destination.
Certificates of Origin and Value identify where goods have
been manufactured and are often required for import control
purposes. They may be required for the calculation of
customs duty in the importing country. Both certificates are
common in countries that have preferential trade agreements
in place.
ATA carnet is a document permitting goods to enter a
country, usually for up to a year, free of taxes and duties. It
is used to allow the temporary importation of commercial
samples, goods for trade and professional equipment. The
term comes from the combination French–English term
Admission Temporaire / Temporary Admission. VECCI
issues carnets as the Australian national guaranteeing
organisation.
Consular invoice an invoice that must be certified by a
consular representative of the country to which the goods
are to be exported. Other documentation may also be
required to be officially legalised by consular authorities.
page 22
Victorian Export Reference Guide
Bill of Lading is issued by the shipping company and fulfils
two major functions:
1. It documents the contract between the shipping company
and the exporter to transport the consignment from one
designated port to another.
2. It acts as a certificate of title to the goods and as such is
a fully negotiable document. The transfer of the Bill of
Lading from seller to buyer effectively transfers
ownership of the consignment. Bills of Lading apply only
to maritime transport.
Airway Bill is issued by airlines to acknowledge receipt of
goods to be transported by airfreight. It is the airfreight
equivalent of a Bill of Lading but with one significant
difference, it is not fully negotiable and does not transfer
title to the goods. As such, it is not required to be produced
for delivery of goods at the destination.
10.3 Finance and payment documents
Numerous finance and payment documents are available
and their use depends upon the payment terms negotiated
between exporter and importer. Each form of documentation
varies in degree of risk that is accepted by each party.
Bills of exchange are demands for payment prepared by the
exporter and presented to the importer, usually through a
financial intermediary. They may be at sight, when goods
are delivered or at maturity, typically after a defined time,
usually 30, 60 or 90 days. Examples are:
1. Documentary sight – documents against payment. The
exporter retains control of the goods until payment is
received. If the bill is not paid
on presentation, the goods will remain in storage until
resale or reshipment.
2. Documentary term – documents against acceptance.
The bill is accepted by the buyer and the shipping
documents are released. This is a riskier method because
the exporter loses control at this point and must rely on
the buyer’s credit standing for payment of the bill at
maturity. If the bill is not paid, the exporter may have
recourse but this can be costly and difficult.
F rom an Australian exporter’s point of view, an irrevocable
letter of credit from an overseas bank confirmed by
an Australian bank is the most satisfactory method of
guaranteeing payment.
Internationally accepted rules for the use of letters of credit
can be found in Uniform Customs and Practices for
Documentary Credits (UCP), which are available from
most banks.
10.4 Insurance documents
Documentation certifying insurance may be required in
certain markets. The responsibility for providing insurance is
agreed in individual contracts. Information on all aspects of
export documentation can be obtained from commercial
banks and freight forwarders.
For further information on training courses
on export documentation visit:
The Australian Institute of Export – aiex.com.au
Documentary credit more commonly known as letters of
credit (LCs), these are one of the most popular forms of
guaranteeing payment for international transactions. They
take a variety of forms but essentially represent an advice
issued by the importer’s bank authorising payment of a
specified sum of money by a correspondent bank to a named
beneficiary upon the delivery of certain documents. The types
of letters of credit most commonly used are:
1. Irrevocable – allows the bank to modify its terms only
after obtaining the approval of both exporter and
importer.
2. Revocable – can be modified by the issuing bank
without obtaining approval.
3. Confirmed – guaranteed by both the exporter’s bank in
the country of origin and the importer’s bank in market.
Victorian Export Reference Guide
page 23
11Getting paid
Your export endeavours will be meaningless if you do not receive payment for
the goods and services you provide to overseas buyers. Payment terms must be
at the forefront of any export transaction and will usually be stipulated in the
Contract of Sale.
The precise terms are subject to negotiation between buyer and seller, as
is the degree of risk each party is willing or prepared to accept. As with any
negotiation, the stronger party will usually be the one to determine the final
payment terms for any transaction.
The types of payment of least risk to the exporter are outlined
below:
Advance payment will always be the most attractive option
for an exporter because you receive funds before releasing
your goods for shipment. Advance payment is most common
in situations where the buyer and seller do not have a close
relationship and where there may be questions over the
credit-worthiness of a buyer. It may also be demanded when
exporting to a risky market. On the other hand, importers
must have confidence that you will despatch the goods on
receipt of payment.
Letters of credit are typically used where an importer’s credit
rating is questionable, where the exporter may require them
to obtain finance or where market regulations demand them.
Banks will normally issue letters of credit only when
importers have deposited sufficient funds to pay for the
goods. When a letter of credit is issued, the importer’s
bank will advise the exporter’s bank that the goods may be
shipped.
The exporter will then provide a set of documents – typically
an invoice, customs forms, packing list and Bill of Lading –
to its own bank and receive payment. Letters of credit are
popular because banks assume most of the risks – for a fee.
The letter of credit reduces the importer’s risk of nonshipment because they receive proof of shipment before
payment is made.
hile documentary collection and letters of credit do not
W
entirely eliminate the risk of non-shipment or non-payment,
they have become an accepted means of facilitating
international trade and are widely used instruments.
page 24
Victorian Export Reference Guide
E xporters can further minimise risk by retaining control or
possession of the goods up to the point of delivery to the
buyer. This can provide protection even if the goods are not
accepted or payment is dishonoured.
There will always be a degree of risk of non-payment but
these instruments provide exporters with a measure of
confidence that they will be paid.
Documentary collection is where commercial banks act
as intermediaries to the transaction but do not accept any
financial risk. Key documents are a bill of exchange (draft),
packing list and Bill of Lading.
Documentary collection reduces the importer’s risk of nonshipment as the packing list describes the contents of the
shipment and the Bill of Lading is proof of shipment.
The exporter’s risk of non-payment is increased because,
although title is retained until the goods have been accepted,
the importer does not pay until all the documents have been
received. A degree of risk is therefore shared between the
two parties.
Open account is where an exporter is prepared to ship goods
and subsequently provide the importer with an invoice for
payment. The exporter loses control and ownership of the
merchandise with no guarantee of being paid.
This option is more common where buyers and sellers have
developed a longer-term relationship and built up a degree
of trust. Typical transactions on open account are those
between subsidiaries of an international company where
default is highly unlikely.
12For further
information
For further information on exporting or Victorian Government export
services, contact the Victorian Government Business Office nearest
you or visit export.vic.gov.au
Metropolitan Offices
Regional Offices
CBD – Inner Melbourne Region
Level 35, 121 Exhibition Street
Melbourne VIC 3000
Tel: (+61 3) 9651 9239
Fax: (+61 3) 9651 9505
information.innermelbourne@dsdbi.vic.
gov.au
Barwon South West
Region
Bundoora – Northern Metropolitan
Region
University Hill
Suite 16 Level 1, 20 Enterprise Drive
Bundoora VIC 3083
Tel: (+61 3) 9935 0600
Fax: (+61 3) 9466 7367
information.northmetro@dsdbi.vic.gov.au
Ringwood – Eastern Metropolitan
Region
Suite 11, Level 1,12 Maroondah Highway
Ringwood VIC 3134
Tel: (+61 3) 9938 0150
Fax: (+61 3) 9879 3180
information.eastmetro@dsdbi.vic.gov.au
Dandenong – Southern Metropolitan
Region
Level 6, 165-169 Thomas Street
Dandenong VIC 3175
Tel: (+61 3) 9938 0100
Fax: (+61 3) 9794 5644
information.southmetro@dsdbi.vic.
gov.au
Tottenham – Western Metropolitan
Region
Level 1, 67 Ashley Street
Tottenham VIC 3012
Tel: (+61 3) 9334 1300
Fax: (+61 3) 9334 1301
information.westmetro@dsdbi.vic.gov.au
information.barwonsouthwest@dsdbi.
vic.gov.au
Geelong
69 Moorabool Street
Geelong VIC 3220
Tel: (+61 3) 5223 2104
Fax: (+61 3) 5229 9503
Warrnambool
South West Tafe
Customs House, Giles Street
P.O. Box 674
Warrnambool VIC 3280
Tel: (+61 3) 5561 4135
Fax: (+61 3) 5561 3851
Gippsland Region
information.gippsland@dsdbi.vic.gov.au
Traralgon
33 Breed Street
Tralagon VIC 3844
Tel: (+61 3) 5174 9233
Fax: (+61 3) 5174 7845
Sale
Level 1/ 66 Foster Street
Sale VIC 3853
Tel: (+61 3) 5142 0200
Fax: (+61 3) 5142 0201
Grampians Region
Horsham
62 Darlot Street
Horsham VIC 3400
Tel: (+61 3) 5381 2762
Fax: (+61 3) 5381 2514
Hume Region
information.hume@dsdbi.vic.gov.au
Wangaratta
Level 1, 62 Ovens Street
Wangaratta VIC 3677
Tel: (+61 3) 5722 9649
Fax: (+61 3) 5722 7109
Shepparton
79A Wyndham Street
Shepparton VIC 3632
Tel: (+61 3) 5895 4100
Fax: (+61 3) 5822 2554
Wodonga
Level 6, 22 Stanley Street
Wodonga VIC 3689
Tel: (+61 2) 6056 2166
Fax: (+61 2) 6056 2334
Loddon Mallee Region
information.loddonmallee@dsdbi.vic.
gov.au
Bendigo
56 – 60 King Street
Bendigo VIC 3550
Tel: (+61 3) 4433 8023
Fax: (+61 3) 4433 8099
Mildura
information.grampians@dsdbi.vic.gov.au 131 Langtree Avenue
Mildura VIC 3500
Ballarat
Tel: (+61 3) 5051 2000
111 Armstrong Street North
Fax: (+61 3) 5051 2020
Ballarat VIC 3350
Tel: (+61 3) 5327 2865
Fax: (+61 3) 5327 2830
Victorian Export Reference Guide
page 25
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Victorian Export Reference Guide