International Trade Practices
Hao jie
2008.9
Content
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Part 1 Overview
Part 2 Terms of International
Trade
Part 3 International Trade
Procedure
Part 4 Trade Forms
Part 5 WTO and Globalization
of Trade
Part 1 Overview
Bird-eye View,
or Tiger-eye View ?
Chapter
Chapter
Chapter
Chapter
1
2
3
4
Introduction to International Trade
Basic Theory of International Trade
Barriers to International Trade
E-commerce
Chapter1 Introduction to
International Trade
What is International Trade?
The fair and deliberate exchange of goods
and services across national boundaries
Some concepts: visible trade, invisible trade,
Why do nations trade?
Relationship between trade and investment
Balance of trade and balance of payment
Why do nations trade?
Resources scattered in the world
Scare resources to satisfy our
unlimited wants for goods and service.
Comparative advantage in
production:relationship between trade
and economy
Intro-industry Trade
What is economics?
Economics is the study of the allocation of
our scarce resources to satisfy our unlimited
wants for goods and services
Resources are the scarce inputs used to
produce goods and services that we want.
Types of Resources:
Natural resources --- land
Capital resources: man made products used to
produce other things
Human resources
Scarcity: wants >
resources to produce
Everybody faces the scarcity
Scarcity and choice: relative
Opportunity cost: that which is given
up when a choice is made
Chapter 2 Advantages
of International Trade

OC & Specialization
 value of labor
 Law of Comparative Cost
 Internet Study of Law of
Comparative Cost
 Terms of Trade
Adam Smith

Biographical details:
 http://www.lucidcafe.com/library/96jun/smith.ht
ml

Introductory Remarks to the Wealth of
Nations:
 http://www.econlib.org/library/Smith/smWN0.ht
ml

eText by Adam Smith: The Wealth of
Nations
 http://www.lucidcafe.com/library/96jun/smith.ht
ml
David Ricardo &
Comparative dvantage

Biographical Details:
 http://www.econlib.org/library/Enc/bios/
Ricardo.html

Theory of Comparative Advantage:
 http://www.systemics.com/docs/ricardo/
david.html
Case Study
Annotation by a case to the Principle of
Absolute and Comparative Advantage :
http://www.bized.ac.uk/virtual/dc/trade/theory/t
h2.htm
Terms of Trade
Chapter 3 Barrier to
International Trade
Cultural Problems
Economic Problems
Trade Barrier
Chapter 4 Business Internet
Background
E-commerce
Box 1-- Case Study
 Confused?
Lost?
Part 2 Terms of
International Trade

Chapter 5 International Trade Terms
 Chapter 6 Terms of Commodity
 Chapter 7 International Cargo Transport
 Chapter 8 International Cargo
Transportation Insurance
 Chapter 9 Terms of Price
 Chapter 10 International Payments
 Chapter 11 Claims, Force Majeure and
Arbitration
Chapter 5 International
Trade Terms
 5.1 Generalization
 Role of International Trade Terms
 International Trade Usages
Warsaw-Oxford Rules 1932
Revised American Foreign Trade Definitions 1941
INCOTERMS 2000
Difference between Incoterms 1990 and
Incoterms 2000
A chart of classification of Incoterms 2000
 5.2 Standard Interpretation of 13 Trade Terms
 A Vivid Picture
 Detailed Interpretation
5.2 Standard Interpretation of 13
Trade Terms
Box 2-- Case Study
 Confused?
Lost?
Chapter 6 Terms of
Commodity
 6.1 Name of Commodity
 6.2 Quality of Commodity
Sales by Sample
Sales by Specification, Grade or Standard
Sales by Brand or Trade Mark
Sales by Description, Drawing or
Diagram
 6.3 Quantity of Commodity
Unit of Measurement
Calculation of Weight
6.4 Packing of Commodity
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Types of Packing
Outer Packing
Inner Packing
Marking of Goods
Shipping Mark
Indicative/ Warning Mark
Neutral Packing
6.5 Commodity Inspection
and Customs Formalities
 Where and when inspection undergoes
 Shipping quality/ quantity (Weight) as final
 Landing quality/quantity as final
Inspection and re-inspection
Commodity Inspection Certificate
Customs formalities for exports and imports
 Customs Duties
Specific Duties
Ad Valorem Duties
Compound Duties
Chapter 7 International
Cargo Transport
 7.1
Modes of Transport
 7.2 Clause of Shipment
 7.3 Major Shipping Documents
7.1 Modes of Transport
 Sea Transport (Ocean Transport)
 Kinds of Vessels
 Role of Shipping and forwarding agents
 Freight Rate
 Rail Transport
 Air Transport
 Road Transport
 Inland Waterway Transport
 Container Transport
 International Multi-modal Transport
 Parcel Post Transport
7.2 Clause of Shipment

Time of Shipment
 Port of Shipment and Port of Destination
 Shipping Advice
 Partial Shipment and Transshipment
 Lay Time, Demurrage and Dispatch
7.3 Major Shipping
Documents
Bill of Lading
Other Documents:
Consignment Note (for Rail
and Road)
Air Waybill
 Parcel Post Receipt
 Combined Transport
Documents
Bill of Lading
 Concept
 Different Types of Bill of Lading
 Shipped (On Board) B/L and Received for Shipment
B/L
 Clean B/L and unclean B/L
 Straight, blank and order B/L
 Direct, transshipment, through B/L
 Liner B/L, container B/L, and combined transport B/L
 Long form B/L and short form B/L
 On Deck B/L, stale B/L, ante-dated B/L and advanced
B/L
Chapter 8 International
Cargo Transportation
Insurance
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8.1 Marine Cargo Insurance
8.2 Insurance of Land, Air and Postal
Transportation
8.3 Insurance Procedures
8.4 Fundamental Principles of Cargo Insurance
8.5 Factors Determining Premium Rates
8.6 Cargo Insurance Claims
8.1 Marine Cargo
Insurance
 Types of Risks, Losses and Expenses
Covered
Types of risks: perils of the sea, external
risks
Types of losses: total loss (actual total loss,
constructive total loss), partial loss
(general average and partial average loss)
Main types of
insurance

FPA: free from particular average
 WPA: with particular average
 All Risks
 General additional risks
 Special additional risks
8.2 Insurance of Land, Air
and Postal Transportation

Land transportation risk: WPA
 All Risks for land transportation:
Marine All risks
 Air transportation risk: WPA
 Air transportation all risks: Marine
All Risks
 Parcel Post risk and parcel post all
risks
Insurance Procedures

Usually insurance is arranged by the
exporter (under CIF terms etc.) or
the importer (under FOB, CFR terms
etc.) approaching an insurance
company which has a department
specializing in cargo insurance. They
may start by inquiring and choosing
the right coverage and then negotiate
insurance premium rates.
8.4 Fundamental Principles
of Cargo Insurance
 Insurable
Interest
 Good Faith
 Indemnity
8.5 Factors Determining
Premium Rates
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Carrying Vessel
Nature of the packing used
Type of Merchandise Involved
Nature of Transit and Related
Warehouse Accommodation
Previous Experience
Extent of Cover Needed
Volume of Cargo Involved
8.6 Cargo Insurance Claims
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documents required by the buyer:
the commercial invoice issued to the buyer
the original bill of lading
the orginal policy or certificate of insurance
the survey report or other documentary evidence
detailing the loss or damage incurred
extended protest for salvage loss, particular average in
goods, or total loss of goods
any exchange of correspondence with the carriers and
other parties regarding their liability for the loss or
damage
any landing account at final destination
Chapter 9 Terms of Price
9.1 Pricing Consideration
Cost Structure
Points to be considered in
pricing
Approaches to pricing strategies
Cost
Structure
Cost-oriented
Pricing Methods
 Break-even pricing
 Cost-plus
pricing
 Marginal cost pricing
9.2 Choice of Currency
for Account and Payment
 Money
of account
 Money of payment
 Exchange cost
9.3 Use of Commission
and Discount
 Commission
 Discount
 Cultural
Background
9.4 Clause of Price
 Unit
Price
 Total Price
 Contract Stipulation
Chapter 10
International Payments

10.0
 10.1
 10.2
 10.3
 10.4
 10.5
Overview
Amount of Payment
Payment Currency
Instruments
Payment Methods
Factoring
10.3 Instruments
 Draft or Bill of Exchange
 A sample draft and its elements
 Types of drafts
 Stages in handling a bill of exchange
 Promissory Note
 Definition
 A sample draft and its elements
 Check
 Definition
 A sample draft and its elements
 Activities for Comprehension:
 Difference between draft, promissory note
and check.
10.4 Payment Methods
 Remittance
 Collection
 Letter of
Credit
10.4.1 Remittance

Definition
 Three types of remittance:
– M/T: Mail Transfer
– T/T: Telegraphic Transfer
– D/D: Demand Draft
10.4.2 Collection

Definition
 Parties involved under collection
 Varieties of Documentary Collection
– D/P: Documentary against Payment
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D/P at sight
D/P at ___ days after sight
D/P.T/R
– D/A: Documents against Acceptance

Particular remarks about collection
10.4.3 Letter of Credit

Definition and Performances
 Parties Involved
 Chief Elements of L/C
 Procedures Involved in the use of L/C
 Varieties of L/C
10.4.4 Other Payment
Methods

Letter of Guarantee
 Standby L/C
 Combined use of different method of
payment
10.5 Factoring

Services offered through factoring
 Operation Mode
 Kinds in Practices
Chapter 11 Claims, force
majeure and arbitration

Claims
 Force Majeure
– Clauses
– Sino-sure Website: www.sinosure.com.cn

Arbitration
– CRETAC Website: www.cretac.org.cn/english
– General arbitration procedures
Part 3 International Trade
Procedure

Chapter 12 Launching a Profitable
Transaction
 Chapter 13 Business Negotiation and
Establishment of Contract
 Chapter 14 Import & Export Documentation
 Chapter 15 Import and Export Operating
Procedures
Chapter 12 Launching a
Profitable Transaction

Preparation before the Negotiation
– Target Market
– Business Partner
– Qualified Negotiation
– Proper Plan
Chapter 13
Business Negotiation and
Establishment of Contract

General Procedures for Trade Negotiation
– Enquiry
– Invitation for Offer
– Offer


Definite Offer
Indefinite Offer
– Counter Offer
– Acceptance

Conclusion of Contract
Chapter 14 Import and Export
Documentation

14.1
 14.2
 14.3
 14.4
 14.5
Government control documents
Commercial documents
Finance documents
Transportation documents
Insurance documents
14.1 Government control
documents
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Import License
Foreign Exchange
Export License
Certificate of Origin
Inspection Certificate
Consular Invoice
Customs Invoice
14.2 Commercial documents
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Pro forma Invoice
Commercial Invoice
Quality Certificate
Weight Certificate
14.3 Finance documents
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Application Form for International Money
Transfer
Drafts
Banker’s Draft
Commercial Draft
Sight Draft
Time Draft
Application for Documentary Letter of Credit
Letter of Credit
14.4 Transportation
documents
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Shipping Note
Packing List
Bill of Lading
Consignment Note (rail, road)
Air Waybill
Parcel Post Receipt
Combined Transport Documents
Arrival Notification
14.5 Insurance documents


Insurance Policy
Insurance Certificate
Chapter 15 Import and Export
Operating Procedures

15.1 Import Procedures

15.2 Export Procedures
15.1 Import
Procedures

Import License
 Trade Negotiation
 L/C
 Booking Shipping Space or Ship
 Insurance
 Document Examination and Payment
 Customs Clearance
 Taking Delivery and Inspection
 Claim
 Settlement of Disputes
15.2 Export
Procedures

Export License
 Trade Negotiation
 Cargo Readiness
 L/C
 Customs Clearance
 Shipping
 Insurance
 Document and Payment
Part 4 Trade Forms
 Chapter
16 Agent,
Distributors and Consignment
 Chapter 17 Tenders
 Chapter 18 Futures Trading
 Chapter 19 Counter trade
Chapter 16 Agent,
Distribution and
Consignment

International trade forms refer to the common
practices and channels between countries for
the flow of commodities or services. Every
import or export is carried out through certain
trade form. Besides the direct trade form
discussed in this book so far, there are a few
indirect ones commonly used in international
trade as well. Some of the most commonly used
ones are discussed in the last four chapters of
this book.
A Market Channel
16.1 Agent
 Definition
 Indenting Agent
 Factor
 Del
Credere Agent
16.2 Distribution
Definition
Two Kinds:
Sole or Exclusive Distribution
Non-exclusive Distribution
16.3 Consignment
 Definition
 Operation Mode
Chapter 17 Tenders

17.1 Plant-engineering Survey and Evaluation
 17.2 Contract of International Plantengineering
 17.3 Invitation for Bids
 17.4 Submission of Tenders
 17.5 Bid Opening & Evaluation of Tender
 17.6 Tenders Discussions and Tender Decision
 17.7 International Service Cooperation
17.1 Plantengineering Survey
and Evaluation

1)
an all-round hydrological and
geological survey must be made;
 2) Designs of Plant-engineering;
 3) Supply of Technology;
 4) Supply of machines and equipment;
 5) Construction and installation;
 6) Initial Operation;
17.2 Contract
of International Plantengineering
1) As per subject matters in contracts, they are
named as contract for plant-engineering
construction, contract for …
2) As per modes of business operation, they are
named as general monopoly contract, monopoly
contract for…
3) As per modes of valuation, they are named as
total price contract, unit price contract, cost
and commission contract.
17.3 Invitation for Bids
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Bid Documents
Terms of Contract
Base Price Limit on Bids
Technical Specifications
Kinds of Invitation to Bid
17.4 Submission of Tenders
 Tender Documents
 Working
out Tender Documents
17.5 Bid Opening &
Evaluation of
Tender
 In
accordance with the specific
conditions three modes may be
adopted:
 (1) Bid opening in public;
 (2) Bid opening in Limitedly;
 (3) Bid opening secretly.
17.6 Tenders Discussions
and Tender Decision

These activities are carried out between the employer and
the bidders chosen after the evaluation of tenders, including
the technical reply and price negotiations. Tender decision
shall normally be made within the period of three to six
months. Then the promotor should send a notice of award to
the winning bidder. The last work for the both parties to do
is to conclude an agreement of contract to determine the
terms and conditions of contract and the rights and duties of
the promotor and the contractor. At the same time, the
contractor shall establish with his banker a letter of
performance guarantee and submit it to the employer as an
economic guarantee.
17.7
International
Service Cooperation

The types and fields of service
cooperation are continuously expanding
with the social development and the
changes of international economic
relations. But on the whole, they can be
divided into two types, technical service
and common labour service.
Chapter 18 Futures Trading
 Introduction to
Futures
 Futures Market
 Hedging
18.1 Introduction to
Futures
 Futures and Forward Contract
 Worldly Famous Futures Exchanges
Chicago Board of Trade (CBOT)
Chicago Mercantile Exchange（CME)
New York Mercantile Exchange(NYME)
London Metal Exchange
Tokyo Stock Exchange
Singapore International Monetary Exchange
Hong Kong Commodity Exchange
18.2 Futures Market
Futures Exchange
Definition
Organization Structure
General Responsibilities
Futures Contracts
The Clearing House
Participants
Margin System
Original Margin or Initial Margin
Variation Margin or Call Margin
18.3 Hedging
 Definition
 Selling
Hedge
 Buying Hedge
Chapter 19 Counter Trade
 Definition: an umbrella term that includes all of the
variations of the exchange of goods for goods
 Common Reasons for Counter-trade:
 1．To create new export markets or promote export
products
 2 ． To acquire new technology or attract foreign
investment
 3．To balance trade for economic or political reason
 Compensation Trade
 Counter-purchase
 Switch Trade
 Offset
19.1 Compensation
Trade
Full Compensation
Exporter in
Country A
Export Goods
Counter-trade Goods
Importer in
Country B
19.1 Compensation
Trade
Partial Compensation
Exporter in
Country A
Export Goods
Counter-trade Goods
Foreign Exchange
Importer in
Country B
19.2 Counter-purchase
Foreign Exchange
Export Goods
Exporter in
Country A
Importer in
Country B
Counter-trade Goods
Foreign Exchange
19.3 Switch Trade
Switch Dealer
Hard Currency
(with a profit) 5
The Third Country
Hard
Currency
(at a
discount)
1
Clearing Units
2
Clearing Units 3
Goods 4
Bilateral Clearing
Creditor Country
+ Agreement -
Debtor Country
19.4 Offset
 Definition
 Operation Modes
Part 5 WTO and
Globalization of Trade
 Chapter 20
WTO: its objectives,
functions and structure
 Chapter 21 WTO Agreements
 Chapter 22 Globalization of Trade
Chapter 20 WTO: Its
Objectives, Functions
and Structure
Brief Introduction
WTO and GATT
WWW.WTO.ORG
Objectives
 raising
standards of living and
incomes, ensuring full employment,
expanding production and trade,
and optimal use of the world’s
resources
Functions
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to facilitate the implementation, administration and
operation of the Uruguay Round legal instruments and of
any new agreements that may be negotiated in the future.
to provide a forum for further negotiations among
member countries on matters covered by the agreements
as well as on new issues falling within its mandate.
to be responsible for the settlement of differences and
disputes among its member countries.
to be responsible for carrying out periodic reviews of the
trade policies of its member countries.
How the WTO Works
 Decision-making process
 The
Secretariat
 Membership
Chapter 21 WTO
Agreement
 Overview of the WTO Agreements
The Final Act Embodying the Results of the
Uruguay Round of Multilateral Trade
Negotiation
Marrakesh Agreement Establishing the
World Trade Organization
 A Navigational Guide to the WTO Agreements
Three-part Broad Outline:
GATT,GATS,TRIPS
List of Annexes
Chapter 22
Globalization of Trade
 Definition
 Understanding
 Opponents of
Globalization