Exports encyclopedia topics

INTERNATIONAL FREIGHT TRANSPORTATION OPTIONS

The exporter's options for transporting goods are dictated in large measure by their final destination. American exporters preparing goods for shipment to Mexico or Canada, for instance, will often make arrangements to transport their merchandise over land routes via trucks, while exports that are headed for destinations unreachable via land routes have to be transported by air or water.

Exporters who are faced with the choice of air or water modes of transport need to be cognizant of the advantages and disadvantages of those two options. While shipping by water is generally less expensive than transporting by air, the difference in cost is narrowed somewhat by ancillary costs associated with sea transport, such as the cost of transporting goods to the dock. Merchandise shipped over water also takes longer to reach its ultimate destination, and since some export transactions do not require the importer to pay until they are in possession of the goods, exporters in immediate need of cash infusions will need to weigh this factor carefully. Of course, the sheer size and tonnage of some export shipments render air transportation impractical.

EXPORT PACKAGING

Consultants to companies who engage in exporting note that the merchandise they ship will generally be subject to more handling and potentially damaging forces during transport than will goods headed for domestic destinations. Intelligent packaging, then, is a key component of the exporting process. Ideally, exporters should use a packaging approach that minimizes the cost of transportation while simultaneously ensuring that the goods reach their destination intact. Many small exporting companies that do not have the financial or operating resources to take care of packaging themselves utilize firms that specialize in providing such services.

Exporting firms need to keep abreast of labeling and marking requirements on goods intended for international destinations as well. Pharmaceutical products, for instance, require special labeling that varies from country to country. In addition, many countries enforce regulations requiring that imported goods bear the name of the country of origin on the outside of their packaging. Packaging containing merchandise intended for foreign ports also typically includes markings indicating the height and weight of the packages, as well as any additional handling instructions.

NECESSARY EXPORT DOCUMENTS

The documentation required for international trade is quite extensive (and potentially confusing), but exporters need to make certain that they have their papers in proper order if they wish to avoid potentially damaging delays in shipment. Documents required for the export of goods include the following:

Export License. While most merchandise can be shipped to overseas customers without benefit of an actual license, some goods are subject to additional regulations and require an Individually Validated Export License (IVL). "Should your particular export be subject to export controls," explained the Small Business Administration, "then a 'validated' license must be obtained. In general, your export would require a 'validated' license if export of the goods would: threaten United States national security; affect certain foreign policies of the United States; or create short supply in domestic markets."

Shipper's Export Declaration (SED). This important document is required for mail shipments of $500 or more, all shipments of more than $2500 value, and any shipment that is covered by an IVL. SEDs are utilized by the U.S. Bureau of the Census to track export trends in the United States.

Commercial Invoice. The commercial invoice is used by both exporters and importers. Exporters use the document as proof of ownership and an aid in securing payment for goods delivered, while importers use it to confirm that the merchandise they have received matches what they ordered. Commercial invoices are also used by Customs officers to figure the correct duty on the goods being imported, so U.S. exporters generally provide translated copies of the invoice when shipping goods to destinations for which English is not the primary language spoken.

Consular Invoice. This kind of invoice serves the same general purpose as the commercial invoice, but it must be worded in the language of the nation for which the goods are intended. Consular invoices are so named because they can be obtained from the destination country's consulate.

Bill of Lading. This document serves as evidence of ownership of the goods being exported, and also specifies the responsibilities of the transporting company. Two types of ocean bills of lading can be used. The first, known as the straight bill of lading, provides for delivery of merchandise only to the person named in the bill of lading. Under the second bill of lading option, called the shipper's order, goods can be delivered not only to the person named in the bill but also to other designated people. Under the latter option, financing institutions are empowered to take possession of the goods being exported if the buyer defaults; they retain title on the merchandise until all payments and conditions of sale have been fulfilled. For exports that are transported by air, documents known as air waybills serve the same general purpose.

Certificate of Origin. Some countries require shipments of goods from foreign ports to include certificates that indicate where the merchandise originated. In instances wherein the importing country has trade agreements in place with the country that is doing the exporting, lower tariffs on those goods can sometimes be imposed.

Export Packing List. This highly involved document provides a detailed description of the contents being shipped. It covers the material in each individual package, providing information such as individual net, legal, tare and gross weights and measurements for each package. This data is typically measured by both metric and U.S. systems of measurement. Export packing lists are used by the shipper (or the freight forwarder) to confirm the shipment's contents and figure the total weight and volume of the shipment.

Inspection Certificate. This documentation is bestowed by independent inspection firms, whose services are required when foreign purchasers ask for independent corroboration that the goods meet agreed-upon specifications.

Insurance Certificate. Some international transactions require the exporting firm to provide insurance on the shipment. The insurance certificate describes the type and amount of merchandise contained in the shipment, and confirms that the shipment has been insured.

Inland Bill of Lading. These documents—known as "waybills on rail" in the railroad industry and "pro-forma" bills within the trucking industry—provide information on the inland transportation of goods and the port that will eventually send the exporter's goods on their way.

Dock Receipt. This paper is the international carrier's acknowledgment that goods have been received. It serves to transfer responsibility for those goods from the domestic to the international carrier.

Shipper's Instructions. This document serves to provide transporters of exports with any other information necessary to ensure the effective movement of goods to their final destination.

THE FREIGHT FORWARDER

International freight forwarders are important figures in the exporting process for American firms. Knowledgeable about all aspects of international trade—including international and U.S. regulations, import and export rules, and shipping options—freight forwarders serve as agents for exporting businesses, overseeing the transportation of their cargo to overseas destinations.

As the Small Business Administration noted in its Breaking into the Trade Game, many freight forwarders provide services at the very beginning of the exporting process by advising exporting firms about freight costs, port charges, insurance costs, consular fees, handling fees, and other expenses. They can also advise small exporters about packaging options, and in some cases can make arrangements to have goods containerized or packed at the port. Freight forwarders also have the power to reserve space on freighters and other ocean vessels in accordance with client specifications.

In order to represent their exporter clients as effectively as possible, freight forwarders may review the wide array of documentation necessary for international business transactions, including letters of credit, commercial invoices, and packing lists. Exporters can also ask freight forwarders to prepare necessary documentation for the exporting process, including bills of lading. Once this documentation has been taken care of, they can be forwarded as needed. Finally, the exporter can also ask the freight forwarder to make arrangements with the customs broker to ensure that their merchandise is in compliance with customs export documentation regulations. Given the wide array of services that they provide, and the importance of those services to the exporting process, trade experts view freight forwarders as an extremely valuable resource for small exporting firms. "The cost for their services," contended the Small Business Administration (SBA), "is a legitimate export cost that should be figured into the price charged to the customer."

History

The theory of international trade and commercial policy is one of the oldest branches of economic thought starting with the ancient Greeks up to the present era. Exporting is a major component of international trade, and thus is argued constantly and consistently throughout the ages. Two dual views concerning trade present themselves. The first, recognizes the benefits of international exchange. The other concerns itself with the possibly that certain domestic industries (or laborers, or culture) could be harmed by foreign competition.

Process

Methods of transfer include a product or good or information being mailed, hand-delivered, up-loaded to an internet site, or downloaded from an internet site. It can be sent in the form of an email or during a telephone conversation.

National Regulations

United States

The Bureau of Industry and Security (BIS) is responsible for implementing and enforcing the Export Administration Regulations (EAR), which regulate the export and reexport of most commercial items. Some commodities require certification in order to export. There are different qualifications for what need to be done in order to export a good.

Dependent on the category, the 'item' falls under, the company may need to attain a license as a requisite to exportation. Some restrictions vary from country to country. The most restricted destinations are the embargoed countries and those countries designated as supporting terrorist activities, including Cuba, North Korea, Sudan, Syria and Iran (see: Sanctions against Iran). Some products obtained worldwide restrictions.

An item is considered an export whether or not it is leaving the United States temporarily, if it is leaving the United State but is not for sale (a gift), or if it is going to a wholly owned U.S. subsidiary in a foreign country. A foreign-origin item exported from the United States, transmitted or transhipped through the United States, or being returned from the United States to its foreign country of origin is considered an export.

How an item is transported outside of the United States does not matter in determining export license requirements.

Ref to http://www.census.gov/foreign-trade/Press-Release/2006pr/aip/related_party for data on exports by industry for the year 2006.

Barriers

Trade barriers are generally defined as government laws, regulations, policy, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. While restrictive business practices sometimes have a similar effect, they are not usually regarded as trade barriers. The most common foreign trade barriers are government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services.

Strategic

International agreements limit trade in, and the transfer of, certain types of goods and information e.g. goods associated with weapons of mass destruction, arms and torture. Examples are Nuclear Suppliers Group - limiting trade in nuclear weapons and associated goods (currently only 45 countries), The Australia Group - limiting trade in chemical & biological weapons and associated goods (currently only 39 countries), Missile Technology Control Regime - limiting trade in the means of delivering weapons of mass destruction (currently only 34 countries) and The Wassenaar Arrangement - limiting trade in conventional arms and technological developments (currently only 40 countries).

Tariffs

A tariff is a tax placed on a specific good or set of goods exported from or imported to a country, creating an economic barrier to trade.
Usually the tactic is used when a country's domestic output of the good is falling and imports from foreign competitors are rising, particularly if there exist strategic reasons for retaining a domestic production capability.
Some failing industries receive a protection with an effect similar to a subsidies in that by placing the tariff on the industry, the industry is less enticed to produce goods in a quicker, cheaper, and more productive fashion. The third reason for a tariff involves skirting of what is called dumping. Dumping curtails a country producing highly excessive amounts of goods and dumping the goods on another foreign country, producing the effect of prices that are "too low". Too low can refer to either the price of the good on from the foreign market being lower than the domestic market. The other reference refers to the producer selling the product at a price in which there is no profit or a loss. The purpose (and expected outcome) of the tariff is to encourage spending on domestic goods and services.

Protective tariffs protect what are known as infant industries that are in the phase of expansive growth. A tariff is used temporarily to allow the industry to freely grow without the level of competition usually garnered. However, this line of debate is only valid if the resources are more productive in their new use than they would be if the industry had not been started. Also, the industry eventually must incorporate itself into a market without the protection of government subsidies.

Tariffs create tension between countries. Examples include the United States steel tariff of 2002 and when China placed a 14% tariff on imported autoparts. Such tariffs usually lead to filing a complaint with the World Trade Organization (WTO) and, if that fails, could eventually head toward the country placing a tariff against the other nation in spite, to impress pressure to remove the tariff.

Subsidies

To subsidize an industry or company refers to, in this instance, a governmental providing supplemental financial support to manipulate the price below market value. Subsidies are generally used for failing industries that need a boost in domestic spending. Subsidizing encourages greater demand for a good or service because of the slashed price.

The effect of subsidies deters other countries that are able to produce a specific product or service at a faster, cheaper, and more productive rate. With the lowered price, these efficient producers cannot compete. The life of a subsidy is generally short-lived, but sometimes can be implemented on a more permanent basis.

The agricultural industry is commonly subsidized, both in the United States, and in other countries including Japan and nations located in the European Union (EU).

Critics argue such subsidies cost developing nations $24 billion annually in lost income according to a study by the International Food Policy Research Institute, a D.C. group funded partly by the World Bank. However, other nations are not the only economic 'losers'. Subsidies in the U.S. heavily depend upon taxpayer dollars. In 2000, the U.S. spent an all-time record $32.3 billion for the agricultural industry. The EU spends about $50 billion annually, nearly half its annual budget on its common agricultural policy and rural development.

Exports and free trade

Pros

The theory of comparative advantage materialized during the first quarter of the 19th century in the writings of 'classical economists'. While David Ricardo is most credited with the development of the theory (in Chapter 7 of his Principles of Political Economy, 1817), James Mills and Robert Torrens produced similar ideas. The idea stems from a country that is able to produce a commodity at the lowest of all countries, should be encouraged by removing competition. The single commodity with the greatest difference in terms of low prices is encouraged to increase production, while the second and subsequent commodities should either be decreased in levels of production, or removed altogether.

Cons

Mercantilism, the first systematic body of thought devoted to international trade, emerged during the 17th and 18th centuries in Europe. While most views surfacing from this school of thought differed, a commonly argued key objective of trade was to promote a "favorable" balance of trade, referring to a time when the value of domestic goods exported exceeds the value of foreign goods imported. The "favorable" balance in turn created a balance of trade surplus.

Mercantilists advocated that government policy directly arrange the flow of commerce to conform to their beliefs. They sought a highly interventionist agenda, using taxes on trade to manipulate the balance of trade or commodity composition of trade in favor of the home country.