International Trade Practices

by Zhu zhenghao

Content

Part 1 OverviewPart 2 Terms of International TradePart 3 International Trade ProcedurePart 4 Trade FormsPart 5 WTO and Globalization of Trade

Part 1 Overview

Bird-eye View, or Tiger-eye View ?

Chapter 1 Introduction to International TradeChapter 2 Benefits of International Trade Chapter 3 Barriers to International TradeChapter 4 Business Internet

Chapter1 Introduction to International Trade

What is International Trade?The fair and deliberate exchange of goods and services across national boundaries

Some basic concepts: visible trade, invisible trade,Why do nations trade?Survey of International TradeFoundation of International Trade

Chapter 2 Advantages of International Trade

Specializationvalue of laborLaw of Comparative CostInternet Study of Law of Comparative Cost

Chapter 3 Barrier to International Trade

Cultural ProblemsEconomic ProblemsTrade Barrier

Chapter 4 Business Internet

BackgroundE-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 GeneralizationRole of International Trade TermsInternational 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 TermsA Vivid PictureDetailed Interpretation

5.2 Standard Interpretation of 13 Trade Terms

Box 2-- Case Study

Confused? Lost?

Chapter 6 Terms of Commodity

6.1 Name of Commodity6.2 Quality of Commodity

Sales by SampleSales by Specification, Grade or StandardSales by Brand or Trade MarkSales by Description, Drawing or Diagram

6.3 Quantity of CommodityUnit of Measurement Calculation of Weight

6.4 Packing of Commodity

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 undergoesShipping quality/ quantity (Weight) as finalLanding quality/quantity as final

Inspection and re-inspection Commodity Inspection CertificateCustoms formalities for exports and imports

Customs DutiesSpecific DutiesAd Valorem DutiesCompound Duties

Chapter 7 International Cargo Transport

7.1 Modes of Transport7.2 Clause of Shipment7.3 Major Shipping Documents

7.1 Modes of TransportSea Transport (Ocean Transport)

Kinds of VesselsRole of Shipping and forwarding agentsFreight Rate

Rail TransportAir TransportRoad TransportInland Waterway TransportContainer TransportInternational Multi-modal TransportParcel 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 LadingOther Documents:

Consignment Note (for Rail and Road)Air Waybill Parcel Post Receipt Combined Transport Documents

Bill of LadingConceptDifferent Types of Bill of Lading

Shipped (On Board) B/L and Received for Shipment B/LClean B/L and unclean B/LStraight, blank and order B/LDirect, transshipment, through B/LLiner B/L, container B/L, and combined transport B/LLong form B/L and short form B/LOn Deck B/L, stale B/L, ante-dated B/L and advanced B/L

Chapter 8 International Cargo Transportation Insurance

8.1 Marine Cargo Insurance8.2 Insurance of Land, Air and Postal Transportation8.3 Insurance Procedures8.4 Fundamental Principles of Cargo Insurance8.5 Factors Determining Premium Rates8.6 Cargo Insurance Claims

8.1 Marine Cargo Insurance

Types of Risks, Losses and Expenses Covered

Types of risks: perils of the sea, external risksTypes 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 averageWPA: with particular averageAll RisksGeneral additional risksSpecial additional risks

8.2 Insurance of Land, Air and Postal TransportationLand transportation risk: WPA

All Risks for land transportation: Marine All risksAir transportation risk: WPAAir transportation all risks: Marine All RisksParcel 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 InterestGood FaithIndemnity

8.5 Factors Determining Premium Rates

Carrying VesselNature of the packing usedType of Merchandise InvolvedNature of Transit and Related Warehouse AccommodationPrevious ExperienceExtent of Cover NeededVolume of Cargo Involved

8.6 Cargo Insurance Claims

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 StructurePoints to be considered in pricingApproaches to pricing strategies

Cost Structure

Cost-oriented Pricing Methods

Break-even pricingCost-plus pricingMarginal cost pricing

9.2 Choice of Currency for Account and Payment

Money of accountMoney of paymentExchange cost

9.3 Use of Commission and Discount

CommissionDiscountCultural Background

9.4 Clause of Price

Unit PriceTotal PriceContract Stipulation

Chapter 10 International Payments

10.0 Overview10.1 Amount of Payment10.2 Payment Currency10.3 Instruments10.4 Payment Methods10.5 Factoring

10.3 Instruments

Draft or Bill of ExchangeA sample draft and its elements Types of draftsStages in handling a bill of exchange

Promissory NoteDefinitionA sample draft and its elements

CheckDefinitionA sample draft and its elements

Activities for Comprehension: Difference between draft, promissory note and check.

10.4 Payment Methods

RemittanceCollectionLetter of Credit

10.4.1 Remittance

DefinitionThree types of remittance:

M/T: Mail TransferT/T: Telegraphic TransferD/D: Demand Draft

10.4.2 Collection

DefinitionParties involved under collectionVarieties of Documentary Collection

D/P: Documentary against Payment• 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 PerformancesParties InvolvedChief Elements of L/CProcedures Involved in the use of L/CVarieties of L/C

10.4.4 Other Payment Methods

Letter of GuaranteeStandby L/CCombined use of different method of payment

10.5 Factoring

Services offered through factoringOperation ModeKinds in Practices

Chapter 11 Claims, force majeure and arbitration

ClaimsForce Majeure

ClausesSino-sure Website: www.sinosure.com.cn

Arbitration CRETAC Website: www.cretac.org.cn/englishGeneral 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 NegotiationTarget MarketBusiness PartnerQualified NegotiationProper Plan

Chapter 13 Business Negotiation and Establishment of Contract

General Procedures for Trade Negotiation

EnquiryInvitation for OfferOffer

• Definite Offer• Indefinite Offer

Counter OfferAcceptance

Conclusion of Contract

Chapter 14 Import and Export Documentation

14.1 Government control documents14.2 Commercial documents14.3 Finance documents14.4 Transportation documents14.5 Insurance documents

14.1 Government control documents

Import License Foreign Exchange Export License Certificate of Origin Inspection Certificate Consular Invoice Customs Invoice

14.2 Commercial documents

Pro forma Invoice Commercial Invoice Quality Certificate Weight Certificate

14.3 Finance documentsApplication Form for International Money TransferDraftsBanker’s Draft Commercial Draft Sight DraftTime Draft Application for Documentary Letter of CreditLetter of Credit

14.4 Transportation documents

Shipping NotePacking List Bill of Lading Consignment Note (rail, road) Air WaybillParcel 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 ProceduresImport LicenseTrade NegotiationL/CBooking Shipping Space or ShipInsuranceDocument Examination and PaymentCustoms ClearanceTaking Delivery and InspectionClaim Settlement of Disputes

15.2 Export Procedures

Export LicenseTrade NegotiationCargo ReadinessL/CCustoms ClearanceShippingInsuranceDocument 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

DefinitionIndenting AgentFactorDel Credere Agent

16.2 Distribution

DefinitionTwo Kinds:

Sole or Exclusive DistributionNon-exclusive Distribution

16.3 Consignment

DefinitionOperation Mode

Chapter 17 Tenders17.1 Plant-engineering Survey and Evaluation17.2 Contract of International Plant-engineering17.3 Invitation for Bids17.4 Submission of Tenders17.5 Bid Opening & Evaluation of Tender17.6 Tenders Discussions and Tender Decision17.7 International Service Cooperation

17.1 Plant-engineering 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 Plant-engineering

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

Bid Documents Terms of Contract Base Price Limit on Bids Technical Specifications Kinds of Invitation to Bid

17.4 Submission of Tenders

Tender DocumentsWorking 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 FuturesFutures MarketHedging

18.1 Introduction to Futures

Futures and Forward ContractWorldly Famous Futures Exchanges

Chicago Board of Trade (CBOT)Chicago Mercantile Exchange （ CME)New York Mercantile Exchange(NYME)London Metal ExchangeTokyo Stock ExchangeSingapore International Monetary ExchangeHong Kong Commodity Exchange

18.2 Futures MarketFutures Exchange

DefinitionOrganization StructureGeneral Responsibilities

Futures ContractsThe Clearing HouseParticipantsMargin System

Original Margin or Initial MarginVariation Margin or Call Margin

18.3 Hedging

DefinitionSelling HedgeBuying Hedge

Chapter 19 Counter Trade

Definition: an umbrella term that includes all of the variations of the exchange of goods for goodsCommon Reasons for Counter-trade:

1 ． To create new export markets or promote export products2 ． To acquire new technology or attract foreign investment3 ． To balance trade for economic or political reason

Compensation TradeCounter-purchaseSwitch TradeOffset

19.1 Compensation Trade

Full Compensation Export Goods

Counter-trade Goods

Exporter in Country A

Importer in Country B

19.1 Compensation Trade

Partial Compensation Export Goods

Counter-trade Goods

Foreign Exchange

Exporter in Country A

Importer in Country B

19.2 Counter-purchase

Foreign Exchange

Export Goods

Counter-trade Goods

Foreign Exchange

Exporter in Country A

Importer in Country B

19.3 Switch Trade Hard Currency (with a profit) 5

HardCurrency Clearing Units Clearing Units 3 Goods 4(at a 2discount)

1

Bilateral Clearing

+ Agreement -

Switch Dealer The Third Country

Creditor Country Debtor Country

19.4 Offset

DefinitionOperation 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 IntroductionWTO 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

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 processThe SecretariatMembership

Overview of the WTO AgreementsThe Final Act Embodying the Results of the Uruguay Round of Multilateral Trade NegotiationMarrakesh Agreement Establishing the World Trade Organization

A Navigational Guide to the WTO Agreements

Three-part Broad Outline: GATT,GATS,TRIPSList of Annexes

Chapter 21 WTO Agreement

Chapter 22 Globalization of Trade

Definition UnderstandingOpponents of Globalization