General Procedures of Export and Import Transaction

General Procedures of Export  and Import Transaction

I.  Text

  For most nations exports and imports are the most important international activities. Each country has to import the articles and commodities it does not itself produce, and it has to earn foreign exchanges to pay for them. It does this by exporting its own manufactured articles and surplus（过剩的） raw materials. Thus the import and export trades are two sides of the same coin, and both can have beneficial effects on the home market. Imports create competition for home-produced goods; exporting gives a manufacturer a larger market for his products, so helping to reduce the unit cost（单价）. In each case the effect is to keep prices in the home and market down.

  But there may be factors that compel governments to place restrictions on foreign trade（贸易）. Imports may be controlled or subjected to a custom duty to protect a home industry, or because the available foreign exchange had to be channeled into buying more essential goods and exports, too, may re restricted, to conserve a particular raw material required by a developing home industry.

  These factors mean that importing and exporting are subject to a lot of formalities, such as customs entry and exchange control approval, from which the home retail and wholesale trades are free. They also mean that the procedures of foreign trade is much more complicated than that of domestic trade, the latter involves specialized knowledge and highly trained personnel.

  This unit tries to present a general picture and a brief introduction to export and import trades for the purpose of clarifying their complicated procedures.

2.1 Procedures of Export and Import Transaction

  An export or import business is so complicated that it may take quite a long time to conclude a transaction. Varied and complicated procedures have to be gone through in the course of export or import transaction. From the very beginning to the end of the transaction, the whole operation generally undergoes four stages: preparing for exporting or importing, business negotiation, implementing the contract, and settlement of disputes(if any). Each stage covers some specific steps. Since the export and import trades are two sides of the same coin, and one country’s export is another country’s import, hence, we will take the procedures of export transaction in the following diagram to illustrate the general procedures of export and import transaction. Before proceeding to the following units, we’d better keep this general picture in mind.   

The most difficult part of exporting is taking the first step. Any exporter who wants to sell his products in a foreign country or countries must first conduct a lot of market research. Market research is a process of conducting research into a specific market for a particular product. Export market research, in particular, is a study of a given market abroad to determine the needs of that market and the methods by which the products can be supplied. The exporter needs to know which foreign companies are likely to use his products or might be interested in marketing and distributing the products in their country. He must think whether there is a potential for making a profit. He must examine the market structures and general economic conditions in those places. If the economy is in a recession, the demand for all products is usually decreased. So the exporter’s products might not sell well at such times. Market research mainly covers:

1) Research on the countries or regions  

  Countries or regions with different political and economic systems hold quite different attitude toward foreign trade business. The exporter should investigate their political, financial and economic conditions; their policies, laws and regulations governing foreign trade, foreign exchange control. Customs tariffs and commercial practices; their foreign trade situation (the structure, quantity, volume of exporting and importing commodities, trading partners and trade restrictions,etc.)

2) Research on the market

  A research should also be conducted about the production, consumption, price and its trend, the major importing or exporting countries of a particular commodity in order to fix the right price of exporting commodities and properly handle other business terms.

3) Research on the customer

  In international trade, credit information is of greater importance than in home trade. The exporter should know what kind of reputation the buyer or importer has, the approximate size of his business, how he pays his accounts and information about his trade activities. Obviously, customers with sound reputation and good financial standing will facilitate the export trade. The exporter can obtain this information from various sources such as references given by the buyer, his bank, various trade associations and enquiry agencies. In this way, the potential customers can be identified.

  In addition to conducting market research to collect information or data from external sources, the exporter can also take the initiative in marketing and promoting his products in the overseas market. The frequently adopted strategies are sales literature, point of sale advertising, packaging, sponsorship, showrooms, trade fair and exhibition, publicity, public relations,etc.

2. Business negotiation

  If a foreign company is interested in buying the exporter’s products, negotiation should be organized. Business negotiation plays a very important role in the conclusion and implementation of a sale contract. It has a great bearing on the economic interest of the parties concerned.

  No matter what way the negotiations are held, in general, they consist of the following links: enquiry, offer, counter-offer, acceptance and conclusion of sales contract. Among which offer and acceptance are two indispensable links for reaching an agreement and concluding a contract.

Enquiry

An enquiry is request for business information, such as price lists, catalogue, samples, and details about the goods or trade terms. It can be made by either the importer or the exporter. On receiving the enquiry, it is a regular practice that the exporter should reply to it without delay.

1)   Offer and counter-offer

An offer is a proposal made by sellers to buyers in order to enter into a contract. In other words, it refers to trading terms put forward by offerers to offerees, on which the offerers are willing to conclude business with the offerers. There are two kinds of offers; one is the firm offer, the other, non-firm offer. A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter offer.

2)   Acceptance

Acceptance is a statement made by or other conduct of the offerees indicating unconditional assent to an offer. A contract is concluded once the offer is accepted.

3)   Conclusion of sales contract

As soon as an offer is accepted, a written sales contract or sales confirmation is usually required to be signed between the buyer and the seller to confirm the sale and stipulate their rights and obligations respectively. A sales contract or sales confirmation contains some general terms and conditions as well as the specific terms that vary with the commodity. But such terms as the names of seller and buyer, the description of the goods, quality and specification, quantity, packing, unit price, amount, payment, date of delivery, shipping, insurance, inspection, claim and arbitration are indispensable. The sales contract or sales confirmation is normally made out in two originals, one for buyer and the other for his seller.

3. Implementation of Contract

  Under CIF contract with terms of payment by L/C, the implementation of export contract usually goes through the steps of goods preparation, inspection application, reminding of L/C, examination and modification of L/C, chartering and booking space shipping, shipment, insurance, documents preparation for bank negotiation and the settlement of claims,  etc.

1)   Preparing goods for shipment

After a contract is made, it is the main task for the exporter to prepare the goods for shipment and check them against the terms stipulated in the contract. The quality, specification, quantity, marking and the packing should be in line with the contract or the L/C, the date for the preparation should agree with the shipping schedule.

2)   Inspection application

If required by the stipulations of the states or contract, the exporter should obtain a certificate of inspection from the institutions concerned where the goods are inspected. Usually, the commodity will be released only after the issuance of the inspection certificate by the inspection organization.

3)   Reminding, examining and modifying L/C

In international trade, a banker’s letter of credit is commonly used for the payment of purchase price. In the course of the performance of contract, one of the necessary steps for the seller is to urge the buyer to establish L/C. According to the contract, the buyer should establish the L/C on time, but sometimes he may delay for various reasons. For the safe collection of payment, the seller has to urge the buyer to expedite the opening of L/C. Upon receipt of a letter of credit, the seller must examine it very carefully to make sure that all terms and conditions are stipulated in accordance with the contract. If any discrepancies exist, the seller should contact the buyer immediately for necessary amendments so as to guarantee the smooth execution of the contract.

4)   Chartering and booking shipping space

After receiving the relevant L/C , the exporter should contact the ship’s agents or the shipping company for the chartering and the booking of shipping space and prepare for the shipment in accordance with the importer’s shipping instruction. Chartering is required for goods of large quantity which needs full shipload; and for goods in small quantities, space booking would be enough.

5)   Customs formalities

Before the goods are loaded, certain procedures in customs formalities have to be completed. As required, completed forms giving particulars of the goods exported together with the copy of the contract of sale, invoice, packing list, weight memo, commodity inspection certificate and other relevant documents, have to be lodged with the Customs. After the goods are on board, the shipping company or the ship’s agent will issue a bill of lading which is a receipt evidencing the loading of the goods on board the ship.

6)   Insurance

The export trade is subject to many risk. For example, ships may sink or consignments may be damaged in transit, exchange rates may alter, buyers default or government suddenly impose an embargo, etc. It is customary to insure goods sold for export against the perils of the journey. The cover paid for will vary according to the type of goods and the circumstances. If the exporter has bought insurance for the goods, he will be reimbursed for the losses.

7)   Documents preparation for bank negotiation

After the shipment, all kinds of documents required by the L/C shall be prepared by the exporter and the importer and presented, within the validity of the L/C to the bank for negotiation. As to the shipping documents, they include commercial invoice, bill of lading, insurance policy, packing list, weight memo, certificate of inspection, and, in some cases, consular invoice, certificate origin, etc. Documents should be correct, complete, concise and clean. Only after the documents are checked to be fully in conformity with the L/C, the opening bank makes the payment. Payment shall be disregarded by the bank for any discrepancies in the documents.

4. Settlement of disputes

  Sometimes complaints or claim inevitably arise in spite of the careful performance of a contract by the exporter and importer. They are likely to be caused by various reasons such as more or less quantity delivered, wrong goods delivered, poor packing, inferior quality, discrepancy between the samples and the goods which actually arrived, delay in shipment, etc. In accordance with specific conditions, complaints and claims may be made to the exporter, importer, insurance company or shipping company. Once disputes arise, it is advised that arbitration is better than litigation, and conciliation is better than arbitration.

2.1.2 General procedures of import transaction

  So far we have studied the general procedures of export transaction and dealt with different stages and steps, from the point of view of exporter. Having been familiar with the process of the export business, we find it much easier to understand how an importer handles his import business. After all, the export and import trades are two sides of the same coin. When handling an import trade, the trade conditions and terms you are striving for are sometimes just the opposite to those you do in an export trade. The terms of delivery remain the same meaning regardless of whether you work as an importer or an exporter. A bill of lading is a bill of lading no matter who uses it for some practical purposes. The knowledge we have acquired from the previous sections is also applicable to import procedures. With the fundamental knowledge of export procedures we can grasp the essential points of import procedures easily and manage import trade well and smoothly.

  The General procedures of import transaction can be summarized as follows:

1)   to conduct market investigation

2)   to formulate import plan for a certain commodity

3)   to send inquiries to the prospective sellers overseas

4)   to compare and analyze the offers or quotations received

5)   to make counter-offers and decide on which offer is most beneficial

6)   to sign a purchase contract

7)   to apply to a bank for opening a letter of credit

8)   to book shipping space or charter a carrying vessel for taking over the cargoes, if the contract is in terms of FOB

9)   to effect insurance with the insurance company upon receipt of shipping advice

10)            to apply for inspection if necessary

11)            to attend to customs formalities to clear the goods through the Customs

12)            to entrust forwarding agents with all the transport arrangements from the port to the end user’s warehouse

13)             to settle disputes(in any)

2.2 Organization involved in export and import transaction

All or most of the following organizations are involved in an export and import transaction:

1)   the exporters

2)   the shipping agents at the port or airport of loading

3)   the railway (in some cases)in the exporters’ country

4)   the road hauler (in some cases) in the exporter’s country

5)   the port authority

6)   the shipping company (for sea freight)

7)   the airline (for air freight)

8)   the insurance company or brokers

9)   the exporter’s bank

10)            the importer’s bank

11)            the railways (in some cases) in the importer’ country

12)            the road hauler ( in some case) in the importer’ country

13)            the shipping agent at the port or airport of discharge

14)            the importers

2.3 Specialists involved in export and import transactions

  Many specialists may be involved in export and import transaction, including:

1) A shipping agent and /or foreign forwarder (forwarding agent) will take responsibility for the documentation and arrange for the goods to be shipped by air, sea, rail or rail. Theses services may be carried out by the supplier’s own export department, if they have the expertise.

2) Airlines, shipping lines, railway companies or haulage contractors will actual transport the goods.

3) Both the importer’s and exporter’s banks will be involved in arranging payments if a letter of credit or bill of exchange is used.

4) Customs and Excise officers may need to examine the goods, check import or export licences and charge duty and /or VAT.

5) A chamber of Commerce may need to issue a certificate of origin, if this is required by the importer’s country.

6) An insurance company insures goods in transit.

7) A lawyer if a special contract has to be drawn up.

2.4. Documents needed in Export and Import Transaction

  An import/export transaction usually requires a lot of complicated documents because it is difficult to make many different arrangements when one firm is dealing with another on the other side of the world. The number and type of documents needed depend on the specific requirements of the exporter and importer. Generally, the documents needed include:

1). Bill of Lading

2). Commercial Invoice

3). Proforma Invoice

4). Consular Invoice

5). Packing List

6). Weight Memo

7). Certificate of Inspection

8). Certificate of Origin

9). Insurance Policy (Certificate)

10). Sales Contract

11). Sales Confirmation

   Many of these documents can be replaced with computerized procedures. Standard “aligned” export document is often used, where the required information is entered on a “master” document and then photocopied to produce all the requiried documents.

2.5 Channels of Export and Importer Transaction

   Many import or export deals are arranged through an exporter’s agent or distributor abroad in this case the importer buyers from a company importing goods in his own country. Alternatively, the deal may be arranged through an importers buying agents or buying house acting for the importer, or through an export house based in the exporter’s country. In these cases the exporter sells directly to a company in his own country, the latter will then export the goods.

2.6 Trade terms

   Prices for exports may be quoted in the buyer’s currency, the seller’s currency or in a third “hand” currency (e.g. US dollars, sterling or Swiss Francs). In foreign trade, prices are quoted by using “Incoterms” which are a set of international rules published by the international Chamber of Commerce for the interpretation of the commonly used terms in foreign trade. The aim is to avoid disagreements resulting from differences in trading practice in various countries by describing clearly the duties of the seller and the buyer. The prices quoted are called trade terms or delivery terms. For Example: EX-Work, FAS, FOB, CFR, DIF, DDP, etc.   

2.7. Modes of Payment in Export and Import Transaction

   In export or import trade, there are many options for payment. Modes of payment may be on a “cash with order” basis, on open account, by remittance, by irrevocable letter of credit or by bill of exchange. Exporters and importers often prefer the security of payment by confirmed irrevocable letter of credit when dealing with unknown firms in distant countries.

II.            Exercise

1.   Answer the following questions

  1). Please tell us what the procedures of international trade.

  2). what ate the organizations involved in export and import transaction?

  3). what the specialists involved in export and import transaction?

  4). what are the main documents needed in export and import transaction?

2. Translate the following short passage into English:

  The different kinds of trade nations engaged in are varied and complex, a mixture of visible and invisible trade. Most nations are more dependent on exports than on any other activity. The earnings from exports pay for the imports that they need and want. A nation’s balance of payment is a record of these complex transactions. By reflecting all of these transactions in monetary terms, a nation is able to combine the income it receives, for example, from exports, tourists expenditures, and immigrant remittances. This combined incomes is then spent on such items as manufactured goods from other countries, travel for its citizens to other countries, and the hiring of construction engineers.

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