How to operate in international markets

1. How to operate in international markets FOREIGN TRADE ACT SME: Accelerating Cross-Border Transaction of SM

2. 1 2 3 • Module1: Legal and Regulatory Aspects • Module 2: Logistics and Transport Implications • Module 3: Financial Management and Fiscal Regime Contents

3. Module 1

4. Unit 1 Section 1: Tariff codes, taxing, regimes • Customs Tariff Codes • There is a unique customs tariff position for every product group and a specific customs tariff code for each product to make an international validity identification • Specifying this codification is quite important as all operations are based on this data • Declaration of the suppliers, transporter and customs brokers are obligatory for the exporter / importer • Choosing correct import / export regime is also a part of primary liabilities. • Regimes: Permanent, temporary, free of charge, IPR • .

5. Unit 1 Section 1: Tariff codes, taxing, regimes • Special taxes (antidumping etc.) • In some cases customs authority asks for additional taxes • In addition to VAT, Customs Taxes, Antidumping Taxes • Tariff Code and Tax details should be studied before firm order step (at planning and supplier assignment stage).

6. Unit 1 Section 1: Tariff codes, taxing, regimes • Warehouse Regime (Authorized Customs Broker, Handling, Periodic and Non-periodic Reports and Contracts) • There is a specific customs regime and legislation for Bonded Warehouse connected shipments • In this regime a warehouse declaration should be released during the arrival of the goods • In addition to Customs Broker, Authorized Customs Broker Service is mandatory

7. Unit 1 Section 1: Tariff codes, taxing, regimes • Customs Declarations Lines • There are various lines with their own administrations • ASC - AEO (Approved Status Applications, Approved Economic Operator applications) ( • Red, Yellow, Blue and Green line at customs) • Red: Subject to inspection before customs clearance • Blue: Subject to post-clearance control • Green: It is a brand new application, implemented with Authorized Economic Operator Status. There isn’t any control step. Beneficiary company can complete all customs procedure by itself. Government follow up with remote access.

8. Unit 1 Section 1: Tariff codes, taxing, regimes • Import / Export Types • Permanent Import / Export • With a commercial or pro-forma invoice, sales or free of charge • Temporary Import / Export • If the material will return back to the exporter country this regime should be used with needed document(s). Test studies, repair etc. Customs check the material physically before export and import clearance. • Partial Import • Doing customs clearance for a lot out of whole shipment • Import / Export within IPR (Inward Processing Regime) and other state supports • Tax immunity by declaring imported materials will be used for producing finished goods and goods will be exported. • Transit Trading • 3rd company releases the sales invoice to final customer instead of exporter

9. Unit 1 Section 2: Delivery Terms, Payment Terms • Incoterm 2010 (EXW, DAP, DDP etc.) • There are several delivery terms subject to agreement between importer and exporter which are settling responsible side for each step (transportation, insurance, export / import customs etc.) • An exporter will be responsible for every part of process with DDP (Delivery Duty Paid) delivery terms • Importer can be responsible for every step of the process with EXW (Exworks) delivery terms starting with shipment from the supplier to delivery of customer’s depot.

10. Unit 1 Section 2: Delivery Terms, Payment Terms CHART OF RESPONSIBILITIES

11. Unit 1 Section 2: Delivery Terms, Payment Terms • Payment (CAD «Cash Against Document» CAG «Cash Against Goods», L/C (Letter of Credit) etc.) Resource Utilization Support Fund – RUSF • This topic is also subject to agreement between the exporter and importer • Settles time of payment, basis of payment and similar rules • It is a must to provide payment document to Customs Authority to do customs clearance according to some countries’ Customs Legislation • Otherwise importer is obliged to pay % 6 of material price as state withholding for some Tariff Codes.

12. Unit 1 Section 3: Documentation and special applications • Customs Post Release Audit – Archive • All documents and records must be kept up to date and archived, in order to be ready for any audit • Customs Broker services and minimum wage legislation • All customs clearance operations are being done by nominated brokers who has signature authorization • Companies can prefer either to employ a broker or to make a contract with a broker company • There is a Minimum Wage Legislation released by government annually which includes all possible services

13. Unit 1 Section 3: Documentation and special applications • Documents (Invoice, Packing List, Insurance Policy, Free Circulation Document, A.TR, EUR1, FORM A, Certificate of Origin, ATA Carnet) • For any kind of import / export operation, companies should declare below listed documents: • Invoice and packing list that includes; exporter details, issue date, document number, bill to details, delivery address, description, quantity, unit price, total amount, currency, delivery terms, payment details, bank details, case details (qty., net gross weight, dimension, content of each case), goods’ identification details (part number, serial number if any etc.) • A.TR for Free Circulation entry, requested documents which ensure tax advantages • EUR1, if there is Bilateral Trade Agreement between trader countries • FORM A & Certificate Of Origin for special regulations • ATA Carnet for temporary shipments (fair, show) • Details for «Import by ofsetting»

14. Unit 1 Section 3: Documentation and special applications • Transit Trade • Shipper company and exporter company are localized in different countries • Invoicing and other applications • Surveillance Services • Shipper or customer may request optionally • According to arrival country’s legislation it can be mandatory • In this case exporter should prepare proper conditions to the accredited survey company for requested audit

15. Unit 1 Section 3: Documentation and special applications • Exporters Union (Membership fees and contributions) • There are different Exporter Unions for different sectors. Exporter companies should registered as a member to the related union Membership fees Contributions • Return to Country of Origin • Customer can decide to reject materials completely or partially for some reason and can ship back to origin without finalizing import clearance by following needed processes. This application has a different standard than regular export.

16. Module 2

17. Unit 2 Section 1: Cost items and pricing • Monitoring and following departure and arrival countries’ conditions • This is important to see and understand effective parameters on pricing such as freight, local transportations, port costs etc. • Important points along the freight • Port costs, bonded warehouse costs, local taxes… • Warehouse costs, demurrage, free time, port costs • Deciding about proper shipping type by checking necessity date analyze, price benefit study • Payment term • Briefly; total cost must be taken into consideration, not only the freight

18. Unit 2 Section 2: Points to consider for service procurement and cost saving • Pricing of transportation (charge based on minimum, weight, volume etc.) • Pricing principle of carrier invoices • Always uses maximum kind of above listed pricing scale • Therefore loading optimization should be studied with the shipper company and agreed in advance • Transit time, direct, indirect services • Direct / Indirect services are important (especially for sea freight) • Express Service is important (especially for truck shipments) • Transit times should be agreed during purchasing negotiation • Stackable, non-stackable loading and effects • Monitoring, follow up and reporting services

19. Unit 2 Section 2: Points to consider for service procurement and cost saving • Transport Insurance • It is responsibility of the carrier but content should be negotiated • Bonded and free warehouse utilization • It is better to negotiate this pricing with the carrier inside of transportation (all in) • Loading consolidation – Milk Run • Studying consolidation will provide cost saving. Before supplier assignment it is better to analyze with this point of view • Common purchasing • For all kind of purchasing both service and material, jointly purchasing will cause positive impacts from common suppliers (by bargaining on a higher purchasing budget, advantage on lot size and lead time, shipment optimization)

20. Module 3

21. Unit 3 Section 1: Material payment and other costs • Payment methods for the goods • L/C (Irrevocable, Revocable Letter of Credits) • Documents must be released as depicted on theL/C • Realization dates must be coherent with L/C • Otherwise discrepancy occurs and causes delay / extra costs • Deferred Payment • Cash In Advance • Cash Against Documents • Cash Against Goods • All payments and receipts must be accountable • Other Payments • VAT, Customs Duty, Stamp Duty, Antidumping • Penalties, Reconciliation

22. Unit 3 Section 1: Material payment and other costs

23. Unit 3 Section 1: Material payment and other costs

24. Unit 3 Section 2: Supplier management and its effect to financial conditions • Supplier Management • In order to manage all the processes, preliminary works and feasibility is important before assigning exporter, transporter, customs broker • Strong Contract Administration will avoid risks • All responsibilities, quality standards, rejection issues etc. must be clarified • A confidentiality agreement should be done • Financial Position of the supplier should be checked • New Supplier assignment • Pricing escalation should be determined • Parameters for manufacturers (Lead time, Safety stock, forecast)

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