Unit 6 International Trade

1. Unit 6 International Trade Basic concepts of international trade Basic practices of international trade Language associated with trade

2. Part I Basic Concepts • 1. Definition • international trade: the exchange of goods and services across national boundaries/borders. • 2. Major participants in international trade — the buyer that purchases the products (importer) — the seller that provides the products (exporter) — banks that facilitate the payment of the transaction

3. Part I Basic Concepts • 3. Classification – import vs. export (directions of the movement of commodity traded) – tangible trade vs. intangible trade • tangible trade: the exchange of tangible goods (to carry out importing/exporting customs formalities) • intangible trade: the exchange of intangible goods, such as services and intellectual property rights

4. – direct trade vs. indirect trade • direct trade: the producing country sells the goods directly to the consuming country. (transit country, transit trade, transit duty) • indirect trade: the producing country sells the goods to a third country first and then the third country resells the goods to the consuming country. (middleman, entrepottrade)

5. 4. Policies • Manchesterism (free trade policy) It is aimed to assure that the market is free to function in an unconstrained manner by eliminating the restrictions or removing the barriers to effective operation of “invisible hand” of the market and the goods is traded freely between nations to increase the wealth of both the buying and the selling nations.

6. 4. Policies • Protectionism (protective trade policy) It means a trade policy by which a government sets up controls over its import trade for the purpose of protecting its economy (esp. agriculture and infant industries) from foreign competition and provides preferential treatment and subsidies to its exporters or exporting firms.

7. Important terms • absolute advantage • comparative advantage • natural advantage climate conditions, access to certain natural resources, or availability of an abundant labour force • acquired advantage advantage in product or process technology • factors of production/productive factors • international division of labour

8. Important terms • labour-intensive • capital-intensive • land-intensive • technology-intensive • economies of scale (ES) • specialization • specialize in

9. 5. Trade barriers • Tariff barriers • A tariff is a tax (duty) levied on a product when it crosses national boundaries. It is the most common type of trade control. • Purposes: – revenue tariff: to generate fiscal revenue – protective tariff: to weaken the competitive power of the imported goods • Types: import duty; export duty; transit duty

10. Tariff barriers • Methods of assessment: – specific tariff or duty从量税: a fixed amount of duty per physical unit of the imported product, say $100 per imported auto – ad valorem tariff or duty从价税: a fixed percentage of the total value of the imported goods, e.g. 10%, 30% – compound tariff or duty混合税: a combination of the above two types of duties – alternative tariff or duty选择税: Both a specific duty and an ad valorem duty are prescribed for a product, with the requirement that the more onerous one shall apply.

11. Tariff barriers • Special duties: – countervailing duties (CVD): taxes assessed to counter the effects of subsidies provided by foreign governments to goods exported to the importing country. Subsidies cause the price of such merchandise to become artificially low, which may cause economic “injury” to manufacturers in the importing country.

12. Tariff barriers • Special duties: – anti-dumping duties (ADD): taxes assessed on imported goods that are sold in the importing country at a price less than normal value. Normal value is determined as the price the product is normally sold at in the domestic market of the exporting country or in a third country, or the constructed value (推定价值)which is based on the cost of production, selling, general and administrative expense, and the normal profits.

13. Words • duty put/slap ~ on (a product or goods) increase/raise/put up ~ lower/cut/reduce ~ pay/avoid/evade ~ • tax impose/introduce/levy/put ~ on (a product) pay/avoid/escape/evade ~ collect ~ deduct ~

14. 5. Trade barriers • Non-tariff barriers (NTBs) – NTBs are restrictions to imports but not in the usual form of a tariff. – Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. – NTBs usually refer to government requirements for licenses, permits, or significant amounts of paperwork in order to allow imports into its country. – “gray area” in international trade

15. Non-tariff barriers (NTBs) • Major forms: – import quota: a limit to the quantities or money values of a particular product that can be exported to the quota-enacting country. – subsidy: a government payment to a domestic product or industry or a domestic exporting firm. (helping to compete against low-cost foreign imports and to gain export markets) – import license: a document required and issued by some governments authorizing the importation of specified goods into their countries.

16. Non-tariff barriers (NTBs) – “voluntary” export restriction (VER): a quota imposed by the exporting country on its domestic firms’ exports to the importing country, typically at the request of the importing country. (the limitation on auto exports to USA enforced by Japan in 1981) – customs valuation: import duties and other charges can be levied on the basis of a decreed value of goods that is valued by the customs. This practice is a means to avoid fraud in the declared import price. The customs of the importing country may raise the dutiable price of the imports arbitrarily in order to restrict the import.

17. Non-tariff barriers (NTBs) – technical barriers to trade (TBT): strict regulations of products and various measures referring to product characteristics such as quality, safety or dimensions, packaging, marking and labeling requirements as they apply to a product. All these can bring rising cost or excessive trouble to the exporter/importer and thereby lead to the reduction of the import. (green barrier) • technical regulations (to protect health, life, environment…) • product characteristics requirements

18. 6. Basic principles of WTO system • Non-discrimination: the MFN treatment and the national treatment principle • Free trade: lowering trade barriers • Fair competition • Special and differential treatment to developing countries: to provide developing countries special rights and exemptions from certain obligations • Transparency

19. Important terms • balance of trade: the total of a country’s exports minus its imports 贸易差额，贸易平衡 • favourable balance of trade (trade surplus) • unfavourable balance of trade (trade deficit) • barter trade: the direct exchange of goods for goods • embargo: a prohibition upon exports or imports, either with respect to specific products or countries • export processing zone • bonded warehouse/area • p.47 Vocabulary

20. Part II Practices of international trade • Trade terms – the language of foreign trade • International transportation & insurance • International payments & settlements • International trade contracts

21. 1. Trade terms price terms/delivery terms • Standardized terms used in international trade contracts which define the trade contract responsibilities and liabilities between the buyer and the seller. • Key elements of international trade contracts, since they tell the parties what to do with respect to: – delivery terms (carriages of the goods from the seller to the buyer and division of costs and risks between the parties) – price terms (stipulating what are included in the price the buyer paid to the seller, e.g. cost, freight, insurance, export and import clearance fees, etc.) – delivery obligation (what documents should the seller provide, e.g. B/L, insurance policy, etc.)

22. Role of trade terms • To simplify the process of negotiation • To simplify the paper-work of preparation for the contract • To save time and cost of the transaction

23. Incoterms • Incoterms (International Commercial Terms) is a set of uniform rules published by ICC for the interpretation of trade terms most commonly used in international trade. • Incoterms was published in 1936 (Incoterms 1936). Amendments and additions were later made in 1953, 1967, 1976, 1980, 1990 and presently 2000 in order to bring the rules in line with current international trade practices.

24. Incoterms 2000

25. Incoterms 2000

26. Incoterms 2000 • Group E — EXW – The seller fulfills his obligation to deliver when he has made the goods available to the buyer at his premises or another named place (i.e., works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle. – The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination. – It represents the minimum obligation for the seller. – It can be used for any mode of transportation. Case: USD10 per set EX Works Dongguan

27. Incoterms 2000 • Group F — FCA, FAS, FOB – The seller has the duty to deliver the goods to the carrier’s place and the freight from the place of delivering goods to the port or place of destination is paid by the buyer. – Critical points coincide: the point for division of costs is the same as the point for division of risk.

28. Incoterms 2000 • Group F — FCA, FAS, FOB FCA – The seller delivers the goods cleared for export to the carrier (or the person) nominated by the buyer at the named place. – If delivery occurs at the seller’s premises, the seller is responsible for loading; if delivery occurs at any other place, the seller is not responsible for unloading. – It can be used for any mode of transportation including multimodal transport.

29. Incoterms 2000 FOB – The seller has the duty to deliver the goods across the ship’s rail at the named port of shipment. – The seller clears the goods for export. – The buyer has to bear all costs and risks of loss of or damage to the goods from the point when the goods have passed the rail of the ship. – It can be used only for sea or inland waterway transport. Case: US$18 per piece FOB Guangzhou

30. Incoterms 2000 FOB: practices – When the ship’s rail serves no practical purpose, such as in the case of roll-on/roll-off or container transport, the FCA term is more appropriate. – The buyer arranges the ship for the shipment of the goods. The seller sometimes also make the contract with the carrier at the buyer’s risk and expense on the buyer’s behalf. – loading charges (trimming, stowing): liner (including); charter party (excluding, clarifying in the contract)

31. Incoterms 2000 • Group C — CFR, CIF, CPT, CIP – The seller has the duty not only to deliver the goods to a place or point in his country but also to be responsible for arranging the carriage of the goods from the place of delivery to the place or point of destination at his own expense. – Critical points: the point for division of costs (i.e. place of destination) is different from the point for division of risk (i.e. place of shipment).

32. CFR – The seller delivers when the goods pass the ship’s rail in the port of shipment. – The seller pays the costs and freight necessary to bring the goods to the named port of destination, but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. – The seller clears the goods for export. – The seller arranges the charter party or rent the shipping space. – It can be used only for sea or inland waterway transport. – discharge/unloading charges: liner (including); charter party (excluding, negotiating) – The buyer effects the insurance (the seller gives timely notice) Case: US$12.5 per carton CFR New York

33. CIF – The seller delivers when the goods pass the ship’s rail in the port of shipment. – The seller pays the costs and freight necessary to bring the goods to the named port of destination, but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. – The seller clears the goods for export. – The seller has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage. (The seller contracts for insurance on minimum cover and pays the insurance premium.) – It can be used only for sea or inland waterway transport.

34. CPT & CIP – CFR: When the ship’s rail serves no practical purpose, such as in the case of roll-on/roll-off or container transport, the CPT term is more appropriate. – CIF: When the ship’s rail serves no practical purpose, such as in the case of roll-on/roll-off or container transport, the CIP term is more appropriate. – The risks transfer to the buyer from the seller when the goods are delivered to the international carrier. – Used for many mode of transportation.

35. Incoterms 2000 • Group D — DAF, DES, DEQ, DDU, DDP – The seller has the responsibility for the arrival of the goods at the agreed place or point of destination at the border or within the importer’s country. – The seller bears all risks and costs in transporting the goods. – Contracts under D terms mean arrival contracts. (Contracts under F & C terms are shipment contracts.)

36. How to select a trade term • the mode of transportation: sea and inland waterway transport only: FAS, FOB, CFR, CIF, DES, DEQ • the mode of payment • other factors: the time of delivery, the customs formalities, the possible risks of loss of or damage to the goods during the transportation

37. Variations of Incoterms • In practice, the parties often add words to an Incoterm to seek further precision than the term could offer, e.g. FOB Liner terms, FOB Under Tackle, FOB Stowed, FOB Trimmed… • Since Incoterms 2000 gives no guidance whatsoever of such additions, the parties are strongly advised to clarify the exact meanings of those added terms otherwise serious problems might arise.

38. 2. International transportation & Insurance Major modes of international transportation • Ocean transportation: convenient; low freight charges 1. Liner transport (suitable for general cargo of small quantity)  “the four fixed”: fixed sailing date, fixed route, fixed ports to call at, and fixed freight rates  different standards for calculating freight: W: calculated per metric ton on weight (weight ton) M: calculated per cubic meter on measurement of the cargo (measurement ton 尺码吨) W/M: weight or measurement ton, subject to the higher one Ad Val.: based on the price or value of the cargo

39. Major modes of international transportation • Ocean transportation 2. Charter transport • charter party between the charterer and the ship owner • suitable for bulk cargo散装货 of large quantity, such as grain, coals, crude oil and raw timber • time charter 定期租船 • voyage charter 定程租船

40. Major modes of international transportation • Rail transport • Air transport • Road transport • Inland waterway transport • Pipeline transport

41. Major modes of international transportation • Container transport & International multimodal transport • carrying goods in containers suitable for ocean, rail, air and multimodal transport • FCL: Full Container Load 整箱货 The goods carried in a container is owned by the same consignor. • Container yard (CY) 堆场 • LCL: Less than Container Load 拼箱货 • CFS: Container Freight Station 集装箱货运站 • door to door service

42. Major transport documents • Bill of Lading (B/L) • receipt for the goods • evidence of the contract for carriage (between the shipper and the carrier) • document of title to the goods Types: • on board (shipped) B/L & received for shipment B/L – The first is issued after the goods have been loaded on board the designated vessel. – The second is issued before the goods are loaded on board and does not indicate the name of vessel and “On Board”.

43. Bill of Lading (B/L) • clean B/L & unclean B/L – The first is issued for goods which appear to be in good condition, carrying no unfavorable remarks by the carrier. – When the goods are received in apparent damaged condition by the carrier for shipment, he will note the damage on the B/L, such as “…packages in damaged condition”, “iron strap loose or missing”, etc.

44. Bill of Lading (B/L) • straight B/L & order B/L & blank B/L – In a straight B/L, the consignee is named specially, thus only the named consignee is entitled to take delivery of the cargo. (non-negotiable/non-transferable) – In an order B/L, “To order” or “To the order of…” is filled in the column of “Consignee”. It means the goods are consigned to the order of consignor or a named person. (negotiable/transferable with endorsement) – In a blank B/L, there is blank or the words “To bearer” filled in the column of “Consignee”. It could be transferable without endorsement.

45. Bill of Lading (B/L) • direct B/L & transshipment B/L & through B/L – The first means the goods are shipped from the shipment port directly to the destination port. – The second means the goods have to be transshipped at an international port as there is no direct service between the port of shipment and the port of destination. – The third is issued by the first carrier covering the whole carriage of the goods from the port of shipment to the final destination when two or more modes of transportation are involved.

46. Bill of Lading (B/L) • liner B/L & charter party B/L – The first is issued by a liner company when the liner transport is used. – The second is issued when the charter transport is used, and is often used together with the charter party or a copy of it. • long form B/L & short form B/L – The first is more detailed with shipping contract clauses on the back of the page. – The second only has the major contents on the face.

47. Other documents • sea/ocean waybill • receipt for the goods • evidence of the contract for carriage (between the shipper and the carrier) • not a document of title to the goods (non-negotiable) • air waybill (non-negotiable) • international combined rail waybill (non-negotiable)国际铁路联运运单 • multimodal transport document (MTD): it may be or may not be negotiable in practice.

48. Words • consignment [C/U] • consigned goods • consignor 托运人 • shipper 托运人 • consignee 收货人 • carrier 承运人 • shipment [C/U] • forwarder/forwarding agent/freight forwarder 货运代理商（人） • bearer 持票人 • freight to collect 运费到付 • freight prepaid 运费预付

49. Cargo transportation insurance • Key words – insurer 承保人，保险商 – underwriter – insurance broker – (the) insured – claimant – insurance amount – insurance coverage/cover – insurance premium

50. Losses (Averages) – total loss • Actual total loss means the whole lot of the consignment has been lost or damaged or found valueless upon the arrival at the port of destination. • Constructive total loss might occur if the cargo is not actually lost, but is so seriously damaged as to make the goods no longer any use for the purpose for which they were originally intended.