This book, Principles of International Trade: Import-Export, is intended for students studying international trade and for business people who want to engage in international trade. This book covers the basic concepts and procedures that are required for starting and completing international transactions. All businesses, regardless of whether they do only domestic business or not, are affected by international trade and business. Consumers encounter imported products at most retail stores, and domestic businesses are exposed to stiff foreign competition. As a consumer or as a businessperson, all of us need to understand international trade for our own benefits. The draft version of this book, annually or biannually revised, had been used as a textbook at California State University, Los Angeles, California (Cal State, Los Angeles), and Pacific States University, Los Angeles, California (PSU), for over ten years before this book was first published in 1993 with the help and encouragement of my family, friends, students, and colleagues at both campuses. This book consists of thirty-seven chapters, a bibliography, websites, indexes, and endnotes. The text is divided into two parts. The first part, chapters 1 through 27, covers matters for importing goods from overseas and common topics related to both importing and exporting. The second part, chapters 28 through 37, is devoted to topics for exporting overseas. This new edition includes the latest Uniform Customs and Practice for Documentary Credits No. 600 (2007 Revision) and Incoterms 2010 published by the International Chamber of Commerce (ICC). Instructors teaching materials for international trade (import-export), such as PowerPoint slides and key points for examinations, are available at the authors website: http://www.internationaltraderesearch.com. The material and information in this text have been brought current as of June 1, 2017. Any errors or omissions exclusively belong to me. I would appreciate any comments, suggestions, or recommendations directed to me at my email address: drccrhee@gmail.com or fax 626-795-5196. Your comments, suggestions, or recommendations will be used in improving this book at the next publication.

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Principles of International Trade (Import-Export)

The first step toward globalization

By Chase C. Rhee

AuthorHouse

ABOUT THE AUTHOR, iii, 
PREFACE, v, 
TABLE OF CONTENTS, vii, 
Chapter I: INTRODUCTION TO INTERNATIONAL TRADE, 1, 
Chapter II: ESTABLISHING AN IMPORT BUSINESS, 6, 
Chapter III: LOCATING PRODUCTS TO IMPORT, 11, 
Chapter IV: SPECIAL TARIFF TREATMENT PROGRAMS, 16, 
Chapter V: FREE TRADE AGREEMENTS, 34, 
Chapter VI: INTERNATIONAL TRADE TERMS, 58, 
Chapter VII: INTERNATIONAL TRANSPORTATION, 65, 
Chapter VIII: MARINE CARGO INSURANCE, 78, 
Chapter IX: TERMS OF PAYMENT, 93, 
Chapter X: FINANCING IMPORTS, 108, 
Chapter XI: INSPECTIONS, PACKING, & MARKING OF IMPORTED GOODS, 112, 
Chapter XII: SHIPPING DOCUMENTS, 119, 
Chapter XIII: CUSTOMS CLEARANCE, 125, 
Chapter XIV: TRANSACTION VALUE, 131, 
Chapter XV: DRAWBACK, 135, 
Chapter XVI: CUSTOMS BROKERS, 139, 
Chapter XVII: HARMONIZED TARIFF SCHEDULE OF THE U.S. (HTSUS), 141, 
Chapter XVIII: TEMPORARY FREE IMPORTATIONS & ATA CARNET, 153, 
Chapter XIX: PRICING IMPORTED GOODS & DISTRIBUTION CHANNELS, 157, 
Chapter XX: U.S. GOVERNMENT'S IMPORT RESTRICTIONS, 161, 
Chapter XXI: IMPORT QUOTAS, 176, 
Chapter XXII: ANTIDUMPING, COUNTERVAILING, & SAFEGUARD MEASURES, 180, 
Chapter XXIII: FOREIGN-TRADE ZONES, 186, 
Chapter XXV: INTERNATIONAL ORGANIZATIONS, 193, 
Chapter XXVI: EXPORT ENTRY STRATEGIES & EXPORT INTERMEDIARIES, 206, 
Chapter XXVII: OVERSEAS AGENTS/DISTRIBUTORS & AGENCY AGREEMENTS, 210, 
Chapter XXVIII: FOREIGN CORRUPT PRACTICES ACT & ANTIBOYCOTT LAWS, 213, 
Chapter XXXI: INTERNATIONAL FREIGHT FORWARDER & ELECTRONIC EXPORT INFORMATION (EEI), 227, 
Chapter XXXII: EXPORT CREDIT INSURANCE, 231, 
Chapter XXXIII: NEGOTIATION OF SHIPPING DOCUMENTS, 242, 
Chapter XXXIV: FINANCING EXPORTS, 247, 
Chapter XXXV: U.S. GOVERNMENT'S EXPORT CONTROLS, 263, 
Chapter XXXVI: U.S. GOVERNMENT'S EXPORT SUPPORTS, 275, 
Chapter XXXVII: U.S. EXPORT INCENTIVES: IC-DISC (INTEREST CHARGE DOMESTIC SALES CORPORATION), 281, 
BIBLIOGRAPHY, 287, 
WEBSITES, 291, 
INDEX, 295, 
ENDNOTES, 301,

CHAPTER 1

INTRODUCTION TO INTERNATIONAL TRADE

No country is completely self-sufficient. No country can produce all products it needs, nor is blessed with all natural resources necessary to maintain its economic growth. The resulting interdependence of nations is becoming more important as the world economy is being globalized and businesses are expanding their markets beyond their countries' borders.

Import is a business activity that brings foreign goods and services into the country where the business is located. On the other hand, export is a business activity sending goods and services beyond a nation's border. Import and export are also called international trade or foreign trade.

1. Classical theories of International trade

(1) Mercantilism

Mercantilism advocates more exports and fewer imports. A nation becomes richer and more powerful when it exports more than it imports. The trade balance between imports and exports is settled by precious metals such as gold and silver. The more precious metals a country accumulates, the more prosperous it becomes. However, not all nations can have a trade surplus for the same time period, since a nation's surplus is another nation's deficit. This theory was popular among European countries during the sixteenth to eighteenth century. While promoting exports, countries raised trade barriers to discourage imports that resulted in reduced international trade after all.

Nowadays no country admits it is implementing the mercantilism as its trade policy. More often, it is used when a country accuses other country which exports a lot but imports much less with import restrictions.

(2) absolute advantage

In 1776 Adam Smith of Great Britain published the book entitled An Inquiry into the Nature and Causes of the Wealth of Nations . In this book, he proclaimed that a country's wealth consists of the goods and services available to its citizens rather than gold and silver. He denounced mercantilism and advocated free trade.

To increase the wealth of nations, instead of producing all items a country needs, it should produce and export goods at an absolute advantage, and import goods at an absolute disadvantage. The international specialization in production would result in more outputs to all trading partners.

Some countries have a 'Natural Advantage' at some products due to climate and natural resources such as Saudi Arabia in petroleum. Other countries have an 'Acquired Advantage' at other products due to product and process technology such as Japan in electronic goods.

Let's assume that the countries of Mexico and the U.S.A. each have 100 resources available for producing tomatoes and beans. In producing 1 ton of tomatoes, Mexico uses 4 units of resource and the U.S.A. uses 10 units of resource. In producing 1 ton of beans, Mexico uses 20 units of resource and the U.S.A. uses 2 units of resource.

Mexico USA

Resources available 100 100
To produce 1 ton of tomatoes 4 10
To produce 1 ton of beans 20 2

When each uses half of its resources (50) per product without trade

Mexico USA Total Total

Tomato production 12.5 5 = 17.5 tons
Bean production 2.5 25 = 27.5 tons

When each uses all its resources (100) only for product at an absolute advantage

Mexico USA Total Total

Tomato production 25 0 = 25 tons
Bean production 0 50 = 50 tons

It is more beneficial that the USA produces only beans at an absolute advantage using all 100 resources, while Mexico produces only tomatoes at an absolute advantage using all 100 resources.

Then, one country exports a product it produces and imports a product it does not produce.

(3) Comparative Advantage

In 1817 David Ricardo expanded the Absolute Advantage Theory of Adam Smith. He declared in his book On the Principles of Political Economy and Taxation that even when a country does have or does not have an absolute advantage on all of its products, trade gains can occur if the country specializes in the production and export of products at a comparative advantage which is a greater advantage than other products, and imports products for which the advantage is less. The reason is that a country must give up less efficient production in order to allocate more resources to more efficient production due to limited resources. The comparative advantage theory has been a basis for export-oriented economic development of less developed countries.

Mexico USA

Resources available 100 100
To produce 1 ton of tomatoes 2 10
To produce 1 ton of beans 4 8

When each uses half of resources (50) per product without trade

Mexico USA Total

Tomato production 25.00 5.00 = 30.00 tons
Bean production 12.50 6.25 = 18.75 tons

When Mexico produces tomatoes and USA beans only and trade

Mexico USA Total

Tomato production 50.00 0.00 = 50.00 tons
Bean production 0.00 12.50 = 12.50 tons

In this situation, USA and Mexico together produce more tomatoes by 20 tons (50 tons-30 tons) but less beans by 6.25 tons (12.50 tons-18.75 tons). The advantage cannot be compared at this stage, because the result is more production in one product and less production in another product.

Therefore, to make a comparison easier, let's assume that the USA produces 12.50 tons of beans using all 100 resources (100 / 8), while Mexico produces 30 tons of tomatoes by using 60 resources (60 / 2). Then, Mexico can produce 10 tons of beans with the remaining 40 resources (40 / 4).

Mexico USA Total

Tomato production 30.00 0.00 = 30.00 tons
Bean production 10.00 12.50 = 22.50 tons

In this case, the USA and Mexico produce 30 tons of tomatoes and 22.50 tons of beans together. The result is that the production of beans is increased by 3.75 tons (22.50 -18.75).

For more analysis, let's assume once again that the USA produces the same 12.50 tons of beans using all 100 resources and Mexico produces 6.25 tons of beans by using 25 resources (25 / 4) to make the total production of beans by two countries 18.75 tons. Mexico can use the remaining 75 resources in producing 37.50 tons of tomatoes (75 / 2).

Mexico USA Total

Tomato production 37.50 0.00 = 37.50 tons
Bean production 6.25 12.50 = 18.75 tons

In this assumption, USA and Mexico can produce more tomatoes by 7.50 tons (37.50-30.00), while producing the same 18.75 tons of beans.

Therefore, in order to increase overall production of tomatoes and beans, it is more beneficial that the USA produces only beans at which it has a comparative advantage and Mexico produces only tomatoes at which it has a comparative advantage, even though Mexico has absolute advantages at both tomatoes and beans. Then, each country exports the product it produces and imports the product it does not produce.

Ricardo's Law of Comparative Advantage was developed under the assumption that (1) a country has limited resources so that it must allocate its resources, (2) transportation cost of products from one country to another is not considered, and (3) there is no mobility of resources between countries.

2. Interactions between an Exporter and an Importer

An importer who wants to import a product sends an inquiry to an overseas supplier. The letter of inquiry usually consists of a short introduction of the inquirer, the name and quantity of the product an importer wants to import, and the time of shipment he desires. The importer also inquires an exporter about the price, the terms of trade, the terms of payment required, and sometimes the minimum quantity the exporter is willing to accept.

If an importer responds to an exporter's advertisement or sales letter, or is referred to the exporter by an important person or organization, it is beneficial to mention this. In any case, an importer must have a specific inquiry about the products he wants to import. Too general an inquiry on any or all products a manufacturer exports will not receive special attention and as a result, the importer might not get even a reply from the exporter.

When an exporter receives an inquiry from a potential importer, the exporter sends his offer to the overseas importer. An offer usually consists of a description of the product, price with terms of trade, quantity, the time of shipment, and terms of payment. The exporter answers all the questions raised by the importer. An offer with a validity date is called a firm offer. When a firm offer is accepted by an importer, the exporter must comply with all the terms and conditions he proposed.

When an importer receives an offer from his overseas exporter, the importer first must determine if the price and other trade terms are acceptable to him. It is common for an importer to ask for discount or change in the trade terms. Sometimes an importer sends an exporter a counter-offer that contains the terms and conditions an importer is willing to accept. After several negotiations, the importer sends his acceptance of the exporter's offer and a written purchase order to the exporter.

Unless the transaction is between related parties or firms of a long-standing relationship, an exporter usually will not fulfill the purchase order without an assurance of the payment for the products he will ship. In international trade, unlike in a domestic transaction, a letter of credit (L/C) opened by the importer's bank is usually required by the exporter. Most manufacturers in developing countries are reluctant even to start the manufacturing processes until a letter of credit is received. Therefore, a letter of credit needs to be opened not when the product is ready to ship, but when the purchase order is placed and the manufacturing process begins.

When the product an importer ordered is shipped on the vessel, an ocean bill of lading (B/L) is issued to the exporter. The bill of lading carries the title to the products. The shipping lines do not release the cargo without an original bill of lading at the port of importation. An exporter obtains the bill of lading from the shipping company after shipment of the ordered goods and prepares other shipping documents required by his buyer in the letter of credit. The exporter then presents the shipping documents to his bank for payment for the products he has shipped.

The bank that receives the shipping documents first forwards the documents to the opening bank for payment. After payment for shipment is received, the exporter's bank pays the exporter. Depending on the reimbursement condition of the letter of credit, sometimes the exporter's bank first pays the exporter and forwards the shipping documents to the opening bank and gets reimbursed. In this case, the interest for the period between payment to the exporter and reimbursement is charged to the exporter. When an exporter gets paid for the product he has shipped, the international transaction is completed between an exporter and an importer.

However, an importer must wait for the vessel to arrive at the port of importation, even if the payment for his import has been made earlier against the shipping documents specified in the letter of credit. After the cargo arrives at his port, the importer's customs broker clears the goods through customs and get the shipment released by the carrier upon presentation of the bill of lading.

After customs clearance, the imported cargo goes through a distribution channel. The cargo is shipped to the importer's domestic buyers or importer's warehouse for future distribution. An importer's work is not complete until he sells his imported goods to domestic buyers and receives payment.

CHAPTER 2

ESTABLISHING AN IMPORT BUSINESS

1. reasons for Importation

Import is a business where profit is a major reason for existence. When a businessman finds products overseas which are not available in his country, he may import them for resale in his country. For example, the fruits of South America and Australia/New Zealand are imported into the United States during the winter season. Ethnic foods and specialty products are also imported into the United States when they are not available in the United States.

When a businessperson is interested in products which are available overseas and in his own country, overseas prices of similar quality should be cheaper than domestic prices for importation to be profitable. Many consumer goods imported from developing countries belong to this category. Although their quality is not equal to U.S. products, due to the cheaper prices, they are able to capture the U.S. consumer markets.

Even though prices of imported goods are higher than domestic products, if imported goods' quality is better than domestic products, importing makes sense. Luxury items catering to high-income buyers come under this category. For instance, European luxury automobiles and Japanese electronic products are in big demand because of their better quality.

In the case of high priced machinery or a factory project that requires large capital, the availability of financing plays a more important role. Foreign governments that want to promote their exports are willing to provide much better financing to importers of their products than domestic sources. Similar to the United States, most countries have an Export-Import Bank whose major function is to finance their major exports.

2. requirements for a Successful Import Business

Like any other business, without buyers of imported goods, the import business cannot exist. Selling ability by an importer himself or his salesmen is the backbone of a successful import business. "Sell first, import later" should be a motto for all beginning importers. No matter how attractive the foreign products appear to an importer, he should find buyers first before importing them.

After sales are made, an importer must deliver the goods to his buyers on time. He must have reliable suppliers who provide goods on time in accordance to the specifications. Incorrect merchandise and late deliveries can easily ruin an importer's business.

In the import business, an importer pays his supplier before receiving the goods through a bank's letter of credit, but only gets paid after delivering the goods to domestic buyers. Without a good financing ability, an import business cannot be successful.

An import business is conducted by two parties located far away from each other and with different business practices. All imports are subject to customs regulations and other governmental controls depending on the nature of the goods. Knowledge of import procedures and regulations is vital for an importer to avoid pitfalls. Importing is not an easy business nor does it yield a quick result. It is not expected to be successful in one trial or two. It requires persistence and perseverance even after several failures.

Business transactions even within the same country, require clear communication between parties. Important matters must be in writing. In the importing business, clear communication is further required between an importer and exporter of different countries using different languages.

An importer is a go-between. He must build trust with both buyers and suppliers. He must deliver the goods to the buyers on time and in strict compliance with the specifications. In order to succeed, he must have good reliable suppliers. He must perform the duties promised to the suppliers such as opening a letter of credit on a timely basis. Building trust with buyers and suppliers leads to a lasting success.

3. Legal Forms of a Business

An import business can be conducted as a sole proprietorship, a partnership, a corporation or a limited liability company (LLC).

(1) Sole proprietorship

A businessman can conduct his import business as a sole owner. All that is legally required is a business license issued by the local city government where the business is located. If the businessman wants to use a business name other than his legal name, then the fictitious name must be registered with the county government and advertised three times in the local newspaper. A newspaper usually registers the fictitious name with the county on behalf of the applicant for a business license, if he buys advertisements from the same newspaper.

As to the business tax, some cities charge a fixed amount per employee, while other cities levy a percentage of the gross sales amount. The individual has unlimited liability for his business activities. Federal and state income taxes for business income are paid as the owner's individual income.

(2) Partnership

When more than one legal entity forms a business, it becomes a partnership. A partnership is also required to register its fictitious name with the county government. There are two kinds of partnership:

(a) General Partnership

All partners are general partners who have unlimited liability for the business activities like a sole proprietorship.

(Continues...)

Excerpted from Principles of International Trade (Import-Export) by Chase C. Rhee. Copyright © 2018 Chase C. Rhee. Excerpted by permission of AuthorHouse.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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In order to safeguard the revocation period, it is sufficient that you send the notification about the exercise of the revocation right before the expiry of the revocation period.

Consequences of the revocation

If you revoke this contract, we shall repay all the payments, which we received from you, including the delivery costs (with the exception of additional costs, which arise from that fact that you selected a form of delivery other than the most reasonable standard delivery offered by us), immediately and at the latest within 14 days from the day on which we received the notification about the revocation of this contract from you. We use the same means of payment, which you had originally used during the original transaction, for this repayment unless expressly agreed otherwise with you; you will not be charged any fees owing to this repayment.

We can refuse the repayment until the products are returned to us or until you have furnished evidence that you have sent the products back to us, depending on whichever is earlier.

You must return or transfer the products to us immediately and, in any case, at the latest within 14 days with effect from the day on which you inform us of the revocation of this contract. The deadline is maintained if you send the products before the expiry of the 14 day deadline.

You bear the direct costs for returning the products.

You must pay for any depreciation of the products only if this depreciation can be attributed to any handling with you that was not necessary for checking the condition, features and functionality of the products.

Criteria for exclusion or expiry

The revocation right is not available for contracts

for delivery of products, which are not prefabricated and for whose manufacturing an individual selection or stipulation by the consumer is important or which are clearly tailored to the personal requirements of the consumer;
for delivery of products, which can spoil quickly or whose use-by date would be exceeded quickly;
for delivery of alcoholic drinks, whose price was agreed at the time of concluding the contract, which however can be delivered 30 days after the conclusion of the contract at the earliest and whose current value depends on the fluctuations in the market, on which the entrepreneur has no influence;
for delivery of newspapers, periodicals or magazines with the exception of subscription contracts. The revocation right expires prematurely in case of contracts
for delivery of sealed products, which are not suitable for return for reasons of health protection or hygiene if their seal has been removed after the delivery;
for delivery of products if they have been mixed inseparably with other goods after the delivery, owing to their condition;
for delivery of sound or video recording or computer software in a sealed package if the seal has been removed after the delivery.

Specimen - revocation form

(If you wish to revoke the contract, please fill up this form and send it back to us.)

To preigu GmbH & Co. KG, Lengericher Landstr. 19, 49078 Osnabrück, Email address: mail@preigu.de :
I/we () herewith revoke the contract concluded by me/ us () regarding the purchase of the following products ()/
the provision of the following service ()
Ordered on ()/ received on ()
Name of the consumer(s)
Address of the consumer(s)
Signature of the consumer(s) (only in case of a notification on paper)
Date

(*) Cross out the incorrect option.

Privacy e sicurezza

Data protection declaration

Unless stated otherwise below, the provision of your personal data is neither legally nor contractually obligatory, nor required for conclusion of a contract. You are not obliged to provide your data. Not providing it will have no consequences. This only applies as long as the processing procedures below do not state otherwise.
"Personal data" is any information relating to an identified or identifiable natural person.

Responsible person
Contact us at any time. The person responsible for data processing is: Ansas Meyer, Lengericher Landstr. 19, 49078 Osnabrück Deutschland, +49 (0) 541 / 580 72 84, mail@preigu.de

Collection and processing when using the cancellation button
If you have entered into a contract via this platform for which a statutory right of cancellation applies, the platform provides you with a cancellation function (cancellation button) through which you can submit your notice of cancellation immediately.
When using the cancellation function, your personal data (name, email address, details identifying the contract or part of the contract you wish to withdraw from, and the time (date and time) of sending the notice of withdrawal) will only be collected to the extent that you have provided it.
The purpose of data processing is to provide you with the statutory option to withdraw from your contract and to ensure the proper processing of your withdrawal.
The platform operator collects your data on the basis of Article 6(1)(f) of the GDPR, namely the legitimate interest in ensuring the general accessibility of the statutory withdrawal function on the platform. You will receive a confirmation email from the platform operator acknowledging receipt of your notice of withdrawal.
The data is then transmitted to us by the platform operator.
If the contact relates to a contract already concluded between you and us, this data processing is carried out on the basis of Article 6(1)(b) of the GDPR. Otherwise, data processing is carried out on the basis of Article 6(1)(c) of the GDPR, to fulfil a legal obligation to provide an electronic withdrawal function.
We use your email address solely to process your notice of withdrawal. Your data will subsequently be deleted in accordance with statutory retention periods, provided you have not consented to further processing and use.

Collection, processing, and transfer of personal data in orders
When you submit an order we only collect and use your personal data insofar as this is necessary for the fulfilment and handling of your order as well as processing of your queries. The provision of data is necessary for conclusion of a contract. Failure to provide it will prevent the conclusion of any contract. The processing will occur on the basis of Article 6(1) b) GDPR and is required for the fulfilment of a contract with you.
Your data will be shared, for example, with shipping companies, dropshipping or fulfillment providers, payment service providers, service providers for order processing, and IT service providers. We will comply strictly with legal requirements in every case. The scope of data transmission is restricted to a minimum.

Duration of storage
After contractual processing has been completed, the data is initially stored for the duration of the warranty period, then in accordance with the retention periods prescribed by law, especially tax and commercial law, and then deleted after the period has elapsed, unless you have agreed to further processing and use.

Rights of the affected person
If the legal requirements are fulfilled, you have the following rights according to art. 15 to 20 GDPR: Right to information, correction, deletion, restriction of processing, data portability. You also have a right of objection against processing based on art. 6 (1) GDPR, and to processing for the purposes of direct marketing, according to art. 21 (1) GDPR.

Right to complain to the regulatory authority
You have the right to complain to the regulatory authority according to art. 77 GDPR if you believe that your data is not being processed legally.
You can lodge a complaint with, among others, the supervisory authority responsible for us, which you may reach at the following contact details:

Landesbeauftragte für den Datenschutz Niedersachsen Prinzenstraße 5 30159 Hannover Tel.: +49 511 1204500 Fax: +49 511 1204599 E-Mail: poststelle@lfd.niedersachsen.de

Right to object
If the data processing outlined here is based on our legitimate interests in accordance with Article 6(1)f) GDPR, you have the right for reasons arising from your particular situation to object at any time to the processing of your data with future effect.
If the objection is successful, we will no longer process the personal data, unless we can demonstrate compelling legitimate grounds for the processing that outweigh your interests or rights and freedoms, or the processing is intended for the assertion, exercise or defence of legal claims.

Principles of International Trade | Import-Export

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