ESP 311 Ingls Tcnico para Comercio Exterior ESP.

INTERNATIONAL TRADE Duoc UC Via del Mar

UNIT 1 International Trade Concepts

1. Contract of International Trade Below is a model sample of a real International Trade Contract or Purchase Contract between an American and a Chinese Company. It is only the first section of the contract. We will see the complete contract is at the end of this booklet. Complete the contract with proper information: PURCHASE CONTRACT Contract No:_________________ Date: _____________ The Buyer: ____________ The Seller:______________ The Contract, made out, in Chinese and English, both version being equally authentic, by and between the Seller and the Buyer whereby the Seller agrees to sell and the Buyer agrees to buy the undermentioned goods subject to terms and conditions set forth hereinafter as follows: SECTION 1 1 Name of Commodity and specification: _________________ 2 Country of Origin & Manufacturer: _________________ 3 Unit Price (packing charges included): ______________ 4 Quantity:_________________ 5 Total Value:______________ 6 Packing (seaworthy):______________ 7 Insurance (to be covered by the Buyer unless otherwise): _____________ 8 Time of Shipment:__________________ 9 Port of Loading:__________________ 10 Port of Destination:_________________ In addition to the port of destination, package number, gross and net weights, measurements and other marks, the Buyer may require marking with fast and unfailing pigments on each package. In the case of dangerous and/or poisonous cargo (es), the Seller is obliged to ensure that the nature and the generally adopted symbol is marked on each package. 12 Terms of Payment: One month prior to the time of shipment the Buyer must open with the Bank of _______an irrevocable Letter of Credit in favor of the Seller, payable at the issuing bank against presentation of documents as stipulated under Clause 18. A. of SECTION II, the Terms of Delivery of this Contract after departure of the carrying vessel. The Letter of Credit must remain in power till the 15th day after shipment. 13 Other Terms: Unless otherwise agreed and accepted by the Buyer, all other matters related to this contract shall be governed by Section II, the Terms of Delivery which must form an integral part of this Contract. Any supplementary terms and conditions that may be attached to this Contract shall automatically prevail over the terms and conditions of this Contract if such supplementary terms and conditions come in conflict with terms and conditions herein and shall be binding upon both parties.

2. Import Export Procedure

Below are 3 steps of the Import-Export procedure. Assign a number for each based on the diagram above : _____ Seller and Buyer conclude a sales contract, with method of payment usually by letter of credit (documentary credit). _____ If credit terms and conditions conform to sales contract, Seller prepares goods and documentation, and arranges delivery of goods to carrier. _____ Buyer surrenders bill of lading to carrier (in case of ocean freight) in exchange for the goods or the delivery order.

The following is the complete procedure: 1. Seller and Buyer conclude a sales contract, with method of payment usually by letter of credit * (documentary credit). * Content for Unit 2 2. Buyer applies to his issuing bank, usually in Buyer's country, for letter of credit in favor of Seller (beneficiary). 3. Issuing bank requests another bank, usually a correspondent bank in Seller's country, to advise, and usually to confirm, the credit 4. Advising bank, usually in Seller's country, forwards letter of credit to Seller informing about the terms and conditions of credit. 5. If credit terms and conditions conform to sales contract, Seller prepares goods and documentation, and arranges delivery of goods to carrier. 6. Seller presents documents evidencing the shipment and draft (bill of exchange) to paying, accepting or negotiating bank named in the credit (the advising bank usually), or any bank willing to negotiate under the terms of credit. 7. Bank examines the documents and draft for compliance with credit terms. If complied with, bank will pay, accept or negotiate. 8. Bank, if other than the issuing bank, sends the documents and draft to the issuing bank. 9. Bank examines the documents and draft for compliance with credit terms. If complied with, Seller's draft is honored. 10. Documents release to Buyer after payment, or on other terms agreed between the bank and Buyer. 11. Buyer surrenders bill of lading to carrier (in case of ocean freight) in exchange for the goods or the delivery order. GRAMMAR POINT We can state the steps in a procedure with the following words: First Second Then After that Finally These are called SEQUENCE ADVERBS

3. Incoterms The INCOTERMS (International Commercial Terms) is a universally recognised set of definitions of international trade terms, such as FOB, CFR and CIF, developed by the International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial term like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance, and other costs and risks. Under the INCOTERMS 2000, the international commercial terms are grouped into E, F, C and D, designated by the first letter of the term (acronym), as follows: GROUP E F TERM EXW FCA FAS FOB C CFR CIF CPT CIP D DAF DES DEQ DDU DDP Ex Works Free Carrier Free Alongside Ship Free On Board Cost and Freight Cost, Insurance and Freight Carriage Paid To Carriage and Insurance Paid To Delivered At Frontier Delivered Ex Ship Delivered Ex Quay Delivered Duty Unpaid Delivered Duty Paid Stands for

INTERNATIONAL COMMERCIAL TERMS

EXW {+ the named place} Ex Works Ex means from. Works means factory, mill or warehouse, which is the seller's premises. EXW applies to goods available only at the seller's premises. Buyer is responsible for loading the goods on truck or container at the seller's premises, and for the subsequent costs and risks. In practice, it is not uncommon that the seller loads the goods on truck or container at the seller's premises without charging loading fee. In the quotation, indicate the named place (seller's premises) after the acronym EXW, for example EXW Kobe and EXW San Antonio. The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex Works. FAS {+ the named port of origin} Free Alongside Ship Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller's expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FAS, for example FAS New York and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels. FCA {+ the named point of departure} Free Carrier The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the seller's premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller's expense. The point (depot) at origin may or may not be a customs clearance center. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the air shipment, technically speaking,goods placed in the custody of an air carrier is considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment. The term FCA is also used in the (roll on/roll off) services. In the export quotation, indicate the point of departure (loading) after the acronym FCA, for example FCA Hong Kong and FCA Seattle. Some manufacturers may use the former terms FOT (Free On Truck) and FOR (Free On Rail) in selling to export-traders. FOB {+ the named port of origin} Free On Board The delivery of goods on board the vessel at the named port of origin (loading), at seller's expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FOB, for

example FOB Vancouver and FOB Shanghai. Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the air freight. In North America, the term FOB has other applications. Many buyers and sellers in Canada and the U.S.A. dealing on the open account and consignment basis are accustomed to using the shipping terms FOB Origin and FOB Destination. FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB Destination means the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyer's premises, which may include the import customs clearance and payment of import customs duties and taxes at the buyer's country, depending on the agreement between the buyer and seller. In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (International Commercial Terms). CFR (The former acronym of Cost and Freight was C&F) CFR {+ the named port of destination} Cost and Freight The delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F. In the export quotation, indicate the port of destination (discharge) after the acronym CFR, for example CFR Karachi and CFR Alexandria. Under the rules of the INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However, in practice, the term Cost and Freight (C&F) is still commonly used in the air freight. CIF {+ the named port of destination} Cost, Insurance and Freight The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the import customs clearance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990, the term CIF is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight. CIP {+ the named place of destination} Carriage and Insurance Paid To The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller's expense. Buyer assumes the import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the place of destination (discharge) after the acronym CIP, for example CIP Paris and CIP Athens. CPT {+ the named place of destination}

Carriage Paid To The delivery of goods to the named place of destination (discharge) at seller's expense. Buyer assumes the cargo insurance, import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the place of destination (discharge) after the acronym CPT, for example CPT Los Angeles and CPT Osaka. DAF {+ the named point at frontier} Delivered At Frontier The delivery of goods to the specified point at the frontier at seller's expense. Buyer is responsible for the import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the point at frontier (discharge) after the acronym DAF, for example DAF Buffalo and DAF Welland. DDP {+ the named point of destination} Delivered Duty Paid The seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer's end, and the delivery of goods to the final point at destination, which is often the project site or buyer's premises. The seller may opt not to insure the goods at his/her own risks. In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for example DDP Bujumbura and DDP Mbabane. DDU {+ the named point of destination} Delivered Duty Unpaid The delivery of goods and the cargo insurance to the final point at destination, which is often the project site or buyer's premises, at seller's expense. Buyer assumes the import customs clearance and payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks. In the export quotation, indicate the point of destination (discharge) after the acronym DDU, for example DDU La Paz and DDU Ndjamena. DEQ {+ the named port of destination} Delivered Ex Quay The delivery of goods to the quay (the port) at destination at seller's expense. Seller is responsible for the import customs clearance and payment of customs duties and taxes at the buyer's end. Buyer assumes the cargo insurance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym DEQ, for example DEQ Libreville and DEQ Maputo. DES {+ the named port of destination} Delivered Ex Ship The delivery of goods on board the vessel at the named port of destination (discharge), at seller's expense. Buyer assumes the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym DES,

for example DES Helsinki and DES Stockholm. Comprehension Check: According to what you read answer the following questions 1. Which of these terms is not applicable to OCEAN transportation a) FCA b) FAS c) FOB a) YES b) NO 2. Is EXW applicable to a mode of transportation a) TRUE b) FALSE

3. CPT and CIP are applicable to all modes of transportation (land, ocean and air) 4. What are the two acceptable ACRONYMS for Cost and Freight ? The Following is a diagram showing the Incoterms:

4. Applicable Trade Terms in Different Modes of Transportation

GROUP TERM Stands for Mode of Transportation Land Ocean Air Multimodal E EXW Ex Works Land Ocean Air Multimodal F FCA FAS FOB Free Carrier Free Alongside Ship Free On Board

Land Ocean Air Multimodal C CFR CIF CPT CIP Cost and Freight Cost, Insurance and Freight Carriage Paid To Carriage and Insurance Paid To Land Ocean Air Multimodal D DAF DES DEQ DDU DDP Delivered At Frontier Delivered Ex Ship Delivered Ex Quay Delivered Duty Unpaid Delivered Duty Paid

Outline of Trade Contract Responsibilities of the Seller (Exporter) and Buyer (Importer)
Seller is responsible Buyer is responsible 1 2 3 4 5 6 7 8 9 10 11 Inland freight in Seller's country; Delivery to the carrier or frontier Customs clearance in Seller's country Payment of customs charges and taxes in Seller's country Loading to the main carrier or means of conveyance Main carriage/freight Cargo (marine) insurance Unloading from the main carrier or means of conveyance Customs clearance in Buyer's country Payment of customs duties and taxes in Buyer's country Inland freight in Buyer's country Other costs and risks in Buyer's country

GROUP

TERM

Trade Contract Responsibility 1 2 3 4 5 6 7 8 9 10 11

EXW 1 2 3 4 5 6 7 8 9 10 11

FCA FAS FOB 1 2 3 4 5 6 7 8 9 10 11

CFR CIF CPT CIP 1 2 3 4 5 6 7 8 9 10 11

DAF DES DEQ DDU DDP