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Virginia Economic Development Partnership Division of International Trade AIM Quarterly Seminar July 24, 2008 Market Access Issues: Legal,Shipping & Finance.

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Presentation on theme: "Virginia Economic Development Partnership Division of International Trade AIM Quarterly Seminar July 24, 2008 Market Access Issues: Legal,Shipping & Finance."— Presentation transcript:

1 Virginia Economic Development Partnership Division of International Trade AIM Quarterly Seminar July 24, 2008 Market Access Issues: Legal,Shipping & Finance Risks

2 Legal Issues US Laws IPR Protection Contracts Dispute Resolution Foreign Regulations & Standards Shipping Issues Shipping Documents & Labeling Requirements Wood Packaging Regulations INCO-Terms –Shipping Terms Customs Contacts/Tariffs/Taxes FTZ/FTA- Tariff Avoidance Due Diligence Finance Issues Payment Terms Export Costs Market Access Issues

3 Legal Issues US Laws IPR Protection Contracts Dispute Resolution Foreign Regs & Standards Legal Issues

4 Compliance with US Export Regulations Basics 1.Classify product –schedule B 2.Determine jurisdiction EAR 99 regs or ITAR for defense articles 3.Get license if required- varies by item, country, use 4.File automated EEI-SED for licensable items and all shipments with any individual schedule b item over $2500.SED is only used by US Customs 5.Check denied party lists 6.Save paperwork for five years US Laws To Consider FCPA-foreign corrupt practices Anti-boycott Anti-trust Non diversionary statement Other Considerations Structure affect taxes- US co’s and subsidiaries must adhere to US laws may get credits to offset foreign taxes paid May be entitled to duty drawbacks for re-exported items WTO Anti dumping/ foreign privacy and marketing laws Legal Issues

5 IPR Issues What Is Intellectual Property (IP)? World Intellectual Property Organization (WIPO) Definition “ creations of the mind: inventions, literary/artistic works, symbols, names, images, designs used in commerce.” 3 Protection Vehicles Patents,Trademarks Copyrights. Sensitive info is often published in IPR Process. Evaluate the need / costs for protection carefully. Protection in US does not Extend Overseas USPTO only protects patent & trademark owners in US. US Patents first to invent vs foreign first to file US TM first to use or apply vs global first to apply How Are IP’s Protected Overseas? Some protection is granted in global treaties and agreements 1.TRIPS-WTO first multilateral IP agreement. Criminal procedures and penalties for willful trademark counterfeiting or copyright piracy 2.Berne - Copyrights 3.Madrid Protocol- Trademarks 4.Patent Cooperation Treaty –Patents: US patent owners file (1) global application with USPTO and concurrently seek protection in up to (115) countries. How Can You Protect IPR? Avenues to address IP infringement vary by country and are dictated by local laws, IP owner resources, attitudes of local officials, and many other factors. Exporters should also use confidentiality clauses in employment, licensing, marketing, financing, distribution and JV/partner agreements to protect IPR. Legal Issues

6 Contracts Before you sign international partnership agreements…. seek advice from legal, HR, and tax professionals in both countries Legal Issues

7 What is contract language, jurisdiction-what country will litigate disputes? Local laws may stipulate which laws will apply. Many suppliers define the UN convention or contracts for International Sale of Goods (CISG) as source of resolution or defer to international court of arbitration of the International Chamber of Commerce. If contract is written in two languages stipulate which version is the controlling version Avoid provisions contrary to US and foreign customs and local laws: This includes Export administration regulations, non-diversionary re-export laws, ITAR, US anti-trust laws, foreign corrupt practices act, anti-boycott laws. Be sure pricing meets all applicable laws. What clauses and sub-agreements are recommended/allowed This includes extension, termination, transfer, reassignment etc.. Non-compete clauses. Patent and trademark policies and responsibilities. Note: Exclusive distributor agreements require the most due diligence Contractual Issues- Distribution Agreements Legal Issues

8 Protect Yourself: 10 things to Cover in all Agreements: 1.Partner type- Agent, rep. or distributor and exclusivity/confidentiality terms. 2.Term: start and end date of agreement 3.Liability: How will third-party agreements will be handled? Must they come through you or can they act on your behalf and bind you? 4.Scope: What products and area are covered? Who handles leads you get directly? How will you handle Inquiries, referrals, complaints? 5.Duties: What will they handle? marketing, sales, inventory, billing, shipping, installation, servicing, tech-support, training, translation 6.Language: What language will be used to communicate? 7.Support: How will you support them? training, marketing, product supply 8.Price: What is your pricing and re-sale pricing policy. Who pay’s taxes and tariffs 9.Other Costs: How will you handle future and unknown costs? Risk of loss? 10.Performance: What is expected, how is that monitored, what reports are required Contractual Issues- Distribution Agreements Legal Issues

9 Don’t get Stuck with this Guy Seven things to Consider re: Dismissal 1.How long before agreement evaluated? Re-negotiated? 2.Is there an escape clause? Is that clause legal/ binding in that country? 3.What constitutes grounds for cancellation? How much notice is required and by what method? Registered mail? 4.What rights will expire on dismissal or be given up by either party on dismissal? 5.What will happen to inventory on cancellation? Do they need to return it you? 6.Is there a penalty if either party cancels? 7.How and what compensation must be paid on dismissal? Note: Exclusive distributor agreements require the most due diligence. Avoid exclusivity until results are proven or extend for limited trail basis. Contractual Issues- Distribution Agreements Legal Issues

10 Don’t Get Cheated … Four things to Consider re: Compensation 1.How will they be compensated and what currency will be used 2.Will payment be % ex-factory or CIF? Fixed or graduated? 3.When will payment be made? Aim to motivate the “partner’ but protect your interests. Consider sliding scale commissions as key benchmarks are met. It is best to try to grow sales and market share 4.What are performance goals short-term / long-term? Consider specifying them in terms of volume and growth. NOTE: If you pay commissions on commercial invoices you will be paying commission for freight and other non product related items. Contractual Issues- Distribution Agreements Legal Issues

11 Dispute Resolution When creating a contract for an international transaction, consider including a clause specifying arbitration as the dispute resolution mechanism. Arbitration contrasts should include the choice of location for proceedings, language, the number of arbitrators and manner of their appointment, and whether arbitrators can act as amicable intermediaries (i.e., apply equitable doctrines) TRIPS and UN CISG help define methods of court litigation of IPR, payment and delivery disputes. There may be instances where court administration is undesirable. Alternative dispute resolution (ADR) such as arbitration and conciliation are non court resolution methods. Consider including a clause specifying arbitration as dispute resolution mechanism Be sure to include choice of location for proceedings, language, the number of arbitrators and manner of their appointment, and whether arbitrators can act as amicable intermediaries. The International Chamber of Commerce (ICC) International Court of Arbitration handles arbitration proceedings Legal Issues

12 Each Country Has Unique General “import regulations” & “customs bodies” Product specific regulations & standards and industry bodies Examples: UL, CE, Triple C, AQIS, Rohs, Weeh Reach, etc.EU Metric directive, NEW UMC 2004/108/EC Regulations or Product Specifications are Imposed to: Protect the health of their citizens-like FDA regulations Enforce compliance with environmental controls Ensure compatibility with local electrical/measurement systems -like BETA/VHS Restrict flow of goods embargoed countries Censor access: from places deemed inappropriate cultural influences Safeguard domestic industries to protect them from foreign competition-EU regs Foreign Regulations are Complex & Cumbersome Often referred to as non-tariff barriers Some countries accept self certification or widely used tests-others don’t. Product may need modification to meet foreign regs/engineering & design standards Even if no regulation requires it you may want to modify product to conform to geographic and climatic conditions, buyer preferences, or standards of living Compliance with Foreign Standards & Regulations Legal Issues

13 Additional Legal Resources: WTO Standards New York Public Library US Gov Foreign Standards Page NIST WTO IPR Gateway WTO Dispute Settlement Gateway WTO Regional Trade Agreements ELAN –USBA Export Legal Assistance Network IPR Legal Assistance: Fee consultation via UPSTO US Gov. Legal Considerations site: Legal Issues

14 SHIPPING ISSUES Shipping Documents Labeling Requirements Wood Packaging Regulations INCO-Terms Customs Contacts/Tariffs/Taxes FTZ/FTA- Tariff Avoidance Pro-forma Quotes/Invoices-Contracts Due Diligence Market Access: Shipping Issues

15 Customs & Documentation Documentation is critical to buyer’s ability to clear goods and the costs of documentation should be passed to buyer in the quote via a Pro-forma Invoice Documents Required in Export Transaction to Clear Customs in Buyers Country Commercial invoice: itemize product, value, HTS number, country of origin Packing list: itemizes packaging including certification of packaging type for ISPM15. Used by customs used to apply duties- shipping companies to asses weight/dimensions of shipment International bill of lading (B/L) (air way B/L, ocean B/L, rail B/L or truck B/L), carriage contract Insurance Certificate- shows proof of coverage for INCOterms requiring buyer to provide insurance Continuity Across Documents: If Pro-forma invoice is accepted, transfer all info to Commercial Invoice- bill for goods sold & shipped from exporter (seller) for importer (buyer) Product/quantity info is transferred from Pro-forma to packing list Shipping Issues

16 Customs & Documentation Other Required Documents Vary by Country US SED – used by US customs only- buyer does not see this US law requires that you keep all export records for FIVE YEARS Other documentation specified by foreign customs, buyer or freight forwarder such as: Consular invoice- country specific import form similar to invoice- for foreign customs Inspection Certificate- some countries require pre-shipment inspections Certificates of origin as needed: Issued by local US chamber or specified foreign body such as US Saudi Business Council; used by foreign customs to identify country of origin for resale, duty relief in support of FTA Additional certifications: Some products like medical devices, food products, electrical items require specific tests that vary by country Shipping Issues ATA Carnets: “Merchandise Passports” for the temporary import of commercial samples (CS), professional equipment (PE), and goods for exhibitions & fairs (EF). Allow duty/tax free/bond free entry in member countries for one-year. Fee $200-$330. Issued by USCIB in USA

17 Packaging/Labeling When shipping overseas, exporters must ensure merchandise is correctly: Packed so it arrives free of breakage, moisture, pilferage and excess weight Labeled so goods are handled properly and arrive on time at right place Documented so laws/collection standards that vary by country/product are met Insured so delays, theft, bad weather, rough handling, cargo hazards are covered To determine what mode of “transport” to use when shipping globally, consider: Cost of shipment Delivery schedule Buyer’s accessibility to shipped product When shipping by air: Beware of Unknown Shipper Rule- New since 9/11 Although air carriers cost more, costs may be offset by lower domestic shipping costs (such as using a local airport instead of a coastal seaport) and quicker delivery times Tips: To avoid theft use shrink wrap, do not list content or brand on exterior To reduce air shipment costs use lighter weight packing materials Resource: Shipping Handout Shipping Issues

18 Packaging/Labeling Export Marks- Purpose Identification of shipment Meet shipping regulations Ensure proper handling and delivery Ensure compliance with environmental and safety standards Recommended Practices: Marks Used on Export Containers/Packages Shipper's mark- port marks, customer identification code Country of origin (U.S.A.) Gross and net weights marking (use both pounds & kilograms) Total number of packages (ex. box 1 of 3) Dimensions/size of cases (use both inches & centimeters) Port of discharge- entry port overseas Handling marks (int’l) "This Side Up" or "Use No Hooks" (English & destination language) Hazmat labels- Mandatory (universal symbols: Int’l Air Transport Assoc. & Int’l Maritime Org.) Contents (if applicable per destination regulation, include in destination language) Shipping Issues

19 Packaging/Labeling Export marks go on a domestic bill of lading to show: The name of the exporting carrier The latest allowed arrival date at the port of export Instructions for the inland carrier to notify int’l freight forwarder by phone on arrival The Importer may specify other export marks needed on cargo for easy id by receiver Clearly mark packages to avoid confusion and delays Letters can be stenciled onto packages/ containers in waterproof ink Markings should appear on three faces of container, preferably on top and two ends or/sides Old markings must be totally removed from used packaging Customs Brokers, Freight Forwarders can help with filing of export documentation, taking care of arrangements with carriers, storage needs for large or small firms, light or heavy cargoes, and can take care of cargo from "dock to door" if requested to do so Market Access: Shipping Issues

20 Purpose of ISPM: International Plant Protection Convention (IPPC) Multilateral treaty protects native plants from foreign pests What is ISPM? International Standards Phytosanitary Measures adopted as standard by 162 IPPC signatories; Adoption dates and methods of compliance vary by county, regulates all Wood Packaging Materials (WPM) used to support, protect or carry a commodity Applies to: Coniferous and non-coniferous raw WPM, such as pallets, dunnage, crating, packing blocks, drums, cases, load boards, pallet collars, and skids Does not Apply to : WPM made wholly of processed wood-based products such as paper, plywood, particle board, oriented strand board or veneer created using glue, heat and pressure or a combination thereof, veneer peeler cores, sawdust, wood wool, shavings, and raw wood cut into thin pieces How Do You Comply? WPM must be treated by HT (heat treated), KD (kiln dried) or MB (fumigated- methyl bromide) and stamped with ISPM markings. US Exporters can buy compliant WPM or have their WPM treated through ISPM compliant vendors Note: See ISPM Country Schedule- Sept. 2005 Handout Market Access: Shipping Issues IPPC/ISPM 15- Wood Packaging Regulations

21 INCO Terms affect Price! Market Access: Legal Issues INCO-Terms define freight, insurance, fees payment & risk transfer from seller to buyer Terms shift from sellers favor (E-terms) to buyers (D-terms) or share risks (F&C Terms) E- terms- origin (1) from sellers factory address sellers favor All delivery costs/risks borne by buyer EXW ex-works F- terms-pre-main carriage terms (3) to named Port/Airport USA FCA Free carriage to airport, FAS free carriage along side vessel, FOB free on board vessel C-terms- main carriage terms(4) to named Port/Airport Overseas CFR cost & freight, CIF cost & insurance & freight, CPT Air Carriage paid to, CIP Air Carriage & Insurance Paid to D-Terms destination terms (5) to buyers named destination Oversea’s buyers favor All delivery costs/risks borne by seller DAF delivered at frontier, DES delivered ex Ship, DEQ delivered Ex-Quay, DDU delivered duties unpaid, DDP delivered duty paid Some terms are specific to “mode of transport” –FCA vs FOB Duties are usually calculated FOB or CIF basis

22 Responding To Leads: Price Quotes 13 INCOTERMS –Shipping Terms E terms favor seller D terms favor buyer. F & C terms share risks Be careful some are “mode” specific Sellers favor E- terms- origin (1) (sellers favor) EXW ex-works sellers factory address F- terms- pre-main carriage terms (3) (mostly sellers favor) FCA Airport, FAS free along side vessel, FOB free on board vessel C- terms- Main Carriage terms(4) (mostly buyers favor) CFR cost + freight, CIF cost + insurance+ freight, CPT Carriage paid to, CIP Carriage & Insurance Paid to, D-Terms- Arrival terms (5) ( buyers favor) DAF delivered at frontier, DES delivered ex Ship, DEQ delivered Ex-Quay, DDU delivered duties unpaid, DDP delivered duty paid Buyer’s Favor Shared risks

23 Where does risk transfer from seller to buyer with common InCoTerms? ExWorks Free on Board Deliver Duty Unpaid Deliver Duty Paid Cost & Freight = FOB + transport costs Cost, Insurance & Freight = FOB + transport & insurance costs Verifying Financial Risk

24 Where do transport costs transfer from seller to buyer with common InCoTerms? ExWorks Free on Board Cost & Freight Cost, Insurance & Freight Delivery Duty Unpaid Delivery Duty Paid Verifying Financial Risk

25 InCoTerms Ex Works (EXW): Title, transportation, and insurance risks pass to buyer at seller’s door Free on Board (FOB): Risks pass to buyer once delivered onboard ship by seller Cost & Freight (CFR): Same as FOB +transportation costs Cost, Insurance & Freight (CIF): Same as CFR +insurance costs Delivered Duty Unpaid (DDU): Risks pass to buyer when seller delivers goods at buyer’s point of entry Delivery Duty Paid (DDP): Risks pass to buyer when seller delivers goods at buyer’s point of entry and goods are cleared for import Verifying Financial Risk

26 InCoTerms Preferred by Exporters 1. CIP (Carriage and Insurance Paid) seller obligated to provide insurance coverage and charge buyer for it 2. CPT (Carriage Paid To…insert destination) ideal for container shipments, no insurance required 3. CIF (Cost Insurance and Freight) marine only, seller’s risk for goods condition ends when vessel is loaded, seller selects forwarder and carrier and insurance 4. CFR (Cost and Freight…insert destination) marine only, CIF without the insurance requirement Verifying Financial Risk

27 Customs/Tariffs Step 1: Determine your HS or Schedule B Number The first step in determining duty and tax information is to identify the Harmonized System or Schedule B number for your product(s). The duty amount will also depend on the trade terms you have negotiated with your buyer. The INCOterm actually specifies who pays duties but generally the Importer pays all Duties/Tariffs & TaxesHarmonized System or Schedule B numbertrade terms Step 2: Determine Tariff Rates Once you know your product’s Schedule B or HS number, you will be able to determine the applicable tariff and tax rates in a particular foreign country. The following links can help you locate specific tariff and tax rates for your product. Country Specific Tariff and Tax ( Information: Tariff and tax information for exporting to 97 countries.Country Specific Tariff and Tax Information U.S. Government Tariff Resources for Agricultural Exports Additional Tariff ResourcesAdditional Tariff Resources (including information for importing into the U.S.) For Assistance Call the Trade Information Center at 1-800-USA-TRADE and an international trade specialist will assist you in obtaining foreign import fee, duty, and tax information. You may also email a tariff inquiry (requesting duty and tax information) with HS number(s) to the Trade Information Center at or fax us at (202) Shipping Issues

28 Tariff Avoidance via FTAs, FTZs, EPZs Free Trade Agreements Reduced tariffs for members/requires “certificate of origin” Negotiated by US Trade Representative Types of FTAs: Global, Regional, Bi-lateral Free Trade Zones Import Tariffs and Duties Temporarily Waived Determined by Governments Types of FTZ: Free Economic Zone, Free Port, Custom Bonded Warehouse Export Processing Zone Materials are imported, finished goods are exported Purpose: attract new business and foreign investment Reduced tariffs, taxes, quotas, and less bureaucracy Note: Before shipping, check with foreign buyer about the destination-they may want goods shipped to an area where they are exempt from import duties such as an FTZ Market Access: Shipping Issues

29 Before you Ship… Be sure you know: What is final destination? Is country on embargoed list? Is lead a bad guy? What will product be used for? Are there other red flags? Exporter Due Diligence Market Access: Shipping Issues

30 Finance Issues Biggest Risk is Non-payment after Shipment- Importer Can't or Won't pay. Usually when buyers don't pay, it is due to lack of compliance with the terms of sale specified in the L/C and the shipping documents. In some case they are dishonest. With due diligence you can recognize dishonest buyers. The Internet has profiles on many foreign companies. Banks and credit-reporting firms and government agencies can do background checks on overseas firms. LOW RISK For Exporter Get Paid upfront or sell on a Letter of Credit (L/C) basis.Letter of Credit Irrevocable, confirmed L/Cs best. Buyer pays his bank up front and correspondent bank in your country is obligated to pay you. Various L/C’s can be arranged through an international banker. HIGH RISK For Exporter Open account or sight draft within 30-120 days after the goods arrive. If competitor s offer terms then you will need to as well. This increases your risk, particularly if, buyer's local purchase costs have increased due to depreciation against your currency. Export credit insurance can protect your receivables and is available commercially or from U.S. Export- Import BankExport credit insuranceU.S. Export- Import Bank

31 Pricing Considerations For Sales Contracts The more you can control price escalation the more competitive you’ll be Price at your factory vs. cost at final destination (landed costs) = Price Escalation Export Cost Variables Travel costs Training costs Research fees Marketing & communication fees Product/packaging modifications Service provider fees (translations, legal etc) Handling and documentation fees Inspection Costs Currency & financing fees Intermediary fees/distributor commissions Tariff/non tariff barriers and VAT/GST taxes Freight/insurance fees: (vary by mode of transport, size/nature/value/quantity of product, destination) Export Pricing Strategies Average price: Set global profit margin; one price for all Dual price*: One price for domestic, one for international Market differentiated price: Vary price by market. Most complex. Must factor in all landed costs and be sure the market can bear price NOTE: WTO it is illegal to sell at lower price abroad than domestically or below cost = “dumping” Finance Issues

32 Pricing Considerations For Sales Contracts Pro-forma Invoices are Global Quotes: Require more detail than domestic quotes; importer/buyer uses to arrange L/C or get import licenses. They MUST include all costs plus the following: 1. Date prepared by seller and date expires 2. Sellers exporter full name and contact details 3. Buyers ref #, date of inquiry, and importers full name and contact details 4. Description of each item and country of origin of each item 5. Gross and net shipping weight (metric is international standard) 6. Total dimensions packed for export (metric is international standard) 7. Price of each item (quoting in US dollars is best) 8. Trade discount if any 9. Delivery point and estimated shipping date 10. Shipping INCOTERMS terms: Insurance and shipping costs (specifying who will pay) 11. Estimated date of shipment arrival at destination 12. Total charges to be paid by customer 13. Payment terms and method including currency to be used 14. Any other terms of sale- production lead time required, subject to your credit policy, etc. 15. Diversionary control statement and clause that all statements are true and correct Finance Issues

33 Legal Issues US Laws IPR Protection Contracts Dispute Resolution Foreign Regulations & Standards Shipping Issues Shipping Documents & Labeling Requirements Wood Packaging Regulations INCO-Terms –Shipping Terms Customs Contacts/Tariffs/Taxes FTZ/FTA- Tariff Avoidance Due Diligence Finance Issues Payment Terms Export Costs Market Access Issues Questions?

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