Key Export Documents A supplement to Hill, Chapter 15 This is not required, but can help you understand concepts of “letter of credit,” “draft,” and “bill.
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Key Export Documents A supplement to Hill, Chapter 15 This is not required, but can help you understand concepts of “letter of credit,” “draft,” and “bill of lading” International Business 10e Daniels/Radebaugh/Sullivan 2004, Prentice Hall, Inc17-1
Paperwork (or its electronic equivalent) is essential to trade To understand importing and exporting, understand the documents typically required
The Need for Special Export-Import Finance Processes Lack of trust between international trading partners due to several factors Parties often have never met Language, cultural, and legal system differences Difficulties in tracking down a party in case of default Problem solved by using a third party trusted by both as an intermediary – normally a reputable bank
In addition, export documents may be required by government rules What tariff classification does the product comes under? Is the product subject to a quota, and does the sender have a right to send that product from that country? Does the product involve restricted technology?
Two basic documents Similar to documents used in domestic trade Pro forma invoice – like a “letter of intent” summarizes what the exporter will do if the importer agrees Commercial invoice – the actual bill usually sent electronically with a copy included in the shipment
In international trade, a “draft” formalizes the process Exporter issues draft (or “bill of exchange”), typically when goods are shipped It may require immediate payment (a “sight draft”) or payment within 30 or 60 or more days (a “time draft”) Often the draft goes to and is signed and acknowledged by the bank issuing the letter of credit
Key documents for government approvals Certificate of origin – proof goods came from a particular place Important for products shipped under quotas Also necessary to ensure products did not come from a place under sanctions ‘blood diamonds’ Export license – required for some tech goods
Letter of Credit Issued by a bank at the request of the importer Bank (which is trusted by both sides) promises to pay a specified sum to the exporter, on presentation of particular, specified documents
Bill of lading – receipt for goods from the carrier that is transporting them (airline, shipping line) shows exporter has delivered the goods to the carrier 17-11
Typically the bank that issued the letter of credit will pay the purchase price to the exporter when – or within a specified number of days after - the exporter presents bill of lading draft and/or commercial invoice any documents required by either the exporter’s or the importer’s government sometimes additional documents (perhaps documentation of quality control)
Using Customs Brokers Customs brokers can help with the importing process Value products in such a way that they qualify for more favorable duty treatment Deferring duties by using bonded warehouses and foreign trade zones Limiting liability by properly marking an import’s country of origin