Chapter 3.2 - Compare the key legislative, regulatory an organisational requirements when undertaking International sourcing in the not-for-profit, private and public sectors Flashcards
Certificate of origin
A certificate showing the economic nationality of goods in international trade (European Commission definition)
Name 5 systems and documents used in the European Single Market to enable free and traceable movement of goods within its borders
- T1 Document
- Import/Export licence
- Single administrative document
- New Computerised Transit System
- Customs Declaration Service
What is the T1 Document
A document that has to accompany the goods while in transit through the EU until they reach their final destination - the goods are not subject to the duty charges whilst travelling under this document but will be when they reach their final destination
What is an import/export licence
May be required to permit the import or export of a particular product
Single administrative document
Not required for goods arriving from within the EU, or those being transported outside the EU. It’s used to control the traceability of good entering the EU or leaving it.
New Computerised Transit System
Used to electronically track the movement of goods that are being transported within the EU. Users can electronically submit Union Transit (UT) and Transports Internationaux Routiers (TIR) declarations instead of paper declarations. TIR procedure applies where goods are delivered to, transported from or pass through EU member states
Customs Declaration Service§
UK systems previously known as Customs Handling of Import and Export freight (CHIEF). Allows users to submit electronic import and export requests.
Binding Origin Information (BOI)
A legally binding decision on the origin of goods provided by an EU member state although this can be a difficult evaluation when goods are manufactured, assembled and tested in a number of different countries
What should a buyer apply for if the origin of goods is uncertain and the buyer wants legal certainty?
Binding Origin Information (BOI) decision
Name the 2 key types of ‘origin’ used to describe goods transported into or through the EU and EAA
- Non-preferential origin: goods that are subject to tariff quotas and other customs commercial regulations
- Preferential origin: goods that are traded between countries that allow their entry with no duty charges or limitations applied through tariffs
What should you do if you expect language barriers to be a problem
Ensure paperwork is in a common language and that it can all be understood by customs officials at points of exit and entry to prevent delays
Name the 5 documents used for international imports and exports
- Purchase Order
- Bill of lading
- Insurance certificate
- Certificate of origin
- Carnet
Purchase Order
The purchase request from the buyer to the supplier, providing deliverable lines that the supplier can invoice for on delivery
Bill of lading
A document of title stating what is required of those involved in transporting, carrying and consigning the goods until their point of delivery. This is specifically used for cross-border transportation of goods
Insurance Certificate
The buyer, supplier or both may be responsible for ensuring that any goods to be transported are covered by a suitable insurance policy. This should cover the value of the goods and state how it applies, i.e. which dates, locations etc. The buyer must be sure of its responsibilities for insurance and should ensure that it adequately covers the correct stages of the journey
Carnet
A document that allows the temporary free movement of goods for a specified purpose, within a designated boundary or along a set route (known as an Admission Temporaire or ATA carnet). Carnets must be completed accurately for each country that requires them, and goods must not remain in the country permanently. While using a carnet, the person responsible for the goods should ensure that all goods are accounted for and apply to the customs regulations of the countries they enter
Name an example of a situation where a carnet may be used
For the movement of instruments and sound equipment used by a band on an international tour, which must arrive at every destination on the tour, uninterrupted
What is import duty
A tax charge that may be applied when items are imported into a country from outside its borders
What are tariffs
Rules set by a country to determine the quantities of goods that can be imported into that country’s borders
Ad valorem
An estimated value of goods that are imported, based on the value of the goods plus a number of other factors (insurance, freight and other costs) that is calculated to give a total value
Name the 3 volumes of the Integrated Tariff of the United Kingdom
- Duty relief schemes, details of key contacts and guidance on topics such as tariff quotas and excise duty
- Duty rates schedule and trade commodity codes
- Customs freight procedures guidance
What does the Integrated Tariff of the United Kingdom do?
Sets out the import duties and measures that affect imports
For items imported into the UK, what does the customs agency expect the organisation sending the goods to provide?
An ad valorem estimate of the value of goods
What 3 purposes does the UK customs agency expect the organisation sending the goods to provide an ad valorem estimate of the value of the goods
- To calculated the duty owed to the local customs agency
- To calculate the import VAT
- To support trade statistics (collecyed using the Intrastat system in the EU) in recognition of tariff reuirements
What does relief of duty mean?
Duty is not required or is reduced in value
Name 5 examples of duty relief
- Customs warehousing relief - where goods are stored duty free and VAT free at a defined location
- Inward processing relief - where goods enter from outside the EU and are later exported from the EU
- Outward Processing Relief - where goods are only temporarily exported to a country outside the EU
- End-use relief - where goods meet a specific purpose and can only be used within a set period of time
- VAT waivers - No VAT is payable on military jets over six tonnes
Trade bloc
An economic group, formed by different countries in a geographical zone, to create preferential trade conditions
Tariff
Rules regulating the type of goods, their volume (determined by quota) and their import duty when imported from specific countries. Tariffs may have a unique code, making them easy to identify and reference
Import duty
Taxes collected on goods imported from another country (also referred to as customs duties or import tariffs). The amount of tax is usually based on the value of the goods
Currency
A monetary system used within a country, for example, the rand in South Africa (ZAR) or Australian dollars (AUD)
Name 2 forms of trade blocs
- Common market: a trade bloc where the member nations may choose to waive tariffs or duties for imports and exports between themselves, for example CARICOM (Caribbean community) or ASEAN (Association of Southeast Asian Nations)
- Free trade areas: a trade bloc where the member nations waive tariffs or duties for imports and exports between themselves, for example, the EU Customs Union (Europe)
What is the role of a customs organisation
To control the flow of goods in and out of a country
What is the value of currencies determined by?
Supply and demand on the Foreign Exchange Market (Forex)
Name the main reason currencies vary in worth in comparison to one another
Buyers buy large quantities of a particular currency, possibly because that country is prosperous and its currency is perceived to hold value
How do cryptocurrencies operate?
Outside of the boundaries of a national economy so can be distanced from national politics, but often have very low operating costs
Name 3 focuses from a regulatory perspective of currency considerations
- Access to currency
- Ability to make and receive payments
- General considerations
Dollarisation
The alignment of a national currency with the US dollar
Name 5 common trade currencies
- US Dollar (USD)
- Euro (EUR)
- Japanese yen (JPY)
- British Pound (GBP)
- Swiss Franc (CHF)
What does it mean if a currency is non-convertable
There are government restrictions both on accessibility to the currency and its use while others may align with currencies such as the US Dollar (known as dollarisation)
International sourcing
Sourcing goods or services from all over the world
Name 3 examples of international sourcing
- Standard product sourcing
- Outsourcing
- Offshoring
Name 5 benefits of international sourcing
- Reduced costs
- Exposure to world class technology
- Availability of materials that may not be readily available in the home country
- Improved quality
- Wider selection of supplier available internationally
Name 10 risks of international sourcing
- Extended lead times
- Importation/exportation rules and regs
3.Currency exchange fluctuatons - Payment methods and guarantees
- Cultural differences
- Quality issues
- Logistical problems
- Infringement of intellectual property rights
- A breakdown in relationships or trust
- Conflict is harder to resolve
Lead time
The amount of time from placing the order to the goods/services being delivered
Letter of credit
A document issued from one bank to another to act as a guarantee of payment made to a specified person, against agreed terms and conditions
Routing
The selection of the delivery route for transfer of goods which can affect transaction costs, risk and lead time
Incoterms
Series of commercial terms published by the International Chamber of Commerce, covering the allocation of costs and transfer of risks between buyer and seller. The various options are abbreviated to three-letter codes
Transfer of ownership
The point where title to the goods passes from one party to another
Name 6 advantages of international trade
- Prosperity from international trade may help nations form more collaborative and peaceful relationships
- Some nations may form trade connections that grant them relief from import duties
- A country that welcomes international trade opens its economy and market to stimulation, as a result of sales from exports and capital generated from duties imposed on imported goods
- Consumers have greater access to products produced in other nations, giving them the opportunity to purchase cheaper alternatives, which could drive competition between retailers and manufacturers
- Suppliers have greater access to customers who may have varying tastes (requiring a wider range of products to be produced)
- Companies based in emerging economies (formerly known as ‘developing countries’) have an opportunity to adopt the high standards of successful companies from foreign nations, enabling them to better compete for contracts with complex technical specifications that demand higher standards of quality
Name 7 disadvantages of international trade
- Pressure on companies or markets in nations where a practise or product is accepted as a cultural norm, but is considered to be undesirable or incompatible by other cultures (horesemeat has been a very topical product for a number of years)
- Companies may move their supply base to another country at short notice, abandoning factories and leaving full workforces unemployed
- Suppliers in emerging nations may not be able to invest the capital required to improve their manufacturing culture, making it difficult to be considered by other buyers in established markets elsewhere in the world
- Poor political relations between governments may result in disruptions or barriers to trade
- Changes in currency values can affect the amount the buyer pays for goods, costing it more (or potentially less in more favourable circumstances)
- Differences in ethical standards that the buyer may not be able to accept in its supply chain, for example, the supplier may use slave labour or have workers work in unsafe conditions with insufficient protection
- Suppliers may operate from countries that have high levels of corruption (as ranked by the Transparency International Corruptions Perceptions Index 2017), exposing the buyer to potentially unethical practises such as bribery and money laundering
Why is it important that buyers and suppliers have a good understanding of import duties and tariffs?
To guard against potential unexpected price increases or delays in delivery
Name 4 reasons for limiting imported goods
- Protection of end users, where products are known to be harmful to health
- National defence products ( or their sub-components) which are generally subject to strict controls worldwide
- Protection of ‘infant industries’, where specific industries or markets are still growing and may be damaged by competition from importers
- To more strictly monitor goods from a country that has previously been a problematic importer into the country, for example, by not meeting product labelling requirements, purposefully attempting to import known prohibited products
What are incoterms used for?
To provide a recognised standard of trade understanding and terminology between buyers and suppliers
What do incoterms describe
The point when a deliverable is no longer the responsibility of the supplying organisation, with the risk then transferring to the buyer
Name an advantage of using incoterms
They can easily take the place of otherwise lengthy contractual clauses
Name 4 pieces of information incoterms can be used to represent
- The point at which the goods will be considered to have been ‘delivered’
- Which party is responsible for organising transportation and what form this takes
- Which party pays to insure the goods and which party is responsible for arranging this
- Which party is responsible for making duty and tariff arrangements and arranging passage through customs control agencies
Name 7 incoterms that apply as rules for all modes of transport
- EXW - ex-works
- FCA - free carrier
- CPT - Carriage paid to
- CIP - Carriage and Insurance paid to
- DPU - Delivered at place unloaded
- DAP - Delivered at place
- DDP - Delivered duty paid
Name 4 incoterms that apply a rules for transport over water
- FAS - Free alongside ship
- FOB - free on board
- CFR - cost and freight
- CIF - cost, insurance and freight
Named destination
The final destination goods should be delivered to. This should be clearly defined from the start
EXW - ex works
The goods are considerd ‘delivered’ at the point of release from the suppliers premises or another named place. The supplier is not responsible for loading or transporting the goods and does not have to arrange any export clearance - this must be arranged by the buyer. The risk is on the buyer at this point
FCA - Free carrier
The supplier is responsible for placing the goods in the hands of the carrier chosen by the buyer, at which point the buyer takes on the risk
CPT - Carriage paid to
The supplier is responsible for delivering the goods to a carrier or to an intermediate agreed place. From this point, the buyer is responsible for ensuring these goods reach their named destination
CIP - Carriage and insurance paid to
The supplier is responsible for delivering the goods to a carrier or intermediate agreed place and should ensure that the goods have at least minimal insurance cover until this point. Again, the buyer is responsible for ensuring that the goods reach their named destination from here
DPU - Delivered at place unloaded
The supplier is responsible for delivering the goods to a named port or destination (such as an airport or warehouse), as well as unloading them at the terminal. From this point the risk passes to the buyer
DAP - Delivered at place
The supplier is responsible for delivering the goods to the buyer’s premises, bearing all risk up until this point
DDP - Delivered duty paid
The supplier is responsible for delivering the goods to the buyer’s premises including arranging any customs clearances that apply, bearing all risk up until this point
FAS - Free alongside ship
The supplier is responsible for delivering goods to a point alongside a water vessel (such as a dock or quarry) as determined by the buyer at a named port. Once delivered, all risk is transferred to the buyer until the goods are transported and delivered to their named destination
FOB - Free on board
The supplier is responsible for delivering the goods directly onto the vessel that will transport them to their named destination. As soon as the goods are on the vessel, the risk transfers to the buyer
CFR - Cost and freight
The supplier is responsible for delivering the goods directly onto the vessel that will transport them to their named destination and must also cover the cost of this. The supplier bears all risk until the goods are delivered to the buyer at their named destination
CIF - Cost, Insurance and freight
The supplier is responsible for delivering the goods directly onto the vessel that will transport them to their named destination, covering the cost of both the transport and the insurance to cover this. Again, the supplier bears all the risk until the goods are delivered to the buyer at their named destination
Name 5 payment methods used to reduce payment and delivery risks in international trade
- Credit account
- Term/time draft
- Slight draft
- Letter of credit
- Cash in advance
What is a credit account?
The supplier delivers the goods before receiving payment and will expect to be paid on the agreed credit terms, usually within a specified number of days from the date of the supplier’s invoice
What is a bill of exchange often referred to as?
a draft
What is a bill of exchange
A payment instruction - a binding written agreement whereby one party promises another to make payment of a specified amount at a specified time
Name 2 forms of bills of exchange
- Term/time draft
- Slight draft
Letter of credit
A guarantee given by the buyer’s bank to the supplier, stating that the exporting supplier will be paid from the Escrow Account only when it meets the conditions set out in the letter generally when documentation requirements have been satisfied fully
Escrow account
A third-party account used to facilitate an international transaction, managing the flow of trust and funds through a trusted independent intermediary often using a letter of credit
Cash in advance
The buyer pays the supplier for goods before they are received. This benefits the exporting supplier in terms of cash flow, but may have risks for the buyer
Term/time draft
A guarantee of payment from the buyer’s bank ensures the exporting supplier retains title of the goods until the importing buyer has receipted them. At this point following the confirmation that goods have been received and, following a short delay, the supplier will be paid. This delay is to give the buyer enough time to inspect the goods and ensure that it is satisfied before paying the supplier
Slight draft
A guarantee of payment from the buyer’s bank ensures the exporting supplier retains title of the goods until the importing buyer has receipted and paid for them. though the supplier is not paid until this point, it is called a ‘slight draft’ because the buyer must pay for the goods as soon as they are recieved and there can be no delay
Currency hedging
A method of purchasing foreign currency ahead of an expected payment in order to prevent the financial loss caused by market fluctuations - these may include options and future contracts
Quota
A quantity of something. In international trade, the quantity of a commodity being imported or exported
What is a simple way to guard against price fluctuations
To specify that all prices in all supplier’s tenders are given in the currency of the buying organisation’s nation
What is hedging
A proactive risk management technique where the buyer will use different techniques and products to minimise exposure
Name a key function of customs control agencies
Ensuring that the quotas given in tariffs are not exceeded
Give 4 examples of a country’s own customs control agency
- USA - US Customs and Border Protection
- India - Central Board of Indirect Taxes and Customs
- South Korea - Korea Customs Service
- UK - HM Revenue & Customs
Vienna Convention
The United Nations Convention on the International Sale of Goods - a multilateral treaty that establishes a uniformly recognised framework for international trade
Contracting state
A country which has signed the Vienna Convention on CISG
Name 5 rules in the Dispute Settlement Understanding (DSU)
- procedures of review panels and their functions
- Concilliation and mediation
- Appellate reviews
- Time frames for decision making
- Arbitration
What is the purpose of the Vienna Convention
To set out a framework for international trade based on a non-biased and uniform approach, by seeking to overcome the barriers that are created by differences in local laws
When there is a sale of goods between two businesses in different contracting states, is the transaction considered to be international and do the CISG rules of law automatically apply?
Yes unless that have been explicitly stated as excluded in the contract between the buyer and supplier
