El Camino College Business Training Center

INTERNATIONAL TRADE ORIENTATIONOVERVIEW OF EXPORTING AND IMPORTING

Bronwen Madden, Deputy DirectorCenter for International Trade DevelopmentEl Camino College Business Training Center

NEW GRANT FUNDED CITD INITIATIVES

• International Trade Compliance Institute (ITCI)o Information and Training on all Aspects of International Trade

Regulations o Seminars/workshops on EAR, ITAR, AES, ACE & moreo ITCI Website www.tradecomplianceinstitute.org

• “Green” Export Enabler Program (GEEP)o Increase Calif. Green Technologies Exports to Chinao Free competitiveness and export readiness assessmentso Export training and market research/planning for China market

entryo Subsidized trade event and matchmaking assistanceo GEEP Website www.greenexport.org

CALIFORNIA EXPORT PROFILEEXPORTS GROWTH JOBS

Total Exports by

States

California’s Top Export

Markets

California’s Top Exports

Total Value: $120,142,219,999

Total %

Texas Mexico Computers & Electronic Prod. 35,182,767,377 29.3 %

California Canada Transportation Equipment

12,826,967,941 10.7 %

New York Japan Machinery Manufactures

10,709,240,936 8.9 %

Washington China Chemical Manufactures

10,233,994,524 8.5 %

Florida South Korea Misc. Manufactures 9,130,040,605 7.6 %

Illinois Hong Kong Crop Production 7,848,804,565 6.5 %

U.S. SMALL AND MEDIUM-SIZED ENTERPRISES (SMES) STATISTICS

• U.S. Employment (99%)• Private Sector Employment (50%)• Net New Jobs (66%)• Exporting Firms (97%)• U.S. Export Value (30%)

CALIFORNIA [UNREALIZED] EXPORT GROWTH POTENTIAL

• 96% of the World’s Consumers Live Outside the U.S.• 66% of the World’s Purchasing Power is Outside the U.S. • 85% of California’s Manufactures do Not Export• Many Make Exportable Products• 60% Sell Only to Canada and Mexico (w/in NAFTA)• Many have New-to-Market Export Potential

EXCUSES (MYTHS AND FEARS) FOR NOT EXPORTING

• Too Small• Too Complicated• Too Risky• Too Expensive• Cannot Compete

It’s too Risky

I’m too small

I can’t afford it

Export Myths

It’s too complicate

dI Can’t Compete

WHY TRADE?

• 1 in 5 U.S. Manufacturing Jobs (20%) Depend on Exports• Export Jobs Receive Higher Wages• Each Additional $1B in Exports Creates 15,000 New Jobs• Exporting Increases your Sales to More Markets• Exporting Reduces Dependence on the U.S. Market• Source Products Unavailable Domestically• Increase Sales Volume / Profits• Adjust for Seasonal Availability• Source at Lower Cost; More Price Competitive

STAGES OF EXPORT DEVELOPMENT FOR NEW-TO-EXPORT SMESCLIENT NEEDS FOR ASSISTANCE AT EACH STAGE

© Maurice Kogon, Director, El Camino College Center for International Trade Development

REGISTER YOUR BUSINESSCOMPLY WITH DOMESTIC BUSINESS REGULATIONS

• CalGold • Click on “All Business Types” • Check your Business Type (For example )• Click on your County and City• Review all Federal, State, County, City and Municipal

licenses, permits and other registrations applicable to your business

INTERNATIONAL EXPORT (IMPORT) PLANNEED TO ADDRESS THE FOLLOWING TOPICS

• Companyo Goals , Financial Resources , Non-financial Resources , Current Trends and

Practices, Production Capacity, and SWOTT Analysis

• Target Marketo Product Characteristics , Product Packaging, and Product Handling

• Producto Potential Markets, Market Assessments, Your Target Market, and Industry

Analysis

• Pricingo Market Price , Pricing Strategy, Unit Price, and Profit

• Market Entryo General Strategies and Promotional Strategies

• Action Plano Objectives, Tasks, Priorities, Resources , Schedule, and Evaluation

INTERNATIONAL EXPORT (IMPORT) PLANTEMPLATES

• USDOC Template• Canadian Template• Identify action items and responsible person• Threats include the Five-Forces (part of SWOTT)

EXPORT READINESS (STEPS TO TAKE)

• Increase Efficiency & Competitiveness • Product Readiness• Company Readiness• Identify Resources* Available to Help You Export

o On-line Export Readiness Assessment (ERA)o California Centers for International Trade Development

• Identify Few Markets with Highest Export Potential• Identify Entry Strategy for Each Market (Desired

Partnership Arrangement)• Export Promotion & Prompt Follow-up

*Resources on federal and state level, public and private. See the WTW info guide.

EXPORT READINESS INDICATORS

• Has your company received any unsolicited inquiries from foreign firms?

• Are domestic sales of your product doing reasonably well?

• Do you have a relatively strong share of the domestic market?

• Is your product price-competitive in the domestic market?

• Does your product compare favorably with domestic competitors in features and benefits?

TRADE INTERMEDIARIESMANAGEMENT COMPANIES & TRADING COMPANIES

• Export Management Company (EMC)An independent firm which acts as the exclusive export sales department for manufacturers. Income is usually made on commission or retainer basis, however, title of the goods may also be taken whereas a price mark-up is made.

• Export Trading Company (ETC)An independent agent that takes title of the goods for export and pays the manufacturer directly. Payment is made on a price mark-up, usually 10-15%. This is attractive for the manufacturer as they avoid risks associated with exporting.

• Job Function (see handout)o Market research/planning/promotiono Find customers abroado Respond to inquires/Issue quotes

• Main Issues (sample agreement in Exporting Basics)o Exclusive/Non-exclusive o Territory

• Duration• Non-Circumvention

• Present purchase orders• Handle export paperwork• Arrange shipping and financing

IDENTIFYING BEST MARKETS

• Product / Service Demand (Significant Market Segment)o Highest Import Volume over past 5 yearso Highest Import Growth over past 5 years

• No Significant Barriers to Entry• No or Little Domestic Competition• Strong U.S. Market Share• High Receptivity• Comfort Market• Infrastructure Available to Finance and Deliver Goods• Market Research

o Best Market Reportso Country Commercial Guides (Chapter Four)

MARKET CONSIDERATIONS

• Differences That Make A Difference o Languageo Religion o Tastes o Business Practiceso Income Levels o Product Standardso Physical Environments o Legal Requirements

• Adaptations Worth Considering o To The Product o To The Promotional Materialso To The Packaging

CULTURAL DIFFERENCES CAN CREATE MISCOMMUNICATION

• Main reason for negotiation breakdown• Be Culturally Aware

o Foreign Corrupt Practices Act o Conversation / Dress / Entertaining / Negotiating

• Executive Planet and CultureGrams®• High Context vs. Low Context• Cultural Dimensions

o Power Distanceo Individualism vs. Collectivismo Masculinity vs. Femininity o Uncertainty avoidanceo Long-term Orientation

ENTRY STRATEGY / CHANNELS OF DISTRIBUTION

• Acquisition • Sell Through an Intermediary (an Agent or Distributor);

Contractual• Technology Exchange • License Agreement• Establish Joint Venture (JV) / Strategic Alliance• Hire Staff Overseas (Manufacture Representative)• Establish a Branch / Subsidiary Office Overseas

(Foreign Direct Investment)• Sell Directly to End-Users

INTERNATIONAL BUSINESS MARKETING, PROMOTION, AND MATCHMAKING

• On-line: Website, Featured U.S. Exporter (FUSE), CITD Trade Directory, Exporters Yellow-Pages• Direct Mail: Buy industry lists from respective industry

chamber or industry magazines• Media Advertisements: Commercial News USA, Industry

Magazines, Local TV, Newspapers, Yellow-pages• Events: Catalog Show / Trade Show / Trade Mission • USDOC Trade Promotion Services

o Gold Key Serviceo International Partner Search

AGENT / DISTRIBUTOR QUALIFICATION CHECKLIST

• Sales Force• Sales Performance • Territorial Coverage • Companies/Products Represented • Customer Profile • Facilities and Equipment • Localization Capabilities • Market Development Capabilities• Industry Knowledge – Supply Chains, Distrib. Channels• And ALWAYS do your due diligence and get a

background check (credit report) on serious partners

Example: Tire repair

company bestserved by

distributor alreadyrepresenting and distributing tires /complementary

automotive parts.

FINANCE SALES & GET PAID

• Trade Finance Guide• Getting Paid by Your Latin American Buyer• Due Diligence (International Credit Report)• U.S. Government Programs (SBA, Ex-Im Bank, FAS)

o Export Working Capital Guaranteeo Export Credit Insuranceo Loan Guarantee Resources:

Country Limitation Schedule Lenders Ins. Brokers

METHODS OF PAYMENT IN INTERNATIONAL TRADE

• Cash-in-Advance• Letters of Credit• Documentary Collections• Open Account• Export Working Capital Financing• Government-Guaranteed Export Working Capital Loan

Programs• Export Credit Insurance• Export Factoring• Forfaiting• Government Assisted Foreign Buyer Financing• Foreign Exchange Risk Management

INTERNATIONAL COMMERCIAL TERMS (INCOTERMS)

INTERNATIONAL ECONOMIC LIBERALIZATIONFOUR LEVELS OF INTEGRATION

• Free Trade Area • Customs Union• Common Market• Economic Union

World Trade Organization Regional Trade Agreements Information System (RTA-IS)

OFFICE OF THE U.S. TRADE REPRESENTATIVE

• Increased levels of trade and investment = more jobs • The U.S. has FTAs in force with 17 countries.

o Australiao Bahraino Canadao Chileo Costa Ricao Dominican Republico El Salvadoro Guatemalao Honduras

• Congress must enact legislation to approve and implement each individual agreement (Colombia, Korea, and Panama) in order for them to go into effect.

• Israel• Jordan• Mexico• Morocco• Nicaragua• Oman• Peru • Singapore

GOVERNMENT TAXES TARIFFS, DUTIES, AV, CVD, AND PENALTIES

• Each Country has a Customs Authority and a Tariff Schedule

INDUSTRY CLASSIFICATION CODESSIC, NAICS, AND THE HARMONIZED SCHEDULE

• Standard Industry Classification (SIC)o The SIC has been replaced by the NAICS

• North American Industrial Classification System (NAICS)

• Harmonized Schedule (HS) o Linked to the Tariff Schedule

• Schedule B (For U.S. Exports)

HARMONIZED SCHEDULE VERSUS THE SCHEDULE B CODES

• Exports codes (which the U.S. calls Schedule B) are administered by the U.S. Census Bureau.

• Import codes are administered by the U.S. International Trade Commission (USITC)

• First 6 digits are the same worldwide; the last 4 vary

INTERNATIONAL TRADE REGULATIONS: U.S. TRADE CONTROL AND FOREIGN TRADE REQUIREMENTS

• Export Administration Regulations (EAR), Bureau of Industry & Security, U.S. Department of Commerceo Commerce Control List (CCL)o Deemed Exportso Anti-boycott

• International Traffic in Arms Regulations (ITAR), U.S. State Departmento Country Embargoso United States Munitions List (USML)

• OFAC Sanctions, U.S. Treasury• Examples of Foreign Marks:

• Denied Persons List• Entity List• Unverified List

RESTRICTIVE MERCHANDISE TO THE U.S. (IMPORTING); RESTRICTIVE IS A RED FLAG FOR POSSIBLE LICENSE

• Alcoholic beverages• Animal and animal products• Certain drugs• Firearms and ammunition• Fruit, nuts• Meat and meat products• Milk, dairy, and cheese products• Plants and plant products• Poultry and poultry products• Petroleum and petroleum products• Vegetables• Certain trademarked and copyrighted articles

Not Always, But Usually:• art material• cultural property• hazardous/toxic/flammable

materials• household appliances• some electronics products• toys and children’s articles

INTERNATIONAL TRADE DOCUMENTATION

• Bill of Lading/Airway Bill/Carrier’s Cert. (naming Consignee)• Electronic Export Information (Shippers Export Declaration)• Commercial Invoice from seller, showing value and description• Packing List• Entry manifest or Entry/Immediate Delivery • Export/Import License• Certificate of Origin • Certificate of Insurance• Inspection Certificate • Apostille/Consular Certificate• Weight Certificates• Phytosanitary/Health Certificates• Other

When Applicable

EX: AUTOMATED EXPORT SYSTEM (AES)IM: AUTOMATED COMMERCIAL ENVIRONMENT (ACE)

• Ensure Export Compliance• Correct Errors & Decrease Costs • Eliminate Paper Review of Licenses• Provides Accurate Trade Data• Shippers Export Declaration (SED) changed to Electronic

Export Information (EEI)• Importer of Record is the person who benefits (exporter)

FREIGHT FORWARDERS AND CUSTOMS BROKERS

• Freight Forwarders (Transport Architect) Freight forwarders act on behalf of exporters in arranging transportation services. Most freight forwarders handle both ocean and air transportation, but usually in separate departments. They are familiar with the import rules and regulations of foreign countries, methods of shipping, U.S. Government export regulations, and documents connected with foreign trade. Services include providing quotations on freight costs, port charges, consular fees, cost of special documentation, insurance costs and freight forwarder's fees.

• Customs Brokers (Import Specialist)Licensed by the U.S. Department of the Treasury, the customs broker must possess thorough knowledge of tariff schedules and Customs regulations and keep abreast of the amendments made through constant changes in the law and administrative regulations. The broker must be well-versed in determining proper classifications and dutiable value, and be fully aware of the vast number of commodities subject to quotas. Many brokers help clients choose modes of transportation and appropriate carriers, which require analyses of a vast body of data. They also provide assistance to importers in assigning shipments the best routes. There are estimates for landed costs, payments of goods through draft, letters of credit insurance, and re-delivery of cargo if there is more than one port of destination.

DELIVER THE GOODS

• Electronic• Land (Truck or Train)• Water (lower cost, slow movement, majority of trade)• Air (higher cost, fast movement, higher value goods)• Insure Cargo • Book, Track, & Trace Cargo• Customs Clearance

o Importing to the U.S. (informal = less that $2,000 excluding textiles and footwear)

o Exporting from the U.S. (informal = less that $2,500)

FOREIGN TRADE ZONES

• Cost savings (tax relief, lower wage costs)• Tariff shifts can reduce customs duties• Add value to reach 51% domestic content • Defer customs fees • Five Foreign Trade Zones in Los Angeles Area

o Foreign Trade Zone No. 50o Foreign Trade Zone No. 50-1o Foreign Trade Zone No. 202o Foreign Trade Zone No. 205o Foreign Trade Zone No. 205A

DUTY DRAWBACK

• Drawback is a refund of duty paid on imported merchandise that is linked to an exportation (or destruction) of an article.

• Permitted on the exportation of imported merchandise (and the exchange, or tradeoff, of domestic merchandise) with unchanged condition (substitution) and not used in the U.S.

• Categories of drawbacko Manufacturing drawbacko Unused merchandise drawback o Rejected merchandise drawback

U.S. CUSTOMS & BORDER PROTECTIONDEPARTMENT OF HOMELAND SECURITY

US CUSTOMS AND BORDER PROTECTIONPUBLIC INFORMATION SECTION301 OCEAN BLVD, SUITE 1400 LONG BEACH, CA 90802562.366.5555 MAIN LINE562.628.7900 FAXHTTP://WWW.CBP.GOV

CALL: (562) 366-5454PRESS "0" TO TALK WITH AN OPERATORAND TRANSFER TO A COMMODITY SPECIALIST

• International Trade Guides and Publications

EL CAMINO COLLEGECENTER FOR INTERNATIONAL TRADE DEVELOPMENT

• Maurice Kogon, Director• Bronwen Madden, Deputy Director• Kerry Bonner, GEEP Project Manager• Darling Garcia, Administrative Assistant

13430 Hawthorne Blvd., Hawthorne, CA 90250 USAPhone: (310) 973-3173 Fax: (310) 973-3132http://ElCamino.CITD.orghttp://TradeComplianceInstitute.orghttp://GreenExport.org