The Insider’s
Guide To Starting
Starting an Import
/ Export Business
By Timothy Smith
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Introduction...5
Types of Export/Import Entities ...5
Are you cut out for International Trade? ...7
Researching your Target Market ...7
Starting an Import/Export Business ...9
The Business Structure ...9
Deciding on a Business Name ...12
Legal Requirements and Business Know-How ...12
Start-Up Costs...16
The Market Research Plan...17
Is your company ready to Import/Export...19
Employing Different Methods and Channels...22
Handling Distribution in Foreign Countries ...22
Types of Export...23
Seeking Foreign Representatives...24
Negotiation and Agreements with Foreign Representatives...25
Approaching International trade consultants and advisors...26
Legal Issues - A Detailed View...28
Export Regulations ...28
General Prohibitions ...29
License Exceptions ...29
Applying for a License and Application Processing ...29
Export Clearance...30
Import Regulations ...31
Drawback of Customs Duties ...31
Foreign Corrupt Practices Act ...33
Food and Drug Administration and Environmental Protection Agency Requirements (FDA-EPA) ...35
The implications of North American Free Trade Agreement (NAFTA)...38
U.S. Customs Bonded Warehouse ...40
Establishing Your Import/Export Products and Services ...43
What you can import...43
What you can export ...44
Exporting U.S. based services ...45
Sales...47
Deciding your pricing Models ...47
Invoicing and billing...48
Commission on products / Having a flat retainer ...49
Terms of sale...50
Handling different modes of Payment ...52
Marketing your Import/Export Business ...54
Establishing contacts with organizations...54
Selling yourself ...55
Marketing through direct mail ...56
Cold calling potential clients ...57
Traveling Abroad...57
Proper documentation ...58
Planning an itinerary...59
Considering cultural factors and practises ...60
Understanding Potential Client Requirements ...62
Dealing with inquiries...62
Communicating effectively with clients ...63
Maintaining a good working relationship...64
Project Management...65
Handling all Operations ...65
Building and Managing your inventory...67
Branding and Packaging your product for export...68
Establishing Warranties and Service Agreements ...69
Shipping your Products...70
Managing Your Import/Export Business ...71
Managing Cash Flow ...71
Book-keeping and Documentation ...72
Financing for Imports and Exports ...73
Accounting & Billing...75
Growing Your Import/Export Business ...77
Defining your Business Goals ...77
Devising Growth Strategies ...78
Getting Customer Feedback...78
Building your credibility...79
Ensuring the credibility of foreign representatives and buyers ...80
Appendix...83
Introduction
Why start an Export Import Business?
What business can be started with little financial investment and yet gets you rich dividends along with a distinction of being connected globally? The answer lies in the Import Export sector.
A home-grown business of import/export exemplifies the evergreen business mantra of thinking globally and acting locally. The most important factors that act as a catalyst in the success of the business are also the simplest - paying attention to minute details, good organizational skills and determination to make it work.
Most manufacturers based in the United States supply goods in North America. Those who have managed to find markets for their produce in foreign shores constitute a small percentage of entrepreneurs who are exporters. Herein, lays a great opportunity that can work wonders, if fully exploited.
Your role will be that of a bridge between domestic manufacturers and foreign shores or even foreign manufactures and the United States market. As an importer/exporter your earnings can be extremely lucrative at 10 per cent of the deal. Whether you are looking at an export/import market for machinery, raw materials or computers the 10 per cent can well be around $500,000 or even a million U.S. dollars.
Types of Export/Import Entities
Broadly, there are three categories that you need educate yourself about before going into this form of entrepreneurial venture.
Export Management Company (EMC) that represents a package deal where the domestic
responsibilities are many:
• Advertising and promotion of the product in the target market
• Hiring dealers, distributors and marketing executives
• Supervising marking and packaging
• Shipping arrangements
(Financial necessities of domestic manufacturers are also looked after by EMCs)
Selection of EMC type is need and ability based. EMCs can be found in different variations - from specialist firms dealing in a particular product or a particular market to ‘general practitioner’ EMCs that deal in a variety of goods in different markets across the globe.
It depends on the EMC and its client on the mode of payment - be it salary, commission or retainer fee with commission, the earnings are usually very good.
Export trading company (ETC) is focussed on gauging the demands of a foreign buyer.
This requires a good deal of knowledge of market conditions, consumer demands and changes in foreign markets.
The ETC has to know the pulse of the foreign consumers and which products make them feel like spending money. Once this initial market survey is complete, ETC concentrates its energies on identifying domestic manufacturers who can fulfill this demand and are willing to export.
This type of export oriented companies sometimes adopt the distributor’s role in selling goods in foreign markets, while the same set up is equally viable for commission-based services.
Import/Export merchant is an international entrepreneur who works as a freelancer. There
are no limitations or specifications usually associated with an import/export merchant when it comes to describing his/her client base.
Versatility is the essence of the merchant. An import/export merchant first purchases goods from a domestic or a foreign manufacturer. The merchant relies on himself for packing and shipping of the goods. His final job is to sell the products.
In this form of import/export business the risk factor is quite high, but so is the profit margin.
Are you cut out for International Trade?
Do you think you have the capabilities that are so essential for International Trade? Here are some points to consider - do you know some local manufacturers who are looking for greener pastures to sell their products, do you have the ability to convince and sell products with a diplomatic approach?
If your answers to these queries are in the affirmative, then you certainly have got a new horizon awaiting you in the import/export business at U.S. In the span of a very short time you can start making good money with minimum overhead expenditures.
Researching your Target Market
Your target clientele will be domestic or foreign companies that are hampered by their limitations in reach, abilities and scope. The opportunities are plenty with hundreds of manufacturers looking for a distribution network in foreign countries.
Electronic gadgets, radios, sporting goods, house wares, clothes, clocks, even tools for that matter can be imported and exported. The only two pre-conditions that need to be considered are - whether there is a demand for the goods in the target country and if you are able to get the goods to the market through the right channels.
Setting up an export oriented enterprise in the United States will be aided by helpful government agencies. Not surprising, since the United States Government encourages exports which helps keep balance of payments with expenditures incurred in import of goods.
The export/import field is largely unexplored. According to the U.S. Department of Commerce 96 percent of the U.S. export market is untapped and wide open for the enterprising entrepreneur. One of the key requirements of achieving success, however, is sound market research before you zero-in on a product. This is critical and should be carried out meticulously.
Simply put, an Import/Export Business can be extremely lucrative. The key is to apply the right skills and strategies. The guidelines given in this guide are based on proven strategies that have worked for many. Most dream of establishing their own business but only a few succeed! In this guide, I’ll show you how to turn your dreams into reality.
Starting an Import/Export Business
The Business Structure
A business is a legal entity that has rights and responsibilities. Starting a new business requires immense effort and planning. There is a considerable amount of paperwork involved. One of the first tasks of setting up a business is to determine the business or legal structure. Rules and policies governing these legal structures depend on the state you live in. In general, there are three main types of Legal Structures. These are:
• Sole Proprietorship • Partnership
• Corporation
Sole Proprietorship
Sole Proprietorship is a business run by one person. There is not much distinction between the person and the business in case of sole proprietorship. For instance, all profits are considered to be your own profits, and thus all business income is considered as personal income. Similarly, business losses are considered to be personal losses as well. The business stops operating as soon as you stop working.
To start as a sole proprietorship, you must contact your federal and local regulatory boards. Information on these boards can be obtained by simply searching on the Internet.
These boards lay out all rules and regulations pertaining to such a business structure. Although, rules may differ from state-to-state, there are some common requirements for starting a sole proprietorship. Firstly, you may require a Business License as per your state policy. Some businesses are exempt from obtaining a business license. The local regulatory
board would be the best source to verify whether your business requires a Business License. Secondly you must register your DBA or Fictitious Business Name. This is crucial in preventing frauds. Finally, if you decide to run your Import /Export business from home, you may require a Zone Permit from the local authorities. The Department of Zoning controls what type of businesses can be run from residential places. Apart from these, there are other legal considerations for International Trade. These are discussed in detail in subsequent sections of this book.
Sole Proprietorships are the most common and simplest forms of businesses, especially in the case of small businesses. These are easy to set up and operate. Besides, the initial costs involved in setting up a sole proprietorship are quite low. There are, however, some major drawbacks. The most prominent disadvantage is that if your company suffers a loss, you pay out of your own pocket. This can be extremely substantial. Moreover, if you intend to grow in the future, sole proprietorship may not be the best option.
Partnership
Partnership is very similar to the above business structure. Unlike, in the case of sole proprietorship, partnership can be considered to be a proprietorship business run by two or more people. Most of the legal requirements and documents required to establish a partnership (such as Business License, DBA, and so on) are similar to sole proprietorship. However, there is one additional requirement which can also termed to be the most important legal requirement of Partnerships – The Partnership Agreement.
The Partnership Agreement is essential for any business. It delineates in legal terms what role each partner plays in the business. It lays out the job assignments, responsibilities, profit sharing, and expense sharing. Besides, it also presents a roadmap to resolve disputes, resignation, and death of any of the partners.
Even if you have friends or family as your partners you MUST enter into a Partnership Agreement with all of them.
Partnership businesses have all the benefits of a sole proprietorship structure. In addition, it helps you share the burden of your work, provides additional experience that is so crucial in the success of a business, and helps in raising more funds.
Like the sole proprietorship structure, partnership also has similar disadvantages. All partners bear the brunt of losses themselves. Besides, in case of partnerships any partner is liable for 100% of the business debt. In other words, if your partner is responsible for the entire business debt, you would have to accept equal responsibility and pay out of your own pocket. This is certainly not a good thing. It is thus imperative that if you decide to enter into a partnership, you have partners that are completely trustworthy.
Corporation
This is the most legally sound business structure. Corporation by itself is a legal entity which is distinct from you. Unlike in the cases of proprietorships and partnerships, the corporation (and not you) makes profits, pays taxes, and is sued. This way your personal assets are safe even if your corporation experiences losses. In a nutshell, you are the representative of the corporation but not the corporation itself. This provides much higher legal stability as compared to the options discussed above.
Moreover, you can grow to no bounds if you form a corporation. However, forming corporations requires more time and money.
What is the best option when it comes to Import/Export? There are many factors such as location, business goals, target market, number of employees, and so on that must be taken into account before deciding on the structure. Forming a corporation would not be such a bad idea, even if it means higher expenses. The legal stability you get with corporations is unmatched and can propel you to grow your business very well.
Deciding on a Business Name
The name of your business should represent everything you are within a few words. These words should be few but very powerful! It is extremely important that you pick a name that people can easily pronounce and remember. Avoid using geographical areas unless you plan on working in one geographical area for the rest of your life, which is highly unlikely. One great myth is that the more elaborate the name, the better! The key is that you want a name that is catchy, but easy to remember. Many times your name is the only information a customer will see. Therefore, the name of your business should clearly identify the services you provide.
Give some special time and consideration when choosing your business name. Once you’ve decided on a name, make sure you are happy with it because it will stick with you. It is difficult to change your name once you have already begun to establish your business. You will have to change it on your web site, stationary, business cards, billing statements and advertisements, which can cost hundreds of dollars.
Once you have decided on a business name that works for you, it’s a good idea to check with your state business licensing department or Secretary of State to make sure you’re not using a name that is already being used or trademarked. You can check for trademarked names online by visiting the Patent and Trademark online Web site located at http://www.uspto.gov.
Legal Requirements and Business Know-How
The Legal Requirements
The Department of Commerce’s Bureau of Export Administration (BXA) has simplified the official procedure to get a clearance to export domestic products. Newly drafted regulations make it easy for you to determine whether you require a licence for the export.
To ascertain whether you require a licence you need to classify the products you wish to export. The country which you chose to export is also crucial for licensing. A product classification can be easily carried out according to the rules set by the BXA. You would then have to compare these with a chart to determine if you require applying for a licence to
export goods to your target country.
Export Administration Regulations (EAR) control transactions of export-oriented products. Lending an ear to the needs of the exporting community, BXA has moulded EAR in a manner beneficial to the exporting units, especially for those new to this trade. Export controls have also been liberalized on products manufactured by U.S. companies that are popular in foreign markets.
EAR puts forth a list of 10 categories for export items, such as commodities, software and technology. Each category has several entries that have Export Control Classification Numbers. The Commerce Control List and the Country Chart define export items that are subject to export control norms.
The control norms are based on technical characteristics of the product and the destination country. The items that do not require a licence can be easily spotted on the CCL, bearing three alphabets - NLR (no licence required).
Some products require a licence because EAR is not the same for all countries in context with issues that are important for United States at large. These issues include national security, non-proliferation and foreign policy considerations.
Another point to remember is that service is a very important part of many types of representation agreements. Quality of after-sales services in a foreign country affects the U.S. manufacturer's reputation there. Employing a representative supervising sale and distribution in a foreign market is also possible. However agreements with any representative for your company at a foreign shore should be very clear on the nature of repair and service facility that is available in the target market.
Keeping an eye out for details is essential for this aspect too - like knowing about the staff strength at repair-cum-service centres, inspection provisions, training facilities and cost associated with maintenance of such the support network.
will keep changing for different countries in keeping with available service facilities there. Your agreement with the foreign representative should also detail the training you will provide to him. This detail should be specific on frequency of training, nature of trainees, where the training is to be provided, and which party absorbs travel and per diem costs.
Business Know-How - A primer!
International trading requires that you be an enthusiastic sales executive who can make his sales pitches in a diplomatic fashion. If you cannot make a convincing sales pitch, or sales talks make you blanch, then this is not your trade.
For being a good international trader, you have to develop excellent organizational skills. An eye for detail is a critical factor for any export/import trader. You have to put your energies to tracking down invoices and shipping receipts, if you cannot stomach this chase then better keep away.
For an enthusiastic international trader the impetus to stretch out to the horizon comes from the desire to gain valuable experience while dealing with people of diverse cultures. Of course, it always helps if you already have a background in import/export. But, this has not prevented new entrepreneurs from joining the U.S. international traders’ list.
This trade is largely based on a very simple logic - meeting the demand for merchandise produced by U.S. companies in foreign countries. The rewards of being part of this international trading arena are growing by leaps and bounds. If the world is getting smaller by the day, cash registers of export/import business are ringing ever louder.
Import/Export is big business in U.S. According to the U.S. Department of Commerce the import sector accounts for more than $870 billion in goods and services. Exporting is equally big with American companies exporting $349 billion worth of merchandise to 226 foreign countries.
is easily able to track down foreign markets transform domestic products into global merchandise. A very large portion (96 per cent according to U.S. Department of Commerce) of the export sector remains untapped, and thus open to an entrepreneur.
There are three reasons that contribute to the growth of International Trade in the U.S.
(a) There are many popular products that are not grown or produced in the domestic market, and subsequently have to be imported. For example bananas have to be imported in Alaska. (b) Certain other cachet items are imported because it makes the goods more appealing for the consumers. For instance, champagne and caviar are more acceptable within the domestic market if they are imported. This is owing to the “image” associated with such goods. Imported German beer or French perfumes are always considered classier in comparison to the home grown variety.
(c) Certain goods like Korean toys and Mexican clothing are cheaper when imported. These products represent that group which costs far less if manufactured and assembled at factories in foreign countries.
A thumb rule that is often associated with this trade is, apart from cachet items, those goods and services that are inexpensive to manufacture in the domestic circuit are fit to be exported. While services and goods that can be produced more efficiently elsewhere and have a demand in domestic market are imported.
Resources and technology are the two factors that decide whether manufacture of a particular product will be inexpensive enough to export. For instance, a company with abundance of oil resources may need to import clothing.
Developing contacts is the most important step in this trade. A person who is well informed about global business can take a very lucrative ride on the crest of worldwide trends. Relatives in a foreign country can easily become a starting point for building contacts. Even an idea about what product could sell in a particular market will set you going.
Foreign consulates in the United States are a good place to start your search. Unites States embassies across the globe are other potential information points to begin finding contacts for commercial distribution. These government departments can also help you research a company's solvency and reputation before striking a deal.
The Chambers of Commerce and Industry of any city is another avenue for locating good contacts for international trade. The trick is to start small. Usually researching about what American goods can sell in other countries, or what countries have the merchandise you want to import is critical. Studying demand patterns in various countries is very helpful before taking a plunge.
The next step is to start mailing letters to different addresses. Using a tool that is equipped to produce the same letter with different address each time is worth the money. To every potential contact write a letter introducing your company, explaining your necessity and then requesting for names and addresses of firms that would qualify as your target clientele.
When interacting with the target clients, using an easy-to-fill questionnaire, usually gets quick and good response. Basic issues to be addressed in this interaction are goods they want to import, what different kinds of products are imported at present, how strong are the distribution network. History of the organisation, details of its activities can be learnt in this process. If the contact company is a manufacturer then it is only fair for you to ask for samples/catalog, details of existing foreign distribution and demand for products in the target country.
In a nutshell, you should do considerable research to learn the know-how before you venture into this business. The above mentioned tips are elaborated in further detail throughout the course of this book.
Start-Up Costs
A classy letterhead and a telephone at home can get you started on your export/import business venture. The other requirements too are easily fulfilled with a file system, business cards, and an answering machine. Soon as you start trading you might require a cable address
or telex connection
If you are wondering about the “classy letter head” part, then it has proved to be a very practical and rewarding move. Till you have managed to get going and establish personal contacts it is your letter head that creates an impression about your company in the minds of your clients.
Lending a professional touch to the letter head is recommended -- embossed, two colour, gold leafed are different styles that are adopted frequently.
Determination to achieve your goal is one factor that is absolutely essential for success. Going is bound to be slow at first, as is in many business ventures.
In order to optimise your resources and contacts a planned and organised approach is needed for making good contacts and also for selling yourself to the international and domestic players. All this perspiration will be well rewarded soon enough. Make a few sales and clinch some exclusive contracts and you will find that the labours are well paying.
The other expenditure and effort you need to make is keeping in touch with trade publications, international newspapers, magazines and financial reports. Keeping yourself updated about demands in foreign markets and the players in the arena.
We would not go too much into detail about the cost of your inventory. This is something that is covered later. Simply put, the cost can be kept minimal by starting with only a few products. You may buy these at wholesale prices and import them. Besides, with only a few items you can easily store them in your own cellar or spare room.
With the right contacts, you may be able to start your Import/Export Business for as low as $1000.
Market research for export/import traders starts from climatic, environmental considerations, social and cultural factors, easy availability of raw materials, lower salary structure, different degrees of purchasing power and the local government’s restrictions on import.
Testing the potential of foreign markets for domestic products sums up the ‘market research’. The idea is to identify prospective buyers and opportunities in foreign countries while keeping an eye on the government-imposed constraints.
You can conduct your research using primary and secondary data sources. Primary market research can be defined as a company collecting data directly from the foreign market through interviews and surveys. This method is apt for tailor-made products and needs of the exporter. However, the process is time consuming and often expensive too.
Secondary market research is all about collecting data from various sources like trade statistics of a foreign market or a particular product. While this method is less expensive, it also allows you to focus your energies on marketing the products.
The catch in this mode of market research is data available from trade or government sources is often found to be more than a couple of years old. While statistics could be distorted due to inefficient data-collection techniques, in many foreign markets such statistical trade data is not available. Yet, secondary research is found to be more effective and practical.
Market research is used to determine which foreign markets have the best potential for U.S. products. Valuable information is procured about which are the largest markets for the selected produce or which are the fastest growing markets, market trends and outlook, market conditions and practices. Knowing about other firms and products with whom the U.S. exporter will compete with are also part of this research.
You can also approach the U.S. Department of Commerce and other government agencies to obtain experts’ advice. Attending seminars, workshops and international trade shows is also recommended. Hiring an international trade and marketing consultant and speaking to other exporters of similar products are other practical approaches to know the nuances of trading in foreign markets chosen by you.
To screening potential export markets will need you to obtain export statistics that will indicate where U.S. products are headed to. The U.S. Census Bureau can help exporters in this regard. Trade statistics are also available at the National Trade Data Bank (NTDB). The final word on this strategy is to have it in black and white after arriving at a decision. Strengths and weaknesses of a particular strategy are more evident when you write it, enabling you to work to strengthen the weak links. Easy to remember, hard to overlook are just a few of the other benefits of having a written marketing strategy.
Is your company ready to Import/Export
As stated earlier, evaluating the export potential for a particular product is very important. If your product has unique features that have not been duplicated elsewhere then your product is likely to record good sales in the overseas’ markets. Such a product will have little competition while the demand could be high due to its type and quality.
To gauge whether your company is ready to export its products, you can ask yourself these questions:
• What amount of profit does the company want to make from exporting?
• Will exporting be consistent with other company goals?
• Exporting produce will mean additional demand. What kind of pressure will this put on your company’s resources and production capacity? Are you ready to cope with these factors?
• Finally you should evaluate if the additional expenditure is worth incurring as compared to the profits or whether if you should focus on developing new domestic business.
If you are decided on exporting then the next step is to balance your company’s goals by optimising capabilities and reducing constraints. Viability of an export plan is also rooted to the consent of the real executors of your plan -- people working for you.
Before you take the plunge, be sure to go through this checklist:
• List of products selected for export development
• List containing selling price of the products chosen for export
• Modifications to be made to adapt the firm’s product-quality for overseas markets
• List of target foreign markets for sales promotion
• Customer profile of each market
• List supply channels used to reach your products to the foreign consumers
• Unique factors (like competitors, import restrictions) associated with each market and strategy to act accordingly
• Number of personnel and list of company resources dedicated to exporting
• Expenditure incurred to implement each phase of your export and sale plans
• When to evaluate the results of your enterprise should also be premeditated so that modifications are made in plans to improve performance.
For beginners, the export plan can be simple with considerable clarity of thought. As you learn more about exporting and the needs of foreign markets, you keep adding to the basic plan.
Remember! Do not start your export activities without market screening and research. You may take this liberty, but only if your product has already got orders from suppliers in a foreign market.
While this process could make or break an exporter, what is more important is that even if you are experiencing a degree of success, you should still aim at improving on your profits. By not researching and applying your mind to minute details you might be passing up on more lucrative export opportunities.
To form a practical export-strategy base, your efforts on gathering reliable information. Proper assessment of this data base is also extremely essential. These rather commonsensical management techniques help you in the long run by pointing towards the right way to optimise use of resources. Right planning is the best way to success.
You are now familiar with the basics of International Trade. We would now get into the specifics of this industry. In the next chapter, we take a look at some of the different methods that can be employed for effective trade.
Employing Different Methods and Channels
Handling Distribution in Foreign Countries
For an export company to succeed it is very important to handle distribution in foreign countries efficiently. An export company can distribute its products in foreign markets in a number of ways by hiring representatives of the company in the foreign country. These include (a) Sales Representatives (b) Agents/Representatives (c) Distributors and (d) Foreign Retailers
Sales Representatives:
Overseas, a sales representative is the equivalent of a manufacturer's representative in the United States. The representative uses the company's product literature and samples to present the product to potential buyers. A representative usually handles many complementary lines that do not conflict and usually works on a commission basis.
Agents:
The widely misunderstood term "agent" means a representative who normally has authority, perhaps even a power of attorney, to make commitments on behalf of the firm he or she represents. It is important that any contract state whether the representative or agent does or does not have legal authority to obligate the firm.
Distributors:
The foreign distributor is a merchant who purchases goods from a U.S. exporter and resells it for a profit. The foreign distributor generally provides support and service for the product. The distributor usually carries an inventory of products and a sufficient supply of spare parts and also maintains adequate facilities and personnel for normal servicing operations.
A company may also sell directly to foreign retailers, although in such transactions, products are generally limited to consumer lines. The growth of major retail chains in markets such as Canada and Japan has created new opportunities for this type of direct sale. This method relies mainly on traveling sales representatives who directly contact foreign retailers, although results might also be achieved by mailing catalogs, brochures, or other literature.
Types of Export
The most common types of exporting are indirect selling and direct selling In indirect selling, an export intermediary such as an export management company (EMC) or an export trading company (ETC) normally assumes responsibility for finding overseas buyers, shipping products, and getting paid. In direct selling, the U.S. producer deals directly with a foreign buyer.
The way your company chooses to export its products can have a significant effect on its export plan and specific marketing strategies. There are at least four approaches, which may be used alone or in combination:
Passively filling orders from domestic buyers who then export the product
These sales are indistinguishable from other domestic sales as far as the original seller is concerned. Someone else has decided that the product in question meets foreign demand. That party takes all the risk and handles all of the exporting details, in some cases without even the awareness of the original seller.
Seeking out domestic buyers who represent foreign end users or customers
Many U.S. and foreign corporations, general contractors, foreign trading companies, foreign government agencies, foreign distributors and retailers, and others in the United States purchase for export. These buyers are a large market for a wide variety of goods and services. In this case a company may know its product is being exported, but it is still the buyer who assumes the risk and handles the details of exporting.
Exporting indirectly through intermediaries
With this approach, a company engages the services of an intermediary firm capable of finding foreign markets and buyers for its products. EMCs, ETCs, international trade consultants, and other intermediaries can give the exporter access to well-established expertise and trade contacts.
Exporting directly
This approach is the most ambitious and difficult, since the exporter personally handles every aspect of the exporting process from market research and planning to foreign distribution and collections. Consequently, a significant commitment of management time and attention is required to achieve good results. However, this approach may also be the best way to achieve maximum profits and long-term growth.
Seeking Foreign Representatives
When taking the route of going through foreign representatives for export, it is very important that you find the right kind of representatives. Once your company has identified a number of potential representatives in the selected market, you should write and/or fax directly to each providing detailed information on your company and its products.
Ideally, you should investigate potential representatives carefully before entering into an agreement. Much of this information can be obtained from business associates who currently work with foreign representatives. However, U.S. exporters should not hesitate to ask potential representatives or distributors detailed and specific questions. Your company should also consider other private-sector sources for credit checks of potential business partners. In addition, you may wish to obtain at least two supporting businesses and credit reports to ensure that the representative is reputable. Reports from a number of companies are available from commercial firms and from the Department of Commerce's International Company
Profiles. Commercial firms and banks are also sources of credit information on overseas representatives. If your firm has the necessary information, you may wish to contact a few of the foreign firm's existing U.S. clients to obtain an evaluation of the prospective representative. To protect itself against possible conflicts of interest, it is also important for your firm to learn about other product lines that the foreign firm represents.
Once your company has pre-qualified some foreign representatives, you may travel to the foreign country to observe the size, condition, and location of offices and warehouses. In addition, you should meet the sales force and try to assess its strength in the marketplace. If traveling to each distributor or representative is difficult, you should plan on meeting each of them at trade shows in the U.S. or other countries.
Negotiation and Agreements with Foreign Representatives
After your company has found a prospective representative that meets its requirements, the next step is to negotiate a foreign sales agreement. The agreement may contain provisions such as
The foreign representative:
• Not have business dealings with competing firms (because of anti-trust laws, this provision may cause problems in some European countries);
• Not reveal any confidential information in a way that would prove injurious, detrimental, or competitive to the U.S. firm;
• Not enter into agreements binding to the U.S. firm; and,
• Refer all inquiries received from outside the designated sales territory to the U.S. firm for action.
To ensure a conscientious sales effort from the foreign representative, the agreement should include a requirement that it apply the utmost skill and ability to the sale of the product for the compensation named in the contract. It may be appropriate to include performance requirements such as a minimum sales volume and an expected rate of increase.
In the drafting of the agreement, special attention must be paid to safeguarding the supplier's interests (you, the exporter) in cases where the representative proves less than satisfactory. It is vital to include an escape clause in the agreement, allowing the supplier to end the relationship safely and cleanly if the representative does not fulfill the firm's expectations. Some contracts specify that either party may terminate the agreement with written notice 30, 60, or 90 days in advance. The contract may also spell out exactly what constitutes just cause for ending the agreement (i.e., failure to meet specified performance levels). Other contracts specify a certain term for the agreement (usually one year), but arrange for automatic annual renewal unless either party gives written notice of its intention not to renew.
In all cases, escape clauses and other provisions to safeguard the supplier may be limited by the laws of the country in which the representative is located. For this reason, you should learn as much as it can about the legal requirements of the representative's country and obtain qualified legal counsel in preparing the contract.
Approaching International trade consultants and advisors
When you work towards building a network in place to set up an import-export unit, you must explore and establish as many methods and channels. Besides finding foreign representatives and entering into formal negotiation and agreement with them, you can also approach international trade consultants and advisors.
The international trade consultants and advisors can be the best source to establish networks as they know the market thoroughly and their knowledge can be of immense use to a new-entrant in the market.
Shortlist a couple of reputed international trade consultants and advisors, meet up with them and tell them about the kind of import-export you want to get into, the products you want to deal with and the countries you plan on targeting. It would be better if you chose trade consultants or advisors who have specific hold over the business know-how in the country you are interested in. Ask them how they can be of value in facilitating the work and if they
seem to fit the bill, you can think of hiring them.
International trade consultants and advisors will charge you a fee and will help you by advising you about whether importing/exporting a particular product in a particular country would be a profitable venture or not. They can also help by throwing open the business options of a country to you enabling you to make a better decision about the kind of products you would import/export to a particular country. With a foreign representative to work on the ground for you, and an international trade consultant or advisor to advise, there are greater chances of you making the right decisions and executing them perfectly.
There are a number of avenues you may avail for better managing your business. Next, we look at the most critical aspect of an Import/Export business - the all important legal issues and their implications on the way you do your business.
Legal Issues - A Detailed View
The process of exporting domestic products from the U.S. has been made relatively easy by the Department of Commerce’s Bureau of Export Administration (BXA), especially in terms of the legal barriers. Road blocks have been removed by the department by implementing numerous export control liberalizations. Here are some legal issues to consider.
License requirements for export products are linked to its technical characteristics, destination, end use and the user. Newly drafted regulations make it easy for determining whether you require a licence for exporting your product(s).
The exporter-friendly regulations as specified by the BXA include answers to frequently asked queries along with a detailed guide to finding out if your type of export goods is subject to regulations and also how to apply for a license.
Given below is an overview of most of these regulations, and their implications to trade.
Export Regulations
The Export Administration Regulations (EAR) regulate export and re-export of items for a number of reasons namely, national security, non-proliferation, foreign policy, and short supply reasons. Besides, only a relatively small percentage of exports and re-exports require the submission of a license application to BXA.
Under the EAR the treatment differs from country to country because different countries present different national security, non-proliferation, or foreign policy considerations for the United States. Also, the EAR covers more than exports. Normally, items subject to the EAR are controlled for re-export from one foreign country to another.
may be covered by one or more License Exceptions in the EAR, part 740. However, a license is required for virtually all exports to embargoed destinations such as Cuba. Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Controls of the Treasury Department.
At times, EAR are referred to as “dual use” regulations — something that can be used for both military and other strategic uses and commercial applications. It’s also used to distinguish the scope of the EAR from items covered by the regulations of other agencies.
General Prohibitions
The general prohibitions describe certain exports, re-exports, and other conduct, subject to the scope of the EAR, wherein you may not engage unless you have a license from BXA or qualify under part 740 of the EAR for a license exception from each applicable general prohibition paragraph.
License Exceptions
License exception is an authorization for the export or re-export of some commodities, technology, or software under certain conditions. This authorizes you to ship certain items subject to the EAR that would otherwise require a license. Eligibility for license exceptions depends on issues like items to be exported or re-exported, the country of ultimate destination, the end use of the item, or the end user.
Applying for a License and Application Processing
If an export license is required, you must prepare a Form BXA-748P, “Mulipurpose Application Form,” and submit it to BXA. Forms can be obtained by sending requests on fax 202-219-9179 or by phone on 202-482-3332.
of the application will be conducted by BXA in reviewing specific license applications. BXA will consider the reliability of each party to the transaction and review any available intelligence information.
The BXA can be contacted for knowing status of your pending certification request, advisory opinion, or license application. For advisory opinion requests, telephone 202-482-4905 or send a fax to 202-219-9179. For license applications and classification requests, telephone BXA's System for Tracking Export License Applications (STELA) at 202-482-2752.
STELA is an automated voice response system that, upon request via any standard touch-tone telephone, will provide you with up-to-the-minute status on any license application pending at BXA. Requests for status may be made only by the applicant or the applicant's agent. In an emergency, the Department of Commerce may consider expediting the processing of an export license application, but this procedure cannot be used as a substitute for filing of an application. If you feel you qualify for emergency handling, you should contact the Exporter Counseling Division at 202-482-4811 or by mail to the:
U.S. Department of Commerce Bureau of Export Administration
Office of Exporter Services Exporter Counseling Division
14th Street and Constitution Avenue, NW, Room 2706 Washington, D.C. 20230
Export Clearance
If you are issued a BXA license, or you rely on a license exception described in part 740 of the EAR, you are responsible for the proper use of that license (or license exception) and for the performance of all its terms and conditions.
Import Regulations
It is important for exporters to know the regulations that apply to their own operations and transactions as import documentation requirements and other regulations of foreign governments differ from country to country. A detailed explanation of the Import Regulations may be obtained by contacting the BXA.
Drawback of Customs Duties
Drawback (not to be confused with drawbacks or disadvantages of Customs Duties) is meant to enable a manufacturer (or exporter) to compete in foreign markets. Prior to making contractual commitments you must know that you will be entitled to drawback on your exports. The procedure has been designed assure the exporter and protect him/her. Simply put, if you do not get paid for your exports, you may avail compensation by applying for a Drawback.
Drawback was initially authorized by the first tariff act of the United States in 1789 to encourage American commerce or manufacturers to compete in foreign markets. Despite changes from time to time in the conditions under which it is payable, it has been a part of the law. There are several types of drawback authorized under section 1313, Title 19, United States Code.
Given below is a list of processes associated with claiming a drawback.
Getting a drawback
If you want to get a drawback, prepare a drawback proposal (statement) and submit it before a Regional Commissioner of Customs for section 1313 (a) drawback and with the Entry Rulings Branch, Customs headquarters, for other types of drawback, including combination 1313(a) and (b) drawback. At present, there are several general drawback contracts — published in the Customs Bulletin and Decisions — like orange juice, steel, sugar, component parts
available that eliminate any need for submitting a proposal.
An ordinary model drawback proposal may be obtained from regional commissioners for section 1313(a) drawback. For other types of drawback you can write to:
U.S. Customs Service, Entry Rulings Branch, 1301 Constitution Ave., NW, Franklin Court, Washington, D.C., 20229, or call 202-482-7040.
The U.S. Customs Service also maintains an Internet site at http://www.customs.ustreas.gov.
The approval
Before you start Exporting/Importing, you need to file an application of Approval with the U.S. Customs. There are two kinds of Approval.
Approval of section 1313(a) proposal is a letter from a Regional Commissioner of Customs to the applicant (you), whereas, approval of a section 1313(b) drawback proposal is a letter from U.S. Customs Service headquarters to the Regional Commissioner of Customs where you will file claims. You receive a copy of this letter. Synopses of all contracts are published in the Customs Bulletin and Decisions. The proposal and approval together are called a
drawback contract or drawback rate.
In case you desire to have your contract (rate) changed in any way, you have to file a new proposal (statement). However, the procedure is the same.
Export Procedure
A drawback claimant has to establish one thing: The articles on which the drawback is being claimed were exported within five years after importation of the imported merchandise, which is the basis for the drawback.
The Payment
After filing all required documents, the entry will be liquidated by the Regional Commissioner of Customs to decide on the amount of drawback due. Drawback can be paid to you - the exporter, unless the manufacturer of the product reserves to itself the right to claim the drawback.
Accelerated Payment
Under certain conditions accelerated payment of drawback is authorized. Accelerated payments ensure that you receive your drawback no later than two months after filing the claim. Accelerated drawback currently applies to same condition drawback.
Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act has been incorporated by the U.S. Government to stem any unlawful practices in foreign trade. Here is a brief description of this act in laymen terms. The law prohibits a U.S. firm — this includes any officer, directors employee, agent, or agent of a firm or any stockholder acting on behalf of the firm — from offering, paying, or promising to pay (or to allow any such promise or payment) money or anything valuable to any foreign official (or foreign political party or candidate for foreign political office) to get or retain business.
It is against the law to pay any person while knowing that all (or a portion of) the payment will be offered, given, or promised — directly or indirectly — to any foreign official, foreign political party or candidate for foreign political office, to assist the firm in getting or retaining business. The term “knowing” here, also means “conscious disregard” and “willful blindness.”
There’s an exception to the anti-bribery provisions for “facilitating payments for routine governmental action.” The statute lists a number of examples and actions similar to those listed are also covered by this exception.
A person accused of violating the anti-bribery provisions of the Federal Corrupt Practices Act (FCPA) may defend his/her case on the grounds that the payment was legal as per the laws and regulations of the foreign country. He/she may also argue that the payment was associated with demonstrating a product or performing a contractual obligation.
As per the rulebook, firms may be fined up to $ 2 million. Officers, directors, employees, agents and stockholders are subject to a fine of up to $ 100,000 and five years’ imprisonment. The Attorney General is authorised to initiate a civil action against a domestic concern (and the Securities and Exchange Commission against an issuer) for a fine of up to $ 10,000 as well as any officer, director employee, or agent of an issuer, or stockholder acting on behalf of the firm, who deliberately breaks the anti-bribery provisions.
As per other federal criminal laws individuals may be fined up to $ 250,000 or double the amount of gross gain or gross loss if the defendant derives pecuniary gain from the wrongdoing or causes a pecuniary loss to other. The Attorney General may also initiate civil action to enjoin any act or practice of a domestic concern (and the SEC with respect to an issuer) whenever it seems the domestic concern or issuer (or an officer, director, employee, agent, or stockholder acting on behalf of the domestic concern or issuer) is in violation (or about to be) of the anti-bribery provisions.
Violation of the FCPA may result in barring a firm or person from doing business with the federal government. Also, indictment alone can invite suspension of the right to business with the U.S. Government.
Foreign Corrupt Practices Act Opinion Procedure was established by Department of Justice — the details are found at 28 CFR Part 77. As per the procedure, a party may seek a statement of Justice Department’s present enforcement intentions under the anti-bribery provisions of the FCPA as far as any proposed business conduct is concerned.
For any further queries, you can contact:
Deputy Chief, Fraud Section, Criminal Division, U.S. Department of Justice, Room 2424, Bond Building, 1400 New York Avenue, NW, Washington, D.C.20530, 202-514-0651 (FTS) 202-368-0651.
Besides this, the Department of Commerce gives general information to U.S. exporters about the FCPA and international developments related to the FCPA and international bribery. For further information from the Department of Commerce about the FCPA, you may get in touch with:
Chief Counsel for International Commerce or the Senior Counsel for International Finance and Trade, Office of the Chief Counsel for International Commerce, U.S. Department of Commerce, Room 5882, 14th Street and Constitution Avenue, NW, Washington, D.C. 20230, 202-482-0937.
Food and Drug Administration and Environmental Protection Agency
Requirements (FDA-EPA)
In case, you plan on importing/exporting food products (or drugs), you must ensure conformation to guidelines and rules set by the FDA and EPA. Here’s an explanation of some of the relevant rules.
The Food and Drug Administration enforces U.S. laws meant to ensure that consumer gets pure food and that drugs, devices and cosmetics are safe and effective. FDA has promulgated a lot of regulations. Exporters of products covered by FDA’s regulations are affected as follows:
• The item is intended for export only
• Meets the specifications of the foreign purchaser
• Is properly labeled.
• It is exempt from the adulteration and misbranding provisions of the Federal Food, Drug, and Cosmetic Act
This exemption does not apply to “new drugs” that have not been approved as safe and effective, or to certain devices and biologics. Additional requirements apply to these products. Banned new animal drugs may not be exported.
If you think that your export product may be covered by FDA, it is important to contact the nearest FDA field office or the Food and Drug Administration.
You can make inquiries by writing to the FDA at 5600 Fishers Lane, Rockville, MD 20857, calling 1-800-532-4440, or visit the FDA Web site at: http:/www.fda.gov.
The Environmental Protection Agency or the EPA regulates the export of hazardous waste, pesticides, toxic chemicals, and ozone depleted substances.
A number of statutory notification systems design are there to inform receiving foreign governments about the fact that materials of possible human health or environmental concern will be entering their countries. In some cases, it allows the foreign governments to object to such shipments.
Under the Resource Conservation and Recovery Act (RCRA), there are two different sets of export regulations. One is meant for exports of hazardous wastes moving for recycling within the Organization for Economic Cooperation and Development (OECD) (40 CFR 262 subpart H). The other for non-OECD hazardous waste exports, as well as for hazardous wastes exported for treatment and disposal, both within and outside the OECD (40 CFR 262 subpart E).
In some cases, the written consent of the importing government is required before the shipment may commence; in other cases, consent is considered “tacit” if there is no response from the importing government after 30 days.
Exporters should also know about the Basel Convention on the Control of Trans-boundary
Movements of Hazardous Wastes and their Disposal. This treaty bans trade in hazardous
wastes between parties and nonparties without a Basel-consistent bilateral agreement in place.
Approximately 110 — except the U.S. countries — have ratified the Basel Convention. Exporters should be aware of potential trade restrictions. Exporters of hazardous waste should contact the EPA's Office of Compliance, Import/Export Program at 202-564-2290, or the RCRA/Superfund Hotline at 800-424-9346 or 703-412-9810.
For pesticides and other toxic chemicals, neither the federal Insecticide, Fungicide, Rodenticide Act (FIFRA), nor the Toxic Substances Control Act (TSCA) require exporters of banned or severely restricted chemicals to obtain written consent before shipping. However, exporters of unregistered pesticides or other chemicals subject to regulatory control actions must comply with certain notification requirements. Under TSCA importing countries are notified of the export or the intended export of many industrial chemicals or mixtures (40 CFR 707 subpart D).
These chemicals or mixtures are subject to certain regulator actions taken under the act. Exporters send to EPA, for each affected chemical or mixture, a notice for each country to which the chemical or mixture is exported. The notice is sent annually or only once, depending on the regulatory action controlling the chemical or mixture. The agency then informs the importing country of the regulatory action taken. These notices are also used to satisfy the information exchange provisions of the Prior Informed Consent (PIC) procedures, which are under the United Nations Environment Programme.
For chemicals banned or severely restricted in the U.S. and subject to the PIC procedures, EPA forwards to the designated national authority of the importing country information on the chemical's regulatory controls. In addition, TSCA also prohibits the export of polychlorinated biphenyls (PCBs) and PCB-containing items in concentrations greater than or equal to 50 ppm, unless an exemption was granted. The TSCA hotline, 202-554-1404, can provide general information on these export requirements.
You may not export class I ozone-depleting substances, including chlorofluorcarbons (CFCs), to any country that is not a signatory to the international treaty entitled the Montreal
Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol). The United States
is a signatory to the Montreal Protocol. Under authority of the Clean Air Act Amendations of 1990, the EPA published regulations prohibiting the export of bulk shipments of CFCs, halons, methyl chloroform, carbon tetrachloride, and hydrobromoflurocarbons (HBFCs) to any country not a party to the protocol (40 CFR Part 82 subpart A).
Currently, there are 162 nations that are signatories to the Montreal Protocol. The U.S. Customs Service and EPA coordinate to monitor and enforce import and export restrictions on ozone-depleting substances. To obtain an up-to-date list of signatories to Montreal Protocol to export class I ozone-depleting substances contact EPA's Stratospheric Protection Division at 202-233-9410.
The implications of North American Free Trade Agreement (NAFTA)
The U.S. has signed the NAFTA with other countries to facilitate trade. Here's a brief description of this treaty and its implications.
Provisions of the North American Free Trade Agreement (NAFTA) on drawback is applicable to items imported into the U.S. and eventually exported to Canada on or after January 1, 1996. The provisions as per the agreement will also apply to goods brought in from abroad into the U.S. and then exported to Mexico on or after January 1, 2001.
As per the agreement, the refunded, reduced or waived off customs duties is the lesser of the total amount of custom duty paid or owed on the finished good in the NAFTA country where it is exported.
Also, no NAFTA country, on condition of export, will refund, reduce, or waive the following: “antidumping or countervailing duties, premiums offered or collected pursuant to any tendering system with respect to the administration of quantitative import restrictions, tariff rate quotas or trade preference levels, or a fee pursuant to section 22 of the U.S.
Agricultural Adjustment Act”. The same condition substitution drawback was removed as of January 1, 1994.
The U.S. foreign-trade zones privileges as far as customs is concerned should be considered by exporters. The zones — domestic U.S. sites — are believed to be outside U.S. customs territory. They are available for activities that might in other circumstances be carried on overseas for customs reasons. As far as export operations are concerned, these zones provide accelerated export status for excise tax rebates and customs drawback.
For import as well as re-export, no customs duties, federal excise taxes (or state / local ad valorem taxes) are charged on foreign goods moved into zones unless and until the goods or the products made from them are moved into the customs territory. The implication of this is simple: use of zones can be profitable for operations which have foreign dutiable materials and components and are assembled or manufactured in the U.S. for re-export. Besides, normally no quota restrictions apply to export activity.
Around 217 approved foreign-trade zones in port communities exist across the U.S. More than 356 sub-zones are associated with these projects. The facilities are available for operations involving storage, repacking, inspection, exhibition, assembly, manufacturing and other processing.
Over 2,800 business firms used foreign-trade zones in the fiscal year 1995. While the value of merchandise that moved in and out of the zones during the year crossed the $143 billion mark, export shipments from zones and sub-zones touched $ 17 billion.
For further information about the zones, one can contact: The zone manager from local Commerce Export Assistance Centers, or
The Executive Secretary, Foreign-Trade Zones Board, International Trade Administration, U.S. Department of Commerce, Washington, D.C. 20230.
With a view to encouraging and facilitating international trade, over 300 free ports, free trade zones and similar customs-privileged facilities are made available in around 75 foreign
countries. These are normally in or near seaports or airports. A number of U.S. based manufacturers as well as their distributors make use of free ports or free trade zones in order to receive goods shipments which are reshipped in smaller lots to customers in surrounding areas.
For any further queries, one can contact your local Department of Commerce Export Assistance Center or the Trade Information Center (1-800-872-8723).
U.S. Customs Bonded Warehouse
Most Import/Export companies have to apply for a Custom Bonded Warehouse certificate before they can start trading.
In simple terms, a building or a secured area where dutiable goods can be stored, manipulated or manufactured without paying duty is known as Customs Bonded Warehouse. The powers for establishing such a warehouse is set forth in Title 19. United States Code (USC) section 1555. There are nearly nine different types of Customs Bonded Warehouses.
Among the various advantages of using a bonded warehouse are: - No duty until merchandise is withdrawn for consumption;
- Control of an importer over use of money until duty is paid upon withdrawal
Also, in case of no domestic buyer being found for the imported articles, an importer can sell merchandise for exportation and cancel his obligation to pay duty.
The importer and warehouse proprietor may incur liability as per the bond upon entry of good into the warehouse.
For establishing a warehouse, an owner or leaseholder who wants to establish a bonded warehouse, should firstly, give a written application to the local customs port director describing the premises and giving the location. You also have to state the class of warehouse
to be established.
Save for a class 2 or 7 type warehouse, it has to be made clear in the application itself whether the warehouse shall be operated only for the purpose of storage or treatment of merchandise which belongs to you (the owner), or it is to be operated as a public bonded warehouse.
Also, if the warehouse is expected to be used as a private bonded warehouse, the application must also state what the general character of the merchandise to be stored therein is, with a rough valuation of the maximum duties and taxes that will be due on the merchandise at any one time.
Among the other requirements, you must have:
- A certificate signed by the president or a secretary of a board of fire underwriters stating that the building is a suitable warehouse and acceptable for fire insurance purposes. Also, ports do not have a board of fire underwriters, and hence certificates signed by officers or agents of two or more insurance companies have to be obtained. - You also have to produce a blueprint which shows measurements of the warehouse to
be bonded. Moreover, if the warehouse is a tank then the blueprint is also expected to display all outlets, inlets as well as pipelines and should be certified as proper by the proprietor of the tank. The gauge table showing the capacity of the tank in U.S. gallons per inch or fraction of an inch in height should be included and certified by the proprietor. Also, when a part (or parts) of a building are to be utilised as a warehouse, an elaborate description of the materials and construction of all partitions must be incorporated. This is applicable if you intend converting a part of your house into a warehouse.
- Lastly, there are some Bonds required for this purpose. Bonds for each class of warehouse shall be executed on Customs Form 301. Duty-free shops (class 9) have specific requirements governing their establishment. These requirements include location, exit ports, record-keeping systems, and the approval of local governments.
The U.S. Customs Service has more than 300 ports of entry in the United States, Puerto Rico, and the U.S. Virgin Islands. Please consult your local telephone directory under "U.S. Treasury Department, Customs Service."
