THe handbook of international trade

The Handbook of International Trade GLOBAL MARKET BRIEFINGS The Handbook of International Trade A Guide to the Principles and Practice of Export SECOND EDITION Consultant Editors: Jim Sherlock and Jonathan Reuvid Published in Association with: The Institute of Export Publishers’ note Every possible effort has been made to ensure that the information contained in this publication is accurate at the time of going to press and neither the publishers nor any of the authors, editors, contributors or sponsors can accept responsibility for any errors or omissions, however caused No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editors, authors, the publisher or any of the contributors or sponsors Users and readers of this publication may copy or download portions of the material herein for personal use, and may include portions of this material in internal reports and/or reports to customers, and on an occasional and infrequent basis individual articles from the material, provided that such articles (or portions of articles) are attributed to this publication by name, the individual contributor of the portion used and GMB Publishing Ltd Users and readers of this publication shall not reproduce, distribute, display, sell, publish, broadcast, repurpose, or circulate the material to any third party, or create new collective works for resale or for redistribution to servers or lists, or reuse any copyrighted component of this work in other works, without the prior written permission of GMB Publishing Ltd GMB Publishing Ltd Hereford House 23-24 Smithfield Street London EC1A 9LF United Kingdom www.globalmarketbriefings.com 525 South 4th Street, #241 Philadelphia, PA 19147 United States of America This edition first published 2008 by GMB Publishing Ltd  GMB Publishing Ltd and Jim Sherlock and Jonathan Reuvid ISBN 978-1-84673-034-4 E-book ISBN 978-1-84673-035-1 British Library Cataloguing in Publication Data A CIP record for this book is available from the British Library Typeset by David Lewis XML Associates Ltd Contents Foreword Andy Nemes FIEx, National Chairman, The Institute of Export PART - The Global Economy 1.1 1.2 1.3 The rationale for foreign trade and its organization Balance of payments - measurement and management Patterns of world trade PART - International Marketing - principles and practice 2.1 2.2 2.3 2.4 Principles Methods of market research The marketing plan Distribution PART 3- The Legal Environment 3.1 3.2 3.3 3.4 3.5 An overview of UK law The law of contract Sale of goods in international trade EU competition law Law of agency PART - The Export Order Process 4.1 4.2 The export office The export quotation PART - International Transport 5.1 5.2 5.3 Modes of international transport Packing and marking Transport documentation vi Contents PART - Customs Controls 6.1 6.2 Export procedures and documents Import procedures and documents PART - Risk Management 7.1 7.2 7.3 Cargo (marine) insurance Credit insurance Exchange risk management PART - Export Finance 8.1 8.2 8.3 Business finance International payment methods Documentary letters of credit PART - New Horizons 9.1 9.2 ICT and export documentation Global trading trends APPENDICES I II III Web sites for exporters Chambers of commerce and business associations SITPRO Top Form standard documents Foreword The Institute of Export is pleased to present and wholeheartedly recommend this vital source of reference and advice to all international traders In particular we commend this book to students studying for the Institute’s Advanced Certificate in International Trade examinations wherever they may be based The Institute of Export’s mission is committed to the enhancement of export performance by setting and raising professional standards in international trade management and practice, principally through the provision of education and training programmes The Institute is recognized by the Qualifications and Curriculum Authority as an Awarding Body for vocational qualifications and is the only professional body in the UK offering recognized formal qualifications in International Trade Dedicated to professionalism and recognizing the challenging and, often, complex trading conditions in international markets, the Institute believes that real competitive advantage lies in competence underpinned by a sound basis of knowledge Globalization is an accepted phenomenon of the 21st century As goods and services increasingly move across international borders ever greater expertise is required to make such activity as smooth as possible Failure of World Trade Organization talks means that barriers and challenges to that free and smooth flow of trade remain One sure way of overcoming obstacles is to be in possession of the right knowledge That is why this Handbook is so important The authors of this Handbook are recognized experts in international trade education and business support Jim Sherlock, a Fellow of The Institute, and Director – Educational Projects is also a trainer and consultant in International Trade with extensive experience in the UK and other manufacturing sectors He has extensive experience in the educational sector and is the author of “Principles of International Physical Distribution” together with regular contributions to a number of international trade publications Jonathan Reuvid is a well known and respected Sinologist, internationalist, strategy consultant and educationalist Engaged in the design and delivery of academically accredited educational business and management programmes, as an editor and publisher he has involved himself in a variety of international trade and business books of the highest quality Andy Nemes FIEx National Chairman, The Institute of Export Part The Global Economy 9.2 Global trading trends The IMF projections for the percentage growth of imports and exports of selected geographical groupings for the period from 2003 to 2007 are displayed in Table 9.3.1 In the bottom section of the table, the same data is shown for the World together with the US dollar values of global trade and it current account balance Readers requiring absolute dollar values for the various groupings or similar data for individual countries should visit www.imf.org where this information and much more about the world’s economies can be found Global trends The IMF estimates that the value of global exports of good and services rose from $9,178 billion in 2003 to $12,684 billion in 2005 and projects further increases to $15,891 for 2007 The annual growth rate rose from sharply from 5.2% in 2003 to 10.3% in 2004 and is forecast to remain above 7% through 2007 with rather higher growth forecast for 2006 These are healthier growth rates than those recorded in the final decade of the last century except for year 2000 when world merchandise exports grew 11% before falling 1.5% in 2001 Selected groupings trends Advanced economies As a whole, the projected growth rates in exports and imports are one to one and half percentage points below the world average In 2006 and 2007, growth rates for goods are expected to be marginally higher than for goods and services combined Over the five year period growth rates of imports and exports are roughly in balance Major advanced economies Focusing on the G7 advanced economies, except for 2006, growth rates in both exports and imports are slightly lower than for the complete group of advanced economies 4.9 3.3 3.8 3.5 4.3 1.6 1.4 2.8 3.6 1.3 10 12.4 10.5 12.2 Advanced economies (%) Import volume of goods and services Import volume of goods Export volume of goods and services Export volume of goods Major Advanced Economies (G7) (%) Import volume of goods and services Import volume of goods Export volume of goods and services Export volume of goods Euro area (%) Import volume of goods and services Import volume of goods Export volume of goods and services Export volume of goods Central and Eastern Europe (%) Import volume of goods and services Import volume of goods Export volume of goods and services Export volume of goods 2003 15.9 18 15 16.9 6.5 7.3 6.6 6.9 8.2 7.8 7.2 9.1 9.4 8.8 8.7 8.6 9.4 9.9 5.2 5.8 4.1 4.2 5.9 5.4 4.9 6.3 5.5 5.3 Groupings and Globally 2004 2005 (e) Table 9.3.1 - Projections of Foreign Trade Growth for Selected Regions and Globally 9.2 11.2 10.4 11.7 7.2 7.5 7.4 7.8 7.6 8.4 8.7 9.4 7.5 8 8.6 2006 (f) 8.8 9.4 9.7 10 5.4 5.1 5.3 5.1 5.7 5.7 5.7 5.8 6 6.1 2007 (f) 380 New Horizons – looking ahead (%) 21.2 22.9 12.4 12.4 3.8 5.3 10.6 1.1 5.9 7.2 5.2 6.6 9.8 10.8 13.6 17 5.5 6.7 5.2 5.9 Commonwealth of Independent States (CIS) and Mongolia Import volume of goods and services Import volume of goods Export volume of goods and services Export volume of goods Middle East (%) Import volume of goods and services Import volume of goods Export volume of goods and services Export volume of goods Africa (%) Import volume of goods and services Import volume of goods Export volume of goods and services Export volume of goods Newly industrialized Asian Economies (%) Import volume of goods and services Import volume of goods Export volume of goods nd services Export volume of goods The World Import volume of goods and services (%) Import volume of goods (%) Export volume of goods and services (%) Export volume of goods (%) 10.9 11.4 10.3 10.3 16.8 16.2 17.8 18.5 8.9 9.2 7.1 7.2 14.4 18.2 10.1 14.7 19.8 20.1 13.1 12.8 7.6 7.8 7.3 7.1 7.3 7.2 9.3 10.3 12.3 10.7 6.2 5.2 15 16.9 10.7 15.5 14.8 5.1 3.8 9.6 8.8 9.3 9.3 8.9 9.9 10.9 10.5 4.9 4.3 18.2 16 7.5 10.4 13.4 15.1 6.1 8.4 7.8 7.5 7.6 8.2 8.4 7.9 8.1 13.8 13.1 11.8 12.2 11.3 11.5 4.2 7.4 10 11.6 5.7 5.8 Global trading trends 381 Source: International Monetary Fund (IMF) database Imports of goods and services (US dollars – billions) Export of goods and services (US dollars – (billions) Current Account balance (US dollars - billions) Table 9.3.1 (continued) 9,178.10 9,242.60 -74.2 2003 11,123.5 11,208.30 -55.3 12,585.90 12,684.30 -61.6 Groupings and Globally 2004 2005 (e) 14,284.90 14,464.20 15.5 2006 (f) 15,707.50 15,890.80 -16.3 2007 (f) 382 New Horizons – looking ahead Global trading trends 383 Euro area Growth rates of exports by the group of eurozone countries have been significantly lower by up to 2% than for the total grouping of advanced economies with 2004 a particularly poor year However, the gap is forecast to narrow to less than one% in 2006 and 2007 and may reflect the mild recovery of some eurozone economies, notably Germany Central and Eastern Europe Export growth of the CEE countries, which include the eight that are now EU members, has outstripped the world average and, in particular, those of the euro area Growth rates of CEE exports are expected to remain 3% or 4% ahead of eurozone rates for 2006 and 2007 The differential for imports is rather less Comparison with the eurozone is relevant to the decisions of the CEE8 whether and when to join the euro area CIS and Mongolia Double digit growth in imports through to 2007 puts the CIS plus Mongolia well ahead of the world average and advanced economies as a target market for exporters Surprisingly, in view of Russian exports of oil and gas the growth rates in exports are comparatively modest, lagging behind the world and advanced economies average and pointing to growing current account imbalances Middle East Import growth rates are also in double digits from 2004 onwards and are forecast to exceed those of the CIS and Mongolia in 2006 and 2007 Export growth rates for goods are forecast to remain above the world average until 2007 There is an emerging current account issue for the region but not as acute as for the CIS Africa Until 2007 when exports are expected to take off, growth rates of goods and services will remain or 3% below the world average However, growth rates in imports rose to double digits in 2005 and will continue to grow faster than exports through 2007 The endemic imbalances in the foreign trade of most African countries remain of grave concern to the G8 and all those seeking progress in the WTO Doha round of negotiations 384 New Horizons – looking ahead Newly industrialized Asian economies Growth rates in the volume of exports, reflecting the performance of China’s economic powerhouse and the growing but still nascent economy of India, will remain ahead of the world average However, growth for the grouping has fallen back to single digits from the heady rates of 13.6% and 17.8% in 2003 and 2004 Reassuringly, the growth rates of imports are converging with those of exports, providing contrary evidence to the claim that China and other dynamic Asian economies are the major sources of global trade imbalance Appendices Recommended Reading Lists for Advanced Certificate and Diploma in International Trade Advanced Certificate General Schmittnoff: Export Trade, D’arcy, Murray & Cleave, Sweet & Maxwell INCOTERMS, ICC United Kingdom The business environment The Business Environment, Institute of Export Principles of Law Relating to Overseas Trade, Kouladis N, Blackwells, 1st Edition Charlesworth Business Law, Dobson P, Sweet & Maxwell 16th Edition Business Law, Abbot KR & Pendlebury, Contavuum, 7th Edition Finance and international trade Finance and International Trade, Institute of Export, 2nd Edition 2001 Principles of International Trade and Payments, Briggs P, Blackwells 1st Edition 1994 Finance of International Trade, Watson A.J.W, Bankers Books 5th Edition 1997 Uniform Customs and Practices for Documentary Credits (UCP 5000), ICC United Kingdom Uniform Rules for Collections (URC 522) Uniform Rules for Demand Guarantees Guide to Documentary Credit Operations for UCP 500 Operating in the global economy Operating in the Global Economy, Institute of Export 2nd Edition 1999 International Marketing, Bennett R (Be), Kogan Page 2nd Edition 1998 388 Appendices International Marketing Strategy, Bradley F (Br), Prentice Hall Europe 4th Edition 2002 Marketing Research, Kent R (K), ITB Press 2nd Edition International Marketing, Paliwoda S (P), Butterworth & Heinemann International Marketing, Walsh L S (W), Pearson Education 3rd Edition 1998 An Introduction to Modern Economics, Hardwick P Langmead J & Khan B (HLK), Pearson Education 5th Edition 1999 International physical distribution International Physical Distribution, Institute of Export 2nd Edition Principles of International Physical Distribution, Sherlock J, Blackwells 1st Edition 1994 International Trade Procedures and Management, Walker A.G, ButterworthHeinemann 4th Edition 1995 Understanding the Freight Business, Down D.E, Micor Freght UK Ltd 4th Edition 1992 The Merchant’s Guide, Richardson J.W, P&O Nedlloyd millenlum Edition 1999 Diploma General export management Management, Bennett R (1997), 3rd Edition, Financial Times, Pitman Publishing, London International Business, Bennett R (1999), 2nd Edition, Financial Times, Prentice Hall Dictionary of International Business Terms, Capela J, Barron’s Business Dictionaries International logistics and purchasing Handbook of Logistics and Distribution Management, Rushton A & Oxley J (1999), Kogan Page International Logistics, Wood D et al (1994), Chapman & Hall The Importer’s Handbook, Butler J (1994), Prentice Hall International Purchasing Handbook, Ashley J (1998), Director Books International marketing planning Strategic Marketing Communications, Smith P, Berry C & Pulford A (1997), Kogan Page Introduction to International Business, El-Kahal, S (1994), McGraw-Hill Recommended reading lists 389 International Marketing Management, Jeannet, J.P and Hennessey, H (1992), Houghton Mifflin Consumer Behavior and Marketing Action, Assael, H (1992), PWS-Kent Publishing International Marketing, Gilligan, C and Hird, M (1985), Routledge International Marketing Strategy and Management, Gilligan, C and Hird, M (1986), Croom Helm International Marketing, Terpstra V & Sarathy R (1997), Dryden Press Marketing Management, Analysis, Planning, Implementation and Control, Kotler, P (1988), Prentice Hall Elements of Export Marketing and Management, Branch, A.E (1990), Chapman and Hall International Marketing, Cateora, P.R (1993), Irwin Management of international trade International Purchasing Handbook, Ashley J (1998), Director Books International Business, Bennett R (1999), Pearson Education Ltd Export Practice & Management, Branch A (2000), Thomson Learning Trading in the Global Currency Market, Cheol S et al (2000) Index 4Ps 43–44 7Ps 45 absorption costing 333–34 acceptance and rejection of goods 128, 135–37 legal remedies for non-acceptance 139 of quotations 181 accessibility of markets 50 ad valorem costs 214, 272, 283–84 administration see documentation, management Admiralty jurisdiction 145 ADR 243, 246 Advanced Certificate and Diploma in International Trade, reading list 387–89 advertising 68, 74, 109, 116 media for 76–78, 85 advice services 54 Africa, trade statistics 25–27, 29, 31, 35, 381, 383 African Development Bank 11 agents breach of authority by 168 key clauses in agency agreements 169–70 law concerning 105, 125–6, 143, 165– 70 needs of 95 rights and duties 169–70 types of 166–67 use of 87–88 and VAT declarations 260 see also distribution, intermediaries agricultural products 6, 9, 279 subsidies for 12 AIDA 78 air transport 10, 209–10, 240–41 for dangerous goods 246–47 documentation checklist 351–52 Andean Pact 8, 30, 33 anti-dumping legislation 74, 277 Arab British Chamber of Commerce (ABCC) 276, 283 Argentina 11, 23 Asia, trade statistics 25–28, 31, 35, 381, 384 Asia-Pacific Economic Cooperation (APEC) 30, 32 assembly activities 95 Association of South East Asian Nations (ASEAN) 7, 8, 30, 33 Free Trade Area (AFTA) ATA carnet 285–86 auction of rejected goods 353–54 Australia 4, 8, 9, 23, 65 Australia-New Zealand Close Economic Relations Trade Agreement (ANZCERTA) Austria 23 averages, statistical 64 averaging 294–95 aviation see air transport BACAT 209 BAF 215 balance of payments/trade 13–18 accounting 14 balance sheet (company) 328–29 Bangladesh 23 Bank of England 16 banks information from 55 lending by 16–17, 324–25 named as consignees 241 ownership of barriers to trade, 4–7, 50, 365, 367 see also protectionism, quotas, tariffs 392 Index barter 357, 359 Belgium 23 Bic 42 bill of lading 234–42, 307–08, 340 checklist 351 express bills 242 glossary for 238–40 lost or destroyed 240 stale 238, 241 bills of exchange 336, 339–44 avalised 343 checklist 350–51 protest for non-payment 344 Bills of Exchange Act (UK) 147 Blue Book 245 Bolero.net 370–74 bonded warehouses 264 bonds general average 295 performance 182, 184, 356 tender 182–83 Borden, Neil 45 Boston Matrix 70–71 Brazil 11, 20, 21, 23 Bretton Woods Agreement British International Freight Association (BIFA) 205 Brussels Tariff Nomenclature (BTN) 278 BTN 278 budget deviation from 333 management of 332–33 for promotion 75–76 rules for 333 bunkerage 215 Burma 24 business entities 321–24 buy-back arrangements 357, 360 buyers see customers Canada 23, 27, 36 Cancun meeting carnets 267, 285 carriage paid (CIP and CPT) terms 188, 193–94, 197 cash flow 367 forecast 330 cash payment in advance 336, 337 CCCN 278 CDV 277 Central American Common Market (CACM) Central and Eastern Europe (CEE), trade statistics for 25–28, 30, 35, 380, 383 Central European Free Trade Agreement (CEFTA) 30 certificates of insurance 300–01 of origin 282–83 of value and origin (CV/O) 277, 283 CFR 188, 197, 305 charter types 206–07 CHIEF 262–63 Chile 23 China 3–4, 12 trade statistics 13, 19, 20, 21, 22, 24, 27, 28, 31, 36, 384 CIF 188, 193, 197, 295, 302 CIM rules 234, 241, 242 cinema advertising 78 CIP 188, 193–94, 295, 302 Civil Jurisdiction and Judgements Act (UK) 143–44 claims payable abroad (CPA) 302–03 classification of goods 278 clause paramount 236–7 climate issues 66 closing a sale 83–84 CMR rules 234, 241, 242 coal Coca-Cola 65, 66, 79, 97 Colombia 23 colour of products 65–66 combined transport operators (CTOs) 167–68 Commercial Agents Regulations (UK) 165–70 commissions 87–88, 166 common markets Commonwealth, the Commonwealth of Independent States (CIS) 28, 30, 31, 35, 380–81, 383 communications services 10 company characteristics and distribution method 90 domicile 144 legal forms of 322–24 prospect company 80 Index 393 setting up local 95–96 comparative advantage, law of 3–4 competition law regarding 149–63, 206 over payment methods 337 computer services 10 see also e-business, information and communications technology confirming houses 167 consideration, nature of legal 111–12 consularisation 276 consultants 55, 93 Consumer Credit Act (UK) 104–05 containerisation 202, 203, 207–08, 236 box rates 214 types of container 208 contract law 105, 107–23 agency contracts 165–70 breach of contract 113–14, 121, 139– 41 contracts made by agents 168 discharge of 119–21 exclusion clauses 130, 132 and quotations 181 remedies for breach of contract 108– 09, 122–23 termination agreements 166 unfair terms 125, 130–31, 133–34 contracts of carriage 233–38 made by agents 168–69 standard form 111 contribution 334 conventions for international transport 234 cost/s absorption and marginal costing 333– 34 of agency arrangements 87–88 assessment of business 71–73 division between buyer and seller 189 and electronic documentation 367 of imported goods local variation in 96 of packing 225–26, 228–29 total distribution cost 217–21 of transport 212–18 types of business 331 cost/benefit analysis 86 cost insurance and freight (CIF) terms 193 cost plus pricing 71 COTIF 246 counterpurchase 357, 359 countertrade 356–58 forms of 359–61 country risk 186–87, 310, 336 CPT 188, 197, 305 credit management 187 credit risk 181, 293–94 credit ratings 336 insurance 187, 309–12 creditor composition with 112 nation 15 currency accounts 314–15 commodity 17 hard and soft 309 see also exchange rates current account balance 14–15 current domestic value 74 customers attitudes to 39, 42–43, 97 contract terms of 111 enquiries from potential 175–77 expectations of 126 legal protection of 125–29 legal remedies for seller’s breach of contract 140–41 obligations within Incoterms 191 risk of specific 187, 310, 336 custom and law 105, 113, 134 customs avoidance 285 clearance 203 common EU frontier 253–55 procedures and documentation, 251– 70 unions 7, 150 warehouses 287 see also export, import, documentation DAF 188, 194 damage or loss of bills of lading 240 to goods 223, 293 dangerous goods 225, 226, 242–47 ... in respect of what it owns in the rest of the world The overall ‘accounts’ for the UK’s trade with the rest of the world The account for trade in manufactured goods and raw materials The account... enough • the second, in which they have the capability of producing the goods or supplying the services, but still import them The rationale for the first kind of trade is very clear So long as the. . .The Handbook of International Trade GLOBAL MARKET BRIEFINGS The Handbook of International Trade A Guide to the Principles and Practice of Export SECOND EDITION Consultant