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International Trade Practices

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Title: International Trade Practices


1
International Trade Practices
  • Hao jie
  • 2008.9

2
Content
  • Part 1 Overview
  • Part 2 Terms of International Trade
  • Part 3 International Trade Procedure
  • Part 4 Trade Forms
  • Part 5 WTO and Globalization of Trade

3
Part 1 Overview
  • Bird-eye View,
  • or Tiger-eye View ?
  • Chapter 1 Introduction to International Trade
  • Chapter 2 Basic Theory of International Trade
  • Chapter 3 Barriers to International Trade
  • Chapter 4 E-commerce

4
Chapter1 Introduction to International Trade
  • What is International Trade?
  • The fair and deliberate exchange of goods and
    services across national boundaries
  • Some concepts visible trade, invisible trade,
  • Why do nations trade?
  • Relationship between trade and investment
  • Balance of trade and balance of payment

5
Why do nations trade?
  • Resources scattered in the world
  • Scare resources to satisfy our unlimited wants
    for goods and service.
  • Comparative advantage in productionrelationship
    between trade and economy
  • Intro-industry Trade

6
What is economics?
  • Economics is the study of the allocation of our
    scarce resources to satisfy our unlimited wants
    for goods and services
  • Resources are the scarce inputs used to produce
    goods and services that we want.
  • Types of Resources
  • Natural resources --- land
  • Capital resources man made products used to
    produce other things
  • Human resources

7
Scarcity wants gt resources to produce
  • Everybody faces the scarcity
  • Scarcity and choice relative
  • Opportunity cost that which is given up when a
    choice is made

8
Chapter 2 Advantages of International Trade
  • OC Specialization
  • value of labor
  • Law of Comparative Cost
  • Internet Study of Law of Comparative Cost
  • Terms of Trade

9
Adam Smith
  • Biographical details
  • http//www.lucidcafe.com/library/96jun/smith.html
  • Introductory Remarks to the Wealth of Nations
  • http//www.econlib.org/library/Smith/smWN0.html
  • eText by Adam Smith The Wealth of Nations
  • http//www.lucidcafe.com/library/96jun/smith.html

10
David Ricardo Comparative dvantage
  • Biographical Details
  • http//www.econlib.org/library/Enc/bios/Ricardo.ht
    ml
  • Theory of Comparative Advantage
  • http//www.systemics.com/docs/ricardo/david.html

11
Case Study
  • Annotation by a case to the Principle of Absolute
    and Comparative Advantage
  • http//www.bized.ac.uk/virtual/dc/trade/theory/th2
    .htm

12
Terms of Trade
13
Chapter 3 Barrier to International Trade
  • Cultural Problems
  • Economic Problems
  • Trade Barrier

14
Chapter 4 Business Internet
  • Background
  • E-commerce

15
Box 1-- Case Study
  • Confused? Lost?

16
Part 2 Terms of International Trade
  • Chapter 5 International Trade Terms
  • Chapter 6 Terms of Commodity
  • Chapter 7 International Cargo Transport
  • Chapter 8 International Cargo Transportation
    Insurance
  • Chapter 9 Terms of Price
  • Chapter 10 International Payments
  • Chapter 11 Claims, Force Majeure and
    Arbitration

17
Chapter 5 International Trade Terms
  • 5.1 Generalization
  • Role of International Trade Terms
  • International Trade Usages
  • Warsaw-Oxford Rules 1932
  • Revised American Foreign Trade Definitions 1941
  • INCOTERMS 2000
  • Difference between Incoterms 1990 and Incoterms
    2000
  • A chart of classification of Incoterms 2000
  • 5.2 Standard Interpretation of 13 Trade Terms
  • A Vivid Picture
  • Detailed Interpretation

18
5.2 Standard Interpretation of 13 Trade Terms
19
Box 2-- Case Study
  • Confused? Lost?

20
Chapter 6 Terms of Commodity
  • 6.1 Name of Commodity
  • 6.2 Quality of Commodity
  • Sales by Sample
  • Sales by Specification, Grade or Standard
  • Sales by Brand or Trade Mark
  • Sales by Description, Drawing or Diagram
  • 6.3 Quantity of Commodity
  • Unit of Measurement
  • Calculation of Weight

21
6.4 Packing of Commodity
  • Types of Packing
  • Outer Packing
  • Inner Packing
  • Marking of Goods
  • Shipping Mark
  • Indicative/ Warning Mark
  • Neutral Packing

22
6.5 Commodity Inspection and Customs Formalities
  • Where and when inspection undergoes
  • Shipping quality/ quantity (Weight) as final
  • Landing quality/quantity as final
  • Inspection and re-inspection
  • Commodity Inspection Certificate
  • Customs formalities for exports and imports
  • Customs Duties
  • Specific Duties
  • Ad Valorem Duties
  • Compound Duties

23
Chapter 7 International Cargo Transport
  • 7.1 Modes of Transport
  • 7.2 Clause of Shipment
  • 7.3 Major Shipping Documents

24
7.1 Modes of Transport
  • Sea Transport (Ocean Transport)
  • Kinds of Vessels
  • Role of Shipping and forwarding agents
  • Freight Rate
  • Rail Transport
  • Air Transport
  • Road Transport
  • Inland Waterway Transport
  • Container Transport
  • International Multi-modal Transport
  • Parcel Post Transport

25
7.2 Clause of Shipment
  • Time of Shipment
  • Port of Shipment and Port of Destination
  • Shipping Advice
  • Partial Shipment and Transshipment
  • Lay Time, Demurrage and Dispatch

26
7.3 Major Shipping Documents
  • Bill of Lading
  • Other Documents
  • Consignment Note (for Rail and Road)
  • Air Waybill
  • Parcel Post Receipt
  • Combined Transport Documents

27
Bill of Lading
  • Concept
  • Different Types of Bill of Lading
  • Shipped (On Board) B/L and Received for Shipment
    B/L
  • Clean B/L and unclean B/L
  • Straight, blank and order B/L
  • Direct, transshipment, through B/L
  • Liner B/L, container B/L, and combined transport
    B/L
  • Long form B/L and short form B/L
  • On Deck B/L, stale B/L, ante-dated B/L and
    advanced B/L

28
Chapter 8 International Cargo Transportation
Insurance
  • 8.1 Marine Cargo Insurance
  • 8.2 Insurance of Land, Air and Postal
    Transportation
  • 8.3 Insurance Procedures
  • 8.4 Fundamental Principles of Cargo Insurance
  • 8.5 Factors Determining Premium Rates
  • 8.6 Cargo Insurance Claims

29
8.1 Marine Cargo Insurance
  • Types of Risks, Losses and Expenses Covered
  • Types of risks perils of the sea, external risks
  • Types of losses total loss (actual total loss,
    constructive total loss), partial loss (general
    average and partial average loss)

30
Main types of insurance
  • FPA free from particular average
  • WPA with particular average
  • All Risks
  • General additional risks
  • Special additional risks

31
8.2 Insurance of Land, Air and Postal
Transportation
  • Land transportation risk WPA
  • All Risks for land transportation Marine All
    risks
  • Air transportation risk WPA
  • Air transportation all risks Marine All Risks
  • Parcel Post risk and parcel post all risks

32
Insurance Procedures
  • Usually insurance is arranged by the exporter
    (under CIF terms etc.) or the importer (under
    FOB, CFR terms etc.) approaching an insurance
    company which has a department specializing in
    cargo insurance. They may start by inquiring and
    choosing the right coverage and then negotiate
    insurance premium rates.

33
8.4 Fundamental Principles of Cargo Insurance
  • Insurable Interest
  • Good Faith
  • Indemnity

34
8.5 Factors Determining Premium Rates
  • Carrying Vessel
  • Nature of the packing used
  • Type of Merchandise Involved
  • Nature of Transit and Related Warehouse
    Accommodation
  • Previous Experience
  • Extent of Cover Needed
  • Volume of Cargo Involved

35
8.6 Cargo Insurance Claims
  • documents required by the buyer
  • the commercial invoice issued to the buyer
  • the original bill of lading
  • the orginal policy or certificate of insurance
  • the survey report or other documentary evidence
    detailing the loss or damage incurred
  • extended protest for salvage loss, particular
    average in goods, or total loss of goods
  • any exchange of correspondence with the carriers
    and other parties regarding their liability for
    the loss or damage
  • any landing account at final destination

36
Chapter 9 Terms of Price
  • 9.1 Pricing Consideration
  • Cost Structure
  • Points to be considered in pricing
  • Approaches to pricing strategies

37
Cost Structure
38
Cost-oriented Pricing Methods
  • Break-even pricing
  • Cost-plus pricing
  • Marginal cost pricing

39
9.2 Choice of Currency for Account and Payment
  • Money of account
  • Money of payment
  • Exchange cost

40
9.3 Use of Commission and Discount
  • Commission
  • Discount
  • Cultural Background

41
9.4 Clause of Price
  • Unit Price
  • Total Price
  • Contract Stipulation

42
Chapter 10 International Payments
  • 10.0 Overview
  • 10.1 Amount of Payment
  • 10.2 Payment Currency
  • 10.3 Instruments
  • 10.4 Payment Methods
  • 10.5 Factoring

43
10.3 Instruments
  • Draft or Bill of Exchange
  • A sample draft and its elements
  • Types of drafts
  • Stages in handling a bill of exchange
  • Promissory Note
  • Definition
  • A sample draft and its elements
  • Check
  • Definition
  • A sample draft and its elements
  • Activities for Comprehension
  • Difference between draft, promissory note and
    check.

44
10.4 Payment Methods
  • Remittance
  • Collection
  • Letter of Credit

45
10.4.1 Remittance
  • Definition
  • Three types of remittance
  • M/T Mail Transfer
  • T/T Telegraphic Transfer
  • D/D Demand Draft

46
10.4.2 Collection
  • Definition
  • Parties involved under collection
  • Varieties of Documentary Collection
  • D/P Documentary against Payment
  • D/P at sight
  • D/P at ___ days after sight
  • D/P.T/R
  • D/A Documents against Acceptance
  • Particular remarks about collection

47
10.4.3 Letter of Credit
  • Definition and Performances
  • Parties Involved
  • Chief Elements of L/C
  • Procedures Involved in the use of L/C
  • Varieties of L/C

48
10.4.4 Other Payment Methods
  • Letter of Guarantee
  • Standby L/C
  • Combined use of different method of payment

49
10.5 Factoring
  • Services offered through factoring
  • Operation Mode
  • Kinds in Practices

50
Chapter 11 Claims, force majeure and arbitration
  • Claims
  • Force Majeure
  • Clauses
  • Sino-sure Website www.sinosure.com.cn
  • Arbitration
  • CRETAC Website www.cretac.org.cn/english
  • General arbitration procedures

51
Part 3 International Trade Procedure
  • Chapter 12 Launching a Profitable Transaction
  • Chapter 13 Business Negotiation and
    Establishment of Contract
  • Chapter 14 Import Export Documentation
  • Chapter 15 Import and Export Operating
    Procedures

52
Chapter 12 Launching a Profitable Transaction
  • Preparation before the Negotiation
  • Target Market
  • Business Partner
  • Qualified Negotiation
  • Proper Plan

53
Chapter 13 Business Negotiation and
Establishment of Contract
  • General Procedures for Trade Negotiation
  • Enquiry
  • Invitation for Offer
  • Offer
  • Definite Offer
  • Indefinite Offer
  • Counter Offer
  • Acceptance
  • Conclusion of Contract

54
Chapter 14 Import and Export Documentation
  • 14.1 Government control documents
  • 14.2 Commercial documents
  • 14.3 Finance documents
  • 14.4 Transportation documents
  • 14.5 Insurance documents

55
14.1 Government control documents
  • Import License
  • Foreign Exchange
  • Export License
  • Certificate of Origin
  • Inspection Certificate
  • Consular Invoice
  • Customs Invoice

56
14.2 Commercial documents
  • Pro forma Invoice
  • Commercial Invoice
  • Quality Certificate
  • Weight Certificate

57
14.3 Finance documents
  • Application Form for International Money Transfer
  • Drafts
  • Bankers Draft
  • Commercial Draft
  • Sight Draft
  • Time Draft
  • Application for Documentary Letter of Credit
  • Letter of Credit

58
14.4 Transportation documents
  • Shipping Note
  • Packing List
  • Bill of Lading
  • Consignment Note (rail, road)
  • Air Waybill
  • Parcel Post Receipt
  • Combined Transport Documents
  • Arrival Notification

59
14.5 Insurance documents
  • Insurance Policy
  • Insurance Certificate

60
Chapter 15 Import and Export Operating Procedures
  • 15.1 Import Procedures
  • 15.2 Export Procedures

61
15.1 Import Procedures
  • Import License
  • Trade Negotiation
  • L/C
  • Booking Shipping Space or Ship
  • Insurance
  • Document Examination and Payment
  • Customs Clearance
  • Taking Delivery and Inspection
  • Claim
  • Settlement of Disputes

62
15.2 Export Procedures
  • Export License
  • Trade Negotiation
  • Cargo Readiness
  • L/C
  • Customs Clearance
  • Shipping
  • Insurance
  • Document and Payment

63
Part 4 Trade Forms
  • Chapter 16 Agent, Distributors and Consignment
  • Chapter 17 Tenders
  • Chapter 18 Futures Trading
  • Chapter 19 Counter trade

64
Chapter 16 Agent, Distribution and Consignment
  • International trade forms refer to the common
    practices and channels between countries for the
    flow of commodities or services. Every import or
    export is carried out through certain trade form.
    Besides the direct trade form discussed in this
    book so far, there are a few indirect ones
    commonly used in international trade as well.
    Some of the most commonly used ones are discussed
    in the last four chapters of this book.

65
A Market Channel
66
16.1 Agent
  • Definition
  • Indenting Agent
  • Factor
  • Del Credere Agent

67
16.2 Distribution
  • Definition
  • Two Kinds
  • Sole or Exclusive Distribution
  • Non-exclusive Distribution

68
16.3 Consignment
  • Definition
  • Operation Mode

69
Chapter 17 Tenders
  • 17.1 Plant-engineering Survey and Evaluation
  • 17.2 Contract of International Plant-engineering
  • 17.3 Invitation for Bids
  • 17.4 Submission of Tenders
  • 17.5 Bid Opening Evaluation of Tender
  • 17.6 Tenders Discussions and Tender Decision
  • 17.7 International Service Cooperation

70
17.1 Plant-engineering Survey and Evaluation
  • 1) an all-round hydrological and geological
    survey must be made
  • 2) Designs of Plant-engineering
  • 3) Supply of Technology
  • 4) Supply of machines and equipment
  • 5) Construction and installation
  • 6) Initial Operation

71
17.2 Contract of International
Plant-engineering
  • 1) As per subject matters in contracts, they are
    named as contract for plant-engineering
    construction, contract for
  • 2) As per modes of business operation, they are
    named as general monopoly contract, monopoly
    contract for
  • 3) As per modes of valuation, they are named as
    total price contract, unit price contract, cost
    and commission contract.

72
17.3 Invitation for Bids
  • Bid Documents
  • Terms of Contract
  • Base Price Limit on Bids
  • Technical Specifications
  • Kinds of Invitation to Bid

73
17.4 Submission of Tenders
  • Tender Documents
  • Working out Tender Documents

74
17.5 Bid Opening Evaluation of Tender
  • In accordance with the specific conditions three
    modes may be adopted
  • (1) Bid opening in public
  • (2) Bid opening in Limitedly
  • (3) Bid opening secretly.

75
17.6 Tenders Discussions and Tender Decision
  • These activities are carried out between the
    employer and the bidders chosen after the
    evaluation of tenders, including the technical
    reply and price negotiations. Tender decision
    shall normally be made within the period of three
    to six months. Then the promotor should send a
    notice of award to the winning bidder. The last
    work for the both parties to do is to conclude an
    agreement of contract to determine the terms and
    conditions of contract and the rights and duties
    of the promotor and the contractor. At the same
    time, the contractor shall establish with his
    banker a letter of performance guarantee and
    submit it to the employer as an economic
    guarantee.

76
17.7 International Service Cooperation
  • The types and fields of service cooperation are
    continuously expanding with the social
    development and the changes of international
    economic relations. But on the whole, they can be
    divided into two types, technical service and
    common labour service.

77
Chapter 18 Futures Trading
  • Introduction to Futures
  • Futures Market
  • Hedging

78
18.1 Introduction to Futures
  • Futures and Forward Contract
  • Worldly Famous Futures Exchanges
  • Chicago Board of Trade (CBOT)
  • Chicago Mercantile Exchange(CME)
  • New York Mercantile Exchange(NYME)
  • London Metal Exchange
  • Tokyo Stock Exchange
  • Singapore International Monetary Exchange
  • Hong Kong Commodity Exchange

79
18.2 Futures Market
  • Futures Exchange
  • Definition
  • Organization Structure
  • General Responsibilities
  • Futures Contracts
  • The Clearing House
  • Participants
  • Margin System
  • Original Margin or Initial Margin
  • Variation Margin or Call Margin

80
18.3 Hedging
  • Definition
  • Selling Hedge
  • Buying Hedge

81
Chapter 19 Counter Trade
  • Definition an umbrella term that includes all
    of the variations of the exchange of goods for
    goods
  • Common Reasons for Counter-trade
  • 1.To create new export markets or promote export
    products
  • 2.To acquire new technology or attract foreign
    investment
  • 3.To balance trade for economic or political
    reason
  • Compensation Trade
  • Counter-purchase
  • Switch Trade
  • Offset

82
19.1 Compensation Trade
  • Full Compensation
  • Export Goods
  • Counter-trade Goods

Exporter in Country A
Importer in Country B
83
19.1 Compensation Trade
  • Partial Compensation
  • Export Goods
  • Counter-trade Goods
  • Foreign Exchange

Exporter in Country A
Importer in Country B
84
19.2 Counter-purchase
  • Foreign Exchange
  • Export Goods
  • Counter-trade Goods
  • Foreign Exchange

Importer in Country B
Exporter in Country A
85
19.3 Switch Trade

  • Hard Currency

  • (with a profit) 5
  • Hard
  • Currency
  • Clearing Units
    Clearing Units 3
    Goods 4
  • (at a 2
  • discount)
  • 1

  • Bilateral Clearing

  • Agreement -

Switch Dealer
The Third Country
Creditor Country
Debtor Country
86
19.4 Offset
  • Definition
  • Operation Modes

87
Part 5 WTO and Globalization of Trade
  • Chapter 20 WTO its objectives, functions and
    structure
  • Chapter 21 WTO Agreements
  • Chapter 22 Globalization of Trade

88
Chapter 20 WTO Its Objectives, Functions and
Structure
  • Brief Introduction
  • WTO and GATT
  • WWW.WTO.ORG

89
Objectives
  • raising standards of living and incomes, ensuring
    full employment, expanding production and trade,
    and optimal use of the worlds resources

90
Functions
  • to facilitate the implementation, administration
    and operation of the Uruguay Round legal
    instruments and of any new agreements that may be
    negotiated in the future.
  • to provide a forum for further negotiations
    among member countries on matters covered by the
    agreements as well as on new issues falling
    within its mandate.
  • to be responsible for the settlement of
    differences and disputes among its member
    countries.
  • to be responsible for carrying out periodic
    reviews of the trade policies of its member
    countries.

91
How the WTO Works
  • Decision-making process
  • The Secretariat
  • Membership

92
Chapter 21 WTO Agreement
  • Overview of the WTO Agreements
  • The Final Act Embodying the Results of the
    Uruguay Round of Multilateral Trade Negotiation
  • Marrakesh Agreement Establishing the World Trade
    Organization
  • A Navigational Guide to the WTO Agreements
  • Three-part Broad Outline GATT,GATS,TRIPS
  • List of Annexes

93
Chapter 22 Globalization of Trade
  • Definition
  • Understanding
  • Opponents of Globalization

94
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