International Business Exam 2

Dutiable status of goods

which depends on: (A) classification/coding: ("Harmonized Commodity Description and Coding System"- developed by the "World Customs Organization" - an international convention that uses standard rules and tariff language to describe and classify (and assign a code to) goods; used by virtually all countries trading internationally)

Electronic Data Interchange (EDI)

eUCP which extends Uniform Customs and Practice for Documentary Credits to electronic documents; Bolero standardized technical infrastructure

B) Customs value

(dutiable value)

Remedies for Breach

(1) avoidance (cancellation) of contract (under CISG buyer may "avoid" or cancel contract (or certain provisions of it) if seller's failure to perform is a fundamental breach; if the seller requests additional time to cure a fundamental breach, the buyer does not have to grant the additional time; in the case of non-delivery, buyer may avoid the contract only at the end of the nachfrist period (at the end of the additional period of time the seller was given to perform); if buyer fails to take delivery or fails to pay, then seller can avoid contract (2) remedy or cure (3) additional time for performance (extension), CISG gives extra grace period for seller to perform (i.e., attempt to cure) beyond time for performance (German "Nachfrist" ("the period after"))seller may request reasonable extension of time to perform (i.e., to cure) and if buyer does not respond, the seller gets the additional time; (4) price reduction (if seller ships defective or non-conforming goods (or there is a partial shipment) buyer may adjust the price it pays; this remedy is available whether or not the seller's breach has been fundamental) (5) damages (money damages); breaching party (buyer or seller) liable for damages in amount sufficient to make the injured party whole; (6) specific performance (under CISG Court may grant specific performance without regard to whether or not money damages would be inadequate as a remedy; Court need not grant it unless it would do so under its own law)

Excuses for Nonperformance

(1) impossibility (2) frustration of purpose and (3) commercial impracticability; Under CISG exemption (excuse) for "Impediments Beyond Control" party is not liable for failure to perform obligations: (1.) due to impediments beyond control (2.) not reasonably foreseeable at time of contract, (3.) unavoidable and could not be overcome, (4.) notice was given to the other side of the impediment and its effect on the contract; Usually impediment does not entirely excuse performance, but merely suspends it until the impediment ends. Force Majeure ("superior force") clauses excuse (or suspend) party from performance upon occurrence of certain events

Importing

(entering of goods into country); Commercial shipments go through administrative entry process ("clearing customs") in which customs official: (a) determine if there are any prohibitions or restrictions on the import of those goods or whether any other laws or regulations are applicable (b) whether any tariff (duty) is due; each country will have own processes; similar from country to country due to "harmonization" process

Shipping terms and terms of trade

(f.ex. Incoterms 2010);

Steps in importation

(formal entry (the step at which estimated duties paid or a customs bond posted), liquidation (the final computation and assessment of the applicable duties; if additional duties are owned a "notice of adjustment" is issued), and protest (initially with Customs at the port of entry with appeals thereafter to Customs headquarters in Washington and, ultimately to Court of International Trade and then to Court of Appeals for the Federal Circuit);) and the enforcement procedures (include civil violations and criminal penalties depending on the situation).

Letter of Credit

(obligation of a bank (usually irrevocable) issued on behalf of a bank customer promising to pay a sum of money to a beneficiary upon the happening of an event; substitutes the bank's credit for that of the customer; not necessarily a contract (does not have to come about through offer and acceptance, mutual assent and consideration); it is not a negotiable instrument; it is sui generis - something of its own - it is a "definite undertaking" ); law applicable to letters of credit (UCC Article 5) and the non-law guidelines (Uniform Customs and Practice for Documentary Credits or "UCP");

Fundamental breach

(results in such detriment to the other party as substantially to deprive him or her of what he or she is entitled to expect under the contract, unless the breaching party did not foresee (and a reasonable party in position of breaching party would not have foreseen) such a result;

Trade financing using letters of credit

- letters of commitment from government and intergovernmental agencies to issuing bank (to insure payments made to US sellers under letters of credit confirmed by bank)

Tariff classification

Assigning types or kinds of goods to categories based on the name, use or physical characteristic of the good

Harmonized Tariff Schedule of the United States

has 2 columns: Column 1 - has 2 tariff rates: (1) "general rate" - applicable to imports from countries which the U.S. accords "normal trade relations" status; (2) "special rate" - special tariff treatment of the item comes from a developing country (for example, under Generalized System of Preferences) or from a free trade area in which US participates; Column 2 - original Smoot-Hawley Tariff Act of 1930 rates now applicable to countries to which U.S. has not granted "normal trade relations" status. Tariffs can be "ad valorem" (percentage of the value of the article imported), "specific" (specified amount per unit of weight or measure) or "compound" (a combination of both ad valorem and specific tariff rates) Importer's duty to use reasonable care to determine the dutiable status of the good being imported and to report it to customs authorities (and to provide necessary documentation); You will want to be able to look at the "HTS" designation for a good and determine the applicable tariff given the country of origin

"boycott"

is an organized refusal of one or more nations to trade with one or more other nations

Privatization

is process by which a government sells or otherwise transfers government-owned industries or other assets to the private sector Under US law, final decisions (or negative determinations to not initiate investigation or that no material injury exists) of ITC and ITA in countervailing duties cases and dumping cases are reviewable in U.S. Court of International Trade (if it is an antidumping case involving Canadian or Mexican goods, appeal may be to a binational arbitration panel under NAFTA)

Tariff engineering

modifying or engineering a product prior to importation in order to obtain a favorable duty (because the article is classified according to its condition at time of importation); Marking and labeling of imports - countries require imported goods be marked with the country of origin (some goods are exempt; under U.S. law, if there is a substantial transformation resulting in a new article with a new name, character or use, then it is no longer a foreign article needing to be marked; Under U.S. law, US-made goods do not have to be designated "Made in USA" when sold in US, but if a seller chooses to make the "Made in USA" claim, it can only do so if all or virtually all of the materials, processing or component parts are made in USA and final assembly or processing took place in US Other customs laws affecting U.S. imports -- such as drawbacks (refunds) of duties already paid on imported goods when the goods (or other goods manufactured from the imported goods) are reexported or destroyed and foreign trade zones (legally defined site within country subject to special customs regulations);

Formation of International Sales Contracts;

mutual assent (offer and acceptance); differences between UCC (the primary source of US domestic law on sale of goods) and CISG in terms of necessity of a writing (under CISG contract for international sale of goods need not be in writing) and use of parol evidence (parole evidence rule is not incorporated into CISG which allows a court to consider all relevant circumstances in considering the intent of the parties), etc., mailbox rule (CISG does not use "mailbox rule"), limits on use of standard contract terms, how Battle of Forms operates (under CISG acceptance with new (additional or different) terms that do not materially alter the deal become part of the contract unless offeree objects; acceptance with new (additional or different) terms that do materially alter the deal are considered a rejection and counter-offer); CISG does not address the validity of a contract, the competence of the parties, etc.; CISG does not mention consideration

Safeguarding

or protecting domestic industries from foreign competition; buying time for domestic industries to adjust; General WTO rule is that member nations may not raise tariff rates on imported goods just to protect domestic industry or domestic jobs, but under limited circumstances a government may impose temporary safeguards (emergency remedies provided by law (usually tariffs) )to protect its domestic industry from injury from increased imports; Basis and procedures for WTO "safeguards" are in Article XIX of GATT (1947) (the "escape clause" - allows a country to take temporary corrective action ("emergency action") to "escape" (be relieved of its tariff concessions) in order to "safeguard" its domestic industry where: (1 ) as a result of unforeseen developments (2) due to a tariff concession (or obligation under a trade agreement) (3) increased quantities of an imported product\ (4) are causing (or threatening to cause) serious injury to domestic producers of like or directly competitive products) and the WTO Agreement on Safeguards (1994) (which provides that "safeguard" may be imposed by a country only after an independent administrative agency in the importing country has conducted an investigation and determined that legal requirements for imposing "safeguard" have been met and the increase in imports are the actual cause of the domestic industry's decline; decline due to an overall economic slowdown such as a recession or decline due to technological advances by domestic competitors are not enough); tariffs are the preferred form of safeguard and, if used, should be as less restrictive as possible, temporary (lifted when conditions permit) and "global" in nature; developing countries are exempted from application of the "safeguard" measure unless their imports amount to more than 3% of the imports of that product; Under WTO agreements country imposing safeguard measures should compensate the nation against which the measures are imposed (i.e., the counties supplying the imports for which the measures are imposed); this "trade compensation" takes the form of Country A lowering tariff duties on certain products coming from Country B to offset the increased duties coming from the safeguard measure imposed by Country A on different products for which Country B was a large supplier to Country A; If the countries do not reach agreement on the "trade compensation" then Country B may "suspend ... substantially equivalent concessions"

"Sanctions"

regulations that prohibit domestic companies or citizens from doing business with certain foreign governments, organizations or individuals (for example, due to support of terrorism, spread of nuclear weapons, drug trafficking); each nation will has its own sanction procedures) and, in addition, there can be international cooperation as to sanctions; Authority for U.S. Sanctions - two main bases for president's authority to act: (1) Trading with the Enemy Act (1917) (2) International Emergency Economic Powers Act ("IEEPA")(this is the primary current grant of power to president to impose sanctions during peacetime emergency - president may declare emergency in event of "any unusual and extraordinary threat, which has its source in whole or in part outside the United States, to the national security, foreign policy or economy of the United States" in the U.S. enforced by the Office of Foreign Assets Control (part of Department of Treasury); also U.S.A. Patriot Act (2001) - greater ability to seize assets (and assets can be frozen pending (rather than after) investigation of links to terrorism); enforced by Office of Foreign Assets Control part of the U.S. Department of Treasury and Financial Crimes Enforcement Network Right to export and travel is a privilege which is recognized by law, but can be revoked; "export controls" and "sanctions" are enforced by civil and criminal penalties;

Performance of Contracts

seller's obligations (including to deliver conforming goods in manner specified within the time specified) and buyer's obligations (including to pay and take delivery)

"unfair governmental subsidies" (dumping)

subsidies ("subsidy" as financial contributions (including any form of income or price support) made by a government that confers a benefit on a specific domesticenterprise or industry) are governed by GATT/WTO and WTO Agreement on Subsidies and Countervailing Measures (1994) ("SCM Agreement") as well as by national laws and regulations; Under the SCM Agreement "nonspecific subsidies" are permissible, but "specific subsidies" (i.e., given (a) to a select company or number of companies, (b) to a select industry or group of industries, or (c ) to firms in a select geographic region of a country) are prohibited if they are either (a) a prohibited subsidy impermissible per se and prohibited in all circumstances its harmful effects are presumed; no proof of adverse effects is necessary;

rate of the duty (tariff); "customs law"

A broader term which encompasses "tariff law" but also covers other aspects of the control of goods and people crossing international borders. Understand quotas, including global quotas (quantitative import restrictions on a particular product regardless of its country of origin). U.S. Bureau of Customs and Border Protection assesses and collects tariffs and administers duty-free zones

Tariff law

Laws and regulations that determine the "dutiable" status of goods (legal status of the imported goods at the time of entry for purposes of tariff and customs laws)

Transaction risks

delivery risk (risk to buyer that seller will not deliver as required by contract); payment risk/credit risk (risk to seller that buyer will not pay as required by contract);

Trade Adjustment Assistance Program

federal assistance program for workers who become unemployed as result of increased imports of foreign goods; Petitions for "trade adjustment assistance" may be filed by group of workers (3 or more), employer, state jobs agency or labor union; Secretary of Labor determines whether: (1) significant number of workers in a firm have (or are threatened to) partially or wholly lose their jobs (2) firm's sales or production had decreased absolutely (3) increased imports of like or directly competitive products importantly contributed; if Secretary of Labor determination is affirmative, then group of workers is certified as eligible for trade adjustment assistance; workers certified as eligible can then apply individually for benefits with state jobs office (benefits can be cash, tax credits, vouchers for job search expenses, training, relocation, health care insurance; in some circumstances for older workers benefits can be wage subsidies)

"antiboycott laws"

make it unlawful for citizens or companies to participate in a boycott; U.S. export control laws have antiboycott provisions making it illegal to "comply [with or] support any boycott fostered or imposed by a foreign country against a country which is friendly to the United States" (example, Arab League boycott of Israel)

independence principle

of letters of credit (letter of credit is independent of sales contract between seller and buyer); may be exception to If the documents presented by the seller (the beneficiary of the letter of credit) are fraudulent or forged of if "fraud in the transaction" exists in the underlying sales contract, buyer may obtain an injunction from a court ordering the issuing bank from not honoring its letter of credit you will want to know how the letter of credit process works; the "rule of strict compliance" (although some typographical errors may be overlooked (excused), every document must match the letter of credit; even a small discrepancy is reason for rejection of the documents; understand the types of letters of credit (irrevocable, standby, confirmed, etc some courts in U.S. (and some European countries) a "functional standard" of compliance; UCP 600 follows a modified strict compliance rule approach, but does require strict compliance between commercial invoice and letter of credit; "Confirmed letters of credit" - a second bank (usually in the seller's country) agrees to buy the documents on the same terms as the issuing bank

Automated Export System

online system of U.S. Census Bureau collects Electronic Export Information ("EEI") from the exporter (or the freight forwarder as authorized agent for the exporter) and is required to be filed (usually prior to shipment) for each transaction for which an export license has been issued (and for many other shipments)

there are two types of "prohibited subsidies"

"export subsidies" (made available to domestic firms upon the export of their product (or made contingent upon export performance) "import substitution subsidies" (government subsidy contingent on the recipient using or purchasing domestically made goods rather than imported goods) or (b) an actionable subsidy (also known as "adverse effects subsidies" are not automatically prohibited, but can be "actionable" if (1) causes material injury to producers of like product in the complaining country (2) violates a trade agreement or (3) it causes "serious prejudice" to the interests of complaining country); Subsidy disputes can be resolved through the WTO Dispute Settlement Body (nation to nation) (which may authorize complaining country to take countermeasures to offset the improper subsidies of the other country); subsidy disputes can alternatively be resolved through administrative action at the national level in the country into which the subsidized goods are imported ("countervailing duty actions"); both routes can be pursued (WTO and national countervailing duty action), but only one remedy (WTO authorized countermeasure or nationally authorized countervailing duty) will apply; special rules for NMEs in countervailing duty actions

C) Country of origin

"rules of origin" are used to determine the country of origin (i) "non-preferential rules of origin" applicable to countries that receive normal tariff treatment - general non-preferential rule - from what country are the goods "wholly obtained" or, if not "wholly obtained in one country, then the country of origin is the country where the goods last underwent a "substantial transformation" into a new and different article (ii) "preferential rules of origin" applicable to free trade area or customs union or applicable to developing countries (for example, general preferential NAFTA rule to be "NAFTA origin goods, goods must be "wholly produced or obtained" in Canada, Mexico or the United States or, if contain non-NAFTA originating inputs (raw materials or components) must meet either regional value content requirements or "tariff shift" rules of origin. ) - what it is, what it is worth and where it came from; "tariff schedule" - the nation's tariff rates (according to the country of origin of the good) for each classification; the U.S. tariff schedule is at "Harmonized Tariff Schedule of the United States."

Bill of Exchange

( a negotiable instrument - signed writing, containing unconditional promise or order to pay a fixed sum, to order or to bearer, on demand or at a definite time; for example, promissory note (2 party) or draft (3 party)); Draft (signed order of drawer, given to drawee (in possession of $ of drawer), to pay sum of money to payee, on demand or at definite time; for example, a check is a draft); International Draft (or Bill of Exchange) is similar to a check, but is not drawn against funds on deposit with drawer's bank);instead, it is an order from seller to buyer (or buyer's bank) to pay to seller upon delivery of the goods (or presentation of shipment documents); thus, the seller is both drawer and payee; buyer (or buyer's bank) is drawee Negotiation of a negotiable instrument is the transfer of the negotiable instrument in a fashion that the transferee (holder) takes rights; most international transactions involve "order" instruments; negotiation of order instrument requires (a) necessary indorsement and (b) delivery. There are two types of drafts: sight draft (payable on sight) and time draft (payable at a certain subsequent time). You will want to understand how documentary drafts are used in trade finance exporter provide credit for the buyer by issuing a time draft which the buyer then "accepts"; This is a trade acceptance and creates the buyer's unconditional obligation to pay on due date; "Banker's acceptance" is a time draft drawn on and accepted by a commercial bank (replacing the buyer's credit with its own); accepting bank becomes obligated to pay the amount stated to the holder of the draft when due Under UCC holder in due course of a negotiable instrument takes for value in good faith w/o notice of instrument is overdue or has been dishonored w/o notice it contains unauthorized signature or has been altered; holder in due course of negotiable instrument can take greater rights than those of transferor; Thus, holder in due course of negotiable instruments can take free of most disputes (such as breach of contract ) that might arise between the drawer and drawee.

Documentary sale

(a type of contract for sale of goods in which constructive possession and ownership of goods are transferred from seller to buyer through the "negotiation" and "delivery" of a "negotiable" document of title issued by an ocean carrier); (and how the collection process works); role of banks and the ocean carriers as intermediaries; In a situation involving a "negotiable" document a "holder by due negotiation" takes title (to the document and to the goods it represents); a negotiable bill of lading is important to international trade because of its negotiability; the goods can be bought and sold while still in transit; "Documentary collection" process (banks act as intermediaries between the buyer and the seller to handle the exchange of bill of lading for payment); you will want to understand how the documentary collection process works and the weakness of the process (documentary sale can mitigate may risks, particularly, for example, if certificates of inspection or analysis and certificates of insurance are used, but does not actually guarantee that the buyer will actually purchase the documents when presented; seller could sue for breach);

Differences between "shipment" contracts

(contract requires seller to ship goods by carrier but does not require seller to deliver the goods to a named place; under UCC risk of loss passes to buyer when seller delivers goods to the first carrier) and "destination" contracts (seller to deliver goods at a particular destination such as "Rotterdam"; under UCC risk of loss passes to buyer when seller deliver goods to buyer at port of destination); under CISG If the contract calls for goods to be handed over to carrier at a particular place, then risk of loss passes to buyer at that place; if seller is expected to ship and no particular place is mentioned, then risk of loss passes when goods are handed over to first carrier for transport

CONTRACTS FOR INTERNATIONAL SALE OF GOODS Convention for the International Sale of Goods ("CISG")

(deals with formation of contract and rights and obligations of seller and buyer, but not validity of contract); CISG applies (assuming contract does not specify otherwise unless the parties opted out of CISG or to opted to vary its terms in clear and unambiguous language) if: (1) contract is for commercial sale of goods (some transactions are excluded from CISG); (2) between parties with places of business (for a multinational entity -- country with closest relation to contract and where it would perform) in different countries; (3) places of business are in countries that ratified the CISC. Overall theme of CISG -- endeavors to keep the parties in their bargain

Dumping

Form of unfair competition (selling of goods in a foreign country for less than the price charged for "like" or comparable goods in the exporter/producer's home market; an "unfair trade practice" prohibited under GATT (1947) and US law; definition of "dumping" does not depend on the firm's motive); remedies for dumping are the imposition (by the importing country) of "antidumping duties" (in addition to normal tariffs that might be applicable); to level the playing field by offsetting the low price of the dumped goods; under U.S. procedure U.S. International Trade Administration ("ITA"), part of U.S. Department of Commerce, determines whether dumping occurred and the extent of the dumping; U.S. International Trade Commission ("ITC") determines whether dumping caused (or threatens) "material injury" to a domestic industry producing "like products"; Antidumping duties may be imposed on imported goods sold (or likely to be sold) in the U.S. at "less than its fair value" (i.e., the "export price" of the goods sold in the U.S. is less than the "normal value" of like or similar goods (which depends on a number of factors, including physical characteristics, use, common (or different) producers, common (or different) components, comparable (or different) commercial value, etc.) sold for consumption in the exporter/producer's home market); this difference is the "dumping margin"; Special rules for antidumping investigations involving nonmarket economy countries ("NMEs"); understand the reason there need to be special rules for calculating dumping margins involving goods originating in NMEs. Disputes over antidumping duties may be taken to WTO (by nations, not private parties); if WTO panel finds the antidumping order imposed by importing country violates the WTO Antidumping Agreement, it may recommend measures to be taken against importing country by Dispute Settlement Body

US "safeguards" law is "Section 201" of the Trade Act of 1974

it differs from GATT/WTO in some respects: (a) U.S. law does not limit the imposition of safeguards (or "import relief") to situations where the injury or risk of injury to domestic industry arises from "unforeseen developments"; (b) requirements for determining a "serious injury" differ under U.S. law than under GATT/WTO. Understand the impact of that difference in laws (WTO Dispute Settlement Body in a number of "safeguard" cases rules against U.S.). Under Section 201 petition for import relief is made to International Trade Commission ("ITC") - an independent agency; (can be made by any firm, trade association, union, worker group, Congress, President, ITC itself); ITC gives public notice, holds hearings makes a determination (affirmative or negative) as to injury and, if affirmative, may recommend a limited-duration remedy. Which could include: (1) tariff increases (2) tariff-rate quotas (3) absolute quotas, (4) auctioned quotas (5) financial assistance to workers or to domestic industry) to President who may make an adjustment to imports if, in his or her discretion, it will help the domestic industry make a positive adjustment to import competition and economic and social benefits will outweigh the cost;

Export controls

laws and regulations that govern the licensing of certain goods and technology exported from the country or transferred to non-citizens; (but each nation has its own export controls, understand unilateral vs multilateral controls) U.S. Export Administration Act of 1979 permitted Bureau of Industry and Security ("BIS"), part of Department of Commerce, to promulgate export control regulations ("Export Administration Regulations" or "EAR"); EAR "controlled items" can include "commercial items" (intended primarily for civilian use)and "dual-use items" (commercial items which also have military uses or proliferation uses relating to proliferation of nuclear, chemical or biological weapons); Weapons, munitions and defense systems are not considered "dual use" and are regulated under an export control system administered by the U.S. Department of State, not the EAR; EAR applies to (1) U.S. origin goods and technology (wherever located - even if in a foreign country); (2) certain foreign-made goods having a certain percentage (usu. at least 25%) of U.S.- origin controlled content or technology; (3) certain items made in foreign country using U.S. -origin controlled technology; (4) items made at a plant outside the U.S. if the plant was designed and built with U.S. technology; You will want to understand how this is an aggressive interpretation of the reach of US law. Major (broad) reasons for controlling exports under EAR - (1) protect national security; (2) promote U.S. foreign policy; (3) prevent short supply of essential domestic materials other reasons for export controls - protection of wildlife, environment, public safety, antiquities; nonproliferation; crime control; and antiterrorism; under EAR export controls should not be imposed for foreign policy or national security purposes if there is "foreign availability" of the goods or technology; goods or technology to be controlled are selected by Department of Commerce (in consultation with other parts of government or multilateral control arrangement organizations of which US is a member) and placed on "Commerce Control List"; the president sets the list of "controlled" countries; actions of Dept. of Commerce and President in setting lists largely exempt from public comment procedures or judicial review U.S. export controls apply to both "exports" and "re-exports" (and to "deemed exports" and "deemed reexports"); "diversion" - unlawful transfer, transshipment, rerouting, or re-exporting of controlled goods or technology from one (legal) destination to another (unlawful) destination; "export license" required for each export or re-export (or "deemed exports" or "deemed re-exports") of controlled goods or technology; export license determined based on: (1) whether the item is controlled (2) the country of destination (3) the identity of end-user : End User Controls make it unlawful to release any controlled item to certain listed persons or entities. Exporter has burden of using due diligence to comply with export control regulations; penalties (civil and, depending on circumstances, criminal) for failure to comply are serious

A "bill of lading" is three things:

receipt for the goods (noting any visible damage); contract of carriage (i.e., a transport document); document of title to the goods; a negotiable ocean bill of lading is a document of title issued by an ocean carrier to a shipper upon receipt of goods for transport; understand some of the different types of ocean bills of lading (i.e., clean, on-board, received for shipment, and straight) and other types of transport documents (air waybill, multimodal transport documents, and freight forwarder's bill of lading); much is now done electronically through electronic data interchange ("EDI") instead of paper documents;