Module 2- Section C: Globalization

Define free trade zones and describe the requirements and benefits of participation

...A free trade zone also known as a foreign trade zone or export processing zone (EPZ), is a geographic area in a country in which some norlmal trade barriers such as tariffs and quotas are elmiated and bureaucratic requirements are lowered in hopes of attracting new business and rforeign investments. Typically, goods may be landed, handled, manufactured or reconfigured, and reexported without the intervention of the customs authorities. Only when the goods are moved to consumers outside the zone do they become subect to the prevailing customs duties. Free trade zones are organized around major seaports, international airports, and national frontiers. For example, in the U.S. a freee trade zone is a federally sanctioned site where foreign and domestic goods are considered to be outside of U.S. customs territory. Merchandise can be brought into an FTZ to be stored, exhibited, repackaged, assembled, or used for manfacturing free of customs duty, quota, and other import restrictions until the decision is made to ener th goods into the US market. No duty is ever paid on foreign goods taht are reexported from the FTZ. there are approxiametly 350 FTZ;s in the united states with at least one in each of the 50 states. -Exemption from csotms formalities duties or quotas. Shippers land their goods in FTZs without going through customs formalitites or import duties. They are alos exempt form quotas Exemption from duties or quotas on reexports- goods can be rexported forom an FTZ without having been subject to duties and therefore without having to go through a lengthy process to receive a duty drawback refund. Deferal of duties on imports. Duties and federal excise taxes are deferred on imports while they are in the FTZ. They will go through customs on the way out of the zone into customs territotry. Avoidance of fines. Imports can be processed, remarked, and repacked in an FTZ before going through customs, therefore, a shipment iwth potential complicnace problems can be brought into compliance in the FTZ before going thoruhg customs Reduction of import duties on some cargoes. Shippers can land cargo an FTZ, complete the break-bulk process (dividing truckloads of homogeneous items into smaller, more appropriate quantities for use), and then go through customs. In some instances this can reduce import duties. Inspection of merchandise before paying duties. An importecan have carbo brought into an FTZ forinspection and testing before paying import duties, thus eliminationg the possibility of having to reject a shipment after payin gthe duty on it. Avoidance of quota problems. IF a shipment of goods exceeds an import quota, the shipper can hold the cargo in an FTZ until it can come in under quota. Indefinite, cost-effective storage. Goods can be stored in an FTZ indefinitely withou being subect to local and state inventory taxes. The zones are under customs control, so they provide excellent security for sotred items. Manufacture and assembly without invered duties. When the duty on imported components is higher than the duty on the finished product, it called an invered duyt. To avoid paying an inverted duyt, a domestic manufacturer can bring low priced production materials into an FTZ and process them into a finished product for export. When going through customs, the manufacturere pays the duty on either the components or the finished goods, whichever is more advatageous. THE FTZ bord(in the united states) must approve any manufacturing or processsing that results in a tariff reclassifciation It is important to emphasize that any retail trade is forbidden in a free trade zone. A disadvanta of having a free trade zone is that the hose counry receivves reduced revenues from import duties however, with the numberous advantages of providing an FTZ many countries provdide themp

Explain trade blocs and how they impact the participants as well as those outside the supply chain

...A trading bloc is a preferential trade agrreement between a group of countries designed to reduce or remove trade barreiers between its members. there are different types of trading blocs, FTZ preferntial trade agreements ( allow their member countries to have preferntial access to certain products form other member countries) Customs unions (nade up of free trade area with common external staff) Common markets ( made up of free trade area in which physical, technical, and fiscal barriers are reduced as much as possible) Economic unions ( made up of common market and customs union as described above) Customs and monetary unions (ade up of cusotms and currency unions; share the same external trade policy and currency) Economic and monetary unions ( made up of common market, customs union, and monetary union) In these instances "union" refers to a group of two or more countries that form a unit that shares the same philosopheies on certain aspects of trade (this in not be confused with employee collective bargaining group Countries can belong to a variety of different trading blocs, and the WTO tracks the status of propsed blocs. There are also reginoal trading blcos that form when nations within a praticluar region join together to reap the benefits. Some of the larger regional trading blocs include the North American Free Trade Agreement (NAFTA)), the EUropean Free Trade Association (EFTA), the Caribbean Community (Cariom), the African Union (AU), the Union of South American Nations (UNASUR)m tge Eurasian Economic Community (Eurasec), the Arab League (AL), the Association of Southeast Assian Nations (ASEAN), the central European Freee Trade Agreement *CEFA), the pacific islands forum (PIF) There is a dynamic exchange of opinions on how trading blocs impact the global economy- that is do they create more trade or divert more trade, the answer in not clear cut in follwing discussion of the major trading blocs, NAFTA, and its requiremetns, we will focus on ow being a member versus a nonmember of a trading bloc can impact both side NAFTA the norht american free trade agreement of 1994 create a unified free trade zone comprising Canada, The united States, and Mexico by eventually eliminating all barriers to trade such as tariffs and other protective measures Unter NAFTA, a large number tariffs were dropped immediately and the rest scheduled for gradual elimination. However, some doucmentation requirments remain to challenge exporters and importers in the region along with perhaps deeper problems arising from cultural and political differences, the movement of labor and companieds across boarders, and inadequate infrastructure in MExico The primary problem in export docuemtnation arises form the requirement to establish the countyr of origin of expored goods to qualify for low or no import duty. Under NAFTA, various goods recieve preferential treatment, with the greatest beefit going to goods qualifying as having origingated in the region. Determeing the local content of an item can be troublesome. The section of NAFTa goverening the definiton of orginaing in the region is article 401, which also prohibits coutnires outside the region from attempting to benefit from the low import duyt by shpping their goods through cananda the untied states, or Mexico To provide a sense of how tricky this can be here are four provisions of article 401 for detmering which goods qualify fo rth prefereed treamemnt Goods wholly obtained or produced in the NAFTA region Goods produced in the NAFTA region whooly from materials origininating in the region Goods meeting th e Annex 401 orgigin rules Unassemebled goods and goods classified with their parts that do no meet the ANnex 401 rule orginin but contain 50 percent regional value cotent using the transaction method or 50 percent regional value using the cost method Annex 401 describes the condition under which goods created form non regional materials may qualify as orginal if the foreign componet or ingredients undergo a tariff change uner the international system governing calassification og doos for tariff purposes. Heres an eample pork sausage can qualify even if the pork comes form easern europe and the spieces from amaica if the sausage fits nder a fifferent classification in the trariff system than any of its nonregional ingredients. it isnt necessary to understnad all these rules only to konw that the doumentation problems can become complex Other impediments to freee trade in the region are common. The mexican tansportation infrastructure, for instance, places real difficulites i the way of constructin gan effcient supply chain; the roads are bad, air service is limited, there is only one railroad, and there is little or no provision for LTL trucking. Feuding has been been constant between the united stats and mexico over provision on both sides that inhibit acess of the ones countrys trucks to the other countrys highways. The immediate benefit of nafta to importers who bear responsibility for paying import duties was to elminate tariffs n a number of items and schedule he rest for phaseout over the subsequent five, ten, or 15 years. Some benefits envisioned for the FTZ in north american have been partly realized by the ;lowering of tariff barriers but there is room for imporvement A side of effect of NAFTA has been the growth of companies called maquiladora facilites for manufacturing or assembly of duty free compnetns. Many are located in northeren Mexico, and while the maquladora operations did no tcome into being with NAFTA, tey have thried since the inception of the agreement, becoming steadily more intergral to the supply chain crossing the border between the United Staes and MExico US firms are able to profit from the difference betweeen labor costs in the United states and in MEico. In the usual case, a US firm either operates the mauiladora or subcontracts operations ot it, such as manufacturing, processing , or assembly. The us company may send a pratly finished product to a maquiladora and then reimport the finished goods. Because of NAFTA, the duty on the transfer of materials and goods across the brder is assed ony on the value added in MExico, which is primarily attributable to laor costs. Drawbacks While the freer access to markes and labor among the three countris provdies benefits to manufactures, other conditions in the area can be drawbacks suchas The lack of adequate infrastructure in Meico Complex paperwork related to countyr of orgin of exported items ongoin problems with restrictions on trucking both coming ion and going out of mexico ill will among the coutnries ocasioned by plant closing and job loses In order to have a complete picture of trading blcs the effects on supply chains with the bloc outside the bloc should be explained According to the gravity model, countries that are geogrphically closed tend to have a high volume of trade. The gravity model used by social scientist to predict the movement of people and ideads between tow population centers as a function of the population of each aarea and distance between the areas. Bcause transportation costs and trade barriers tent to be lower, countries that are closer to one anoter are more likely to become trading partners by forming a trading bloc. Those hains in the respective members countiers usally reap the benefits of volume, quantity and beteter prices and terms as well as lower levels of tariffs With membership in a bloc, offtern suppply chain management will that itsis easier and less complicated negotiating with fewer ppartners. With this smaller number, concessions between members can be ore easily made and easily enforeced, making the process lesss headache riden. Supply chians from lesser developme countries with more economic and politcal variability can tkae advantage of agreements with larger entites that they would otherwise not have access to. If a trading bloc is large nonmembers may see their prices and demand for exports decrease. This can result in deterioration in trade terms and decreased market power of thes enonmembers. Seeing a decrease in their exports, they may resort to proectionistic tastics and increase thier lobbying effrts. The effects of trade divereted from nonmembers chains can impact the nonmembers ability to make multi-country negotiations feasible and increase the diffuclty of doing business across boraders, even if its with the country right next door or one which they have previously traded. somee time if they are fortunate enought to continue to trade, the non members may be forced to pay optimal tariffs to the bloc members, In summary , the optimal presence of trading blocs depens on the level of potential postivie effecs of creating tade as well as the potential negative effects of diverting trade and creating advese changes in trade terms for nonmembers.

Describe how the harmozied tariff schedule is used in import and export transactions

...Harmonized system classification codes, also called the Harmonized Tariff Schedule, are "an internationally standardized description of goods that uses a system of numbers to proive increasingly detailed classification and descriptions. It is very important that the buyers and sellers completing the millions of transactions involved in transferring all those goods have exactly the same idea of what is being shipped. To reduce the likelihood of such conflicts, a six-digit Harmonized Tariff system number is assigned to products exchanged in export-import trade. The coding system is ued by more than 200 countrie and economies as a basis for their customs tariffs and for the collection of international trade statistics. Over 98 percent of the mechandise in international trade is required for businesses selling merchandise internationally. Currently however, an HTS code is not required for individuals (fore example, selling from a web site like ebay and shipping internationally). If you do not provide a code while shipping an item , the broker will typically assign an HTS code. In addtition to the basic si digit code, each countyr can assign up to four additional numbers, to make a 10-digit ode. The united states, for example, maintains two versions of the harmonized code, both expanded to 10 digitis. One is used for imports and is administered by the US international trade commission. The other called Schedule B, is used to classify exports, and is administered by the census. Many other countries use only a six or eight digit version of the HTS. IF you look down the left-hand column of the import code you will come to the code numbers of 0302.12.00 about halfway down th ecolumn. Thats the US. code for imported slalmon. IT begins as requried with the six-digit HTS number that all countries use-03 ofr fish, 0302 for fish, fresh or chilled, 0302.12 for salmon. If you continue down the list of various types of salmond, you fill 10 digit numers specific to the US code. For insance, 0302.1.00.13 is the Atlantic chinook (king) salmon, farmed, and 0302.12.00.13 is the wild (not farmed)chinook. In schedule B, the farmed and unfarmed chinooks are classified ogheter under code numbers 0302.12.0012.

Explain all the cost inputs or resources that must be included in landed cost

...Supply networks are becoming wider and logistics chains longer for a number of reasons mentioned thorought this course, including imporvements in electronic communication; powerful software to begin tying blobal operations together; GPS, bar codes, and RFID to trak goods planetwie; dergulation and the opening of reginonal trade agreements. Antoerh driving force is the desire to use these advancements to take advantage of the best every region, nation, locatlity or company has to offer, including the most attractive prices for resources and labor. An apparent bargin price, however, may not be quite as attractive as it seems at first glance. There maybbe hidden cost to consider in addition to the \purchase price of components or per-hour wage rates. Remember, landed costs include product soss plus the cost logistics, such as warehousing, transportation, and handling fees. In simple terms, it probably doesnt pay to clip a coupon out of the paper and drive a great distance to save 10 percent on a package of light bulbs if you ca get etham at fulll price from a merchant within walkin gdistance of your home. But to be certain you have picked the more cost-effective way of sourcing light bulbs, you need to compare landed costs- the amount you pay for the bulbs in both situations by the time you unpack them and store them until you need them. You need to take into acccount more than the 10 percent difference in sale price to get te landed costs. So add up the fuel costs and depreciation on the car, the value of your time spent driving, the opportunity costs ( what else could you have been doing), and so on. And dont forget the time spent clippign coupons and doing the landed cost calulations If shopping for light bulbs at two stores can involve that many considerations, just imagine what coplications might arise in a realistic price comparison of raw materials availalbe in several regional markets around the world The landed cost of domestic items includes, basically, the componet price plus domestic freight. But the landed cost of the same or similar componetnts in a foreignt market may include all of the following Purchase price Imort duty International freight Soecial packaging Travel and other communications cost involved in acquiring the component Fees and commisiosns for intermediaries not necessary in domestic purchases Currentcy exchange and interest costs Hiring or training personnel to deal withexport and import complexitiies

Identify and describe the intermediaries involved in export and import

A number of intermediaries may perform one or more specialized services before the items sold in one country arrive at the customers dock in another. Freight forwarders- firm that arranges transportation for commerical cargo. The middle man between carrier and the organization shipping the product, often combining smaller shipments to take advantage of lower bulk cost A great majority of international shippers use forwarders. Small companies use forwarders because they cant afford to maintain a staff with the expertise required to handle foreign shipping. Perform primary job of an airfreight forwarder is consolidation of small shipments for presentation to an air carrier Non-vessel operating common carriers NVOCC actually buy and resell space on carriers while forwarders do not NVOCC perform the physcial work of consolidaing, loading, and unloading cargo forwarders do no provide labor NVOCC can handle the frieght in many cases, such as shipping by a motor freight carrier NVOCC are forbidden to enter into service agreements with shippers, while carriers are allowed to do so. Consolidators The consolidator combines small shipments into larger ones to qualitfy for full vehicle discounts. Generally this service is provided to fill containers for intermodal shipment, such as turnarounds carrying cargo between an inland warehouse and a port A consolidator that is not affilated with an NVOCC contracts with a forwarder or a carrier o arrange transportation. Customs house brokers customs hourse brokers assist improters by shepherding shipments through customs, their ob is to ensure that all documentation requried to pass customs is complete and accurate. These days, the information rquired to clear customs passes through compuer interfaces, such as the automated broker interace system in the United States and the pre arrival review system (PARS) in Canada. Custom house broker pays all import duties under a power of atorney from the importer Export managemnt companies (EMC) and Export trading companies (ETC) When companies want to expand from domestic to foreign markets, they may turn for assistance to foreign trade specialist in either export management companies (EMCs) or export trading companies (ETCs) rather than adding internal expertise. The EMC is not an exporter itself but rather a consultant to the exporters that hire it. ETC is an exporter rather than a consultant. A common reason to employ an EMC is to acquire representation in a particular market where the EMC has special knowledge and connections. An ETC, looks for companies making goods that it wants to buy and resell in a foreign market. ITs functions, therefore, may include any or all of the following: Locating importers to buy the goods overseeing export arrangements preparing and presenting documentation Arranging transportation overseas and inland complying with regulations ETC are known as general trading companies/ some of the worlds highest revenue generators, including familar names such as mitsui and mitsubishi. Shipping associations Smaller exporters band together in shpping asssociations in an effort to qualify for the rate discounts that carriers offer to largers. Able to negotiate with shppers for better terms Ship brokers and ship agents A ship broker is an independent contractor that brings exporters together with ship operators that have appropriate vessesl available to carry the shippers freight. A ship agent works for the carrier rather than being an independent contractor. When a ship is headed for port, the ship agent arranges for its arrival, berthing, and clearnce; while the ship is at port, the agent coordingates unloading, loading and fee payment. Shippers contact ship agents for information about the arrival and availability of ships. Export packing companies Provide the specialized packagin servies required for cargo that may have to undergo long journeys and passs customs inspections in another country. Hiring a specialist in export packagin provides advantages for shippers Expedidte cargo movement helps to ensure the cargo

Describe glocalization and its counterpart, reverse innovation, as required strategies for contingued growth

As international companies strive to educate their employees on cultural protocols around the glove, they are also indirectly contributiong to their knowledge about the types of products that would be embraced by these various groups. How can they work toward meeting the particular needs and wants of different markers around the blobe by designing new products or services or by redesigning existing ones? Glcoliztion is a hybrid term based on the worlds globalization and localization conied by Japanese economists in the 1880s and popularized by sociologist Roland Robertson, when used in a supply chain contect it is a form of postponement where a product or service is developed for distribution blobally but is modified to meet the needs of a local market. the modification are made to conform with local lways, cutsoms , culure , or preferences. Glocalization is similar to a multicountry stragetgy, a strategy in whihch each country market is self contained. Cusotomers have unique product experctiaion are addressed by local production capabilities. reverse innovation according to a Harvard business review article, glocalization was succesfful when wealthy nations comprised the majority of the market and less developed countries didn't have much to offer. The authors state that this 30 year time period of glocaliation is over and MNC's now need to put efforts and funds into global reverse innovation, because success in developing countries is contingent on ongoing sales in developed countries. Reverse innovation tis deveolpoing innovative new products. that meet specific needs and budges of customers in particular markes using a decentralized, local market focus.

Explain the process and considerations in the exchange of currency between countries

Counterparty risk- the oter party will fail to honor the terms of the agreement. The seller always runs the risk that the buyer wont pay on time or wont pay at all and the buyer risks taking delivery of inferior goods or no goods at all. very few transactions are financed by payment in advance or cash on delivery (COD). Currency exchange risks- fluctuating rate of exchange between their two currencies Currency hedging- used to offset the risks associated with the changing value of the currency Letters of credit- is a letter in which a bank assures the seller that the buyer is good for the purchase price of the goods and that the bank will therefore honor the buyers checks to teh seller up to that amount offer security from both counter party risk and currency excnage risk in one tidy, but complicated package.

Enumerate the operational considerations of exporting and importing

Export documentation- Eport requires considerably ore extensive documentation than domestic transactions. using the US as an example, an overvicases, the broker will fiew of the major document types follows Export Declaration Given the enormous us trade defici it is no surprise that the govenrment does little to discourage exports as is also the case with other countries, deficit or no deficit The US census bureau sues the automated export system called (AES direct) to caputre and store us export data electronically. AES direct is provided free of charge to allow exports to self file their electonic export information EEI), previously known as the shippers export declaration (SED). THe eei must be filed for exports valued at US 2500 or more when shipped to any country except canada (shipments to canada are exempt from AES). Paper copies of the EEI are no longer accepted. In most cases, the broker will file the EEI instead of an individual person working in the supply chain. Related links about the AES program and AES are available onlin ein the resource center The US form includes such basic information as Decsription the commodity Shipping weight List of marks and numbers on the containers Number and dates of any required export license Place and country of destination Parties to the transaction. Although soe comodities are forbidden for export or limited in some way, the form exists as much for the purpose of compiling trade statistics as for enforcement. Export License The united states does limit export of certain items of stratgic significance, including militray hardware and some high-tech products. Hence, shippers neeed to acquire an export license. The licnese come in two types A general export license allows export of most goods without restrictions A validation export license is required for shippers who wish to sell military hardware, computer chips, and other stregically sensitive items abroad. The commerical invoice The commerical invoice states the value of the commodities in the shipment, and it constitutes the sellers and buyers invoice for the transaction. IT also may be required for the letter orf credit and by other entites that need to know the value of the goods for insurance or the assessment of duties. The information required and the language it is wwritten may vary form country to country A consular invoice, rquried by many countries for incoming shipments, is similar to the commerical invocie but also contains information needed for customs in the importers countyr. Generally the consular invoice must be written in the language of the importing country, where it will be used for compiling trade statistics A proforma commerical invoice may be sent to a potential buyer in advance of the actual sale. It may contain the same information as a regular commerical invoice and serve as both a price quote and doucmentation for the potential buyer to use in securing a letter of credit to finance the purchase. Carefully documenting all cost in the pro forma invoice can thep the exporter propley price the product by including hidden costs, such as unforesen cost arising from risks and human errors. THE ATA carnet containers traveling under an ATA carnet can cross serveral boundaries duty free and tax free withou customs inspection. The carnet was intened specially for goods that were merely passing through a jurisdiction, not being imported inti. ATA stands " admission temporaire/Temporarty admssion. The carnet convention was adopted for western europe in 1961 was intened primarily to apply to commerical samples, professional equipment and items for presentation at tradeshows and other similar events. Despite their original use for these specific purposes and imtes, carnets now cover almost any type of goods, excluding disposable and consumable items, they are used worldwide. A certificate of origin A certificate of origin acmpanies cargo exported into a country that has signed a treaty granting favorable import duty rates to the exporting country . Teh certificate states the goods actually did originate in the exporting coutnry and are not merely being reshippped from there to benefit form the lower duty. We covered some of the complexities of determinging the coutnry of origin in the previous topic Bill of lading All international shipments are initiated by bill of lading that serves as the carriers contract and receipt for goods the carrier will transport from one destination and shiper to another specified destination and recipient . The B/L also serves to document claims if the shipment is delayed, damaged, or lost. An international shipment may be covered by multiple B/Ls, each intiating a new leg of the journey. An export bill of lading applies to the carriage from the exporters dock to its country's port, while an ocean bill of lading governs the port to port portion of the shipment. Order bills of lading provide evidence of ownership and are negotiable. Sellers may use them to transfer title to an intermeiary, bank or importer. A straight bill of lading, by contrast, non negotiable and governs cargo that must be delivered straight to the consignee A clean bill of lading, issued by the carrier, certifies that the goods have arrived at the ship undamaged. If the goods appear to have eeen damaged, the carrier will not that on the orginal B/L and will not issue a clan bill The ships manifest based on processed B/ls, summariezees the essel caro, noting the port where the caro came aboard and port to which it is bound. A statement of libilities appears in the primary B/L. According to the US carriage of goods by sea act, the shipper bears responsibility for losses that result form perils of sea, acts of god, acts of public enemies (such as pirates or terroirst) or its own negligence. The carrier is responsible for maintaining the ship in good working order, "ship-shape" and is liable for its own acts of negligence( ocean carriers have fewer legal responsibilites than overland carriers). Te air way bill (AWB, or airway bill of lading, is a standized form used for all air shipments. use of one uniform doucment has reduced processing costs for air shipping and facilitaed faster clering thouh customs Unnlike a steamship billl of lading, the air way bill doesnt provide title to the caro, instead it serves only as a receipt of godods as evidence of the contract of carriage. The cargo is delivered straight to the consignee named in the letter of credit finacning the transaction which may be either the importer or the bank issuing the L/C If the goods are not designated for delivery to the bank, the mporter can simply show up at the carriers destination and claim the caro. Therefore, unless there hsa been a cash payment to the exporter ( or the timporter is known and trusted at the destination), the AWB arrangement involeves some risk. Some destinations provide for cash on delivery (COD), with consighnemnt contingent upon receipt of the payment from the importer. The exporter often engages in a freight forwarder or consolidator to handle the shipment and provides a shippers letter of instructions authorizing the forwarding agent to sign the AWB on its behalf. Dock receipt A dock receipt, issued by a ship agent, signifiees tat the steamship conmpany has recived the cargo form the domestic carrier Certicicate of insurance- if the terms of sale require insurance, a certificate of insurance will attest that either the buyer or the seler has taken out a policy covering the cargo. Export packaging concerns- packing and labeling for export, as noted earlier in in the desscriptions of xport import intermediary, present spial problem and may be handled by an export packaging firm. Packaging for delivery to a foreign buyer requires consideration of issues such as the following. Packaging for a rough ride- international cargo needs to be packaged with material and techniques chosen to protect the cargo from damage caused by rough handling, rough seas, extremes of temperature, other hazards of long international journeys Packagingg for perishables- perishable shipments include (but are not limited to) foodstuffs, floral products, plants, nimals, and medical and chemical prodcts. Due to their nature , perishable deteriorate over a given period of time if exposed to harsh environmental conditions, such as excessive temperature or humidity and other forms of imporper care and handling. Packaging for customs- Not only does packaging need to provide protection for the cargo, It should also be as lightweight as possible. For some countries, customs duties are based in part on the weight of cargo (package included) and on country of origin. For certain other countries, customs duties are based on weight only. Export packagers should be familiar both with the customs requirements of each country and also with the available materials most suited to the destination, the type of cargo and the modes of transportation. Labeling- When the shipment arrives at the buyers port, customs will inspect the items to be sure that they contain all necessary markings, including safety labels, nstructions, country of orginin, and any special marks required. Experienced packagers who are familiar with rgulations in the ipporters country can help case shipments through the customs inspection by getting the labeling right. Consolidators, export packagers, freight forwarders, and NVOCCs all should be able to deal with the problem of empty turnaround trips in the importers home counry, either directly or by contracting with a knowledgeable specialist packaging needs be chosen with an eye to the avialble transportation in the destination country and the potential exporters whose shipments can be consolidated for the backhaul trip to the port * if an ocean trip is involved). Generally this means using containers that can be loaded on multiple modes of transport Reverse logistics- Finally amid all the other concerns, the export packaging needs to be selected to expedite reverse logistics in the following ways Use the fewest resources possible compatible with the other demands of export packaging Selection of reusable materials as ofen as possible and preparing to harvest them for reuse Selection of biodegradable materials when reusable materials aren't available or appropriate Perparion for tdisposal of any noresuable, nonrecylable marilas in a responsible landfill, with use of released energy if possible Now that you have a complete perspective on all the issues that must be though through carefully form the exporting side of the equation lets look at the consideration of the importer. Most countries as noed earlier, are eager to promote the international sale of domestic manufactures and agricultural products. Getting the goods into the buyers domain can often be more a struggle. The consignee country has to worry about the balance of trade, contaminats, invasive species, and collecting the ull amount of import duties. The custom office is the focal point of the importing country concerns. Classifying merchandise using the HArmonized Tariff Schedule Declared value and duty drawbacks Calulating import costs Import licensing and government perspectives on importing World Trade Organization Harmoized system calssifcation codes As discussed previously in this section the harmonizaed tariff schedule serves as et of stand numberical description of products exchanged in export import transactions. IT is imperative that all parties know exactly what is being shipped, including customs. Theh HTS six digit number identifies all products remember that in some countries such as the US up to four additional digits may be assigned creating a 10 digit code Declared value and duty drawbacks Once the exporter has determined the indentity of the carbob by refence to the harmonized code, the importer is responsible for declaring the value of the cargo. That value , along with other factors, influences the amount of any import duty According to the World Trade Orgnaizion, the declared value of cargo should ideally be the actual price paid ( or to be paid) bhy the importer. Goods shipped between one companys divisions located in different countries are valued by a transfer price, which is a standard cost plus a surcharge. The WTO also recognizeds other reasonable ways of determinging value, such as the value of itdentifal or similar merchandise. Duty drawback is a refund of all or part of duty paid on goods that were first imported and then reexported. Governements differ on the dteails of drawbacks in every case, however, the importer first pays the import duty when the goods initially come into the country and then appleies for the drawback after reexporting. If the goods are impoved in some way while in the country, duty wll be based on the increase in value. The assessment of cost due at customs varies from country to country. in addition to the import duty or tariff (the words "duty and tariff are interchangeable, there will be customs-related fees and in some countries there will also be a value added tax (VAT). we will look at the methods of assessing duties and the VAT Calculating import duty Import duties are generally assessed as a perentage of either CIF (cost, insurance, Freight) or FOB (free on board) value. (CIF and FOB are incoterms, which are discussed below. The fob value includes the cost of goods plus the amounts paid by the exporter to transport the freight from its dock and and load it on the ship. If the cargo consisted of goods subject to a 5 percent tariff and CIF were 1 million euro, then the tariff duty would be 50,000 euro. Calculating VAT Value added taxes (which resemble sales taxes in the United Staes( are assessed on the CIF or FOB pluss the import duties. In he EU countries, for example, VAT is assessed against the CIF plus the import duty, VAT percentages in the EU are subject to change, of course, but as of June 2010 VAT in the U.K. was set at 20 percent REduced VAT percentages are abailable from each country for certain necessitites and such as food, clothing, and books. Import licensing and government perspectives on importing Governemnets generally look with less favor on importing than on exporting, since exports bring money into the country and imports take money out. Moreover, goods coming into the country may pose various, threats, including such ahazards as competition with domestic goods; potential contamination of the environment; infectious diseases affecting livestock, wildlife, or humans; and terrorism. Governments around the world create numberious import licensing requirements, regulations, and restrictions to guard aginst these dangers, and they enforce these rgulatios through customs inspections. these restrictions pose problems for importers and exporters alike. The problems for imporers are obvious enough. In the us, for example, there might be a market for European chesses produced from nonpasteurized milk, but the department of agrivulture wont license a distributor to sel such cheese in the Us market ostensibly for health reasons. apan protects its domestic rice growers form imported rice for cultural reasons. WTO on the other side of such restrictions exporters suffer indirectly because hey may be easily able to acquire an export license from their own government but no able to find an iporter licensed to by their products. The world trade organization, which includes in its membership the vast majority of trading nations, takes as part of its mission the creation of free and fair trade around the world by eliminating many of these barriers against imports. It pays special attention to providing less developed nations with better access to world markets for their exportable products. Disputes and complaints by one member nation aginst another may be submitted for arbitration. member ship in the WTO also means that businesses headquarered in one member nation shild be able to open brances in antother member nation and be subject to the same rules applying to domestic businesses I that nation, thus gaining accesss to their markets directly rather than though imports. After china joined th WTO in 2001, for example, many forien firms rushed into china in hopes of capturing a slice of the potentially enormous market there. These early efforts were sometimes disappointing for a variety of reasons. Even when trade and investment barriers begin to fall, the export-import business may still be stymied by problems with entrenched bureaucracy, lack of infrastructure and simple lack of buying power.

Identify the legal and regulatory implications of globalization as well as appropriate conduct

Here are a few general considerations to keep in mind when formulating a strategy for getting your cargo through customs unimpeded: Use a customs house broker with proven expertise. Only a licensed broker can transact business with customs, which means that importers must use a broker to submit documents/information to customs to effect the release of goods. Importers are responsible for providing the necessary documents and information to the broker according to customs time lines and regulations and arranging for the payment of duties found due. ( A broker can pay on the importers behalf.). Licensed brokers must have a power of attorney from the importer to act as its agent unless the broker is in-house or works for the same company. Have the customs house broker begin the process before the shipment arrives at the port or air terminal, if possible Use electronic documentation rather than hard-copy printouts whenever possible. Make sure your counterparty in the trade (or its intermediaries) has done its research Check the backgrounds of your intermediaries carefully. Long term relationships with trusted consultants are the most productive. the importer of recodrd, or the company that caused the importation of goods, is responsible in the end. Inexperienced forwarders have been know to guess at the proper ode for items, causing problems for the importer trying to puck up its goods at customs. In this ection we will discuss a number of conduct related issues that can arise relating to international trade: Bribery Abduction Collarboration Dimensions of culture Bribery- A bribe is when a person a gift, money, or a favor intending to influence his or her decision, judgement, or conduct. The bribe can be in the form of anything the recipient considers to be valuable. Although they are unethical and illegal in most developed nations, these types of payments may be necessary in the sale and movement of product through customs in developing countries. There are three types of criminal bribery: commercial bribery, bribery of public officials, and ribery of foreign representatives. Commerical bribes are usally aimed at covering up for an inferior product or obtaining new business or proprietary information. They can also involve espionage, where senstivie information is stolen or kickbacks or payoffs made for trade secrets or pirce scheudles When it comes to public officals, any attempt to influence that individual in a manner that serves a private interest is considered a crime. The crime of bribery occurs when the bribe is offered even if the potential recipient does not accept it legally, a second separate crime occurs when a bribe has been accepted. in 1977, the US implemented the foreign corrupt practices act to discourage bribing of foreign officals in order to secure favorable business contracts. Since then, Us lawas have been established that criminalize that bribery. Abduction in 2009 worldwide kidnappings soared as the global economy stalled. The risks for excutives of north American companies traveling abroad is on the increase. According to a June 2009, article by paker, smith and feek, a Bellevue, Washington, inernationl risk management and consulting firms high risk aresa include Mexico, Colombia, Brazil, and Venezuela, which have seen a significant increase in abductions of business professionsal for ransom. In Colombia alone, there been more than 3000 kidnappings each year, and about 250 million has been paid in ransom for americans and other foreigners. other risk expers agree that the middle east and southeast asia are also higher risk countiers. Many companies now have kidnap and ransom insurance for their key management. Currently about 75 percent of fortune 500 companies invest in this kind of insurance. The worlds largest provider of kidnap and ransom insurance, the cubb group, reported a 15-20 percent increase in the number of firms seeking such insurance between 2007 to 2010. Many companies are now orffering their key contributors etraining on how to keep themselves safe and minimize the risk of abduction. The firms are also hiring protection services and consulting firms to help with this goal. They recommend the creation of a written thret assessment and plan for each organization expatriate and other employees need to be aware of local cultural and political situations that may put them at risk. They need to be taught what todo and what not do if they are kidnaped. The company should inform them in advance of precautionary measures, such as varying their routes and regular schedules and explain what actions the firm will take to secure their release. Executives should understand that negotiations will be handled by security consultants and insurance professionals. Despite their natural reaction to want to take the lead in this situation, execuives should not attempt to escape or negotiate with the criminals. Unfortunately, the successful and dramatic escapes of kidnap victims often portrayed in movies does not reflect reality. Collaboration it is possible for multinational companies to partner with small and medium size enterprieses in developing, as wel as developed countries to grow their respective businesses and provide new offerings to hthe global marketplace. in this manner, the small and medium size enterprises can combat the negative ffects of globalization that the global marketplace and to new clients, lack of financial and physical resources, and lack of brand recognition. Creating this give and take relationship requires cerain conduct and honesty of managmenet at both orgazations to work though the inheren challenges they each will face the small company will need to work dillgently to build relationships with the right individuals at the MVNC in order to get bet

Define the international commerical terms used in foreign trade contracts called incoterms and distinguish where and when the cost responsibilities shift between seller and the buyer

Incoterms short for International commercial terms were created to simplify international transactions. Inco terms are used In foreign trade contracts ot identify which parties incur the costs and t what specific points the costs are incurred. Let look at a smple example first. When a shopper goes into a local store and purchases a new laptop computer, the exchange of goods between buyer and seller can be as simple as handing the item across the counter in exchange for payment in cash or on credit. But what happens if the buyer drops the laptop on the way out and it breaks? is the stoe responsible for replacing it" is the buyer out of luck? should the store repair it for free under a warranty agreement? if the separate obligations of the buyer and seller can be a little vague in a straight forwad domestic consumer transaction, imagine the scope and scale of disagement that ca arise in a ransaction that requires transfer goods between a seller and buyer separated by several times zones, an oncean, and a few hunder miles o finland orads. that is wehre incoterms play a key role in pinpointing responsibility at different points in foeign transaction Incoterms were first defined and issed by the international chamber o commerace (icc in paris to help importers and exorters clarify such maers as the timing of title transfer and responsibility for costs, and insurance during shipping. since 1936, the ICC has updated its incoterms severn times to reflect the changing nature of international commerce, with the most recnt version issued in 2010 and officially known as incoterms 210, by mutual agreement, buyers and sellers can use previous versions of incoterms, but the icc recommends against doing so. Incoterms determine which party assumes the risk at certain points in the transportation process in addition to indicating which party is responsible for each task associated with shipping products. As you will see in Exhibits 2 18(a) and 18(b), Incoerms attempt to minimize confusion over interpretations of shipping terms by outlining exactly who is obligated to take control of and or insure goods at a particular point in th shipping precess futher, the terms outline the obligations for the clearance of the goods for export or import and requirements on the packaging of items. These aare all important considerations when negotiating transportation rates and arranging logistics . Although incoterms are not legally binding, exporters, and importers around the world accept them as the standard terms to sue in contracts of carriage ( not in contracts of sale). They are used to divide transaction costs and responsibitlites. Incoterms are organized into two groups Rules for any mode or modes of transport EXW (Buyer takes over goods at sellers location and loads on collecting vehicle) The buyer pays all transportation costs and bears all risks for transporting the goods to their final destination. This term implies that the buyer must be able to carry out export formalities in the country of supply. FCA (Seller delivers to main carrier; buyer loads) The seller delivers the goods into the carriers custody. This is where risk passes from seller o buyer. The buyer pays for the transportation from the place named in the incoterm. The seller is responsible for correcting and paying for any problems or costs of clearing customs that arise in the country of clearing customs that arise in the country of origin. CPT Carriage paid to (seller selets and pays for the main carriage) CPT means the seller pays for the freight to the named point of destination. The buyer pays for the insurance. The passing of rsk occurs when he goods have delivered into the custody of the first carrier. CIP Carriage and Insurance Paid to (seller pays main carriage and insurance) The passing of risk occurs when the goods have been delivered into the custody of the first carrier. From this point forward, the buyer bears all risk and any additional cost. IP is similar to CPT except that the seller also pays for the insurance under CIP, the seller is also required to clear the goods for export. DAT Delivered at Terminal (seller delivers goods to terminal) The seller delivers the goods a named terminal att a named port or destination. If possible, both parties should try to agree at which point within the terminal the risk is transferred from seller to buyer. If the parties agree that the seller is responsible for the costs and risks of taking the goods to another place, then DAP may apply. DAP Delivered at place (seller deliveres goods and buyer receives the when they are ready for unloading) The seller delivers the goods to the buyer, who assumes responsibility for their unloading at a named destination. Parties should try to agree on exactly what point at the destination the risks transfer from seller to tbuyer. If the seller is responsible for clearing customs and paying duties, then DDP may apply. DDP- delivered duty paid ( seller incurs all coss, including import duty) The seller pays for all transportation costs, bears all risk until the goods have been delivered and pays the duty. Terms for Sea and Inland waterway transport FAS- Free alongside ship (buyer lifts cargo onboard) The seller pays for transportation of the goods to the port of shipment. This includes oversized bulk or commodity cargo tendered to the carrier at the inland waterway or ocean port of loading. The buyer pays loading costs, freight, insurance, unloading costs, an transportation from the port of destination. Risk Is passed once the gods are delivered to the quay (pier) at the port of the shipment. FOB- Free on Board This term is only for shipments moving from ocean or river port to ocean or river port by vessel. FOB indicates who pays loading and transportation costs and/or the point at which the responsibility for the goods transfers from seller to buyer. FOB destination designates that the seller is responsible for the goods until the buyer takes possession. For lost or damaged goods in transit, the buyer is responsible when shipped FOB shipping and the seller is responsible when shipped FOB destination. CFR- Cost and freight (seller selects/ pays main carriage) The seller pays for costs and freight of goods to the named destination port. The buyer pays for the insurance and transportation from the port of discharge (POD). Risk of loss shifts when the goods pass the ships rail at the port of shipment. CFR cannot be used for air or land transport cost. CFR is intended for use in shipping ocean freight peir to pier cargo that is not containerized, such as oversized goods that cannot be loaded in a container and overweight shipments that exceed container shipping weight limitations CIF A price quoted as CIF means that the selling prics includes the costs of the goods, the freight or transport costs, and the cost of marine insurance. Under CIF, the seller must obtain in transferable from a marine insurance policy to cover the risks of transit. The sellers responsibility for the goods ends when the goods have been delivered on board the shipping vessel at the port of shipment. If the seller wishes its responsibility to end when goods are delivered into the hands of a carrier prior to the goods passing the ships rail at the port of loading then CIP may apply.

Define Globalization and the role new technology plays it

the interdependce of economies globally that results from the growing volume and variety of international transactions in goods, services, and capital, and also from the spread of new technology. horizontal marketplace "an online marketplace used by buysers and sellers from multiple industries which lowers prices by lowering transaction costs. The internet enables organizations around the globe to share their information and doucments. Automation, computerization, and electronic information technology all wortk together to keep tighter control on cost, reduce lead times, and make international supply chains inevitable.