Key Export Documents A supplement to Hill, Chapter 15 This is not required, but can help you understand concepts of “letter of credit,” “draft,” and “bill of lading” International Business 10e Daniels/Radebaugh/Sullivan 2004, Prentice Hall, Inc17-1

Paperwork (or its electronic equivalent) is essential to trade  To understand importing and exporting, understand the documents typically required

The Need for Special Export-Import Finance Processes  Lack of trust between international trading partners due to several factors Parties often have never met Language, cultural, and legal system differences Difficulties in tracking down a party in case of default  Problem solved by using a third party trusted by both as an intermediary – normally a reputable bank

 In addition, export documents may be required by government rules What tariff classification does the product comes under? Is the product subject to a quota, and does the sender have a right to send that product from that country? Does the product involve restricted technology?

Two basic documents  Similar to documents used in domestic trade Pro forma invoice – like a “letter of intent”  summarizes what the exporter will do if the importer agrees Commercial invoice – the actual bill  usually sent electronically with a copy included in the shipment

In international trade, a “draft” formalizes the process  Exporter issues draft (or “bill of exchange”), typically when goods are shipped  It may require immediate payment (a “sight draft”) or payment within 30 or 60 or more days (a “time draft”)  Often the draft goes to and is signed and acknowledged by the bank issuing the letter of credit

Key documents for government approvals  Certificate of origin – proof goods came from a particular place Important for products shipped under quotas Also necessary to ensure products did not come from a place under sanctions  ‘blood diamonds’  Export license – required for some tech goods

Letter of Credit  Issued by a bank at the request of the importer  Bank (which is trusted by both sides) promises to pay a specified sum to the exporter, on presentation of particular, specified documents

 Bill of lading – receipt for goods from the carrier that is transporting them (airline, shipping line) shows exporter has delivered the goods to the carrier 17-11

 Typically the bank that issued the letter of credit will pay the purchase price to the exporter when – or within a specified number of days after - the exporter presents bill of lading draft and/or commercial invoice any documents required by either the exporter’s or the importer’s government sometimes additional documents (perhaps documentation of quality control)

Letter-of-Credit Relationships 17-12

Using Customs Brokers  Customs brokers can help with the importing process  Value products in such a way that they qualify for more favorable duty treatment  Deferring duties by using bonded warehouses and foreign trade zones  Limiting liability by properly marking an import’s country of origin