Seyoum, belay export import theory, practices, and procedures routledge (2014)

Export-Import Theory, Practices,

and Procedures

Export-Import Theory, Practices, and Procedures is the fi rst book on the topic aimed squarely

at the academic audience. Discussing theoretical issues in depth, this innovative textbook of￾fers a comprehensive exploration of import procedures and export regulations, incorporat￾ing the most relevant and current research information in these areas.

The new edition includes:

 Updates on major developments in bilateral and regional trade agreements and on

regulatory changes in export controls

 Changes to taxation laws in the United States and internationally that impact import/

export

Changes to INCOTERMS 2000 and to letters of credit

 New developments in countertrade

 The new role of the Export-Import Bank

This book combines an innovative conceptual and theoretical approach, a comprehensive

analytical treatment, and an engaging and accessible presentation style to offer one of the

most useful textbooks on the market for students and practitioners alike.

More information can be found at www.export-importtradecenter.com

Belay Seyoum is Professor of International Business Studies at Nova Southeastern University

in Fort Lauderdale, Florida, where he teaches a variety of courses in international business

and economics. Prior to coming to Nova Southeastern, Dr. Seyoum taught international

business at Concordia University and at McGill University, in Montreal, Canada. Dr. Seyoum

has published two books, as well as numerous articles in the area of international trade in

several prestigious academic journals, such as the International Business Review, Journal of

World Trade, the International Trade Journal, the Journal of World Business, and the Journal

of Global Business.

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Export-Import Theory, Practices,

and Procedures

3rd Edition

BELAY SEYOUM

First published 2014

by Routledge

711 Third Avenue, New York, NY 10017

and by Routledge

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 2014 Taylor & Francis

The right of Belay Seyoum to be identifi ed as author of this work has been

asserted by him in accordance with sections 77 and 78 of the Copyright,

Designs and Patents Act 1988.

All rights reserved. No part of this book may be reprinted or reproduced or

utilized in any form or by any electronic, mechanical, or other means, now

known or hereafter invented, including photocopying and recording, or in

any information storage or retrieval system, without permission in writing

from the publishers.

Trademark Notice: Product or corporate names may be trademarks or

registered trademarks, and are used only for identifi cation and explanation

without intent to infringe.

First edition, authored by Erdener Kaynak and Belay Seyoum, published by

Routledge 2000

Second edition, authored by Belay Seyoum, published by Routledge 2008

Library of Congress Cataloging-in-Publication Data

Seyoum, Belay, 1953–

Export-import theory, practices, and procedures / Belay Seyoum. — Third

edition.

pages cm

Includes bibliographical references and index.

1. Exports. 2. Imports. 3. Export marketing. 4. International

trade. I. Title.

HF1414.4.S49 2013

382—dc23

2013022782

ISBN: 978-0-415-81837-7 (hbk)

ISBN: 978-0-415-81838-4 (pbk)

ISBN: 978-0-203-58150-6 (ebk)

Typeset in Minion

by Apex CoVantage, LLC

Introduction—A Brief History of International Trade . . . . . . . . . . . . . . . . . . . . . . . . . 1

Ancient Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Colonial Period (1500–1900) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1900 to the Present . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

SECTION I—Overview of International Trade . . . . . . . . . . . . . . . . . . . . . . . . . 5

Chapter 1—Growth and Direction of International Trade . . . . . . . . . . . . . . . . . . . . . . 7

Importance of International Trade to the Global Economy . . . . . . . . . . . . . . . . . . . . . . . . 8

Determinants of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Volume and Direction of Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Important Developments in Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Case 1.1 The Limitations of Export-Led Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Case 1.2 The Impact of the Financial Crisis on Exports . . . . . . . . . . . . . . . . . . . . . . . . . 17

Chapter 2—International and Regional Agreements Affecting Trade . . . . . . . . . . . . . . . . 19

The GATT and the WTO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Regional Integration Agreements (RIAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

The North American Free Trade Agreement (NAFTA) . . . . . . . . . . . . . . . . . . . . . . . . . . 23

The European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Case 2.1 The Euro Crisis and Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Contents

vi Contents

SECTION II—Export Marketing and Strategy . . . . . . . . . . . . . . . . . . . . . . . . 37

Chapter 3—Setting Up the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Ownership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Business or Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Bank Accounts, Permits, and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Location and Use of Professional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Organization for Export: Industry Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

General Principles of Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Taxation of Export-Import Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Case 3.1 Globalization and the Shrinking Tax Base . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Chapter 4—Planning and Preparations for Export . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Assessing and Selecting the Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

International Market Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

International Market Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Developing an International Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Export Counseling and Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Overseas Travel and Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Case 4.1 Developing Export Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Case 4.2 Strategies for Entering New Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Chapter 5—Export Channels of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Indirect Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Direct Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Locating, Contacting, and Evaluating Agents and Distributors . . . . . . . . . . . . . . . . . . . . . . 97

Contracts with Foreign Agents and Distributors (Representatives) . . . . . . . . . . . . . . . . . . . . 98

Major Clauses in Representation Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Maintaining and Motivating Overseas Representatives . . . . . . . . . . . . . . . . . . . . . . . . 103

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Case 5.1 Export Channel Decisions of Two U.S. Companies . . . . . . . . . . . . . . . . . . . . . 106

Case 5.2 The Internet and Exporting: A Focus on Developing Countries . . . . . . . . . . . . . . . . 107

Chapter 6—International Logistics, Risk, and Insurance . . . . . . . . . . . . . . . . . . . . . 109

International Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

External Influences on Logistics Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Typical Logistics Problems and Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

The International Logistics Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Logistics Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Risks in Foreign Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Marine and Aviation Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Claims and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Contents vii

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Case 6.1 Marine Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

Case 6.2 Marine Insurance: Inchmaree Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

SECTION III—Executing the Transactions . . . . . . . . . . . . . . . . . . . . . . . . 135

Chapter 7—Pricing in International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Determinants of Export Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

Pricing in Export Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Pricing Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Calculating the Export Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Trade Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

Case 7.1 Incoterms (CIF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Case 7.2 Incoterms (C&F) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Chapter 8—Export Sales Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

Harmonization of Contract Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

CISG: Essential Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Pertinent Clauses in Export Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

Case 8.1 CISG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Case 8.2 China National Products versus Apex Digital, Inc. . . . . . . . . . . . . . . . . . . . . . . 177

Chapter 9—Trade Documents and Transportation . . . . . . . . . . . . . . . . . . . . . . . . . 179

Documentation in Export-Import Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Air Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Ocean Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

Land Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

Case 9.1 What Constitutes a Package Under COGSA? . . . . . . . . . . . . . . . . . . . . . . . . 209

Case 9.2 The Container Revolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

SECTION IV—Payment Terms and Procedures . . . . . . . . . . . . . . . . . . . . . . 213

Chapter 10—Exchange Rates and International Trade . . . . . . . . . . . . . . . . . . . . . . . 215

Foreign Exchange Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

Protection Against Exchange Rate Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

viii Contents

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

Case 10.1 Will the U.S. Dollar Maintain Its Key Currency Status? . . . . . . . . . . . . . . . . . . . 225

Case 10.2 Currency Wars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226

Chapter 11—Methods of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

Consignment Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

Open Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230

Documentary Collection (Documentary Draft) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231

Documentary Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

Cash in Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244

New Payment and Financing Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244

Fraud in Documentary Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246

Other Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255

Case 11.1 Dishonoring Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

Case 11.2 The Independent Principle in Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 257

Case 11.3 Deferred Payment in Letters of Credit (L/C) . . . . . . . . . . . . . . . . . . . . . . . . 258

Chapter 12—Countertrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

Origins of Countertrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

Benefits of Countertrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

Theories on Countertrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

Forms of Countertrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

Countertrade and the WTO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

Countertrade and the International Monetary Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 270

Governments’ Attitudes Toward Countertrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

Case 12.1 The Bofors-India Countertrade Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

Case 12.2 Offsets in U.S. Defense Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

SECTION V—Financing Techniques and Vehicles . . . . . . . . . . . . . . . . . . . . . 279

Chapter 13—Capital Requirements and Private Sources of Financing . . . . . . . . . . . . . . 281

Capital Sources for Export-Import Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282

Private Sources of Export Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296

Case 13.1 Tadoo’s Sales to Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

Chapter 14—Government Export Financing Programs . . . . . . . . . . . . . . . . . . . . . . 299

Export Credit Agencies (ECAs) in Various Countries . . . . . . . . . . . . . . . . . . . . . . . . . 300

Export-Import Bank of the United States (Eximbank) . . . . . . . . . . . . . . . . . . . . . . . . . 302

Small Business Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311

Overseas Private Investment Corporation (OPIC) . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

Contents ix

Private Export Funding Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314

U.S. Department of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316

Case 14.1 Trade Finance for Small and Medium-Size Enterprises in Transition Economies . . . . . . . 317

Case 14.2 Eximbank Financing: Selected Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . 318

SECTION VI—Export Regulations and Tax Incentives . . . . . . . . . . . . . . . . . . 321

Chapter 15—Regulations and Policies Affecting Exports . . . . . . . . . . . . . . . . . . . . . 323

Export Licensing and Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323

Antiboycott Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335

Foreign Corrupt Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

Antitrust Laws and Trade Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344

Incentives to Promote Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354

Case 15.1 Export Trade Certificate of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356

Case 15.2 Selected Cases in Enforcement of FCPA . . . . . . . . . . . . . . . . . . . . . . . . . 360

SECTION VII—Import Procedures and Techniques . . . . . . . . . . . . . . . . . . . . 363

Chapter 16—Import Regulations, Trade Intermediaries, and Services . . . . . . . . . . . . . . 365

Import Restrictions in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365

U.S. Free-Trade Agreements (FTAs).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369

U.S. Trade Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371

Trade Intermediaries and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377

Review Questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378

Case 16.1 Tax Deduction for Processing in Maquilas: Mere Assembly or Fabrication. . . . . . . . . . 380

Case 16.2 Import Penetration Rates in U.S. High-Value Industries: Focus on China . . . . . . . . . . 381

Chapter 17—Selecting Import Products and Suppliers . . . . . . . . . . . . . . . . . . . . . . 383

Selecting Products for Importation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383

Determining Import Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

Selecting the Supplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389

Pricing the Imported Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393

Import Marketing Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393

Financing Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394

International Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398

Case 17.1 The ATA Carnet: Unlocking Customs for Temporary Entry of Goods . . . . . . . . . . . . . 399

Case 17.2 Maytag’s Triad Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

x Contents

Chapter 18—The Entry Process for Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401

The Entry Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402

The Harmonized Code (HS Code) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406

Customs Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409

Rules of Origin and Other Marking Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 412

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414

Case 18.1 Deemed Liquidation by Customs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418

Case 18.2 Product Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419

Chapter 19—Import Relief to Domestic Industry . . . . . . . . . . . . . . . . . . . . . . . . . 420

Import Relief under the WTO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420

Unfairly Traded Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421

Fairly Traded Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422

U.S. Import Relief to Domestic Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422

Antidumping and Countervailing Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422

Antidumping and Countervailing Duty Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 425

Other Trade Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432

Case 19.1 Similar Products and Dumping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433

Case 19.2 Dominican Republic: Safeguard Measures on Imports of

Polypropylene Bags and Tubular Fabric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434

Chapter 20—Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436

What Are Intellectual Property Rights? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436

Intellectual Property Rights and International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . 438

Protection of Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439

International and Regional Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443

Global E-Commerce: Selling in a Networked Economy . . . . . . . . . . . . . . . . . . . . . . . . 445

Trading Online . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447

International Regulation of Electronic Commerce. . . . . . . . . . . . . . . . . . . . . . . . . . . 448

Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450

Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451

Case 20.1 Patents and Access to Lifesaving Drugs . . . . . . . . . . . . . . . . . . . . . . . . . 452

Case 20.2 Intellectual Property Rights and International Trade . . . . . . . . . . . . . . . . . . . . 453

APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455

Appendix A—Trading Opportunities in Selected Countries . . . . . . . . . . . . . . . . . . . . 457

Appendix B—Importing into the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . 505

Appendix C—Trade Profi les of Selected Countries . . . . . . . . . . . . . . . . . . . . . . . . 513

Appendix D—Average Tariff Rates of Selected Countries . . . . . . . . . . . . . . . . . . . . . 516

Contents xi

Appendix E—Doing Business with China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518

Appendix F—U.S. Trade Profi le . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 526

Appendix G—Export Credit Agencies in Selected Countries . . . . . . . . . . . . . . . . . . . . 541

Appendix H—A Brief Comparison of Cargo Conventions . . . . . . . . . . . . . . . . . . . . . 556

Appendix I—Countries That Are Members of Cargo Conventions . . . . . . . . . . . . . . . . . 562

Appendix J—Rotterdam Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563

Appendix K—Freight Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 578

Appendix L—Sample Export Business Plan: Donga Michael Export Company . . . . . . . . . . 580

Appendix M—Sample Import Business Plan: Otoro Import Company . . . . . . . . . . . . . . . 585

Appendix N—Export Sales Contract (Basic Clauses) . . . . . . . . . . . . . . . . . . . . . . . 590

Appendix O—Sample Distributorship Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 599

Appendix P—Sample Sales Representative Agreement . . . . . . . . . . . . . . . . . . . . . . 605

Appendix Q—North American Free Trade Agreement . . . . . . . . . . . . . . . . . . . . . . . 611

Appendix R—Trade Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633

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Ancient Period

International trade based on the free exchange of goods started as early as 2500 BC . Archae￾ological discoveries indicate that the Sumerians of Northern Mesopotamia enjoyed great

prosperity based on trade by sea in textiles and metals. The Greeks profi ted by the exchange

of olive oil and wine for grain and metal somewhere before 2000 BC .

By around 340 BC , many devices of modern commerce had made their appearance in

Greece and its distant settlements: banking and credit, insurance, trade treaties, and special

diplomatic and other privileges.

With the decline of Greece, Rome became powerful and began to expand to the East. In

the fi rst century AD , the Romans traded with the Chinese along the Silk Road and developed

many trade routes and complex trading patterns by sea. However, the absence of peace made

traveling unsafe and discouraged the movement of goods, resulting in the loss of distant

markets.

By the time of the breakup of the Roman Empire in the fi fth century, the papacy (papal

supremacy) had emerged as a strong institution in a new and unstable world. The Church’s

support (sponsorship) for the crusades (eleventh century) revived international trade in the

West through the latter’s discovery and introduction of new ideas, customs, and products

from the East. New products such as carpets, furniture, sugar, and spices brought from Egypt,

Syria, India, and China stimulated the markets and the growing commercial life of the West.

This helped Italian cities such as Venice and Genoa to prosper and to replace Constantinople

as the leading center of international commerce. Letters of credit and bills of exchange and

insurance of goods in transit were extensively used to accommodate the growing commercial

and fi nancial needs of merchants and travelers.

By the end of the fi fteenth century, the center of international commerce had moved

from the Mediterranean to Western Europe. Spain, Portugal, and, later, Holland became the

focal points of international commercial activity. The more developed areas of Europe were

Introduction

A Brief History of International Trade

2 Introduction

changing from a subsistence economy to one relying heavily on imports paid by money or

letters of credit.

Colonial Period (1500–1900)

With the discovery of America in 1492 and of sea routes to India in 1498, trade fl ourished,

and luxury goods and food products such as sugar, tobacco, and coffee became readily avail￾able in the markets of Europe.

The principal motivations behind global expansion (colonization) in the fi fteenth cen￾tury had been to enhance national economic power (mercantilist policy) by exploiting the

colonies for the exclusive benefi t of the mother country. Colonies were regarded as outposts

of the home economy that would reduce trade dependence on rival nations and augment

national treasure through exports as well as discoveries of precious metals. This fi rst phase of

colonization, which lasted until the advent of the Industrial Revolution in England (1750),

was characterized by the following general elements with respect to commerce:

1. All commerce between the colonies and the mother country was a national monopoly,

meaning all merchandise exports/imports had to be carried by ships of the mother coun￾try and pass through specifi ed ports.

2. Little encouragement was provided for the development or diversifi cation of indigenous

exports. For example, in 1600, precious metals constituted 90% of colonial exports to

Spain. In the mid-1650s, British imports from its colonies were mainly concentrated in

three primary products: sugar, tobacco, and furs. To protect domestic producers, compet￾ing colonial exports were restricted or subject to special duties. The patterns of economic

relations were fashioned on the basis of dissimilarity, that is, noncompetitiveness of colo￾nial and metropolitan production.

3. Certain enumerated products could be exported only to the mother country or another

colony. The policy ensured a supply of strategic foodstuffs and raw materials.

4. Private companies in the metropolis received a charter from the government that granted

them (i.e., the companies) a monopoly of trade in the colonies. In most cases, the charter

also granted complete local administrative authority, ranging from the making of laws

and administration of justice to the imposition of taxes. Examples of this include the Brit￾ish East India Company (1600), the Dutch West India Company (1621), and Hudson’s Bay

Company (1670).

The second historical phase of overseas expansion (1765–1900) was dictated more by

commercial considerations than by the desire for mere territorial gains. Britain emerged as

the dominant colonial power and by 1815 had transformed its empire into a worldwide busi￾ness concern. By the 1860s, the Industrial Revolution had transformed the social and eco￾nomic structure of England, and mass production dictated an expansion of the market for

goods on an international scale. The political economy of mercantilism that had proliferated

over the preceding century was gradually replaced by that of free trade. By 1860, Britain had

unilaterally repealed the Corn Laws, abolished the Navigation Act restrictions (foreign ships

were now permitted to take colonial goods anywhere), as well as the commercial monopolies

given to particular companies. Preferential duties on empire goods were gradually abolished.

In trade, as in foreign policy, Britain led the free trade ideology based on nondiscrimination.