Cover Image
close this bookExport Marketing for a Small Handicraft Business (Oxfam, 1996, 192 p.)
close this folder9 Despatching export consignments
View the document9.1 Exporting and importing formalities
View the document9.2 International transportation
View the document9.3 Methods of payment
View the documentSummary

9.1 Exporting and importing formalities

In order to protect the interests of both exporter and importer, and also to fulfil legal requirements in the exporting and importing countries, certain procedures and controls regulate international trade. The interests of the various parties are:

Exporter: to ensure that the consignment reaches the importer safely and promptly; to get paid.

Exporting country's government: to ensure that goods exported may legally be sent out of the country and are of exportable quality; that there is no mix-statement of value for the purpose of avoiding price controls or currency regulations; perhaps to raise revenues through export taxes; to record export data.

Importing country's government: to ensure that goods imported may legally enter the country and that they comply with import controls and quality standards; to raise revenues through duties or taxes; to record import data.

Importer: to receive the consignment safely and promptly.

The main government authority responsible for monitoring and controlling international trade is the customs. Export consignments must pass through the customs of their country, and they are liable to be inspected. In some countries consignments must also be approved by other government departments, responsible for controlling certain types of exports. For example, antiques or works of art might be restricted or liable to tax. There are no restrictions anywhere on the export of new handicrafts—unless they are made of a prohibited material, such as ivory; but several countries levy taxes on handicraft exports.

When the consignment reaches the importer's country, it requires clearance by the government authorities before it can be received by the importer. It must similarly pass through customs, with certain types of product subject to control by specialist agencies. For example, in the USA, the Department of Agriculture reserves the right to inspect plant products; and cosmetics could fall within the jurisdiction of the Food and Drug Administration. Between the exporting and importing countries the consignment is carried by a transportation company, by road or sea or air. For reasons of security it will need insurance.

The physical movement and governmental control of goods in international trade is based on the completion and transfer of certain essential documents. They are:

Invoice: This is the document of sale, which provides the specification of goods. It is raised by the exporter, and is required by all parties.

Packing list This provides details of which products are contained in which package. It is raised by the exporter, and is required by the customs of the importing country.

Transportation document: This is a receipt of the road transporter or postal authority; or airway bill or bill of lading. It is raised by the transportation company as a receipt for the consignment, and an undertaking to deliver it in the same condition as received. A bill of lading acts additionally as a document of title to the goods, and as such is required by the importer.

Certificate of origin: This document is combined with a certificate of preferential trade agreement. There are two forms: the combined Generalised System of Preferences (GSP) (see Chapter 5.1) and Certificate of Origin Form A; and the EUR.1 Movement (certificate, within the Lomonvention. Either form is authorised by the government of the exporting country, and required by customs in the importing country in order to assess, together with the product type, liability for-or exemption from-duties.

Certificate of insurance: This is not always raised separately for each shipment. Many exporters or importers have open cover policies which last for a fixed period, usually a year.

Special import documents: For the movement of certain types of goods to certain countries, further documents must be supplied by the exporting country in order to fulfil customs requirements of the importing country, or perhaps to enable the importer to obtain preferential treatment in respect of duties. For example, health or phytosanitary certificates are required for some products to guarantee that they are free of infestation. A handloom certificate would enable an importer to obtain exemption from duty on hand-woven textiles.


Fig 24: Combined GSP and Certificate of Origin


Fig. 25 EUR. 1 Movement Certificate

Special export licenses: Some goods are covered by international agreements, such as the Multi-Fibre Arrangement. These may be traded internationally only under licence. The exporter must procure an export licence and send this to the importer for procurement of an import licence.

The above documents pass from the exporting to the importing country. Only originals, not copies, of certification documents are acceptable. In addition there is a separate series of procedures and documents between the exporter and its government, and between the importer and its government. In other words, the exporter has to get authorisation for the despatch, and the importer for the receipt. Exact procedures vary from country to country. In most cases, it will be necessary for an exporter to be registered. In some countries, this is sufficient to be able to make an export shipment. In others, it will be necessary to apply for a licence on each occasion.

The main responsibility of the importer is to make the declaration to the customs of the type of goods being imported. Importation works on a system of product classification. Each product type, as established by the Customs Co-operation Council, carries a customs classification code. When an invoice is submitted to the importing country's customs, each product must bear a customs classification number. This is the basis for determining whether the products may enter freely or not, and whether or not they are liable to duty.

The majority of handicrafts enter freely into most countries. Certain products will be allowed into a country only if the importer obtains a licence. Others will be passed by customs only on payment of the applicable rate of duty. In the case of handicrafts, duty is always paid on the invoice value plus the cost of freight and insurance, in other words the value at which the goods land in the country of importation.

It is the responsibility of the importer to present all the necessary documents to the customs, and request them to clear the goods. Until that is done, the consignment will remain in the customs shed. Figure 26 shows the documents required to send a consignment of handwoven cushion covers from India to Britain by sea freight:


Fig. 26: Documents required in the export of handicraft.

Not surprisingly, there is quite a lot of paperwork involved in international trade. It would take an enormous amount of time for exporters and importers to obtain and present all the necessary documents for each shipment. If they were not located in their capital cities it would be almost impossible. This is why each of them normally employs an agent in order to process all the documentary requirements. Oxfam Trading imports all its consignments by using an agent, except the ones which arrive by parcel post. Agencies are specialist companies who obtain the documents and liaise with the customs authorities.

Export agents will normally also offer to arrange the international transportation. This can be a valuable service, as they often have good contacts with the various companies and can negotiate favourable rates. Those who do this are known as clearing and forwarding agents —or freight forwarders—because they clear the consignment through customs, and forward it to the importer. The services of the agent will be billed to the exporter. If the exporter has sold to the importer on an FOB basis, then those costs are the exporter's responsibility. If, however, it is an ex works contract, then the exporter may subsequently invoice the importer for the same amount. Import agents offer the additional service of making payments on the importer's behalf. If the freight bill is being paid by the importer, as in FOB contracts, then in practice the importer's agent will pay it to the transportation company, and subsequently pass the bill on to the importer.

By using an agent, exporting becomes a great deal simpler. The exporter must prepare the invoice and the packing list, but the rest can be passed over. In summary, the process is not so forbidding:


Fig. 27: Using agents for exporting

Of course, the services of agents have to be paid for. Some exporters use them only to clear a consignment through customs, preferring to manage the documentation and negotiating of shipping for themselves. In this case, it is their responsibility to forward the documents to the customer. Any small handicraft business can undertake an export. All it has to do is:

· Register for export with its government, if this is required.
· Find a reliable agent: some agents are more efficient and cheaper than others. The agent will confirm all the procedures required.

Because the importer may clear the goods only by presenting the documents to the customs, it is essential that these arrive either before, or together with, the consignment. If the goods arrive without documents, the customs authorities will not release them. The consignment then incurs a storage charge, known as demurrage, which varies according to the size of the consignment and the number of days it is stored. This is a frustrating expense and regrettably occurs quite often, in Oxfam Trading's experience.

Depending on the system of payments (see Chapter 9.3) documents may be sent directly from the exporter to the importer, or may alternatively be handled by the banks of both parties. Either way, if a consignment is sent by sea, there is usually plenty of time for the importer to receive the documents. If it is sent by air, there is not. One solution in that case is for the exporter to send the documents together with the consignment. They can travel in a waterproof envelope attached to one of the packets. On arrival, the importer's agent will collect them, prepare the other importing documents required, and clear the consignment. An alternative is to send the documents by courier. This would be necessary if, for some reason, the documents are not ready to accompany the consignment, or not allowed to do so by the exporting country, which sometimes happens. If documents are sent through the exporter's bank, the exporter cannot directly control their speed of arrival. The important thing from the importer's point of view is that there is no delay between the receipt of the consignment and the receipt of the documents, for each day costs money in the form of demurrage charges as well as possible loss of sales.

The importer's agent must be advised about the arrival of a consignment. There is a section in the transportation document with an instruction to 'Notify Party'. The exporter—or agent—will inform the transporter of the name, address, and telephone number of the importer's agent. It might also be marked on the actual packets, if it is not a containerized consignment. When a consignment arrives, the transporter will notify the agent. This means that the importer must ensure that the exporter is sent details of its agent, so that this information can be passed to the transporter. Oxfam Trading sends out with orders a 'guide for exporters' giving details of our agents and our bank, and general instructions about fulfilment of the order. This shortens the procedure by which the transporter would otherwise have to notify the importer who then instructs the agent. The importer must forward to its agent without delay the documents sent by the exporter.

The procedure for consignments sent by parcel post are simpler. Agents are not normally involved. An exporter may deposit the parcel at a post office, together with a description of the contents. It will be cleared by the post offices of the exporting and importing countries through their customs, and delivered to the importer. The exporter has the same responsibility to send appropriate documents to the importer: an invoice, certificate of origin and transportation document (postal receipt), plus a packing list if there is more than one parcel.

Some small handicraft businesses are under the misunderstanding that post parcel packages may be sent overseas without documents. This is not the case. The only time it is ever possible is when sending a very small consignment of samples, by marking the parcel 'Samples. No Commercial Value'. This is because any duty payable on just a few items would be so small that customs would not consider it worth the cost of collection. So they would usually let a small parcel of samples through without the import papers required in all other cases.

Preparation of the invoice should not be difficult, even for an inexperienced exporter. An invoice must contain:

· consignor name and address;
· consignee name and address;
· purchase order number;
· a full description of the goods;
· the shipping marks (i.e. what is written on the packets);
· the price of the goods;
· the terms of the contract (e.g FOB Mbabane);
· total value of the consignment;
· country of origin of the goods;
· details of any freight and insurance costs payable;
· details of any special licences or forms required.

It is very important indeed that the invoice is correct and complete. Remember that it is the importer's responsibility to present documents to the customs. If customs decide to open a consignment and find items incorrectly described or not included, they invariably treat this as a serious matter. The importer can be prosecuted. Customs generally operate a system of random checks. This is why they insist on receiving a packing list, so they can spot-check any part of a consignment. They will also test any suspicious product for conformity with safety standards, and refuse it entry if it does not meet the required standard.

Fig 28: Invoice

Handicraft Co-operative Export Ltd
(Handcoopex)
P.O. Box 385
Mbabane
Swaziland
Telephone and Fax: 48326
Invoice no: EX/72/9

To: Oxfam Trading
Murdock Road
Bicester
Oxon OX6 7RF UK

Country of Origin: Swaziland
Purchase Order no. OT5200
Country d Destination: UK

Notify Party/Address:
Herbert Watson Freight
Services Ltd
Furness House
Trafford Road
Manchester M5 2RJ

Terms d Delivery and Payment: FOB
Mbabane. Cash against documents.
Vessel: African Queen
AWB/B/L No: MB 64251-4

Product Code No

Quantity

Article

Unit price US$

Total price US$

SW 6834

149

Round basket, 10"

5.25

782.25

SW 6835

100

Nesting s/2 baskets

8.50

850.00

SW 6839

145

Oblong basket, 10"

6.00

870.00

SW 4160

30

Royal Swazi necklace

8.50

255.00

SW 4161

50

Royal Swazi bracelet

4.50

225.00

SW 4162

50

Royal Swazi earring

3.50

175.00

Total FOB Mbabane US$ 3157.25
Shipping merits OXFAM UK
Total no of packages 3
Authorized Signature.......................

Fig 29: Packing list

Handicraft Co operative Export Ltd
(Handcoopex)
P.O. Box 385
Mbabane
Swaziland
Telephone and Fax: 48326

Packing list

Involce no: EX/72/9
Yessel: African Queen
AWB/B/L No: MB 64251-4
Total no of packages: 3
Shipping marks: OXFAM UK

Box No. 1

SW 6834

149 round baskets


SW 6835

30 nesting s/2 baskets

Box No. 2

SW 6835

30 nesting s/2 baskets, 10"


SW 6839

145 oblong baskets, 10"

Box no. 3

SW 6835

40 nesting s/2 baskets


SW 4160

30 Royal Swazi necklace


SW 4161

50 Royal Swazi bracelet


SW 4162

50 Royal Swazi earring

Inspection by customs bears a cost which is charged to the importer. While exporters cannot control whether or not a consignment will be inspected, full and clear documentation will make it less likely. We once paid over $400 demurrage charge on a container from Thailand which customs decided to search. They found a discrepancy between the invoice and the contents, because the supplier had omit ted to list a sample, which was being sent free of charge. They refused to release the container until we had obtained a new invoice from the supplier, which took nearly three weeks (it was before the introduction of the fax machine). The sample turned out to be rather expensive!

Nothing must be omitted from the invoice. It is perfectly acceptable to include a few samples listed 'free of charge', but they must always appear on the invoice. If you are selling on an ex works basis, it is helpful to the importer to include the transportation and clearing charges on the same invoice. It may not be possible if ycur clearing agent is slow in advising you of these, or if the consignment has to go by air freight and the documents leave immediately. In that case, you must send a separate invoice. You should not include requests for payments in a subsequent letter. Any claim for payment must be made by a formal invoice. The importer needs this for accounting purposes.

Before despatching a consignment, an exporter needs to be clear whose responsibility it is to insure it. It is a detail to be clarified if necessary at the time of confirming an order. If the exporter arranges insurance, this must be for at least the invoiced value of the goods. The risks to be covered must include the transport of the goods from the warehouse to the port or airport, storage while awaiting loading, actual transportation, offloading and storage on arrival, and final transport to the importer's warehouse.