establish the actual cause of the loss, what they describe as the “active, efficient cause”, that is the proximate cause. Questions
1. What is meant by “insurable interest” in the case of cargo insurance? 2. How is the amount of indemnity calculated on cargo insurance policies? 3. Why is it important to establish the proximate clause?
Bonded Warehouses
It is clear that a scheme of non-levy of duties and taxes is more attractive to an exporter than a scheme of initial levy and subsequent refund, as the first type of arrangement reduces his financing costs. However, schemes of non-levy of duties and taxes have their limitations, and for a large number of manufactured products the scheme of duty drawback is likely to be more appropriate. Bonded warehouses are not a new phenomenon. They have existed for over a century as part of the national customs arrangements of many countries. Their advantage is mainly that they make it possible for an importer to postpone paying customs duties. An importer receiving a consignment of merchandise by sea or air may either clear the goods for home consumption by carrying out the necessary import formalities and paying the duty chargeable, or have the goods delivered to a bonded warehouse officially recognized by the customs. After the goods are warehoused, they may either be reexported from the country within a prescribed period of time or cleared for home consumption, in one or more lots, after the appropriate import duty has been paid. This arrangement enables an importer to order his goods in economic quantities but at the same time pay the import duty, which forms part of his material cost, only when he needs the goods for sale or for use in his factory, and only on the quantities he needs at a particular time. The boned warehousing arrangement is particularly useful for materials that are charged at a high level of import duty, such as tobacco for the manufacture of cigarettes, where the duty may exceed the value of the material. If a company is planning to install a new plant, it can avoid paying import duty on each of the separate shipment of machinery and components for the plant by placing the individual deliveries in a bonded warehouse. The various lots may be cleared from the boned warehouse when the company is in a position to begin erecting the entire plant.
The bonded warehousing scheme may also be useful for a manufacturer who needs to make quick delivery to a number of markets in an area. For example, if special types of ball bearings manufactured by a Scandinavian producer are stocked in a boned warehouse in Colombo, they can be stipulated at short notice to buyers in Srilanka as well as to importers in neighboring countries, since time for the long transport journey from Scandinavia is save.
Bonded warehouses may be set up by official agencies such as the port authorities or even by private companies. In either case, the customs authorities of the country have to officially recognize them as authorized bonded warehouses for storing non-duty-paid goods. Before granting such authorization, the customs authorities assure that the premises are suitable and secure for the purpose, and that procedures for entering material (on which duty had not been paid) into the warehouse, storing them and removing them from the warehouse are satisfactory.
Bonded warehouses are generally established at port towns, but inland bonded warehouses far from the ports are also sometimes set up. Bonded warehouses may be established wherever there is a demand for bonded storage of imported materials. When bonded warehouses are away from the customs ports, it is necessary to institute suitable customs supervision over the transport of the imported materials on which duty has not been paid from the place of import to the inland warehouse. Questions
1. State the benefit the bonded warehouse brings about to an importer or an exporter. 2. How does the customs supervise and control the bonded warehouse?
Documentary Collection
The simplest method of documentary payment is a draft accompanied by certain documents, called a documentary collection. In this case, the exporter, after having shipped the merchandise, forwards
the draft along with the required documents to his bank. The required documents include a commercial invoice and sometimes a consular invoice as well, an insurance certificate, a certificate of origin, and a bill of lading in negotiable form. The bill of lading is a contract between the shipper and a transportation company in which the latter agrees to transport the goods under specified conditions which limit its liability. It is the shipper’s receipt for the goods as well as proof that the goods have been or will be shipped. An order bill of lading consigns the goods to the order of a named party (usually the exporter) and is negotiable. Ownership can be transferred by endorsing the bill on the reverse side. Therefore, it can serve as collateral for loans.
The negotiable bill of lading is the most important document for documentary collection because it gives its holder title to the merchandise in question. Having received the required documents, the bank notifies the importer who then accepts the draft and receives the bill of lading in return. In this way, the exporter is sure that the importer will not get title to the goods until he has accepted the draft.
Documentary collection is not foolproof because drafts are not always accepted and paid. If the draft is refused by the importer, the exporter still has the problem of either repatriating the goods or selling them somewhere else, probably at a loss. If the draft is not paid, the exporter is left with a bad debt. Questions
1. What are the required documents for documentary collection according to the passage? 2. Why is B/L important for documentary collection according to this passage? 3. Why is documentary collection not always foolproof?
Complains and Claims
On execution of a sales contract, both parties to the contract must strictly perform their respective obligations. If one of the parties breaches the contract, the other may run into trouble, or suffer great losses. In this case, the affected party is entitled to request the defaulter to make up his losses according to the relevant provisions under the contract. Such request the affected party makes for compensation is called “claim”, and that the party responsible for the losses or damage takes measures to deal with the claim one way or another is called “settlement of claim”.
Claim is a common occurrence in foreign trade practice, but it does not mean that it will happen in every transaction. However, the affected party, in consideration of the good relation with the other party, or the loss incurred being minor one, sometimes does not lodge a claim against the suppliers, but rather requests him to make sure that such things will not happen again. This is known as “complaint” rather than a claim.
In international sales transaction, most claims are filed by the buyer against the seller such as the seller’s failure to deliver the goods, late delivery or shipment of the goods, short weight, the goods’ inconformity with the contract stipulation (including “shipping the inferior for the contracted quality goods”), incomplete documentation and damages caused by improper packing, etc. However, there are times when the seller files claims against the buyer. This may occur when the buyer refuses or delays opening an L/C, delays sending a vessel to carry the goods under FOB terms or refuses to take delivery of the goods, and so on.
Generally speaking, the parties involved in a claim will first try to settle a claim through friendly negotiation, and avoid arbitration or litigation. The following points must be kept in mind when filing a claim.
First, generally all sales contracts stipulate a period for either party to file a claim, then that party must do it within the time limit. The party responsible for the claim should take immediate action to make investigations, send prompt reply to the affected party and solve the problem in accordance with the international trade usages or conventions.
Second, the affected should give a clear description of the loss or damage he has incurred, and also tells the reason why the other party should be responsible for the loss or damage. It is more convincing if the affected party can provide the relevant evidences, a certificate of inspection, for example, to support his claim or request.
Third, despite that dealing with a claim is no pleasant matter, we should be calm and reasonable in an attitude when negotiating for a settlement. Being rude and emotional does not help to resolve a dispute. Questions
1. What are the differences between the claims and complaints? 2. What should be noted when filing a claim?
IX. Practice in the given situation.
The exercises in this part of the whole sixteen chapters form an international trade process involving a series of consistent and coherent activities from setting a company to settling disputes. For each chapter, you and your partner(s) are to work together to accomplish a task relating to international trade activities. After finishing all the exercises, you will experience processes from the preparation for pushing sales, the negotiation of a contract to the implementation of the contract, and thus get a general view of the import and export operating procedures in the real business world.
Task One: set up your own exporting/importing company
A sets up an exporting company in China, providing the basic information about the company including scale of operation and line of businesses, preparing samples and materials such as brochures, catalogues and price list. He can also design a company webpage to help introduce his company. B establishes his company in a foreign country or identifies his corresponding line of business.
Task Two: talk about trade forms
A is selling the products on behalf of the exporting company in China. B, on behalf of the foreign company, learns about the products of A’s company through Internet, and finds a wide market of a product in his country. Therefore, he has come to discuss the possibility of signing a sole agency agreement with A on this product for a period of three years. He says that his company is experienced in the business of this kind and enjoys good relationship with many wholesalers and retailers in this line. He wants to expand this business in the years to come. A thinks that the annual turnover of the foreign company is not large enough, and since there are also other clients who are importing the products in large quantities, there is no need to entrust a sole agent in that country at present. At last, both A and B agree to do business in direct trade form of importation and exportation.
Task Three: establish business relationship
Both A and B express the willingness of establishing business relationship with each other. They get to know the business regulations of the two countries and the common practices of the other company. B obtains materials like brochures, catalogues and price list from A, and visits the plants, or/and showrooms, or/and sample rooms if necessary. Considering the application of trade terms and the responsibilities each party wants to bear, they decide to adopt the CIF/CIP term. Task Four: negotiate description of commodities
A and B make clear about the commodities they want to import/export and discuss about the quality of the commodities, the quantity they want to deal, and the packing needed. They reach an agreement of the way of showing quality, ways and systems of measurement, and types of packing. In order to avoid disputes, a more or less clause and a quality tolerance clause are also be negotiated.
Task Five: discuss transport and shipment clause
A and B are discussing the best mode of transport for the consignment. According to the actual situation, they decide to adopt sea transport. B requests that the goods arrive at the port of destination before XXX so that they can sell/use the goods in time. Because there is no direct liner available, and the quantity is relatively large, at last, they agree to allow partial shipment and transshipment through Hong Kong. The time of shipment is fixed by creating a link between the
time of shipment and the deadline by which the relevant L/C must reach the seller. Details about shipping advice and partial shipment such as terms of shipments, lots and quantity or weight are also discussed.
Task Six: choose insurance coverage
Both A and B agree that the insurance be effected by the seller, but they have different opinions about the insurance coverage and insured amount. Group A proposes to cover WPA for 110% of the invoice value, while Group B thinks that War Risk shall also be covered and the insured amount should be 130% of the in voice value. They all express their own reasons. At last, the two parties reach the agreement of covering WPA and War Risk for 110% of the in voice value, and the additional premium for the extraneous coverage is for the B’s account. Task Seven: fix the price
A and B are discussing the price terms. A quotes a CIF price to the port of destination, but B thinks that the price is on the high side and ask for a sweeping reduction. A sticks to his price but agrees to allow a quantity discount. At last, the two groups reach an agreement of a commission and discount-included unit price.
Task Eight: decide the term of payment
A and B come to the discussion of terms of payment. A wants payment to be made by confirmed and irrevocable letter of credit, payable against shipping documents, while Group B prefers D/A or D/P. Both parties have reasonable explanations about their choice. B reasons that D/A or D/P is usual international practice. A explains to him why he insists on L/C payment and finally succeed in proceeding him to accept it. At last, they decide the payment to be made by confirmed and irrevocable letter of credit, 60 days after sight.
Task Nine: discuss inspection, claim, force majeure and arbitration clause.
A and B agree to inspect the goods in the exporting country and reinspect the goods in importing country. They specify the scope of force majeure events, consequences, time limit of notice to the other party, certificates and the agencies who issue them in the force majeure clause, and the arbitration agency, location for arbitration, number of arbitrators and their selections, cost of the arbitration and the scope of arbitration in the arbitration clause. A claim clause and penalty clause are also discussed. Then they go over the other terms and conditions of the contract to see if they agree on all the terms and decide to sign the contract. Task Ten: check and amend L/C
The L/C reaches A’s company in time. A knows that it is necessary to check up the L/C with the contract carefully. When he checks the L/C, he finds that all the clauses are all right except the shipment date. So A advises B to make amendment accordingly. B asks C, a clerk of the opening bank, to make amendment notification. About a week later, A receives the amendment notification from the advising bank. A then presents the amendment notification to the advising bank for confirming. Then everything is right. Make a dialogue about the above-mentioned process.
Task Eleven: make the goods inspected
Before delivery, A applies for the inspection of quality, quantity and packing to C in order to obtain relevant certificates. C goes through the procedures for inspection and issue relevant certificates without delaying the prescribed time for shipment. After arrival, B registers import commodities with C located at the port of discharge, completes application forms, submit relevant documents, and applies to the same authorities for a further inspection. Task Twelve: discuss advancing shipment.
The sales contract stipulated that shipment is to be effected 40 days after the seller receives the L/C”. And the selling season for the goods is before the Christmas. But the L/C reached the seller on Nov.1st. Now B is requiring A to advance shipment and make shipment from stock so that they can catch the selling season. A checks with C, the production manager, and C tells him that the products are to be made to A’s specifications, so it’s impossible to supply from stock. But they can make the goods ready before Nov. 12th. At last, A agrees to try his best to effect the shipment before Nov. 15.