Unit 2

ESP International Trade - Unit 2 - Pablo Ugalde

ESP International Trade - Unit 2 - Pablo Ugalde
Introduction
 International trade is exchange of capital, goods,
and services across international borders or
territories. In most countries, it represents a
significant share of gross domestic product (GDP).
While international trade has been present
throughout much of history, its economic, social, and
political importance has been on the rise in recent
centuries.

ESP International Trade - Unit 2 - Pablo Ugalde

Why is international
trade important?

ESP International Trade - Unit 2 - Pablo Ugalde

 International
Domestic Trade
Trade

More costly than

domestic (tariffs,
Limited market size
delays, language,
legal system, culture)

Limited growth
Factors of production
within the domestic
(capital and labour)
market

ESP International Trade - Unit 2 - Pablo Ugalde

 Trading globally gives consumers and countries the
opportunity to be exposed to goods and services not
available in their own countries.
 Global trade allows wealthy countries to use their
resources - whether labor, technology or capital - more
efficiently.
 Ricardian model “Comparative advantage”

ESP International Trade - Unit 2 - Pablo Ugalde

ESP International Trade - Unit 2 - Pablo Ugalde
ESP International Trade - Unit 2 - Pablo Ugalde
International Trade Project
 Maximum 4 participants per group
 PowerPoint presentation no more than 20 minutes
 Export or import process (non-traditional product)
 Documents (bill of lading, commercial invoice, letter of
credit, certification of origin, bank draft)
 Transport (incoterms, packing list, contract, conditions
of shipment, container, time of shipping, quantity)
 Payment methods (letter of credit, open account,
consignment, cash in advance, bank draft)

ESP International Trade - Unit 2 - Pablo Ugalde

Top ten exporters (World)*
1. People’s Republic of China (machinery and equipment)
2. Germany (machinery, vehicles, chemicals, metals and manufactures, textiles)
3. United States (Computers, electrical machinery, vehicles, military equipment)
4. Japan (transport equipment, motor vehicles, electrical machinery, chemicals)
5. France (machinery and transportation equipment, chemicals, beverages)
6. Netherlands (machinery and equipment, chemicals)
7. Italy (engineering products, textiles, vehicles, transport equipment, minerals)
8. South Korea (electronics, automobiles, ships, machinery, robotics)
9. United Kingdom (manufactured goods, fuels, chemicals, beverages, tobacco)
10. Canada (motor vehicles and parts, industrial machinery, chemicals, electricity)
*The World Trade Organization 2009

ESP International Trade - Unit 2 - Pablo Ugalde

Top ten exporter (Latin America)*
1. Brazil (transport equipment, soybeans, footwear, coffee) (World 23)
2. Argentina (edible(comestible) oils, fuels and energy, cereals, motor vehicles) (37)
3. Chile (copper, fish, fruit, nitrates, paper and wood pulp, wine) (40)
4. Venezuela (petroleum, steel, chemicals, agricultural products)(52)
5. Colombia (petroleum, coffee, coal, bananas, cut flowers) (56)
6. Peru (copper, gold, crude petroleum and petroleum products, coffee)(61)
7. Ecuador (petroleum, bananas, cut flowers, shrimp) (70)
8. Panama (bananas, shrimp, sugar, coffee, clothing) (82)
9. Costa Rica (bananas, pineapples and coffee)(86)
10. Guatemala (coffee, sugar, petroleum, bananas, fruits and vegetables) (92)

*The World Trade Organization 2009

ESP International Trade - Unit 2 - Pablo Ugalde

Chile – International Trade
 Chile's economy is heavily reliant on international trade to sustain its
economy
 Chile's main trading partners are the United States, Japan, Germany,
and Brazil
 Latin America has been the fastest growing export market for Chile

 Chilean exports have traditionally been dependant on copper and have

been consumed mostly by industrialized countries

ESP International Trade - Unit 2 - Pablo Ugalde

 Source: www.direcon.cl
ESP International Trade - Unit 2 - Pablo Ugalde
 Source: www.direcon.cl

ESP International Trade - Unit 2 - Pablo Ugalde

ESP International Trade - Unit 2 - Pablo Ugalde
 Source: www.direcon.cl

ESP International Trade - Unit 2 - Pablo Ugalde

Chile’s Trade Agreements
 Chile has established itself as an attractive global trading partner
with its commitment to an open economy and the numerous
Free Trade Agreements (multilateral, bilateral and regional)
which it has signed. These agreements give Chilean companies
and companies operating in Chile access to 86% of the world's
GDP and have helped foreign trade to become an increasingly
important part of Chile's economy. Chile has also signed
numerous double-taxation agreements which further aid the
international investor in doing business.

ESP International Trade - Unit 2 - Pablo Ugalde

Incoterms 2000
 International commerce terms are a series of international
sales terms, published by International Chamber of
Commerce (ICC) and widely used in international
commercial transactions. These are accepted by
governments, legal authorities and practitioners worldwide
for the interpretation of most commonly used terms in
international trade. This reduces or remove altogether
uncertainties arising from different interpretation of such
terms in different countries.

ESP International Trade - Unit 2 - Pablo Ugalde

Group E - Departure
 EXW – Ex Works (named place) The buyer is
responsible for all charges.

ESP International Trade - Unit 2 - Pablo Ugalde

Group F – Main carriage unpaid
 FCA – Free Carrier (named places) The seller hands over the
goods, cleared for export, into the custody of the first carrier (named by the
buyer) at the named place. This term is suitable for all modes of transport,
including carriage by air, rail, road, and containerized / multi-modal transport.
 FAS – Free Alongside Ship (named loading port) The
seller must place the goods alongside the ship at the named port.
 FOB – Free on board (named loading port) The seller must
load the goods on board the ship nominated by the buyer, cost and risk being
divided at ship's rail. The seller must clear the goods for export. Maritime
transport only.

ESP International Trade - Unit 2 - Pablo Ugalde

Group C – Main carriage paid
 CFR or CNF – Cost and Freight (named destination port)
Seller must pay the costs and freight to bring the goods to the port of destination.
 CIF – Cost, Insurance and Freight (named destination
port) Exactly the same as CFR except that the seller must in addition procure and
pay for insurance for the buyer.
 CPT – Carriage Paid To (named place of destination) The
general/containerized/multimodal equivalent of CFR. The seller pays for carriage to
the named point of destination, but risk passes when the goods are handed over to
the first carrier.
 CIP – Carriage and Insurance Paid (To) (named place of
destination) The containerized transport/multimodal equivalent of CIF.
Seller pays for carriage and insurance to the named destination point, but risk
passes when the goods are handed over to the first carrier.

ESP International Trade - Unit 2 - Pablo Ugalde

Group D – Arrival
As of January 01, 2011 the eighth edition, IncoTerms 2010,
have effect. The changes therein affect this section in that
all of the following five terms are obsolete and replaced
with these three: DAT (Delivered at Terminal), DAP
(Delivered at Place), and DDP (Delivered Duty Paid). The
new terms apply to all modes of transport.
Incoterms 2000 = 13 Incoterms 3000 = 11

ESP International Trade - Unit 2 - Pablo Ugalde

Group D – Arrival
 DAF – Delivered At Frontier (named place)
 DES – Delivered Ex Ship (named port)
 DEQ – Delivered Ex Quay (named port)
 DDU – Delivered Duty Unpaid (named destination
place)
 DDP – Delivered Duty Paid (named destination place)

Source: Chambre de Commerce Internationale (CCI), 16 de septembre du 2010. www.lemoci.com

ESP International Trade - Unit 2 - Pablo Ugalde

 Source: Transfer of risk from the seller to the buyer Robert Wielgórski

ESP International Trade - Unit 2 - Pablo Ugalde

Vocabulary related to export and export
products
 Import-export
 Vocabulary

ESP International Trade - Unit 2 - Pablo Ugalde

Incoterms website
 http://www-jime.open.ac.uk/2004/16/demo/Incoterms/Inco_what.htm

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 Commercial invoice (SAMPLE)
 The commercial invoice is a record or evidence of transaction
between the exporter and the importer. It is similar to an ordinary sales
invoice, except some entries specific to the export-import trade are
added.
 Certain importing countries may require that the commercial invoice
and the packing list be made out in, or translated to, the language of
the importing country, for example, in French for shipment to France,
in Italian to Italy, and in Spanish to Mexico and Venezuela.
 The content of a typical declaration includes a sworn statement from
the exporter indicating that the goods in question are manufactured in
the exporting country, and that the amount shown in the invoice is the
true and correct value.
 The description of the goods in the commercial invoice must
correspond with the description in the letter of credit (L/C). In all other
documents, the description can be in general terms provided it is not
inconsistent with the description in the L/C.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 Bill of lading (B/L)
 A bill of lading is a document issued by a carrier to a shipper,
acknowledging that specified goods have been received on
board as cargo for conveyance to a named place for delivery
to the consignee who is usually identified. A thorough bill of
lading involves the use of at least two different modes of
transport from road, rail, air, and sea.
 A bill of lading serves a number of purposes:
 It is evidence that a valid contract of carriage, or a chartering
contract, exists.
 It is a receipt signed by the carrier confirming whether goods
matching the contract description have been received in good
condition.
 It is also a document of transfer, being freely transferable but not a
negotiable instrument in the legal sense.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 A bill of lading serves a number of purposes:
 It is evidence that a valid contract of carriage, or a
chartering contract, exists.
 It is a receipt signed by the carrier confirming whether
goods matching the contract description have been
received in good condition.
 It is also a document of transfer, being freely
transferable but not a negotiable instrument in the
legal sense.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 Letter of credit
 The documentary letter of credit, or commercial letter of
credit is an arrangement whereby the applicant (the
importer) requests and instructs the issuing bank (the
importer's bank) or the issuing bank acting on its own behalf,
pays the beneficiary (the exporter) or accepts and pays the
draft (bill of exchange) drawn by the beneficiary, or
authorizes the advising bank or the nominated bank to pay
the beneficiary or to accept and pay the draft drawn by the
beneficiary, or authorizes the advising bank or the nominated
bank to negotiate, against stipulated document(s), provided
that the terms and conditions of the documentary credit are
fully complied with.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 A letter of credit (L/C) can be irrevocable or revocable.
The L/C usually indicates whether it is an irrevocable or
revocable letter of credit. In the absence of such indication,
the L/C is deemed to be irrevocable.
 An irrevocable letter of credit cannot be amended or
cancelled without the consent of the issuing bank, the
confirming bank, if any, and the beneficiary. The payment
is guaranteed by the bank if the credit terms and
conditions are fully met by the beneficiary. The words
"irrevocable documentary credit" or "irrevocable
credit" may be indicated in the L/C.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 A revocable letter of credit can be amended or
cancelled by the issuing bank at any time without the
consent of the beneficiary, often at the request and on
the instructions of the applicant. There is no security
of payment in a revocable letter of credit (L/C). The
words "this credit is subject to cancellation
without notice", "revocable documentary credit"
or "revocable credit" usually are indicated in the L/C.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 An irrevocable letter of credit (L/C) opened by an
issuing bank whose authenticity has been confirmed
by the advising bank and where the advising bank has
added its confirmation to the credit is known as
confirmed irrevocable letter of credit. The words
"we confirm the credit and hereby undertake ..." or
"we add our confirmation to this credit and
hereby undertake ..." normally are included in the
L/C.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 An irrevocable letter of credit (L/C) opened by an
issuing bank in which the advising bank does not add
its confirmation to the credit is known as an
unconfirmed irrevocable letter of credit. The
promise to pay comes from the issuing bank only,
unlike in a confirmed irrevocable L/C where both the
issuing bank and the advising bank promise to pay the
beneficiary.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 In a restricted negotiable letter of credit, the authorization
from the issuing bank to pay the beneficiary is restricted to a
specific nominated bank. The sample letter of credit is a
restricted negotiable credit, that is, the authorization from The
Sun Bank to pay the UVW Exports is restricted to a specific
nominated bank, which is The Moon Bank.

 In a freely negotiable letter of credit, the authorization from

the issuing bank to pay the beneficiary is not restricted to a
specific bank, any bank can be a nominated bank as long as the
bank is willing to pay, to accept draft(s), to incur a deferred
payment undertaking, or to negotiate the L/C. The words "this
credit is not restricted to any bank for negotiation" or "this
credit may be negotiated at any bank", or similar words, may
be indicated on the L/C.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 The certificate of origin is a document certifying the country in which the
product was manufactured, and in certain cases may include such information
as the local material and labor contents of the product.
 Some importing countries require a certificate of origin to establish whether or
not a preferential duty rate is applicable. A popular example of the certificate of
origin is the Form A, which is often called the GSP Form A.
 The certificate of origin (C/O)is an alternative to the declaration or the
certification and/or legalization of the commercial invoice. The C/O is based
on the rules of the country of origin.
 The country of origin is the country where the goods are grown, produced or
manufactured. The manufactured goods must have been substantially
transformed in the exporting country as the country of origin, to their present
form ready for export. Certain operations such as packaging, splitting and
sorting may not be considered as sufficient operations to confer origin.
 The certificate of origin includes the Form A, Chamber of Commerce
Certificate of Origin, Exporter's Certificate of Origin, and Free Trade Market
Certificate of Origin. The trade agreement, import practice, and letter of credit
(L/C) stipulation determine the type of C/O needed.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 Packing list is an extension of the commercial invoice, as such it looks like a
commercial invoice.
 The exporter or his/her agent the customs broker or the freight forwarder
reserves the shipping space based on the gross weight or the measurement
shown in the packing list.
 Customs uses the packing list as a check-list to verify the outgoing cargo (in
exporting) and the incoming cargo (in importing). The importer uses the
packing list to inventory the incoming consignment.
 The description of the goods in the packing list can be in general terms,
provided it is not inconsistent with the description in the L/C.
 It shows the total quantity within a stated range of the package number and the
breakdown in each package.
 It shows the total weight within a stated range of the package number and the
weight of each package. Sometimes, it is necessary to include the size or
dimensions (length-width-height) of the master package.
 The packing list and commercial invoice need not be signed, unless otherwise
stipulated in the letter of credit (L/C). In practice, the original and the copy of
the packing list and commercial invoice are often signed.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 A bill of exchange (bank draft) is a kind of check or
promissory note without interest. It is used primarily
in international trade, and is a written order by one
person to pay another a specific sum on a specific date
sometime in the future. If the bill of exchange is
drawn on a bank, it is called a bank draft. If it is drawn
on another party, it is called a trade draft.

ESP International Trade - Unit 2 - Pablo Ugalde

Documents
 In almost all export transactions an Import and Export
Contract is written. It is a legal document which
shows that the seller or exporter agreed to sell and that
the buyer or importer agreed to buy a certain product
or products at a specific date and price.
A contract is very similar to a Pro forma because it also
describes the product, states the price, shows the time
and conditions of shipment and states all other terms
the seller and buyer agreed on.

ESP International Trade - Unit 2 - Pablo Ugalde

Workshop
 Checking Guests In and Out
(http://www.englishclub.com/english-for-work/hotel-check-in-out.htm)

ESP International Trade - Unit 2 - Pablo Ugalde

Workshop
 Import – Export documentation

ESP International Trade - Unit 2 - Pablo Ugalde

 End of Unit 2

ESP International Trade - Unit 2 - Pablo Ugalde