International Business Training - Trade Articleshttp://www.ibt-articles.com/absnet/?z=2A Dangerous Good Shipped by Any Other Name Would Smell as SweetRecently, a large international company contacted me to review their entire shipping process and propose a solution for complete compliance with domestic and international hazmat regulations. They were completely frustrated grappling with all the variations that applied to their products of fragrances and perfumes. Their problem was not only interpreting the domestic hazmat regulations, but also the differences that exist when shipping their products internationally. As I wrote last month, the hazmat regulations that apply to their domestic shipments don’t necessarily apply to shipments sent to other countries.

Because they contain various amounts of ethyl alcohol, perfumes are considered a flammable liquid, hazard class 3. There are also three packing groups (PG) that indicate the degree of danger within most hazard classes. PG I is a relatively high danger, PG II a medium danger, and PG III represents a minor danger. Based on their higher flash point and boiling point, most perfumes are considered a Packing Group II or III. In order to ship the finished product, the proper shipping name is chosen from a list of more than 3,000 names. The name selected should be the best description of the article or material you are shipping, in this case its perfumery products, UN1266.

In March of this year, the Pipeline and Hazardous Materials Safety Administration (PHMSA), which is the rulemaking branch of the Department of Transportation (DOT), published Final Rule HM233-C. This regulatory rule change incorporates a Special Permit 9275 (SP9275) exemption into the hazmat regulations (CFR-49). Special permits provide certain shippers relief from some or all of the hazmat regulations. SP9275 is a very popular exemption for shippers whose products contain ethyl alcohol. It gives most domestic shippers of cosmetics (among others) sold as retail products containing not more than 70% ethyl alcohol by volume an exemption from the regulations as long as they identified the package with the wording “contains ethyl alcohol.”

With this exemption now included in the regulations as an exception, specifically §173.150(g), all shippers of liquids with less than 70% ethyl alcohol are no longer required to request exemption party status to use this Special Permit. The new rule provides the shipper an important exception from the provisions of the Hazardous Materials Regulations (HMR), including the requirement to mark the package "contains ethyl alcohol." 

Bottom line, with certain restrictions related to packaging content and size, perfumes are now excepted from the domestic regulations of CFR-49. Because of that, my client can ship domestically and not pay any hazmat/dangerous goods premium on freight. This was a huge saving for my client. It gets better.

Our next step was to take a look at their international shipments. Generally speaking, global harmonization with dangerous goods regulations works for most regulated materials. However, if something is excepted in one country, it does not mean it is elsewhere. Sadly, this is the case with perfumes. They must be shipped as a fully regulated material, which is more expensive.

Certified packaging must be used. Each packaging configuration is tested to stringent UN performance standards. The pressure differential test is one of the key tests required for shipping liquids by air. Each container or bottle must meet the UN pressure standard and be sealed closed. This may involve extra labor costs. Proper cushioning and leak-proof requirements must also be addressed. And because we are now shipping declared dangerous goods, carriers charge more.

Fortunately, there is an alternate option that is available, and there are important savings that can be achieved if you offer your perfumery product as a limited quantity or as a consumer commodity.

As the name suggests, certain dangerous goods shipped in reasonably limited quantities present a reduced hazard and can be safely transported in good quality packaging meeting the UN standards but not necessarily requiring the testing and marking. Just look at any hardware store paint aisle, and you will see the typical size of a limited quantity/consumer commodity. You don’t see any 55-gallon drums.

As long as you have a combination package, which could include an inner bottle or can within an outer packaging or box, and that packaging meets the construction criteria, you are set. The inner packaging limits are fairly generous and allow up to five litres and 30 kilograms per package. Marking required on the outer packaging is the name and addresses of the shipper and consignee, two orientation arrows on opposite sides for liquids, and a simple diamond with black tips, as shown. No proper shipping name and UN number or hazard label is required.

Hazard_Label
Domestically in the United States, the term Otherwise Regulated Material-Domestic (ORM-D) is used to designate that the product qualifies as a consumer commodity and has been around for years. (This designation will eventually no longer be accepted by 2020.)

Consumer_Commodity_Label
First of all, if your product meets the definition of a limited quantity, you are relieved of the stringent UN performance packaging standards. If your product qualifies as a consumer commodity, the ORM-D marking applies and provides relief from the regulations including documentation and emergency response.

Remember, this only applies to domestic surface shipments in the U.S. However, there is reciprocity between the U.S. and Canada as long as it is to the primary destination. Once your American product reaches the initial destination in Canada, any furtherance made thereafter must be in compliance with the Canadian dangerous goods regulations. If you needed to mark your packaging for furtherance within Canada, the limited quantity would suffice since these markings were recently included in the Canadian regulations and are now acceptable. The packaging limits are the same.

So what are the possibilities of cost savings for shippers of perfumes? If you are trying to save money on shipping, the key is to ship your freight by surface only. That means trucking to Canada and vessel and truck elsewhere.

Shipping consumer commodities, such as perfumes, by vessel per the International Maritime Organization's (IMO's) International Maritime Dangerous Goods (IMDG) Code is a little more complicated than trucking. Shipping a Limited Quantity is the best option because the term Consumer Commodity is not a recognized proper shipping name by the IMO. Documentation in the form of a dangerous goods declaration is still required, and the proper shipping name remains Perfumery Products, UN1266 PGIII. There are two key additional requirements: (1) the wording, Limited Quantity, must be included in association with the basic description, e.g. UN ID number, proper shipping name, class number and packaging group number; and (2) the flash point of the liquid in Celsius must be included with the basic description of the item.

If you are shipping dangerous goods, you can’t avoid the inherent costs because dangerous goods always present a possible hazard in transportation and must be declared. Not declaring them is completely irresponsible, and as we saw in one of my recent articles, the fines for violations are getting stiffer.

How you declare your dangerous goods is another issue. We are not trying to hide or avoid the regulations, but a savvy shipper can save a lot of money if they know how the regulations can be used to their advantage. Sometimes it takes an expert who knows where to dig in the regulations to find these advantages.

If you need assistance with any aspect of shipping dangerous goods feel free to contact me at CARGOpak.

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http://www.ibt-articles.com/absnet/templates/?z=2&a=579Tue, 15 Jul 2014 00:00:00 GMT
Maximizing Meeting Results: An International Business Culture ChecklistIf you are involved in international trade, chances are you are meeting people from around the world. In order to make these meetings more successful, it's important that you try to understand the business culture of the people with whom you will be meeting, and hopefully, doing business. This checklist identifies the types of information you should research before meeting. Higher cultural competency can strengthen a business relationship and expedite international business transactions.

Business Attire—Based on the industry and business culture, what are you expected to wear?

Business Connections—Is this a culture where you need an intermediary to make an introduction or can you introduce yourself directly?

Business Customs or Formalities—Are there any routines in which you should be ready to participate? For instance, don't refuse offered tea in the Middle East and greet first if you're the younger person in Thailand.

Emotional Display—How much emotion should you show to this contact? Is emotion a way that conveys engagement in the conversation or loss of personal control?

Eye Contact—How much eye contact is considered comfortable in that culture?

Gender Rules—Are there any specific cultural faux pas to avoid related to business contacts of the opposite sex?

Legal Contract—Is a written agreement the successful outcome of the meeting(s), or does a presented contract signify your lack of trust?

Meaning of Yes and No—Does yes in this culture mean that I understand you or that I agree with you? Does no mean I disagree or am not interested, or does it mean that I want you to ask me again to show your sincere interest?

Meeting Interruptions—Should you expect full focus or multi-tasking by your counterpart?

Off-Limit Topics—Every area of the world has certain sensitive political topics (Israeli-Palestinian Conflict, etc.). What are they for this region?

Proximity to Others—How close should I stand to the other person in order to convey respect and interest?

Start of the Business Discussion—Can you talk about business right away or does the culture dictate building rapport with the contact first?

Universal Business Cultural Rules

In addition, here are things you should always do, because they are universal to virtually all business situations:

  • Always arrive on time to meetings.
  • Avoid all hand gestures and any greetings that involve bowing.
  • Don't assume that things will be done in a way similar to your home culture.
  • Learn a handful of useful words in the local language (please, thank you, hello, etc.).
  • Print business cards in the local language.

In the long run, greater cultural competency creates more business opportunities and helps to work through normal business conflict that would otherwise derail the relationship.

If you or your company needs assistance in preparing for a key market entry or working through existing cultural issues, please contact The International Entrepreneur with your question or issue.

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http://www.ibt-articles.com/absnet/templates/?z=2&a=578Tue, 08 Jul 2014 00:00:00 GMT
You Can Export the Whole Pig Except the Squeal!With a little creativity and ingenuity, companies have sold and shipped amazing goods overseas. For example, a trading company that specializes in animals and animal by-products has encountered some interesting situations.

The company contracted to ship 240 pregnant Holstein cows to Korea. When the letter of credit arrived, they learned that one of the conditions for payment would be a veterinarian's certification that each animal was pregnant. (The buyer in Korea wanted the cows to bear calves shortly after arrival.) The beneficiary presented the required 240 certificates, each signed by a veterinarian.

The letter of credit also required the presentation of air waybills as proof of shipment. Leroy, the exporter, chartered a 747 from Moses Field in Washington. He entertainingly explained how the airline had to build partitions in the aircraft so the animals would not fall to the back of the aircraft on take-off, or to the front on landing!

How did Leroy pay the farmers for the purchase of 240 pregnant Holstein cows and pay the airline to ship them? The letter of credit he received from a bank in Korea stipulated he could get paid as soon as he shipped the cattle. However, he did have to convince the dozen or so farmers to sell the cows and wait for payment until he received payment from the letter of credit. He also had to convince the airline to accept delayed payment.

He asked his bank to issue a document called an Assignment of Proceeds. With this document the bank obligates itself to pay proceeds directly to other parties when the bank receives payment on the letter of credit. An exporter may request a bank to issue an assignment of proceeds without the buyer's knowledge or approval. Amazingly, all the farmers and the airline agreed to this arrangement so the transaction proceeded without a hitch.

This same customer received a letter of credit for a shipment of 20 container loads of smelt to Japan. Minnesotans find the best use for this small fish to be fertilizer for their gardens. So, how did he find a willing buyer for the smelt and for what use? He sold them to an airline in Japan which advertised and served them as a delicacy.

Another letter of credit he received covered a shipment of tripe (the lining of the first stomach of a cow). The Japanese buyer used tripe in a soup recipe.

His exporting of unusual products took a stranger twist when he received an order for cow gallstones. He purchased them from a slaughter house in Omaha and exported them to Japan for use in medicines. When asked what price he received for the gallstones he replied, "Per ounce it is roughly equal to the price of gold."

Someday, a creative exporter will find a market for a pig's squeal!

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http://www.ibt-articles.com/absnet/templates/?z=2&a=577Mon, 30 Jun 2014 00:00:00 GMT
9 Things You Need to Know to Prepare an Export QuoteMore often than not, an export transaction begins with a request for a quote from the buyer to the seller. The quote serves as a formal statement of promise by your firm that you will provide certain goods or services at specified prices and within an identified period of time. Acceptance of the quote by the buyer constitutes an agreement binding on both parties.

Since a quote is so important, it will benefit you and your potential customer if you have a standard checklist that you use to identify the important details and items that are points of negotiation. The details also provide the buyer with the information needed to determine what they might owe in duties, fees and taxes.

The following checklist includes some of the facts about your firm, the products, and the transaction that should be agreed upon by the buyer (export) and the seller (importer):

  1. The seller's name, address, contact information, and possibly its tax identification number.
  2. The time when and the place where the merchandise is sold.
  3. The buyer's full name, address, contact information, and possibly its tax identification number.
  4. The ship-to party's full name, address, contact information, and possibly its tax identification number.
  5. A detailed description of the merchandise including:
    a) Harmonized System Number (first six digits of the Schedule B or HTSUS number);
    b) Name by which each item is known;
    c) Grade or quality;
    d) Marks, numbers and symbols under which the merchandise is sold;
    e) Currency;
    f) Country of origin;
    g) Quantity; and
    h) Price per unit.
  6. The country of shipment.
  7. The relevant trade term and the location associated with the term, such as Incoterms 2010, Free Carrier At Your Forwarder's Facility, Chicago, IL USA.
  8. All goods and services provided by the buyer for the product of the merchandise (e.g. assists such as tools, dies, molds and engineering work).
  9. Additional information such as:
    a) Import license requirements, if known;
    b) Additional certifications and statements required by the buyer's country;
    c) U.S. government issued certifications to be provided;
    d) U.S. export controls (i.e. EAR99, ECCN or USML);
    e) Where title will transfer from the seller to the buyer;
    f) Method of payment;
    g) Expiration date of the quote; and
    h) Relevant law.

The quotation sets the stage for the negotiation that will follow and the successful completion of a sales contract with your foreign customer!

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http://www.ibt-articles.com/absnet/templates/?z=2&a=576Mon, 23 Jun 2014 00:00:00 GMT
Avoiding Risk in International Trade: What We've LearnedThis is the tenth and final part of my series of articles on assessing risk in international trade.Avoiding-Risk-in-International-Trade-What-Weve-Learned

In my last article of this series, I made some comments about certain aspects of regulatory issues and market access. In this article, I will provide some general comments and a final conclusion.

When explaining the intricacies of international trade transactions to a large group of managers within an organization, one of my former staff once said, "When you are exporting, you do not just whistle for a taxi." Of course, this also applies to imports. For an international transaction to be completed, one needs to consider the other side. Exporters need to know what importers need, and importers need to understand what exporters require. That's easier said than done when one considers the differences in languages, cultures, business approaches, regulations, customs and permit issuing agency requirements, market demands, and in-market regulations. All these differences lead to different risk profiles of nations, customers and suppliers.

International trade is very exciting, but it is not for the faint-hearted. To be successful, one needs to accept differences between individuals and resist the temptation to judge, label, and stereotype others. No one is right or wrong, we just behave differently. The minute we start labeling someone we have judged them, and the road to recovery from there is very difficult indeed.

Who makes you wrong and me right? Your own beliefs? Assumptions? Perceptions? If it is illegal, for sure it is not acceptable. Otherwise, try to live with the differences and learn from them. Yes, we can learn from different approaches others may adopt as long as we are flexible and open to suggestions. Being able to consider other points of view gives us a broader understanding of the issues related to a transaction and that, in turn, should also provide a better angle from which to manage our risks.

Enough of the general stuff; what about specifics?

I do not believe there are long-term sustainable shortcuts in international trade. Yes, international markets are lucrative, but these typically require a long-term approach. Markets need to be learned and relationships developed. It takes time.

From a practical perspective, any export/import organization needs to take a more proactive risk-management approach. There must be a greater application of enterprise risk management, one where the relevant parties internally (and externally, if appropriate) communicate with each other and contribute their expertise to the process. However, this must take place during the pre-contractual negotiations. Make sure your organization only commits to contracts where risk has been assessed beforehand. This means making sure the contract is a good deal for you, and that you can meet its requirements.

In relation to regulations and border control matters, these need to be well understood in the post-9/11 era where compliance is at the forefront of all border control processes.

When seeking new opportunities in foreign markets, either as a supplier/seller/exporter or as a buyer/importer, risk profiling is essential. Use the tools recommended in earlier articles, such as the Organization for Economic Cooperation and Development'sCountry Risk Assessment Modelthe World Bank's Doing Business projectthe World Economic Forum's Global Competitiveness Report, or one of the other resources I mentioned. Managing your risk, however you decide to do it, will ultimately lead to better outcomes.

Do use the services of established associations such as chambers of commerce and similar industry bodies and also seek the input from trade consulates and the like. Networking is an important part of getting to know your markets, wherever they may be. Do go to trade fairs, exhibitions and the like, observe what others are doing, and learn from it. Attend market briefing sessions and webinars (many are hosted free).

On a final note, remember the golden rule of managing risk: it is about information and understanding. You cannot manage the risk of that which you do not know. You cannot manage the risk of that which you do not understand.

I hope this series of articles has been useful to readers. Much of what we learn is experiential, especially in international trade. You will not find everything you need to know in a textbook or on a website—the variations of business transactions are as endless as their solutions.

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http://www.ibt-articles.com/absnet/templates/?z=2&a=575Mon, 16 Jun 2014 00:00:00 GMT
Hazardous Materials or Dangerous Goods?Depending on whether you ship domestically within the U.S. or you import and/or export and ship internationally, the regulations for shipping hazardous materials and dangerous goods have a variety of similarities and differences.

Domestically, The Hazardous Material Transportation Act (HMTA) was published in 1975. Created to provide adequate protection against the risks to life and property inherent in the transportation of hazardous material in commerce, the act is broken down into four key areas of compliance and enforcement found in The Code of Federal Regulations (CFR), Title 49:

  • Procedures and/or Policies: 49 CFR Parts 101, 106, and 107
  • Material Designations: 49 CFR Part 172
  • Packaging Requirements: 49 CFR Parts 173, 178, 179, and 180
  • Operational Rules: 49 CFR Parts 171, 173, 174, 175, 176, and 177
Without opening the Pandora's box of hazmat regulations found in part 100-177 of CFR49, let's look at the definition found in §171.8:

Hazardous material means a substance or material that the Secretary of Transportation has determined is capable of posing an unreasonable risk to health, safety, and property when transported in commerce, and has designated as hazardous under section 5103 of Federal hazardous materials transportation law (49 U.S.C. 5103). The term includes hazardous substances, hazardous wastes, marine pollutants, elevated temperature materials, materials designated as hazardous in the Hazardous Materials Table (see 49 CFR 172.101), and materials that meet the defining criteria for hazard classes and divisions in part 173 of this subchapter.

A couple of key terms worth noting: propertyhazardous substances, and when transported in commerce. We’ll come back to those later.

Now let's look at the international definitions of dangerous goods.

For international transportation by air, we have the definition provided by the International Civil Aviation Organization's (ICAO) Technical Instructions for the Safe Transportation of Dangerous Goods by Air and the UN model regulations: "Dangerous goods are articles or substances which are capable of posing a risk to health, safety, property or the environment."

For the international transportation by vessel, the International Maritime Organization's (IMO) regulatory definition found in the IMDG Code (International Maritime Dangerous Goods Code) is: "Dangerous goods mean the substances, materials and articles covered by the IMDG Code."

Now, for the average shipper, both hazardous materials (hazmat) and dangerous goods (DGs) terms are fairly interchangeable. However, as we saw with the definition of a hazardous material, the legality of the regulatory wording in the U.S. is very specific when it comes to property and being transported in commerce.

We also see the exclusion of the term "environment" in the U.S. Department of Transportation (DOT) definition. The DOT's jurisdiction over dangerous goods overlaps with the Environmental Protection Agency's (EPA) jurisdiction. The term "hazardous substances" is an EPA term, and these substances are only regulated for transport if they are shipped in packages that exceed the reportable quantities listed in Appendix A to the table of hazardous materials found in §172.101. Under 40 CFR 302.6, the EPA requires persons in charge of facilities (including transport vehicles, vessels and aircraft) to report any release of a hazardous substance to the DOT's National Response Center if the quantity is equal to or greater than its reportable quantity. They must do so as soon as they have knowledge of the release.

"Property" is another important term especially pertaining to the ownership and possible responsibility involving a hazmat incident. I'm sure corporate lawyers can provide a much clearer explanation of this, but it involves not only the goods being shipped as property, but could also involve where the goods are actually located at any point during transit. Imagine a consignment of dangerous goods arriving in the U.S. and a serious incident occurs before the importer actually receives the goods. Was there damage to someone's property such as a building or the actual transport unit container or trailer? Who is responsible? The shipper? The carrier or the owner of the goods? Remember the initial purpose of the hazmat transportation act was all about safety.

This is where the regulatory requirements of a shipper relating to the use of hazardous materials terminology such as the correct UN identification numbers, proper shipping names, classification, 24-hour emergency response telephone, and other information are used. The shipping papers are also where ownership is controlled and serves as the contract of carriage in business, and it is where an understanding of the correct Incoterms 2010 is vital.

The last term we need to clarify is the use of "when transported in commerce." What happens when you purchase some solvent or oil-based paint at the hardware store? Do you need labels, placards or shipping papers? No. This is where the manufacturer would need to ensure compliance with the Federal Trade Commission and the Consumer Product Safety Commission and the applicable regulatory references in CFR Title 16 — Commercial Practices in place to protect the end user. We've all seen the scary warning labels for proper storage, usage and disposal of the chemicals we keep under the sink.

The key connection here is with the term, When Transported in Commerce, and how it applies to the hazmat employer. After all, the employer, not the employee, offers the material for transport and is obviously in commerce. The hazmat employer is also responsible for training all the hazmat employees. The training requirements are very specific and must ensure hazmat employees receive adequate training in the following four areas:
  1. A general awareness of the hazard communication system.
  2. Safety and how to properly handle the hazardous materials and the need to provide emergency response information. OSHA training can be used to fulfill this if applicable.
  3. Security awareness and how to develop and maintain a possible security plan, if necessary.
  4. Function-specific training as it applies to their particular products and modes of transport both domestically and possibly internationally. The alternative use of dangerous goods training can be substituted. For air transport that means training on the ICAO/IATA regulatory requirements; for vessel shipments, that means training according to the IMDG Code.
Compliance with our domestic federal law is mandatory, even for foreign shippers. Although international law is recognized, each country or state may have variations that the shipper must comply with. Guess which country has the most variations? Yup, the U.S.

In CFR49 §171.22 it clearly states, "This subpart authorizes, with certain conditions and limitations, the offering for transportation and the transportation in commerce of hazardous materials in accordance with ... ICAO, IMDG Code, TDG." Note the wording, "with certain conditions and limitations." In other words, when shipping internationally to, through or from the U.S., a shipper must still comply with the domestic hazmat regulations of CFR49.

So while hazardous materials and dangerous goods are somewhat similar, they are also very different depending on what is shipped, from where they originated, and where they are going. CARGOpak Corp. offers on-site training classes in a variety of formats depending on specific shippers needs for CFR49, ICAO/IATA, TDG and IMDG. Go to the CARGOpak website for more information.]]>
http://www.ibt-articles.com/absnet/templates/?z=2&a=574Mon, 09 Jun 2014 00:00:00 GMT
Is English Enough as the Only International Business Language?For those of us involved in international trade, there are always conversations held in languages that we don't understand. Is something important being discussed? Are others developing rapport while we sit on the side?

Some leaders avoid doing business in countries where they don't understand the native language. For instance, an American company is far more likely to expand to Canada and Britain rather than to look further to places where business is done in foreign languages. Most North American business people learned at least a little foreign language in secondary school. But we are generally less comfortable leaving the security of English behind.

So, what does it take to learn another language and is that effort worth it?

How to Learn a Foreign Language

As someone currently working on a fifth language, I feel that nothing substitutes for learning the language as part of a cultural immersion. Jump into the deep end of the pool. If you are working overseas, try to make arrangements to live with a local family or roommates. This allows you to hear (and struggle) in the language every waking minute. Within two months of language immersion, you should be able to converse fairly well. Other methods can work such as language classes and language learning software, but it will take much longer. Language learning is much easier for those who learned their first foreign language early in life. It is also easier if you’ve already mastered one foreign language.

How Much Language Do You Need?

For basic and infrequent interactions, I find that very little language is required. I try to memorize some simple phrases in order to help put my counterparts at ease. I know these in many languages and often write a cheat sheet to pull from my desk for international calls. My favorite expressions:

  • Hello/Goodbye
  • Yes/No
  • Good Morning!
  • Good Evening!
  • How are you? (and an answer for that question)
  • Please
  • Thank you

For those working more closely with a specific language-speaking group (clients, colleagues, etc.) more language skills are better than less. Generally, knowing 1,500 words is considered a beginner. Intermediate speakers typically know 3,000 words and can function well in a business environment. Advanced speakers know at least 5,000 words, understanding more technical terms and nuanced conversations. A fluent language speaker usually knows 15,000 words and can use them in almost every context. If your trips to a country are few and far between, then basic language skills may be more than enough. If you are living in country, definitely aim for fluency.

Why Learn the Local Language?

There are many reasons in business. First, knowing even some of the language builds faster rapport with international colleagues, partners, and clients. And most business does not occur until relationships are established. Second, it builds goodwill. People are more likely to give you the benefit of the doubt if they like you. Third, "lost in translation" happens very frequently. The more you know, the better business decisions you can make. Fourth, language helps to better understand cultural context. Many linguistic expressions provide key insights into how your foreign counterparts approach situations. And finally, being able to communicate in other languages is a competitive advantage for both your company and for you professionally. Native English speakers have an advantage in speaking the world's most commonly used business language. But as the U.S. continues to lose its footing as the largest world economy, this will start to shift in years to come. Already many jobs require foreign language fluency.

What's the Cost of Learning Another Language?

Learning a language to the point of fluency is a time-intensive process. That's why I would only recommend it for those working in country. There are software packages available at various price points. Rosetta Stone is the most expensive and my favorite of these tools. University classes can be expensive for credit, so I recommend looking for adult enrichment classes or private language schools. But both software prices and class tuition typically pale compared with the opportunity costs. How would you spend your time if you weren't memorizing vocabulary or learning a new sentence structure? For professionals in intense careers, languages may have to wait. On the other hand, if you have extra time between projects or are going through a job change, this might be a good time to improve your language skills.

I hope you found this cultural competency article helpful. For more information about doing international business, please visit my site: The International Entrepreneur.

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http://www.ibt-articles.com/absnet/templates/?z=2&a=573Mon, 02 Jun 2014 00:00:00 GMT
Correctly Completing A Bill of Lading Can Help Get You PaidThe shipment date is an important point on the timeline in an export transaction, as the payment date is often associated with it in some way. Financing, too, is associated with the shipment date, as banks often refer to pre-shipment financing or post-shipment financing.

How does one know the shipment date?

The bill of lading determines it. For letter of credit purposes, the on-board notation is considered to be the ship date. The bill of lading takes on an extremely important role in international trade because of its functional aspects.

The bill of lading serves three purposes:

  1. A title document conveying ownership. Ocean bills of lading can be issued in negotiable form so that whoever holds the bill of lading has title to the goods. This is an important feature because control of the title cannot pass until the buyer pays for the goods.

  2. A receipt from an independent carrier. Buyers find security in having an independent, third party hold the goods before they remit payment.

  3. A contract for delivery. The carrier contracts to move the goods from point A to point B as agreed with by the exporter.

I've seen one legal definition of the bill of lading as "a document purporting to represent a shipment of goods." I'd say that's very accurate.

When an ocean carrier issues a bill of lading in negotiable form, it can be bought and sold. This provides an advantage for the buyer who may have pre-sold the goods because he can simply endorse it to the next buyer in line. In fact, it can be bought and sold any number of times. Finally, the last endorser on the document must take possession of the goods when they arrive. 

While this discussion remains true in theoretical terms, recent concerns about security require documents to specify the ultimate buyer and destination, which means the feature of negotiability becomes less useful.

These features of a bill of lading are critical when control of the documents is an issue such as in a letter of credit or collection transaction.]]>
http://www.ibt-articles.com/absnet/templates/?z=2&a=572Mon, 26 May 2014 00:00:00 GMT
Ready or Not, Myanmar enters the Global Arena—Part 3: Issues and ChallengesMyanmar sits at the crossroads of Asia's great civilizations of India and China, but the country was largely isolated because of four decades of communist rule. Myanmar's recent opening up means that for the first time in more than 50 years foreign government officials, businesses and tourists have an opportunity to visit and explore the country without censorship or restrictions.

In the first two articles of this series, I provided a brief background on the changes in Myanmar that opened the country to much of the rest of the world and discussed the opportunities available in the country. In this final article, I will examine the issues and challenges that still remain.

Myanmar is a very unusual case of a large country with a rich history that remains an underdeveloped economy in the heart of the world's fastest growing regional economy. Endowed with a wealth of natural assets, this country is well positioned to engage a multi-pronged development strategy. However, the country will need to address important, long-standing issues related to the economy due to an environment that is still not very conducive to business.

Myanmar's economy, often described as the least open economy in Asia, suffers from pervasive government controls, inefficient economic policy, fiscal instability, corruption, human rights violations and extensive poverty. Its major economic imbalances include rising inflation rates, financial deficits, multiple official exchange rates, a distorted national interest rate regime, unreliable statistics and indicators, and an inability to reconcile national accounts to determine a realistic Gross Domestic Product (GDP) figure. Key issues and challenges for global investors are discussed below.

Role of Military

Myanmar's military remains economically dominant since few major business deals take place in this country without military involvement. According to Bertelsmann Stiftung (BTI) reports, the government's privatization initiatives have transferred most of the formerly state owned enterprises directly to regime cronies or the military conglomerates that continue to monopolize the economy. Many sectors are reserved for state enterprises. These include telecommunications, air and rail transport, broadcast and television, and exploration and production of petroleum. The government administers electricity prices, subsidizes fuel, sets public and some private wages, and imposes price controls. The military-run Trade Commission controls import-export licenses and approvals for foreign investment.

Most imports and exports in Myanmar require licenses, which in many sectors are restricted. Import and export taxes are high. Import quotas are imposed on product categories including trucks, buses and certain types of cars. Other safeguards exist to protect the domestic industries such as food and plastics. Inconsistent enforcement of laws and bureaucratic red tape hinder the development of a critically needed private sector. The formal labor market remains distorted by state intervention that sets public-sector wages and influences wage setting in the market.

Business Climate

The country has consistently ranked among the world's most corrupt countries in theTransparency International Corruption Perceptions Index. The 2013 Corruption Perceptions Index measured the perceived levels of public sector corruption in 177 countries/territories around the world. Myanmar was ranked 157 out of 177 countries in the 2013 Corruption Perception Index. A Heritage Foundation 2012 report outlined the major areas where investors may face corruption including (a) when seeking permission for investment in the country, (b) in the taxation process, (c) when applying for import and export licenses, and (d) when negotiating land and real estate leases.

Myanmar is among the 10 most difficult places to do business. The World Bank included Myanmar in its Doing Business 2014 report for the first time. Myanmar ranked 182 out of 189 in ease of doing business. It is trailed by countries like Eritrea, Congo, Libya, Chad and Sudan.

Intellectual Property (IP) Rights

The business environment in Myanmar is risky in terms of IP rights. Decades of political and economic isolation have left Burma with intellectual property rights legislation that is at best outdated and in some cases non-existent. Legal protection of brands, trademarks and patents is virtually non-existent. Soft and hardware piracy is a real issue since many products ranging from fashion products to watches and pharmaceuticals are widely counterfeited without any intervention from the authorities. The piracy of music CDs, video CDs, CD-ROMS, DVDs, books, software, and product designs is evident nationwide, especially in border regions and in the two major urban centers of Rangoon and Mandalay. The software piracy rate is approximately 91%.

Financial Sector

Myanmar's financial sector is extremely underdeveloped. Most currency is held outside the formal banking sector. Exchange rates are rigged. The official rate is six kyat to a dollar, but the black market rate is about 800 to 1000 kyat to a dollar. Regulation of financial institutions is relatively weak. State-owned banks dominate the banking system. Access to credit remains poor, and the state often requires banks to channel loans to preferred sectors.

Commercial Infrastructure

Myanmar infrastructure is not sufficient to support the higher growth and future demand driven by developing industry sectors. The transport infrastructure including roads, railways, ports and most other public infrastructures are inefficient, outdated and poorly maintained. Only three of Myanmar's 33 airports are international. Residential and commercial real estate, power plants, water treatment plants, and road networks will require major improvement. Inconsistent power supplies also lead to interruptions in economic activities such as production and sales. Inconsistent water and phone service and slow internet also hamper production, sales and communications.

Skilled Labor Shortage

Myanmar's lack of skilled labor is among the topics spotlighted in the 2013 World Economic Forum. The country's early education is in poor shape. More than one in five children in Myanmar is not educated beyond the primary level. Skilled technical and service professionals such as lawyers and accountants are especially scarce. Many of the universities and colleges for higher education were closed during military rule and have yet to open up.

Flawed Statistics

Although some international organizations have estimated Myanmar's Gross Domestic Product (GDP) growth rate at an average of more than 10% over the past few years, these rates do not reflect reality. According to the Central Intelligence Agency's The World Factbook, official statistics are inaccurate and published statistics on foreign trade are greatly understated because of the volume of off-book transactions, the size of the black market, and illicit and unrecorded border trade, which is estimated to be as large as the official economy. Even basic indicators such as population size and historical economic growth are unreliable. It is difficult to quantify economy's potential given the paucity of reliable data.

Other Issues

While Myanmar is the largest Southeast Asian country, it is also one of the most impoverished. Around a third of Myanmar population lives below the poverty line, with income levels well behind those of neighboring countries Cambodia, Laos and Bangladesh. Only 13% of the population in Myanmar has access to electricity, although major urban centers have higher levels of electrification.

A strict censorship law is in place and is enforced widely and consistently against the private media. Journalists are imprisoned for exposing state secrets and discrediting the state. In April 2011, there were more than 2,000 political prisoners in Myanmar. Outside of the prisons, people of Myanmar face limits on their freedoms of movement both domestically and internationally. Myanmar also struggles with sectarian violence. The end of the Myanmar's military’s total control has led to eruption of Buddhist-Muslim tensions. There are more than 135 heterogeneous ethnic groups with their own language and cultural practices. Conflicts between armed ethnic-minority groups and the military pose threats to the export infrastructure.

The country is plagued by traffic in narcotics, people, wildlife, gems, timber and other forms of contraband that flow through Burma’s permeable borders. Burma’s border regions are indeed difficult to control. In some remote regions active in smuggling, continual ethnic tensions with armed rebel groups hamper government control.

Final Words

Myanmar is a very unusual case of a large country with a rich history that remains an underdeveloped economy in the heart of the world's fastest growing regional economy. Endowed with a wealth of natural assets, this country is well positioned to engage a multi-pronged development strategy that draws on agriculture, mining and extraction, manufacturing, and services. Myanmar has already undertaken some major reforms and the political will to take them even further appears strong. Improvements in judicial independence, equal treatment of foreign and domestic firms, and the government's popular accountability are signs of optimism.

Although long-term prospects for Myanmar are good, investors must recognize that significant challenges exist. Key issues discussed in this series of articles include lack of a functioning legal system, bureaucracy and corruption, and political and security risks. Foreign companies must plan for the long haul and need to invest in building local assets such as schools, roads, ports, brands, distribution networks and supply chains.

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http://www.ibt-articles.com/absnet/templates/?z=2&a=571Mon, 19 May 2014 00:00:00 GMT
International Trade Risk: Regulatory Issues and Market AccessThis is the ninth part of my series of articles on assessing risk in international trade.

In my last article of this series I made some comments about Chambers of Commerce and Trade Consulates. In this article I focus on certain aspects of regulatory issues that affect market access. As this is a very big topic covering a multitude of issues, I will limit my comments to regulations and documentation.

Without exception, all international transactions need to comply with customs regulations, and these vary from one nation to another. Care must be taken by the seller to ensure that they provide the necessary documentation to the buyer to avoid expensive delays and a souring relationship.

I have always found the easiest and best option for ensuring compliance is to enlist the assistance of the buyer. A simple question usually does the trick: What documents do you need from me to complete the customs formalities at your end? The buyer usually answers with a quick and comprehensive list of all the different documents required. This ought to be the case since the importer is presumed to know more about their own national barrier requirements than other foreign parties if for no other reason than they deal with their authorities on a regular basis.

Not only should the exporter provide all the necessary documents, they should be in the correct format and include accurate data. Special requirements may also apply due to free trade agreement (FTA) considerations. The ability to secure preferential duty treatment is often dependent on being able to prove the origin of the good, and this is often subject to the presentation of specific documentation at the time of import.

While it may be possible to find import requirements for foreign nations by accessing their official websites, this information may not be easily found, and nations that are not members of the World Trade Organization (WTO) have no obligation to make this information publicly and transparently available. That's why I favour cooperation between seller and buyer to ensure customs compliance.

Questions related to documentation for customs purposes should, of course, be asked during the negotiations, as ultimately documentary compliance becomes part of the contractual obligations.

Apart from customs, other considerations may arise depending on the product and destination.

In addition to customs, most countries have some sort of government permit issuing agencies that may become involved in an export/import transaction depending on the nature of the product being traded. These permits may specifically include restrictions on the marketing, sales and distribution of products and may include extensive documentation requirements prior to permission to import being granted. These permits may be relatively expensive and can take considerable time to obtain. Examples of these include:

Food and Drug Administration (FDA) or their equivalent counterparts, such as the European Medicine Evaluation Agency (EMEA) or the Therapeutic Goods Administration (TGA) in Australia, that regulate medical and pharmaceutical products primarily, but may also extend their control to medical devices and cosmetics, depending on the nation in question; 

Quarantine authorities across the world that have different foci on pest and diseases and have vastly varying requirements for importing consignments ranging from simple self-assessment declarations to fumigation to mandatory export/ import consignment inspections;

Defence concerns for equipment that may have dual use, that is, both civil and military use, such as wireless modem devices; and

Industrial chemicals may be subjected not only to transport restrictions because of their hazardous nature but may also be controlled with special licences and subjected to distribution and warehousing restrictions in the importing country.

You should always ensue that permits can be obtained before entering into the sales contract. This requires investigation. The Incoterms 2010 chosen will determine who is actually responsible for obtaining import permits. Regardless of who has the actual responsibility, there will need to be a level of cooperation between the parties. It may be a good risk-management approach to specify in the contract of sale not only who is responsible for obtaining permits, but also what penalties or remedies will be in place should something go wrong.

It is not difficult to imagine a situation where a product arrives at destination and no permit is available, meaning the consignment is stuck at customs. The cost of storing the goods somewhere needs to be borne by someone, and depending on the product, the integrity of the consignment may be jeopardised if it is a highly perishable time-sensitive or temperature-sensitive product. Always think about mitigating risks in your transactions.

Apart from the barrier control regulations mentioned above there are also considerations of market access that enable the product to be legitimately sold in the foreign nation. For example, special labelling may be required to show specific information and be in a specific language. In some nations multi-language labelling is allowed, but not in others. The logistics impact of such regulations are not to be underestimated since different labelling by necessity leads to split production runs with additional costs and the inability to divert products from one nation to another in situations where a spike in demand arises.

Traders should also be aware that sometimes governments purposely interfere with the flow of goods, seemingly for goods reasons, such as in cases of unfair competition—dumping—or to protect a strategic industry from foreign competition. Usually these measures are imposed on a financially punitive basis through the imposition of additional duties that may be called by a variety of names. Of course the outbreak of a disease may be another reason that a restriction could be imposed.

I have only provided a small snippet of the issues relevant to market access, but hopefully this provides readers with some food for thought. To ensure that a transaction proceeds smoothly, it is vital that sellers and buyers explore all relevant issues during the negotiations that precede the signing of the contract. Early open communication is still the best solution. Virtually all of the approaches designed to manage business risks incorporate a communication section; this is vital because you cannot manage what you do not know. 

In my next and final article of this series, I will provide some general advice and a conclusion.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=570Mon, 12 May 2014 00:00:00 GMT
Seven Factors for Determining the Right Method of PaymentImporters and exporters often ask, “What is the best method of payment for international shipments?”

Many bankers answer, “Letters of credit.” This is a self-serving answer. Of all the methods, letters of credit generate the most fee income for a bank. 

The correct answer is: “The one that allows the transaction to be completed to the satisfaction of both parties—the buyer and the seller.” If both parties can’t agree on a perfect method of payment, they must agree upon one with which they both can live.

What choices, then, does one have? The four basic payments are cash in advance, letters of credit (L/C), collections, and open account (O/A). The exporter’s risk it minimal with cash in advance while the risk to the importer is maximum. At the other end of the spectrum, the exporter’s risk is high with open account while the importer’s is low.

An exporter should ask seven questions before agreeing to a specific payment term: (1) Is the relationship with the buyer new or established? (2) Is the order custom-made or standard? (3) Is the political situation stable or unstable? (4) Is the economic situation stable or unstable? (5) Are competitors offering terms? (6) Is there a risk of price changes? (7) Is there a need to control cash flow?

The decision tool below will assist in matching these questions with the correct payment term:

 CASHL/CCOLLECTIONO/A
1. Customer Relationship NewNewEstablishedEstablished
2. Nature of OrderCustomCustomNormalNormal
3. Political SituationUnstableUnstableStableStable
4. Economic SituationUnstableUnstableStableStable
5. Competitors offer termsNo No YesYes
6. Risk of price changesYesYesNo No 
7. Need to control cash flowYesYesNo No 

 

By answering these questions, the exporter will be better qualified to select the right payment option for each transaction. However, not all seven questions carry equal weight. For example, extended payment terms (see #5 above) may carry more weight. 

One exporter stated that his sale terms remained confirmed letters of credit. Period. It didn’t matter if major British, German or Japanese banks issued the letters of credit, his needed confirmation. The company set a very restrictive policy for international payments. Proactive exporters will probably use all four methods of payment depending on the circumstances of their international business.

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http://www.ibt-articles.com/absnet/templates/?z=2&a=569Mon, 05 May 2014 00:00:00 GMT
DOT Increases Penalties for Non-Compliant Hazmat Shipping
As a hazardous materials trainer and consultant for nearly 30 years, I am always amazed by the complacency some companies that ship hazardous materials have towards the gravity of the hazmat regulations. At the risk of sounding like an alarmist, if not done properly a routine shipment can cost a shipper an awful lot of money. Time and time again, usually after the fact, the guilty shipper will say things like: "We only ship this stuff occasionally." Are we supposed to gather it's only hazardous sometimes? Or, "We've always ship it this way and never had a problem," assuming two wrongs make a right.

When it comes to compliance, if something isn't right, it's wrong, but for some reason there are shippers who benignly ship stuff that they have little or no knowledge of the consequences if the consignment is shipped incorrectly. The seriousness of shipping hazardous materials incorrectly has just reached a new level, which, in my mind, is long overdue. Last week the Department of Transportation (DOT) through its regulatory branch, Pipeline and Hazardous Materials Safety Administration (PHMSA), passed a final rule and substantially increased the amount of fines for non-compliance.

Normal conditions for transport should always be taken into consideration. All shippers who offer packages containing liquids must be trained to understand and apply the stringent standards for vibration, pressure and temperature because of the higher risk and possible dire consequences. This is especially critical when it comes to shipments by air.

Civil penalties are assessed for knowingly violating a hazardous material transportation law or a regulation, order, special permit or approval issued under that law. The following updated civil penalties apply to violations occurring on or after October 1, 2012: 
  • The maximum civil penalty is increased from $55,000 to $75,000 for knowingly violating federal hazardous material transportation law.
  • The maximum civil penalty for knowingly violating laws and regulations that result in death, serious illness, severe injury to any person, or substantial destruction of property is increased from $110,000 to $175,000.
  • The $250 minimum civil penalty has been eliminated.
  • The civil penalty for violations related to training has reverted to $450.
"Hazmat safety regulations exist to keep people, property and the environment safe, and it is our responsibility to enforce these laws," said PHMSA administrator Cynthia Quarterman. "When someone breaks the rules, it puts us all at risk. The consequences for doing so should be substantial enough to discourage misconduct."

Here are a couple of recent examples:

Amazon.com, Inc.—fined $91,000
Amazon improperly shipped a package containing flammable liquid adhesive by air via FedEx. FedEx employees discovered a gallon container of the adhesive that was leaking. The adhesive is classified as a hazardous material under the DOT regulations. Amazon offered the shipment without the requisite shipping papers or emergency response information, and did not mark, label or properly package the shipment. Amazon also failed to properly train its employees in preparing hazmat packages for shipment by air.

Alfa Chemistry—proposed fine $325,000 (still to be settled; imagine the legal costs)
The Federal Aviation Administration (FAA) alleges that on two separate FedEx cargo flights, Alfa Chemistry shipped undeclared hazardous material that DOT regulations prohibit from being transported on passenger and cargo aircraft. The company allegedly shipped approximately one pint of Acrolein on one shipment and three additional pints on another. Acrolein can become explosive when combined with air and is classified as a toxic/poisonous material and flammable liquid under DOT Hazardous Materials Regulations.

The FAA and FedEx personnel tried to inspect the second shipment of Acrolein at the FedEx sort facility in Peabody, Massachusetts, after it began emitting a strong, pungent odor. However, they were unable to examine it because they began to experience coughing fits and extreme eye, nose and throat irritation due to the severity of the odor and vapors coming from the shipment. A FedEx employee had to put on a protective suit to inspect the shipment.

The FAA determined that neither shipment had required shipping papers or emergency response information. The FAA also determined that the second shipment was not marked, labeled or packaged as required by the Hazardous Materials Regulations. Additionally, the FAA determined Alfa Chemistry failed to properly train and test the employees who packaged the Acrolein.

Here is an updated list of frequently cited violations as published in the Federal Register. These are baseline amount and will vary according to the nature, circumstances, extent and gravity of a violation; the degree of culpability and compliance history of the respondent; the financial impact of the penalty on the respondent; and other matters as justice requires. PHMSA can adjust the baseline amount in light of the specific facts and circumstances of each case.

PHMSA also reviews factors such as the safety implications and pervasiveness of the violation as well as all other relevant information. It considers not only what happened as a result of the violation, but also what could have happened as a result of continued violation of the regulations. As a general rule, one or more specific instances of a violation are presumed to reflect a respondent's due diligence.

This last paragraph really sums up the point I'm trying to make. When it comes to shipping hazardous materials, the U.S. Department of Transportation is making the penalties higher for non-compliance. The consequences of not doing your due diligence, which starts with properly training hazmat employees, is leaving your company exposed to serious fines. My suggestion is simple. Get all personnel who are involved in shipping hazardous materials properly and thoroughly trained either in-house or by an experienced and reputable organization.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=568Mon, 28 Apr 2014 00:00:00 GMT
Ready or Not, Myanmar enters the Global Arena—Part 2: Coming Out of the Shadows
Myanmar sits at the crossroads of Asia's great civilizations of India and China, but the country was largely isolated because of four decades of communist rule. Myanmar's recent opening up means that for the first time in more than 50 years foreign government officials, businesses and tourists have an opportunity to visit and explore the country without censorship or restrictions.

In my first article of this series, I provided a brief background on the changes in Myanmar that opened the country to much of the rest of the world. In this article, I discuss the opportunities that are available to the country and the companies that choose to do business here.

Myanmar is located at the crossroads between Bangladesh, China, India and Thailand. These countries are a home to more than 40% of the world population offering a huge potential market for manufacturing and marketing consumer and business products and services. Myanmar's economy will grow an estimated 6.5% next year, placing it among Southeast Asia's fastest growing economies. According to World Bank reports, the country's economic growth will be driven by energy and commodities exports, foreign investment, services and construction. Myanmar is coming out of the shadows with regulatory and legislative reforms and privatization. The country is gearing up to claim its rightful place by creating a value proposition based on legislative reforms, natural resources, extensive low cost labor, and a large consuming population with pent-up demand for products and services. 

Regulatory Environment

Since five decades of military rule ended in 2010, Myanmar has introduced new laws to promote domestic and foreign investment. These laws include Special Economic Zones, reforms in tax laws, ratification of new tax treaties and new foreign investment law. The country's foreign investment law allows 100% ownership by private enterprises. Since 1989, the country has privatized a series of industries including a large-scale privatization effort in 2009-2010 in which more than 300 enterprises including a major airline, ports, mines, factories, hotels, cinemas, gas stations, land and building were privatized. The country has a set of anti-corruption laws and since as early as 1948, corruption is officially a crime that can carry a jail term. Myanmar is already a member of the World Trade Organization and the Association of Southeast Asian Nations (ASEAN), which may evolve into a strong economic community in the coming decade.

Competitive Advantage

Myanmar, the second largest Southeast Asian country after Indonesia, is rich in natural resources, the majority of which remain untapped. It has abundant natural gas reserves, oil, precious and semi-precious stones, a large area of arable land, forestry, minerals of many varieties, and freshwater and marine resources. It accounts for 90% of the world's jade production and is among the top producers of rubies and sapphires. With a population of approximately 60 million, the country offers an easy availability of low labor costs. It has a large working age population available at a cost of about $3 a day compared to $4 in Indonesia, $5 in Vietnam, and $18 in China and Thailand.

Multinational Corporations Reenter Myanmar

Myanmar is open for business and offers opportunities in multiple industry sectors including infrastructure development, construction, information and communications technology, education, healthcare, tourism, banking and retailing. Global marketers are eyeing new growth in this Southeast Asian nation since it ended authoritarian policies that had led to sanctions from western countries.

Myanmar's post-2011 economic liberalization has left many salivating over potential business opportunities in the Land of the Golden Pagoda. With projected GDP growth of 6.5% in 2013, and projected GDP growth of 6.8% in 2014, Myanmar has one of the fastest growing economies in the world. As per World Bank reports, foreign direct investment in Myanmar had risen to US$2.7 billion in 2012-13 from $1.9 billion in 2011-12. Most of that investment went into the country's energy, garment, information technology, and food and beverages sectors.

Many well recognized multinational corporations that exited Myanmar when sanctions were imposed have reentered Myanmar:
  • Coca-Cola was the first to announce its intention to reenter Myanmar and Pepsi-Cola soon followed. In fast moving consumer goods (FMCG) category, Unilever unveiled plans to establish a local company in this market.
  • Heineken N.V. reentered Myanmar after a 17 year absence. It plans to build a $60 million brewery near the capital city of Yangon that will begin making and selling beer brands including Heineken by the end of 2014.
  • WPP Plc, the world's largest communication services company, has restarted its Myanmar operations after exiting the Southeast Asian country in 2003 because of sanctions.
  • ABD, which has not had operations for more than 20 years, opened an office in the country.
  • Seventeen foreign banks have already established representative offices in Myanmar. Credit companies, Visa and MasterCard, have formal joint ventures with Myanmar banks. Many international banks are in the process of establishing a foothold in Myanmar. For example, ANZ, Standard Charter, Bank of Tokyo-Mitsubishi, Japan's Mizuho and Sumitomo Mitsui Banking Corporation (SMBC) are entering Myanmar.
  • Professional services firms including Price-Waterhouse-Coopers and KPMG have already opened offices in the country. Ernst & Young also plans to open them.
  • Large multinationals including General Electric and Caterpillar as well as many large companies from Japan, Korea, Europe and other markets have begun selling their products in Myanmar.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=567Mon, 21 Apr 2014 00:00:00 GMT
How Americans Often Lose in International Negotiations
Have you ever left a negotiation with a potential international client or partner and felt like you didn't get what you wanted or expected? Maybe you were being honest about what you were thinking and that led to the other side taking the conversation in a direction you weren't expecting. Or perhaps you were trying to keep the conversation going when the other side just stopped talking.

Many companies around the world have learned how to do business with Americans. And in many instances, they have learned how to take advantage of common American business traits that make us vulnerable. Here are ways to counteract some of the most common techniques:

The Sound of Silence

It's fairly simple; your counterparts simply stop talking... for up to three minutes. This amount of silence tends to unnerve Americans and send them into a stream of talking in order to fill the sound gap. Oftentimes Americans will find themselves giving away negotiations concessions just to get the conversation started again. 

This technique is common in East Asia, and it has proven effective against the American need to fill the silence. If you've never seen this technique before, you can test it out in your next internal business meeting. It is typically very effective in inducing an American monologue.

Instead, match the silence. Become calm and quiet waiting for the other side to resume their side of the conversation. This will completely neutralize this technique and usually it only needs to be dealt with once.

High Drama

This is another favorite technique used against Americans. We don't do well with unpredictable behavior and high emotions. Particularly in the Middle East, parts of Africa, and some former Soviet countries, throwing the equivalent of a temper tantrum is a way to gain some concessions in negotiations. This could involve raised voices, pouting and begging.

Americans tend to have two reactions to this drama: (1) walk away from negotiations assuming that their counterpart can't be trusted to control their emotions or anything else, or (2) give in to the emotional display in order to get past it and closer to finishing the deal.

If you are doing business in one of these parts of the world, you should expect this drama. Instead of dreading it, you can even look forward to it. Enjoy the theatrical show because it's for your viewing pleasure! Generally you'll want to stay calm in order to show that the drama isn't generating the intended effect.

Divide the Team and Conquer

Americans are known for their independent thinking, even when serving on a business team. The benefit of everyone having an opinion is that you get a fuller set of options and perspectives to choose from than if everyone has groupthink. But in international negotiations, this can be a major downfall. Once the other side realizes that your team is not cohesive, they will cherry pick the ideas from team members that most benefit their side and restate those positions as if they represent your entire negotiations side. It's hard to negotiate against the other side when your side provides them with their best ideas. This happens more often than many Americans realize.

Counter this before negotiations begin. Discuss the negotiation goals, boundaries and especially roles with your whole team. There needs to be a lead negotiator. The lead negotiator should do all of the talking unless deferring to a specific team expert. Instead of talking out of turn during negotiations, ask to take a break in order to talk as a team. It is vital not to contradict particularly the lead negotiator as it undermines their position and credibility.

There are many other techniques used in international business negotiations, but these three are more commonly used against American companies to gain extra concessions. If you want to be even more effective in your next international negotiation, please download my free International Business Negotiation Preparation Checklist.

Best of success in all of your international business endeavors!
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http://www.ibt-articles.com/absnet/templates/?z=2&a=566Mon, 14 Apr 2014 00:00:00 GMT
When a Mouse is an Elephant
A company in the United States placed an order with a company from a country other than Scotland. The seller asked the buyer to open a letter of credit to pay for the purchase. The merchandise description in the letter of credit read simply, "Scotch Whiskey."

When the documents arrived at the issuing bank, they discovered that the merchandise on the invoice read, "Scotch-type Whiskey," not "Scotch Whiskey" as required by the letter of credit. The rules that govern the processing of letters of credit, the Uniform Customs and Practice for Documentary Credits (UCP), states, "The description of the goods, service or performance in a commercial invoice must correspond with that appearing in the credit." (Article 18c.)

Did it? Does Scotch-type Whiskey mean the same as Scotch Whiskey? A cautious banker would properly conclude, "Why should I make the decision? I'll call the applicant and let him decide." This is an accepted practice as defined in Article 16 of the UCP.

The applicant, too, wondered, "What is Scotch-type Whiskey?" The bank and the applicant concluded the beneficiary should submit a correct invoice to read, "Scotch Whiskey."

However, the beneficiary refused to substitute the invoice, which of course made everyone suspicious. If the beneficiary refused to replace the invoice, perhaps they shipped something other than "Scotch Whiskey." They may have shipped a whiskey like Scotch, but not Scotch.

The applicant did not waive the discrepancy, instructed the bank to refuse payment, and returned the shipment. No one, except the shipper, knows what was actually shipped, and he ain't talkin'.

Many exporters become frustrated by a bank's nit-picky examination of documents. The bank has an obligation to pay under the letter of credit only if the beneficiary presents documents that comply with the terms of the letter of credit. Without correct documents a bank can only pay if the applicant waives the discrepancies.

All legitimate discrepancies carry equal weight. A small discrepancy may seem like a mouse to the exporter, but to the importer looking for a way to refuse the payment it may look like an elephant.

Exporters must prepare documents that strictly meet the terms of the letter of credit in order to demand payment from the bank. If unable to meet the terms, they should request an amendment before shipping the goods.

Send me an e-mail to purchase a leaflet publication of the letter of credit rules, the Uniform Customs and Practice for Documentary Credits.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=564Mon, 31 Mar 2014 00:00:00 GMT
Canada, the Enigma to the North
At 5,525 miles, the U.S.-Canadian border is the longest peaceful frontier in the world. Despite that impressive statistic, Canada remains an enigma for many U.S. business people. According to the U.S. Census Bureau there are more than 300,000 companies that export from the U.S. Canada is the United States' single largest trading partner with annual goods and services trade of about $1 trillion. With such an important export market at our doorstep it is a wonder how little the average U.S. exporter really knows about Canada; present company included.

It seems some of our perceptions of Canada were formed early in childhood through the exploits of Dudley Do-Right and Snidely Whiplash. Perhaps, like me, you gained an appreciation for Canada through consumption of some of its finely brewed adult beverages. Or maybe you have been touched by one of their cultural exports such as actor William Shatner or singers Anne Murray, Celine Dion or (gasp) Justin Bieber.

But do you know anything important about Canada? Quick! Who is the current president of Canada? Well if you answered that Canada does not have a president, good for you! Canada has a constitutional monarchy with the Queen as its figurehead represented by an appointed Governor General and with principle leadership provided by an elected Prime Minister. By the way the current Prime Minister is Stephen Harper.

Perhaps even more discouraging than the lack of awareness of all things Canadian is the tendency to treat our business with Canada cavalierly, as if it were just one more domestic truck shipment across country. You don't think I'm talking about your company? Think again. Many U.S. businesses I have encountered manage their shipments to Canada through their domestic transportation group, even when they have an import/export department!

News flash! Canada is separate country with laws and regulations that differ from those in the U.S.

Your company's lack of knowledge and experience dealing with Canada's commercial and trade regulations is causing your northern customers considerable frustration and might be costing you business. Your Canadian counterparts are probably too polite to share their vexation with you. Secretly, however, they are giving themselves the V-8 salute, slapping their foreheads in exasperation.

It starts with your lack of understanding of their holidays. One customs broker in Canada shared with me that she chuckles every time she is greeted with Happy Thanksgiving in late November. For her, Thanksgiving occurred six weeks earlier in mid October. Her frustration grows, however, when you demand her office be open on July 1, Canada Day.

Of course more serious is the failure of U.S. companies to recognize that their goods are subject to regulatory oversight. Goods traveling from the United States to Canada are subject to the same U.S. export reporting and export control laws as goods sent to other countries.

This is easy to forget because most shipments are exempt from U.S. export reporting and export licensing when shipped to Canada. Nevertheless, U.S. exporters should screen their goods and Canadian transactions and retain transactional records with the same diligence and rigor they would for exports to other destinations. (You are controlling your other exports, aren't you?)

Goods entering into Canada are subject to comparable regulatory oversight as in the United States but with a slightly different twist or accent. For example, food in Canada is subject to regulations under the Canada Food Inspection Agency (CFIA). CFIA has slightly different regulations relative to food additives than the U.S. This results in goods that might pass U.S. FDA standards not meeting Canadian CFIA standards.

The Canadian customs entry process is also different. While Canada uses the Harmonized System Convention as the basis for its customs tariff, it has a unique set of 10-digit codes. These codes may require identifying additional or different product specifications or determining a different reporting quantity.

Canada has also designed a special customs invoice that incorporates more data elements than a standard commercial invoice. Your Canadian customer would like for you to complete that document, or at least provide all of the information required so that they can complete the Canada customs invoice themselves.

Finally your Canadian customer would like you to complete a NAFTA certificate for them, but they want it to be accurate and they want it to be truthful. If you don't know if your goods qualify for NAFTA, then don't complete a certificate of origin!

It is perplexing how many companies fail to agree on which party will take on the import responsibility at the time they negotiate a sales contract. Canada allows for nonresident importer status, and it is common for U.S. companies to take on the role of the importer. Without agreement about this critical obligation, U.S. sellers may find themselves paying duties and fees that were not originally in the budget.

As with any unknown situation, knowledge is power.  The Canada Border Services Agency (CBSA), the customs service in Canada, maintains a plethora of information at its website. Perhaps the greatest flaw in this website is that it provides so much guidance it is difficult to know where to start.

For those of you seeking additional guidance, you may consider taking a seminar or engaging the services of a consultant. Don't underestimate a trip north to meet with clients and service providers. Such visits are invaluable to increasing your understanding of the workings of the Canadian border.

With a little bit of additional knowledge and awareness you will find your Canadian clients will be impressed. They may even invite you to Thanksgiving dinner! Now wouldn't that be great, eh?
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http://www.ibt-articles.com/absnet/templates/?z=2&a=563Mon, 24 Mar 2014 00:00:00 GMT
Shipping Lithium Batteries by Air
According to current estimates, global manufacturers produce more than four billion lithium batteries every year. We use them extensively in all facets of our lives, and I personally can't imagine living without some of the gadgets they power.

As demand for lithium batteries has grown, so has concern about their safety. Regulators are closely examining all procedures for shipping these batteries. Why? Some battery consignments have overheated and caught fire. Once ignited, they can cause other nearby batteries to overheat and catch fire as well. These fires are very difficult to put out and produce toxic and irritating fumes.

When shipping lithium batteries, it is not always clear which mode of transport will be used. Your shipment may end up on an aircraft, and some aircraft fire suppression systems may be unable to extinguish all types of lithium battery fires. Evidence of this came with catastrophic and tragic results when both crew members of a UPS flight were killed when their 747-44AF crashed on September 3, 2010, near Dubai. Accident investigators traced the cause to a fire involving a variety of lithium batteries being carried as cargo. Correctly shipping these pervasive energy sources, especially by air, is becoming more complicated and often overlooked by shippers.

Counterfeit and no-brand lithium batteries are also of concern, because they may not have been safety tested. These lithium batteries may be poorly designed, have little protection, or contain manufacturing flaws. It is mandatory that all cells and batteries, and each subsequent re-configuration, be tested and pass the UN Manual of Tests and Criteria Part III Subsection 38.3 before they can be shipped. The regulations also forbid transport of batteries that have been identified by the manufacturer as being defective, damaged, or have the potential of producing a dangerous evolution of heat, fire or short circuit (e.g. those being returned to the manufacturer for safety reasons).

The name, lithium battery, is actually a general term and, depending on their chemistry, come in two distinct formats. Without getting too technical, they can come as either singular cells or as a combination of cells, which are considered batteries. While there are distinct differences between the two, let's just call them both batteries for the purposes of this article.

Lithium primary batteries are non-rechargeable and have lithium metal or lithium compounds as the anode. Due to their fully charged nature, shipping these batteries is very restrictive and the U.S. Federal Aviation Administration (FAA) forbids them as cargo on passenger aircraft to, from or through the U.S. The International Civil Aviation Organization's Dangerous Goods Panel is currently reviewing this restriction and is considering implementing it worldwide.

The other more popular form is lithium-ion (or Li-ion) batteries where a lithium gel or polymer is the key energy source. Because of this chemistry, they can be recharged.

Regardless of their format, with a few exceptions, all lithium cells and batteries are regulated for transport as Class 9, Miscellaneous Dangerous Goods. Each consignment containing lithium batteries must be accompanied with a document that indicates that the package contains lithium cells or batteries (primary or rechargeable) and must be handled with care. It also must indicate that a flammability hazard exists if the package is damaged; special procedures including inspection and repacking must be followed in the event the package is damaged; and a telephone number for additional information.

Complicating things further is the particular form in which the batteries are shipped. Both formats can be shipped alone, packed with equipment, contained in equipment, or possibly a mixed combination of these different forms. So we actually have six basic proper shipping names:  
  • UN3090, Lithium metal batteries
  • UN3480, Lithium ion batteries
  • UN3091, Lithium metal batteries contained in equipment
  • UN3481, Lithium ion batteries contained in equipment
  • UN3091, Lithium metal batteries packed with equipment
  • UN3481, Lithium batteries packed with equipment
Fully regulated lithium batteries contain more than two grams of lithium, and fully regulated lithium-ion batteries have a watt-hour rating higher than 100 watt-hours.

In order to ship these correctly by air, the batteries must have been tested and pass the UN Manual of Test and Criteria. A shipper must have received dangerous goods training to ensure that they know the proper classification and limits on the net quantity of lithium batteries per package. These details are indicated in the International Air Transport Association’s (IATA) Dangerous Goods Regulations (DGR) Part 4.2 as well as the applicable packing instructions. Appropriate UN tested specification packaging must be used, and the package must be marked and labeled according to the applicable specific requirements. A safety document must accompany the consignment, and a Shipper's Declaration for Dangerous Goods must accompany the air waybill.

All of these requirements also apply to fully regulated batteries packed with equipment. When fully regulated batteries are shipped contained in equipment, the UN performance testing for the package is not required, but the equipment must be packed in strong outer packagings made of suitable material of adequate strength and design in relation to the packaging's capacity and its intended use unless the battery is afforded equivalent protection by the equipment in which it is contained. At this point U.S. shippers of primary lithium metals batteries must be very careful to adhere to the more stringent Department of Transportation (DOT) restrictions for passenger carrying aircraft.

There are some exceptions, but unless a shipment is labeled for cargo aircraft only, every shipment must have "LITHIUM METAL BATTERIES—FORBIDDEN FOR TRANSPORT ABOARD PASSENGER AIRCRAFT" clearly marked on the outside of every package regardless of the shipping mode.

Depending on the amount of lithium or the strength of the cell or battery, there are exceptions for small lithium batteries. Primary metal batteries that include two grams or less of lithium or lithium-ion with a rating less than 100 watt-hours have less stringent requirements. The typical laptop battery, for example, has a rating around 60 watt-hours and qualifies for applying the exception for lithium-ion battery contained in equipment. These include a maximum limit of two batteries per non-specification packaging; no hazard label, only a lithium-ion battery handling label; and no dangerous goods declaration. There is also no maximum quantity per package when cells have a rating of 2.7 watt-hours or less and the total weight of the package does not exceed 2.5 kilograms.

Along with all the exceptions that can be applied, there are numerous special provisions that may apply to a shipment such as the limitations on shipping untested prototypes or the detailed requirements for large batteries that weigh greater than the 35-kilogram cargo aircraft limit. A very important one is Special Provision A164, which specifies packing requirements designed to prevent accidental activation and short circuiting.

This article is by no means an all-inclusive summary of all the details required to ship lithium batteries. Suffice it to say, shipping these types of cells and batteries is not something that anyone can take lightly. They are regulated for obvious reasons, and I strongly recommend shippers review their shipping department's awareness of this. Far too often during one of my training sessions I have discovered that a client occasionally ships a laptop or piece of equipment containing a lithium battery completely unaware it is regulated. They are regulated, and due diligence and training are essential.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=562Mon, 17 Mar 2014 00:00:00 GMT
Ready or Not, Myanmar Enters the Global Arena—Part 1: An Introduction
Located at the crossroads between Bangladesh, China, India, Laos and Thailand, Burma, officially the Union of Myanmar, appears to be coming out of the shadows. The country remained under the tight control of the military for five decades. In 2010, the environment changed when the former Prime Minister, Lieutenant General Thein Sein, assumed the presidency of Myanmar.

The civilian government led by Sein announced several economic reforms as well as the release of political prisoners, the right to form trade unions, and an easing in media censorship. The government undertook significant legislative reforms including the adoption of the Labor Organizations Law and the Peaceful Demonstration Law and the amendment to the Political Party Registration Law.

Myanmar sits at the crossroads of Asia's great civilizations of India and China, but the country was largely isolated because of four decades of communist rule. Myanmar's recent opening up means that for the first time in more than 50 years foreign government officials, businesses and tourists have an opportunity to visit and explore the country without censorship or restrictions. In this article, I will discuss the progress made by Myanmar to become a part of the global economy and the challenges that international businesses will face.

Sanctions Imposed and Lifted

For decades, Myanmar, under the military rule and media censorship, demonstrated an appalling human rights record. In 1990, global media reports of a crackdown on pro-democracy protests by the military led many countries to impose a wide range of restrictions and sanctions on Myanmar. These sanctions included bans on certain imports and exports, asset freezes, limits to aid assistance, and foreign travel bans for those connected to the military regime.

The European Union banned investment and trade in Burmese gems, timber and precious stones, while the United States tightened existing economic sanctions on the regime leaders, their families and supporters including freezing assets and implementing travel restrictions against designated individuals responsible for human rights abuses and public corruption. In the first part of 2012, encouraged by the fall of the regime and recent reforms, the United States and the European Union suspended economic sanctions, which provide many opportunities for investment and growth.

A government largely composed of retired generals took power in 2011 and began a radical political and economic reform program that they called a transition to disciplined democracy. They ended pro-democracy leader Aung San Suu Kyi's house arrest and began releasing hundreds of political prisoners. As a result, the West suspended or lifted most of their trade and economic sanctions. In the first part of 2012, encouraged by the fall of the regime and recent reforms, the United States, Australia, Canada and the European Union suspended many of the economic sanctions. With political sanctions easing, American and European companies are showing newfound enthusiasm to explore Myanmar.

Asian Community Eyes Myanmar

During its isolation, Myanmar had been the missing link that prevented ASEAN community from being physically and economically connected. The ASEAN community has been eying Myanmar since 2010 when the country's new government came into power. Road and port building projects are being planned and funded to reconnect Myanmar to this region. Japan, China, India and South Korea are all jockeying for a position in Myanmar. Large projects funded by investors from China, South Korea and Thailand have been approved in a number of sectors that will require imports of capital goods and construction material.

Japan remained engaged with Myanmar during its years of military rule. It is now revamping its involvement in recognition of the reforms taking place in the country. To help Myanmar succeed in its transition to a market economy, Japan's public and private sectors have pledged to support Myanmar's efforts to promote the nation's democratization, rule of law, economic reforms, and banking system reforms. It is also helping to improve the country's education system and science and engineering universities via grants and technical cooperation.

China has gained the most from the Western absence from Myanmar in the past 15 years. Chinese companies have poured about $27 billion into the country. China now dominates the oil, gas and mineral industries in the country. India and Myanmar have signed 12 agreements to strengthen trade and diplomatic ties. India expects to be the economic bridge between South and South-East Asia.

In the next article of this series, I will dive deeper into a discussion of opportunities that await companies looking to do business in Myanmar.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=561Mon, 10 Mar 2014 00:00:00 GMT
Localizing Your Products for International Markets
Years ago I began my marketing career in a healthcare software company. Generally software is an industry where products can be sold internationally without needing major changes to meet local needs. In the case of healthcare software, practicing medicine can vary from country to country, but luckily the products we marketed were highly customizable for end-user medical professionals. The greater question was: How much should the company localize marketing and support services? Should the website and marketing materials be available in the local language? Did hiring local technical support and providing local language materials help to expand the market in a specific country?

To get the root of these questions, it's helpful to take a closer look at localization versus internationalization. Localizing products or services means that your company makes changes to its offering in order to be able to sell more in another geographic market. Generally, food products require some of the most product localization. This is due to the specific preferences of consumers around the world.

Take, for example, soup. Some countries prefer their soup sold as a powder packet, while others prefer a condensed version. I once was in a country that preferred soup to be packaged as bouillon cubes to be added to hot water. Then there's the matter of individual spices and other ingredients. To sell soup abroad could require reworking every aspect of a product's production and packaging. While that might be costly, the reason to localize is to create a greater local appeal for your offering.

On the other end of the spectrum are highly technical products such as software for scientists. Usually scientists follow the same procedures regardless of country. Oftentimes scientists can read in one of a handful of more common languages such as English or Simplified Chinese. Scientists tend to have access to the internet for software downloads. This is considered internationalization: A standardizing of products and services with minimal changes for the local market.

First Hurdle: Local Regulations

There is not a product or service in the world that can be sold universally without at least some localization. The main reason is local regulations. It is critical to know the national and local laws that apply to your specific industry. This may mean a change in how your product or service is marketed. Or it may mean that your packaging must include specific references to how your product is made. Some industries must make drastic changes to what they sell to be locally compliant. Consider a requirement for metric standards in maintenance tools when your product is designed around the English measurement system. This may be too great a regulatory hurdle to jump.

Cost-Benefit Trade-Off

The trade off is making changes to appeal and sell more to more local buyers versus the cost of making these changes. If the changes are simple and low cost compared to the increased demand and a healthy profit margin, then it is worth making those changes. Here's my general formula:

Expected increase in units sold x profit margin [ > or < ] Cost of localizing

American businesses in particular should keep in mind that the up-front costs of localizing may pay off years later when your product or service is established in the overseas market.

I hope you found this article helpful. If you would like to read more about international marketing and cross-cultural communications, please visit my company site: The International Entrepreneur.

I also offer a free International Market Entry Checklist that includes what to consider when localizing your products or services for new markets.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=560Mon, 03 Mar 2014 00:00:00 GMT
International Trade Risk: Assessing Banks and Bank Risk
This is the seventh part in my series of articles on assessing risk in international trade. 

In the last two article of this series I concentrated on the issue of country competitiveness and fairness of trade. In this article I will discuss the role banks play in international trade and the potential risks you should be aware of. 

There is no doubt that banks play a vital role in society. Throughout the ages financing business activities has always been crucial for generating economic activity. Modern day banking is largely attributed as being Italian in origin, dating back to the Renaissance period in particular. 

Italy was wealthy at the time, with powerful merchant city-states such as Firenze, Siena, Venezia and Genova controlling much of the commerce in Europe. It has been claimed by some writers that Italy was virtually the monopoly banker of Europe for about 600 years. It was not until nations north of the Alps managed to grow food that the seat of finance moved northwards towards Austria and Germany. We need to remember that in those days economies were based on agriculture; the industrial revolution took place much later.

The significance of Italy in today's commercial environment can be witnessed, for example, in the use of the bill of exchange—one of the four traditional methods of payment still used in modern day international trade.

Early commerce relied on private investment, or risk taking, by wealthy individuals. They lent money they had and expected a return. If thing went according to plan, they realised a handsome ROI (return on investment), otherwise they may have lost all of their capital. Such was the case when a wealthy family loaned money to a foreign royal as part of a war chest. If the borrower lost the war, they also lost all of their assets, meaning they were unable to repay the principal back to the lender. Of course, in those days, it wasn't unusual for the borrower to die in conflict.

It was not until public banking was established that new principles were established. In the Western world these principles particularly related to the charging of interest and the associated notion of usury—that is, applying an inappropriate lending rate. As it is not my intention to provide a detailed historical account of the development of trade finance, I will stop here with history, but as someone once told me: "History is everything," so I consider this little background useful.

I have already written several articles on different methods of payment, as have several other colleagues, so the material here does not seek to duplicate that information. Instead I want to take a different perspective on banking.

Banks around the world are the lifeblood of business finance; we may complain about them, but as entrepreneurs we need them to provide liquidity. The problem has been that some banks do not appear to play by the rules, particularly in the last decade. These banks have taken excessive risks resulting in failures that have wide ramifications: the recent global financial crisis provides one good example of such events.

In international trade banks are relied upon for several purposes, such as:
  1. Foreign Exchange. The provision of specific products that may assist a trader in minimising their exchange-risk exposure.
  2. Trade Facilitation. This is highly relevant when payment is by letter of credit (LC) where banks decide on the basis of documentary data alone whether payment should be effected or not. Discounting of proceeds (advancing payments on future receivables) may be another example of trade facilitation.
  3. Commercial Loans. The availability of cash to ensure the viability of the firm. These loans may be short or long term, of a structural nature (investment in capital equipment etc.) or to provide some cash flows, as examples.
This article focuses on the second point, trade facilitation, particularly as it relates to payment for foreign sales and purchases.

When assessing and managing bank risk, country risk and bank risk are essentially inseparable. A country's risk profile is largely influenced by the health, or otherwise, of its financial system. Since banks reflect the financial position of an economy, it not difficult to imagine the natural alignment between these two elements. The risks we need to be concerned about when assessing a foreign bank may be summarised as follows:

How Reputable is the Bank?

In answering this question we may rely on a number of information sources, such as the The Organisation for Economic Co-operation and Development's Country Risk Classification, the World Bank's Doing Business, Transparency International's Corruption by Country Chart, investment services such as Moody's and Standard and Poor's, and other publicly available information to gain a broad picture about a specific bank or the banking industry in a particular nation we may know little about or have zero or limited transaction experience.

Are They Known to Your Bank?

International transactions are typically conducted through a series of correspondent arrangements, and banks have many links across different nations. Make no mistake about it, if banks are good at nothing else they are good at managing risk—this is their core business. If a bank has been suggested in negotiations, proceed cautiously if it is unknown or if no favourable reports can be obtained from your local sources.

Do You Need to Mitigate Your Risk?

A bank may be quite good, but the nation in which it operates may not be. Again this is the common link between bank risk and country risk. Banks are subject to national laws and regulations. This means they are also subject to political forces since laws and regulations are created by politicians. I will not discuss the merits or otherwise of political forces as this is beyond the scope of the article. 

If we consider this issue in relation to payment settlement method via export LC, then options may be to have the LC openly confirmed with a local bank (presumably your bank), or have it confirmed in a country other than the importing nation. The reason behind this suggestion is simply that if the nation where the bank offering the payment is questionable, it does not matter which bank you use. It is the nation that is the problem, not the operator within it. If a negative response is received on confirmation, proceed very cautiously or ask for more secure payment options (prepayment).

Consider an exporter in a delicate situation with a sensitive customer who may be easily offended by being asked to provide a confirmed LC. They may think this request means the exporter does not trust them. If the exporter is afraid that their request my cause them to lose the sale, they may decide to take a chance on the LC and go ahead with the transaction.

There is a better solution than risk losing payment. The exporter may instead make the LC subject to a silent confirmation. This is an arrangement whereby the LC is confirmed privately between an exporter and a bank (usually the exporter's bank, but it may be any bank) and nobody else need know about this. This option saves face for the importer and the exporter, but still provides financial comfort to the exporter. Of course, if the request for silent confirmation is denied, the same advice as for ordinary confirmation applies: find an alternative payment solution.

For importers it is also important to make sure they are comfortable with the bank the exporter uses for LC transactions, especially if the payment arrangements are immediately on presentation of the documents in the exporting nation and the exporter's bank has been given authority to pay against acceptable documents. I am not suggesting banks deliberately do anything untoward, but problems have been known to happen before. The importer needs to ensure they are dealing with a reputable bank; otherwise payment may occur against sub-standard or non-existent goods. How do importers satisfy themselves that a foreign bank is an acceptable risk? Confirmation is not an option as the importer knows the LC is sound; therefore, they need to evaluate the reputation of the bank.

In summary, assessing bank and bank risk should be part of the process when engaging in new business and also part of the ongoing review of transactions that should occur in an organisation. As the world of commerce changes in response to economic events, natural disasters and human decisions, so too does the risk associated with such transactions. The message is simple, yet often ignored: Do your research and be prepared. When it comes to money there is no room for emotion or complacency.

In my next article I will discuss Chambers of Commerce and Trade Consulates.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=559Mon, 24 Feb 2014 00:00:00 GMT
How Do They Say Hello in France at 4 a.m.?
Many customers use international wire transfers when making payments overseas. This includes businesses paying invoices as well as individuals sending money to relatives.

Prior to the current state-of the-art ability to initiate such transactions online, a customer was required to call their bank with the pertinent information, such as the amount to be transferred, beneficiary's name, address, bank, and bank account number.

The customer's bank is the remitting bank. The remitting bank determines how to route the money to the beneficiary's bank and to notify the beneficiary's bank that they sent the money. On rare occasions, and for a variety of reasons, the money doesn't arrive promptly at the beneficiary's bank. In such cases, the remitting bank traces the wire to determine where the money went, what went wrong, and how to correct the problem so the beneficiary receives the funds.

A bank I worked for had a customer who asked us to send a payment to a beneficiary in France. A young man in our department, Eric, took the call. He recorded the information, determined the routing, and informed the customer that the beneficiary should have the money in two to three days.

A week later, the customer called Eric and informed him that the beneficiary in France claimed non-receipt. Eric offered to put a tracer on the wire and promised the customer he would resolve it quickly.

Another week elapsed and again the customer called, somewhat less understanding this time, and informed Eric that the money still had not arrived in France. Eric came into my office and asked, "Roy, if I get up at 4:00 a.m. tomorrow and call the bank in France from my home, will the bank pay for my phone call?"

I smiled to myself as I replied, "Eric, if you want to get up at 4 a.m., yes, the bank will pay for your phone call!"

The next morning, at a staff meeting, he related what had happened. He had called the beneficiary's bank in France. The bank's operator answered, "Bon jour." Eric, who knew no French, tried to explain that he needed to speak to someone in the international department who could speak English.

After several phone transfers, he reached someone who could help. They discussed the transaction and finally placed the problem with another bank in France, an intermediary bank, who apparently had failed to relay the money. Eric asked the employee at the French bank if she had the telephone number of the intermediary bank. She said she did, and she gave it to him.

Eric then dialed the number of the intermediary bank. As it rang the first time or two he anticipated hearing, "Bon jour," and expected he would again have to find an English speaking person. Instead, he heard a voice with a distinct American accent, say, "Hello?"

Of course, this caught Eric off guard. Since he knew he had carefully dialed the number, including country code and city code, he jumped right into his reason for calling. "Hello, my name is Eric. I'm calling from a bank in the United States and I'm trying to trace a wire transfer we sent to you two weeks ago," he said and then went into a lengthy explanation of the problem.

When he paused, the voice on the other end said, "Excuse me, do you think you are speaking to a bank?"

"Why, yes," Eric replied, "to whom am I speaking?"

"I'm an American student going to school here in Paris," she explained, "I just walked down the street and heard this pay phone ringing!"

I have often reflected on this incident and continue to marvel at the remarkable sense of humor that Eric had. Most employees would have come in that morning, grumbling about how early they had to get up, and then, of all things, they ended up calling a pay phone! However, no one saw the humor in the situation better than Eric, and as he told us the story, the whole office laughed at his misfortune. I believe humor in the workplace allows us to feel more relaxed and handle stress and frustration more effectively.

If you have specific questions about incoming or outgoing international wire transfers, please contact me.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=557Mon, 17 Feb 2014 00:00:00 GMT
To B or not to B?
Dear John:

My customer wants me to complete a certificate of origin for the Panama Free Trade agreement. They gave me a form that looks much like the official NAFTA certificate. When I declared the preference criterion, I simply put B in the field. This is because I used the rules from General Note 35 of the Harmonized Tariff Schedule that provided for tariff change and regional value content.

My customer rejected my certificate and told me I had to claim B1 or B2 to indicate which part of the General Note 35 rule I had used. I don't understand. I thought I only had to claim A, B, or C preference criteria just like under the NAFTA.

Hamish

Dear Ham:

Let us reflect on Shakespeare's existential question: "To be, or not to be?" In your case the question could be restated as: "To B1 or to B2?"

The quick answer is neither.

There has been confusion in the industry about how to make the preference statement under the various trade agreements. In the absence of clear instructions many in the trade have followed the solution advised by your customer. There have been other variations of the preference criterion statement that have lead to a lack of clarity and, frankly, a question as to whether or not the goods even originate.

Recently, U.S. Customs and Border Protection (CBP) brought some clarity to the issue when it posted CSMS #13-000564. In that message CBP advised the trade not to use simple preference criteria letters such as A, B and C, unless the trade agreement itself allowed for them. As an example CBP mentions that the NAFTA allows for these preference criteria symbols.

For other agreements CBP directed the trade to cite the full rule as described in the General Note of the HTS specific to that trade program, or to cite the full rule as described in the underlying agreement itself. CBP recommended relying on the General Note as it is more readily available to the trade and it will reflect the most current iteration of the trade agreement, should there be updates to the HS nomenclature or to the agreement.

From a practical perspective what does this mean? How are you supposed to complete the certificate of origin? What should you state in the preference criterion filed? The answers to these questions are found in the General Notes of the HTS for that program.

As an example below I have inserted the origination rules from the Panama Free Trade Promotion Agreement as stated in General Note 35 of the Harmonized Tariff Schedule.

General Note 35

(b) For the purposes of this note, subject to the provisions of subdivisions (c), (d), (n) and (o) thereof, a good imported into the customs territory of the United States is eligible for treatment as an originating good of Panama or of the United States under the terms of this note if 

(i) the good is wholly obtained or produced entirely in the territory of Panama or of the United States, or both; 

(ii) the good is produced entirely in the territory of Panama or of the United States, or both, and

(A) each of the non-originating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (o) of this note; or

(B) the good otherwise satisfies any applicable regional value content or other requirements set forth in such subdivision (o); and satisfies all other applicable requirements of this note and of applicable regulations; or 

(iii) the good is produced entirely in the territory of Panama or of the United States, or both, exclusively from materials described in subdivisions (i) or (ii), above.

Where under the NAFTA you might state criterion A, under the Panama agreement you would insert the following: "USHTS General Note 35(b)(i)."

In your example you said you had used the tariff change and RVC rules and you wanted to use the comparable NAFTA preference criterion B. CBP's instructions direct you to make the following statement if you used the tariff change rule of General Note 35(o):

USHTS General Note 35(b)(ii)(A).

I believe this is what your customer intended by requesting that you use the term B1.

If you used the second portion of the General Note 35(o) rule relying on regional value content or other parameters required by the rule you would state the following:

USHTS General Note 35(b)(ii)(B).

I believe this is what your customer intended by directing you to use the term B2.

Where under the NAFTA you might state the preference criterion C, you would make the statement: USHTS General Note 35(b)(iii).

The Panama and other agreements have additional origination requirements in addition to the above terminology. If you originate your goods under one of those provisions you would reference the portion of the General Note that allows for that method of origination.

Let us also be clear on another issue. Simply because your goods originate under one of the preference criteria of the NAFTA does not mean those goods automatically originate under another agreement. Neither can we assume that the various criteria are exactly the same. For example, regional value content as calculated under the NAFTA is done differently than under the other agreements. You will need to make sure you have originated your goods independently per the terms of each of the agreements before making a certification statement.

If you would prefer to make your origination statement by quoting the underlying agreement, you will find that language posted at the U.S. Trade representative's website.

For more information about implementation of the various trade agreements, CBP has posted information to its website for each agreement.

To B1 or to B2? In the end, Ham, 'tis nobler to suffer the slings and arrows of your customer than to claim B1 or B2. 'Tis better to deliver the entire soliloquy of your origination process.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=558Mon, 10 Feb 2014 00:00:00 GMT
Keeping Up with Changes to the Dangerous Goods Transportation Regulations
Staying current with your training certification is only part of your responsibilities as a hazmat/dangerous goods shipper. It's equally important to keep well-informed about any changes to the regulations and how they might affect your business.

Imagine you received your initial compliance training for shipping dangerous goods by air and the following year the regulations have a new mandatory requirement that previously didn't exist and wasn't covered in your initial training. Since the international air regulations—the International Civil Aviation Organization's Technical Instructions (ICAO TI)—only requires recurrent training every 24 months, a shipper who isn't vigilant about monitoring regulatory changes might find out about these new requirements the hard way—from a third party after the goods have already shipped.

Sometime it's a relatively easy fix; your non-compliant consignment will be refused by cargo acceptance staff, and you will receive a report of non-compliance with the returned shipment—if it's legal to return by truck. The term frustrated consignment is applied here, although I'm not sure if it applies just to the shipment.

What if you ship by FedEx to Glasgow? The FedEx U.S. hub is in Memphis and their European hub is in Paris. That's three flight acceptance checkpoints to ensure your consignment is correct. Now what if the error does somehow get overlooked on initial acceptance and arrives at another airport for possible interlining overseas, and the cargo acceptance staff pick up the mistake there? In that case you'll have: 1) delayed delivery; 2) extra costs to correct the error and re-ship; 3) a possible non-compliance fine; and 4) a frustrated shipment and shipper.

I'm reminded of an air shipment involving a Division 6.1 toxic solid going to Brunei, interlining via Schiphol. The total package weight was within the acceptable quantity limits for cargo aircraft, but because of a recent change in the International Air Transport Association (IATA) Dangerous Goods Regulations' packing instructions, the shipper was unaware that the weight of one of the inner containers was over the new acceptable limit for inner packages. The error wasn't noticed until a Dutch Civil Aviation Authority (CAA) inspector questioned the package, had it opened, and discovered the mistake. The shipper then had to find a re-packer in Amsterdam qualified to handle dangerous goods, reschedule the shipment, and pay a fine of 3,500 Euros. We now review their product packaging with an annual audit to ensure all there packaging formats are in compliance.

For U.S. domestic transportation only, checking with the latest version of the federal regulations (CFR49) is relatively easy. Simply go online to the Government Printing Office (GPO) website and check the electronic version or go to the Department of Transportation's Pipeline and Hazardous Materials Safety Administrations (PHMSA) website and click on the Regulations hyperlink. I would strongly suggest saving this link to your web browser's favorites list.

Shipping by air is a little more complicated since ICAO and IATA don't have electronic versions. They do publish the changes on the web, but you need to know where to look. The ICAO's regulations are found in ICAO Technical Instructions for the Safe Transport of Dangerous Goods by Air. This publication is produced biennially and is now in its second year (2013/2014). These regulations are the basic legal requirements for shipping dangerous goods internationally by air. There have been three addenda and three corrigenda since it first published in January 2013. All six changes can be found online.

As most airlines (operators) are members of IATA, their regulations for carrying dangerous goods, called the DGR, incorporates the ICAO's TI as its basis. There is nothing in the DGR that is less restrictive than the Technical Instructions. If you have been trained using the IATA DGR you'll know that the pointing finger in the margins means that particular part referenced is in addition to the ICAO TI regulations. IATA publishes its DGR annually, and even though their regulations aren't used as a legal reference, the fact remains it's tricky to work in the industry without having them as a reference.

These days air transport is a fragile business with operators and their businesses changing frequently. Interlining would be a major headache without this common reference. The current price for the DGR ($275) is now getting critical, and I see this becoming a possible cause for non-compliance with shipper's pinching budgets. There is little change from the ICAO regulations as of last month other than what is mentioned above. However there are still changes that you need to verify and see if they affect your operation: IATA DGR 55th Edition addendum 1.

For transportation by vessel the International Maritime Dangerous Goods (IMDG) Code has a unique sequence for compliance. The current edition, called the 2012 Edition incorporating amendment 12-36, actually became mandatory this year (2014). It was introduced last year and shippers could voluntary comply. There is always a one year overlap from the previous edition. The International Maritime Organization (IMO) had one change in December 2013: IMDG Code Errata & Corrigenda Amendment 12-36. This is another example of where your training probably did not cover these mandatory changes. The IMO requires shipper training to be that of the country of origin's competent authority. In the U.S., it's the Department of Transportation (DOT), and they require three years as the minimum. Again the regulations can change, and you must stay in compliance with the current regulations regardless of when your training occurred.

As you can see, regulatory compliance is not just about training. It also requires shippers staying vigilant about the regulatory changes that might affect them as well. Large corporations have regulatory departments. Having a regulatory specialist is a luxury for some companies and leaves the responsible small-business owner with more work keeping an eye out for possible changes that could be crucial. You can learn more about training and monitoring options at CARGOpak.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=556Mon, 03 Feb 2014 00:00:00 GMT
Six Basic Steps for Export Compliance
According to the U.S. Department of Commerce's Bureau of Industry and Security (BIS), fines for export violations can reach up to $1 million per violation in criminal cases, while administrative cases can result in a penalty amounting to the greater of $250,000 or twice the value of the transaction. In addition, criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges. 

Penalties of this size and nature can be especially devastating to small and medium-sized businesses, which represent 97% of the approximately 300,000 U.S. companies that export, according to U.S. Census Bureau statistics. Small and medium-sized businesses may think they lack the time or money to train personnel in export regulations and the necessity of compliance screening. Even if they do have the necessary experience and training, export personnel may not have the support of senior management, who are often totally unaware of U.S. export regulations. 

BIS has published a book, Don't Let This Happen to You, which outlines exporters' compliance responsibilities and includes real-life examples of penalties they have recently issued against individuals and businesses. You can download a copy of the book at the BIS website

Protecting Your Business Against Export Violations

Businesses that are already exporting or are planning to start exporting need to follow some basic steps to ensure they are compliant with U.S. export regulations. While the following six steps are by no means all inclusive, they should provide companies with a starting point for implementing an export compliance plan. 

1. Properly Classify Your Products

Most exporters are familiar with the Harmonized System (HS) or Schedule B codes used to classify products for duty, quota and statistical purposes. However, exporters are often less familiar with the requirement that they determine whether or not their products are controlled for export by the Department of Commerce or the Department of State. 

The Department of Commerce's Bureau of Industry and Security (BIS) controls the export of most commercial products. While only a small percentage of exports under BIS's jurisdiction require an export license, it's a product's technical characteristics, the destination country, the end user, and a product's end use that factor into this determination. (Products under State Department control are typically products or services specifically related to defense and are outside the scope of this article.) 

The first step for deciding whether or not a product requires an export license is determining if it has a specific Export Control Classification Number (ECCN) by checking the U.S. Export Administration Regulations (EAR). If a product does have a five-character ECCN code, the EAR will also list one or more reasons why it is controlled. Companies use these reasons for control to help them determine if they need to apply for an export license based on the countries to which they are exporting (see step #2 below). 

You can search for an ECCN code in a printed copy of the EAR or online at the BIS website. In addition, Shipping Solutions' ExportCompliance.com website includes a Product Classification Wizard that allows you to search for the correct ECCN code by typing in a short description of your products.

Products that do not have an ECCN code and are not subject to control by any other U.S. agency are designated as EAR99. Products classified as EAR99 are low technology consumer goods and usually do not require an export license. However, even EAR99 items require licenses for exporting to embargoed countries, to a restricted party, or in support of a prohibited end use. 

2. Determine if the Destination Country Requires an Export License 

There are several reasons the U.S. government prevents exports to certain countries without an export license. In the most extreme cases, the U.S. has placed embargoes on countries like Iran and Syria for supporting terrorist activities. In other cases, the U.S. restricts companies and individuals from exporting certain products to specific countries for reasons of national security, nuclear nonproliferation, chemical and biological weapons, or several other reasons outlined in the EAR.

Companies must use the ECCN codes and reasons for control described in step #1 above to determine whether or not there are any restrictions for exporting their products to specific countries. Once they know why their products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required.

Although a relatively small percentage of all U.S. exports and reexports require a BIS license, virtually all exports and many reexports to embargoed destinations and countries designated as supporting terrorist activities require a license. These countries are Cuba, Iran, North Korea, Sudan and Syria. Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department. 

The Shipping Solutions Professional export documentation and compliance software includes an Export Compliance Module that will use the ECCN code for your product(s) and the destination country and tell you if an export license is required. If indicated, companies must apply to BIS for an export license through the online Simplified Network Application Process Redesign (SNAP-R) before they can export their products.

3. Screen All Parties In Your Export Transaction

The U.S. government, as well as several other governments and organizations like the United Nations and the European Union, publish lists of restricted parties to whom you can't export without a license. That includes items that are EAR99 or otherwise don't require an export license based on the country of export. 

These restricted parties are individuals, businesses and other organizations that have been identified as engaging in activities related to the proliferation of weapons of mass destruction, known to be involved in terrorism or drug trafficking, or who have had their export privileges suspended. These individuals, businesses or organizations could be located within the U.S. 

While there is no requirement that companies check every export against these various restricted party lists, it is a violation of export regulations to export to anyone on the U.S. lists. Even the smallest exporters should check all the parties in every export transaction against the various restricted party lists to prevent penalties. Rather than manually checking each of the individual lists, the Shipping Solutions Professional software's Export Compliance Module allows you to quickly and easily check all the parties in your export transactions against a consolidated list of denied parties.

4. Watch for Red Flags: Know How Your Product Will Be Used

Even products that seem harmless can sometimes be used in ways not intended. Companies are responsible for knowing how their products will be used once they leave the country. Some of these end uses are prohibited while others may require an export license. For example, companies may not export to certain entities involved in the proliferation of weapons of mass destruction (e.g., nuclear, biological, chemical) and the missiles to deliver them without specific authorization, no matter what the items are. 

BIS publishes a list of Red Flags that may be indications that the use of a product may be prohibited. For example, companies should be reasonably suspicious that orders for items that are inconsistent with the needs of the purchaser, a customer's declining installation and testing when included in the sales price or when normally requested, or requests for equipment configurations that are incompatible with the stated destination could be violating U.S. export regulations.

BIS cites the example of a South African businessman who tried ordering several dozen replacement switches for a medical imaging machine. In this case, it's normal to order one replacement switch; it's not normal to order several dozen at one time. It turns out these switches were going to be used as detonators for nuclear bombs. If suspicion has been raised, a company should refrain from the transaction until an export license application has been submitted to and issued by BIS.

5. Be Aware of Deemed Exports

The export restrictions outlined in the EAR don't just apply to products being shipped outside the U.S. Companies are exporting technology by sharing technical data such as plans and blueprints of products or by allowing a visual inspection of a product to foreign nationals within the U.S. This is called a deemed export and requires that companies follow the same procedures outlined in steps #1 through #4 above just as if they were physically shipping goods internationally.

6. Document Compliance

When small and medium-sized businesses become aware of their legal obligations as exporters, often their first reaction is to try to avoid these responsibilities by hiring a freight forwarder or another party to handle their exports. While there is absolutely nothing wrong with outsourcing the export functions, companies must realize that they cannot outsource their liabilities.

Companies that hire third parties to manage their exports should require documentation that all export regulations are being followed, and they should retain copies of this documentation—as well as the actual export forms that must be generated for each shipment—onsite for at least five years. This documentation can be used to demonstrate compliance with the EAR or, in case some violations are found by the U.S. government, be used as evidence of a good-faith effort to comply, which could result in reduced penalties.

Implementing Export Compliance Procedures

Companies of all sizes need to be aware of their responsibilities as exporters. This article focuses on some basic steps that all export companies and their personnel should know, follow and document. It should serve as a starting point for creating a more comprehensive and written export management and compliance plan.

For any plan to be effective, it must be endorsed by companies' top management and shared with all employees involved in any part of the export process—from managers, to sales and administrative personnel, to the warehouse team. Such an effort can save companies thousands if not hundreds of thousands or even millions of dollars in fines, prevent restrictions on exporting that can cost companies millions of dollars in lost revenue, and even jail time for the most serious violations.

An effective export compliance program includes ongoing training of all company personnel involved in the export process including all management, sales and support staff. BIS sponsors a variety of seminars across the U.S. In addition, companies like International Business Training offer a variety of books, webinars and seminars on export rules and procedures.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=555Mon, 27 Jan 2014 00:00:00 GMT
Where Does Risk Pass in Your International Shipments?
Early in my career, I heard debates on the topic: Where does risk pass? It seemed, among bankers anyway, this debate belonged to lawyers for argument in court. Now, thanks to the undertaking of the International Chamber of Commerce (ICC), we have the answer to the question. 

A recent ICC publication, Incoterms 2010, includes definitions for each of the 11 trade terms. In a well thought out sequence, it lists each Incoterm and then stipulates where the seller delivers. Delivery is defined as: "…where the risk of loss of or damage to the goods passes from the seller to the buyer." 

Once the delivery event is identified, Incoterms 2010 lists 10 responsibilities for the buyer and 10 for the seller. It addresses who jumps through hoops and over hurdles. It explains who pays for loading the inland carrier, who pays the cost of shipping to the main carrier, who pays for loading the main carrier, who pays for the cost of shipping on the main carrier, who pays for the insurance, who pays for unloading the main carrier, the inland freight, import customs, etc. Each Incoterm clearly states which responsibilities belong to the buyer and which ones belong to the seller. 

A committee of 20 people (19 from Europe and one from Japan) wrote a predecessor publication, Incoterms 1990. Notice the absence of American representation. The ICC revised Incoterms in 2000 and again in 2010. Both times they invited one American, Frank Reynolds, to the committee. Understanding Incoterms is easier when read with a European mindset. Many European countries can export products with the goods never leaving the surface of the earth: by truck, rail, barge, etc. As a result some Incoterms may not apply for many U.S. imports and exports. 

The Incoterm you use must correctly match the payment term you use. The two most misused Incoterms are EXW and FOB. For example, I have seen letters of credit issued to beneficiaries in Colorado stating, "Ex Works the seller's warehouse." That's easy to understand and often exporters think it is the least hassle for them. It essentially means, "the goods are at my back door; come and get them."

However, if the exporter has a letter of credit calling for an on-board ocean bill of lading issued from a West Coast port, how will the exporter obtain the bill of lading? What if the merchandise is destroyed en-route to the port and they can't get a bill of lading? They've fulfilled their obligation under the Ex Works agreement, but they can't get paid. 

What about FOB? It's a term as easy for an American to understand as the American flag. However, the term FOB, as Americans understand it, does not have the same meaning to the rest of the world. Our own Uniform Commercial Code defines FOB essentially as FOB here, there, or anywhere. 

As defined in Incoterm rules, FOB is reserved for ocean shipments only. Very precise in its definition, risk passes from seller to buyer when the goods are loaded on board. The 2010 revision no longer uses the phrase "pass over the rail of the ship," as used in the 2000 rules. Notice the word ship. Terms such as "FOB our plant" or "FOB Airport" are used incorrectly for international shipments, and no authoritative document exists in case of a dispute. 

How can one solve the dilemma of Ex Works and FOB and letters of credit? The answer lies in asking for the correct transport document and either using an alternative Incoterm or payment term. 

In the case of Ex Works, since the seller has no shipping responsibility, there is no transport document. One might reason that the seller could obtain a receipt from the first carrier who picks up the goods, such as a freight forwarder or a trucker. However, this exceeds the responsibilities of the exporter. Worse, what if the buyer sends a truck to pick up the goods or the trucker refuses to provide a receipt? I am of the opinion that EXW and letters of credit do not work together. 

The term FOB is restricted to ocean shipments. For all other modes, FCA or Free Carrier, is preferred. The exporter has responsibility to deliver the goods to the carrier nominated by the buyer at the named place. Americans can easily understand FCA because of its similarities to the beloved term FOB Factory. An Incoterm rule exists for almost any situation, and traders should choose the right one to prevent misunderstanding. Frank Reynolds' book, Incoterms for Americans, provides valuable insight to enable American companies to avoid misunderstanding and problems.

Contact me for information on ordering Incoterms 2010 and Mr. Reynolds' book.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=554Mon, 20 Jan 2014 00:00:00 GMT
Five Basic Rules for Effective International Negotiations
It happens more than I would like to admit. A company tells me that they have downsized their international customer base or pulled out of international markets altogether. International markets are just not profitable, they say. Upon closer investigation, a common issue is the lack of international negotiation skills. While some of the savviest companies attend extensive training in this area, here are five rules that can help address some of the biggest issues:

Rule #1: Do Your Homework

My fellow Americans are notorious for shooting from the hip or improvisational negotiations in other parts of the world. It means that we typically do little to no research on our partners or clients, on the local business norms, or on the industry in country before entering into negotiations. In most parts of the world, your counterparts will have done a great deal of research about you, your company, your culture, and anything else relevant to maximizing negotiation success. For my free checklist for international negotiations preparedness, please click here.

Rule #2: Prepare Counteroffers

A client recently told me that their staff normally approach international business negotiations as a series of concessions and price discounting. It is no wonder few international deals were profitable! Instead, know what options you have to counteroffer. For instance, a suggested lower price could be countered with a reduced scope or work or a less-expensive product. This quickly reveals what the other side values—were they looking to get a better price or do they truly have less money to spend? Sometimes a marketing testimonial or introductions in your home country can be exchanged in the negotiation instead of merely playing tug-o-war with the final contract price. Be ready with all available options.

Rule #3: Assign Roles to Team Members

International negotiations are not the same as those in the American business culture. Most overseas cultures expect more structure in negotiations—introductions of the negotiation teams, an agenda, a spokesperson for each team, etc. While a team needs to know the cultural rules expected by the other side, there are some general guidelines that apply most places. First, assign a leader who sits in the middle of your team. Second, never openly contradict something said by another person from your side. Third, if you need time to react to something that has been introduced into the negotiation, call for a break and then discuss it as a team. And finally, try to match the titles of the other team. If they are bringing a technical resource, then you should as well. If their CEO will be present, then if possible bring your CEO, too. All of this will help negotiations go smoother.

Rule #4: Start with the End in Mind

Anyone negotiating needs to know two things: 1) What is the price range and other terms that you can accept on behalf of your company? 2) If the terms are not acceptable and won't move into the right range, you need to be able to walk away from a negotiation. With this in mind, it is important to know the normal range of price movement that the other side will expect. In some countries, price normally is negotiated down more than 50%. That means that the initial price needs to be marked up accordingly so that it can drop down and still stay in the acceptable range. For any company still pricing products and services based on cost plus mark-up, this is a good time to abandon this outdated pricing strategy that works heavily against international sales.

Rule #5: Negotiations are Ongoing

Americans and their counterparts (such as the Swiss, British, Germans, Canadians) that base business deals on contracts sign the contract and then promptly file it away as a done deal. This is rarely the case. An international business relationship needs to be evolving to match the changes in external forces. When your Chinese supplier comes back asking for better terms, it is a chance to negotiate better terms for your side as well. Likewise, when something in the relationship is becoming unfavorable for your company, you can approach the other side to renegotiate in order to turn the situation around.

I hope you found these rules helpful. For more articles on international business negotiations, please visit The International Entrepreneur.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=553Mon, 13 Jan 2014 00:00:00 GMT
Training Employees Ensures Compliance with Hazmat Shipping Regulations


Hazmat compliance is not to be taken lightly. Compliance with the U.S. Department of Transportation's (DOT) hazmat regulations really starts with the hazmat employer taking responsibility as an offer or of the articles or substances that are deemed classified as hazardous materials.

These materials must be offered for transport with a statement included in the shipping papers that certifies that a hazardous material shipment is in full compliance. Most bills of lading have wording similar to this incorporated in the fine print somewhere near the bottom of the page:

I hereby declare that the contents of this consignment are fully and accurately described above by the proper shipping name, and are classified, packaged, marked and labeled/placarded, and are in all respects in proper condition for transport according to applicable international and national governmental regulations.

How does a shipper achieve this? The hazmat employer is responsible to provide training. This ensures that all the relevant employees (hazmat employees) who directly affect the safety of a shipment are knowledgeable in the all the specific job-related functions that may directly apply to them such as identification, classification, packaging, marking, labeling/placarding and shipping papers.

The DOT requires validation of this by way of testing the competency of the employee. This can be in any verbal or written form. As this is the employer's responsibility they must also establish what is a satisfactory passing score.

Certification is done by way of recording the details of the training. Each hazmat employer must create and retain a record of current training of each hazmat employee, inclusive of the preceding three years, in accordance with the regulations for as long as that employee is employed by that employer as a hazmat employee and for 90 days thereafter.

A hazmat employer must make a hazmat employee's record of current training available upon request, at a reasonable time and location, to any DOT inspector. The record must include:

  1. The hazmat employee's name;
  2. The most recent training completion date of the hazmat employee's training;
  3. A description, copy or the location of the training materials used to meet the necessary requirements of five major areas of training;
  4. The name and address of the person providing the training; and
  5. Certification that the hazmat employee has been trained and tested.

Hazmat training must address five areas: general awareness/familiarization, function-specific, safety, security, and driver training.

The requirements for the first four ensure the hazmat employee can competently determine that a shipment is in compliance with the Hazardous Materials Regulations in Part 172, Subpart H of CFR49 and any other international requirement whether shipping or receiving. The driver training requirement is located in 49 CFR 177.816 and applies to anyone who transports any quantity of a DOT regulated hazardous material.

If you ship internationally, training for international shipping requires compliance with each particular mode:

  • Vessel—IMO-IMDG Code
  • Air—ICAO/IATA DGR

This training can be used as an alternative to satisfy the function specific requirements as they apply.

What are the hazmat employer's options to provide adequate training? There are a limited amount of options for the hazmat employer to address all of these requirements.

The first option is to have someone in-house appointed as the DG/hazmat regulatory specialist. The upside is everything is under the same corporate structure. The downside is the cost of hiring someone full-time, which most companies can't justify because there isn't enough time to warrant the cost. Assigning the role to an existing employee, usually an environmental, health and safety staffer, is the alternative. They usually have enough regulatory issues to deal with and have no hazmat training experience. They are usually the designated department responsible for compliance and as such rely on outside help for this.

The second option is having employees enroll in online courses. These are fairly inexpensive, and although online classes may be cheapest way to approach compliance, they provide a very limited understanding in achieving true compliance with any subject matter as there is no interaction with student and trainer.

Another traditional method is sending each hazmat employee to a public course. These can be very expensive depending on location and the amount of staff needed to be trained. A typical three-day public class is approximately $750 per attendee plus the expense of travel if the class location is not local. Most open enrollment public seminars provide a lot of information and frankly, three days of regulatory details usually overwhelms the average shipper. If you have a variety of products and classes or perhaps you are in the forwarding business and need a broad spectrum approach, this is ideal.

Legally, the hazmat employer is only responsible for what they ship. So realistically these generic classes cannot possibly provide you with all pertinent training specific to each shipper's needs. Yes they provide a lot of relevant information, but they don't specifically address the particulars of each individual's situation. For instance, there are nine hazardous classes that range from explosives, flammable liquids and solids, compressed gases to radio-active materials, oxidizers, infectious substances, and corrosives. There are also modal specific requirements for air, rail, truck and vessel as well as the packaging standards for bulk and non-bulk. I could go on.

Why sit through details on topics you will never be required to use? This is not a DOT requirement! I have sat through enough of these classes where another attendee has too much to say about their particular issues and after three days, can be very disruptive.

A more effective approach is site-specific training classes. The instructor addresses the necessary regulatory information and specific details that only apply directly to the shipper's needs at the shipper's location. All dangerous goods/hazmat staff is trained privately as a team for their particular job functions. Another added convenience to this format is the shipper can decide on the location and date based on their preference. Rates vary for each class format but a good rule of thumb is approximately $1,500 to $2,000 per day.

Depending on the assortment of products, packaging formats, and modes of transport, most clients' needs can be addressed thoroughly in one or two days. One of the big benefits I have seen with site-specific classes is that real communication is achieved by the trainer by physically touring the facility and getting valuable insight of the operation, which he then can relate to in class.

Compared to public classes, onsite classes are an informal open forum that provides constructive discussion between all the participants concerning their site specific compliance issues. They are also conducive to inter-department discussion and promote possible alternative solutions to existing hazmat shipping problems. Attendees can ask specific questions without disrupting the class as they are all involved in the same process. One of our popular tools is preparing a typical mock consignment in class using actual packagings, labels and forms. This is not as effective in public classes because the variety of participants.

Consistency is also achieved as all the staff is trained at one time from the same instructor. Making sure clients' needs are effectively achieved, a good trainer will request a Client's Needs Assessment prior to the training. This provides them with all the relevant details needed to obtain 100% compliance for their clients.

Hazmat compliance should not be taken lightly. Enforcement is strict business and fines can be costly. An investment in training is a healthy investment for providing an increase in safety awareness for reducing accidents and peace of mind for the employer knowing they have completely fulfilled their legal regulatory requirement.

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http://www.ibt-articles.com/absnet/templates/?z=2&a=552Mon, 06 Jan 2014 00:00:00 GMT
The NAFTA Producer Solicitation—Part 1: The Exporter's Conundrum 
Editor's Note: As we come to the end of 2013, we are reprinting the two most popular articles we've published this year. Here's number two of two. Enjoy!


We've all seen them. Either we've drafted them, received them, or rolled our eyes at them. They are the infamous NAFTA solicitation letters we receive from our customers each year. The first time I heard that solicitation was a part of the NAFTA I blushed. Obviously I had the wrong idea. I've since learned that solicitation refers to letters like the following:
Dear Supplier:
 
We respectfully request you send us a NAFTA certificate of origin or equivalent manufacturer's affidavit for the following articles we purchase from your company and that you manufacture. See the attached list.
 
If you are not the producer of these goods, we respectfully request you pass along a NAFTA certificate issued by the producer or an equivalent manufacturer's affidavit from that producer.
 
The official NAFTA Certificate of Origin, CBP form 434, and its continuation sheet, form 434A, are available from U.S. Customs and Border Protection. The PDF version of these forms is conveniently available within the forms menu at CBP.gov. Instructions for completing the NAFTA Certificate of Origin are printed on the back of the form. An example of an acceptable manufacturer's affidavit form is also attached as an alternative.
 
A third form is attached, which may be used to inform us of the country of origin of goods that do not originate under the NAFTA. Use this document for goods of any nation including U.S., Canadian and Mexican goods that you know are made in North America but you do not know or cannot prove they meet the higher standard of origination under the NAFTA.
 
Thanks you for your prompt response and cooperation.
 
Sincerely Yours,
Very Important Customer
Most of the letters I've seen follow some version of the script above. One would think that this would be effective and that, after about 20 years of doing NAFTA, suppliers would be schooled in working with the forms.
 
One would have another think coming.
 
Anecdotal experience indicates that the state of the NAFTA Producer's Certificate of Origin is in disarray. I would even go so far as to say it is in chaos.
 
One frustrated NAFTA participant inked the following producer's solicitation letter and, in a moment of poor judgment, sent it to all of his domestic suppliers.
Dear Ignorant Domestic Supplier:
 
Against our better judgment we are asking you, once again, to complete a NAFTA certificate of origin, hoping against all hopes that in the past year you might have attended a seminar on the subject and finally have gotten your act together.
 
We are only doing this because, well, we really need to ensure that our goods meet the NAFTA rules when exporting to Canada and Mexico. This gives us and you a competitive advantage in the marketplace.
 
If you are still not confident in the method of completing this document, please, Please, PLEASE do not guess. The instructions are on the back of the form. When you fill out the document incorrectly it makes you look really, well, uh... stupid. There! It's been said. You know how you can tell when your teenager is lying? Well it is the same way with the NAFTA certificate. It is obvious but difficult to explain. A couple of clues for you:
  1. The signature date is the date you sign the document. DUH! It is amazing how many of you appear to come into the office on your New Year's holiday to sign these forms.
  2. Be consistent with your date order. Please don't give me MM/DD/YYYY in one field and DD/MM/YYYY in the next. By the way, this is a U.S. form. I would prefer you use U.S. date order. If you are going to use some other date order, please label the date accordingly.
  3. The first instruction on the back of the certificate says to complete the certificate in full. Please don't leave any fields blank.
  4. If field 1 "Exporter"” and field 4 "Importer" are confusing to you, we suggest you create a document that looks just like a NAFTA certificate of origin. Label it "Producer’s Affidavit." Change field 1 to "Buyer." Drop field 4. Is that easer for you now?
  5. While "A" might be a good grade in school, it is usually the wrong preference criterion on a NAFTA certificate, at least for manufactured goods like yours.
  6. Oh yeah, field 9 "Net Cost" is not asking you for the price of your goods.
  7. We purchase 250 items from your company yet you responded with a single line that says "fasteners, spare parts, bearings and electrodes." You may as well have filled the description field with the word "stuff." Yes, we really do need a separate line declaring NAFTA eligibility for each of the items we purchase from you.
To top this all off, you are completing a federal form. There are legal ramifications for making false NAFTA claims. As the controller of your corporation you should know this, but you signed it anyway. Yours was the single worst certificate of origin we received from all of our suppliers last year.
 
Speaking of which, we know you are acting as the distributor for many of the goods we purchase from you. We really would like to get a statement of origin from the underlying producer of the goods. We need this because we export some of your goods as aftermarket parts to our Canadian and Mexican clients. If we do not have a producer's document we have to make a claim of No1 in field 8 of our exporter's NAFTA certificate. This is a weak statement and is frequently challenged by the destination import authorities. As a result we do not claim NAFTA on these goods. This results in the client paying duty when it probably isn’t necessary.
 
Please, Please, Please share a copy of the producer's certificate with us. We promise, crisscross applesauce, we will not disintermediate your company and work directly with the producer. We would be happy to put that promise in writing. What? You do not have a producer' NAFTA statement to share with us? Are you crazy? In other words you haven't done your homework, but you were willing to make a false statement on a federal document just to get us off your back? We realize you think you know that the goods originate. NAFTA, however, is not a belief system. It requires documentary evidence that a good qualifies for the program.
 
And no, we are not going to dictate to you nor teach you how to complete the certificate of origin. That includes providing HS codes. That is your responsibility.
 
Please do not interpret our commercial urgency as a threat that you must misrepresent your goods as being North American. We simply need to understand the facts within our supply chain so that we can, in turn, respond confidently and truthfully to our clients.
 
If you are still confused, we can only recommend that you attend a seminar on the subject. We have found the folks at International Business Training have the best course out there. They present the information in such a way that even your company will understand it. Their instructors are also consultants willing to work directly with your company to implement a NAFTA process.
 
Finally, please respond to this letter.
 
Condescendingly Yours,
Your Soon to Be Former Client
After receiving such a letter you don't think the producers are going to remain silent, do you? Stay tuned for the producer's response in our next installment.
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http://www.ibt-articles.com/absnet/templates/?z=2&a=551Mon, 30 Dec 2013 00:00:00 GMT
The Nigerian Cement Story
 
Editor's Note: As we come to the end of 2013, we are reprinting the two most popular articles we've published this year. Here's number one of two. Enjoy!


When Nigeria struck oil in the mid 1970s, it became a cash-rich country. As a result, the Nigerians began to import large quantities of consumer goods. The goods arrived at a much faster pace than the out-of-date ports could handle. Ships sprouted up in the harbor like weeds in an untended garden. Because the ports had become so out-dated, they could bring only one ship in to dock at a time, unload it, send it back out, and bring in the next ship.

Crowded conditions slowed unloading by as much as six months. (Some stories claim that it took as long as 24 months, which I cannot verify.) In addition, Nigeria charged the ship owners up to $4,000 a day in demurrage charges (a charge for the detention of a ship beyond the time allowed for unloading).

The government conducted a survey of the situation and determined they would need five million metric tons of cement to upgrade the port facilities. The problem compounded when five ministers in the government thought they had responsibility to order the cement. Consequently, they placed orders for 22 million tons of cement.

When more than 250 cement ships arrived, they only further added to the congestion and, of course, they could not unload. After about six months of waiting on the high seas in the hot and humid weather, you can probably guess what happened to the cement! It took on moisture, hardened and became useless while on board the ships.

The government immediately instructed the banks, "If you issued letters of credit for shipments of cement, don't pay." What did the banks do? They obeyed the law of the land and they didn't pay. If a shipper of cement had an irrevocable letter of credit from a Nigerian bank, suddenly it became a useless piece of paper.

How does one foresee a risk such as this? The answer: You don't. You could have the best international economist on staff who monitors and plots every possible economic trend he can find, and this risk could still be unforeseen. What makes this story so bizarre is each of the five Nigerian ministers simultaneously making a stupid decision. Since economists don't track stupid mistakes, they can't possibly predict, "Well, I think the trend shows we are due for a stupid mistake!"

How can exporters protect themselves in a scenario such as this? By having the letter of credit confirmed by another bank in another country. When a bank confirms another bank's letter of credit, the confirming bank essentially guarantees payment. Effectively, the confirming bank has issued the letter of credit themselves thereby obligating themselves to pay even if they cannot collect from the issuing bank. In this story, some confirming banks found themselves in the position of having to pay the exporters even though they were unable to collect from the Nigerian banks. It's the protection—or insurance—that an exporter wants and the risk a bank willingly takes when it confirms another bank's letter of credit.

This lesson provides an excellent example of sovereign risk. Let's define sovereign risk with the question, "Can the government intervene in any way to prevent payment from being made?" Sovereign risk includes the stability of the government and the economy.

Now, the end of the lesson: What happened to the ships? Rumor has it that the cost of chipping the cement out of the holds exceeded the cost of the ships. So, the ships were intentionally sunk and remain on the bottom of the ocean off the coast of Nigeria.

Note: I first heard this story when I attended a seminar conducted by Jim Harrington in the late 1970s. Since then I have verified what I could and have slightly revised and embellished the story based on others' recollections of this incident.

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http://www.ibt-articles.com/absnet/templates/?z=2&a=550Mon, 23 Dec 2013 00:00:00 GMT
International Communications: Making the Most of Conferencing Technology
International conferencing has helped accelerate international business expansion. Those of us involved with international business typically find that we cannot have as many face-to-face conversations with clients and partners around the world as would be ideal. Inevitably we turn to voice and video conferencing as a way to bridge the distance. It may have its technology glitches and communication challenges, but conferencing saves time and money for companies needing to coordinate international teams and service international clients. 

Here are tips on how to make the most out of this communication medium while minimizing some of its risks: 

Upgrade to a Better Technology Platform 

Most of us have used Skype or GoToMeeting to communicate with a business associate or client overseas. If your business is very small and your budget even smaller, then this may be a good approach for you. If your company is growing and your brand is anything but the low-cost leader, then it's time to upgrade to a higher performing conferencing platform. Not only will this drastically reduce technology hick-ups and eliminate embarrassing dropped calls, locked screens, and garbled voices, it will improve the chances of smoother communications. 

I have recently found a niche conferencing company that actually specializes in international conferencing services: Adigo. It delivers higher quality sound and video particularly for international calls than its low-cost/no-cost alternatives.

Use a Meeting Agenda

Casual meetings that flow from topic to topic may work in some face-to-face settings, but for international business they come across as disorganized and unimportant. Be sure to create a clear and focused meeting agenda that it sent out to all attendees ahead of the meeting. 

Choose Your Words Carefully

A big mistake I have heard many business professionals make on international calls and video calls is to speak quickly and use lots of colloquialisms. Instead, you should always speak specifically to your intended audience. How will they interpret what you say? If your counterpart is from Germany, don't use baseball analogies. Speak a little slower with more care to word choice. Simpler words are better. And be particularly careful with using humor as it can often be misunderstood as you cross cultures. 

Uncomfortable Conversations are Better in Person

International conferencing can be helpful in building relationships, advancing a sales process, or maintaining a business relationship. But what happens when the conversation is difficult because of issues in the relationship? If the client or strategic partner is important to your business, then it's time to pay a visit in order to have a face-to-face conversation. Trying to patch things up over the phone or video has a much lower success rate.

I hope these tips were helpful. For more information on doing business internationally, please visit my website: The International Entrepreneur. Good luck in all of your business dealings!
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http://www.ibt-articles.com/absnet/templates/?z=2&a=549Mon, 16 Dec 2013 00:00:00 GMT