1 Advance payment 2 cash on delivery 3 open account

4 Documents against payment 5 documentary credit 6 bank guarantee

a Customer pays immediately on receiving the goods. This service is usually provided by the post office. b Used to cover financial risk in international transaction e.g. if a buyer does not pay. c The exporter supplies the goods and the importer/customer pays for them at an agreed date in the future. d Involves the buyer’s and the seller’s bank. It is a promise made by the opening bank* that payment will be made on receiving documents that comply with the terms agreed. d Also called cash against documents (CAD). It means that the exporter has full control over the document until payment has been made by the importer. f Customer/importer has to pay for the goods before they are shipped.

* opening bank – банк, що видає акредитив

(1-f, 2-a, 3-c, 4-e, 5-d, 6-b)

Exercise 16 Read the text about kinds of duties.

There exists export duty, import duty (including protective and preferential) and excise duty. Protective duty is imposed to prevent home producers from losing business because of cheaper foreign imports. Preferential duty is a lower rate of duty imposed on countries with whom there is a trade agreement. Excise duty is aimed at raising money for the government and is imposed on certain home-produced products such as luxury goods, cigarettes, oil and alcohol.

Import-export rates are supposed to fulfil four functions:

• to protect home producers from foreign competition in order to increase their own competitiveness in the domestic market;

• to limit exporting products in which there is a shortage in this country;

• to supply local consumers with products which are not produced in this country or produced insufficiently;

• to provide the state budget with additional financial resources.

The following documents should be presented to the Customs or be enclosed with the accounts when goods are declared:

• Customs declaration

• Bill of lading, freight document, notice or arrival or similar documents issued in connection with buying or selling the goods

• documents of origin when customs clearance of goods from certain countries under terms for preferential trade is claimed

• licences, permits, etc. for goods which are subject to import restrictions

• other documents requested by the Customs in order to determine the correct customs tariffs (duty rates), weight, quantity or value of the goods.

b) Answer the following questions.

1. What kinds of duties are mentioned? 2. What are the main functions of import and export duties? 3. What transport documents should be presented to a customs officer? 4. What documents should be filled in for restricted goods? 5. What information is required for calculating duty rates?

c) What kind of duty do you think was imposed in each case?

1. An exporter in Switzerland sent a consignment of cheese to an importer in Sweden. 2. An importer in Japan wanted to buy cheap cameras from Taiwan. 3. A group of American tourists bought a quantity of expensive perfume while on holiday in France. 4. A German tobacco company imported cigars from Cuba. 5. An Indian tea company sent a large quantity of tea to England.

Exercise 17 a) Read the dialogue.

Paying Customs Duties and Taxes

A: What kind of taxes must be paid before the goods are handed over to legal entities and individuals?

B: They include customs duties, value-added tax and some special import taxes.

A: What is ad valorem duty and how is it calculated?

B: It is a tax charged as a percentage of the value of the goods, as distinguished from a fixed duty or tax. Calculation is based on the CIF value of goods, that is on cost, insurance and freight charges. Note, that freight charges should always be included in the customs value.

A: Are all imported goods liable to VAT?

B: Most of them, there is only a small number of exemptions. The tax rate is a fixed percentage of the customs value plus any customs duties and taxes collected by the Customs on importation.

A: What does a special tax mean?

B: This is a kind of tax to which only a certain types of goods are subject.

b) Explain the meaning of the following terms used in the dialogue.

Ad valorem duty; CIF; a tax rate; a cost; freight charge; to be liable; a special tax; the Customs; a fixed duty.

Exercise 18 a) Read the text about insurance for international rail transport.

As with any commercial transaction, there are risks associated with trading internationally. Three main risks arise in international trade. These are loss, damage and delay, including detention at customs. The contracts on transportation internationally should use Incoterms (International Commercial Terms) to specify exactly how these risks are shared between buyer and seller.

Incoterms are an internationally recognised set of trading terms that spell out exactly when responsibility for the costs and risks of a transaction shift from seller to buyer. This affects the insurance needs because the greater the costs you’re responsible for, the greater the insurance cover you’ll need to arrange.

A typical cargo insurance policy covers goods in transit via road, rail, sea or air. In its simplest form it provides cover against accidental damage and other risks. The other extreme is a comprehensive all-risk policy, covering a range of specified accidents – including damage during loading, theft and negligence.

The cost of your insurance and in which circumstances you’ll receive compensation will depend on:

• the value of the goods in transit

• the expiry date of the insurance policy

• whether the journey is domestic or international

Without insurance you have only the minimum protection for your goods because freight forwarders and carriers typically have limited liability in the event of loss, or damage or delay. This comes from internationally ratified conventions and the standard trading conditions of transport associations.

b) Answer the following questions.

1. What are main risks in international trade? 2. Why are Incoterms used? 3. How is cost of the cargo related to the insurance cover? 4. What cases does a comprehensive all-risk policy cover? 5. What factors should be taken into account while receiving compensation? 6. Is it true that without insurance there is only minimum protection for the goods? Why?

Exercise 19 a) Read the text about Incoterms.

Incoterms were created by the International Chamber of Commerce in 1936. They are used to create a bridge between different members of the industry by acting as a uniform language. According to the Incoterms 2010 taken effect on January 1^st 2011, there are 11 different terms, each of which helps users deal with different situations involving the movement of goods. These Incoterms are:

Sea and Inland Waterway Transport only

1. CFR (Cost & Freight + named destination port) – вартість та фрахт (the seller pays the costs and freight to bring the goods to the port of destination, risk is transferred to the buyer once the goods have crossed the ship’s rail, insurance for the goods is not included, it is at the cost of the buyer)

2. CIF (Cost, Insurance and Freight + named destination port) – вартість, страхування та фрахт (exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer)

3. FAS (Free Alongside Ship + named loading port) – франко вздовж борта судна (the seller must place the goods alongside the ship at the named port, clear the goods for export; it is NOT used for multimodal sea transport in containers, typically used for heavy-lift or bulk cargo)

4. FOB (Free on Board + named loading port) – франко борт судна (the seller must themselves load the goods on board the ship nominated by the buyer, cost and risk being divided at the ship’s rail, the seller must clear the goods for export, the buyer must instruct the seller the details of the vessel and port where the goods are the be loaded, not for multimodal sea transport in containers)

Any Mode of Transport

5. CIP (Carriage and Insurance Paid to + named place of destination) – перевезення та страховка сплачені до (the containerised transport/multimodal equivalent to CIF, the seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier)

6. CPT (Carriage Paid to + named place of destination) – перевезення сплачено до (the general/containerised/multimodal equivalent of CFR, the seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier)

7. DAP (Delivered at Place + named place) – поставка у місці призначення (under it, delivery is when the seller puts the goods at the disposal of the buyer at a named place, on a vehicle ready for unloading, but not unloaded)

8. DAT (Delivered at Terminal + named place) – поставка на терміналі (delivery under it takes place when the seller puts the goods at the disposal of the buyer unloaded at the named terminal)

9. DDP (Delivered, Duty Paid + named destination place) – сплачена доставка та мито (the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty)

10. EXW (ex works + named place) – франко завод (the seller makes the goods available at his premises, the buyer is responsible for all charges, it places the greatest responsibility on the buyer and minimum obligation on the seller)

11. FCA (Free Carrier + named place) – франко перевізник (the seller hands over the goods, cleared for export, into the custody of the first carrier, named by the buyer, at the name place, it is suitable for all modes of transport, including carriage by air, rail, road, and containerised/multimodal sea transport)

b) You are a British exporter. What were the Incoterms here?

1. You paid for the goods to be transported to the docks at Harwich. Afterwards they become the buyer’s responsibility. 2. You made the goods ready for collection, but the buyer had to do everything else. 3. You paid all the costs involved in getting the goods to Spain, but left the costs of unloading to the importer. 4. You paid all the costs involved in getting the goods to Mexico, but the buyer took over the risk from the time the goods were loaded onto the ship in London. 5. You paid for the goods to be transported to Dover and loaded onto the ship, but that was all.

Exercise 20 a) Read the letters below and find the information to complete the following chart. In what sequence were the letters sent?

Type of goods _______________________________ Type of packing ______________________________ Number of packages __________________________ Value of goods ______________________________ Shipment from _____________ to _____________ Type of insurance ___________________________ Premium rate______________________________ Effective from_______________________________ Insurance paid by Exporter [ ] Importer [ ] Other [ ] Shipping company____________________________ Vessel _____________________________________

Letter 1

Dear Sirs

We thank you for your reply to our letter of … and your quotation. The premium you quote, namely at a rate of 90% of the declared value is satisfactory. Please note that the A\R policy is to include cover against breakages and theft and is to be effective from the moment the goods leave our warehouse. We would therefore like you to prepare the policy, and in the meantime, to issue us with a cover note. Please charge the costs to our account.

Your faithfully

Letter 2

Dear Sirs

Thank you for your letter of ….. enquiring about all risks cover for a consignment valued at ₤1500 c.i.f., to be shipped from your warehouse to Alexandria. Unfortunately we are unable to quote you our rates for this policy as we need to know the goods are to be packed, when the shipment is to take place, and the name or the shipping company and vessel. As soon as you send us this information, we will be able to send you our quotation. Assuring you of our best attention.

Yours faithfully

Letter 3

Dear Sirs

Thank you for your letter of ….. . We must apologise for omitting to supply you with various essential details concerning this shipment.

The consignment will be packed in six stout wooden crates under the careful supervision of our own warehouse stuff. The crates will be marked EH in square, ALEXANDRIA, and will be numbered 1-6. The goods will be taken from our warehouse on 22 June 2010 and loaded onto MV Blue Rose of the Blue Ribbon Shipping Company, Plc, which is to sail on 26 June. We hope you will now have all the information you require to send us a quote by return of post.

Yours faithfully

Letter 4

Dear Sirs

Thank you for your instructions to arrange cover for the shipment of food processors from Manchester to Alexandria. We confirm that the policy is to cover all risks, including breakages and pilferage, and is to be effective from the moment the goods leave your warehouse. As requested, please find enclosed our statement of charges and the cover note. In accordance with your instructions, we will be charging the premium to your account in due course.

Yours faithfully

b) Complete the sentences with the words and expressions from the above letters.

1. The ….. for this cover will be at the rate of 90% of the ….. value of ₤1500. 2. We would be grateful if you would quote us our rate for ….. against all ….. for this consignment. 3. Thank you for your letter of 10^th December, 2010 asking us to ….. our ….. for cover of your consignment of food processors to Alexandria. 4. The goods are ….. at ₤1500 ….. . 5. As soon as we receive your acceptance of your quotation, we will ….. you with a ….. . 6. We are shortly to despatch a ….. of food processors from our ….. in Manchester to Alexandria.

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