Import and export how to take your business across book 4th

IMPORT/EXPORT


Other Books by Carl Nelson
Nonfiction
Your Own Import-Export Business: Winning the Trade Game
Global Success: International Business Tactics of the 1990s
Managing Globally: A Complete Guide to Competing Worldwide
Protocol for Profit: A Manager’s Guide to Competing Worldwide
International Business: A Manager’s Guide to Strategy in the Age of Globalism
Exporting: A Manager’s Guide to World Markets

Fiction
The Advisor (Cô-vân) This Vietnam War thriller won the Southern
California Writers Conference’s award for best fiction.
Secret Players A historical saga that won the San Diego Book Awards
Association prize for best thriller of 2003.
Madam President and the Admiral Finalist 2008 National Best Book
Award and nominated for Pulitzer.


IMPORT/EXPORT
How to Take Your Business Across Borders

Fourth Edition

Dr. Carl A. Nelson

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tort or otherwise.


This fourth edition is dedicated to my daughter Monica who helped me
bring this book to birth way back in 1987 and watched as it took a life
of its own and remained a bestseller for more than two decades.


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Contents

List of Tables
List of Figures
Foreword
Acknowledgments
Introduction
The Book’s Approach
Who Is the Book For?
What’s in the Book?
The Commonalities
The Differences
Doing Business
What’s New About This Edition?
How to Use the Book
Summary

PA R T

1

CHAPTER

xv
xvii
xix
xxi
xxiii
xxvi
xxvii
xxviii
xxix
xxix
xxix
xxx
xxx
xxxii

THE COMMONALITIES

1

WINNING THE TR ADE GAME

Global Opportunities
U.S. Deficits and Surpluses
What Is an Import /Export Business?
Where Do Importers and Exporters Trade?

The World Trade Organization (WTO)
Cyber Trading

3
3
4
4
8
8
9

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viii

Contents

World Trade Centers Association (WTCA)
Trade Integrations
Why Get into Trade?
Success Stories

CHAPTER

2

LAUNCHING A PROFITABLE
TR ANSACTION

Terminology
Homework
Choosing the Product or Service
The Personal Decision
The Technical Marketing Decisions
What Is World Class?
Making Contacts
Market Research
Exporter Checklist
Importer Checklist
What’s the Bottom Line?
Initial Quotations
Terms of Sale
The Market Channel
Pricing for Profit

CHAPTER

3

PLANNING AND NEGOTIATING TO WIN

The Market Plan
Segmenting the Market
Macro Segmentation
Micro Segmentation
Executing the Market Plan
Personal Sales
Trade Shows (Fairs)
Trade Missions

Special Missions
Seminar Missions
Industry-Organized, Government-Approved Trade Missions

9
9
10
11

15
16
16
16
17
17
18
19
21
22
24
24
25
26
29
30

37
38
39
39

39
40
40
41
42
42
42
42


Contents

Catalog Shows and Video/Catalog Exhibitions
Trade Show Central
Advertising
Distributors
Overseas Trader’s Checklist
Trading Partner’s Checklist
Negotiations
Preparations
Agreeing to a Contract
Foreign Corrupt Practices Act (FCPA)
Tips and Traps of Culture
What Is Culture?
The Nine Elements of Business Culture
Practical Applications
Tips for Women
About Jokes
Intellectual Property Rights
Patent Registration

Trademark Registration
Communications
Travel

CHAPTER

4

SELLING WITH E-COMMERCE

The Internet and Your Business
Getting Started
Blogging
You Can Create Your Own Web Site
Getting Out There
Finding Foreign Markets
Finding Foreign Buyers
Government Procurement
Pricing and Marketing Your Product
Marketing Techniques
Communications
Getting Paid
Keeping in Touch

42
43
43
43
44
44

45
45
46
49
50
50
51
54
56
56
57
59
61
61
66

73
73
75
78
79
82
84
85
86
86
86
87
87
88

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x

Contents

What About the Future?
E-commerce Law
Further Readings
CHAPTER

5

COMPLETING A SUCCESSFUL
TR ANSACTION

Financing
E-banking
Forms of Bank Financing
Factors
Other Private Sources of Financing
Avoiding Risk
Agency/Distributor Agreements
Physical Distribution (Shipping and Packing)
Documentation
The Documents

CHAPTER

6

HOW TO SET UP YOUR OWN
IMPORT/EXPORT BUSINESS

The Mechanics of Start-Up
The 10 Commandments of Starting an Overseas Business
The Business Plan

PA R T

2

CHAPTER

88
89
90

93
94
95
96
98
98
101
119
120
126

127

145
146
150
150

THE DIFFERENCES

7

EXPORTING FROM THE UNITED STATES

Government Support
Information Sources
Export Prospects
Freight Forwarding
Export Controls
Where to Get Assistance
“Made in USA”

167
168
172
174
179
181
186
186

Contents

Tax Incentives for Exporting
How to Gain Relief from Unfair Import Practices
Export Cities
What Are Export Cities?
How Do Export City Clusters Work?

CHAPTER

8

HOW TO IMPORT INTO
THE UNITED STATES

World Customs Organization (WCO)
Homeland Security
Government Support
Import Information Sources
Customs House Brokers
Surety Bonds
Drawback
Automated Brokerage Interface (ABI)
How to Become a Customs Broker
Getting through the Customs Maze
The Four-Step Entry Process
Customs Service Responsibilities
The Harmonized System
Case Study: Guitars

Import Quotas
Special Import Regulations
Customs Bonded Warehouse

PA R T

3

CHAPTER

187
189
190
190
190

193
194
194
195
200
200
201
202
202
202
204
205
210
212

213
221
221
230

DOING BUSINESS IN THE
GLOBALIZED WORLD

9

Background
Headquarters

DOING BUSINESS THROUGH
WORLD TR ADE CENTERS

237
237
238

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contents

What Is a World Trade Center?
WTCA Services and Member Benefits

CHAPTER

10

DOING BUSINESS IN THE
INTEGR ATED AMERICAS

Free Trade Areas
Expanded NAFTA
Key Provisions
Transformation: Maquiladoras, Foreign Trade Zone (FTZ),
Bonded Warehouse
Maquiladora Implications
Other Existing Trade Arrangements

CHAPTER

11

DOING BUSINESS IN AN
INTEGR ATED EUROPE

The European Union (EU)
Doing Business in Russia
Further Readings

CHAPTER

12

DOING BUSINESS IN AFRICA

African Trading Potential
American Partnership for Economic Growth
Useful Nation-by-Nation Business Information
Funding Sources
Key Contacts and Web Sites

CHAPTER

13

DOING BUSINESS IN CHINA
AND INDIA

People’s Republic of China (PRC)
India

238
239

241
242
244
244
260
260
261

265

267
279
281

283
283
286
288
303
308

311
311
314


contents

CHAPTER

14

DOING BUSINESS IN THE
MIDDLE EAST

Nation-by-Nation Information
Business Protocol

CHAPTER

15

DOING BUSINESS IN THE
ASIAN PACIFIC BASIN

Background
Nation-by-Nation Information
Regional Integration
Asia-Pacific Economic Cooperation (APEC)
Further Readings and Additional Information

CHAPTER

16

Appendix A
Appendix B
Glossary
Index

20 KEYS TO IMPORT/EXPORT SUCCESS

319
319
327

331
331
333
338

338
339

341
347
349
351
387

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LIST OF TABLES

Table 2.1
Table 2.2
Table 3.1
Table 5.1
Table 5.2
Table 6.1
Table 8.1
Table 8.2
Table 8.3
Table 8.4
Table 10.1
Table 10.2
Table 10.3

Table 11.1
Table 11.2
Table 11.3
Table 12.1
Table 14.1
Table 15.1

Making Contact
Examples of Cost Elements
Intellectual Property Rights
Comparison of Various Methods of Payment
Typical Letters of Credit Charges
Categories of Expenses
Commercial Entry Process
Formal versus Informal Entry
Special Tariff Treatment Programs
Comparison of an FTZ and Bonded Warehouse
The Americas
The Americas Trade Potential
Examples of NAFTA Origin Rule Types
Western European Trading Potential
The New Free Market Nations of Europe
VAT Rates in the 27 Member Community
African Trading Potential
Middle East Trading Potential
Asia-Pacific Trading Potential

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LIST OF FIGURES

Figure I.1
Figure 1.1
Figure 1.2
Figure 1.3

Figure 2.1
Figure 2.2
Figure 2.3
Figure 2.4
Figure 2.5
Figure 2.6
Figure 2.7
Figure 3.1
Figure 3.2
Figure 3.3
Figure 4.1
Figure 4.2
Figure 5.1
Figure 5.2
Figure 5.3
Figure 5.4
Figure 5.5
Figure 5.6
Figure 5.7

World Exports of Merchandise, Goods, and Services
U.S. Balance of Trade: 1960–2004
Leading Exporters and Importers in World Merchandise
Trade: 2004 (in billions of dollars and percents)
Leading Exporters and Importers in World Trade
in Commercial Services: 2004 (in billions of dollars and
percents)
Typical Letter of Inquiry
Typical Pro Forma Invoice
Where the Risks and Costs (Obligations) Begin and End
Market Channel
Pricing Model
Export Costing Worksheet
Import Costing Worksheet
Countertrade
Sample Letter of Introduction
International Time Zones
Typical Home Page
Example of HTML
Request to Open a Letter of Credit (L/C)
Sample Letter of Credit (L/C)
The Three Phases of a Letter of Credit (L/C)
Comparison of Risks
Transferable Letter of Credit (L/C)
Assignment of Proceeds
Typical Letter of Assignment

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xviii

LIST OF F I G UR ES

Figure 5.8
Figure 5.9
Figure 5.10
Figure 5.11
Figure 5.12
Figure 5.13
Figure 5.14
Figure 5.15
Figure 5.16
Figure 5.17
Figure 5.18
Figure 5.19
Figure 5.20
Figure 6.1
Figure 6.2
Figure 6.3
Figure 6.4
Figure 6.5
Figure 7.1
Figure 8.1
Figure 8.2
Figure 8.3
Figure 8.4
Figure 8.5
Figure 8.6
Figure 8.7

Figure 10.1
Figure 10.2
Figure 10.3
Figure 15.1

Back-to-Back Letter of Credit (L/C)
Intermodal Concept
Example of Markings
Certificate of Origin
Commercial Invoice
Consular Invoice
Certificate of Manufacture
Certificate of Marine Insurance
Inspection Certificate
Packing List
Shipper’s Export Declaration
Air Waybill (Bill of Lading)
Ocean Bill of Lading
Business Plan Outline
Pro Forma Sales Projections
Pro Forma Income Statement (Profit and Loss)
Pro Forma Balance Sheet
Pro Forma Cash Flow Statement
Export License Application Form
Homeland Security Organization Chart
Organization of U.S. Customs Service
Application for Customs Broker License
Special Immediate Entry Permit (Land)
Special Immediate Entry Permit (Ocean and Air)
Sample Entry Summary

Sample Page from Harmonized Tariff Schedule
NAFTA Certificate of Origin
NAFTA Certificate of Origin (Continuation Sheet)
NAFTA Certificate of Origin (Instruction Sheet)
Dispersement of Potential Asian Bloc


FOREWORD

W

elcome to the world of international commerce. It began in a
big way with the Phoenicians over 3,000 years ago and has been
a prime mover in the development of civilization ever since.
It is a long, continuous story of people trading products unique to
their regions for the products unique to other regions. For the early
traders, this was often arduous work involving long and treacherous sea
voyages and overland passages. As trade volumes and competition grew,
strong pressures developed to produce the best product at the best price,
to market these products more effectively, and to deliver them more
efficiently and expeditiously. There was also pressure to improve
accounting and communication systems to facilitate trade. For example,
it was the Phoenicians who were responsible for the alphabet we use
today. To simplify their business transactions, they replaced the
cuneiform alphabet’s 550 characters with a 22-letter system, which was
further altered by the Greeks and Romans.
Over the centuries, commercial goals have spurred advances in a wide
range of human pursuits, including transportation, communication,
information technology, manufacturing, research, medical care, insurance, and entertainment, among others. The same commercial goals have
created a need to travel to distant lands, learn other languages, and deal

with other cultures. While the business ambitions of individual nations
or regions led to conflicts at times, the overall effect of global trade has
been to promote business growth and prosperity. In fact, I believe
strongly that the continuous expansion of world trade to include the

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f or e w or d

impoverished regions of the world is the surest path to world peace. This
is because constructive trade leads to economic development, understanding, and trust, which are essential ingredients for peace.
To be sure, the international trade landscape has changed dramatically since the early days, and this is especially true of the last decade.
Pulitzer Prize-winner Thomas Friedman has famously said, “The world
is flat.” He, of course, refers to the ability of nations previously isolated
by vast distances to now compete successfully with developed countries
through improved and low-cost communications and other technologies.
But one thing has not changed—and it will never change. Success in
world trade will go to those individuals who are best prepared for it,
including having an understanding of products, services, markets,
suppliers, distribution, documentation, regulations, financial tools, and
other aspects of world trade too numerous to mention.
In reading this book, you have made a good start to acquire the
knowledge you will need to be successful. I hope it will lead to a
rewarding career for you, and I wish you every success in this and all
your future endeavors.
Guy F. Tozzoli
President

World Trade Centers Association


Acknowledgments

I

will always be deeply indebted to my daughter Monica Askari who
helped me in the earliest stages to develop this successful book. Then
there are those who have given of their precious time to update the four
editions. These include Julie Osman of the Export Assistance Center,
U.S. Department of Commerce, San Diego, California, for her expert
advice on the chapter about exporting from the United States.
I am grateful for the research Helen Guvichy provided to update this
fourth edition as well as that of my wife Dr. Dolores Hansen Nelson,
who kept me on track. Last but not least, I’m thankful to McGraw-Hill
associate editor Melissa Bonventre’s guidance in preparing this new
edition.

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Introduction

A

dvances in technology have brought a changing world, one that

many casually refer to as globalization. For instance, in the mid1800s it took about a year to sail around the world. Now we fly it in a
day, send instant e-mails anywhere, and watch with billions of others,
the final match of the World Cup. But globalization is not new. It’s just
that the revolutionary changes of the twentieth century, particularly in
communications, have brought about a rapid economic interdependence
of countries worldwide and increasing volumes and varieties of crossborder transactions in goods and services. This includes free international financial flows, as well as rapid and widespread diffusion of
technology. Human capital also flows freely, that is, the work either goes
to the labor or the labor goes to the work. New words like integration,
outsourcing, and insourcing are part of our everyday vocabulary.
We trade German cars, Colombian coffee, Chinese clothing, Egyptian
cotton, and Indian software. As a result, families can purchase a wide range
of goods and services at very competitive prices.
Globalization has brought us the World Trade Organization (WTO),
the euro, and North American Free Trade Agreement (NAFTA).
Billions of dollars are exchanged daily around the globe by electronic
means at virtually no cost.
Because globalization spreads everything, it has become market
theory at its very best and has made passé the neoclassical economic
models, which were based on the impeded flow of goods and services
between economic jurisdictions. Theoretical ideas like “comparative
advantage” and “general equilibrium” no longer apply.

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I n t r od u ct ion

During the course of the transition we have learned that countries

engaged in globalization have prospered—goods, capital, and labor flow
remarkably freely among nations, and inequality among them has fallen.
Since World War II, globalization has brought a need for new levels
in trade negotiations. Originally under the auspices of General Agreement on Tariffs and Trade (GATT), and more recently by the World
Trade Organization (WTO) and the World Customs Organization
(WCO), rounds of mediating trade disputes and tariffs have made
significant contributions to the movement of goods and services.
World exports of goods and services grew from less than $100 million
shortly after World War II to well over $11 trillion today. Gross global
product (GGP) will rise from less than $5 trillion in 1970 to as much
as $100 trillion by the mid-21st century, and international trade
could be as much as $40 trillion, both approaching previously unthinkable levels. Figure I.1 shows the indisputable evidence of world trade
expansion.
The result of this expansion will spawn a century even more prosperous than the previous because free and open international trade is
the proven engine of economic development, and everyone is going to
be a part of it!
The purpose of this fourth edition of Import/Export: How to Take Your
Business Across Borders is to open the mysteries of international trade to
everyone so that you too can be part of the exciting changes brought
about by globalization.
The success of this book, which has continued in popularity as the
bestselling, most popular book for its purpose,* is because it continues
to be vibrant and relevant. From its many printings over the 20-year
period it has been in print, thousands of people have read it and put it
to work.
We (McGraw-Hill and the author) have stayed with a practical book
that explains the basics of the international trade transaction from A
to Z in terms anyone can understand, yet with each edition we have
brought the book to the cutting edge of the times.

*Based on Amazon.com and Barnes and Noble.com sales statistics.