4673 – Chap 8
Page 6 of 6
CHAPTER 8 – HOW TO IMPORT INTO THE U.S.
A. INTERNATIONAL CUSTOMS ORGANIZATIONS
1. World Customs Organization (WCO)
a. Created and administers Harmonized System Convention
b. Works with U.S. CBP and other international customs organizations
2. Homeland Security/Immigration and Customs Enforcement (ICE)
a. Law enforcement/Focus on anti-terrorism
3. Customs and Border Protection (CBP)
a. Does not support imports to extent that Dept of Commerce promotes exports.
b. Duties include:
i. anti terrorism activities (e.g. weapons trafficking)
ii. border security
iii. facilitation of lawful international trade and travel
iv. enforcement of US laws (including immigration and drug laws)
v. collection of duties
vi. processing entry of passengers/travelers
B. CUSTOMS OPERATIONS
1. Customs House Broker
a.Defined as: private company acting as a liaison/agent between US Customs and importers
b. Licensed by US Treasury
c. Use of broker not required but importer must post bond if one is not used.
d. Duties include:
i. Advises on technical aspects of importing (e.g. product classification, admissibility of product, quotas)
ii. Preparation and filing of Customs paperwork (i.e. formal entry documents) for importers
iii. Obtaining customs bonds
iv. Paying duties
v. Arranging release of merchandise
vi. Arranging delivery to importer’s warehouse/facility
2. Surety Bonds
a. Defined as: A deposit required with US Customs to ensure payment of duties, taxes, or other charges associated with the entry.
b. Features of bonds:
i. Types include
· Single Entry – valid for one entry for a specific transaction
· Continuous
· used for entries at multiple ports and/or several imports
· valid for one year
· automatically renewable
ii. Required for entries over $2,000
iii. Bond amounts
· Single – typically three times (3x) value of shipment (plus duties, taxes, customs) costs
· Continuous – generally $50,000 or 10% of total amount of taxes and fees paid in last 12 months
3. Drawback
a. Defined as: refunding of duties paid on imported goods and their derivatives if subsequently exported
4. Automated Broker Interface (ABI)
a. Automated system allowing large-volume importers to communicate with Customs
b. Allows filing of documents in advance of shipment/arrival of cargo
5. How to Become a Broker – omit (p. 202-204)
C. CUSTOMS ENTRY PROCESS
1. Requirements for entry - Not legally “imported” until
i. Goods enter port of entry
ii. Duties paid
iii. Customs authorizes delivery of goods
Continued
C. CUSTOMS ENTRY PROCESS (continued)
2. FOUR-STEP ENTRY PROCESS – Owner’s responsibility
a. Entry
i. Entry for consumption, or to be placed in bonded warehouse? Owner must decide within 24 hours of arrival
ii. If consumption – must file certain documents, including
· Entry manifest (Form 7533)
· Pro-forma or Commercial invoice
· Entry Summary (Form 7501)
· Bond
iii. Fail.
4673 – Chap 8Page 6 of 6CHAPTER 8 – HOW TO IMPORT INTO THE U.S.docx
1. 4673 – Chap 8
Page 6 of 6
CHAPTER 8 – HOW TO IMPORT INTO THE U.S.
A. INTERNATIONAL CUSTOMS ORGANIZATIONS
1. World Customs Organization (WCO)
a. Created and administers Harmonized System Convention
b. Works with U.S. CBP and other international customs
organizations
2. Homeland Security/Immigration and Customs Enforcement
(ICE)
a. Law enforcement/Focus on anti-terrorism
3. Customs and Border Protection (CBP)
a. Does not support imports to extent that Dept of Commerce
promotes exports.
b. Duties include:
i. anti terrorism activities (e.g. weapons
trafficking)
ii. border security
iii. facilitation of lawful international trade and travel
iv. enforcement of US laws (including immigration and drug
laws)
v. collection of duties
vi. processing entry of passengers/travelers
2. B. CUSTOMS OPERATIONS
1. Customs House Broker
a.Defined as: private company acting as a liaison/agent between
US Customs and importers
b. Licensed by US Treasury
c. Use of broker not required but
importer must post bond if one is not used.
d. Duties include:
i. Advises on technical aspects of importing (e.g. product
classification, admissibility of product, quotas)
ii. Preparation and filing of Customs paperwork (i.e. formal
entry documents) for importers
iii. Obtaining customs bonds
iv. Paying duties
v. Arranging release of merchandise
vi. Arranging delivery to importer’s warehouse/facility
2. Surety Bonds
a. Defined as: A deposit required with US Customs to ensure
payment of duties, taxes, or other charges associated with the
entry.
3. b. Features of bonds:
i. Types include
· Single Entry – valid for one entry for a specific transaction
· Continuous
· used for entries at multiple ports and/or several imports
· valid for one year
· automatically renewable
ii. Required for entries over $2,000
iii. Bond amounts
· Single – typically three times (3x) value of shipment (plus
duties, taxes, customs) costs
· Continuous – generally $50,000 or 10% of total amount of
taxes and fees paid in last 12 months
3. Drawback
a. Defined as: refunding of duties paid on imported goods
and their derivatives if subsequently exported
4. Automated Broker Interface (ABI)
a. Automated system allowing large-volume importers to
communicate with Customs
b. Allows filing of documents in advance
of shipment/arrival of cargo
5. How to Become a Broker – omit (p. 202-204)
4. C. CUSTOMS ENTRY PROCESS
1. Requirements for entry - Not legally “imported” until
i. Goods enter port of entry
ii. Duties paid
iii. Customs authorizes delivery of goods
Continued
C. CUSTOMS ENTRY PROCESS (continued)
2. FOUR-STEP ENTRY PROCESS – Owner’s responsibility
a. Entry
i. Entry for consumption, or to be placed in bonded
warehouse? Owner must decide within 24 hours of arrival
ii. If consumption – must file certain documents, including
· Entry manifest (Form 7533)
· Pro-forma or Commercial invoice
· Entry Summary (Form 7501)
· Bond
iii. Failure to file entry within 5 business days results in
general order.
NOTE: General order (G/O) – goods sent to customs bonded
warehouse at risk and expense of importer.
5. b. Valuation – determine value of goods
(tariff/duty purposes)
c. Classification – classify goods using
HS (very important)
d. Payment – pay applicable duties
3. ENTRY PROCESS – Customs responsibilities
a. Check and verify – check entry documents. Verify bonds
b. Examination – determine value of goods
i. Customs valuation (duties)
ii. Verify markings/country of origin
iii. Determine if prohibited items included
iv. Verify goods properly invoiced
v. Inventory – excesses or shortages?
c. Validation – checking classification of goods and assess of
duties
d. Authorize entry – after documents/assessment is accepted
e. Liquidation
i. Final step allowing legal entry of goods after duties and
charges paid.
ii. Importer notified of release of goods
D. HARMONIZED SYSTEM
1. Features
6. a. Defined as: an international, multipurpose, classification
system designed to improve the collection of import and export
statistics.
b. International versions of HS – 21 sections, 97 chapters
D. HARMONIZED SYSTEM (continued)
1. Features (continued)
c. US Harmonized Tariff Schedule (HTSUS)
i. Structure
· 22 sections, 99 chapters
ii. “Heading digits”
· 1st two digits = Chap
· 2nd two = Heading
· 3rd two = International subheading
· 4th two = US subheading
· Last two = US statistical subdivision (i.e. Stat Suffix)
iii. “Rate of Duty”
· Column 1 General – for MFNs not entitled to special tariff
treatment
· Column 1 Special – applied based on trade agreements
· Column 2 – applied with “unfriendly” countries (i.e. Cuba, N.
Korea)
OMIT “IMPORT QUOTAS” p. 221 through bottom p. 224.
E. WAREHOUSING
1. Free Trade Zone (FTZ) (a/k/a Foreign Trade Zone in the
US)
7. a. Located outside the customs territory of countries in which
they are located
b. Goods entered in FTZ duty free for display, assembly,
storage, as long as they are not for domestic consumption
OMIT “Advantages of Using an FTZ” p. 226 to top of p. 230
2. Customs Bonded Warehouse
a. Building or secured area in a customs
territory
b. Used for storage of dutiable goods
imported into a country
c. Facility owner must post bond with
US Customs
d. Facility owner liable if rules not
followed
OMIT “Types of Bonded Warehouses” bottom of p. 230 to end
of chapter
8. 4673 – Chap 7
Page 1 of 4
CHAPTER 7 – EXPORTING FROM THE U.S.
A. GOVERNMENT SUPPORT (OF U.S. EXPORTS)
1. US International Trade Administration (ITA)
a. Division of US Dept of Commerce
b. Purpose:
i. to promote trade and investment
ii. ensures fair trade by enforcing US trade laws and
agreements.
c. Three divisions:
i. Overseas Offices a/k/a Foreign Commercial Service/U.S.
Commercial Service
· Offices in 80 countries
· Help introduce US business persons to local business and
government leaders
· Offer business services including
· trade leads
· financial counseling
· export opportunities
· political and credit risk analysis
· analysis of local laws
ii. Headquarters Offices
9. · Country analysis using desk officers
· Desk Officers (2 categories)
· Market Access and Commercial Policy
· Specialists assess a country’s economic climate, trade policy,
political climate
· Trade information/Trade development
· Specialists who assess industry characteristics
(products/services) opportunities, etc.
iii. Domestic Offices
· operating through Export Assistance Centers (EACs) in the US
· Offers services of US Comm’l Services, EXIM Bank, SBA in
single location
2. District Export Councils
a. Organizations of local/regional business leaders
b. Appointed by Secretary of Commerce
2. District Export Councils (continued)
c. Work as volunteers alongside EACs
d. Services include
i. “How-to” international trade seminars and workshops
ii. Public awareness of Dept of Commerce trade assistance
programs
OMIT: “Small Business Development Centers” and “Service
10. Corps of Retired Executives” p. 171
3. Office of Export Trading Company Affairs
(OETCA)
a. Allows US businesses to join together to export using
Export Trading Companies
b. Administered through the ITA
c. Issues Export Trade Certificate of Review
i. allows exporters to avoid antitrust legislation
ii. enables firms to work together to reduce export costs and
risks while developing new export business opportunities
OMIT: From “INFORMATION SOURCES” p. 172 to middle
of p. 179
B. FREIGHT FORWARDING
1. Freight Forwarder
a.Defined as: private company licensed to support shippers and
the movement of their goods.
b. Provides advice on
i. Export/import
documentation
ii. Freight costs/shipping rates
iii. Consular fees
iv. Insurance
v. Packing
c. Types include:
11. i. Ocean freight forwarder
· Must be licensed by Federal Maritime Commission
ii. Air cargo agents
· Certified by Cargo Network Services (U.S.) through
International Air Transportation Association (IATA)
2. Shipper
a. Any company may ship its own goods but cannot receive
compensation without license
C. EXPORT CONTROLS
1. Export license
a. Defined as: a grant of authority from a government issued
to a particular exporter to export a designated item to a
designated country
b. Features:
i. Issued on a case-by-case basis
ii. Issued for single transaction or multiple transactions
within a specified period of time
2. U.S. Export license/control
a. Jurisdictional control of licenses
i. Dept of Commerce/Bureau of Industry and Security (BIS)
– most items exported
ii. Other departments:
12. · Dept of State - Arms, ammunition, etc.
· Dept of Justice/DEA – dangerous drugs, narcotics
· Nuclear Regulatory Commission – nuclear materials
· Dept of Agriculture – meat, poultry, etc
b. BUREAU OF INDUSTRY AND SECURITY (BIS)
i. Administers the Export Electronic Information (EEI)
(formerly the Shipper’s Export Declaration (SED) Form 7525-v)
· EEI required for all exports needing export license
· EEI indicates to US Customs type of export authorization used
(e.g. dangerous good, etc.)
· Used to compile trade statistics for US Census
ii. Interprets the Export Administration Regulations (EAR)
iii. Types of licenses
· “Dual Use” – term for goods having both commercial and
military applications
· Validated license – issued for items usually under control of a
US government agency/dept (i.e. CCL) and requires a license
(e.g. arms shipment)
· License Exception – on CCL, needs license
CONTINUED
iii. Types of licenses (continued)
13. · No License Required (NLR)
· items subject to EAR but not listed on CCL under a specific
ECCN
· on CCL but no license needed
· EAR99
· Items not on CCL
· generally no license required
· vast majority of goods shipped from US.
· EXCEPTION – Item is not going to embargoed country,
prohibited end user or prohibited end use.
iv. COMMERCE CONTROL LIST (CCL) and EXPORT
CONTROL CLASSIFICATION NUMBER (ECCN)
· Classifications of lists of controlled items
· ECCNs are listed in the Commerce Control List (CCL)
· Commerce Control List categories
0 = Nuclear materials, facilities and equipment (and
miscellaneous items)
1 = Materials, Chemicals, Microorganisms and Toxins
2 = Materials Processing
3 = Electronics
4 = Computers
5 = Telecommunications and Information Security
6 = Sensors and Lasers
7 = Navigation and Avionics
8 = Marine
9 = Propulsion Systems, Space Vehicles, and Related
Equipment
Five Product Groups (subset of CCL)
14. A. Systems, Equipment and Components
B. Test, Inspection and Production Equipment
C. Material
D. Software
E. Technology
OMIT: “EXPORTER’S OBLIGATIONS” p. 183 to end of
chapter
4673 – Chap 5
Page 7 of 7
CHAPTER 5 – COMPLETING A SUCCESSFUL
TRANSACTION
A. FORMS OF BANK FINANCING
Two primary categories
1. Secured Financing:
a. Defined as: Financing secured by collateral
b. Types of collateral include:
i. Advanced funds
ii. Shipment documents
iii. Banker’s acceptance (BA) time draft where bank
guarantees payment at a future date. BAs are negotiable,
tradable instruments
2. Unsecured financing
a. Uncollaterized financing available to customers with
excellent, established relationships with the bank.
OMIT “FACTORS” p. 98
15. B. SOURCES OF FINANCING
1. Private Export Funding Corp (PEFCO)
a.Founded 1970
b. Operates in conjunction with EXIM
Bank, OPIC, SBA
c. Loans guaranteed by EXIM and SBA
d. Typical loan minimum of $1m
2. Overseas Private Investment Corp (OPIC)
a. U.S.government’s development
finance institution
b. Works with private sector (via private
capital) to promote economic growth
c. Programs include
i. Financing (e.g. to SMEs)
ii. Political risk insurance
iii. Investment Funds
3. Small Business Administration – loans and support
services to small businesses
4. Export Import Bank (EXIM Bank)
a. US Government agency
b. Has funds to provide credit (loans, guarantees, etc) to
support US exports.
16. CONTINUED
B. SOURCS OF FINANCING (continued)
5. Agency for International Development (USAID)
a. An agency of US State Dept
b. Provides economic and humanitarian assistance (e.g.
grants and loans) to lesser developed countries
OMIT “INTERNATIONAL DEVELOPMENT COOPERATION
AGENCY” p. 101
C. RISKS IN IMPORT/EXPORT INDUSTRY
Types of risk include
1. Commercial Risk
a. Defined as: Risk resulting from miscommunication, fraud,
etc between seller and buyer
b. Major concern(s):
i. Seller – not getting paid
ii. Buyer – goods not received on time (or at
all) incorrect goods received
c. How to avoid:
i. Written sales contract
ii. Check buyer’s credit
iii. Check reputation of all parties
17. NOTE: Payment methods covered later in chapter
2. Shipping Risk
a. Defined as: Risk of loss or damage
during transportation
b. Major concern(s):
i. Limited liability of carriers
· ocean limited to $500 per package (or freight unit)
· regulated by U.S. Carriage of Goods by Sea (COGSA) 1936
· Air limited to US$9.07 per lb (gross weight) or US$20/kg
· regulated by the Warsaw Convention
c. How to avoid:
i. Obtain cargo/marine insurance
· covers warehouse-to-warehouse (e.g. inland marine insurance
– land based; ocean marine insurance – ocean)
· rates based on product, destination, loss history, shipping
method
3. Political risk
a. Defined as: the likelihood that a company’s investment
will be constrained by the actions of a foreign government
b. Major concern(s):
i. Wars
ii. Expropriation
iii. Expulsion
iv. FX controls
v. Export/import license revocation
18. c.How to avoid:
i. Obtain credit/loan guarantees via EXIM bank, OPIC
ii. EXIM Bank has specific
program for political risk
4. Foreign Exchange Risk
a. Defined as: Risk of loss of investment
due to fluctuations in FX
b. Major concern(s):
i. Loss of value of transaction due to unstable currencies
c. How to avoid:
i. Denominate transaction using hard currencies
ii. Use forward rate
D. GETTING PAID
1. Methods of payment
In order of riskiness to seller (most – least)
a. Open Account
i. Goods ship with no guarantee of payment
ii. Riskiest for seller
iii. Use only when close relationships
b. Consignment
19. i. Buyer (importer) keeps goods in warehouse or retail
location until sold
ii. Seller (exporter) maintains
ownership of goods
iii. Seller gets paid when goods
sold
CONTINUED
D. GETTING PAID (Continued)
1. Methods of payment (continued)
c. Drafts (a/k/a Bills of Exchange)
Include:
i. Bank draft – a “check” payable at “sight” or “tenor” (tenor
= a release period; including at “sight”)
ii. Time draft
· payable a number of days after “sight”.
· Must be accompanied by supporting documents (bill of lading,
commercial invoice, etc)
iii. Sight draft – similar to time draft, except payment due
upon sight.
d. Authority to purchase – omit
e. Letters of Credit (L/C)
20. i. Importer’s bank guarantees that exporter will be paid if all
conditions of L/C (documents, delivery, etc.) are met.
ii. Governed by the Uniform Customs and Practice for
Documentary Credits (UCP) (established by ICC)
iii. Parties to L/C
· Applicant – the buyer (importer)
· Beneficiary – seller (exporter)
· Issuing bank – buyer’s bank (issues the L/C) (may also be an
Opening bank
· Advising bank – notifies seller that LC has been issued
· Confirming bank - often the seller’s bank which adds its
commitment to the LC
iv. Types of L/Cs
· Two main categories
· Revocable – can be amended or cancelled at any time by the
applicant without consent or notification of the beneficiary
· Irrevocable – all parties must agree to amendments or
cancellations
· Common types of L/Cs
· Stand-by – L/C not executed unless payment not received in
xx days
· Transferable – see below
· Common types of L/Cs (continued)
· Transferable L/C
21. · buyer opens L/C naming middleman (e.g. supplier or
subcontractor) as beneficiary middleman transfers L/C to seller
· Assignment of proceeds (similar to Transferable L/C)
· Back-to-back – seller asks his/her bank to issue credit in favor
of a supplier using seller’s L/C as security
· Red Clause L/C – allows partial payments as a project
f. Cash in Advance
i. Least risky to seller
ii. Requires buyers to tie up capital
OMIT “AGENCY/DISTRIBUTOR AGREEMENTS” p. 119-120
E. PHYSICAL DISTRIBUTION and SHIPPING
1. Logistics a/k/a Physical Distribution
a. Defined as: the means by which goods are moved from the
manufacturer to the end customer
2. Shipping
a. Types of shipping methods (modes)
i. Water Transportation
Types of ocean lines:
· Ocean conference lines – association of ocean lines formed to
offer common rates
· Independent lines – accept any booking, based on availability
22. of space
· Tramp vessels – bulk carriers operating on charter-basis.
ii. Air Transportation
iii. Land Transportation (road and rail)
b. Shipping terms
i. Intermodalism – transportation using multiple methods per
trip
ii. Load centers – omit
iii. Bridges – omit
b. Shipping terms (continued)
iv. LCL/FCL – Less than container load/Full container
load(containers typically 20’, 40’ or 45’
v. Consignor – seller/exporter/shipper
vi. Consignee – buyer/importer
OMIT “PACKING AND MARKING FOR OVERSEAS
SHIPMENT” p. 124 to top of p. 126
F. DOCUMENTATION
Classification of documents:
1. Shipping documents:
a. Defined as: documents allowing cargo to clear customs,
get loaded aboard a vessel, and shipped to destination
23. b. Types include:
i. Export license – discussed further in Ch. 7
ii. Packing list – describe contents in shipment/cargo
iii. Bill of lading –
· Contract between seller and carrier
· Types include
· Ocean bill of lading
· Air waybill
· Surface waybill (trucking/rail)
· Straight bill of lading – non-negotiable. Goods delivered to
anyone listed as “consignee”
· Order bill of lading – negotiable. Represents ownership/title
of goods
· Clean on Board – cargo accepted/loaded without “exception”
(e.g. without damage)
· Foul bill of lading – an exception was noted (i.e. some type of
damage)
iv. Export Electronic Information (formerly Shipper’s Export
Declaration)
· Prepared by exporter or freight forwarder
· Required by US government for shipments $2,500 and over
· Used to measure volume of exports from U.S.
2. Collection Documents
a. Defined as: documents needed for submission to
receive payment
b. Include:
24. i. Commercial Invoice – details all aspects of the final
agreement between seller and buyer
2. Collection Documents (continued)
ii. Consular invoice – required by some countries for entry of
goods.
iii. Certificate of Origin – certifies that goods are made in a
particular country.
iv. Inspection Certificate – may be required by importer to
verify condition of goods prior to shipment. Often done by
independent firm.
4673 – Notes 3
Page 5 of 5
REFRESHER NOTES #3 – CROSS NATIONAL
COOPERATION AND AGREEMENTS
Important: The primary driving force behind regional economic
integration (REI) (a/k/a trading blocs) is geography (e.g.,
NAFTA involves N. American countries, the EU involves
European countries, etc.)
A. GENERAL AGREEMENT ON TARIFFS AND TRADE
(GATT)
I. Major Factors
1. Formed in 1947 under the United Nations to abolish quotas
and reduce tariffs among member countries
2. Fundamental principle – Each member must open its
markets equally to all other members.
25. 3. Most-favored-nation (MFN) Clause – prohibited
discrimination through its principle of “trade without
discrimination” – reduced tariffs were automatically extended to
all member nations.
4. GATT did not cover trade in services.
B. WORLD TRADE ORGANIZATION (WTO)
I. Major Factors
1. Formed in 1995 to replace GATT
2. Expanded GATT’s scope to include trade in services,
investment, intellectual property rights, among other items.
3. In the US, the Most Favored Nation clause is known as
Normal Trade Relations (NTR)
C. TYPES OF REGIONAL ECONOMIC INTEGRATION
(REI)
I. Free Trade Area (may be easily identified because “FTA”
usually appears in the name (CAFTA, NAFTA, EFTA)).
Features are:
1. No internal tariffs among member countries.
2. Each member sets its own tariff with non-members.
3. Example – see next page
I. Free Trade Area (continued)
26. 3. Example:
a. Assume FTA members (US, Mexico, Canada), and
Germany (non-member).
b. Trade between US, Mexico and Canada – no tariffs.
c. Between US and Germany – US sets 15% tariff
d. Between Mexico and Germany – Mexico sets 10%
e. Between Canada and Germany – Canada sets 5%
II. Customs Union
1. No internal tariffs among members.
2. Common external tariff: each member must use tariff
schedule set by the trading bloc when trading with non-
members.
3. Example
a. Assume members are US, Mexico, Canada and non-
member Germany.
b. The bloc has set an external tariff of 20% with non-
members.
c. Trade between US, Mexico and Canada – no tariffs.
d. Between US and Germany – US must use 20% tariff
e. Between Mexico and Germany – Mexico must use 20%
f. Trade between Canada and Germany – Canada must use
20%
III. Common Market
1. No internal tariffs among members.
2. Common external tariff: each member must use tariff
schedule set by the trading bloc when trading with non-
members.
27. 3. Free factor mobility – factors of production (labor, capital,
etc.) allowed to move across members’ borders without
restrictions (no tariffs, no visas required, etc.)
IV. Complete Economic Integration – see next page
IV. Complete Economic Integration
1. No internal tariffs among members.
2. Common external tariff
3. Free factor mobility – factors of production (labor, capital)
allowed to move across member borders without restrictions (no
tariffs, no visas required, etc.)
4. Common monetary and fiscal policy (e.g., the euro)
5. Political integration
NOTE – European Union is not yet at complete economic
integration category mainly due to its lack of political
integration.
D. EFFECTS OF INTEGRATION
I. Static Effects
1. Trade barriers fall (e.g. when an FTA is formed).
2. Inefficient producers are no longer protected by trade
barriers.
28. 3. Due to competition, inefficient producers are then replaced
by efficient ones.
4. Because the demand for goods made by inefficient
producers is replaced by demand for goods by efficient
producers, the overall level of demand stays the same (hence the
term “static”).
II. Dynamic Effects
1. Trade barriers fall.
2. Volume of market potential increases (more
countries/consumers now available).
3. Production increases resulting in greater economies of
scale.
4. There is overall growth in the region.
III. Trade Creation
1. Trade barriers fall.
2. Companies now able to export to new markets without
additional costs caused by barriers.
3. New products may now be shipped to these markets.
4. New industries may develop as a result of these new
products entering the market.
5. Example – see next page.
III. Trade Creation (continued)
5. Example: Assume there are no computers in Country A.
When Country A joins the FTA, computers from Country B are
exported to A. As a result, other industries (computer repair
shops, retail outlets, software developers, etc.) are created in
Country A.
IV. Trade Diversion
1. Occurs when companies trade with inefficient member
29. countries instead of efficient non-members when trade barriers
fall.
2. Example: Assume Mexican producers now trade with
efficient producers in Germany. The Mexicans must pay high
tariffs to Germany. Mexico forms FTA with US but US
producers are inefficient. Mexican trade gets diverted from
Germany to US because costs are lower due to the absence of
trade barriers.
E. NORTH AMERICAN FREE TRADE AGREEMENT
(NAFTA)
I. Areas Covered by NAFTA
1. Market access –covers topics such as tariff and non-tariff
barriers; rules of origin
2. Trade rules – covers anti-dumping legislation, health and
safety standards, subsidies
3. Services – provides for the same safeguards for trade in
services (consulting, engineering, software development), etc.
4. Investments – establishes investment rules governing
minority interests, portfolio investments. Protects investments
made by any company incorporated in any NAFTA country
regardless of the company’s country of origin.
5. Intellectual property – NAFTA members pledge to protect
intellectual property rights while ensuring that the enforcement
doesn’t itself become a barrier to trade
6. Dispute settlement – provides a process for settling
disputes in order to discourage member countries from taking
unilateral actions against an offending member (i.e. in case of
30. disputes, member countries must follow the established
settlement process and not act on their own.)
E. NORTH AMERICAN FREE TRADE AGREEMENT
(NAFTA) (continued)
II. Rules of Origin and Regional Content Rules
1. Rules of Origin require that to be eligible for NAFTA
preferential treatment (i.e., reduced or no tariff barriers), goods
must “have been the subject of substantial economic activity in
the free trade area” (i.e., a significant portion of the cost of
production of the item must have been incurred in the region).
2. Regional Content Rules (a/k/a Local Content Rules) state
specific percentages of production costs which must be incurred
in the region for the product to be considered North American
(e.g., for many products, at least 50% of the cost must be from
NAFTA countries).
III. NAFTA Special Provisions
These were included in NAFTA because of US concerns
regarding conditions in Mexico.
1. Working conditions and labor standards in Mexico have to
meet standards.
2. Environmental conditions in Mexico must meet standards.
F. CENTRAL AMERICAN-DOMINICAN REPUBLIC FREE
TRADE AGREEMENT CAFTA-DR)
Source of information: U.S. Dept. of Commerce
I. CAFTA-DR – a free trade area between the US, El
Salvador, Guatemala, Honduras, Costa Rica, the Dominican
31. Republic, and Nicaragua.
II. Approved by the US Congress in July 2005 and signed into
law (in the US) August 2005
III. Approved by El Salvador (3/1/06), Honduras and
Nicaragua (4/1/06), Guatemala (7/1/06), the Dominican
Republic (3/1/07)
IV. Passed in Costa Rica (January 1, 2009).
MAN 4673 Video Case Analysis
Page 1 of 1
MAN 4673 – TRADE POLICY AND BUSINESS
VIDEO CASE ANALYSIS GUIDELINES and QUESTIONS
Video case: “Budding Biz - David Wernick video interview with
Ralph Gazitua
This video is an interview that examines the founding and
growth of WTDC, a leading Miami-based logistics
infrastructure company founded by the Gazitua family in the
1970s. WTDC President and CEO Ralph Gazitua explains how
and why his family started the company, the various challenges
his company has faced over time and how he has adapted his
business model to meet the demands of the marketplace. The
15-minute video includes a tour of WTDC's warehouse and a
brief interview with WTDC's marketing manager.
INSTRUCTIONS:
1. Watch the 15-minute video, available at the links below.
Note that the video is in two parts. You must watch both parts:
Part 1: https://www.youtube.com/watch?v=DNRnF58Bu94
32. Part 2: https://www.youtube.com/watch?v=x0QaVG4f0G0
2. After watching the video, answer the following three
questions:
a. Identify three specific terms from the chapters/notes that
Mr. Gazitua mentioned in the video. In your own words, briefly
explain what each term means. (30 pts)
b. Review the notes on trading blocs in Refresher Notes 3 and
free trade zones in Chapter 8. If the U.S. were to withdraw
from the CAFTA-DR agreement, what impact do you think such
a decision would have on WTDC’s ability to attract and retain
customers from Central America? Be sure to support your
answer with terms and concepts from the Notes/Chapter. (35
pts)
c. With regards to attracting and retaining customers, in your
opinion, what should Mr. Gatizua do to reduce any negative
impact of a U.S. withdrawal from CAFTA-DR? Be sure to
support your answer with terms and concepts from the
Notes/Chapters. (35 pts)
3. Submission Instructions:
a. Answer the case in a Word doc. The paper must be turned
in as a Word doc attachment in the Video Case Analysis
Dropbox link in Blackboard.
b. Answer all questions using complete sentences. Points
will be deducted for using a bulleted/numbered list format. NO
BULLETS!!!
c. Please number the question you are answering. Include
your name, Panther ID, and the case title on the title page of
your paper.
33. d. The paper should be approximately 500 words (total)
excluding the title page and questions.