Maria's Blog

A Weakness of Irrevocable Letters of Credit

2008-02-12T05:03:00.000-08:00

We recently completed a Letter of Credit shipment to Ethiopia. The Letter of Credit was not confirmed since it had been issued by a regular customer and through The Commercial Bank of Ethiopia as usual. On submission of conforming documents, the advising bank, Barclays, tried to collect funds from Lloyds bank, as per Letter of Credit instructions, but were advised that the procedure of authorisation for payment had not been completed and Lloyds had not received any such instruction from The Commercial Bank of Ethiopia. Several days later, after a great deal of pressure from the Ethiopian customer The Commercial Bank of Ethiopia sent authorisation for payment to Lloyds. Unfortunately, it was not usable because the Letter of Credit number quoted on the authorisation message did not match the Letter of Credit number on the original Letter of Credit.

It was subsequently found the The Commercial Bank of Ethiopia had made a typing mistake on their original Swift message and had typed 01 at the end of their Letter of Credit instead of 07, the correct number. Three weeks after it should have been paid, the funds were received.

There are some lessons to be learnt from this experience.

First, Irrevocable Letters of Credit are only as good as the procedures operated by the opening bank. When they go wrong the Letter of Credit payment evolves, essentially, into a collection payment and all the risks that entails. Therefore, the only guaranteed way of getting payment is to have a Confirmed Letter of Credit. Part of the problem with Confirmed Letters of Credit is the cost, so it is good practice to ensure that the contract price covers the cost of obtaining payment through Confirmed Letters of Credit. Another problem is that in some countries it is impossible to get a Confirmed Letter of Credit issued. In these circumstances, talk with the advising bank on ways of protecting the guarantee.

Secondly, Ethopian Letters of Credit issued by The Commercial Bank of Ethiopia always end with the year in which the Letter of Credit was issued. Therefore, if an Ethiopian Letter of Credit is received and the last two digits do not correspond to the year of issue, it would be good practice to just check with the issuing bank whether the Letter of Credit number is correct. It is much easier to do this before documents are submitted than afterwards.

Third, ensure that the payment schedules detailed in the Letter of Credit actually exist before shipping the goods. Although this could be costly, since the banks concerned may charge for the messsages sent, it is less costly than finding on presentation that the Letter of Credit's guarantee of payment no longer exists because of a clerical error by the opening bank.

Money Laundering Regulations

2007-12-28T02:11:00.000-08:00

New Money Laundering regulations (MLRs 2007) came into force on 15th December 2007 in the UK. Generally speaking this should not affect exporters since the type of businesses that need to register with HM Revenue and Customs are Money Service Businesses, Trust or Company Service Providers, Accountancy Service Providers and High Value Dealers.

However, it is this last category, High Value Dealers (HVD) into which some exporters may unwittingly fall.

An HVD is defined as any business prepared to accept payment of at least Euro 15,000 (or equivalent in other currencies) in cash for goods. This does not include payments under debit or credit card, but it does cover the following circumstances:

- a single transaction over Euro 15,000 either paid in one go or in installments
- a single high value payment for a large quantity of low value goods
- wholesale and retail transactions

It does not include payments for provision of services.

Dealing with goods includes circumstances even when title to the goods is not taken, when the goods do not change ownership (e.g. sale or return) and when goods are purchased over the internet.

Therefore, if there is an intention to accept such payments, even if only once in a year, then there is a legal requirement to be registered. No funds over the above limits must be accepted unless the organization is included on the HM Revenue and Customs register.

If an organization decides that they will not accept such transactions, then it is strongly advised that a written policy is immediately put into place to that effect and that all employees are made aware of the policy.

Registration is quite simple. Download an MLR100 Form from the HM Revenue and Customs website (http://tinyurl.com/2uruhr), complete and sent to HM Revenue and Customs with £95.00 (as of December 2007). If the registration is accepted, this will be advised and registration will be valid for 1 year. Thereafter, the company can be re-registered or can cancel their registration as required.

Cash payments are now regulated under a number of laws: Money Laundering Regulation 2007; Proceeds of Crime Act (PoCA) 2002, Part 7; The Terrorism Act 2000 (as amended by the Anti-Terrorism, Crime and Security Act 2001) and the EU Payments Regulation (EC) No. 1781/2006.

If there are any queries, HMRC can be contacted either by telephone (0845 0109000), e-mail (enquiries.estn@hmrc.gsi.gov.uk) or by post to HMRC National Advice Service, Written Enquiries Section, Southend on Sea, Alexander House, Victoria Avenue, Southend, Essex, SS99 1BD.

It is strongly suggested that anyone involved in international trade where traditionally some funding has arrived in cash seriously considers its policy on accepting cash payments and ensures that they a) make a decision on whether to accept cash payments, b) register immediately if they do decide to accept cash payments, and c) put in place written procedures regarding cash payments and ensures that everyone in the organisation is aware of these procedures and will abide by them.

Please note that this information is valid as of December 2007. It is also strongly suggested that a constant watch is kept on any amendments to these regulations and that policies are amended as required.

Manufacturer's Certificates of Production for Nigeria

2007-12-12T00:57:00.001-08:00

Virtually all Nigerian Letters of Credit now require Manufacturer's Certificates of Production as part of the documentary presentations. These Certificates need to be issued by the manufacturer of the item being shipped and not only have to detail out the processes and regulations under which the goods have been manufactured, e.g. electrical regulations, but also must be in accordance with the Letter of Credit conditions.

This is not a problem when the shipper of the goods has a line of communication with the manufacturer to obtain these documents nor when the manufacturer has internal systems set up to produce such documentation. The challenge comes when the shipper is trying to get such Certificates from the manufacturer when they don't have direct lines of communication, or when the manufacturer just cannot produce the certificates or when it is impossible to get such certificates, because the goods are second-hand, for example.

Short of producing the Certificates themselves (which is illegal), the shipper is seriously stuck, because even if they decide to ship the goods and submit discrepant documents, the Nigerian Bank is not allowed to pay until the Manufacturer's Certificates of Production are sent to them. One way (suggested by FBN) around this problem is to ask the Issuing Bank to allow for Suppliers Certificates of Production, but this is very rarely granted. The result, unfortunately, is that an increasing number of shippers are refusing Nigerian Letters of Credit because they cannot supply these Certificates without reverting to forgery.

One can only hope that these numbers become so great that the Nigerian Government will realise that this documentary requirement is causing problems and will come up with some alternatives that take into consideration the extent of globalization today.

Freight collect shipments to Ethiopia from the UK

2007-12-12T00:52:00.000-08:00

If you ship on freight collect terms from the UK to Ethiopia using Ethiopian Airlines, it is important to remember that Ethiopian Airlines can only forward the freight costs. All other costs, such as fuel surcharge, war risk, etc, are deemed to be part of the FOB costs paid for by the shipper. In these days of ever increasing fuel surcharge charges, this can add an unwelcome and unforseen cost to the shipper that may not have been covered in the original contractual terms, since in most shipments the fuel surcharge and war risks are charged with the freight.

Luthansa Airlines, unfortunately, do not accept freight collect shipments.

Marine Insurance Institute Cargo Clauses A, B and C

2007-10-11T07:16:00.000-07:00

Any contract where the shipper pays for the marine insurance, under CIP or CIF for example, needs to consider what type of insurance cover they are paying for and to ensure it provides the cover that the contract requires. It is good business practice, when stating that insurance is included, to actually state the Institute Cargo Clauses that are being quoted.

Institute Cargo Clause C covers loss or damage due to
Fire and Explosion, Stranding, Sinking, Capsizing, Overturning of a Lorry or train, collision, discharge at a port of distress, total loss of vehicle, general average sacrifice and jettison.

Institute Cargo Clause B covers loss or damage as per Cargo Clause C plus
Washing Overboard, Sea, Lake, River, Water damage and Total Loss of package during loading/unloading

Institute Cargo Clause A covers loss or damage as per Cargo Clause B plus
Rainwater damage, malicious damage, breakage, partial loss, shortage, pilerage and theft.

What is NOT covered by any of these Institute Cargo clauses is
Wilful misconduct of the Assured, Ordinary leakage/loss in weight, unsuitable packing, inherent vice, delay, insolvency/financial default, unseaworthiness/unfitness of craft, vessel or container, war capture seizure and problems relating to strikes, riots and terrorism.

With the last two it is possible to cover these potential losses by taking out Institute War Clauses to cover war capture seizure and Institute Strikes Clauses for problems relating to strikes (it is important to talk to the broker to see if this covers riots and terrorist attacks as well).

Clearance Chaos in Nigeria

2007-10-11T07:06:00.000-07:00

Anyone shipping by airfreight to Nigeria recently may have noticed that there has been a problem with clearance. The problem is that the Nigerian Government has not been getting as much revenue from Customs as it thinks it should be getting and so at the beginning of October 2007 sent in the Federal Customs officers to try and find out where the problem lay. The local Customs officiers responded by chaining up the doors to the Customs sheds and refusing to let them in, apparently. The Federal Customs officiers have managed to confiscate at least 7 lorry loads of cargo and have impounded a number of aircraft.

The major consequence has been that hardly any goods have been cleared through customs and incoming cargo is now lying outside the sheds being damaged by rain and disappearing through pilferage. As one Nigerian stated, when two elephants fight, it is the grass that suffers! A meeting is planned for Monday 15th October (since 11th and 12th are the EID Kabir holiday - marking the end of the Ramadan Fast) since it has been recognised that this series of events cannot continue any further. The probable end result is that the costs of clearance in Nigeria will probably rise.

"To Order" Endorsements on Bills of Lading

2007-08-31T00:51:00.000-07:00

When a Letter of Credit asks for Bills of Lading with a phrase such as "Bills of Lading made out To Order and Blank Endorsed" this means that the Consignee Box on the Bill of Lading has to literally state the words "To Order". Charles Williams of Thomas Cooper and Stibbard points out that because the Bill of Lading is a document of title, the holder or a named consignee endorsing the reverse side of the bill can negotiate a bill of lading made out "To Order". This is recognised by mercantile law. This means that property or security interests in the goods, which the Bill of Lading represents, can be transferred by a simple endorsement rather than by a formal assignment.

Although no reference to a "To Order" statement is made in Article 20 of UCP 600, in the International Standard Banking Practice, Article 102 it does state that "If a bill of lading is issued to order or to order of the shipper, it must be endorsed by the shipper. An endorsement indicating that it is made for or on behalf of the shipper is acceptable."

To endorse a Bill of Lading, the holder of the Bill of Lading (usually the Beneficiary of the Letter of Credit) has to sign on the back of the Bill of Lading. It is a good idea to ensure that the person endorsing the back of the Bill of Lading is the same signatory signing all the other documents in the presentation (although, of course, this does not apply to third party documents, such as Certificates of Origin and Insurance Certificates). Although a signature is accepted by both Shipping companies and banks as an endorsement, it is good practice to always state after the signature the phrase "For and On Behalf of .. (name of Beneficiary)."

If the shipment is going to Africa, the Middle East and some countries in South America and the Far East (always check with the applicant on this matter), it may be necessary to also put a company stamp on the back of the Bill of Lading, but it is important that the mark made by the stamp is in accordance with the wording on the Letter of Credit. Many years ago I was told by a bank that documents presented for a shipment to China were discrepant because we had stamped an endorsement on the back of the Bills of Lading with the company stamp. This company stamp spelt out the word LIMITED in full, whilst the Letter of Credit had used the abbreviation LTD. The bank insisted this was a discrepancy because LIMITED and LTD were different words!

Managing Performance Guarantees

2007-08-21T00:19:00.000-07:00

A Performance Guarantee (sometimes known as a Performance Bond) is often required when the customer has either paid funds upfront or guaranteed funds through a Letter of Credit, but wants or needs a guarantee from the supplier that the goods/services supplied will be as per the contract terms. In some countries, such as Ethiopia, Bid Bonds/Guarantees (issued when bidding for a tender) and Performance Bonds/Guarantees are almost always required for the supply of goods, and it is quite important, when working out pricing for a contact, that costs of guarantees are taken into consideration right from the beginning. Otherwise, this cost will come straight out of the profit margins and this can be costly, not only because of the actual costs, but also from the viewpoint of cash flow.

The issuance procedure and the costs of issuing Bank Guarantees vary between the different banks, but the principles are the same in that funds often need to be secured by the bank issuing the Guarantee prior to issuance and these funds, depending on the relationship between the supplier and their bank, are usually placed in a separate account. The bank will charge for issuing the Guarantee, but also will charge a commission based on the value and length of time that the Guarantee is in place. This charge is usually taken in advance for a 3 month period. Please note that commission will continue to be charged until the Guarantee is formally cancelled by the bank and this means when the physical Guarantee is returned back to the bank. There are also additional charges if the Guarantee has to be extended. (The value of the Guarantee will be determined by the supplier and can vary from 5% to 20% of the contract value.)

Once the contract has been awarded, the customer often asks for the Performance Guarantee to be issued prior to them sending the funds or issuing the Letter of Credit. If the goods being supplied are ex-stock, then this is not too problematic, but if the lead time on supplying the goods into the country of import is more than three months, then the costs can start adding up, because not only has a chunk of money been taken away from the company to cover the Guarantee, but the longer the Guarantee is in place, the more the costs will mount up.

Therefore, it would be helpful to try and negotiate at the contract stage for the Guarantee to be issued as close to the shipment of goods date as possible. With pre-payments this can be sometimes difficult to arrange. Some suppliers require a deposit with the order and payment prior to shipment and would probably be required to issue the Performance Guarantee from the time the deposit is paid. However, if a deposit is not required, then it could be possible to negotiate that the Guarantee is issued just prior to payment and shipment.

The same negotiation can be tried with Letter of Credit shipments, where a copy of the Performance Guarantee is one of the documents supporting the Letter of Credit presentation. However, in these circumstances it must be remembered that it can take up to 3 weeks (and sometimes longer) to obtain a Guarantee and that the wording on the Letter of Credit must state that the Performance Guarantee or Bond is exempt from any clauses or statements that the customer would require on other documents, mainly because the wording on Guarantees is very strictly controlled by the legal departments of banks and they may not be able to include additional information such as Letter of Credit numbers or other clauses. It would also be useful to find out from the bank that issues the Guarantee how they name their documents, because this needs to match the document name stated on the Letter of Credit.

The main obstacle to arranging this, however, is if the supplier's bank cannot issue the Guarantee themselves, and the Guarantee is issued by another bank, usually in the country of import. In which case, the Letter of Credit must make it clear that the document supplied is not a copy of the Bank Guarantee itself, but a copy of the instruction from the UK bank to the Overseas bank. Therefore, it is strongly recommended that if a Bank Guarantee is required for a contract, and the supplier wants to try and negotiate for this Guarantee to be issued for the shortest possible period, then they must talk to their bank before even issuing the quotation, to ensure that they understand all the conditions that will take place in the issuance process of the Guarantee and plan accordingly.

D-terms in Incoterms 2000

2007-08-14T05:46:00.000-07:00

There are five D-terms in Incoterms 2000. These are DAF (Delivered at Frontier), DES (Delivered Ex-Ship) DEQ (Delivered Ex-Quay), DDU (Delivered Duty Unpaid) and DDP (Delivered Duty Paid). These terms differ fundamentally from the other eight Incoterms (EXW, FCA, FAS, FOB, CFR, CTP, CIF and CIP) because they are terms used with delivery contracts. With all the other terms, the risk to and the responsibility of the seller finishes in the country of export. However, with the D-terms the seller's obligation only finishes when the goods are delivered to a particular location outside the country of export.

Delays and non-shipments can occur for many reasons. The worst case scenarios could result in the goods being lost due to the carrying vessel (either by sea, air, truck or train) being damaged, destroyed or stolen during transit. Bad weather conditions, war, terrorism, piracy, strikes, difficult transit routes, changes in customs procedures, the wrong import documents and human error can all contribute to a shipment being seriously delayed.

This carries a cost to the buyer, because they will have worked their profit margins around obtaining the goods during a particular time period, and if the goods are delayed, there will be consequential costs and loss of profit margins. With shipment contracts, these risks are held by the buyer. However, with delivery contracts, these risks, unless agreed otherwise in the original contract, can be held by the shipper and the buyer might be able to call for breach of contract, claim free of charge replacements or have the right to apply penalty clauses. Therefore, if someone sells on D-terms, it is quite important that either the contract agreed between the parties specifically shares or limits the risks and responsibilities, or the seller ensures that the insurance that covers the contract is flexible enough to cover possible financial risks. Alternatively, they could insist on using EXW, F-terms or C-terms instead.

However, sometimes commercial constraints demand that delivery contracts are required. Particular care needs to be taken with DDP, where the price includes arranging customs clearance and payment of the duty (and any other import taxes liable) for the goods. For example, someone shipping to the UK would have to pay Duty (if liable) plus Value Added Tax (VAT) at the present rate. Companies that are registered in the UK for VAT can claim back the VAT, but companies who are not registered will find that this is an additional charge on their profit margins.

With contracts that have long lead times it has to be remembered that duty rates can change, so the cost of the duty can change between the time the contract is accepted and the time the contract is delivered. Clearance of goods into some countries can also be complicated if the rules of the importing country specify that the importer has to be registered in the country of import. This could carry implications for additional taxation, therefore it would be prudent to always check the rules and regulations in the country of import first before offering a delivery contract. Alternatively, sellers could nominate a broker or agent whose responsibilities include clearing goods through customs.

Jurisdiction Clauses in International Contracts

2007-08-07T07:14:00.000-07:00

Before any organization enters into an International contract for the supply of goods and services, they should be aware of the legal pitfalls involved in so doing. The best and really only way to avoid the pitfalls is to contact an International law firm and ask their advice. Most companies avoid doing this because of the perceived cost, but the actual cost of trying to fight and win a contractual dispute which has gone as far as the Courts could be much greater.

One major problem area (amongst many others) regards Jurisdiction Clauses. An example of a Jurisdiction Clause is "Any dispute arising under or in connection with this Contract (including concerning its existence or validity) shall be referred to the English High Courts." Most English companies have a clause worded like this included in their Terms and Conditions and usually believe that this is all that is required. Unfortunately, this is sometimes not the case.

Therefore, it is strongly recommended that professional legal advice is taken on Jurisdiction Clauses with all international contracts and that anyone operating commercially within the European Community has a working knowledge, not only of Jurisdiction Clauses, but also The Brussels Regime and in particular Council Regulation (EC) 44/2001, The Court first seised rule, Anti-suit injunctions and Arbitration Clauses, at the very least.

Tarriff Headings for Imports into the UK

2007-08-02T08:07:00.000-07:00

Definitive advice on the classification of goods can be obtained from

The Classification Advisory Service
HM Revenue and Customs
Alexander House
21 Victoria Avenue
Southend-On-Sea
SS99 1AA
Tel No: 01702 366077

They will give free assistance for up to 3 tarriff headings but make the point, right at the beginning of the phone call, that their advice is non legally binding. This is because it is the legal responsibility of the importer, and only the importer, to ensure that the tarriff heading being used for their imports is correct. Anyone who makes a false declaration or gives untrue information about goods imported may be liable to penalties under the Customs and Excise Management Act 1979.

The importer is the organization (or individual) who is responsible for paying the Duty and VAT (if these charges are applicable) on goods which are imported into the European Community (EC) from outside the EC. Some companies do not practice stringent controls on their imports and allow their clearance agents or a courier company to make the decision of which tarriff heading to use. This can cause problems if the clearance agent gets the tarriff heading wrong, for whatever reason, because they are not legally liable for the mistake. The importer will always be held liable and there are very few defences that they can bring to bear to avoid being charged penalties if these are deemed necessary by HM Revenue and Customs.

The best way to deal with this potential risk is to ensure that there is someone in the organization who is responsible for ensuring that the tarriff headings used on all imports are correct. First, where possible, get the manufacturer of the goods to state the tarriff heading that they use. However, even the manufacturer can sometimes give the wrong information so as a matter of course (and in situations where the information cannot be obtained from the manufacturer) check that the description of goods that the tarriff relates to is the best possible description for the items being imported. Sometimes this means looking at what materials they are manufactured from as well as their function. Duty rates need to be ignored. Determining the tariff heading by using the lowest duty rate possible is not good practice. This checking procedure can either be clarified by the Classification Advisory Service, or by looking at a copy of the Integrated Tarriff of the United Kingdom.

These can be obtained from

TSL Limited, Publications Centre
PO Box 29, Norwich, NR3 1GN
Tel No: 0870 60055220
E-Mail: subscription@tsl.co.uk
Year's Subscription cost 2006-2007 is £250.00

Thirdly, ensure that no imports, whatsoever, are customs cleared without the written authorization of the person responsible in the company importing the goods. This includes Door to Door courier shipments and Postal shipments. No imports should come in automatically. Someone should always take responsibility for each one regardless and the reason for this is because tarriff headings and their respective duties change regularly. For example, in January 2007 a large number of tarriff headings were changed completely, such as section 8543.

Fouthly, always keep clear and concise records of why a certain tarriff heading was chosen and tie this in with each import. This may not get rid of the risk altogether, but it would certainly limit the possibility of suddenly finding that instead of 3% duty you should have been paying 7% and Customs want the difference (not only in customs duty but also VAT) paid immediately.

Shipment to Tincan Port, Lagos from Japan

2007-08-01T07:19:00.000-07:00

If you possibly can, try and avoid shipping from a Japanese Port to Tincan Port in Lagos. The connections are a bit complicated according to the Japanese supplier. They were right. A container shipped from Yokohama on 26th May 2007 was transshipped via Shanghai, Hong Kong and Port Kelang before leaving the Far East for Tincan Port. It is now due to arrive on 18th August 2007 at Tincan. Shipments to Apapa Port, Lagos are much faster to arrange since there are easier routings and connections.

Freight Collect statements on Bills of Lading

2007-07-25T01:31:00.000-07:00

A Letter of Credit for shipment of goods to Algeria by seafreight has the instruction for the Bills of Lading to include a "Freight to Collect' notation. Such notations are a necessary part of the issuance of Bills of Lading. Under ISBP (2007 Revision for UCP 600) Article 111 it states that "If a credit requires that a bill of lading show that freight has been paid or is payable at destination, the bill of lading must be marked accordingly." Article 112 further states that "Applicants and issuing banks should be specific in stating the requirements of documents to show whether freight is to be prepaid or collected."

Unfortunately, freight collect shipments are not allowed into Algeria. All Bills of Lading have to state that Freight is prepaid and Shipping Lines will not issue a Bill of Lading stating anything other than Freight Prepaid. There are a number of countries world wide where this condition applies, therefore it would be good business practice, whenever a Letter of Credit is received with any notation other than 'Freight Prepaid' to check immediately with the shipping lines that this is possible. If not, then an amendment to the Letter of Credit would be required changing this clause, unless the shipper and buyer can agree to accept discrepant documents.

Certificates of Origin issued under Letters of Credit

2007-07-05T00:57:00.000-07:00

It's quite important to remember that the consignee on the Certificate of Origin needs to relate to the delivery address on the invoice. However, what happens when the Letter of Credit appears not to allow this? For example, if the Letter of Credit has been opened in China, but the instructions on the Letter of Credit request that the Bill of Lading indicates that shipment is going to Ethiopia, what consignee address is used on the Certificate of Origin?

The answer lies in the International Standard Banking Practice (ISBP). Please note that the present publication no. 645 can only be used with UCP 500. I am advised by a very helpful and experienced Letter of Credit specialist at HSBC that a new publication of ISBP for use with UCP 600 will be coming out soon, but probably not until September 2007. Therefore, the information given here might have a use-by date since it only relates to UCP 500 and ISBP 645.

Under article 199 in ISBP 645, it states that the consignee information must not be inconsistent with the consignee information in the transport document. However, if the credit requires the transport document to be issued "to order", "to the order of shipper", "to order of the issuing bank", or "consigned to the issuing bank", the Certificate of Origin can show the applicant of the credit or another party named therein, as consignee.

Therefore, if the Letter of Credit states that the Bills of Lading are made out "To Order and Blank Endorsed" (Blank Endorsed means simply that the shipper signs on the back of the Bill of Lading) but notify the address in Ethiopia, then the Certificate of Origin can show the address in Ethiopia as the consignee address.

This is quite important because it should always be remembered that the documents issued on a Letter of Credit are not only there to obtain payment for the shipper, but to assist the consignee to import the goods into the country of import. In this particular case, if the Certificate of Origin had been issued with the name of the Chinese company as consignee, it would have been in accordance with the Letter of Credit, but useless to the Ethiopian customer for purposes of clearing their goods through Ethiopian Customs.

Additional Duty on Imports into the EC from the USA

2007-07-03T07:04:00.000-07:00

In 2000, the US Government passed the Agriculture Spending Bill, Public Law 106-387. This included an amendment called the Continued Dumping and Subsidy Offset Act of 2000 (abbreviated to CDSOA) but also known as the “Bryd Amendment” because it was initiated by Senator Robert Bryd from West Virginia to support the ailing steel industry in his area.

The CDSOA instructed US Customs to put all antidumping tariffs collected into special accounts on a case-to-case basis, instead of paying these funds direct to the General Treasury. At the end of the fiscal year, the money collected in these accounts would be paid out directly to the companies successfully participating in each case.

This proposal had been around for some time, but originally failed because of questions about its legality under the World Trade Organization (WTO) and NAFTA rules, but Senator Bryd added it under Title X to the Agriculture Appropriations Bill and it passed almost unnoticed.

The CDSOA took effect in 2001 and in that year paid out US$ 230 million to 900 claimants. In 2002 the amount paid out increased to USD 329 million paid to 1200 claimants. The worries about its legality were well founded. The trading partners of the US accused it of using the CDSOA as an unfair government-funded subsidy in violation of WTO rules.

Consequently, on 1st February 2006 the US Congress passed the Deficit Reduction Omnibus Reconciliation Act, which included a provision repealing CDSOA. This technically becomes active in October 2007, but because the underlying mechanisms of trade duty and collections has not been changed, there is a belief that the CDSOA could continue to be a revenue stream for US manufacturers for several more years.

The WTO Arbitrator determined that the European Union (EU) should be entitled to retaliate by up to an amount equal to 72% of the US subsidy. This means that the amount of retaliation will vary year to year based on the amount of money paid out to US companies.

Since May 2005 a number of items imported from the US (determined by their tariff headings and known as the affected goods) attract an additional 15% import duty on top of their existing duty rates. On 1st May 2007 a further 32 codes were added to the list to balance the amount of retaliation funding required. The full list of goods affected by the retaliatory action is available at http//tinyurl.com/37mwek (pdf) but include various types of creped paper, tablecloths, paper serviettes, handkerchiefs and facial tissues and other paper products such as diaries, writing pads, binders, albums and blotting pads. A number of textiles including types of jerseys, pullovers, cardigans, waistcoats, shirts, blouses, trousers, blankets and travelling rugs are additionally taxed as well as miscellaneous items such as sports footwear, mobile homes, electrostatic photocopying items, drills and frozen sweet corn.

Shipping Vehicles to Nigeria

2007-07-02T01:53:00.000-07:00

One of my customers asked me recently to assist him with shipping vehicles to Nigeria. This is actually quite complicated because the cost of airfreighting vehicles is incredibly expensive, so most go by conventional sea freight (since very few vehicles can fit into a container). All sea freight shipments to Nigeria presently require a Form M. In addition, the registration documents need to be submitted with the shipping documents to ensure that the vehicles do not break Nigerian law regarding limitations on age. Vehicles are deemed to be hazardous, so Hazardous Certificates are also required. Pilfering is a huge problem, so the rule is that anything which could be taken, such as ash trays and gear lever knobs are removed and packed in wooden cases. This is not an impossible exercise, but it is an expensive one.

Exporting to Kenya

2007-06-29T02:16:00.000-07:00

Exporting to Kenya is becoming a challenging exercise. What happens is this. Anyone who wants to import anything into Kenya has to open an IDF. The IDF details where the goods are coming from, who is supplying them and the tarriff headings. Some goods need pre-inspection: others do not. Goods that need to be pre-inspected have to go through the procedure of lodging their request for inspection and certification with the agency nominated by the Kenyan Government in the country of export. This is the procedure for today, by the way. It changes on a regular basis.

I have a customer in Kenya who is importing goods from both the UK and the USA. Luckily for me, the goods from the UK do not require pre-inspection so I don't have to deal with Intertek who do Kenyan inspections in the UK. Of all the goods being shipped from the USA only a piece of software which comes with its own computer does require inspection, which is dealt with by SGS. And this is where the challenges begin. The computer is made by Dell, who lets face it, have a pretty good reputation for supplying good quality equipment. However, even though Dell have given data sheets to us which indicate the standards to which their computers are made, SGS have indicated they are not satisfied. They have requested that we supply and I quote from their paperwork "ISO 9001:2000 Certificate, Declaration of Conformity complying to specific standards, manufacturer's test results or any document that would demonstrate product quality." This is a lot of paperwork and a lot of work for Dell to do in order to supply documentation for ONE computer. We are doubtful that we can get this documentation.

The customer also advised me that they had ordered some ink jet printers from South Africa. Intertek in South Africa refused to certify the shipment because they wanted documentation from the manufacturer (in Japan) stating the composition of the ink used in the printers. Apart from the fact this is confidential information, again, no-one is going to go to the extent of producing this paperwork for two ink jet printers worth about GBP 100.00!! My customer supplies printing equipment to the Kenyan Government. It is going to be interesting to see what happens when they want to purchase computers or ink cartridges in the next few weeks. Something tells me the procedures are going to change again.

A week in Exporting

2007-06-28T23:32:00.000-07:00

People often ask me if I enjoy my work. It's sometimes a difficult question to answer, because at times what I do can be frustrating, aggravating and very, very stressful. But it is never boring. I deal with all cultures and backgrounds and I find everyone I deal with interesting because they all bring something new to me. Sometimes it can be difficult understanding what they mean, but part of the challenge is to find ways of communicating when, sometimes, there are very few shared staring points.

One of the most fascinating aspects of dealing with people on the international business stage is finding out what I call "the story behind the story."

For example, a recent advert on the television indicated that for the Chinese the number 4 is very bad luck. However, it didn’t explain why, so I asked a Chinese friend. She explained that in Cantonese, the word for “4” sounds very similar to the word for “death.” Ergo it is deemed to be unlucky. The Cantonese for 4, by the way, is “say.” The Cantonese for ”death” is also pronounced “say” but with more emphasis on the “y”. This juxtaposition of meaning between words which sound similiar is not limited to just one culture, of course, but I will be very careful from now on not to include the number 4 in any dealings I have with my Chinese customers or friends.

My friend also told me that she had heard a story that hotels in Las Vegas were in a quandry about bibles in their hotel rooms. This is because the word for “book” in Cantonese is “Sue,” very similar to the word that represents the phrase “lose money.” Since a lot of Chinese now travel to Las Vegas to gamble, the presence of bibles in their hotel rooms (because of course to most Chinese the Bible is just a book) was causing distress, so I wonder, if this story is true, how the Las Vegas hotels are coping.

I have just tried shipping, for the first time, goods from India direct to Nigeria and it has not been easy. Indian companies can get rebates from their Excise department if they can prove that the goods are exported. However, this then means that the customs rules and regulations administered by the Reserve Bank of India (RBI) come into force to prevent incorrect requests for rebates.

Before the goods can move from the manufacturing site to the port, the machine(s) and documents all have to be inspected by a representative from a regulatory authority – Central Excise. These visits need to be arranged in advance since they are only carried out by appointment. If the goods have to be pre-inspected, a second inspector, who again will only turn up by appointment, carries this out separately.

Regardless of who organises the freight and the final destination of the shipment, Bills of Lading from India must show the Indian supplier as the shipper and the buyer as the applicant. This can cause problems if the shipment is being made against a Letter of Credit.

However, Shipping Lines will switch Bills. If a full set of Original bills is sent to the applicant and they approach the Shipping Line/representative of the Shipping Line in their country, the Shipping Line will re-issue the bills in accordance with the shipper’s Letter of Credit instructions. It does mean a delay in submitting documents though, since the Bills first have to come from India and are then sent back to the shipping line. So at least 6 days are required to get compliant Bills issued.