International business instruments an overview

1
International business instruments - an overview

• Different risks and their reduction
• Terms of trade (incl. ICC)
• Documents needed
• Terms of payment
• Countertrade
• Warrants
• Important international institutions

2
Different types of risk in IB

• Currency risks (forward contracts)
• Financial risks (the seller is bound)
• Product risks (product deviation, damages, delay,
  transport risk)
• Commercial risks ( e.g. the buyer is bankrupt)
• Political risks

3
Insurance against export risks

• Sweden The Swedish Board of Export Credits/
  Exportkreditnämnden (EKN)
• UK Lloyds
• US American International Group Inc and Foreign
  Credit Insurance Association (FCIA)
• D Hermes and Gerling
• NL NCM

4
The Swedish Board of Export Credits (ENK)

• State owned. Gives guarantees - no loans
• For political and commercial risks
• Primary in SEK (seldom currency risk)
• Very risky countries No guarantees
• Can give an early promise
• (In US Eximbank)

5
Documents in IB

• Export licence/permit
• Export declaration
• Commercial invoice
• Customs invoice
• Certificate of origin
• Insurance document
• Inspection certificate

• Bill of lading
• A contract for shipment
• A receipt of shipment
• A certificate of the ownership of goods
• Value added tax declaration

6
Terms of trade/Trade terms

• Incoterm 2000 (defined by the International
  Chamber of Commerce) E6-E8
• Who pays for transport, insurance, handling
  costs and duties?
• Where is the point of delivery (transfer of
  risks)?
• No law - but legally accepted

7
Institution ICC (in Paris)

• International Chamber of Commerce
• Global organisation for national CCs
• Arbitration
• Incoterms
• Rules for documentary credits
• Market research
• www.iccwbo.org

8
IT developments

• EDI Electronic Data Interchange
• EDIFACT A UN standard for EDI
• UN Layout Key for Trade Documents
• SWIFT Society for World-wide Interbank Financial
  Telecommunications

9
Terms of payment (E 11)

• Consignment
• Open account
• Cash on delivery (COD)
• Cash with orders
• Documents against payment, sight draft

• Document against acceptance (D/A)
• Letter of credit (E9-E11)
• Revocable / Irrevocable
• Sight/ Time
• Confirmed/ Unconfirmed

10
Countertrade

• Shortage of convertible currencies
• Barter
• Counterpurchase
• Offset
• Switch trading
• Buybacks/Compensation agreements

11
Countertrade - advantages

• Replacement of convertible currency
• Easier transaction using goods
• Permits covert reduction of prices
• Can be attractive for both companies and nations
• Can be long-term arrangements (stability)
• Guarantee for implementing new technology

12
Countertrade - disadvantages

• Inefficiency of trade
• Uncompetitive goods may be traded
• Resticts competition
• IMF and WTO are opposed to countertrade

13
Warrants

• Control stations in the execution of an order
  (e.g. Contract to build a complete factory)
• The buyer may get reimbursements in case of
  non-delivery
• The seller may get payment according to certain
  steps in the installation

14
Institution OECD

• The Organisation for Economic Co-operation and
  Development
• Club of 30 leading industrial countries
• Headquarter in Paris
• Economic think-tank
• Auditing the economic development in member
  states

15
Important United Nation institutions for IB

• UNCTAD UN Conference on Trade and Development
• ILO International Labour Organisation
• FAO Food and Agriculture Organisation of the UN
• UNESCO UN Educational, Scientific and Cultural
  Organisation
• WHO World Health Organisation